Commodities: Aluminum
http://commodityhq.com/2013/goldman-sachs-jp-morgans-aluminum-game-unravels/
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http://commodityhq.com/2013/goldman-sachs-jp-morgans-aluminum-game-unravels/
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Gold... regaining its lustre
August 25, 2013
That Was The Week That Was ... In Australia
By Our Man in Oz
Minews. Good morning Australia. Gold seems to have retained its role as the driver in your markets.
Oz. Very much so. A five per cent rise in the gold index took the gain to 19 per cent over two weeks, and with the near-certainty of more to come next week because the gold price kept rising after we had closed on Friday. Another factor which returned last week was the falling Australian dollar which, at one stage was below US90 cents, but closed the week at around that figure.
The net result is that gold in US dollars is now up about another US$24 an ounce on our Friday close and tantalisingly close to the US$1400 per ounce mark, while the Australian domestic gold price is back to a very impressive A$1,547 per ounce.
Minews. We’ll watch next week with interest. Back to what’s been happening.
Oz. After gold, the rest of the Australian market was relatively sluggish, adding just 0.3 per cent as measured by the all ordinaries index, while the metals and mining index managed a gain of 1.1 per cent.
News from the election campaign is equally interesting because the gap between the conservative coalition and the Labor Party continues to widen with a change of government on September 7th looking more likely than at any time in the past month.
If the change occurs the Australian mining sector can expect a significant boost because the deeply disliked mining tax will go, as will the equally disliked carbon tax.
Minews. Interesting, but let’s switch to prices now, please, starting with gold.
Oz. Much like the last time we talked it was much harder to find any gold companies that fell, though the latest batch of rises were more modest than big recovery of two weeks ago.
Kingsgate (KCN) was one of the stars, rising by A68 cents (34 per cent) to A$2.65 as confidence returned to the company and its gold operations in Thailand. OceanaGold (OGC), added A54 cents (33 per cent) to A$2.15. St Barbara (SBM) continued its recovery with a rise of A13 cents to A79 cents despite reporting a big asset-value write-down, and Medusa (MML) put on A24 cents to A$2.62.
Other gold moves, mainly up, included: Troy (TRY), up A14 cents to A$1.83, Silver Lake (SLR), up A9 cents to A$1.01, Regis (RRL), up A15 cents to A$4.10, Middle Island (MDI), up A2 cents to A15 cents, Endeavour (EVR), up A3.5 cents to A88.5 cents, Evolution (EVN) also up A3.5 cents to A93.5 cents, Perseus (PRU), down half-a-cent to A78 cents, and Kingsrose (KRM), down by the same fractional amount of half-a-cent to A41 cents.
...
Source >> www.minesite.com
*****
August 25, 2013
That Was The Week That Was ... In Australia
By Our Man in Oz
Minews. Good morning Australia. Gold seems to have retained its role as the driver in your markets.
Oz. Very much so. A five per cent rise in the gold index took the gain to 19 per cent over two weeks, and with the near-certainty of more to come next week because the gold price kept rising after we had closed on Friday. Another factor which returned last week was the falling Australian dollar which, at one stage was below US90 cents, but closed the week at around that figure.
The net result is that gold in US dollars is now up about another US$24 an ounce on our Friday close and tantalisingly close to the US$1400 per ounce mark, while the Australian domestic gold price is back to a very impressive A$1,547 per ounce.
Minews. We’ll watch next week with interest. Back to what’s been happening.
Oz. After gold, the rest of the Australian market was relatively sluggish, adding just 0.3 per cent as measured by the all ordinaries index, while the metals and mining index managed a gain of 1.1 per cent.
News from the election campaign is equally interesting because the gap between the conservative coalition and the Labor Party continues to widen with a change of government on September 7th looking more likely than at any time in the past month.
If the change occurs the Australian mining sector can expect a significant boost because the deeply disliked mining tax will go, as will the equally disliked carbon tax.
Minews. Interesting, but let’s switch to prices now, please, starting with gold.
Oz. Much like the last time we talked it was much harder to find any gold companies that fell, though the latest batch of rises were more modest than big recovery of two weeks ago.
Kingsgate (KCN) was one of the stars, rising by A68 cents (34 per cent) to A$2.65 as confidence returned to the company and its gold operations in Thailand. OceanaGold (OGC), added A54 cents (33 per cent) to A$2.15. St Barbara (SBM) continued its recovery with a rise of A13 cents to A79 cents despite reporting a big asset-value write-down, and Medusa (MML) put on A24 cents to A$2.62.
Other gold moves, mainly up, included: Troy (TRY), up A14 cents to A$1.83, Silver Lake (SLR), up A9 cents to A$1.01, Regis (RRL), up A15 cents to A$4.10, Middle Island (MDI), up A2 cents to A15 cents, Endeavour (EVR), up A3.5 cents to A88.5 cents, Evolution (EVN) also up A3.5 cents to A93.5 cents, Perseus (PRU), down half-a-cent to A78 cents, and Kingsrose (KRM), down by the same fractional amount of half-a-cent to A41 cents.
...
Source >> www.minesite.com
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From Canada to Asia Pacific region we saw some sort of rebound in commodity stocks such gold stocks, plantations stocks and Agri stocks etc during last couple of days. Globally there were some opportunities in out of favor commodities and commodity stocks as well. If we see supply threat or lower production in some commodities there will be short term spikes in some commodities in 2014.
My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions
My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions
September 08, 2013
That Was The Week That Was ... In Australia
By Our Man in Oz
Minews. Good morning Australia, and hello to your new pro-mining government.
Oz. Yes, Tony Abbott will be the new Prime Minister, leading a conservative government with a handsome majority.
Minews. Are investors expecting much change?
Oz. Yes. As we’ve discussed over the past few weeks a switch to coalition of Liberal and National Parties will see the end of the mining super-tax and, potentially, the end of the carbon tax if the new government gets control of the Senate as well as the lower house.
Minews. We’ll wait for the details but essentially you’re saying that a change will be good for mining.
Oz. Very much so, and while I’m not expecting a jump in mining company share prices on Monday morning the seeds have been sown for higher future prices.
Not that you could see that during another lacklustre week’s trading last week.
Minews. Why not?
Oz. Much as when we last spoke the wider market barely moved. Gold was the exception, with the lower bullion price during Friday knocking five per cent off the ASX gold index. The all ordinaries index added 0.3 per cent, and the metals and mining index slipped lower by 0.4 per cent.
Minews. You’ll probably see a solid increase in your gold stocks on Monday, because the crisis in Syria and less than inspiring economic data in the U.S. sent the gold price up after your trading hours.
Oz. That’s probably right, so what we might do with this review of the market is to focus initially on a few outliers, the stocks from any sector which outperformed. That way our readers might get a few investment ideas.
...
Source >> www.minesite.com
*****
That Was The Week That Was ... In Australia
By Our Man in Oz
Minews. Good morning Australia, and hello to your new pro-mining government.
Oz. Yes, Tony Abbott will be the new Prime Minister, leading a conservative government with a handsome majority.
