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Commodities Briefing 10.Jul 2014

Posted on 10 July 2014 by VRS |  Email |Print

A handful of giant commodity traders such as Netherlands-based Trafigura Beheer BV and Vitol Group are increasingly taking a central role in global commodity markets. These once-obscure firms aren’t just betting on prices or arranging product shipments. They are taking on oil companies, miners and major Wall Street banks by sinking billions of dollars into refineries, power plants, ports and other assets.
The four biggest traders—Vitol, Glencore, Cargill Inc. and Trafigura—each boast annual revenue of more than $100 billion, putting them in the ranks of household names such as Apple Inc. and Chevron Corp………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

Commodities were slightly higher in June, supported by idiosyncratic supply risks. Nelson Louie, Global Head of Commodities in Credit Suisse’s Asset Management business, said, “Commodities continued the broader trend of the year in June, and were generally supported by one-off event driven risks which negatively affected supplies. Agriculture was the one exception as supply expectations generally increased during the month.”
“We expect idiosyncratic risks to continue to drive commodity returns going forward. For example, crude oil may continue to stay well-supported as geopolitical risks seem skewed to the upside, with the uncertainty in Iraq the most likely to dominate in the near term. Elsewhere, geopolitical risks remain heightened in various parts of the Middle East along with Ukraine and Russia. This has helped increase crude oil prices across the curve, while the forward curve remains steeply backwardated.” (Press Release)

Posted on 10 July 2014 by VRS |  Email |Print

Libya’s oil industry hopes life will return to normal now that a wave of protests has ebbed, but it will take months to ramp up production and more unrest is in prospect as political chaos spreads in the North African country. A group of eastern rebels agreed last week to clear two major ports they had seized almost a year ago in a drive for regional autonomy.
Together with the freeing of the southern El Sharara oilfield, where a separate group has ended a blockade of its own, the ports’ reopening could boost oil exports by 650,000 barrels a day in the next few weeks - helping to restore much of the 1.4 million bpd Libya used to pump before protests paralysed the sector………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

The U.S. Department of Defense has been using the wrong oil price in its budget, leaving the largest single buyer of fuel in the world with liabilities potentially hitting billions of dollars. The Pentagon continues to rely on WTI prices even though Brent oil is more relevant to the cost of fuels it buys on behalf of the armed forces.
Using the wrong benchmark has introduced increasing risk into the military budget, according to a critical report published on Tuesday by the Government Accountability Office (GAO) (“Bulk Fuel Pricing: DOD needs to re-evaluate its approach to better manage the effect of market fluctuations”)………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

Fears that events in Iraq will send global oil prices soaring have abated. Yet, the crisis has potentially huge implications for oil. Under any conceivable outcome to the current situation, oil production from Iraq will fail to meet recent expectations. The reason for this dire prognosis is that politics – not security or logistics – will be the biggest determinant of Iraq’s oil trajectory in the years ahead.
In 2012, the International Energy Agency forecast that Iraq would account for 45 percent of the growth in global oil supply from 2012 to 2035. In its projection, the IEA anticipated that Iraq would move to producing more than 6 million barrels a day in the next five and a half years, from 3.3 million barrels a day………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

At the beginning of this year — long before extreme winter weather and the Islamic State seizing Iraq’s largest oil refinery, and everything that’s followed — a high-profile analyst said oil prices could drop by $20 a barrel. His belief was that the oil supply would surge this year thanks to Iraq, Libya and the U.S. being able to increase their production.
On top of that, the lifting of some Iranian sanctions would allow it to increase its oil production as well. Oil prices have been stabilizing over the past few days as the threat in the Middle East has lessened………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

Liquefied Natural Gas market is growing at a compounded annual growth rate (CAGR) of 2.8% from 2013 and will extend up to 2019 when total market value will rise to US$196.4 mn from $161.4 mn in 2012, according to a new report titled “Liquefied Naturla Gas Market: Global Industry Analysis, size, share, growth, trends and forecast, 2013-19.
Key end-user segments analyzed in the study include industrial sector, electric power and other segments such as transportation and commercial. In terms of volume, industrial sector was the largest segment, accounting for around 43.0% of the total market share in 2012. Industries such as fertilizers and petrochemicals are major consumers of LNG as large share of LNG is consumed by these sectors………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

The cumulative blitz on energy exploration and production over the past six years has been $5.4 trillion, yet little has come of it. The epicentre of irrational behaviour across global markets has moved to the fossil fuel complex of oil, gas and coal. This is where investors have been throwing the most good money after bad.
They are likely to be left holding a clutch of worthless projects as renewable technology sweeps in below radar, and the Washington-Beijing axis embraces a greener agenda………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

