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Commodities Briefing 29.Apr 2009

Analysis: Flowers – tradable commodity or manufactured good?
Westpac sees gradual recovery commodities demand
Commodity assets up 12 pct in first qtr -Barclays
Exchange-traded commodity investments dominate structured products
Why new SEC chair is investigating commodity ETFs
A global commodities shortage: Are you scared yet?
NFA introduces new anti-hedging rules
Opalesque Exclusive: Galena on metals and energy sectors; sees alpha year in mining, remains short crude, Special Sits fund +28.26% YTD
Oil prices dip on new economic fears
It's not just BP that feels oil price pain
Opec calls for control over speculation
Nigeria: Nigeria, others blame non-Opec members for oil price woes
Wind energy: Mainstream renewable power
Solar energy: Future looks bright for projects as costs drop
US more optimistic about climate deal after talks
Obama pushes for cap on emissions
China's big gold buy barely kept pace with forex
'Buy Gold, not Gold shares'- John Licata
Gold Investment still popular 'for safe-haven appeal'
Copper declines on outlook for demand after swine flu outbreak
Copper supply and demand - New rule book still being written
Eurodollar futures up on Citi/BofA report
Yen falls as prospect global slump easing reduces refuge demand
How to access commodities with Australia's ETF
Precious metals holdings of exchange-traded funds
How to prepare for inflation with ETFs
ICE announces 20 new OTC cleared oil contracts
Derivatives success
Stalled nomination weighs on commodities oversight
Commodities slammed by swine flu
Back to basics: Exchange-traded funds revealed
Back to basics: What affects commodities prices
Back to basics: How to value a commodity

Posted on 29 April 2009 by VRS |  Email |Print

From Fointelligence.com: The international market for cut flowers is worth over $100bn a year – twice the size of the copper trade. The market is becoming increasingly electronic and sophisticated. Could a futures market bloom?

The flower market rarely makes the headlines, but it is a large industry. UK consumers spend £2.2bn on flowers a year, more than the £2bn they spend on music. As an agricultural commodity, in which price is affected by many variables beyond the control of growers and distributors, flowers might be suitable for futures trading……Full Article (Registration Required): Source

Posted on 29 April 2009 by VRS |  Email |Print

From Fnarena.com: Westpac has looked more closely at the latest Chinese economic data, attempting to analyse annual growth rates to determine just how much of a seasonal impact there is to the numbers coming out of the country and what this might mean for commodity prices.

Its findings suggest while March quarter data revealed a slight flattening in the moderation of annual growth rates for the Chinese economy the numbers don’t provide a clear picture of what Westpac views as an improving underlying trend……Full Article: Source

Posted on 29 April 2009 by VRS |  Email |Print

From Guardian.co.uk: Assets under management in commodities rose about 12 percent in the first quarter of this year, versus the 27 percent drop in the final quarter of 2008, thanks to renewed investor confidence in the asset class, Barclays Capital said on Tuesday.
But second-quarter growth may not be as much due to waning interest in gold and energy markets, which had driven much of the momentum in the first quarter, it said……Full Article: Source

Posted on 29 April 2009 by VRS |  Email |Print

From Structuredproductsonline.com: Exchange-traded products (ETPs) continued to dominate structured products as the premier choice for commodity investment in Q1 2009, new research by Barclays Capital has shown.

The assets under management (AUM) of ETPs, which includes both listed commodity funds and physically-backed investments, increased by an estimated US$19 billion from last quarter. This included new inflows of around $17 billion……Full Article: Source

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From Nasdaq.com: The new Securities and Exchange Commission (SEC) chairman is concerned about the level of authority used with the introduction of new exchange traded funds (ETFs), especially those that focus on commodities.

SEC Chairman Mary Schapiro has brought concern to the forefront of the public’s awareness that the introduction of ETFs have not been monitored closely enough. The leveraged or inverse ETFs, as well as the commodity ETFs, are of the greatest concern……Full Article: Source

Posted on 29 April 2009 by VRS |  Email |Print

From Fool.com: China, if you haven’t been noticing, has been using excess cash to snap up foreign natural resource assets. In fact, according to this article from Xinhua, “China is expected to own rights in more than 100 million tonnes of overseas iron ore assets next year.” That’s alot.