Minews. Are investors expecting much change?
Oz. Yes. As we’ve discussed over the past few weeks a switch to coalition of Liberal and National Parties will see the end of the mining super-tax and, potentially, the end of the carbon tax if the new government gets control of the Senate as well as the lower house.
Minews. We’ll wait for the details but essentially you’re saying that a change will be good for mining.
Oz. Very much so, and while I’m not expecting a jump in mining company share prices on Monday morning the seeds have been sown for higher future prices.
Not that you could see that during another lacklustre week’s trading last week.
Minews. Why not?
Oz. Much as when we last spoke the wider market barely moved. Gold was the exception, with the lower bullion price during Friday knocking five per cent off the ASX gold index. The all ordinaries index added 0.3 per cent, and the metals and mining index slipped lower by 0.4 per cent.
Minews. You’ll probably see a solid increase in your gold stocks on Monday, because the crisis in Syria and less than inspiring economic data in the U.S. sent the gold price up after your trading hours.
Oz. That’s probably right, so what we might do with this review of the market is to focus initially on a few outliers, the stocks from any sector which outperformed. That way our readers might get a few investment ideas.
...
Source >> www.minesite.com
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Following articles are very intersecting and it gives some idea about ethanol demand, oil prices and corn prices in the coming decade. We have to wait and see. I believe in some period there could be short term spikes in oil and corn prices due to short term supply threat.
According to following link
http://www.northernag.net/AGNews/ta...Food-Prices-Fall-Again-on-Cheaper-Grains.aspx
FAO said: there will be strong cereal production this year and specially a sharp recovery in maize supplies(corn)
Brazil is using more sugarcane for ethanol production rather than sweetener.
The global food-import bill will probably be stable this year at $1.094 trillion as cheaper sugar and cooking oil make up for rising prices of dairy, fish and meat, the FAO predicted in June.
According to following link
http://www.cattlenetwork.com/e-news...h-is-over-corn-may-drop-to-325-223011001.html
Livestock producers are likely to see shrinking feed costs and it’s time for livestock producers to have their turn.
Ethanol demand will be “flat-lining” into 2022.
Forecasting $4 corn this fall and a range from $3.25 to $6 over the next decade.
US going to become a leading exporter of energy within seven years and will reduce oil prices below $70 per barrel.
We have to wait and see how market is going to react in the coming decade.
My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions
According to following link
http://www.northernag.net/AGNews/ta...Food-Prices-Fall-Again-on-Cheaper-Grains.aspx
FAO said: there will be strong cereal production this year and specially a sharp recovery in maize supplies(corn)
Brazil is using more sugarcane for ethanol production rather than sweetener.
The global food-import bill will probably be stable this year at $1.094 trillion as cheaper sugar and cooking oil make up for rising prices of dairy, fish and meat, the FAO predicted in June.
According to following link
http://www.cattlenetwork.com/e-news...h-is-over-corn-may-drop-to-325-223011001.html
Livestock producers are likely to see shrinking feed costs and it’s time for livestock producers to have their turn.
Ethanol demand will be “flat-lining” into 2022.
Forecasting $4 corn this fall and a range from $3.25 to $6 over the next decade.
US going to become a leading exporter of energy within seven years and will reduce oil prices below $70 per barrel.
We have to wait and see how market is going to react in the coming decade.
My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions
September 09, 2013
UK Majors Have Now Written Off US$31 Billion, But Will It Be Enough To Bring The Market Back Into Balance?
By Rob Davies
These days, capital markets seem to be as aimless as the politicians who have the thankless task of conducting foreign policy.
Another thing they have in common is doing it together.
The best example of that can be found in the bond market, where yields on medium to long term bonds for US, UK and Europe have all risen together.
Anglo-Saxon instruments even breached the three per cent figure for a while before falling back at the end of the week.
To put that into context, those levels have not been seen for two years.
In many ways these changes are good ones because they indicate that recovery is now visibly underway in these countries.
It does though increase the opportunity cost for other asset classes.
Despite that, equities and commodities both made progress last week, and this fed through into the LME index, which rose one per cent to 3092.
Tin was the standout performer, rising 6.4 per cent to US$22,575 a tonne, a move which indicates that, as in many markets, liquidity is still a major problem at the fringes.
At the other end of the scale the terrible twins of lead and zinc both eased back 0.5 per cent to US$2,150 and US$1,868 a tonne respectively.
Zinc’s decline was somewhat surprising, given that LME inventories had fallen below one million tonnes for the first time in some years.
The good news is that it demonstrates that production discipline is staring to take effect.
Market forces are an extremely strong, if sometimes slow, mechanism of bringing supply and demand into balance.
All well and good perhaps, but none of this gives us much of a clue as the future path of metal prices.
Our best bet here is to rely on some long-established relationships.
The bond sell-off is rooted on some solid economic data. US car sales are up 17 per cent year on year and are on track to get back to pre-crisis levels if the trend continues.
China, still the largest consumer of metals, reported a 7.2 per cent rise in exports during August which was ahead of the six per cent that had been widely expected.
Encouraging data from these two economies suggest that demand for metals will be remain positive this year.
On the other side of the equation, all four of the largest London-listed mining companies have changed their executives this year, and it seems likely that the new boys will have a robust attitude to putting a red line through operations that are viable at today’s prices.
Whatever level of demand there is, if supply exceeds that then prices will weaken. But the new guys have a period of grace to take tough decisions and close plants without too much embarrassment.
Indeed, it is clear from the scale of the write-offs already announced that the big four have taken a lot of capacity out of the industry already.
Glencore Xstrata took a US$7.7 billion charge, there was US$1.9 billion in write-offs at BHP Billiton, US$14.4 billion at Rio Tinto and US$7 billion at Anglo American.
While not quite on the scale of the write-offs in banking, taking US$31 billion out of the asset base of the industry will make it a lot leaner.
With solid demand it should not take too long to determine if the industry has done enough on the supply side to keep the market in balance.
Source >>> www.minesite.com
*****
UK Majors Have Now Written Off US$31 Billion, But Will It Be Enough To Bring The Market Back Into Balance?
By Rob Davies
These days, capital markets seem to be as aimless as the politicians who have the thankless task of conducting foreign policy.
Another thing they have in common is doing it together.
The best example of that can be found in the bond market, where yields on medium to long term bonds for US, UK and Europe have all risen together.
Anglo-Saxon instruments even breached the three per cent figure for a while before falling back at the end of the week.
To put that into context, those levels have not been seen for two years.
In many ways these changes are good ones because they indicate that recovery is now visibly underway in these countries.
It does though increase the opportunity cost for other asset classes.
Despite that, equities and commodities both made progress last week, and this fed through into the LME index, which rose one per cent to 3092.
Tin was the standout performer, rising 6.4 per cent to US$22,575 a tonne, a move which indicates that, as in many markets, liquidity is still a major problem at the fringes.
At the other end of the scale the terrible twins of lead and zinc both eased back 0.5 per cent to US$2,150 and US$1,868 a tonne respectively.
