Commodity Blog

Archive for February, 2008

Commodity price brief — Yes oil is at $102 barrel and copper is reaching and about to touch $4.00 lb. Many experts feel with the lack of new copper mines coming on-stream and the start-up costs for new mines increasing dramatically is a formula which will continue to put upward pressure on the price of copper. Hang on to your hats as commodity prices appear to be getting comfortable at the current prices. How do commodity prices relate to the Forex?

February 29, 2008

Gold N.Y. Spot $ 972.50
Silver N.Y. Spot $ 19.74
Lead LME Cash $ 1.5391
Copper LME Cash $ 3.8737
Zinc LME Cash $ 1.2338
Nickel LME Spot $ 14.29
Aluminum LME Spot $ 1.3996
Platinum N.Y. Spot $ 2163.00
Palladium N.Y Spot $ 567.50
Oil WTI Cushing $ 102.00
Natural Gas (Henry Hub)($/MMBtu) $ 9.12
Mid-Columbia (US$/MWh) $ 68.07
CAD/USD $ 0.9797
AUD/USD $ 1.0668
USD/AUD $ 0.9374
USD/CAD $ 1.0289
CAD/USD $ 0.9719
EUR/USD $ 1.5191
Nasdaq 2293.65
DJI 12385.82
S&P/TSX 13647.26
S&P/TSX Global Mining 117.53
Lead LME Stocks 45,750
Zinc LME Stocks 123,250
Copper LME Stocks 143,650
Nickel LME Stocks 47,874
Copper COMEX Stocks 13,101

A wave of copper thefts sweeping Australia and the United States is causing havoc as essential services are put at risk.
The surging demand for copper in India and China has pushed the price of scrap copper to $7,500 per tonne in Australia, authorities say, making it a target for increasingly-bold thieves.
Copper thieves have caused chaos for rail commuters in NSW and Victoria, risked their lives stealing the metal from power lines and turned tomb raiders, taking copper plaques and vases from cemeteries.
On Friday, NSW Police Minister David Campbell said criminals in Sydney had sunk to a new low, stealing copper taps from a school.
“Rail services were also disrupted when more than 1.5km of rail (power) line was stolen last month between Emu Plains and Lapstone in Sydney,” Mr Campbell said in a statement.
In the past two months, there have been 90 reports of copper theft to NSW police.
NSW Energy Minister Ian Macdonald said that copper thieves caused havoc on the state’s north coast rail line last month when hundreds of metres of copper wire were stolen from signal poles.
“Services were cancelled north of Grafton, leaving train passengers stranded, but significantly the signal failures left motorists and passengers vulnerable to collisions and derailments,” Mr Macdonald said in a statement.
Copper is being replaced in Melbourne’s trackside cables with a lower-grade metal after the city’s train network was repeatedly targeted by thieves.
In December, the theft of copper cabling from four Melbourne railway crossings caused extensive peak-hour delays, after thieves risked being zapped by 1500 volts.
Copper thieves are also targeting partially-completed houses, cutting away copper pipes from construction sites, as well as electricity power lines.
In the US, spivs working in organised gangs or as petty thieves are behind an epidemic of metal theft, says Bill Yoshimoto of California’s Agricultural Crime Task Force.
“There is so much copper wire coming in that we know a lot of it isn’t scrap metal that someone’s discarded — they’re pulling down transmission wires to get it,” Mr Yoshimoto told AFP last week.
NSW authorities stepped up their public awareness campaign against copper theft, enlisting celebrity handyman Scott Cam as its public face.
Mr Cam will appear in a series of television and radio announcements warning people about the dangers of stealing copper and the disruption caused by interfering with public utilities.
People illegally trading in copper are also being warned that the source of the metal can be identified by police, either because it has been tagged with permanent tracing technology or because scrap metal dealers can now keep a record of the source of all copper transactions.

