Australian (ASX) Stock Market Forum

"The best place to be is in commodities"

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US Annual Energy Outlook, 2012
http://www.eia.gov/forecasts/aeo/er/pdf/0383er(2012).pdf

Energy prices
Natural gas
With increased production, average annual wellhead prices for natural gas remain below $5 per thousand cubic feet (2010 dollars) through 2023 in the AEO2012 Reference case. The projected prices reflect continued industry success in tapping the Nation’s extensive shale gas resource. The resilience of drilling levels, despite low natural gas prices, is in part a result of high crude oil prices, which significantly improve the economics of natural gas plays that have high concentrations of crude oil, condensates, or natural gas liquids.
After 2023, natural gas prices generally increase as the numbers of tight gas and shale gas wells drilled increase to meet growing domestic demand for natural gas and offset declines in natural gas production from other sources. Natural gas prices rise as
production gradually shifts to resources that are less productive and more expensive. Natural gas wellhead prices (in 2010 dollars) reach $6.52 per thousand cubic feet in 2035, compared with $6.48 per thousand cubic feet (2010 dollars) in AEO2011.
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April 09, 2012
The Market May React To Short-Term Indicators, But They Are No Basis For Long-Term Investment Decisions
By Rob Davies

Since the bull run of the first quarter came to an end a few weeks ago, capital markets are searching around for signs of what happens next. And when there is no clear direction any indicator tends to grow in importance.

Thus the recent news that growth in US employment was lower than expected caused a great deal of soul searching among the financial chatterati. At 120,000, the number of new jobs generated last month was about 85,000 below expectations, which had risen after an unexpectedly good set of employment figures was announced for the first two months of the year.

These data changed the mood in the market and revived talk that the US Federal Reserve might engage in more monetary stimulus, although the Fed itself kept mum. There were also suggestions that US growth is now more likely to be two per cent this year rather than the three per cent some had been hoping for.

This downbeat tone was enough to depress equities and lift bond prices towards the end of the week. But base metals, as measured by the LME index, tickled 0.6 per cent higher over the week to end at 3,567.

But the trouble with economic data is that it is pretty poor quality. Moreover, data over such a short time period is little more than noise, and hardly justifies being called a signal at all.

Even the authorities admit that the monthly payroll data has a sampling error of plus or minus 100,000. In other words the actual figure for March could be virtually zero, or to put it another way, more or less in line with expectations after all.

Constructing an investment strategy based around this sort of news flow is difficult, if not impossible. After all, trying to determine inflexion points is a superhuman task at any time. Not only is the data hard to read because of volatility, it is also subject to all manner of distortions.

And despite the bad jobs report, records also showed that US unemployment has dropped from 8.3 per cent to 8.2 per cent. However, that improvement was a result of fewer people actively seeking jobs because they gave up, rather than as a result of more people actually starting work,

All we know is that there is still a vast amount of spare capacity in the US and other major economies, which is why interest rates are still close to zero. In practical terms that means future prices remain low, and the base metal market provides an excellent demonstration of that.

Prices for copper 15 months out are US$8,190 a tonne, which is 2.1 per cent less than the current spot price of US$8,365 a tonne, although the discrepancy is more to do with the very tight situation specific to this metal rather to any macro-economic effect.

And forward prices for zinc show a similar pattern, with 15 month metal at US$1,982 a tonne, roughly 3.3 per cent below the prevailing spot price of US$2,050 a tonne.

The other metals show a more normal distribution, with higher future prices to reflect funding costs. But even then these are not that high.

Fifteen month nickel is trading at US$18,035 a tonne, or just one per cent more expensive than cash metal at US$17,860 a tonne. Lead too shows a modest premium of 5.5 per cent for fifteen month metal, which trades at US$2,103 a tonne, as compared to a spot price of US$1,993 a tonne.

The exception is fifteen month prices for aluminium, which at US$2,418 a tonne are 17.8 per cent higher than the spot price of US$2,053 a tonne. This premium, though, is probably a reflection of the alumina capacity cuts recently announced by Alcoa.

