Commodity Snapshot
http://www.bespokeinvest.com/thinkbig/2012/12/10/bespokes-commodity-snapshot.html
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http://www.bespokeinvest.com/thinkbig/2012/12/10/bespokes-commodity-snapshot.html
***
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"The best place to be is in commodities"
- Thread starter drillinto
- Start date
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- commodities
COAL
Global coal demand will probably rise by 2.6 percent a year to 6.17 billion metric tons of coal equivalent in the six years to 2017, driven by China’s economic expansion, according to the International Energy Agency(IEA).
Countries outside the 34-nation Organization for Economic Cooperation and Development are expected to drive growth with an annual increase of 3.9 percent, the Paris-based agency said today in its first Medium-Term Coal Market Report. Within the OECD coal use is projected to fall by 0.7 percent a year.
“Even though coal demand growth is slowing, coal’s share of the global energy mix is still rising, and by 2017 coal will come close to surpassing oil as the world’s top energy source,” the IEA said.
U.S. coal demand is expected to fall by 2.5 percent a year as it faces competition from cheap natural gas, the IEA said.
Source >> Marek Strzelecki (Bloomberg, Dec 18)
Global coal demand will probably rise by 2.6 percent a year to 6.17 billion metric tons of coal equivalent in the six years to 2017, driven by China’s economic expansion, according to the International Energy Agency(IEA).
Countries outside the 34-nation Organization for Economic Cooperation and Development are expected to drive growth with an annual increase of 3.9 percent, the Paris-based agency said today in its first Medium-Term Coal Market Report. Within the OECD coal use is projected to fall by 0.7 percent a year.
“Even though coal demand growth is slowing, coal’s share of the global energy mix is still rising, and by 2017 coal will come close to surpassing oil as the world’s top energy source,” the IEA said.
U.S. coal demand is expected to fall by 2.5 percent a year as it faces competition from cheap natural gas, the IEA said.
Source >> Marek Strzelecki (Bloomberg, Dec 18)
Coal to challenge oil's dominance by 2017, says IEA
http://www.guardian.co.uk/environment/2012/dec/18/coal-challenge-oil-international-energy-agency
*** (At the end of the article there are more than 130 comments from readers)
http://www.guardian.co.uk/environment/2012/dec/18/coal-challenge-oil-international-energy-agency
*** (At the end of the article there are more than 130 comments from readers)
"Gold Closes Below 200-Day Moving Average"
http://www.bespokeinvest.com/thinkbig/2012/12/20/gold-closes-below-200-day-moving-average.html
***
http://www.bespokeinvest.com/thinkbig/2012/12/20/gold-closes-below-200-day-moving-average.html
***
EWA(Australia): The trend and timing are good.
http://www.bespokeinvest.com/thinkbig/2012/12/20/the-world-is-overbought.html
***
http://www.bespokeinvest.com/thinkbig/2012/12/20/the-world-is-overbought.html
***
December 22, 2012
That Was The Week That Was … In Australia
By Our Man in Oz
Minews. Good morning Australia. It looks like you were having a good week until fresh doubts surfaced about economic recovery in the U.S.
Oz. Optimism ruled until Thursday afternoon, when news filtered through about the collapse of the latest effort in the U.S. to avoid falling of the so-called fiscal cliff. It just got worse after that as a sell-off on Friday unwound most of the good work done earlier.
However, having acknowledged two down days it’s worth noting that the overall mining market still ended up for the week, albeit by a marginal 0.7 per cent.
The gold sector was hit hardest by the latest bout of global uncertainty. It dropped faster than the gold price, shedding a sharp 6.8 per cent, as measured by the ASX gold index.
Minews. If the gold sector was that weak, then other mining stocks must have performed reasonably well to get that overall 0.7 per cent rise.
Oz. That’s a very good point because it shows that the widespread sell-off in gold stocks failed totally to over-shadow what was a reasonable week for iron ore and coal miners
Minews. There seems to have been an interesting rotation back into bulk commodities, so let’s get to gold later and focus now on the areas which performed best, starting with iron ore.
Oz. Driving the iron ore sector was continued strength in the iron ore price. The price hit a five month high of US$130 a tonne during the week thanks largely to Chinese steel mills rebuilding depleted stockpiles. The higher price helped lift all producers, led by Fortescue Metals (FMG) which mimicked the ore price, also hitting a five-month of A$4.72 on Wednesday before then sliding back in the “fiscal cliff sell-off” to close the week at A$4.38 for a modest overall rise of A7 cents.
The story of rising then falling was repeated across the sector as optimism gave way to pessimism. Atlas Iron (AGO) rose to A$1.75 before ending the week at A$1.67 for a gain of A11 cents. Mt Gibson added just half-a-cent to A75.5 cents but did reach A82 cents in early Thursday trade. Iron Ore Holdings (IOH) got to A79 cents before easing back to close steady at A75 cents.
Among the other iron ore movers were: BC iron (BCI), up A15 cents to A$3.42, Northern Iron (NFE), up A7 cents to A55.5 cents, Iron Road (IRD), down A2.5 cents to A35 cents, and IronClad (IFE), up half a cent to A28 cents. Cape Lambert (CFE) rose A3 cents to A27 cents despite a police and tax office raid on the offices of its chief executive, Tony Sage.
Minews. That’s an interesting final point. Isn’t Mr Sage associated with Romanian entrepreneur Frank Timis?
Oz. Yes, he is, but that’s probably as much as can be said at this stage. It will be interesting to see how the situation evolves.
...
Source >> www.minesite.com
*****
That Was The Week That Was … In Australia
By Our Man in Oz
Minews. Good morning Australia. It looks like you were having a good week until fresh doubts surfaced about economic recovery in the U.S.
Oz. Optimism ruled until Thursday afternoon, when news filtered through about the collapse of the latest effort in the U.S. to avoid falling of the so-called fiscal cliff. It just got worse after that as a sell-off on Friday unwound most of the good work done earlier.
However, having acknowledged two down days it’s worth noting that the overall mining market still ended up for the week, albeit by a marginal 0.7 per cent.
The gold sector was hit hardest by the latest bout of global uncertainty. It dropped faster than the gold price, shedding a sharp 6.8 per cent, as measured by the ASX gold index.
Minews. If the gold sector was that weak, then other mining stocks must have performed reasonably well to get that overall 0.7 per cent rise.
Oz. That’s a very good point because it shows that the widespread sell-off in gold stocks failed totally to over-shadow what was a reasonable week for iron ore and coal miners
Minews. There seems to have been an interesting rotation back into bulk commodities, so let’s get to gold later and focus now on the areas which performed best, starting with iron ore.
Oz. Driving the iron ore sector was continued strength in the iron ore price. The price hit a five month high of US$130 a tonne during the week thanks largely to Chinese steel mills rebuilding depleted stockpiles. The higher price helped lift all producers, led by Fortescue Metals (FMG) which mimicked the ore price, also hitting a five-month of A$4.72 on Wednesday before then sliding back in the “fiscal cliff sell-off” to close the week at A$4.38 for a modest overall rise of A7 cents.
The story of rising then falling was repeated across the sector as optimism gave way to pessimism. Atlas Iron (AGO) rose to A$1.75 before ending the week at A$1.67 for a gain of A11 cents. Mt Gibson added just half-a-cent to A75.5 cents but did reach A82 cents in early Thursday trade. Iron Ore Holdings (IOH) got to A79 cents before easing back to close steady at A75 cents.
Among the other iron ore movers were: BC iron (BCI), up A15 cents to A$3.42, Northern Iron (NFE), up A7 cents to A55.5 cents, Iron Road (IRD), down A2.5 cents to A35 cents, and IronClad (IFE), up half a cent to A28 cents. Cape Lambert (CFE) rose A3 cents to A27 cents despite a police and tax office raid on the offices of its chief executive, Tony Sage.
Minews. That’s an interesting final point. Isn’t Mr Sage associated with Romanian entrepreneur Frank Timis?
Oz. Yes, he is, but that’s probably as much as can be said at this stage. It will be interesting to see how the situation evolves.
...
Source >> www.minesite.com
*****
December 24, 2012
Metals, Markets And Prices: The Year In Review
By Rob Davies
There is still an attitude in the minds of some that economies can be controlled, or at least guided in particular directions. But events in 2012 demonstrated how far that is from the truth.
Ever since the global credit bubble burst in 2008 many different government and central banks have tried to do all they can to engineer a recovery in growth.
There is still an attitude in the minds of some that economies can be controlled, or at least guided in particular directions. But events in 2012 demonstrated how far that is from the truth.
Ever since the global credit bubble burst in 2008 many different government and central banks have tried to do all they can to engineer a recovery in growth.
Collectively, these efforts are best described as quantitative easing, or more brutally labelled as printing money.