Gold futures rose to a record high of $970 an ounce Thursday, propelled by the dollar’s tumble to a new low against the euro. Gold for April delivery hit $970 an ounce on the New York Mercantile Exchange. The contract was last up $6.80 to $967.80 an ounce.
“The recent string of U.S. data has been appalling and this is putting significant pressure on the dollar and supporting gold,” said Mark O’Byrne, executive director at Gold and Silver Investments Ltd., in a note.
On Wednesday, gold rose $12.10, or 1.3%, to $961.0 an ounce. Earlier in that session, the contract hit a record $967.70 an ounce.
Weakness in the U.S. dollar boosted gold’s investment appeal. Gold, like many commodities, is denominated in dollars, and a lower U.S. currency makes it more affordable in other currencies.
‘The recent string of U.S. data has been appalling and this is putting significant pressure on the dollar and supporting gold.’
— Mark O’Byrne, Gold and Silver Investments Ltd.
On the currency markets Thursday, the dollar remained under pressure as it buckled to fresh record lows against the euro after lackluster U.S. data.
The 15-nation currency rose as high as $1.5194, its loftiest level since it began trading in January 1999, as U.S. Federal Reserve Chairman Ben Bernanke spoke on Capitol Hill for the second day of his report on monetary policy.
While he downplayed concerns that the U.S. economy might be in the grip of stagflation, a combination of low growth and inflation, Bernanke said there would likely be some bank failures, though not large firms.
The trade-weighted dollar index, which measures the greenback against a basket of six major currencies, fell 0.9% to 73.85. See Currencies.
The Commerce Department reported that the U.S. economy grew at an unrevised 0.6% annual rate for the fourth quarter, underscoring how economic conditions slowed toward the end of 2007. And for all of 2007, the economy grew at the weakest pace in five years. Read more.
Also Thursday, the Labor Department reported that first-time claims for state unemployment benefits rose 19,000 last week, reaching the highest level since late January.
Crude-oil futures rose sharply Thursday boosted by dollar weakness. See Futures Movers.
While global capital markets have already priced in a mild U.S. recession, the prices of raw material prices continue to hit new highs, S&P analysts said Thursday. Tighter global capacity along with strong demand from emerging markets has counter-balanced weak demand from developed countries, S&P said.
“We believe commodity prices are benefiting from investors’ increasing worries that inflation, which has begun to inch up globally, will continue to rise,” said Alec Young, international equity strategist for Standard & Poor’s Equity Research, in a statement Thursday.
The current commodity bull market offers opportunities for equities in the materials sector, S&P said. Metals companies have been delivering solid earnings for a sustained period, said Leo Larkin, diversified metals and mining analyst for Standard & Poor’s Equity Research.

Our peak oil thesis gained some new respect this week as oil prices hit yet another record, the first close over US$100 per barrel. Demand fluctuates, but it is all about supply, and supply concerns this week showed how tight the market really is.
Peak oil has lots of press, but what about peak copper? Peak zinc? Peak gold? Sounds preposterous, but maybe it’s not so far-fetched. Nearly every commodity is experiencing some supply issues, for a host of reasons. Add it all up, and it means potential supply shortages in the future. Demand may slacken this year, but in the next 10 years today’s high commodity prices may actually look like a bargain.
Let’s take a look at some of the issues facing commodity projects today, and give some examples of companies that have already been impacted by them.
Cost overruns: Inflation, equipment shortages, and labour issues have combined to wreak havoc on so many new commodity projects that long-term supply issues may result.
Simply put, because of inflation, a commodity project that appeared economical two years ago may no longer be viable. Case in point: Novagold’s (NG/TSX) Galore Creek project in British Columbia.
Costs estimated at $2.5-billion a year or so ago escalated to more than $4-billion. The cost overruns have put the project on hold despite high copper and gold prices. That means an expected 432 million pounds of copper production a year is not going to hit the market anytime soon.
Newmont (NMC/TSX) earlier this month said its Boddington gold mine in Australia was experiencing 77% cost overruns.
Petaquilla’s (PTC/TSX) copper project in Panama is in a similar situation, with costs soaring to $3.5-billion.
Political issues: Too many examples to list here, but ask any mining company based in Ecuador, Venezuela, Mongolia or the Democratic Republic of Congo (DRC) how easy it is to get a project started. It’s practically impossible. For commodity supplies, that’s too bad, because some of the best remaining projects in the world are in some of the most politically unfriendly jurisdictions. Once again, future world supply will not be helped. Power shortages: If you were the president of a country, and your people had no electricity, what would be the first thing you would do? How about shutting down a gold mine? Gold is not actually used for anything, yet gold mines suck out massive amounts of power. Would you rather provide energy for your constituents or produce a bar of gold?
The answer is obvious, and so we see countries such as South Africa institute rolling blackouts for mines — resulting in record high platinum and gold prices. We expect ongoing power issues to becoming even more prevalent in the future, with serious implications to future supplies of many commodities.
Financing: We all know credit is much harder to come by these days. For large-scale projects, it’s even harder for banks to part with cash. Look at Skye Resources (SKR/TSX). It has an attractive nickel project in Guatemala, but in early February the company said credit market turmoil has delayed its financing plans for the project. This is a theme being reflected worldwide, and it means that many of the best commodity projects in the world will be delayed, resulting in more supply issues years from now.
Environmental issues: Rightly so, countries are getting more stringent about the projects they approve, with a view to protecting the environment. Environmental permits are not quite as easy to obtain any more, and governments have shifted their priorities away from the jobs projects create to a focus on environmental factors.
Australia recently rejected Rio Tinto’s (RPT/NYSE) proposed iron mine because the environmental protection agency there determined five species of troglobitic animals would be killed by the project. For those who skipped biology, a troglobitic animal is one that lives in total darkness.
Mother Nature: Coal prices and agricultural product prices have soared this year. One reason? The weather. The worst snow storms in China in decades have impacted rail lines and production. The result: China had to import huge amounts of commodities that it used to export.
The rest of the world has to pay the price. Just ask Cameco Corp. (CCO/TSX) how nature can impact production, with its Cigar Lake mine beset by flooding problems. Weather issues world wide only highlight how tight supply is in numerous commodities.
All being said, it seems like there is a potential perfect storm brewing on the commodity front over the next five to 10 years. If the world keeps up its insatiable demand for commodities, watch out — there won’t be much left of anything.