Zinc’s decline was somewhat surprising, given that LME inventories had fallen below one million tonnes for the first time in some years.
The good news is that it demonstrates that production discipline is staring to take effect.
Market forces are an extremely strong, if sometimes slow, mechanism of bringing supply and demand into balance.
All well and good perhaps, but none of this gives us much of a clue as the future path of metal prices.
Our best bet here is to rely on some long-established relationships.
The bond sell-off is rooted on some solid economic data. US car sales are up 17 per cent year on year and are on track to get back to pre-crisis levels if the trend continues.
China, still the largest consumer of metals, reported a 7.2 per cent rise in exports during August which was ahead of the six per cent that had been widely expected.
Encouraging data from these two economies suggest that demand for metals will be remain positive this year.
On the other side of the equation, all four of the largest London-listed mining companies have changed their executives this year, and it seems likely that the new boys will have a robust attitude to putting a red line through operations that are viable at today’s prices.
Whatever level of demand there is, if supply exceeds that then prices will weaken. But the new guys have a period of grace to take tough decisions and close plants without too much embarrassment.
Indeed, it is clear from the scale of the write-offs already announced that the big four have taken a lot of capacity out of the industry already.
Glencore Xstrata took a US$7.7 billion charge, there was US$1.9 billion in write-offs at BHP Billiton, US$14.4 billion at Rio Tinto and US$7 billion at Anglo American.
While not quite on the scale of the write-offs in banking, taking US$31 billion out of the asset base of the industry will make it a lot leaner.
With solid demand it should not take too long to determine if the industry has done enough on the supply side to keep the market in balance.
Source >>> www.minesite.com
*****
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- 12 February 2012
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- 29
China is once again coming through with some good news. The oldest of old players, Japan is also not bad. We cannot forget South Korea as well. These three players are some of the active economic players in the world. We have got some source of stability. Frontier markets are in the initial stage of their economy and capital market developments. Some emerging markets and developed markets may have some volatility. Overall we may see gradual demand for some commodities. The trend has shifted in stock, commodity and currency market. Therefore new sectors, out of favour commodities, currencies and stocks including emerging stocks, currencies and commodities will lead markets in the coming years. Emerging markets will readjust again.
If we believe in stronger economic growth, then it is time to increase our exposure to the good commodity stocks
The current environment has opportunity. We can see the extremes of undervaluation for commodity stocks and some emerging markets now.
I think that the commodity stock rally is just getting started, and they should outperform the broader stock markets at least for some selected commodities including emerging commodities
Some Chinese Stocks And Commodity Stocks Are Bargains now.
Value orientated contrarian investors may identify cheap valuations in commodity stocks combined with extreme negative sentiment and improving fundamentals.
My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions.
If we believe in stronger economic growth, then it is time to increase our exposure to the good commodity stocks
The current environment has opportunity. We can see the extremes of undervaluation for commodity stocks and some emerging markets now.
I think that the commodity stock rally is just getting started, and they should outperform the broader stock markets at least for some selected commodities including emerging commodities
Some Chinese Stocks And Commodity Stocks Are Bargains now.
Value orientated contrarian investors may identify cheap valuations in commodity stocks combined with extreme negative sentiment and improving fundamentals.
My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions.
September 14, 2013
That Was The Week That Was ... In Australia
By Our Man in Oz
Minews. Good morning Australia. You’ve got your new government but what did it do for your stock market.
Oz. Not a lot, really. It seems that the result was so well telegraphed in opinion polls before we sloped off to the Australian ritual of compulsory voting that investors took the switch from Labor to a conservative coalition in their stride.
The actual market reaction, as measured by the indices, was: all ordinaries up 1.4 per cent last week, metals and mining up 1.9 per cent, and gold down six per cent, though the gold fall was very much driven by international forces.
Minews. How quickly will the new government move on those unpopular mining and carbon taxes?
Oz. Perhaps not as quickly as investors would like. We have a complicated political system. There are two houses in Parliament which can exert a lot of influence on legislation.
The problem for the new government is that it hasn’t got a clear majority in the upper house, the Senate, where a few curious new Senators have been elected, including two representing a party formed by mining millionaire, Clive Palmer.
Minews. Surely Clive wants to kill the mining tax.
Oz. He does, but he will also demand to be heard on other pet subjects and might drive a hard bargain.
Minews. Enough politics. You’ve got the government you wanted, so let’s get on with our regular call of stock prices.
Oz. If it’s acceptable to you I’ll start with the outliers again, the companies which stood out for one reason or another, and then move through the sectors because as the indices indicate there wasn’t a lot of movement.
Source >> www.minesite.com
*****
That Was The Week That Was ... In Australia
By Our Man in Oz
Minews. Good morning Australia. You’ve got your new government but what did it do for your stock market.
Oz. Not a lot, really. It seems that the result was so well telegraphed in opinion polls before we sloped off to the Australian ritual of compulsory voting that investors took the switch from Labor to a conservative coalition in their stride.
The actual market reaction, as measured by the indices, was: all ordinaries up 1.4 per cent last week, metals and mining up 1.9 per cent, and gold down six per cent, though the gold fall was very much driven by international forces.
Minews. How quickly will the new government move on those unpopular mining and carbon taxes?
Oz. Perhaps not as quickly as investors would like. We have a complicated political system. There are two houses in Parliament which can exert a lot of influence on legislation.
The problem for the new government is that it hasn’t got a clear majority in the upper house, the Senate, where a few curious new Senators have been elected, including two representing a party formed by mining millionaire, Clive Palmer.
Minews. Surely Clive wants to kill the mining tax.
Oz. He does, but he will also demand to be heard on other pet subjects and might drive a hard bargain.
Minews. Enough politics. You’ve got the government you wanted, so let’s get on with our regular call of stock prices.
Oz. If it’s acceptable to you I’ll start with the outliers again, the companies which stood out for one reason or another, and then move through the sectors because as the indices indicate there wasn’t a lot of movement.
Source >> www.minesite.com
*****
September 16, 2013
Global Investment Styles Are Adjusting For The Times, With Interesting Results For Metals
By Rob Davies
Investment styles can, crudely, be broken down into three different buckets: momentum, reversion to the mean, and value.
Growth investing can be regarded as a sub-set of momentum investing.
What makes life difficult is that markets can flip between styles with barely a flicker.
It is all very well getting geared up to invest in one particular manner if the suddenly the market goes off on a totally different track.
Right now bond investors are discovering that their portfolios, bought for safety, are proving anything but.
For the four and a bit years after the bank crash of September 2008 buying bonds was the momentum trade to beat all others.
Then, at the beginning of the year, a value bias become favoured and bonds didn’t look too good on that basis. Since then bonds, as measured by the yield on a 10 year US Treasury have declined 50 per cent.
Making money more expensive has had a knock-on effect on to other asset classes. It has pushed base metal prices down - the LME index is 14 per cent lower - but equities have risen by about the same amount.
In a world where inflation eats away at nominal assets like cash and bonds at two or three per cent a year the attractions of real assets like equities and commodities that can hold their value are becoming more obvious.