One measure of the scale of this exercise can be demonstrated by reference to gold. In the 6,000 years that man has been industrially active he has extracted about 150,000 tonnes of gold.
At today’s prices that is worth about US$8 trillion. On 31st August 2008 the balance sheets of the US, UK, ECB, Germany, France, China and Switzerland had a nominal value of US$8.16 trillion. But this collective figure had increased to US$15.05 trillion by 31st October 2011.
In other words the central banks of the five largest countries took five years to fabricate as much “wealth” as the collective effort of all mankind over the previous six millennia.
The problem is that each successive round of money printing is having less and less effect. That was most notable this year when QE4 was announced by the US Federal Reserve on September 2012 and capital markets hardly reacted at all. Compare that to the vigorous responses to QE1 and QE2.
It seems the world economic corpus is becoming progressively less sensitive to these massive drug injections of free cash.
Even so, the economic stimulus presumably stopped things getting even worse, and the performance of base metals over the year is a reflection of that. The LME base metals index started the year at 3,000 and looks set to finish over six per cent higher at about 3,192.
That gives it an average value over the year of 3,047, a modest 1.2 per cent ahead of the average of 3,010 recorded in 2011. But it’s hard to envisage that the year on year change would have been positive without QE.
Aluminium is a classic example. In the developed economies demand actually fell in 2012 by 0.5 per cent, despite all that QE. It was only the 8.2 per cent increase from the BRICs, (Brazil, Russia, India and China) that allowed the industry to record an overall rise in consumption of 4.7 per cent.
Unfortunately, even that was not enough absorb the 2.5 per cent rise in production. As a consequence it is estimated there will be a surplus of 660,000 tonnes in 2012 to add to the 1.6 million tonnes of excess metal generated the previous year. Not surprisingly this has pushed prices down with an expected average for the year of US$2,018 a tonne, nearly 16 per cent less than the 2011 average of US$2,400 a tonne.
The story in copper is not dissimilar with the proviso that it is operating off much lower inventory levels. In contrast to an inventory equivalent to six weeks of consumption in aluminium, stocks of copper are only sufficient to support three weeks of demand. That level of reserve drops to just one week if it is based solely on LME warehouse inventories.
After experiencing two years of vibrant growth, demand for copper increased at a more sedate1.3 per cent in 2012. Once again it was a story of lower demand in the developed world offset by increased appetite in the developing world.
The mature economies used 2.3 per cent less copper this year than in 2011 while China and others used 3.6 per cent more. However, that was a big decline from the 9.8 per cent increase in usage from China and others in 2011.
Growth in copper production is estimated to have slowed in 2012 to 1.9 per cent, the lowest since 2009, and that effectively gives a balanced market. Despite the low inventory level it looks as if copper will average about US$7,955 a tonne this year, nearly 10 per cent less than the US$8,811 it averaged in 2011.
Lead is one of the few metals to exhibit good growth in demand in 2012, as it put in a rise of 4.3 per cent. Once again this is largely as a result of an increase of 6.4 per cent in consumption from the BRICs.
At least lead was able to experience growing consumption in the developed world, albeit a rather measly 0.6 per cent. Lead is an intriguing market because so much supply is sourced from scrap. Out of the estimated 11 million tonnes produced in 2012, 3.4 per cent more than 2011, only 5.4 million was new mine supply.
But that was a 16 per cent increase as a mild winter in Europe reduced scrap availability. This looks likely to leave the metal in a small surplus this year and an average price for 2012 of about US$2,060 a tonne, 14 per cent less than the US$2,398 recorded in 2011.
Despite good growth in consumption of 4.4 per cent, nickel is on track to deliver the worst price performance of all the base metals in 2012. A likely average of US$17,522 a tonne makes it still the second most expensive base metal, but that price is still about 23 per cent lower than the average of US$22,831 achieved in 2011.
The causes are familiar. Demand from the developed economies shrank by 1.6 per cent, but expanded by 8.8 per cent in the BRICs. The problem is that a 5.6 per cent increase in production in 2012 follows an 11 per cent increase in 2011 and leaves the market oversupplied by about 34,000 tonnes.
With total stocks of 220,000 tonnes in a small industry that only consumes 1.7 million tonnes a year it leaves inventories at a rather large seven weeks of consumption. These new mines and lower costs are a haunting legacy of the boom times in nickel five years ago when it averaged US$37,181 a tonne in 2007 and encouraged so much new capacity.
No one gives much attention to tin because it is such a small market that only consumes 364,000 tonnes a year. Even so, as the most expensive base metal with an average price in 2012 of US$21,020 it should attract more attention. The price has fallen 19 per cent, even though production fell 3.6 per cent because demand fell by even larger 3.8 per cent.
Zinc remains the problem child of the base metals because its inventory of surplus metal of 1.2 million tonnes is high in absolute terms. Moreover, adding in other stocks, excess metal is equivalent to seven weeks of consumption.
Zinc’s use in galvanising steel makes it closely correlated with the construction industry and it is therefore little surprise that consumption contracted by 4.5 per cent in the developed economies. Unfortunately, its use in the BRIC economies only increased by 1.5 per cent, leaving it with a lacklustre overall increase of just 0.1 per cent. Even a contraction of 0.9 per cent in supply was not enough to prevent a surplus of 245,000 tonnes, and that pushed the average price down 11.2 per cent to US$1,945 a tonne.
Bulk commodities are far more important to the profits of the diversified miners these days than base metals. The two largest are thermal coal and iron ore and both are crucially reliant on the Chinese market - iron ore for help in building it and coal to power it.
Chinese imports of thermal coal in 2012 are thought to have risen slightly to 106 million tonnes. While Chinese electricity production is rising a larger percentage is being generated by hydro, which now accounts for nearly 22 per cent of output, up from 15 per cent a year ago. One consequence of this has been to reduce pressure on demand, and prices for thermal coal have slipped over 20 per cent in 2012 on the previous year. This takes thermal coal down to US$95 a tonne. But that is still a very attractive level for the miners.
In iron ore the story is more construction as Chinese steel production in 2012 is expected to be 2.5 per cent higher than last year. While this increase is less than was initially expected, and is still a vast amount, it has led to cutbacks. This has impacted pricing, which is on track for a 27 per cent decline for 2012 to about US$125 a tonne.
There is no doubt that miners have ridden the storms of the great recession better than many industries as a result of firm commodity prices. In turn commodities have been a direct beneficiary of stimulus in the developed world and robust growth in the developing world. It is not often that influences combine positively, but 2012 was certainly one such occasion for miners.
Source >>>>> www.minesite.com
*****
Metals, Markets And Prices: The Year In Review
By Rob Davies
There is still an attitude in the minds of some that economies can be controlled, or at least guided in particular directions. But events in 2012 demonstrated how far that is from the truth.
Ever since the global credit bubble burst in 2008 many different government and central banks have tried to do all they can to engineer a recovery in growth.
There is still an attitude in the minds of some that economies can be controlled, or at least guided in particular directions. But events in 2012 demonstrated how far that is from the truth.
Ever since the global credit bubble burst in 2008 many different government and central banks have tried to do all they can to engineer a recovery in growth.
Collectively, these efforts are best described as quantitative easing, or more brutally labelled as printing money.
One measure of the scale of this exercise can be demonstrated by reference to gold. In the 6,000 years that man has been industrially active he has extracted about 150,000 tonnes of gold.
At today’s prices that is worth about US$8 trillion. On 31st August 2008 the balance sheets of the US, UK, ECB, Germany, France, China and Switzerland had a nominal value of US$8.16 trillion. But this collective figure had increased to US$15.05 trillion by 31st October 2011.
In other words the central banks of the five largest countries took five years to fabricate as much “wealth” as the collective effort of all mankind over the previous six millennia.
The problem is that each successive round of money printing is having less and less effect. That was most notable this year when QE4 was announced by the US Federal Reserve on September 2012 and capital markets hardly reacted at all. Compare that to the vigorous responses to QE1 and QE2.
It seems the world economic corpus is becoming progressively less sensitive to these massive drug injections of free cash.
Even so, the economic stimulus presumably stopped things getting even worse, and the performance of base metals over the year is a reflection of that. The LME base metals index started the year at 3,000 and looks set to finish over six per cent higher at about 3,192.
That gives it an average value over the year of 3,047, a modest 1.2 per cent ahead of the average of 3,010 recorded in 2011. But it’s hard to envisage that the year on year change would have been positive without QE.
Aluminium is a classic example. In the developed economies demand actually fell in 2012 by 0.5 per cent, despite all that QE. It was only the 8.2 per cent increase from the BRICs, (Brazil, Russia, India and China) that allowed the industry to record an overall rise in consumption of 4.7 per cent.
