Commodity Blog

Archive for February 5th, 2008

Barrick Gold Corp. (ABX), the world’s largest gold producer, expects to see the price of the precious metal trade north of $1,000 an ounce, in part bolstered by a decline in global output, the company’s vice president of exploration said Tuesday.
Alexander Davidson said output across the industry is expected to decline by 10% over the next five years as a result of lower production from South African mines due to power shortages and safety concerns.
He said global production also is being knocked by the increasing length of time it takes companies to get permits to mine, longer ramp-up to production times in part due to skills shortages and higher capital costs.
Davidson, speaking to Dow Jones Newswires on the sidelines of the African Mining Indaba in Cape Town, said average industry cash costs are expected to be in the $500 to $600 an ounce range going forward.
“We’re certainly bullish on gold north of $1,000,” he said.
Davidson said the strength in the bullion price will also be driven by the continued “flight to safety” in investors’ portfolios and the possibility of central bank purchases of the metal.
Toronto-based Barrick has a portfolio of 27 operating mines that produced 8.64 million ounces of gold in 2006.
As of 1340 GMT, spot gold was trading at $889/oz, having hit a record high of $936.95/oz on Jan 30.

Gold N.Y. Spot $ 890.20
Silver N.Y. Spot $ 16.37
Lead LME Cash $ 1.2542
Copper LME Cash $ 3.2664
Zinc LME Cash $ 1.0893
Nickel LME Spot $ 12.05
Aluminum LME Spot $ 1.1780
Platinum N.Y. Spot $ 1765.50
Palladium N.Y Spot $ 413.00
Oil WTI Cushing $ 88.40
Natural Gas (Henry Hub)($/MMBtu) $ 7.56
Mid-Columbia (US$/MWh) $ 73.49
CAD/USD (current) $ 1.0047
AUD/USD $ 1.1136
USD/AUD $ 0.8980
USD/CAD $ 1.0069
CAD/USD $ 0.9931
EUR/USD $ 1.4642
Nasdaq 2342.50
DJI 12401.13
S&P/TSX 13076.14
Lead LME Stocks 49,075
Zinc LME Stocks 113,025
Copper LME Stocks 174,775
Nickel LME Stocks 46,650
Copper COMEX Stocks 13,978

The nickel market may have a supply shortfall of 500,000 metric tons by 2012 because of the slow pace of mine development and rising demand, Jessica Cross, the chief executive officer of VM Group, said.
Such a deficit would reverse a likely supply surplus of 100,000 tons last year with total production of about 1.45 million tons, she said.
While demand probably contracted by 2 percent last year after nickel prices rose to a record $51,600 a ton on the London Metal Exchange in May, it is expected to rebound this year, Cross said at the Mining Indaba conference in Cape Town today.
“Stainless-steel producers showed that they can’t stomach a price of $51,000 a ton,” she said. “But they are caught between a rock and a hard place.”
Prices will average between $20,000 and $25,000 a ton for the next three years, she forecast.

The price of gold is likely to peak at just over $1 000 per ounce in 2008 and benefit from any weakening of the US economy as investors seek new havens for their funds, London-based consultancy GFMS said on Monday.

The influence of investors would also be crucial in turning the tide, which is likely if the United States weathers its economic problems in the middle term. If that happens, the gold price could start its decline in about three years from now, GFMS chief executive Paul Walker said.

In a presentation to the Indaba African mining conference in Cape Town, Walker forecast an average price of $866 per ounce of bullion in 2008, with a low of $810 an ounce.

“The market will be choppy, and sensitive to investment flows so we have an interesting ride ahead,” Walker said. “The question is what happens when investor demand turns, when the US economic problems are resolved?”

Walker estimated that investor demand was 12% of total demand for gold in 2007, and saw this figure jumping as market players chart new courses to navigate a potential storm in the US economy.

That country’s subprime mortgage woes have already sparked a sharp spike in gold investment by funds seeking alternative asset classes, and this is likely to grow further, he said.

“If the US goes into recession, and we believe it will, we could see gold prices significantly rise as anywhere around $400bn in funds could be invested in the commodity,” he added.

The weaker dollar has not been the only contributor to the rising gold price, Walker said, terming the current price surge as ”a genuine bull rally.”

‘Dancing to own tune’

“Gold is dancing to its own tune and not just being influenced by a weaker dollar,” Walker said.

Spot gold fell more than 1 percent on Monday to $900.55 an ounce as the dollar held firm against the euro, traders said. The metal hit a record $936.50 an ounce on Friday.

On gold mining, Walker said he expected 2008 to record a ”modest” increase in output, because the current strong price was yieding substantial margins that encourage further output.

The sector was being driven mainly by demand from jewellery makers mainly in Asia and the Middle East, he said.

GFMS estimated in a report last month that global gold output fell 1% in 2007, as gold mining costs passed $400 per ounce for the first time in the third quarter.

The consultancy also estimated that China had for the first time overtaken South Africa as the top bullion producer, although China later gave figures showing its gold output was just short of South Africa’s 272 tonnes.

South African output was constrained by dwindling ore grades, accidents and rising labour costs.

This year, South African metals analysts have said gold output is likely to dip further, exacerbated by massive power outages that have hit the mining sector, owing to a power shortage in Africa’s biggest economy.

Gold, platinum, diamond, coal and other mines have been limited to 90% of their normal power usage.

Gold N.Y. Spot $ 898.50
Silver N.Y. Spot $ 16.69
Lead LME Cash $ 1.2991
Copper LME Cash $ 3.3085
Zinc LME Cash $ 1.1158
Nickel LME Spot $ 12.38
Aluminum LME Spot $ 1.1921
Platinum N.Y. Spot $ 1777.50
Palladium N.Y Spot $ 417.00
Oil WTI Cushing $ 89.80
Natural Gas (Henry Hub)($/MMBtu) $ 7.88
Mid-Columbia (US$/MWh) $ 78.96
CAD/USD (current) $ 0.9940
AUD/USD $ 1.1013
USD/AUD $ 0.9080
USD/CAD $ 1.0069
CAD/USD $ 0.9931
EUR/USD $ 1.4837
Nasdaq 2391.83
DJI 12665.56
S&P/TSX 13320.43
Lead LME Stocks 48,700
Zinc LME Stocks 110,900
Copper LME Stocks 177,050
Nickel LME Stocks 46,968
Copper COMEX Stocks 13,978