Commodity Blog

Archive for August, 2008

Gold N.Y. Spot $ 827.60
Silver N.Y. Spot $ 13.54
Lead LME Cash $ 0.8689
Copper LME Cash $ 3.4587
Zinc LME Cash $ 0.8065
Nickel LME Spot $ 9.26
Aluminum LME Spot $ 1.2356
Platinum N.Y. Spot $ 1440.00
Palladium N.Y Spot $ 294.50
Oil WTI Cushing $ 118.20
Natural Gas (Henry Hub)($/MMBtu) $08.01

USD-AUD $ 1.1656
AUD-USD $ 0.8579
CAD-USD $ 0.9539
USD-CAD $ 1.0483
EUR-USD $ 1.4707

The fall of nearly 20% in recent weeks in the commodity markets, across sectors, spells gloomy times for the base metals bull cycle, but China’s post-Olympics industrial restart holds promise for the fourth quarter, said JPMorgan Analyst Michael Jansen Wednesday.
“Questions are being asked as to whether the commodity cycle has in fact turned, but looking at the metals in isolation, the answer to this question is a clear yes,” said Jansen in a metals review and outlook, lowering 2008 price forecasts for all except aluminum.
Copper prices, forecast down 4% from previous expectations to $7,985 a metric ton on an average for 2008, are expected to fall to around $6,950/ton next year.
But before hitting that level, prices are set to rally back to copper’s 2008 record highs of $8,940/ton on the back of a ”fixed asset investment shock” to Chinese copper demand during the fourth quarter as factories reopen after the Olympics and China’s government addresses slowing economic growth, Jansen said.
Until recently, the metals market bulls have taken refuge in the theory China’s infrastructure projects and its growing domestic market will offset the negative impact of a slowing global economy, accounting for a structural shift in metal prices.
And for copper and aluminum prices, this has been true to an extent.
But according to the LMEX index, a basket of London Metal Exchange traded base metals, the sector has struggled to post new highs despite sharp rallies in copper and aluminum during the first two quarters this year.
“On this basis, the metals market has been exploring the downside for 16 months, but the move lower has clearly been slowed by a more robust structural demand story in a long-term context and still evident occasional supply side concerns in the copper and aluminum sectors,” said Jansen.
But cyclical demand for base metals has deteriorated significantly in the past 3–4 months, led by the U.S.
Also, inventories — a key reason behind the enduring metal price strength earlier this year — are either at above long-term average levels or at least higher than in the beginning of the year for all base metals, with the exception of copper.
The slowdown in developed countries has undermined the above average pace of commodity demand of the past 4–5 years, founded on a prolonged period of synchronized growth in developed countries, and industrialization and urbanization in emerging countries, Jansen said.
China now holds the key for metals direction, as heavy industry around Beijing starts up again; much also depends on if and how the government counteracts signs of slowing economic growth.
“How China’s industrial complex emerges in the fourth quarter will have a material impact on the performance of the metals sector, and commodities in general, through up to the year-end,” Jansen said.