Further, we got news today that China has signed a free trade deal with Peru. Why would such a big economy sign a deal with such a small economy? Remember that Peru is enormously rich in resources, including copper, silver, gold, petroleum, timber, coal, phosphate, potash, and natural gas — all commodities the Chinese would very much like to secure long-term access to……Full Article: Source

Posted on 29 April 2009 by VRS |  Email |Print

From Learningmarkets.com: The NFA (National Futures Association) proposed a rule change to the CFTC (Commodity Futures Trading Commission) last year that was approved and will begin applying to forex dealers in the U.S. on May 15th 2009.
There are two unrelated features in the rule change. The most controversial feature has to do with “hedging” or hedged forex positions. The second feature has more to do with the conditions that must be applied before a trader’s position can be adjusted by a dealer. This article will discuss the changes and why they may not be such a bad thing……Full Article: Source

Posted on 29 April 2009 by VRS |  Email |Print

Benedicte Gravrand, Opalesque London: Cedric Chone, the Geneva-based lead portfolio manager of the Galena Special Situations Fund, gives his outlook for the metals and energy sectors:
Case for investing in Metals
There are two key themes today and in coming months that support the case for metal investing: restocking and inflation.

- Restocking
A normal down cycle in mining would see mines continue to produce at a loss, with banks willing to lend money to producers, secured by the minerals they have in the ground. However, due to the financial crisis, this has not happened during this cycle and as the expectation of recovery has been pushed back further, we are seeing more and more production cuts:

If you take Nickel for example: We have already lost 25% of nickel production and given the recent news of the closure of all Australian production by one of the world’s largest Nickel producers, we could see production falling to 30% or perhaps even as low as 40%.

We are going to have a recovery, at some stage. Once production cycles start to pick up and demand starts to show the first signs of recovery, then we will be caught in a precarious situation.

Manufacturers have run down stocks to previously unseen levels, while producers have cut back production and pushed out or cancelled new projects. Together this sets the stage for the start of another super cycle.

We do not know when the rebound will occur but the recent manufacturing data in China (i.e. recent PMI numbers up to 52.4) suggests it is closer than many believe.

We have already started to see this in Q1 with equity markets looking ahead to an expectation of some stability. Europe saw a marked increase in auto production which could lead to its own restocking cycle.

- Inflation
We have seen some huge stimulus packages across the world to kick-start the economies. These measures are inflationary, will benefit commodities and push prices higher in the medium to longer term.

Opportunities in Mining

The mining sector sold off aggressively last year as the investment community saw unprecedented redemptions. The overshoot that this forced selling has created, leaves a lot of projects and companies trading below their cash backing and/or at very distressed levels. This creates a unique opportunity to invest at this time of the cycle.

A lot of money has been sitting on the sidelines and is not investing at a time when we believe we have seen the bottom.

As a specialist fund focused on mining opportunities, we are very happy to invest at this stage of the cycle and despite the recent equity market weakness, in the first two months, we outperformed the markets.

We see good opportunities in projects and assets and expect this to be a big alpha year. Last year was a beta year with not a lot of liquidity around.

We are already observing a dramatic pick-up in interest in cash rich commodity companies. The key will be to invest selectively. In previous years, the rising tide floated all boats and there were plenty of investors willing to invest in weak projects. This year, there is a better allocation of resources and capital because less money will be invested.

Companies looking to raise money this year are finding it very difficult. This will create even more opportunities, especially in the small and mid cap market. Small caps have been devastated, with investors flocking to the security and liquidity of larger cap stocks.

Gold
At the height of the crisis in September and October last year, people bought gold and, to raise cash, they sold gold stocks; so gold started to shine again. During Q1, gold companies have issued a lot of equity funds that were previously underinvested during the last few weeks. The gold market went from $750 to $950.

Once the economic recovery is underway, investments in the Gold sector will shift to base metals which will create an influx of capital. There are signs of this happening already, with a number or large equity raisings by copper producers in the last few days.

We favour smaller gold companies to larger cap stocks that have been overvalued, in this sector as we expect gold to lose its shine as the market recovers. We have invested in around four excellent undervalued projects with discoveries that could be very profitable irrespective of the gold price.