Even so, the support of that favourable trend over the last few months wasn’t enough to stop Alcoa being ejected from the Dow Jones Industrial Average Index as of 20th September.
Not many funds use this index as a benchmark so the effect on the shares will be minimal. But it is a sign that momentum rather than value is the driving force in that market.
The fact that Alcoa debt is now rated as junk is another indication of how out of favour the metals sector is and why momentum investors are ignoring it.
So that leaves investors who use value and reversion to the mean as their guide.
The trouble with using reversion to the mean as a guide is that there are few strong signals. Just because something has gone down is no reason to believe that it is about to suddenly turn around and go up.
There is no evidence that, for example, the tin industry is suddenly going to expand much above its current consumption rates of 350,000 tonnes a year.
Even though it is a small industry production has declined in line, resulting in today’s price of US$22,625 a tonne.
It is still the most expensive base metal, but the small size of the industry means it will not attract much capital.
Aluminium has the opposite problem. It is a large industry and consumption is growing at seven per cent a year, with demand expected to be over 50 million tonnes in 2013.
The problem has been that slower growth in China has resulted in higher exports, leading to oversupply in the global market.
Prevailing prices of US$1,746 a tonne mean that a large number of smelters are running at a loss. One estimate is that 189 out of 281 smelters in China are losing money at these rates.
On that basis buying something that is being made at a loss looks good value. The downward momentum in this price must surely be overridden by value at some point.
After all, that is what happened to bond markets at the start of the year, albeit in the opposite direction.
Source >>> www.minesite.com
*****
Global Investment Styles Are Adjusting For The Times, With Interesting Results For Metals
By Rob Davies
Investment styles can, crudely, be broken down into three different buckets: momentum, reversion to the mean, and value.
Growth investing can be regarded as a sub-set of momentum investing.
What makes life difficult is that markets can flip between styles with barely a flicker.
It is all very well getting geared up to invest in one particular manner if the suddenly the market goes off on a totally different track.
Right now bond investors are discovering that their portfolios, bought for safety, are proving anything but.
For the four and a bit years after the bank crash of September 2008 buying bonds was the momentum trade to beat all others.
Then, at the beginning of the year, a value bias become favoured and bonds didn’t look too good on that basis. Since then bonds, as measured by the yield on a 10 year US Treasury have declined 50 per cent.
Making money more expensive has had a knock-on effect on to other asset classes. It has pushed base metal prices down - the LME index is 14 per cent lower - but equities have risen by about the same amount.
In a world where inflation eats away at nominal assets like cash and bonds at two or three per cent a year the attractions of real assets like equities and commodities that can hold their value are becoming more obvious.
Even so, the support of that favourable trend over the last few months wasn’t enough to stop Alcoa being ejected from the Dow Jones Industrial Average Index as of 20th September.
Not many funds use this index as a benchmark so the effect on the shares will be minimal. But it is a sign that momentum rather than value is the driving force in that market.
The fact that Alcoa debt is now rated as junk is another indication of how out of favour the metals sector is and why momentum investors are ignoring it.
So that leaves investors who use value and reversion to the mean as their guide.
The trouble with using reversion to the mean as a guide is that there are few strong signals. Just because something has gone down is no reason to believe that it is about to suddenly turn around and go up.
There is no evidence that, for example, the tin industry is suddenly going to expand much above its current consumption rates of 350,000 tonnes a year.
Even though it is a small industry production has declined in line, resulting in today’s price of US$22,625 a tonne.
It is still the most expensive base metal, but the small size of the industry means it will not attract much capital.
Aluminium has the opposite problem. It is a large industry and consumption is growing at seven per cent a year, with demand expected to be over 50 million tonnes in 2013.
The problem has been that slower growth in China has resulted in higher exports, leading to oversupply in the global market.
Prevailing prices of US$1,746 a tonne mean that a large number of smelters are running at a loss. One estimate is that 189 out of 281 smelters in China are losing money at these rates.
On that basis buying something that is being made at a loss looks good value. The downward momentum in this price must surely be overridden by value at some point.
After all, that is what happened to bond markets at the start of the year, albeit in the opposite direction.
Source >>> www.minesite.com
*****
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- 29
We have to follow new development in the global stocks and commodity markets now.
Not tapering is favorable for financial, investment and commodity stocks. Gold stocks too may shine at least in the short run. Globally commodity stocks are having their day now. If I am correct Johannesburg's gold mining index surged 8 percent to its highest in 10 days. As I said before commodity, stock and currency market are not dead. There will be plenty of opportunities in the coming decade.
Even if we have tapering still some sectors and some commodity producers will benefit.
Next couple of months is very crucial for gold market. We will see next trend in gold market in 2014.
My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions
Not tapering is favorable for financial, investment and commodity stocks. Gold stocks too may shine at least in the short run. Globally commodity stocks are having their day now. If I am correct Johannesburg's gold mining index surged 8 percent to its highest in 10 days. As I said before commodity, stock and currency market are not dead. There will be plenty of opportunities in the coming decade.
Even if we have tapering still some sectors and some commodity producers will benefit.
Next couple of months is very crucial for gold market. We will see next trend in gold market in 2014.
My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions
September 22, 2013
That Was The Week That Was ... In Australia
By Our Man in Oz
Minews. Good morning Australia. Your market seems to have emerged relatively unscathed from a volatile week’s trading.
Oz. The numbers don’t look too bad, but we missed the sharp slide in the gold price which came on Friday after we had closed. Monday could see some heavy selling.
Minews. Volatility certainly seems to be the key factor in all markets these days.
Oz. It certainly is, and that’s unlikely to change until investors get a clearer understanding of what governments are doing with their money creation operations.
Gold in particular seems to be heading for more of a wild ride, as does the Australian dollar which moved quite substantially last week, taking the gloss off marginally higher commodity prices.
Minews. Time’s short this week. Let’s move on quickly with the key indices and significant price moves.
Oz. All the major indices rose last week, which in the case of the all ordinaries makes it five straight weeks of gains. The latest increase was a modest one per cent, slightly better than the 0.8 per cent for the metals and mining index.
Gold was the big winner, shooting up by seven per cent thanks, following the mid-week U.S. decision to not slow its money-printing operations, yet.
Interestingly, that seven per cent rise made up for the six per cent fall in the previous week, which is a neat way of demonstrating the volatility in what is a good market for traders, but not so good for conventional investors.
...
Source >> www.minesite.com
*****
That Was The Week That Was ... In Australia
By Our Man in Oz
Minews. Good morning Australia. Your market seems to have emerged relatively unscathed from a volatile week’s trading.
Oz. The numbers don’t look too bad, but we missed the sharp slide in the gold price which came on Friday after we had closed. Monday could see some heavy selling.
Minews. Volatility certainly seems to be the key factor in all markets these days.
Oz. It certainly is, and that’s unlikely to change until investors get a clearer understanding of what governments are doing with their money creation operations.