Gold N.Y. Spot $ 942.00
Silver N.Y. Spot $ 18.43
Lead LME Cash $ 1.4756
Copper LME Cash $ 3.7512
Zinc LME Cash $ 1.1120
Nickel LME Spot $ 12.63
Aluminum LME Spot $ 1.3045
Platinum N.Y. Spot $ 2121.00
Palladium N.Y Spot $ 520.50
Oil WTI Cushing $ 100.40
Natural Gas (Henry Hub)($/MMBtu) $ 9.14
Mid-Columbia (US$/MWh) $ 71.59
CAD/USD $ 0.9855
AUD/USD $ 1.0772
USD/AUD $ 0.9283
USD/CAD $ 1.0020
CAD/USD $ 0.9980
EUR/USD $ 1.4874
Nasdaq 2336.77
DJI 12632.49
S&P/TSX 13751.73
S&P/TSX Global Mining 119.10
Lead LME Stocks 45,200
Zinc LME Stocks 122,325
Copper LME Stocks 149,125
Nickel LME Stocks 47,658
Copper COMEX Stocks 13,889

Base and precious metals prices, along with oil, have “staying power” to remain at historically high levels for some time, underpinned by supply issues as well as demand from developing economies, Bart Melek, global commodity strategist with BMO Capital Markets, said Tuesday.
Melek addressed commodities during a conference call in conjunction with the BMO Capital Markets 2008 Global Metals and Mining Conference in Hollywood, Fla.
Already, base and precious metals have outperformed the broader markets this year, Melek said.
The strategist said there could be some “downward drift” coming for base metals and other commodities only because the U.S. is in an economic downturn.
“But it should be a very, very mild one,” he said. “What helped this time around is supply issues.”
As an example, he cited winter snowstorms in China that interrupted smelting output and transportation, underpinning some of the base metals. And while the U.S. economy may have slowed, the rest of the world overall remains strong, led by China, he said.
“Essentially, there is a lot of staying power for commodities for the long term, and supply is the issue,” Melek said. “That is also true for oil.”
OPEC has indicated a reluctance to increase production any time soon, he continued.
“So we should be prepared to see quite tight oil markets going forward,” he said.
BMO released a report, in conjunction with the conference, listing forecasts for metals and crude oil, with Melek saying the company took the ”conservative” tact.
“I think mainly the risks are on the upside, and there could be significant surprises going forward,” he said.
The report calls for copper to average $2.90 a pound in 2008 and $2.80 in 2009, with a ”long-term” forecast years out of $1.80. Aluminum is forecast at $1.06 a pound this year, then $1.05 for next year and the long term. Zinc is estimated at $1.01 a pound this year, 90 cents next year and 80 cents long term, and nickel $12.31 a pound this year, $12 next year and $8 long term.
The report calls for gold to average $949 an ounce in 2008 and $900 in 2009, then $700 in the long term. Silver is forecast at $17.23 this year, $17 next year and $12.50 long term.
Crude oil is forecast at $87 a barrel this year, $85 next year and $75 in the long term.
Much of the potential new supply for metals and oil is from parts of the world that are “geopolitically unstable,” and costs are rising, Melek said.
“The supply side isn’t as elastic as it used to be,” he said.
As an example of rising costs, he noted that many of the mining executives at the BMO conference have expressed concerns about a lack of skilled labor — from engineers to drillers and miners.
“There is a chronic, chronic shortage of skilled people, and wages have skyrocketed,” he said. “Some executives I have spoken to were saying drillers were getting as much as $1,000 to $1,500 a day working rigs.”
Meanwhile, governments in parts of the world are withdrawing licenses or forcing mining companies to renegotiate the terms of licenses.
“Certainly it looks like countries that have the resources want a bigger share of the pie,” Melek said. “It shouldn’t be a big surprise that is happening.”
This essentially raises the cost of capital, with companies needing higher prices for the risks they are taking, Melek said.