But daily, weekly, monthly and even quarterly data is little more than noise that should be ignored by investors. The signals for the longer term picture simply don’t change that fast. And nothing has really changed. While some base metals look good the overall economic outlook still seems pretty lacklustre.

Source >> www.minesite.com
*****
 
April 14, 2012
That Was The Week That Was … In Australia
By Our Man in Oz

Minews. Good morning Australia. Your gold sector seems to have had a good week.

Oz. There were some solid rises in the gold space, but it was mainly a case of making up lost ground. The gold index rose by 3.2 per cent, which almost makes up for the previous week’s four per cent fall. Meanwhile, the wider market last week had good days and bad days, and closed at almost precisely the point at which it opened.
The big news down this way remains political, as investors grow ever more nervous about a government which is showing signs of running off the rails. Mining leaders are finally getting a whiff of more tax trouble, of the sort we’ve been talking about for weeks. Their lobby group, the Minerals Council of Australia, has re-started its anti-government advertising campaign ahead of next month’s Australian government budget, which is expected to impose a number of fresh costs on mining. The tax rates will probably not change, but deductions currently available, such as a rebate on diesel fuel, and generous depreciation schedules will be tightened.

Minews. The overall effect being that profits from mining will fall, possibly taking share prices with them?

Oz. That’s the financial picture, though a darker interpretation would tell of a government being dragged further to the left by a dramatic change in the senior ranks of the Green Party, which provides essential votes in Parliament to keep the government in power. Senator Bob Brown, founder of the Greens in Australia, quit Parliament last week, tossing Green leadership to another Senator, a far more extreme Green, Christine Milne. Her rise to the top will lead to more attacks on mining at a national political level.

Minews. It sounds like you need an election.

Oz. That will come, though probably not for another 15 months. Before then we’re in for a wild political ride, during which time mining will be put under pressure, and will perhaps hit back at the government. BHP Billiton played a big card last week, in closing a coal mine during a strike. The Norwich Park mine was a marginal business and might not have gone on for much longer, but within days of that decision questions were being asked about other BHP Billiton projects, including the biggest of them all, the Olympic Dam copper and uranium mine, currently undergoing a major expansion.

Minews. If BHP Billiton pulls out of big Australian mining projects, Rio Tinto and Xstrata will not be far behind.

Oz. Precisely. That’s why we are in for a wild ride up to the next election.
...

Source >> www.minesite.com
 
April 16, 2012
Debt: The Elephant In The Room
By Rob Davies

However much markets get excited about US jobs figures or Chinese growth data there is still one overwhelming feature of capital markets these days.

Most days the markets try and ignore the big grey object that is the massive amount of outstanding debt. But however hard they try to turn a blind eye, the elephant in the room just won’t go away.

Large amount of debt are OK if they are matched by large amounts of assets. And politicians and central bankers try and pretend that this is indeed the case. But deep down the authorities know that the markets know that they know otherwise.

In fact that prognosis is a million miles away from reality. And last week was another one where that reality bobbed back up again.

This time another sell-off in Spanish bonds took yields back over six per cent. Everyone knows that Spanish sovereign debt will not be repaid in full, in just the same way that Greek debt has been written off.

But the only thing that is uncertain is the mechanism by which that debt will be unwound. To try and paper over the cracks the ECB leant Spanish banks €227.4 billion euros in March. In February it was “only” €152.4 billion.

As markets get more and more sceptical about the value of European sovereign debt, the ECB is being forced to take a larger and larger role in replacing free market capital. While that doesn’t solve the problem it does have the benefit, from the Germans point of view, of allowing more and Latin debt to be bought by the Latin banks, thus allowing the Teutonic banks to reduce their exposure.

The problem is that the crisis is not just confined to European sovereign debt. It applies to European bank debt, US bank debt, US sovereign debt and all manner of other liabilities that are matched to assets that are now worth far less than when the debt was incurred.