Unfortunately, even that was not enough absorb the 2.5 per cent rise in production. As a consequence it is estimated there will be a surplus of 660,000 tonnes in 2012 to add to the 1.6 million tonnes of excess metal generated the previous year. Not surprisingly this has pushed prices down with an expected average for the year of US$2,018 a tonne, nearly 16 per cent less than the 2011 average of US$2,400 a tonne.
The story in copper is not dissimilar with the proviso that it is operating off much lower inventory levels. In contrast to an inventory equivalent to six weeks of consumption in aluminium, stocks of copper are only sufficient to support three weeks of demand. That level of reserve drops to just one week if it is based solely on LME warehouse inventories.
After experiencing two years of vibrant growth, demand for copper increased at a more sedate1.3 per cent in 2012. Once again it was a story of lower demand in the developed world offset by increased appetite in the developing world.
The mature economies used 2.3 per cent less copper this year than in 2011 while China and others used 3.6 per cent more. However, that was a big decline from the 9.8 per cent increase in usage from China and others in 2011.
Growth in copper production is estimated to have slowed in 2012 to 1.9 per cent, the lowest since 2009, and that effectively gives a balanced market. Despite the low inventory level it looks as if copper will average about US$7,955 a tonne this year, nearly 10 per cent less than the US$8,811 it averaged in 2011.
Lead is one of the few metals to exhibit good growth in demand in 2012, as it put in a rise of 4.3 per cent. Once again this is largely as a result of an increase of 6.4 per cent in consumption from the BRICs.
At least lead was able to experience growing consumption in the developed world, albeit a rather measly 0.6 per cent. Lead is an intriguing market because so much supply is sourced from scrap. Out of the estimated 11 million tonnes produced in 2012, 3.4 per cent more than 2011, only 5.4 million was new mine supply.
But that was a 16 per cent increase as a mild winter in Europe reduced scrap availability. This looks likely to leave the metal in a small surplus this year and an average price for 2012 of about US$2,060 a tonne, 14 per cent less than the US$2,398 recorded in 2011.
Despite good growth in consumption of 4.4 per cent, nickel is on track to deliver the worst price performance of all the base metals in 2012. A likely average of US$17,522 a tonne makes it still the second most expensive base metal, but that price is still about 23 per cent lower than the average of US$22,831 achieved in 2011.
The causes are familiar. Demand from the developed economies shrank by 1.6 per cent, but expanded by 8.8 per cent in the BRICs. The problem is that a 5.6 per cent increase in production in 2012 follows an 11 per cent increase in 2011 and leaves the market oversupplied by about 34,000 tonnes.
With total stocks of 220,000 tonnes in a small industry that only consumes 1.7 million tonnes a year it leaves inventories at a rather large seven weeks of consumption. These new mines and lower costs are a haunting legacy of the boom times in nickel five years ago when it averaged US$37,181 a tonne in 2007 and encouraged so much new capacity.
No one gives much attention to tin because it is such a small market that only consumes 364,000 tonnes a year. Even so, as the most expensive base metal with an average price in 2012 of US$21,020 it should attract more attention. The price has fallen 19 per cent, even though production fell 3.6 per cent because demand fell by even larger 3.8 per cent.
Zinc remains the problem child of the base metals because its inventory of surplus metal of 1.2 million tonnes is high in absolute terms. Moreover, adding in other stocks, excess metal is equivalent to seven weeks of consumption.
Zinc’s use in galvanising steel makes it closely correlated with the construction industry and it is therefore little surprise that consumption contracted by 4.5 per cent in the developed economies. Unfortunately, its use in the BRIC economies only increased by 1.5 per cent, leaving it with a lacklustre overall increase of just 0.1 per cent. Even a contraction of 0.9 per cent in supply was not enough to prevent a surplus of 245,000 tonnes, and that pushed the average price down 11.2 per cent to US$1,945 a tonne.
Bulk commodities are far more important to the profits of the diversified miners these days than base metals. The two largest are thermal coal and iron ore and both are crucially reliant on the Chinese market - iron ore for help in building it and coal to power it.
Chinese imports of thermal coal in 2012 are thought to have risen slightly to 106 million tonnes. While Chinese electricity production is rising a larger percentage is being generated by hydro, which now accounts for nearly 22 per cent of output, up from 15 per cent a year ago. One consequence of this has been to reduce pressure on demand, and prices for thermal coal have slipped over 20 per cent in 2012 on the previous year. This takes thermal coal down to US$95 a tonne. But that is still a very attractive level for the miners.
In iron ore the story is more construction as Chinese steel production in 2012 is expected to be 2.5 per cent higher than last year. While this increase is less than was initially expected, and is still a vast amount, it has led to cutbacks. This has impacted pricing, which is on track for a 27 per cent decline for 2012 to about US$125 a tonne.
There is no doubt that miners have ridden the storms of the great recession better than many industries as a result of firm commodity prices. In turn commodities have been a direct beneficiary of stimulus in the developed world and robust growth in the developing world. It is not often that influences combine positively, but 2012 was certainly one such occasion for miners.
Source >>>>> www.minesite.com
*****
Performance of EWA(ETF Australia)
YTD: +15.20%
http://www.bespokeinvest.com/thinkbig/2012/12/24/recent-asset-class-performance.html
***
YTD: +15.20%
http://www.bespokeinvest.com/thinkbig/2012/12/24/recent-asset-class-performance.html
***
"A Desperate Need for Electricity in China and Other Developing Countries Is Fueling Global Coal Use"
By Robert Bryce
***
http://www.thedailybeast.com/articl...ing-countries-is-fueling-global-coal-use.html
By Robert Bryce
***
http://www.thedailybeast.com/articl...ing-countries-is-fueling-global-coal-use.html
Commodity Performance
http://www.bespokeinvest.com/thinkbig/2012/12/26/2012-commodity-performance.html
***
http://www.bespokeinvest.com/thinkbig/2012/12/26/2012-commodity-performance.html
***
S&P 500: Materials sector is overbought
http://www.bespokeinvest.com/thinkbig/2012/12/27/back-to-neutral.html
***
http://www.bespokeinvest.com/thinkbig/2012/12/27/back-to-neutral.html
***
Best Commodities of 2012
1. Lumber: Lumber futures shot up over 38%
2. Soybeans/Soybean meal: Soybean meal 36%, while soybean futures gained 16.7%
3. Corn: Corn futures rose 15%
4. Gasoline RBOB: Futures jumped 12%
5. Platinum: Gained more than 7%
Source >> Jared Cummans, 28 Dec 2012
*****
1. Lumber: Lumber futures shot up over 38%
2. Soybeans/Soybean meal: Soybean meal 36%, while soybean futures gained 16.7%
3. Corn: Corn futures rose 15%
4. Gasoline RBOB: Futures jumped 12%
5. Platinum: Gained more than 7%
Source >> Jared Cummans, 28 Dec 2012
*****
Stock markets are in rally mode
http://www.bespokeinvest.com/thinkbig/2012/12/28/us-investors-get-a-lump-of-coal.html
***
http://www.bespokeinvest.com/thinkbig/2012/12/28/us-investors-get-a-lump-of-coal.html
***
December 27, 2012
The Year That Was ... In Australia
By Our Man in Oz
Divorce is never pretty, but the split between Australian investors and gold over the past 12-months has been spectacular and difficult to explain – as is often the case in a separation.
In a year when the gold price, as measured in U.S. dollars, crept up around 4.5 per cent from US$1590 an ounce to a recent price of US$1662 an ounce the gold index on the Australian Securities Exchange (ASX) fell by 20.4 per cent.
One up, and the other down is such a divergence between the price of the metal and the collective value of companies that do nothing but explore for and produce the metal that it stands out as one of the highlights of 2012 -- or lowlight to be more accurate.
In contrast to the 20.4 per cent slide in goldmining company share prices the overall mining index fell a relatively modest 4.7 per cent while the rotation of money into Australian domestic bank, retail and industrial stocks, lifted the overall market by 11.8 per cent, as measured by the all ordinaries index.
One possible reason for the decline in the price of Australian gold stocks over the course of 2012 is that the relatively high-value Australian dollar killed the domestic gold sector.
Unfortunately, that explanation fails because while the dollar moved around a bit, oscillating from a low of US97 cents to a high of US$1.04, it opened and closed at almost the same level (US$1.03 at the start to US$1.04 near the close), meaning the domestic gold price opened and closed at roughly the same level.
Why the Australian dollar is trading as high as it is has some of the best brains in business looking for a cause because the country’s economy has lost its boom-time shine, corporate profits have faded and annual economic growth retreated from around 3.5 per cent to less than 2 per cent.
A slowing economy ought to lead to a falling exchange rate. That fact that this is not happening in Australia is piling pressure onto all exporters, especially miners who are also battling a sharp increase in cost pressure.
One possible explanation for the strong Aussie dollar is that it is an example of relativity at work, with the dollar not so much rising as standing still while most other currencies collapse.