Gold in particular seems to be heading for more of a wild ride, as does the Australian dollar which moved quite substantially last week, taking the gloss off marginally higher commodity prices.
Minews. Time’s short this week. Let’s move on quickly with the key indices and significant price moves.
Oz. All the major indices rose last week, which in the case of the all ordinaries makes it five straight weeks of gains. The latest increase was a modest one per cent, slightly better than the 0.8 per cent for the metals and mining index.
Gold was the big winner, shooting up by seven per cent thanks, following the mid-week U.S. decision to not slow its money-printing operations, yet.
Interestingly, that seven per cent rise made up for the six per cent fall in the previous week, which is a neat way of demonstrating the volatility in what is a good market for traders, but not so good for conventional investors.
...
Source >> www.minesite.com
*****
September 23, 2013
Guessing The Intentions Of The Money Printers Is Now The Most Profitable Strategy Of All
By Rob Davies
The fact that something did not happen last week was enough to trigger a sharp rally in equities and commodities and is an excellent reminder of how unstable the world remains five years after the banking crash.
That the US Federal Reserve did not announce when it would stop injecting US$85 billion a month into the US economy was enough to push risk assets up.
A day later the majority of those gains had been given up.
These moves tell us that markets are still nervous and volatile.
Cynics might say they always are, but the scale of the bail-outs has changed the game.
The Financial Times provides a quick summary of the help governments have given banks since 2008 and calculated a figure of $575 billion.
On top of that they injected a further US$360 billion to help out other ailing financial institutions.
It is not surprising therefore that a dollar today does not buy what it did five years ago.
It is this massive financial firepower that dominates today’s capital markets rather than the intricacies of the individual markets.
Who cares that Rusal thinks the aluminium market is going to expand from the current 40 million tonnes a year of demand to 70 million tonnes by 2020 if prices are going to be jerked around by a bureaucrat in Washington?
Does it matter that new aircraft are now 50 per cent composite materials when they used to be 70 per cent aluminium?
Rather than the intricacies of the individual markets, all that seems to matter now is exactly how much money governments, mainly the US, are going to manufacture from thin air.
It is this synthetic finance that is moving markets. Trying to guess the intentions of the managers of the process has now become more profitable than other activities.
This has the effect of creating a topsy-turvy world in which there are few, if any, secure frames of reference.
Why sit on cash if someone else is manufacturing it at the rate of US$85 billion a month?
It doesn’t even matter if that happens in a country other than your own. Now that virtually all barriers on foreign exchange trading have been lifted that money is free to go anywhere it wants to earn the maximum return.
Emerging markets and commodities have both benefitted in the past from this financial incontinence.
Although emerging markets have suffered this year on suspicions that QE will be reduced, they are more or less back to where they were a year ago.
On the other hand base metals are about 15 per cent lower over the last twelve months and have only modesty participated in the most recent rally.
There is though one big difference between commodity market and those of foreign exchange, equities and bonds.
The latter three are all essentially about trust, just different forms of IOUs.
The holder hopes, indeed expects, that the security will either be accepted as exchange, pay him a dividend or a coupon.
It is these assets that have been kept afloat by quantitative easing in a way that almost defies gravity but, not yet, trust.
In contrast the owner of a base, or a precious, metal expects none of these things. All he knows is that if he drops it on his foot it will hurt.
Source >> www.minesite.com
*****
Guessing The Intentions Of The Money Printers Is Now The Most Profitable Strategy Of All
By Rob Davies
The fact that something did not happen last week was enough to trigger a sharp rally in equities and commodities and is an excellent reminder of how unstable the world remains five years after the banking crash.
That the US Federal Reserve did not announce when it would stop injecting US$85 billion a month into the US economy was enough to push risk assets up.
A day later the majority of those gains had been given up.
These moves tell us that markets are still nervous and volatile.
Cynics might say they always are, but the scale of the bail-outs has changed the game.
The Financial Times provides a quick summary of the help governments have given banks since 2008 and calculated a figure of $575 billion.
On top of that they injected a further US$360 billion to help out other ailing financial institutions.
It is not surprising therefore that a dollar today does not buy what it did five years ago.
It is this massive financial firepower that dominates today’s capital markets rather than the intricacies of the individual markets.
Who cares that Rusal thinks the aluminium market is going to expand from the current 40 million tonnes a year of demand to 70 million tonnes by 2020 if prices are going to be jerked around by a bureaucrat in Washington?
Does it matter that new aircraft are now 50 per cent composite materials when they used to be 70 per cent aluminium?
Rather than the intricacies of the individual markets, all that seems to matter now is exactly how much money governments, mainly the US, are going to manufacture from thin air.
It is this synthetic finance that is moving markets. Trying to guess the intentions of the managers of the process has now become more profitable than other activities.
This has the effect of creating a topsy-turvy world in which there are few, if any, secure frames of reference.
Why sit on cash if someone else is manufacturing it at the rate of US$85 billion a month?
It doesn’t even matter if that happens in a country other than your own. Now that virtually all barriers on foreign exchange trading have been lifted that money is free to go anywhere it wants to earn the maximum return.
Emerging markets and commodities have both benefitted in the past from this financial incontinence.
Although emerging markets have suffered this year on suspicions that QE will be reduced, they are more or less back to where they were a year ago.
On the other hand base metals are about 15 per cent lower over the last twelve months and have only modesty participated in the most recent rally.
There is though one big difference between commodity market and those of foreign exchange, equities and bonds.
The latter three are all essentially about trust, just different forms of IOUs.
The holder hopes, indeed expects, that the security will either be accepted as exchange, pay him a dividend or a coupon.
It is these assets that have been kept afloat by quantitative easing in a way that almost defies gravity but, not yet, trust.
In contrast the owner of a base, or a precious, metal expects none of these things. All he knows is that if he drops it on his foot it will hurt.
Source >> www.minesite.com
*****
Commodity Snapshot
http://www.bespokeinvest.com/thinkbig/2013/9/23/bespokes-commodity-snapshot.html
***
http://www.bespokeinvest.com/thinkbig/2013/9/23/bespokes-commodity-snapshot.html
***
September 29, 2013
That Was The Week That Was ... In Australia
By Our Man in Oz
Minews. Good morning Australia. You seem to have had another mixed week with rises being cancelled out by falls.
Oz. That’s not a bad description, though as we suspected when we last spoke it was the gold sector which suffered most of the damage. The ASX gold index dropped by a hefty eight per cent in a week when the overall market, as measured by the all ordinaries index, crept up by 0.6 per cent to close at a five-year high.
Minews. Why the big gold sell-off?
Oz. It was exactly what we discussed the last time we spoke with Australian gold stocks playing a game of catch up. Exactly a week earlier our market had closed before the Friday September 20 fall in the gold price so, when we opened on Monday of last week our stocks were hammered.
Minews. But the rest of your market seems to have held up quite well?
Oz. Not bad, but not particularly good either. That modest rise in the all ordinaries tells the story of a slow creep higher, though with mining stocks not attracting the same high level of attention which is the norm in Australia, as shown in a modest 0.5 per cent fall in the metals and mining index last week.