Not least of these are the US$47 billion of mortgage related securities the Federal Reserve Bank of New York acquired after rescuing AIG in 2008. It is now seeking to sell these securities, known as the Maiden Lane assets. How that transaction goes will provide a good window on the true value of some of these complex securities.

All these issues weighed on markets last week and pushed risk assets down. Base metals, as determined by the LME index, were less badly hit than equities and only fell 0.7 per cent.

Copper was one of the metals most affected, and fell 5.1 per cent to US$8,180 a tonne, even though inventories in LME warehouses are at an incredibly low 266,075 tonnes.

As ever, of course, capitalists are more concerned about what might happen next than what the current situation is. Which is why first quarter Chinese growth of 8.1 per cent was the other dominant influence on markets during the week.

That rate of growth might sound good to anyone in a developed country, but it is low for China and is part of its deliberate campaign to reduce inflation. However, even this lower level of growth is difficult for iron ore producers to cope with, and demand pushed iron ore prices back above US$150 a tonne for the first time in six months.

That strength in iron ore was the underlying reason for the good relative performance of the big mining companies, even though equities were weak over the week.

And while stronger iron ore prices are good for miners, the elephant in the room is still the mismatch between debt and assets that threatens the whole fragile economic recovery. Ignoring it remains the preferred option for the authorities, but that won’t work for ever.

Source >> www.minesite.com
*****
 
Commodities bubble ?
Three articles for your consideration:

Mining stocks to fall with prices
The Australian - ‎Apr 16, 2012‎
STAND by for a gradual easing in prices among mining stocks despite the fact China is not likely to have a bust, says Goldman Sachs Asset Management chief Dion Hershan. Hershan, who's head of equities at GSAM in Australia, says he is "cautious or ...

The Next Global Crash: Why You Should Fear the Commodities Bubble
The Atlantic(USA) - ‎Apr 16, 2012‎
By Ruchir Sharma Investors have gone crazy for commodities, pouring money into everything from oil to copper. Just like the world's mania for tech stocks in the 1990s, this boom is headed for a bust. Wheat is dumped into a grain truck for transfer.

What If 2007 Was the Commodities Cycle Peak?
Resource Investor - ‎12 hours ago‎
By Danielle Park As we layer price plots of the credit bubble peak in 2007 over stock and commodity charts we cannot help but wonder whether we might not already have seen the peak of commodity prices for some years to come. From 2005 to 2007, ...
 
tinhat said:
Thanks for the link.


Based on what?
Click to expand...

The tables are compiled from the Thomson One Analytics database of consensus Ratings & Estimates of equity analysts.
Thomson One Analytics Rating System: Buy (1.0), Buy/Hold (2.0), Hold (3.0), Sell/Hold (4.0), Sell (5.0)

Source: Thomson One Analytics.
 
drillinto said:
The tables are compiled from the Thomson One Analytics database of consensus Ratings & Estimates of equity analysts.
Thomson One Analytics Rating System: Buy (1.0), Buy/Hold (2.0), Hold (3.0), Sell/Hold (4.0), Sell (5.0)

Source: Thomson One Analytics.
Click to expand...

OK - thanks. Hadn't drunk enough coffee this morning when I read it the first time.

NCM isn't showing any turn around on the charts yet but on the watch list. MML could be turning around at the moment (market over-reacted to their production problems IMHO). SLR looks to have more upside in it yet too. But neither of those are large caps if that is important.
 
April 21, 2012
That Was The Week That Was … In Australia
By Our Man in Oz

...
The gold company that outperformed was Ausgold (AUC), which continues to report highly encouraging assays from its Katanning project in the south of Western Australia. In response, the shares added A18 cents to close the week at A98 cents.

Minews. Let’s continue with gold.

Oz. Thanks. After Ausgold there weren’t too many eye-catching moves, in what after all was a down week for gold companies. Among the better performers were: Ampella (AMX), up A5 cents to A$1.05, Kingsgate (KCN), up A14 cents to A$6.41, Perseus (PRU), up A20 cents to A$2.52, Medusa (MML), up A13 cents to A$5.49, and Evolution (EVN), up A3 cents to A$1.78. And Scotgold (SGZ), a gold company close to you, is also starting to attract some interest, creeping up another A0.1 of a cent to A8 cents.

