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Commodities Briefing 14.Aug 2014

Posted on 14 August 2014 by VRS |  Email |Print

Dealers in commodities, or in parts that use a significant amount of a commodity with large price fluctuations, have significant business challenges. In previous articles I’ve written about the nature and impacts of commodity price volatility: This article will cover the two challenges of dealers: pricing and working capital.
The owner of a gas station has the same pricing challenge as a copper and brass distributor or a cocoa wholesaler: how to set selling prices when your buying prices change frequently. To understand the right way to set prices, it’s easiest to understand the wrong way: pricing based on historic cost. Let’s say that the gas station owner marks up the price of gas by 50 cents, so when he buys for $3.50, he sells for $4.00………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

Iranian Oil Minister Bijan Namdar Zanganeh expressed satisfaction with the current global price for crude oil. “I have never favored an oil price below $100 (for a barrel) and now we have the best price for crude oil and all sides are satisfied with that price,” Namdar Zanganeh told reporters on Tuesday.
In reply to a question about the future of crude oil market, the Iranian minister said no forecast is saying that the market will remain unchanged. Asked about oil giant Royal Dutch Shell’s debts to Iran, the Iranian oil minister said that the company has no problem to pay its debts, but the problem lies in transferring the money to Iran………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

Fighting across Iraq, Libya, Ukraine and Gaza, and an accelerating economy, should mean higher oil prices. Yet crude is falling. Six years ago, oil soared to a record $147 a barrel as tension mounted over Iran’s nuclear program and the world economy had just seen the strongest period of sustained growth since the 1970s.
Now, West Texas Intermediate, the U.S. benchmark price, has traded below $100 for 10 days and Brent, the European equivalent, tumbled to a 13-month low………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

Petrol prices are poised to fall further after the cost of a barrel of crude oil reached its lowest level this year. The fall followed the publication of an influential report that showed a glut of crude from Saudi Arabia flowing on to the market and rising stockpiles.
The Paris-based International Energy Agency, the leading oil think tank, said yesterday that the world will consume less crude than experts had thought this year. Saudi Arabia’s supplies are running at the highest level since last September and crude from Libya is back on the market………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

Oil prices have remained stable despite political unrest in the Middle East, and fund manager Nordea predicts this high-price, low-volatility environment to continue.
Despite many important macroeconomic and geopolitical events, the past two years have seen oil prices remarkably stable at a fairly high level. With respect to Brent crude, now considered the industry’s global benchmark, prices have held between $100 and $115 per barrel over the past 24 months. Today’s price of $103 is not too far away from the price two years ago………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

EU regulators have begun legal proceedings against 24 member states, including Germany, for failing to enforce a law on energy efficiency, the European Commission said on Wednesday.
Energy saving has risen up the list of EU priorities since the conflict with the European Union’s biggest oil and gas supplier Russia over its actions in Ukraine increased concerns about energy security………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

Citigroup’s Johann Steyn and Craig Irwin have a note out today, adjusting their gold outlook to reflect industry trends, but they remain bearish on the sector overall. They note that global gold on mine unit costs fell 5% year-over year, while notional cash expenditure fell 24% and all-in costs dropped 23% in the March 2014 quarter.
Clearly, austerity moves have helped gold firms navigate through a lower price environment, and Steyn and Irwin estimate that only 40% of the global gold cost curve is burning through cash, nearly half the 75% in the March 2013 quarter………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

While the exchange-traded fund covering gold miners is outperforming the precious metal itself, McEwen Mining founder and chief owner Robert McEwen said Wednesday that he remains bullish on gold.
“I’m a long term believer in gold and I see it ultimately getting to $5,000 an ounce,” McEwen said on CNBC’s “Fast Money.” “Anything short of that, I wouldn’t be hedging.” McEwen, who owns 25 percent of his company and receives no salary, said that he expects gold to hit his price target of $5,000 in the next three to four years………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

Most explanations for these results point to the various geopolitical risks that have generated jitters across a number of markets. However, there is another explanation. Expectations that monetary policy will remain loose across major economies longer than originally anticipated have been driving gold higher. Here are some key indicators supporting this thesis:
1. As discussed earlier (here), China’s monetary policy continues to be quite supportive for credit expansion. 2. Japan’s growth will likely fall short of the BOJ’s projections (see chart), prompting the central bank to accelerate QE or at least maintain it over a longer period. Credit Suisse: “We see additional BoJ easing coming in November.”……………………………………….Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

As much as we’d all like significantly higher silver and gold prices, Chris Thompson of Raymond James doesn’t expect them. The good news, he argues, is that the relative stability now characterizing the market permits investors to make informed decisions about which companies can build value and demonstrate cash flows at today’s prices.
We think gold and silver have performed relatively well this year and showed strength toward the end of the second quarter. My feeling is that stronger gold and silver prices that we have seen earlier than anticipated this year is a reflection of global political tensions and maybe just a reminder that we are not out of the woods as far as U.S. economic performance is concerned. Earlier is better, and so we look for gold and silver prices to retain most of their gains in the third quarter………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

The silver market has cause for concern… This Friday sees Thomson Reuters and CME roll-out of their new fixing engine and market participants are understandably clueless about how it works less than three days before it goes live. With the traditional fixing members have stepping away, it remains a mystery who will be taking the fix orders - with a deafening silence from market participants.
Oddly, if you can identify who your orders are to go through, then you have to get the calculator out because Reuters advise that prices are no longer in US dollars per ounce but US dollars per “lakh” or 100,000 ounces … why ?……………………………………….Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