Poland’s prime minister, Donald Tusk, has a battle on his hands. In April he proposed a European energy union to address one of the most glaring strategic weaknesses of a continent that imports more than half its energy. He will need all his reserves to achieve the goal.
His initial timing was perfect for political and economic reasons alike: the crisis in Ukraine and the shale boom in the US are forcing EU countries to assess the inefficiencies of their fragmented energy networks as never before………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

Over the years we’ve gravitated towards tracking the nuances in the precious metals sector, because they can be great leading indicators of some of the broader changes in the macro climate.
In 2011, we kept a close eye on silver and the silver:gold ratio, as it shot up its parabolic peak and exhausted in the indiscriminate risk blow-off that culminated at the end of April of that year. In 2012, we followed the sector lower as it made a tradable low at the end of Q2, but warned of the comparative differences between QE II and QE III that participants were drawing with the precious metals and commodity markets………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

When analysts forecast future asset prices they typically choose valuations that make sense in the context of current valuations. We could, for instance, easily imagine that a $100/share stock can trade up to $120/share. But when somebody comes out and says that it can go to $1,000/share in a few years time this person is ridiculed because it is very difficult for us to imagine a reality that differs wildly from the current state of affairs.
So when I suggest that the gold price can rise to a level in the 5-digit range, I expect to be ridiculed or to have my forecast overlooked by most market participants. Nevertheless, as we will see in a moment the prospect of 5-digit gold is not so far-fetched. Gold at $10,000 or higher is not as unlikely as many people would think………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

Is this is a ‘golden’ opportunity? There is so much media glare on equities that investors have little opportunity to evaluate other options. The perceptive investor however, does not focusing on the media. He wants to know if there is any opportunity out there that he may be overlooking; perhaps an opportunity in gold?
It is normal for investors to think a little contrarian at this stage. Everyone is talking of equities hence they are looking for something other than equities that has not quite shot up to the same extent. Enter gold………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

Silver is indeed a gentleman’s currency. However, it has been two years of downside pressure for investors in silver, but I have recommended accumulating it heavily once it dipped under $23 an ounce and almost took to the streets to encourage buying at $18 an ounce. I have been buying silver at a strong clip.
Prices have now come back and stabilized around $21 and it is likely just the beginning. Inflation is slowly — very slowly — starting to creep up in corners of the world, and that is a nice source of upward pressure for the metal. Still, we are a long way from $50 per ounce. Is now a good time to buy silver? There are key supply and demand issues that you need to be aware of and several ways to play the metal………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

The London Metal Exchange and technology firm Autilla joined forces yesterday to propose an electronic system for setting the global silver price benchmark as the deadline neared for replacing London’s century-old silver fix.
The 117-year-old price benchmark, or fix, will come to an end on August 14, operator London Silver Market Fixing said in May, as regulatory scrutiny of price-setting intensifies across markets………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

The commodity space saw none of the selling which prevailed in equities on Tuesday. Three-month copper futures on the LME were little changed, changing hands at $7,130/metric tonne by the closing bell.
Of interest, however, Goldman Sachs forecast that copper prices will grind lower over the coming six to twelve months as demand softens in China, particularly in the country’s housing sector, from which half of the demand for the industrial metal originates………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

Aluminum reached a one-year high in London after Alcoa Inc. said a shortage of the metal will be larger than previously forecast. Zinc traded near a 35-month high as inventories continued to shrink.
The aluminum market’s supply-demand deficit will come to 930,000 metric tons this year, more than April’s 730,000-ton estimate, Alcoa, the biggest U.S. producer, said yesterday. Inventories monitored by the London Metal Exchange are at the lowest since September 2012 and zinc stocks dropped today for a 12th session in 13, bourse data showed………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

Hedge funds in China have turned their attention to the zinc market, where open interest on the Shanghai Futures Exchange, for example, has risen steeply over the past month, sources said.
On June 11, zinc open interest on SHFE rose by 38% from the previous day and on July 8, another 68,308 lots were added, taking total open interest to 412,360 lots in total. The same day, the LME three-month zinc price recorded a fresh three-year high of $2,318.50 per tonne. The raised interest in the SHFE’s zinc contract stems largely from the interest of China’s commodity funds, which are emerging as important participants in the metal markets, well-informed sources said………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

At the end of the first quarter only one industrial metal had recorded a positive performance – nickel. By the end of the second quarter nickel was joined by aluminium and zinc. And more could follow – copper and lead, for example, have both recently touched five-month highs.
So what gives? The view from the trading floor is that base metals are benefiting from a reallocation of funds into commodities. Macro funds have taken a positive view on commodities, according to traders, while specialist funds have increased positions after a solid second quarter – LMEX, a daily index that tracks the six main metals traded on the London Metal Exchange, gained more than 8 per cent in the three months to the end of June………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

