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Commodities Briefing 23.May 2016

Posted on 23 May 2016 by VRS |  Email |Print

Along with an increasingly optimistic outlook for commodities, especially for coal and base metals, this has led to some analysts claiming that both stocks will continue to rally. In fact, some analysts have gone as far as to claim that Teck’s price could even double over the course of 2016, making now the optimal time to invest. While there have been some positive developments for both companies and other mining stocks, the outlook is not as rosy as some analysts would have you believe.
The key driver for both of these companies’ recent rally and improving outlook is the price of commodities. Teck is highly dependent on the prices of metallurgical coal and copper to drive its financial performance. It obtains two-thirds of its revenue from those products………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

The US dollar will now be the major driver for commodity prices after last week’s rather blatant move by the US Federal Reserve to return a rate rise to centre stage. While an increase is possible at next month’s Fed meeting, the July and September meetings look more likely candidates.
For that reason the US dollar will reverse its recent weakness and start rising - and will put downward pressure on commodity prices. The only exception will be the vote on June 23 about UK membership of the EU. A vote to leave would see a sell-off in sterling, a surge in the greenback and also gold. A vote to remain in the EU will see markets quickly focus on the July meeting of the Fed for a rate rise (if there is no increase at the June meeting a week before the EU vote in Britain)………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

While the Modi government had its hits and misses, India Inc has found the going quite tough over the last two years. This was mainly due to several external factors. One, slowing global growth resulted in exports consistently trending lower. This impacted sectors such as information technology, pharmaceuticals and auto and auto component makers.
Two, global overcapacity and slowing imports from China made commodities dive sharply. The Thomson Reuters core commodity index that tracks the movement of major commodities is down 40 per cent since Modi took charge. Crude oil has been at the epicentre of this commodity meltdown, losing around 55 per cent. Three, new investments in the country slowed down due to over-leveraged balance sheets of companies in the power, steel and infrastructure sectors and over-capacity in some sectors………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

Following a stunning decline, oil prices have clawed back near the $50 level this year. Production boomed in the U.S. but is now slumping. Globally, OPEC is in disarray and major producers can’t agree on steps to boost prices. Daniel Yergin is the vice chairman of research firm IHS Inc. He has written two books on energy, including the Pulitzer-winning opus “The Prize: The Epic Quest for Oil, Money and Power,” which is essential reading for anyone interested in the subject.
Prices where they are today (around $48) are not going to provide a signal for the investment that will be needed to meet demand by 2020, so I think we will see higher prices. But unless there is some big surprise or disruption they wouldn’t go back to $100 a barrel………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

Chesapeake Energy co-founder Tom Ward said Friday that oil prices need to recover to about $75 a barrel in order for most drillers to ramp up production. Crude futures have recently approached $50 a barrel after rebounding more than 80 percent from this year’s lows in the mid-$20 range.
Some worry those prices will incentivize high-cost U.S. oil producers to put more rigs to work, worsening a global supply glut and putting off a sustainable price recovery. U.S. oil production has fallen from a high of nearly 9.7 million barrels per day last year to about 8.8 million barrels per day………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

Iran, which is due to meet with OPEC partners on June 2, has no plan to join any freeze in crude output as the country won’t be done ramping up oil exports to pre-sanctions levels before the second half of the year, the head of the state oil company said.
The Persian Gulf state’s oil exports will likely surpass 2.2 million barrels a day by the middle of the summer, Rokneddin Javadi, managing director of National Iranian Oil Co., told Mehr news agency. Iran last exported at this level before sanctions were imposed on the country for its nuclear program more than four years ago. Sanctions were eased in January, and Iranian officials said they won’t discuss any output freeze or cut before reaching pre-sanctions levels………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

Kuwait said on Friday that it is in favor of signing an agreement to freeze oil production at the OPEC summit in early June, but emphasized that such an agreement will be impossible without the participation of Iran.
The announcement was made by Abdulaziz al-Adwani, Kuwait’s ambassador to Russia. Al-Adwani has told the Russian news agency Interfax that Kuwait wants an agreement to freeze oil production to be reached at the upcoming OPEC summit, but that agreement should also include Iran. Such a step would be effective and impact the oil price if Iran also agreed to it, he said……………………………………….Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

After failing to reach an accord on oil supply in Doha last month, OPEC is poised to go another meeting with no agreement on how much crude to produce. All but 1 of 27 analysts surveyed by Bloomberg said the Organization of Petroleum Exporting Countries won’t set an output target on June 2, as it sticks with Saudi Arabia’s strategy to squeeze out rivals including U.S. shale drillers by pumping near-record volumes.
An accord on an output cap with non-members such as Russia collapsed in Doha last month when Saudi officials insisted Iran would need to take part………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

Crude oil has reached a critical technical level, which is likely to test the resolve of the bulls to push prices higher. The bulls have a favorable tailwind with production outages reducing the supply glut. Till about two weeks ago, the drop in the U.S. dollar was also supportive of the crude oil prices, but since then, the dollar has recovered, putting pressure on the crude oil prices.
The U.S. dollar and the various commodities have an inverse correlation. The chart below shows the correlation between crude and the U.S. dollar index for the past 12 years………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