Currency pressure on exporters is being exacerbated by a mood-shift among investors who appear to have lost interest in companies and commodities which promise only capital gains and minimal dividend yield. That trend can be seen in the rotation of funds out of mining stocks that pay low dividends, into banks and other forms of high-yield investments.
Lack of dividends, and a poor record in accurate reporting of costs, and other key performance indicators, was a hot topic raised at the London session of the Mines and Money circus earlier this month by one of the world’s top mining investors, BlackRock’s Evy Hambro.
No-one will ever know whether Evy was talking about a plan to sell poorly-managed gold companies in the future, or whether he was speaking about sales already made – putting BlackRock in the frame as a prime contender for killing the Australian gold sector in 2012.
Gold was not the only big loser in Australian mining last year. Coal was not far behind, a victim of one of the world’s great economic surprises which started with the U.S. discovery of vast fields of natural gas trapped in hard rocks once regarded as too difficult to tap.
That geological and technical phenomena triggered a collapse in the gas price, which led to increased gas competition with coal for domestic electricity production, and finally ended with the U.S. coal miners dumping their unsold material into the Asian market where a glut of coal killed the price.
If it was a U.S. gas glut which killed confidence in coal, the board of BHP Billiton did a similar job on confidence when it mothballed the country’s biggest planned mining project, the A$50 billion expansion of the Olympic Dam copper and uranium project.
High costs and political uncertainty flowing from a hung Parliament and an erratic government doing whatever it can to cling to power were cited as reasons for shelving the Olympic Dam upgrade with the Fukushima nuclear power plant accident in Japan a contributing factor thanks to its effect on nuclear operations worldwide.
While it might seem a bit grim to focus on what flopped over the past 12-months there is no escaping the point that it was a year of “stable cleaning” and, to put a positive spin on that, a cleaner stable means that the groundwork has been done for a better year in 2013.
The exciting Nova nickel discovery of Sirius Resources in the largely unexplored Fraser Range area near Australia’s south coast provided a rare glimpse of what might be expected next year. From a standing start at 5c, Sirius stampeded to a high of A$3.80, before settling back to around A$2.14 under the weight of capital raisings, and a number of unsuccessful holes as drilling tries to outline the shape and size of the discovery.
More about future possible developments next week when I preview what to expect from Oz in 2013. For now, let’s examine the entrails of a year which started badly, got worse, and started to show a few flickers of recovery as the curtains were drawn.
To understand what happened in 2012 it’s worth looking back exactly 12-months to the 2011 edition of Mines and Money in London when I attended, observed, and flew home to Australia thoroughly depressed. Others might have seen the event differently, but I still remember attending Christmas parties in the heat of a Perth summer telling anyone who would listen that 2012 was going to be a beast of a year.
That forecast, based on the simple principles of observation and listening, was dismissed by my Australian audience which largely comprised paid-up members of the “China forever” fan club – a organisation which lost many members as 2012 rolled along.
China’s slide into its version of a recession (annual economic expansion below 8 per cent) took a heavy toll of the Australian stock market, especially iron ore companies where management had seemingly been oblivious to the problems of excess iron ore supply hitting a market where demand was contracting.
Like coal, where a similar surplus of supply caused precisely the same problem, iron ore received a wake-up call when Chinese steel mills whacked a temporary buying ban on fresh deliveries as a way to shrink stockpiles which were clogging its ports.
The net result was a precipitous plunge in the iron ore price from around US$150 a tonne to less than US$90/t, and an even more spectacular slide in the share prices of iron ore miners. Fortescue, the biggest of the Australian pure-play iron ore stocks, plunged from A$6.18 on March 22 to A$2.81 on September 6, a 54 per cent fall in less than six months.
Since that low point, Fortescue and other iron ore miners have recovered, along with the iron ore price. Atlas has rebounded from A$1.14 to A$1.66 (perhaps on its way back to A$3.43 reached early in 2012). Mr Gibson is up from A61 cents to A76c, which is still a long way short of the A$1.46 reached in February.
The pattern of prices peaking early in 2012 and then falling sharply before the recent recovery is repeated across multiple sectors, effectively mirroring the rise-and-fall of the international mood as Europe stumbled towards possible solution to its debt crisis and the U.S. neared its fiscal cliff and the threat of a renewed recession.
Australia, while far from either centre of crisis, is being buffeted by the winds of uncertainty because of its close trading affiliations with China which is very much exposed to the U.S.-E.U. centres of insecurity.
After the wobbles suffered by gold, coal and iron ore stocks the next area of concern for Australian mining companies (and investors riding the roller-coaster) is the shortage of risk capital, best expressed in a widespread shortage of cash among small to medium explorers.
Many of the 1000, or so, small resource companies on the ASX are struggling to survive the cash drought, existing on miserable share placements and share purchase plans which, in some cases, raise less than A$1 million a pop, a classic example of hand-to-mouth existence, hopefully until confidence returns or a merger for survival is orchestrated.
Hardest hit have been the minor metals where confidence in exotic elements such as rare earths, lithium, graphite, titanium and tungsten, have suffered even more than for bulk and precious metals.
In many ways 2012 unfolded in precisely the way I expected after the 2011 London Mines and Money conference – grim and just got grimmer as year unfolded.
The good news is that 2013, thanks to the better mood at the most recent Mines and Money event in London, is looking a lot better though, to be fair, it couldn’t possibly be as bad as what we’ve just passed through.
Source >>> www.minesite.com
*****
The Year That Was ... In Australia
By Our Man in Oz
Divorce is never pretty, but the split between Australian investors and gold over the past 12-months has been spectacular and difficult to explain – as is often the case in a separation.
In a year when the gold price, as measured in U.S. dollars, crept up around 4.5 per cent from US$1590 an ounce to a recent price of US$1662 an ounce the gold index on the Australian Securities Exchange (ASX) fell by 20.4 per cent.
One up, and the other down is such a divergence between the price of the metal and the collective value of companies that do nothing but explore for and produce the metal that it stands out as one of the highlights of 2012 -- or lowlight to be more accurate.
In contrast to the 20.4 per cent slide in goldmining company share prices the overall mining index fell a relatively modest 4.7 per cent while the rotation of money into Australian domestic bank, retail and industrial stocks, lifted the overall market by 11.8 per cent, as measured by the all ordinaries index.
One possible reason for the decline in the price of Australian gold stocks over the course of 2012 is that the relatively high-value Australian dollar killed the domestic gold sector.
Unfortunately, that explanation fails because while the dollar moved around a bit, oscillating from a low of US97 cents to a high of US$1.04, it opened and closed at almost the same level (US$1.03 at the start to US$1.04 near the close), meaning the domestic gold price opened and closed at roughly the same level.
Why the Australian dollar is trading as high as it is has some of the best brains in business looking for a cause because the country’s economy has lost its boom-time shine, corporate profits have faded and annual economic growth retreated from around 3.5 per cent to less than 2 per cent.
A slowing economy ought to lead to a falling exchange rate. That fact that this is not happening in Australia is piling pressure onto all exporters, especially miners who are also battling a sharp increase in cost pressure.
One possible explanation for the strong Aussie dollar is that it is an example of relativity at work, with the dollar not so much rising as standing still while most other currencies collapse.
Currency pressure on exporters is being exacerbated by a mood-shift among investors who appear to have lost interest in companies and commodities which promise only capital gains and minimal dividend yield. That trend can be seen in the rotation of funds out of mining stocks that pay low dividends, into banks and other forms of high-yield investments.
Lack of dividends, and a poor record in accurate reporting of costs, and other key performance indicators, was a hot topic raised at the London session of the Mines and Money circus earlier this month by one of the world’s top mining investors, BlackRock’s Evy Hambro.
No-one will ever know whether Evy was talking about a plan to sell poorly-managed gold companies in the future, or whether he was speaking about sales already made – putting BlackRock in the frame as a prime contender for killing the Australian gold sector in 2012.
Gold was not the only big loser in Australian mining last year. Coal was not far behind, a victim of one of the world’s great economic surprises which started with the U.S. discovery of vast fields of natural gas trapped in hard rocks once regarded as too difficult to tap.
That geological and technical phenomena triggered a collapse in the gas price, which led to increased gas competition with coal for domestic electricity production, and finally ended with the U.S. coal miners dumping their unsold material into the Asian market where a glut of coal killed the price.
If it was a U.S. gas glut which killed confidence in coal, the board of BHP Billiton did a similar job on confidence when it mothballed the country’s biggest planned mining project, the A$50 billion expansion of the Olympic Dam copper and uranium project.
High costs and political uncertainty flowing from a hung Parliament and an erratic government doing whatever it can to cling to power were cited as reasons for shelving the Olympic Dam upgrade with the Fukushima nuclear power plant accident in Japan a contributing factor thanks to its effect on nuclear operations worldwide.