Global Commodity ETPs saw a second consecutive quarter of inflows in Q2 2014, as increasing confidence in China’s economic outlook and global economic recovery boosted commodity prices and investor demand for commodity exposure. Inflows totalled $275m, up from $271m of inflows in Q1 2014.
The combination of inflows and higher prices pushed assets under management (AUM) in commodity ETPs at the end of Q2 2014 to $123.3bn from $122.4bn at the end of Q1 2014. “All key commodity sectors saw inflows during the quarter except for agriculture and livestock. Precious metals saw the strongest investor demand with $430m of inflows, followed by diversified broad commodity ETPs with $172m, energy with $135m and industrial metals with a more modest $15m. Agriculture and livestock saw $477m of outflows………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

Thanks to the global worries over militant attacks in Iraq, bleak U.S. growth data in the winter and the geopolitical tension between Ukraine and Russia, gold bullion has climbed more than 9% so far this year on its regained safe haven status.
A 20% rise was seen in net-long positions in the gold futures and options markets during the week ending July 1 and holdings in exchange-traded products rose at the best clip since 2012. While these performances have been good, events have been even better in the gold mining ETF space. Products in this category generally trade as a leveraged play on the underlying commodities, so when gold prices are rising, these mining ETFs emerge as the true winners………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

Total stock market exchange traded funds are popular. Year-to-date inflows of almost $3.1 billion for the Vanguard Total Stock Market ETF prove as much. The iShares Core S&P Total US Stock Market ETF is no slouch either with over $1.3 billion in assets under management.
Investors looking for the efficiency and familiar stock exposure offered by U.S.-focused ETFs such as ITOT and VTI can carry that approach to global offerings with the Vanguard Total World Stock ETF………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

Economic Survey 2013-14 has given a thumbs-up to commodity futures, saying, “Commodity futures trading is essential for a modern food sector, as it generates forecasts about future prices that shape sowing and storage decisions across the country.” This comes as relief for market participants, as most feared harsh action related to essential commodities. A 2011 report by a committee headed by then Gujarat chief minister Narendra Modi had opposed futures trade in essential commodities.
The survey, recommended, “Procurement agencies can use this platform to their benefit by hedging their future requirements on a regular basis, according to the provisions of the NFSA (food security Act)”……………………………………….Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

A pair of Senate Democrats on Wednesday called on U.S. officials meeting for high-level talks in Beijing to “decisively confront” Chinese officials over management of their currency, calling White House efforts to date “insufficient.”
In a letter timed to coincide with the latest round of the U.S.-China Strategic and Economic Dialogue, Sen. Charles Schumer of New York and Sen. Bob Casey of Pennsylvania said U.S. efforts to persuade China to allow market forces to determine the value of its currency aren’t working………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

As the New Zealand dollar trades within striking distance of its post-float high, the trade that’s been on fire since mid-2013 looks unstoppable, analysts told CNBC. The kiwi was trading around $0.8820 early Thursday, just short of its post float all-time high of $0.8842 hit on August 1 2011, boosted by the move by credit rating agency Fitch to reaffirm the country’s AA rating and upgrade its outlook to positive from stable on Tuesday.
“As one of the only two currencies with any appreciable yield in the advanced industrialized universe, the kiwi has been the darling of the yield chasers and the upgrade by Fitch will only serve to reinforce its strength,” said Boris Schlossberg, managing director of BK Asset Management………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

Finnish carbon trading firm Greenstream has been granted licences to operate in three of the mainland’s pilot emissions schemes, making it the second foreign company to gain entry to what might become the world’s largest carbon market.
The mainland, the world’s biggest emitter of climate-changing greenhouse gases, has launched seven pilot carbon markets to help slow down the rapid growth in its emissions. Its carbon market is widely expected to be the biggest in the world when a mainland-wide trading scheme is launched sometime before 2020. Banks and trading houses that have invested billions of dollars in the European market are now looking to be early participants in the mainland’s efforts………………………………………..Full Article: Source

Posted on 10 July 2014 by VRS |  Email |Print

The European Parliament will start discussions “in the autumn” on a proposal to help boost carbon prices by introducing automatic supply controls, said the chair of the assembly’s environment committee Giovanni La Via.
The panel, which leads parliamentary work on emissions-trading laws, will scrutinize the draft “carefully and comprehensively” before a vote, La Via said by e-mail. The fix for the European Union emissions-trading system was put forward by the European Commission in January and aims to alleviate a record glut of pollution permits by introducing a reserve to which excess allowances would be transferred………………………………………..Full Article: Source

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