Demand for gold rose by 21 percent in the first quarter of 2016. Recently, billionaire George Soros invested nearly $390 in gold stocks, having decreased investments in other assets. Shortly after, large hedge-funds followed the example of the legendary US investor.
Between January and March 2016, Soros Fund Management established by George Soros increased investments in gold market assets, according to the company’s data. Particularly, the fund bought shares worth $264 million in Canada’s company Barrick Gold, one of the world’s leading gold producers. It also bought an option for nearly 1.05 million shares ($123 million) in SPDR Gold Trust, the world’s biggest gold exchange fund………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

The price of gold rose more in the first quarter of 2016 than during any quarter since the third quarter of 1986. As a result, should advisers be educating their clients about including this rather unique commodity as part of their investing tool box, particularly now that a variety of gold ETFs are so readily available?
Gold doesn’t pay a dividend or yield interest, nor does it convey partial ownership of an enterprise that may increase in value. However, there are times when gold can play an important role in a diversified portfolio. It can serve as a leading indicator of future inflation. It can be a defensive asset to hold during periods of economic and market anxiety………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

Something strange is happening right now in the gold market, and it has commodities investor Dennis Gartman erring on the side of caution. Gold ended Friday with its biggest weekly drop in two months, and its third straight week of losses. Conversely, the dollar saw its third straight week of gains following comments from New York Federal Reserve President William Dudley.
The central banker indicated that markets were underestimating the likelihood of an interest rate increase in June or July. The backdrop suggests investors may be positioning themselves for higher rates—a possibility not lost on Gartman, who has taken note of some interesting movements in the yellow metal………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

When Paul Rollinson took over as chief executive of Kinross Gold four years ago the end was in sight for the biggest gold boom in history — and for some of the people who were part of it. After rising 500 per cent in a decade, the market price of the precious metal had peaked. In the rush to exploit the boom, mining investments and costs had spun out of control.
Investors in gold miners such as Kinross, which had lavished $11bn on acquisitions in six years and was already writing off part of that spending, were in revolt. Tye Burt, Mr Rollinson’s predecessor, was among a score of mining chief executives to lose their jobs………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

Zinc has outperformed other base metals with a strong 17 per cent rally so far this year. The metal’s spot price on the London Metal Exchange (LME) has now surged to $1,861 from $1,593 per tonne in December. On the domestic front, the zinc futures contract traded on the Multi Commodity Exchange (MCX) has risen 18 per cent this year.
A sharp drawdown in inventory levels has been a major trigger for this price rally. The warehouse stock in the LME has come down 23 per cent, from 0.504 million tonnes in February, to 0.387 million tonnes. Surging supply and sluggish demand were the major causes for zinc to slump 26 per cent last year. Additionally, signs of a pick-up in Chinese demand are also supporting the base metal price, as evident from the fall in China’s stock levels……………………………………….Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

Lead, the worst performing industrial metal on the London Metal Exchange this year, is set to stay under pressure due to weak demand in China, where a new tax has been slapped on lead-acid batteries and authorities are cracking down on electric-bikes. Lead depends on lead-acid batteries for about 80 percent of demand in top consumer China.
The global lead market saw its surplus more than double in the first quarter to 29,000 tonnes from 13,000 tonnes in the same period last year, data showed this week. “This year demand looks more worrying. And that’s the key reason we remain relatively bearish towards lead’s price outlook,” said analyst Wenyu Yao at consultancy Thomson Reuters GFMS………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

Two days of talks between finance chiefs from the world’s biggest advanced economies at a hot springs resort in northern Japan were marked by some of the sharpest dissonance in years between the U.S. and Japan over exchange-rate policies.
The tensions at the gathering of Group of Seven central bank governors and finance ministers highlighted a lingering division between the G-7’s two biggest members over the trading conditions that can justify government intervention in the currency markets. Underscoring the wider challenge of tackling the global slowdown, the policy makers agreed on common risks to the international economy but showed no appetite for laying down a shared strategy to combat the problem………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

Korean companies have rarely traded their carbon emission rights on the South Korean main bourse this year due to a weak supply, data showed Sunday. According to the Korea Exchange, the total volume of traded emission rights stood at 1.08 million tons as of Thursday, a combined figure of 113,000 Korean allowance units and 968,000 Korean credit units.
Korean allowance units refer to the rights allocated directly by the government. Korean credit units are offset emission permits, converted from the greenhouse gas reductions through individual companies’ external projects………………………………………..Full Article: Source

Posted on 23 May 2016 by VRS |  Email |Print

China’s carbon markets may gain more participants after the successful closing of European carbon broker Virtuse Group’s first deal through its offshore account on Shenzhen’s emissions market, the China Emissions Exchange .
The deal, though relatively small at 800,000 yuan ($122,000), is seen as a test of China’s ability to link its own carbon trading exchanges with those overseas, and will also shed light on the ability of China’s financial system to process carbon transactions efficiently. Virtuse sold over 63,000 Shenzhen emissions permits to a local panel display producer, Shenzhen Laibao Hi-tech Corporation, said Huang Chao, the company’s trader based in the city……………………………………….Full Article: Source

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