Fortescue Metals Group Ltd., building a A$2.7 billion ($2.4 billion) iron-ore project in Australia, said prices of the steelmaking material may rise as much as 50 percent from April because of higher demand.
“China and India are booming and demand from other countries in Asia is growing,” Russell Scrimshaw, executive director, said in an interview in Mumbai yesterday. “There is strong upward pressure.”
Rising demand from China, the world’s largest steel user and Fortescue’s largest customer, pushed iron-ore prices higher for the past five years. Citigroup Inc. said Feb. 6 that contract prices may rise 60 percent from April.
Fortescue, which plans to ship its first ore to China in May, has secured long-term sales agreements with 35 Chinese steelmakers to sell 55 million metric tons of iron ore annually for a minimum of 10 years, Scrimshaw said.
Cia. Vale do Rio Doce, Rio Tinto Group and BHP Billiton Ltd., which account for three quarters of global iron-ore trade, in November began talks to set benchmark contract prices for 2008 with global steelmakers.

Commodity prices may shatter recent records and hit fresh peaks as buoyant demand for metals is little affected by any downturn in the United States, mining group Rio Tinto (RIO.AX) (RIO.L) said on Wednesday.
“Looking forward, it is entirely possible that some commodity prices have yet to reach their cyclical peaks,” Rio’s Chief Economist Vivek Tulpule said in a statement released along with the firm’s full-year results.
Many investors are cautious about the resources sector, concerned that commodity prices will stagnate or fall due to a possible recession in the United States and more supply from new mines coming on stream.
But Rio believes that strong demand from China and other developing nations will offset weakness in Western economies, Tulpule said.
“It is important to remain mindful of macro-economic risks relating to OECD growth,” he said.
“However, it is also important not to exaggerate these risks as our modelling suggests that they should not have a significant impact on the developing economies that have been the growth engines of commodity demand.”
Chinese economic growth is expected to remain strong at around 9–10 percent even amid a sharp U.S. recession, he said.
Global aluminium consumption rose last year at its fastest rate in recent history while higher costs and a stronger currency has boost marginal costs of production in China.
In copper, constrained supply conditions and above-average demand growth in 2008 mean that prices should hold well above trend levels. Growth in iron ore supplies from high-cost producers are expected to slow this year while steel output is seen growing strongly.
“In this environment of strong demand growth and constrained supply, the iron ore markets can be expected to remain and perhaps become increasingly tight,” Rio said.
Rio has rejected a sweetened but hostile takeover offer worth $147 billion from rival BHP Billiton.

The U.S. Mint plans to use less copper and nickel, but more zinc, as it ramps up penny production and cuts back on nickels, dimes, quarters and dollar coins, an agency spokeswoman said on Friday.
The Mint’s zinc needs will increase by approximately 2.2 million pounds (1 million kg), while its copper use will decline by 6.6 million pounds (3 million kg) and its nickel use will fall by 660,000 pounds (300,000 kg) in the 2009 budget year, which begins this Oct. 1, the spokeswoman told Reuters.
The agency said its metal needs reflect a shift in its product mix of coins based on demand, not higher metal prices.
The Mint plans to make more pennies due to new commemorative designs of President Abraham Lincoln on the coin. The penny is made from 97.5 percent zinc and the rest is a copper coating.
There will be less production of nickels, dimes, quarters and dollar coins that are made from copper and nickel.
The Mint is expected to produce 15.377 billion coins in the 2009 budget year, down from 15.425 billion coins in the current spending year.

Gold N.Y. Spot $ 918.75
Silver N.Y. Spot $ 17.27
Lead LME Cash $ 1.3658
Copper LME Cash $ 3.5471
Zinc LME Cash $ 1.1013
Nickel LME Spot $ 12.70
Aluminum LME Spot $ 1.2097
Platinum N.Y. Spot $ 1918.50
Palladium N.Y Spot $ 445.00
Oil WTI Cushing $ 91.50
Natural Gas (Henry Hub)($/MMBtu) $ 8.06
Mid-Columbia (US$/MWh) $ 68.26
CAD/USD $ 1.0023
AUD/USD $ 1.1074
USD/AUD $ 0.9030
USD/CAD $ 1.0009
CAD/USD $ 0.9991
EUR/USD $ 1.4496
Nasdaq 2306.04
DJI 12122.39
S&P/TSX 12978.69
S&P/TSX Global Mining 109.79
Lead LME Stocks 49,050
Zinc LME Stocks 116,100
Copper LME Stocks 164,125
Nickel LME Stocks 46,968
Copper COMEX Stocks 13,978