Minews. Are Australian investors turning their backs on the mining sector?
Oz. No, the interest is still there but there is more activity in sectors which have been sidelined since the 2008 financial crisis. The property market, for example, is rocketing along thanks to the lowest interest rates in a generation and an abundant supply of debt from a very healthy banking industry.
...
Source >> www.minesite.com
*****
That Was The Week That Was ... In Australia
By Our Man in Oz
Minews. Good morning Australia. You seem to have had another mixed week with rises being cancelled out by falls.
Oz. That’s not a bad description, though as we suspected when we last spoke it was the gold sector which suffered most of the damage. The ASX gold index dropped by a hefty eight per cent in a week when the overall market, as measured by the all ordinaries index, crept up by 0.6 per cent to close at a five-year high.
Minews. Why the big gold sell-off?
Oz. It was exactly what we discussed the last time we spoke with Australian gold stocks playing a game of catch up. Exactly a week earlier our market had closed before the Friday September 20 fall in the gold price so, when we opened on Monday of last week our stocks were hammered.
Minews. But the rest of your market seems to have held up quite well?
Oz. Not bad, but not particularly good either. That modest rise in the all ordinaries tells the story of a slow creep higher, though with mining stocks not attracting the same high level of attention which is the norm in Australia, as shown in a modest 0.5 per cent fall in the metals and mining index last week.
Minews. Are Australian investors turning their backs on the mining sector?
Oz. No, the interest is still there but there is more activity in sectors which have been sidelined since the 2008 financial crisis. The property market, for example, is rocketing along thanks to the lowest interest rates in a generation and an abundant supply of debt from a very healthy banking industry.
...
Source >> www.minesite.com
*****
For your consideration >> www.agrimoney.com
- Joined
- 12 February 2012
- Posts
- 410
- Reactions
- 29
Good link. Thanks. According to the link Corn price has hit three year low.
Both Corn and Soya bean markets are not beautiful as in 2012. Higher inventory level will lead do lower corn and soya bean prices in the coming quarters.
Corn has tumbled 37 percent in 2013 amid forecasts for a record crop. We have to wait and see how the market is going to deal with big corn supplies for the next year. Soya supplies too are a little bigger.
Cheaper corn will benefit some sectors including food based companies such as Archer-Daniels-Midland Co, Sanderson Farms Inc., the third-largest U.S. poultry producer etc. Already there were chicken rally in USA and we will see more chicken rally globally in the coming quarters and years.
My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions.
September 30, 2013
Will China’s Growth Story End Up Following The Same Trajectory As Japan’s?
By Rob Davies
Capital markets were reminded last week that political risk is always present.
In this case it was the promise by the Labour Party to freeze energy prices in the UK if it gets elected.
Share prices in British utilities fell sharply.
Across the Atlantic the US is facing up to another standoff between the President and the Congress over the budget.
If agreement is not reached to increase the debt ceiling there is a risk, albeit small, that by the 17th October the US Government will not be able to pay its bills.
Every time this confrontation has happened before the price of US debt has appreciated, because however bad the economics and politics of the US is, it looks a lot better than anywhere else.
Some might argue that this game of “chicken“ is now becoming embedded in the US political process and is therefore nothing to worry about. That analysis explains why the gold price is little moved.
However, if played often enough the chance that one day the chicken gets runs over can only increase. That is when gold, and other commodities, might be viewed in a different light.
In the absence of any resolution of this particular catfight base metals had an uneventful week and, as a group, gained 0.7 per cent. That took the LME index to 3,137.
In truth, the bulk of this gain was probably a consequence of a 0.3 per cent decline in the dollar, as investors fretted over US politics.
To some extent metals investors can ignore events in the US, because base metals and industrial bulk commodities are now much more dependent on China than the US.
That said, a thought-provoking piece of research from Lombard Street Research, published back in July raises cause for concern.
The research looked at the similarities between the rapid rise in the Japanese economy in the two decades from 1952 to 1973 and the massive expansion of China between 1980 and 2012.
Both of these events dramatically transformed commodity markets by adding a large and rapidly growing new source of demand.
Japan grew at an average of 8.75 per cent a year from 1952 to 1973, then dropped to an annual rate of 3.75 per cent until 1991 since when it has hardly grown at all.
Lombard Street Research wondered what the implications would be if China’s economy followed a similar trajectory of rapid growth followed by modest growth, and ending up with stagnation.
There are many differences of course between the two, not least that China, at 14 per cent of world GDP, is already a mammoth economy and the world’s largest commodity consumer.
Its sheer scale makes it harder for it to grow unless the world economy does as well. Looking at the messy developments elsewhere in the world right now suggests that that is not a very likely outcome at the moment.
But what is worrying is the similarities between the Japanese growth story and the Chinese, especially with regard to banking systems and capital controls.
Both countries experienced a huge rise in savings that could not be exported to earn higher returns than the measly rates of interest dictated by the authorities.
Having easy access to such a large pot of cheap and uncomplaining funds led both countries to overinvest in unproductive assets.
In Japan this resulted in low returns on capital, bank failures as debts could not be repaid, and then two decades of economic stagnation.
Having a road map from Japan should allow China to avoid these mistakes.
But to do that it will have to take some tough and difficult decisions. Commodity investors have to hope that it has the political will and ability to make them.
Unfortunately, the examples from the West are not encouraging.
Source >> www.minesite.com
*****
Will China’s Growth Story End Up Following The Same Trajectory As Japan’s?
By Rob Davies
Capital markets were reminded last week that political risk is always present.
In this case it was the promise by the Labour Party to freeze energy prices in the UK if it gets elected.
Share prices in British utilities fell sharply.
Across the Atlantic the US is facing up to another standoff between the President and the Congress over the budget.
If agreement is not reached to increase the debt ceiling there is a risk, albeit small, that by the 17th October the US Government will not be able to pay its bills.
Every time this confrontation has happened before the price of US debt has appreciated, because however bad the economics and politics of the US is, it looks a lot better than anywhere else.
Some might argue that this game of “chicken“ is now becoming embedded in the US political process and is therefore nothing to worry about. That analysis explains why the gold price is little moved.
However, if played often enough the chance that one day the chicken gets runs over can only increase. That is when gold, and other commodities, might be viewed in a different light.
In the absence of any resolution of this particular catfight base metals had an uneventful week and, as a group, gained 0.7 per cent. That took the LME index to 3,137.
In truth, the bulk of this gain was probably a consequence of a 0.3 per cent decline in the dollar, as investors fretted over US politics.
To some extent metals investors can ignore events in the US, because base metals and industrial bulk commodities are now much more dependent on China than the US.
That said, a thought-provoking piece of research from Lombard Street Research, published back in July raises cause for concern.
The research looked at the similarities between the rapid rise in the Japanese economy in the two decades from 1952 to 1973 and the massive expansion of China between 1980 and 2012.
Both of these events dramatically transformed commodity markets by adding a large and rapidly growing new source of demand.