But there was a long list of gold companies that lost ground, including: Gold Road (GOR), down A2.5 cents to A26.5 cents, Gryphon (GRY), down A4 cents to A99 cents, Troy (TRY), down A18 cents to A$4.60, Northern Star (NST), down 4.5 cents to A90.5 cents, and Kingsrose (KRM), down A3 cents to A$1.20.
...
Source >> www.minesite.com
 
April 23, 2012
The Long And The Short Of It:Big Players Take Big Positions As The French Election Rolls On
By Rob Davies

Bets can be made on virtually anything these days. A popular one right now involves the outcome of the French presidential election. If President Sarkozy did manage to win, you could make ten times your money.

But there are many ways to place such a bet. Some, like John Paulson the hedge fund manager, are simply shorting German bonds. Presumably the argument is that whoever wins is going to have a tough time reconciling his actions to the promises he made before the election - and that ultimately the Germans will have to pay.

Although the size of Paulson’s bet is undisclosed it is probably pretty big.

But as bets go, though there can’t be many that are bigger than that being made by the company that is said to have cornered 90 per cent of the copper inventory in LME warehouses. At the current price that is worth US$1.46 billion. Some punt.

No one seems to know much about the position, but it is tempting to presume that it is a long trade, i.e. a bet on prices rising. If so, the 1.7 per cent fall in copper prices over the week must have hurt.

The logic of buying copper is driven by low inventory levels. Total stocks in LME warehouses have now fallen to 262,700 tonnes, and stocks in Shanghai have dropped to 211,179 tonnes.

In short, there simply is not much copper around. And if the stories of economic recovery are correct then this is good news for consumption, demand and prices.

In support of the bull case it is noteworthy that German confidence is at a nine month high and car sales in the US are rising steadily. After bottoming out at 10.4 million in 2009, a 30 year low, US car sales rose to 12.8 million in 2011. And this year analysts are predicting sales could exceed 14.5 million.

Since even a small car in the US uses 15 kilogrammes of copper, the impact on copper demand could be substantial even after allowing for the scrap generated by recycling old cars. And because the average age of a US car is now ten years, there is plenty of scope for this surge in car sales to be maintained for some time.

Despite this positive news copper and the other base metals fell last week, taking the LME index down 2.4 per cent to 3,457.6. This was in contrast to equities, which strengthened in developed markets.

Given the good news about the US and the uncertainty in Europe, the weakness in the euro against the dollar was to be expected. Indeed, dollar strength probably accounts for some of the weakness in commodity prices.

It wasn’t so long ago that markets were making a binary call on asset classes so that the trade was either Risk On or Risk Off. Now, the geographic differences are making that call much more subtle.

It won’t be obvious for some time which way the discreet copper trader is aligned. But it is an excellent demonstration of what opportunities still remain to be had in base metals.

Source >>> www.minesite.com
*****
 
April 28,2012

That Was The Week That Was … In Australia
By Our Man in Oz

Minews. Good morning Australia. You seem to have had a busy week, but without much movement on the market.

Oz. Events outside the stock market, including grave uncertainty about the future of the current government, continue to dictate the direction of Australian share prices. Last week a fresh scandal forced the resignation of the Speaker of Parliament, a development which could obstruct the passing of the government’s budget and possibly trigger a fresh election. Some observers have been predicting such a crisis since the appointment of this finely-balanced minority government 18 months ago. Ever since then we’ve lurched from crisis to crisis, despite a strongly performing domestic economy.

Minews. Would a change of government kill the mining and carbon taxes that have caused so much concern for investors in your mining companies?

Oz. Almost certainly, which is why investors are watching Australian politics as carefully as they’re watching Chinese demand for minerals and metals. The next election is not scheduled for another 18 months, but the opinion polls are pointing to a landslide in favour of the conservative parties which will undoubtedly be more pro-business, and pro-mining.