While it might seem a bit grim to focus on what flopped over the past 12-months there is no escaping the point that it was a year of “stable cleaning” and, to put a positive spin on that, a cleaner stable means that the groundwork has been done for a better year in 2013.
The exciting Nova nickel discovery of Sirius Resources in the largely unexplored Fraser Range area near Australia’s south coast provided a rare glimpse of what might be expected next year. From a standing start at 5c, Sirius stampeded to a high of A$3.80, before settling back to around A$2.14 under the weight of capital raisings, and a number of unsuccessful holes as drilling tries to outline the shape and size of the discovery.
More about future possible developments next week when I preview what to expect from Oz in 2013. For now, let’s examine the entrails of a year which started badly, got worse, and started to show a few flickers of recovery as the curtains were drawn.
To understand what happened in 2012 it’s worth looking back exactly 12-months to the 2011 edition of Mines and Money in London when I attended, observed, and flew home to Australia thoroughly depressed. Others might have seen the event differently, but I still remember attending Christmas parties in the heat of a Perth summer telling anyone who would listen that 2012 was going to be a beast of a year.
That forecast, based on the simple principles of observation and listening, was dismissed by my Australian audience which largely comprised paid-up members of the “China forever” fan club – a organisation which lost many members as 2012 rolled along.
China’s slide into its version of a recession (annual economic expansion below 8 per cent) took a heavy toll of the Australian stock market, especially iron ore companies where management had seemingly been oblivious to the problems of excess iron ore supply hitting a market where demand was contracting.
Like coal, where a similar surplus of supply caused precisely the same problem, iron ore received a wake-up call when Chinese steel mills whacked a temporary buying ban on fresh deliveries as a way to shrink stockpiles which were clogging its ports.
The net result was a precipitous plunge in the iron ore price from around US$150 a tonne to less than US$90/t, and an even more spectacular slide in the share prices of iron ore miners. Fortescue, the biggest of the Australian pure-play iron ore stocks, plunged from A$6.18 on March 22 to A$2.81 on September 6, a 54 per cent fall in less than six months.
Since that low point, Fortescue and other iron ore miners have recovered, along with the iron ore price. Atlas has rebounded from A$1.14 to A$1.66 (perhaps on its way back to A$3.43 reached early in 2012). Mr Gibson is up from A61 cents to A76c, which is still a long way short of the A$1.46 reached in February.
The pattern of prices peaking early in 2012 and then falling sharply before the recent recovery is repeated across multiple sectors, effectively mirroring the rise-and-fall of the international mood as Europe stumbled towards possible solution to its debt crisis and the U.S. neared its fiscal cliff and the threat of a renewed recession.
Australia, while far from either centre of crisis, is being buffeted by the winds of uncertainty because of its close trading affiliations with China which is very much exposed to the U.S.-E.U. centres of insecurity.
After the wobbles suffered by gold, coal and iron ore stocks the next area of concern for Australian mining companies (and investors riding the roller-coaster) is the shortage of risk capital, best expressed in a widespread shortage of cash among small to medium explorers.
Many of the 1000, or so, small resource companies on the ASX are struggling to survive the cash drought, existing on miserable share placements and share purchase plans which, in some cases, raise less than A$1 million a pop, a classic example of hand-to-mouth existence, hopefully until confidence returns or a merger for survival is orchestrated.
Hardest hit have been the minor metals where confidence in exotic elements such as rare earths, lithium, graphite, titanium and tungsten, have suffered even more than for bulk and precious metals.
In many ways 2012 unfolded in precisely the way I expected after the 2011 London Mines and Money conference – grim and just got grimmer as year unfolded.
The good news is that 2013, thanks to the better mood at the most recent Mines and Money event in London, is looking a lot better though, to be fair, it couldn’t possibly be as bad as what we’ve just passed through.
Source >>> www.minesite.com
*****
December 24, 2012
Metals, Markets And Prices: The Year In Review
>>> Rob Davies
There is still an attitude in the minds of some that economies can be controlled, or at least guided in particular directions. But events in 2012 demonstrated how far that is from the truth.
Ever since the global credit bubble burst in 2008 many different government and central banks have tried to do all they can to engineer a recovery in growth.
There is still an attitude in the minds of some that economies can be controlled, or at least guided in particular directions. But events in 2012 demonstrated how far that is from the truth.
Ever since the global credit bubble burst in 2008 many different government and central banks have tried to do all they can to engineer a recovery in growth.
Collectively, these efforts are best described as quantitative easing, or more brutally labelled as printing money.
One measure of the scale of this exercise can be demonstrated by reference to gold. In the 6,000 years that man has been industrially active he has extracted about 150,000 tonnes of gold.
At today’s prices that is worth about US$8 trillion. On 31st August 2008 the balance sheets of the US, UK, ECB, Germany, France, China and Switzerland had a nominal value of US$8.16 trillion. But this collective figure had increased to US$15.05 trillion by 31st October 2011.
In other words the central banks of the five largest countries took five years to fabricate as much “wealth” as the collective effort of all mankind over the previous six millennia.
The problem is that each successive round of money printing is having less and less effect. That was most notable this year when QE4 was announced by the US Federal Reserve on September 2012 and capital markets hardly reacted at all. Compare that to the vigorous responses to QE1 and QE2.
It seems the world economic corpus is becoming progressively less sensitive to these massive drug injections of free cash.
Even so, the economic stimulus presumably stopped things getting even worse, and the performance of base metals over the year is a reflection of that. The LME base metals index started the year at 3,000 and looks set to finish over six per cent higher at about 3,192.
That gives it an average value over the year of 3,047, a modest 1.2 per cent ahead of the average of 3,010 recorded in 2011. But it’s hard to envisage that the year on year change would have been positive without QE.
Aluminium is a classic example. In the developed economies demand actually fell in 2012 by 0.5 per cent, despite all that QE. It was only the 8.2 per cent increase from the BRICs, (Brazil, Russia, India and China) that allowed the industry to record an overall rise in consumption of 4.7 per cent.
Unfortunately, even that was not enough absorb the 2.5 per cent rise in production. As a consequence it is estimated there will be a surplus of 660,000 tonnes in 2012 to add to the 1.6 million tonnes of excess metal generated the previous year. Not surprisingly this has pushed prices down with an expected average for the year of US$2,018 a tonne, nearly 16 per cent less than the 2011 average of US$2,400 a tonne.
The story in copper is not dissimilar with the proviso that it is operating off much lower inventory levels. In contrast to an inventory equivalent to six weeks of consumption in aluminium, stocks of copper are only sufficient to support three weeks of demand. That level of reserve drops to just one week if it is based solely on LME warehouse inventories.
After experiencing two years of vibrant growth, demand for copper increased at a more sedate1.3 per cent in 2012. Once again it was a story of lower demand in the developed world offset by increased appetite in the developing world.
The mature economies used 2.3 per cent less copper this year than in 2011 while China and others used 3.6 per cent more. However, that was a big decline from the 9.8 per cent increase in usage from China and others in 2011.
Growth in copper production is estimated to have slowed in 2012 to 1.9 per cent, the lowest since 2009, and that effectively gives a balanced market. Despite the low inventory level it looks as if copper will average about US$7,955 a tonne this year, nearly 10 per cent less than the US$8,811 it averaged in 2011.
Lead is one of the few metals to exhibit good growth in demand in 2012, as it put in a rise of 4.3 per cent. Once again this is largely as a result of an increase of 6.4 per cent in consumption from the BRICs.
At least lead was able to experience growing consumption in the developed world, albeit a rather measly 0.6 per cent. Lead is an intriguing market because so much supply is sourced from scrap. Out of the estimated 11 million tonnes produced in 2012, 3.4 per cent more than 2011, only 5.4 million was new mine supply.
But that was a 16 per cent increase as a mild winter in Europe reduced scrap availability. This looks likely to leave the metal in a small surplus this year and an average price for 2012 of about US$2,060 a tonne, 14 per cent less than the US$2,398 recorded in 2011.
Despite good growth in consumption of 4.4 per cent, nickel is on track to deliver the worst price performance of all the base metals in 2012. A likely average of US$17,522 a tonne makes it still the second most expensive base metal, but that price is still about 23 per cent lower than the average of US$22,831 achieved in 2011.
The causes are familiar. Demand from the developed economies shrank by 1.6 per cent, but expanded by 8.8 per cent in the BRICs. The problem is that a 5.6 per cent increase in production in 2012 follows an 11 per cent increase in 2011 and leaves the market oversupplied by about 34,000 tonnes.
With total stocks of 220,000 tonnes in a small industry that only consumes 1.7 million tonnes a year it leaves inventories at a rather large seven weeks of consumption. These new mines and lower costs are a haunting legacy of the boom times in nickel five years ago when it averaged US$37,181 a tonne in 2007 and encouraged so much new capacity.