Outlook for the energy sector

The oil price has fallen to $40 as demand collapsed during the last year and even with all the OPEC cuts the world is still swimming in oil. Our preferred way of investing in the oil market at these levels is to be long production and exploration companies against a short crude position, based on the relative undervaluation of the companies. This trade makes even more sense in the current environment where we see huge contangos in the forward prices. Few funds can trade this compelling trade through cash equities and oil futures, which insulates Galena Special Situations Fund from ‘crowded trades’.

- The next rally will see 3 phases:
The fund has been positioning itself at a time when the majority of participants were sitting on the sidelines holding cash. We believe the next rally will see 3 phases, phase one has already started to play itself out during the last couple of weeks.

- Cheap restocking by China. China drastically cut high cost mines and production and is restocking its own depleted stocks with cheap metals from the west. This will leave the West very short commodities (Chinese data saw strong imports; PMI up 14.1% YoY to 52.4%.)

- The second leg of the rally is expected once some of the physical measures start to take effect and manufacturers are forced back into the market to rebuild the inventories that have been sold off. Europe has seen new car registrations leap by 40% in March, while in the US, new car sales appear to have stabilised.

- The third leg up will be provided by reflationary effects of the quantitative easing.

Galena’s Special Situations Fund is a multi-strategy commodity fund investing in the mining and energy sectors. The core investment strategy is to invest in listed projects at a development stage. The Fund also trades commodity-related equities and underlying derivative markets, in order to leverage market opportunities and hedge against adverse market conditions. The Fund is up +28.26% YTD (net estimate, as of 13 April) and currently manages $110m. The fund returned almost 26% in 2007 and -31.07% in 2008.

See our 16-Dec-2008 Opalesque Exclusive:
Galena`s fund at ease with metals, (+5.25% in November, 16.17% YTD) as market is in contango Source

Corporate website:
Article Source: http://www.galena-invest.com/

Posted on 29 April 2009 by VRS |  Email |Print

From Petroleum-economist.com: Crude oil prices fell beneath $50 a barrel again on Tuesday, as pessimism about a recovery in the global economy pushed bulls out of commodity and equity markets across the world.

In London, the forward-month Brent contract was down by more than 2% on Tuesday afternoon, trading at around $49.20/b. The price for the June contract for light sweet crude oil in New York was also just over $49/b……Full Article: Source

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From Guardian.co.uk: Profits down 62%. Cash from operations down almost 50%. How long can it be before BP cuts its dividend, delivering a blow to every pension fund in the land?

Actually, don’t place much money on that outcome. It is now becoming possible to believe that the dividend will survive the fall in the oil price. Yesterday’s numbers weren’t pretty for BP’s shareholders but encouragement for them lies in the fact that an old rule in the oil business - costs follow prices - is still working……Full Article: Source

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From Businessday.co.za: TheOrganisation of Petroleum Exporting Countries (Opec) and 13 Asian states have urged greater oversight of oil and other commodity markets to prevent a surge in prices after the global economy recovers from the worsening recession.

Participants in a ministerial energy roundtable in Tokyo sought limits on positions in over-the-counter trades and said “excessive” oil-price movements were “undesirable”, according to a statement released after Sunday’s meeting. They also called for “continuous” investments to boost energy supplies……Full Article: Source

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From Allafrica.com: Nigeria and other members of the Organisation of Petroleum Exporting Countries (OPEC) have accused non-members for oversupplying global market with 720, 000 barrels per day.

The aggrieved members of oil cartel stated through one of their chieftains, Chakib Khelil that the non-OPEC members have continued to increase output at a time OPEC slashed 4.2 million barrels per day from its production to save the price from the oversupplied market……Full Article: Source

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From Telegraph.co.uk: Wind energy is spearheading Britain’s efforts to generate 35pc of our electricity from renewable sources by 2020 because the nation has plentiful supplies.
In addition, the technology for wind energy is better developed and more commercially viable than other renewable energy sources……Full Article: Source

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From Telegraph.co.uk: Given Britain’s unpredictable summers, UK involvement in solar energy projects is largely restricted to funding projects in other countries, where Tom Murley sees no shortage of investment opportunities.
“People in the UK are doing solar projects on a different scale,” says Mr Murley, director and head of the renewable energy team at private equity group Hg Capital……Full Article: Source

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From AP: The top U.S. negotiator on climate change said Tuesday that he is slightly more optimistic about striking a new international agreement to curb global warming after a two-day meeting with the world’s largest emitters of greenhouse gases.