Minews. A change might be good for mining but it sounds like you’re in for a few more months of uncertainty before a clear picture emerges.

Oz. That’s probably right, which is why we’re seeing minimal movement on the market, as measured by the key indices. Last week was a virtual repeat of what’s happened in every week this April. The all ordinaries index slipped lower, but by less than half a percentage point. The metals and mining index did worse, shedding 2.7 per cent. Gold did worst of all, falling by five per cent, but that drop was caused almost entirely by an 8.3 per cent fall by the sector leader Newcrest (NCM), shares in which tumbled A$2.34 to A$25.71 after the announcement of a profits downgrade.
...

Source >> www.minesite.com
*****
 
drillinto said:
Oz. Almost certainly, which is why investors are watching Australian politics as carefully
*****
Click to expand...

What a load of absolute drivel. Couldn't give a rats toss about the donkeys running the administration. Neither would any other investor with half a brain.
 
April 30, 2012
The World Steel Association’s Short Range Outlook Indicates That Metal Demand Will Stay Relatively Robust In The Near Term
By Rob Davies

Economic data dominated the financial news last week. First, the numbers came out: a contraction of 0.2 per cent in the first quarter for the UK and 2.2 per cent growth in the US. Then came all the caveats, excuses and clarifications.

But instead of all the subsequent obfuscation and bluster, what’s really needed is for each estimate to come attached with a standard deviation. That would make the uncertainty associated with each number much clearer.

The U Group - the UK and US - are unique in getting out their estimates for GDP so quickly. Although these estimates are then subject to many revisions, at least this way of doing things allows for an early snapshot of the economies are doing. The data for other large economies, like Japan, is delivered much later.

Whether this early delivery of news is helpful or not is harder to say. On balance, risk markets thought it was more good news than bad, so equities rose. Base metals were also stronger, rising 2.8 per cent to 3,555.7 as measured by the LME index.

But part of the reason metals did well related to dollar weakness. The dollar fell 0.6 per cent against the euro and 1.2 per cent against gold. Worryingly, sterling was the stellar performer last week, rising 1.6 per cent in dollar terms - which is not good news for sterling based mining companies.

Data on GDP is interesting but, because modern developed economies are so biased towards the service sector, they don’t tell us an awful lot about metal demand.

Far more relevant to miners was the Short Range Outlook published by the World Steel Association. Because anything that uses steel is likely to use other metals as well, either for alloying, coating and or as associated fittings.

The World Steel Association expects apparent steel use to rise 3.6 per cent in 2012 to 1,422.3 million tonnes. While this is a lower rate of growth than the 5.6 per cent recorded for 2011, it is still a healthy positive number.

However, it’s also lower than the estimate that the same body made six months ago. The reason for the reduction can be found in the estimates for Europe. Steel output in Europe is expected to shrink by 1.2 per cent in 2012 to 151 million tonnes.

To put that into perspective Chinese steel use is forecast to rise four per cent in 2012, taking it to 648.8 million tonnes. North American steel use is even lower than in Europe, but it is growing faster at 5.2 per cent, though that too is lower than the heady nine per cent expansion recorded last year.

Any forecast for 2013 is a brave prediction given the amount of uncertainty still swirling around. For what it is worth the World Steel Association is expecting steel use to rise by 4.4 per cent, although part of that comes from a perhaps optimistic estimate of recovery rates in Europe.

Such a scenario is undoubtedly constructive for base metals. However, what these figures demonstrate more than anything is that commodities are a play on emerging markets.

The data shows that by 2013 steel use in the developed markets will be 14 per cent below the level in 2007. Contrast that with the 45 per cent growth in steel use in developing markets over the same period.

By then the developing markets will account for 73 per cent of world steel demand instead of the 61 per cent they accounted for in 2007. The figures for base metals will surely be broadly similar. Now that’s what you call growth!

Source >> www.minesite.com
 

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