No one gives much attention to tin because it is such a small market that only consumes 364,000 tonnes a year. Even so, as the most expensive base metal with an average price in 2012 of US$21,020 it should attract more attention. The price has fallen 19 per cent, even though production fell 3.6 per cent because demand fell by even larger 3.8 per cent.
Zinc remains the problem child of the base metals because its inventory of surplus metal of 1.2 million tonnes is high in absolute terms. Moreover, adding in other stocks, excess metal is equivalent to seven weeks of consumption.
Zinc’s use in galvanising steel makes it closely correlated with the construction industry and it is therefore little surprise that consumption contracted by 4.5 per cent in the developed economies. Unfortunately, its use in the BRIC economies only increased by 1.5 per cent, leaving it with a lacklustre overall increase of just 0.1 per cent. Even a contraction of 0.9 per cent in supply was not enough to prevent a surplus of 245,000 tonnes, and that pushed the average price down 11.2 per cent to US$1,945 a tonne.
Bulk commodities are far more important to the profits of the diversified miners these days than base metals. The two largest are thermal coal and iron ore and both are crucially reliant on the Chinese market - iron ore for help in building it and coal to power it.
Chinese imports of thermal coal in 2012 are thought to have risen slightly to 106 million tonnes. While Chinese electricity production is rising a larger percentage is being generated by hydro, which now accounts for nearly 22 per cent of output, up from 15 per cent a year ago. One consequence of this has been to reduce pressure on demand, and prices for thermal coal have slipped over 20 per cent in 2012 on the previous year. This takes thermal coal down to US$95 a tonne. But that is still a very attractive level for the miners.
In iron ore the story is more construction as Chinese steel production in 2012 is expected to be 2.5 per cent higher than last year. While this increase is less than was initially expected, and is still a vast amount, it has led to cutbacks. This has impacted pricing, which is on track for a 27 per cent decline for 2012 to about US$125 a tonne.
There is no doubt that miners have ridden the storms of the great recession better than many industries as a result of firm commodity prices. In turn commodities have been a direct beneficiary of stimulus in the developed world and robust growth in the developing world. It is not often that influences combine positively, but 2012 was certainly one such occasion for miners.
Source >>> www.minesite.com
*****
Metals, Markets And Prices: The Year In Review
>>> Rob Davies
There is still an attitude in the minds of some that economies can be controlled, or at least guided in particular directions. But events in 2012 demonstrated how far that is from the truth.
Ever since the global credit bubble burst in 2008 many different government and central banks have tried to do all they can to engineer a recovery in growth.
There is still an attitude in the minds of some that economies can be controlled, or at least guided in particular directions. But events in 2012 demonstrated how far that is from the truth.
Ever since the global credit bubble burst in 2008 many different government and central banks have tried to do all they can to engineer a recovery in growth.
Collectively, these efforts are best described as quantitative easing, or more brutally labelled as printing money.
One measure of the scale of this exercise can be demonstrated by reference to gold. In the 6,000 years that man has been industrially active he has extracted about 150,000 tonnes of gold.
At today’s prices that is worth about US$8 trillion. On 31st August 2008 the balance sheets of the US, UK, ECB, Germany, France, China and Switzerland had a nominal value of US$8.16 trillion. But this collective figure had increased to US$15.05 trillion by 31st October 2011.
In other words the central banks of the five largest countries took five years to fabricate as much “wealth” as the collective effort of all mankind over the previous six millennia.
The problem is that each successive round of money printing is having less and less effect. That was most notable this year when QE4 was announced by the US Federal Reserve on September 2012 and capital markets hardly reacted at all. Compare that to the vigorous responses to QE1 and QE2.
It seems the world economic corpus is becoming progressively less sensitive to these massive drug injections of free cash.
Even so, the economic stimulus presumably stopped things getting even worse, and the performance of base metals over the year is a reflection of that. The LME base metals index started the year at 3,000 and looks set to finish over six per cent higher at about 3,192.
That gives it an average value over the year of 3,047, a modest 1.2 per cent ahead of the average of 3,010 recorded in 2011. But it’s hard to envisage that the year on year change would have been positive without QE.
Aluminium is a classic example. In the developed economies demand actually fell in 2012 by 0.5 per cent, despite all that QE. It was only the 8.2 per cent increase from the BRICs, (Brazil, Russia, India and China) that allowed the industry to record an overall rise in consumption of 4.7 per cent.
Unfortunately, even that was not enough absorb the 2.5 per cent rise in production. As a consequence it is estimated there will be a surplus of 660,000 tonnes in 2012 to add to the 1.6 million tonnes of excess metal generated the previous year. Not surprisingly this has pushed prices down with an expected average for the year of US$2,018 a tonne, nearly 16 per cent less than the 2011 average of US$2,400 a tonne.
The story in copper is not dissimilar with the proviso that it is operating off much lower inventory levels. In contrast to an inventory equivalent to six weeks of consumption in aluminium, stocks of copper are only sufficient to support three weeks of demand. That level of reserve drops to just one week if it is based solely on LME warehouse inventories.
After experiencing two years of vibrant growth, demand for copper increased at a more sedate1.3 per cent in 2012. Once again it was a story of lower demand in the developed world offset by increased appetite in the developing world.
The mature economies used 2.3 per cent less copper this year than in 2011 while China and others used 3.6 per cent more. However, that was a big decline from the 9.8 per cent increase in usage from China and others in 2011.
Growth in copper production is estimated to have slowed in 2012 to 1.9 per cent, the lowest since 2009, and that effectively gives a balanced market. Despite the low inventory level it looks as if copper will average about US$7,955 a tonne this year, nearly 10 per cent less than the US$8,811 it averaged in 2011.
Lead is one of the few metals to exhibit good growth in demand in 2012, as it put in a rise of 4.3 per cent. Once again this is largely as a result of an increase of 6.4 per cent in consumption from the BRICs.
At least lead was able to experience growing consumption in the developed world, albeit a rather measly 0.6 per cent. Lead is an intriguing market because so much supply is sourced from scrap. Out of the estimated 11 million tonnes produced in 2012, 3.4 per cent more than 2011, only 5.4 million was new mine supply.
But that was a 16 per cent increase as a mild winter in Europe reduced scrap availability. This looks likely to leave the metal in a small surplus this year and an average price for 2012 of about US$2,060 a tonne, 14 per cent less than the US$2,398 recorded in 2011.
Despite good growth in consumption of 4.4 per cent, nickel is on track to deliver the worst price performance of all the base metals in 2012. A likely average of US$17,522 a tonne makes it still the second most expensive base metal, but that price is still about 23 per cent lower than the average of US$22,831 achieved in 2011.
The causes are familiar. Demand from the developed economies shrank by 1.6 per cent, but expanded by 8.8 per cent in the BRICs. The problem is that a 5.6 per cent increase in production in 2012 follows an 11 per cent increase in 2011 and leaves the market oversupplied by about 34,000 tonnes.
With total stocks of 220,000 tonnes in a small industry that only consumes 1.7 million tonnes a year it leaves inventories at a rather large seven weeks of consumption. These new mines and lower costs are a haunting legacy of the boom times in nickel five years ago when it averaged US$37,181 a tonne in 2007 and encouraged so much new capacity.
No one gives much attention to tin because it is such a small market that only consumes 364,000 tonnes a year. Even so, as the most expensive base metal with an average price in 2012 of US$21,020 it should attract more attention. The price has fallen 19 per cent, even though production fell 3.6 per cent because demand fell by even larger 3.8 per cent.
Zinc remains the problem child of the base metals because its inventory of surplus metal of 1.2 million tonnes is high in absolute terms. Moreover, adding in other stocks, excess metal is equivalent to seven weeks of consumption.
Zinc’s use in galvanising steel makes it closely correlated with the construction industry and it is therefore little surprise that consumption contracted by 4.5 per cent in the developed economies. Unfortunately, its use in the BRIC economies only increased by 1.5 per cent, leaving it with a lacklustre overall increase of just 0.1 per cent. Even a contraction of 0.9 per cent in supply was not enough to prevent a surplus of 245,000 tonnes, and that pushed the average price down 11.2 per cent to US$1,945 a tonne.
Bulk commodities are far more important to the profits of the diversified miners these days than base metals. The two largest are thermal coal and iron ore and both are crucially reliant on the Chinese market - iron ore for help in building it and coal to power it.
Chinese imports of thermal coal in 2012 are thought to have risen slightly to 106 million tonnes. While Chinese electricity production is rising a larger percentage is being generated by hydro, which now accounts for nearly 22 per cent of output, up from 15 per cent a year ago. One consequence of this has been to reduce pressure on demand, and prices for thermal coal have slipped over 20 per cent in 2012 on the previous year. This takes thermal coal down to US$95 a tonne. But that is still a very attractive level for the miners.