When one looks at gold and silver prices and their moves yesterday, it might seem that nothing happened in the precious metals market. That’s far from the truth because the real action took place in mining stocks. Several weeks ago, it was miners’ strength that heralded the rally in the whole sector. Will we see one also this time?
Miners moved higher and the volume that accompanied this move was rather average. It was not high enough to confirm the direction of the move by itself, but it was not low enough for us to say that the move was fake………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

Copper has sunk to its lowest level since June after weak economic data fuelled concerns about the prospects for demand in China, the world’s biggest consumer of the metal. Copper, used in electronics and construction, traded as low as $6,873 a tonne for delivery in three months on the London Metal Exchange on Wednesday after figures showed the amount of money flowing into China’s economy slowed sharply in July.
“When people look at bad data from China and decided to do something about it in metals then they are going to look at copper first,” said Vivienne Lloyd, base metals analyst at Macquarie. The bank estimates China accounts for around 45 per cent of refined copper consumption………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

Mining booms are nearly always driven by rising commodity prices but what’s happening in the U.S. today indicates that falling costs are the driving force behind a revitalized interest in all forms of resources, from oil and gas to gold.
Activist investors, sometimes criticized for being too aggressive, have spotted the value gap developing between international mining and oil operations and those in the country winning the low-cost race, the U.S………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

Multinational professional services group, Ernst & Young, which nowadays likes to be known as EY, has just produced its latest quarterly Mergers and Acquisitions analysis for the mining sector. This shows that there were around 112 deals in the sector during Q2 this year totaling US$9.5b. Deal volume was down 21% on the previous quarter and down 41% on the same quarter in 2013.
Total deal value was up 33% on the previous quarter, primarily due to the US$3.6 billion acquisition of Osisko Mining Corp. by Yamana Gold and Agnico Eagle. Similarly, H1 comparisons show total deal values down 69% year-on-year to US$16.7 billion from US$53.8 billion in H1 2013, the fourth consecutive year of decline………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

Exchange traded funds have seen some explosive growth over the past decade. A strong stock market in the U.S and overseas and low expense ratios have propelled investor demand for the investment vehicles.
The U.S. ETF market managed nearly $1.7 trillion in assets with 1,294 funds at year-end 2013, according to the Investment Company Institute. The U.S. by far has the largest share of ETFs, accounting for 72% of the $2.3 trillion ETF assets worldwide. In second place, Europe-based funds make up only 17% of total assets, while Africa and Asia-Pacific ETFs take up 8%………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

A South African commodity hedge fund shop located in Cape Town is launching two new funds following the success of its existing crops. The history of the firm started with the Polar Star Fund (ZAR), which was launched in October 2008 within BlueAlpha Investment Management. In January 2010, Murray Derksen and Casper Groenewald joined BlueAlpha as the new managers on this fund. They launched the Polar Star Fund Limited (USD) in July 2010 and were later joined by their former colleagues from Rand Merchant Bank, Johann Theron in February 2013 and Francois Maritz in May 2014.
As a consequence of asset growth and successful investment results, BlueAlpha transferred the investment management function for the Polar Star Funds to a new entity, Polar Star Management, which now works independently and focuses on commodity strategies, while BlueAlpha continues to run its own equity products, all in the same building. All investment and operational team members responsible for the Polar Star Funds continue with their functions within Polar Star Management………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

Alex Salmond’s performance against Alistair Darling in the recent STV debate is casting a long shadow over political discourse in the run-up to next month’s referendum. The First Minister’s handling of the currency issue and his failure to give in to demands to outline his Plan B is beginning to colour every aspect of the independence issue.
The focus on currency will only intensify following the comments by Mark Carney, the Governor of the Bank of England, who yesterday suggested that uncertainty over the currency could cause financial instability………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

Ukraine’s currency is sinking as the country’s economy wilts under the weight of the pro-Russian insurgency in its east. There’s little to suggest that’s going to change any time soon.
The Ukrainian hryvnia hit a record low on Tuesday at more than 13 to the dollar, as investors worried that Moscow’s humanitarian convoy to Ukraine’s east may presage a Russian invasion. The currency rebounded modestly on Wednesday, according to Ukraine’s interbank trading monitor………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

The rouble fell half a percent on Tuesday, leading broad-based losses on most emerging currencies on fears that Russia’s decision to send humanitarian aid to eastern Ukraine could eventually lead to a military invasion.
President Vladimir Putin’s spokesman said Kiev had agreed to Russia sending the convoy of about 280 trucks to east Ukraine, where government forces are closing in on pro-Russian separatists in two eastern regions. But a Kiev government source, said there had been no such agreement………………………………………..Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

President Obama and legislators are embroiled in a debate over whether and how to punish companies that seek U.S. tax relief by buying a smaller foreign company and legally reincorporating in its country. So-called tax inversions are at a record high, and Obama has suggested it’s not a victimless activity.
“It’s not right,” he said on August 6. “The lost revenue to Treasury means it has got to be made up somewhere, and that typically is going to be a bunch of hard-working Americans, who either pay through higher taxes themselves” or cuts to government services. (Would that some of his donors agreed…)……………………………………….Full Article: Source

Posted on 14 August 2014 by VRS |  Email |Print

In a recent report, Charles Frank of the Brookings Institute discussed the pro and cons of a US carbon tax versus cap-and-trade. Frank claimed in the report that a carbon tax is clearly easier to administer because with cap-and-trade there is an additional administrative requirement – the allocation of allowances.
Early attempts at allocation allowances – for example, the sulfur dioxide trading system used in the US in the 1990s – allocated allowances on the basis of historical emissions by source. Frank explained that the more modern approach is to auction allowances as fine by the nine eastern US states comprising the Regional Greenhouse Gas Initiative (RGGI). Auctions are easier to administer and more politically palatable, he claimed………………………………………..Full Article: Source

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