Todd Stern, the U.S. special envoy for climate change, told reporters at a briefing Tuesday that he is “a bit more optimistic” that the U.S. will be able to broker a new deal in Copenhagen in December……Full Article: Source

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From Calgaryherald.com: U.S. President Barack Obama made a sweeping appeal Wednesday for America to break its dependence on foreign oil and renewed his push for Congress to pass this year global warming legislation imposing a hard cap on U.S. carbon emissions.

Marking Earth Day with a trip to an Iowa manufacturer of wind turbine towers, Obama said he is determined to use his presidency to “break the bonds of fossil fuels” and cast oil as an energy source destined to become part of America’s past……Full Article: Source

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From Reuters: The big surprise in China’s revelation on Friday that it had secretly added over 450 tonnes of gold to its foreign reserves over the past six years may be the fact that it hasn’t bought far more than that.

Now, many analysts say the rare public disclosure may be a prelude to Beijing accelerating its purchases — possibly from big government agencies or central banks — as it worries about the erosion of its $2 trillion cash pile……Full Article: Source

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From Commodityonline.com: Bullish on gold, platinum, palladium and natural gas, “If you think that you can be a beneficiary of some commodity strategies, just stick with it in the downturn,” says John J. Licata Chief Investment Strategist at Blue Phoenix, Inc., , even though he’s anything but bullish on the apparent recovery in the global economy just now.
“We’ve been hearing from many companies, prior to earnings releases, that the second half of this year was going to look a lot better. Once these companies actually started to release earnings, however, we started to hear that recovery could be pushed back in 2010.”…..Full Article: Source

Posted on 29 April 2009 by VRS |  Email |Print

From Bullionvault.com: The head of the Dubai Multi Commodities Centre (DMCC) has claimed that Gold Investment remains attractive against the backdrop of a turbulent economy.

Industry dignitaries from institutions such as Standard Bank, the World Gold Council and GMFS descended on the emirate yesterday (April 27th) for the DMCC Gold Convention 2009…..Full Article: Source

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From Bloomberg: Copper fell for a second day in London on concern that an outbreak of swine flu will prolong the global economic recession and sap demand for raw materials.

The World Health Organization raised its global pandemic alert to the highest since it adopted a warning system in 2005, saying the outbreak isn’t containable. Trading volume of the benchmark copper contract dropped to 26,464 lots yesterday, the lowest in a week, according to London Metal Exchange data on Bloomberg. One lot is equal to 25 metric tons……Full Article: Source

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From Theaureport.com: What’s driving copper to its recent high of $2.20 a pound? If demand is down, how is it possible that the price of copper went up 40% to 50% within the last three months alone?
“We’re playing by a different set of rules now,” says Gianni Kovacevic, corporate development strategist at Global Opportunities AG……Full Article: Source

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From Reuters: Eurodollar futures rose in Asia on Tuesday after a news report saying U.S. regulators had told Citigroup and Bank of America they may need to raise more capital spurred a broad flight to safer assets.

Dollar interbank rates however were fixed at new lows, their lowest since mid-2003, extending a downtrend driven by the rally in stocks and sporadic upbeat economic news over the past few weeks……Full Article: Source

Posted on 29 April 2009 by VRS |  Email |Print

From Bloomberg: The yen fell against the dollar for the first time in more than a week before a U.S. report that may show the world’s largest economy shrank at a slower pace, reducing demand for the safety of the Japanese currency.

The yen also weakened versus all of the 16 most-active currencies as Asian stocks rose, reviving confidence among investors to buy higher-yielding assets. Gains in the euro may be limited on concern disagreement is deepening among European Central Bank officials on measures needed to combat the 16- nation region’s recession……Full Article: Source

Posted on 29 April 2009 by VRS |  Email |Print

From Nasdaq.com: The Australian stock exchange is sensitive to mining stocks and commodities, as the top holdings within their exchange traded fund (ETF) focus on this aspect of their economy.