Japan grew at an average of 8.75 per cent a year from 1952 to 1973, then dropped to an annual rate of 3.75 per cent until 1991 since when it has hardly grown at all.
Lombard Street Research wondered what the implications would be if China’s economy followed a similar trajectory of rapid growth followed by modest growth, and ending up with stagnation.
There are many differences of course between the two, not least that China, at 14 per cent of world GDP, is already a mammoth economy and the world’s largest commodity consumer.
Its sheer scale makes it harder for it to grow unless the world economy does as well. Looking at the messy developments elsewhere in the world right now suggests that that is not a very likely outcome at the moment.
But what is worrying is the similarities between the Japanese growth story and the Chinese, especially with regard to banking systems and capital controls.
Both countries experienced a huge rise in savings that could not be exported to earn higher returns than the measly rates of interest dictated by the authorities.
Having easy access to such a large pot of cheap and uncomplaining funds led both countries to overinvest in unproductive assets.
In Japan this resulted in low returns on capital, bank failures as debts could not be repaid, and then two decades of economic stagnation.
Having a road map from Japan should allow China to avoid these mistakes.
But to do that it will have to take some tough and difficult decisions. Commodity investors have to hope that it has the political will and ability to make them.
Unfortunately, the examples from the West are not encouraging.
Source >> www.minesite.com
*****
>>> September, Q3 and YTD Asset Class Performance <<<
http://www.bespokeinvest.com/thinkbig/2013/10/1/september-q3-and-ytd-asset-class-performance.html
***
http://www.bespokeinvest.com/thinkbig/2013/10/1/september-q3-and-ytd-asset-class-performance.html
***
October 02, 2013
Ernst & Young Draws Attention To Substitution As A Major Risk For Mining Companies
By Ryan Jackson in Vancouver
In a Ernst & Young’s latest report on the risks facing mining companies in 2013, Bob Stall, the company’s Americas Mining & Metals Transactions Leader, highlights substitution as a powerful force.
Nowhere is the risk of substitution more apparent than in the coal business.
“Coal’s share of power generation stood at about a third and natural gas accounted for approximately 30 per cent in 2012, compared with 50 per cent and 18 per cent, respectively, in 2002”, says the report.
Just before the financial crisis hit the coal industry was in the midst of an enthusiastic round of mergers and acquisitions.
While at the time industry players were bullish, the collapse of the financial system let to weaker demand.
On top of that, the rise of shale gas and increasingly stringent EPA regulation with regards to carbon emissions came also dramatically weakened demand.
Perhaps the biggest catalyst for the switch occurred in the second quarter of 2012 when US gas prices fell below US$2.00 per MMBtu.
In fact, since the first quarter of 2010 gas prices have fallen roughly 40 per cent while thermal coal prices have remained steady over the same period.
The abundant supply and lower pricing consequently made natural gas an attractive alternative to coal.
On the regulatory side of the equation, the Mercury and Air Toxics Standards which came into effect in 2011 put the squeeze on coal-fired power plants.
President Obama’s recent climate change strategy to reduce greenhouse gas emissions calls for the EPA to construct a complete carbon pollution standard policy which will direct future power generation.
The particulars of the policy are not yet known, but it is widely believed that natural gas will play an increased role in US energy policy going forward and investors have taken note.
Meanwhile, demand for metallurgical coal in the United States is also on the decline.
The use of natural gas in blast furnaces and the continued interest in electric arc furnaces – which operate far more efficiently and use no metallurgical coal in their operation – has sent demand plummeting in the Unites States.
While blast furnaces are still widely used in other regions of the world, many in the industry predict the shift to electric arc furnaces continuing in developing nations.
China in particular, while using a staggering amount of coking coal in steel production at present, has been battling with chronic air pollution and energy shortages.
Policymakers there see electric arc furnace steel production, from scrap and other metallics, as a way to alleviate both problems. It won’t be an overnight switch but the long term trend is bearish for metallurgical coal.
The report also draws attention to technological evolution as a major factor for mining companies to consider when planning for the future.
In particular, the shift towards more modern materials in industry is in full swing. Some of these have been a long time coming, such as the move towards fibre optic wiring resulting in less copper consumption by the electronics industry.
Other factors may be more unexpected though. The move towards lighter weight composites and aluminum in the automotive industry could result in shrinking demand for steel, and for zinc, which is used in the galvanizing process for rust inhibition.
In the aircraft industry, much like in the automotive industry, the quest for greater fuel efficiency has pushed producers to shy away from metals and move towards carbon fibre and other composites which can drastically reduce the weight of a completed aircraft.
Looking at it from another angle, commodities which have retained high prices have driven consumers to search for alternatives.
Bob Stall points to the platinum group metals as a prime example. Due to the consistently high platinum price, the automotive industry has been keen to look for an alternative metal to use in gasoline engine catalytic converters.
It’s clear that the increasing regulation with regard to engine emissions is here to stay and the need for a more affordable alternative has driven innovation in the field.
“Palladium can now be substituted for platinum on a one-for-one, ounce-for-ounce basis, which has strengthened the market for palladium in gasoline catalytic converters”, says the report.
With a platinum commanding a price in the order of US$1,546 per ounce compared with US$747 for palladium, it’s clear which metal automakers will choose when building catalytic converters.
With the demand landscape changing drastically in front of our eyes, the natural question is: what can mining companies do to mitigate the risk?
The writers at Ernst & Young believe it’s a matter of improving business intelligence to understand the trends and craft an appropriate enterprise risk management plan.
By understanding what underlying factors drive the commodity market and what factors contribute to the health of the industries which use the raw materials, companies can make decisions regarding the areas where investment is likely to present returns.
That’s easier said than done in many instances though and is particularly difficult in an industry where developing a new mine takes years of commitment and large capital investments.
Nevertheless, Bob Stall writes that companies have been employing a number of strategies to mitigate the risk. Among the initiatives taken are diversifying exposure in the commodity markets, looking for lower cost projects, and divesting projects which carry the highest risks.
In the case of coal, some producers have taken to concentrating on metallurgical coal and even joining in on gas production in the United States while searching for thermal coal customers abroad.
Increasingly, thermal coal has been shipped to European customers who have taken advantage of the new supply for power generation. Even there though, analysts predict that the European Union’s regulatory agencies will reign in the ballooning coal use given the region’s target of 20 per cent carbon emission reductions by 2020.
According to Ernst & Young, the threat of substitutes is the second most important risk miners face at present, between margin protection/productivity improvement and resource nationalism.
Looking back at the events which have shaken the US coal industry, it’s clear that the majority of companies were caught flat-footed by the rapid commercialization of horizontal drilling and the fracking of shale beds.
Now, Bob and his team are shining a spotlight on similar trends in other segments of the extractive industry and imploring miners to develop proactive strategies now.
Source >> www.minesite.com
*****
Ernst & Young Draws Attention To Substitution As A Major Risk For Mining Companies
By Ryan Jackson in Vancouver
In a Ernst & Young’s latest report on the risks facing mining companies in 2013, Bob Stall, the company’s Americas Mining & Metals Transactions Leader, highlights substitution as a powerful force.