In iron ore the story is more construction as Chinese steel production in 2012 is expected to be 2.5 per cent higher than last year. While this increase is less than was initially expected, and is still a vast amount, it has led to cutbacks. This has impacted pricing, which is on track for a 27 per cent decline for 2012 to about US$125 a tonne.
There is no doubt that miners have ridden the storms of the great recession better than many industries as a result of firm commodity prices. In turn commodities have been a direct beneficiary of stimulus in the developed world and robust growth in the developing world. It is not often that influences combine positively, but 2012 was certainly one such occasion for miners.
Source >>> www.minesite.com
*****
The five worst commodities of 2012
1. Coffee: it shed nearly 38%
2. Sugar: it sank more than 34%
3. Orange Juice: it lost 21%
4. Natural Gas: NG lost 13% on the year
5. Cotton: cotton futures surrendered just under 13% on the year
Source >> Jared Cummans, 31 Dec 2012
*****
1. Coffee: it shed nearly 38%
2. Sugar: it sank more than 34%
3. Orange Juice: it lost 21%
4. Natural Gas: NG lost 13% on the year
5. Cotton: cotton futures surrendered just under 13% on the year
Source >> Jared Cummans, 31 Dec 2012
*****
January 02, 2013
How Will Base Metals Perform In 2013?
By Rob Davies
Over the course of 2013 the world economy will be bigger than it was in 2012. That means several things for commodity investors.
First, the world economy will get through a hell of a lot of raw material. We will witness the largest consumption of commodities ever known.
And the mining industry not only has to replace everything it consumes next year but it also needs to find enough additional material to cope with increasing demand in the future.
Whatever the detractors say mining is a growth industry, because it continually has to find new material to replace what it uses. Unlike a service industry its employees cannot simply provide the same function day in day out.
The issue for investors is whether the industry can deliver new resources faster than they are being consumed. If they do prices fall; if they don’t prices rise. That small difference between two large numbers determines the prospects for the industry. What makes the game so hard is that neither number is easy to estimate.
Demand is always the starting point, since without it there is no need for any supply. There are two factors to consider for demand: the size of the market and how fast it is likely to grow.
Fortunately for metals the largest market, China, is also the fastest growing. In 2013 the OECD reckons China will grow by 8.5 per cent and the IMF thinks the region it labels Developing Asia, which includes China, will expand by 7.2 per cent.
Contrast that with the 2.3 per cent growth the OECD expects its member countries to deliver or the 2.9 per cent the IMF expects for the world as a whole, and it is clear where the impetus is coming from.
Another positive factor for metals is that the growth in developing markets is led by industrial production rather than services. In other words, stuff you don’t want to drop on your toe because it is big, heavy and made of metal. Economies that have already developed get richer by sending each other emails, and they don’t have any metal in them.
A good example of how this divergent world operates is provided by aluminium. It is estimated that 21 million of the total world consumption of nearly 48 million tonnes will occur in China next year.
It is true that some of this will be exported, but the bulk will be consumed internally. All the so-called mature economies put together, Europe, Japan and the US, will only consume two thirds of the Chinese figure.
While this rampant demand looks good, and it is, production is likely to be half a million tonnes more than that. The excess material is forecast to be from China, but wherever it comes from it will depress prices and aluminium will probably do well if it trades above US$2,000 a tonne for most of the year.
Copper is half the size of the aluminium market in tonnage but twice as big by value. Its consumption is intimately related to the installation of electricity generation and distribution. This is happening fastest in industrialising economies and China is expected to lead the way in 2013 with a 5.8 per cent increase in copper consumption.
With demand of over eight million tonnes, the Middle Kingdom will account for over 40 per cent of global copper demand and makes the US and Japan look like bit players with their off-take of just over a million tonnes each. Europe will process about 3.2 million tonnes but that will be a similar level to 2012. It is this weakness that will keep overall demand growth down to about three per cent.
Unusually these days the story in copper is more about supply than demand, as Chinese output rises and the first metal from the giant Oyu Tolgoi mine in Mongolia is delivered. African production will continue to rise and will be about twice the level it was just five years ago. This supply though comes with a big caveat over its reliability and leaves copper more susceptible than most metals to interruptions.
More reliable is the flow from Latin America where Chile, Peru and Mexico are all expanding production and will add nearly half a million tonnes to the supply side. Rising supply and only modest increases in demand, combined with an already high price suggest that copper won’t make much progress in 2013, but will probably stay the right side of US$8,000 a tonne. The right side for miners, that is.
The sweet spot for metals is when demand exceeds supply, for whatever reason. Lead is probably one of the few metals that that will apply to next year. Even though it is small market, with total consumption of less than twelve million tonnes a year, parts of it are growing rapidly.
Most notable is lead-acid battery demand in China that is expected to increase by 10 per cent in 2013 to nearly five and a half million tonnes. That will take the global increase in demand up by over six per cent and with production only forecast to expand by five per cent that will leave the market in deficit to the tune of about 50,000 tonnes. Not much perhaps but enough to keep the price well above US$2,000 a tonne, as it has been for the last three years.
Nickel is anther metal where the scrap cycle has a marked impact on volatility of demand and hence price. Stainless steel is the major use for nickel but forecast weakness in European off-take next year will act to constrain overall demand levels. Yet again this soft spot is overwhelmed by forecast growth of nearly nine per cent in China that will take overall demand up nearly seven per cent to over 1.7 million tonnes.
Weak prices in 2012 did raise some question marks over the economics of new mine capacity but the need to service project debt means these new mines will increase output, and by a substantial amount as well. It appears that global production will exceed 1.8 million tonnes and create another modest surplus. While that will limit the upside, production costs will put a floor under prices so quotes could be broadly similar to last year’s.
It is a pity that tin is such a small market because it has the best prospects. The signs are that it is heading for another deficit in 2013 as miners struggle to cope with surging demand from the electronics industry in China. Prices look set to beat the levels achieved last year and return to the mid US$20,000 a tonne.
Zinc is the problem child of the base metals sector. It is labouring under a large stockpile that is expected to increase in 2013 to over eight weeks when expressed as a weeks of consumption. Firm demand in China will offset much of the weak consumption growth in the developed world.
Unfortunately, mine production is set to increase by low single digits after barely rising over the last two years. That will create another surplus, possibly as much as a quarter of million tonnes. However good the rest of the sector is it is hard to see the price of zinc staying above US$2,000 a tonne.
Iron ore prices enjoyed a late surge at the end of 2012 so spot prices should start 2013 in good order at around US$140 a tonne. The story as usual is set by Chinese demand growth of 1.7 per cent that will take steel production there up to 712 million tonnes. As it represents 60 per cent of global seaborne trade, it is the price setter and no-one is better placed to supply than the Australians, as they are the closest and with the ability to increase capacity.
The outlook for thermal coal is probably not quite as rosy as iron ore. Although the Chinese economy is growing it is not growing as fast as in previous years. One way that is visible is through electricity demand which is increasing, but at a more modest rate. Despite the threat from hydro, coal remains the principle fuel for electricity generation and prices are forecast to edge up in 2013 to just under US$100 a tonne.
Much of the media will obsess over the US economy and its “fiscal cliff” in 2013. Miners and mining investors should not ignore that problem, but it will be a secondary issue to the continuing expansion of China and other developing economies. Metals remain the easiest and possibly the safest, way of playing that growth story.
Source >>> www.minesite.com
*****
How Will Base Metals Perform In 2013?
By Rob Davies
Over the course of 2013 the world economy will be bigger than it was in 2012. That means several things for commodity investors.
First, the world economy will get through a hell of a lot of raw material. We will witness the largest consumption of commodities ever known.
And the mining industry not only has to replace everything it consumes next year but it also needs to find enough additional material to cope with increasing demand in the future.
Whatever the detractors say mining is a growth industry, because it continually has to find new material to replace what it uses. Unlike a service industry its employees cannot simply provide the same function day in day out.
The issue for investors is whether the industry can deliver new resources faster than they are being consumed. If they do prices fall; if they don’t prices rise. That small difference between two large numbers determines the prospects for the industry. What makes the game so hard is that neither number is easy to estimate.
Demand is always the starting point, since without it there is no need for any supply. There are two factors to consider for demand: the size of the market and how fast it is likely to grow.
Fortunately for metals the largest market, China, is also the fastest growing. In 2013 the OECD reckons China will grow by 8.5 per cent and the IMF thinks the region it labels Developing Asia, which includes China, will expand by 7.2 per cent.
Contrast that with the 2.3 per cent growth the OECD expects its member countries to deliver or the 2.9 per cent the IMF expects for the world as a whole, and it is clear where the impetus is coming from.