Although markets began last week in positive territory, the mining stocks Rio Tinto and BHP Biliton both took markets lower upon recent news. Local shareholders voiced their concerns over the controversial Chinalco deal at the meeting, just as investors did at last week’s London AGM, reports Terry Mc Cran for Courier Mail……Full Article: Source

Posted on 29 April 2009 by VRS |  Email |Print

From Reuters: Exchange-traded funds backed by precious metals saw record
inflows in the first quarter of 2009 as investors sought a haven from volatility in other
markets.

ETFs back each security issued with physical stocks of a given commodity, creating a
product they claim is free from counterparty risk……Full Article: Source

Posted on 29 April 2009 by VRS |  Email |Print

From Nasdaq.com: While we are not seeing too much inflation now, the specter of inflation could be looming over us again at some point, and exchange traded funds (ETFs) are good investment tools to protect oneself.

With the consumer price index dropping 0.4% in the past 12 months as of March, deflation is the concern du jour, but the copious amount of government borrowings could start shaving away at your savings in the near future, remarks John Waggoner for USA Today……Full Article: Source

Posted on 29 April 2009 by VRS |  Email |Print

From Commodities-now.com: IntercontinentalExchange, Inc.(R), a leading operator of global regulated futures exchanges and over-the-counter (OTC) markets, have announced the introduction of 20 new cleared OTC oil contracts.
These OTC swaps and options will be available for clearing beginning on Monday, May 18, 2009, and complement ICE’s already robust futures markets for global oil products……Full Article: Source

Posted on 29 April 2009 by VRS |  Email |Print

From Gulf-daily-news.com: Global trading in derivatives has increased by about 15 per cent over the past year, in spite of the bad image they may have acquired from the financial meltdown.

This is largely because trading in more sophisticated products has moved away from relatively unregulated over-the-counter markets to more transparent market platforms, according to Bahrain Financial Exchange (BFX) director Arshad Khan……Full Article: Source

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From Washingtonpost.com: President Obama’s pick to head the federal agency in charge of policing commodities futures is languishing in the Senate despite the troubles in the market and planning for new financial regulations.

Gary Gensler, a former Goldman Sachs banker and Treasury Department official in the Clinton administration, was nominated on Dec. 18 to lead the Commodity Futures Trading Commission……Full Article: Source

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From Agweb.com: As media hype over swine flu reached a fever pitch, prices of virtually every major ag commodity suffered, with Lean Hogs leading the way, limit down (see links to charts below). This is a bit ironic, since swine flu was so named because “flu viruses are named after the first animal they were found in.
This strain was first identified in pigs in the 1930s,” says Purdue University veterinarian Sandy Amass. “That’s the only reason it’s called swine flu. We don’t even know if the virus found in humans will infect pigs.”…..Full Article: Source

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From Whatinvestment.co.uk: While many investors have been withdrawing their money from traditional forms of managed fund during the current financial crisis, one area has experienced significant growth. Both the numbers of, and the value of assets under management within, exchange-traded funds (ETFs) have increased dramatically over the past year, and market participants expect this trend to continue in the future.

Deborah Fuhr, global head of ETF research and implementation strategy at Barclays Global
Investors, points out that ‘11 April 2009 marked the ninth anniversary of the listing of the first iShares, the first ETFs in Europe that were listed on the Deutsche Börse. Today in Europe there are 672 ETFs with 1,706 listings and assets of US$135.6 billion from 29 providers listed on 21 exchanges.’…..Full Article: Source

Posted on 29 April 2009 by VRS |  Email |Print

From Istockanalyst.com: In general, there are four main factors that affect commodities prices: Supply & Demand, Inventories & Stocks, Currency and Inflation. Let’s go down the list to best understand their harmony.

If supply and demand are in perfect balance (assuming no other factors affect the price), commodities prices would go nowhere. Take corn for example. If the demand for corn was exactly one ear each day, and a farmer could grow exactly one ear every day, supply and demand would be in balance and the price would not change……Full Article: Source

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From Gurufocus.com: There is no discounted cash flow method for commodities. They don’t pay dividends or bear interest rates; they don’t generate cash. Long-term investing in commodities is all about finding opportunities where supply and demand are out of balance and the price is low relative to where it “should” be on an inflation adjusted basis.

With no external forces acting on a commodity price (ie., supply and demand are in balance and the currency doesn’t change), commodities prices would move in lockstep with inflation. A 3% increase in inflation would result in a 3% increase in commodities prices…….Full Article: Source

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