Nowhere is the risk of substitution more apparent than in the coal business.
“Coal’s share of power generation stood at about a third and natural gas accounted for approximately 30 per cent in 2012, compared with 50 per cent and 18 per cent, respectively, in 2002”, says the report.
Just before the financial crisis hit the coal industry was in the midst of an enthusiastic round of mergers and acquisitions.
While at the time industry players were bullish, the collapse of the financial system let to weaker demand.
On top of that, the rise of shale gas and increasingly stringent EPA regulation with regards to carbon emissions came also dramatically weakened demand.
Perhaps the biggest catalyst for the switch occurred in the second quarter of 2012 when US gas prices fell below US$2.00 per MMBtu.
In fact, since the first quarter of 2010 gas prices have fallen roughly 40 per cent while thermal coal prices have remained steady over the same period.
The abundant supply and lower pricing consequently made natural gas an attractive alternative to coal.
On the regulatory side of the equation, the Mercury and Air Toxics Standards which came into effect in 2011 put the squeeze on coal-fired power plants.
President Obama’s recent climate change strategy to reduce greenhouse gas emissions calls for the EPA to construct a complete carbon pollution standard policy which will direct future power generation.
The particulars of the policy are not yet known, but it is widely believed that natural gas will play an increased role in US energy policy going forward and investors have taken note.
Meanwhile, demand for metallurgical coal in the United States is also on the decline.
The use of natural gas in blast furnaces and the continued interest in electric arc furnaces – which operate far more efficiently and use no metallurgical coal in their operation – has sent demand plummeting in the Unites States.
While blast furnaces are still widely used in other regions of the world, many in the industry predict the shift to electric arc furnaces continuing in developing nations.
China in particular, while using a staggering amount of coking coal in steel production at present, has been battling with chronic air pollution and energy shortages.
Policymakers there see electric arc furnace steel production, from scrap and other metallics, as a way to alleviate both problems. It won’t be an overnight switch but the long term trend is bearish for metallurgical coal.
The report also draws attention to technological evolution as a major factor for mining companies to consider when planning for the future.
In particular, the shift towards more modern materials in industry is in full swing. Some of these have been a long time coming, such as the move towards fibre optic wiring resulting in less copper consumption by the electronics industry.
Other factors may be more unexpected though. The move towards lighter weight composites and aluminum in the automotive industry could result in shrinking demand for steel, and for zinc, which is used in the galvanizing process for rust inhibition.
In the aircraft industry, much like in the automotive industry, the quest for greater fuel efficiency has pushed producers to shy away from metals and move towards carbon fibre and other composites which can drastically reduce the weight of a completed aircraft.
Looking at it from another angle, commodities which have retained high prices have driven consumers to search for alternatives.
Bob Stall points to the platinum group metals as a prime example. Due to the consistently high platinum price, the automotive industry has been keen to look for an alternative metal to use in gasoline engine catalytic converters.
It’s clear that the increasing regulation with regard to engine emissions is here to stay and the need for a more affordable alternative has driven innovation in the field.
“Palladium can now be substituted for platinum on a one-for-one, ounce-for-ounce basis, which has strengthened the market for palladium in gasoline catalytic converters”, says the report.
With a platinum commanding a price in the order of US$1,546 per ounce compared with US$747 for palladium, it’s clear which metal automakers will choose when building catalytic converters.
With the demand landscape changing drastically in front of our eyes, the natural question is: what can mining companies do to mitigate the risk?
The writers at Ernst & Young believe it’s a matter of improving business intelligence to understand the trends and craft an appropriate enterprise risk management plan.
By understanding what underlying factors drive the commodity market and what factors contribute to the health of the industries which use the raw materials, companies can make decisions regarding the areas where investment is likely to present returns.
That’s easier said than done in many instances though and is particularly difficult in an industry where developing a new mine takes years of commitment and large capital investments.
Nevertheless, Bob Stall writes that companies have been employing a number of strategies to mitigate the risk. Among the initiatives taken are diversifying exposure in the commodity markets, looking for lower cost projects, and divesting projects which carry the highest risks.
In the case of coal, some producers have taken to concentrating on metallurgical coal and even joining in on gas production in the United States while searching for thermal coal customers abroad.
Increasingly, thermal coal has been shipped to European customers who have taken advantage of the new supply for power generation. Even there though, analysts predict that the European Union’s regulatory agencies will reign in the ballooning coal use given the region’s target of 20 per cent carbon emission reductions by 2020.
According to Ernst & Young, the threat of substitutes is the second most important risk miners face at present, between margin protection/productivity improvement and resource nationalism.
Looking back at the events which have shaken the US coal industry, it’s clear that the majority of companies were caught flat-footed by the rapid commercialization of horizontal drilling and the fracking of shale beds.
Now, Bob and his team are shining a spotlight on similar trends in other segments of the extractive industry and imploring miners to develop proactive strategies now.
Source >> www.minesite.com
*****
October 05, 2013
That Was The Week That Was ... In Australia
By Our Man in Oz
Minews. Good morning Australia. It looks like the recovery on your market stalled last week.
Oz. It did, but it had been running out of puff since the boost which came with the change of government in early September. Falls outnumbered rises in all sectors, while the primary market measure, the all ordinaries index, closed down for the first time in seven weeks.
Minews. And what about mining stocks?
Oz. That’s where the greatest weakness was noted, thanks to the uncertainty flowing out of the U.S. government shutdown and the effect it might have on commodities demand.
Over the week, the all ordinaries shed 1.8 per cent. The gold index held up reasonably well with a fall of 2.8 per cent, while the metals and mining index lost 3.3 per cent.
Minews. Were there local factors at work or was it all a result of international pressures?
Oz. Mainly the same international factors that will have been felt in London, but with a few local issues, including news that the much disliked mining and carbon taxes seem certain to be abolished, with the new government of Prime Minister Tony Abbott likely to win the support of newly-elected Senators. Until last week that was not a given.
...
Source >>> www.minesite.com
*****
That Was The Week That Was ... In Australia
By Our Man in Oz
Minews. Good morning Australia. It looks like the recovery on your market stalled last week.
Oz. It did, but it had been running out of puff since the boost which came with the change of government in early September. Falls outnumbered rises in all sectors, while the primary market measure, the all ordinaries index, closed down for the first time in seven weeks.
Minews. And what about mining stocks?
Oz. That’s where the greatest weakness was noted, thanks to the uncertainty flowing out of the U.S. government shutdown and the effect it might have on commodities demand.
Over the week, the all ordinaries shed 1.8 per cent. The gold index held up reasonably well with a fall of 2.8 per cent, while the metals and mining index lost 3.3 per cent.
Minews. Were there local factors at work or was it all a result of international pressures?
Oz. Mainly the same international factors that will have been felt in London, but with a few local issues, including news that the much disliked mining and carbon taxes seem certain to be abolished, with the new government of Prime Minister Tony Abbott likely to win the support of newly-elected Senators. Until last week that was not a given.
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Source >>> www.minesite.com
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