Another positive factor for metals is that the growth in developing markets is led by industrial production rather than services. In other words, stuff you don’t want to drop on your toe because it is big, heavy and made of metal. Economies that have already developed get richer by sending each other emails, and they don’t have any metal in them.
A good example of how this divergent world operates is provided by aluminium. It is estimated that 21 million of the total world consumption of nearly 48 million tonnes will occur in China next year.
It is true that some of this will be exported, but the bulk will be consumed internally. All the so-called mature economies put together, Europe, Japan and the US, will only consume two thirds of the Chinese figure.
While this rampant demand looks good, and it is, production is likely to be half a million tonnes more than that. The excess material is forecast to be from China, but wherever it comes from it will depress prices and aluminium will probably do well if it trades above US$2,000 a tonne for most of the year.
Copper is half the size of the aluminium market in tonnage but twice as big by value. Its consumption is intimately related to the installation of electricity generation and distribution. This is happening fastest in industrialising economies and China is expected to lead the way in 2013 with a 5.8 per cent increase in copper consumption.
With demand of over eight million tonnes, the Middle Kingdom will account for over 40 per cent of global copper demand and makes the US and Japan look like bit players with their off-take of just over a million tonnes each. Europe will process about 3.2 million tonnes but that will be a similar level to 2012. It is this weakness that will keep overall demand growth down to about three per cent.
Unusually these days the story in copper is more about supply than demand, as Chinese output rises and the first metal from the giant Oyu Tolgoi mine in Mongolia is delivered. African production will continue to rise and will be about twice the level it was just five years ago. This supply though comes with a big caveat over its reliability and leaves copper more susceptible than most metals to interruptions.
More reliable is the flow from Latin America where Chile, Peru and Mexico are all expanding production and will add nearly half a million tonnes to the supply side. Rising supply and only modest increases in demand, combined with an already high price suggest that copper won’t make much progress in 2013, but will probably stay the right side of US$8,000 a tonne. The right side for miners, that is.
The sweet spot for metals is when demand exceeds supply, for whatever reason. Lead is probably one of the few metals that that will apply to next year. Even though it is small market, with total consumption of less than twelve million tonnes a year, parts of it are growing rapidly.
Most notable is lead-acid battery demand in China that is expected to increase by 10 per cent in 2013 to nearly five and a half million tonnes. That will take the global increase in demand up by over six per cent and with production only forecast to expand by five per cent that will leave the market in deficit to the tune of about 50,000 tonnes. Not much perhaps but enough to keep the price well above US$2,000 a tonne, as it has been for the last three years.
Nickel is anther metal where the scrap cycle has a marked impact on volatility of demand and hence price. Stainless steel is the major use for nickel but forecast weakness in European off-take next year will act to constrain overall demand levels. Yet again this soft spot is overwhelmed by forecast growth of nearly nine per cent in China that will take overall demand up nearly seven per cent to over 1.7 million tonnes.
Weak prices in 2012 did raise some question marks over the economics of new mine capacity but the need to service project debt means these new mines will increase output, and by a substantial amount as well. It appears that global production will exceed 1.8 million tonnes and create another modest surplus. While that will limit the upside, production costs will put a floor under prices so quotes could be broadly similar to last year’s.
It is a pity that tin is such a small market because it has the best prospects. The signs are that it is heading for another deficit in 2013 as miners struggle to cope with surging demand from the electronics industry in China. Prices look set to beat the levels achieved last year and return to the mid US$20,000 a tonne.
Zinc is the problem child of the base metals sector. It is labouring under a large stockpile that is expected to increase in 2013 to over eight weeks when expressed as a weeks of consumption. Firm demand in China will offset much of the weak consumption growth in the developed world.
Unfortunately, mine production is set to increase by low single digits after barely rising over the last two years. That will create another surplus, possibly as much as a quarter of million tonnes. However good the rest of the sector is it is hard to see the price of zinc staying above US$2,000 a tonne.
Iron ore prices enjoyed a late surge at the end of 2012 so spot prices should start 2013 in good order at around US$140 a tonne. The story as usual is set by Chinese demand growth of 1.7 per cent that will take steel production there up to 712 million tonnes. As it represents 60 per cent of global seaborne trade, it is the price setter and no-one is better placed to supply than the Australians, as they are the closest and with the ability to increase capacity.
The outlook for thermal coal is probably not quite as rosy as iron ore. Although the Chinese economy is growing it is not growing as fast as in previous years. One way that is visible is through electricity demand which is increasing, but at a more modest rate. Despite the threat from hydro, coal remains the principle fuel for electricity generation and prices are forecast to edge up in 2013 to just under US$100 a tonne.
Much of the media will obsess over the US economy and its “fiscal cliff” in 2013. Miners and mining investors should not ignore that problem, but it will be a secondary issue to the continuing expansion of China and other developing economies. Metals remain the easiest and possibly the safest, way of playing that growth story.
Source >>> www.minesite.com
*****
For your consideration >> Commodities site >> http://commodityhq.com/news/
***
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January 05, 2013
That Was The Week That Was … In Australia
By Our Man in Oz
...
Minews. Over to the base metal sector now, please.
Oz. Copper leaders rose strongly, but it was pretty flat elsewhere. Nickel stocks improved, just, and zinc tried again to make a break-out, but didn’t really quite get there.
Best of the copper stocks was OZ Minerals (OZL) which continued its recovery after a heavy pre-Christmas sell-off. Last week Oz added A44 cents to A$7.17, but did get as high as A$7.32 on Thursday. Ivanhoe (IVA) was also in demand, rising by A9 cents to A48 cents, and Rex (RXM) put on A6 cents to A71 cents. Other copper movers included: Sandfire (SFR), up A11 cents to A$8.82, Metminco (MNC), up A0.3 of a cent to A6.2 cents, Altona (AOH), up A2 cents to A30.5 cents, and Sabre (SBR), down A1 cent to A17.5 cents.
Panorama (PAN) was the best of the nickel stocks, though perhaps because of developments in its gold exploration assets. It added A9 cents to A58 cents. Sirius (SIR) recovered recently lost ground with a rise of A21 cents to A$2.34. And Sirius’s freshly-floated associate, Windward Resources (WIN), added A2.5 cents to A26 cents. Other nickel moves included: Mincor (MCR), up A2 cents to A$1.02, Western Areas (WSA), up A6 cents to A$4.62 and Matsa (MAT), up A4.5 cents to A35.5 cents.
Perilya (PEM) led the way among the zinc stocks with a rise of A4.5 cents to A38 cents, but did get as high as A40.5 cents on Thursday, its highest since April. The rest of the zinc sector tried to follow, but failed. Ironbark (IBG) crept up a tiny A0.2 of a cent to A8.5 cents. Balamara (BMB) added A0.6 of a cent to A9.1 cents, and KBL (KBL) was half-a-cent stronger at A14.5 cents.
...
Source >> www.minesite.com
*****
That Was The Week That Was … In Australia
By Our Man in Oz
...
Minews. Over to the base metal sector now, please.
Oz. Copper leaders rose strongly, but it was pretty flat elsewhere. Nickel stocks improved, just, and zinc tried again to make a break-out, but didn’t really quite get there.
Best of the copper stocks was OZ Minerals (OZL) which continued its recovery after a heavy pre-Christmas sell-off. Last week Oz added A44 cents to A$7.17, but did get as high as A$7.32 on Thursday. Ivanhoe (IVA) was also in demand, rising by A9 cents to A48 cents, and Rex (RXM) put on A6 cents to A71 cents. Other copper movers included: Sandfire (SFR), up A11 cents to A$8.82, Metminco (MNC), up A0.3 of a cent to A6.2 cents, Altona (AOH), up A2 cents to A30.5 cents, and Sabre (SBR), down A1 cent to A17.5 cents.
Panorama (PAN) was the best of the nickel stocks, though perhaps because of developments in its gold exploration assets. It added A9 cents to A58 cents. Sirius (SIR) recovered recently lost ground with a rise of A21 cents to A$2.34. And Sirius’s freshly-floated associate, Windward Resources (WIN), added A2.5 cents to A26 cents. Other nickel moves included: Mincor (MCR), up A2 cents to A$1.02, Western Areas (WSA), up A6 cents to A$4.62 and Matsa (MAT), up A4.5 cents to A35.5 cents.
Perilya (PEM) led the way among the zinc stocks with a rise of A4.5 cents to A38 cents, but did get as high as A40.5 cents on Thursday, its highest since April. The rest of the zinc sector tried to follow, but failed. Ironbark (IBG) crept up a tiny A0.2 of a cent to A8.5 cents. Balamara (BMB) added A0.6 of a cent to A9.1 cents, and KBL (KBL) was half-a-cent stronger at A14.5 cents.
...
Source >> www.minesite.com
*****
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