Commodity prices have fallen sharply lately, but don’t count on a market rout.
China, the world’s biggest source of new resource demand, is still primed to swallow massive helpings of iron ore, coal, oil and other raw materials after the end of the Olympics. And supplies of many commodities — including copper — remain tight, despite a slowing world economy.
The most likely outcome for now, analysts say, is that commodity prices will settle at levels below their record levels of earlier in 2008, but still dramatically higher than a few years ago.
For natural-resource companies, that outcome presents a mixed bag. Commodity prices should remain high enough for companies to continue posting very big profits.
But resources companies also face higher costs than a year or two ago, so even if commodity prices level out, the first half of 2008 could prove to be a high-water mark both for earnings and for share prices.
Highlighting the risks, on Tuesday Anglo-Swiss miner Xstrata said it was temporarily shutting down a nickel-mining operation in the Dominican Republic because of high energy costs and lower nickel prices. Nickel prices are currently down about 65 per cent from record highs in May 2007.
More recently, oil has fallen about 20 per cent, copper 15 per cent, and wheat more than 30 per cent from peaks earlier this year. There have been similar drops in tin, zinc, palm oil and other commodities.
In part, the drops reflect a slowing global economy. The US, Europe and Japan are flirting with recession, and China’s gross-domestic-product growth, while still strong, is expected to ease to around 10 per cent or less this year, compared with 11.9 per cent in 2007.
The declines also reflect a change in sentiment among investors who fear a much sharper slowdown in China after the conclusion of this year’s Olympic Games in Beijing. Their worry is that China’s economy expanded faster than normal before the Games, with big investments in stadiums, roads and other infrastructure, and now will slow significantly without that extra stimulus.
But many analysts think those fears are overdone.
“The economy is clearly slowing this year, but I think it’s a mild slowdown,” says Andy Rothman, a China analyst at CLSA, a Hong Kong-based investment bank. The economy is “still fundamentally healthy, and over the medium term, certainly housing and infrastructure and urbanisation — the drivers of growth for commodities — are still there”.
In a report released in June, analysts at Goldman Sachs reviewed the economic performance of the last 10 Olympics hosts and found that many did, in fact, experience post-Games busts. But the places that suffered significant slowdowns tended to have economies that were dominated by their host cities, leaving them more vulnerable once the Games ended and the tents moved on. Countries with other big sources of economic activity often did well.
That seems to be the more likely outcome for China. BCA Research, a Canadian investment-research outfit, estimates that Olympics-related capital spending totalled $US43 billion ($49.3 billion), a large sum, to be sure, but only a tiny portion of the country’s $US3.6 trillion economy. Beijing accounts for less than 2 per cent of China’s fixed-asset investment. Most of the industrialisation — and hence, China’s resources demand — occurs elsewhere.
Some analysts reckon China’s growth could even accelerate later this year once the Games end. That is because China closed some factories and businesses and suspended some construction before the athletes arrived to prevent smog and congestion, and will restart them later. UBS estimates the facilities affected by shutdowns account for about 1–2 per cent of China’s industrial production.
Either way, the interruption will likely result in volatility in China’s orders for raw materials, making it difficult for investors to ascertain the country’s true underlying demand for some time to come.
If China’s economy does slow more than expected, it would more likely come from external problems than from a post-Olympics hangover. China relies on demand from the US and Europe to keep its massive manufacturing sector humming.
But if overseas demand fades further, China is expected to unleash more spending on public-works projects, analysts say, exactly the kind of investment that requires concrete, steel, and other commodity-intensive products. Already, government spending on infrastructure rose 42 per cent in the first half of the year compared with the same period in 2007, CLSA says, a significant increase from a year earlier when it grew 19 per cent.
Investors shouldn’t expect a repeat of the record-setting run that sent oil to $US145 a barrel in July, though, analysts say. Many believe commodity prices were kicked higher then by speculators who later exited the market, in part because of a strengthening in the US dollar, which is often associated with weaker commodity prices.

Gold N.Y. Spot $ 805.20
Silver N.Y. Spot $ 12.90
Lead LME Cash $ 0.8246
Copper LME Cash $ 3.4786
Zinc LME Cash $ 0.7679
Nickel LME Spot $ 8.87
Aluminum LME Spot $ 1.2333
Platinum N.Y. Spot $ 1357.00
Palladium N.Y Spot $ 284.50
Oil WTI Cushing $ 116.70
Natural Gas (Henry Hub)($/MMBtu) $07.72

USD-AUD $ 1.1494
AUD-USD $ 0.8700
CAD-USD $ 0.9428
USD-CAD $ 1.0607
EUR-USD $ 1.4726

Gold N.Y. Spot $ 912.40
Silver N.Y. Spot $ 17.61
Lead LME Cash $ 0.9775
Copper LME Cash $ 3.6719
Zinc LME Cash $ 0.8394
Nickel LME Spot $ 8.23
Aluminum LME Spot $ 1.3027
Platinum N.Y. Spot $ 1666.50
Palladium N.Y Spot $ 364.50
Oil WTI Cushing $ 127.90
Natural Gas (Henry Hub)($/MMBtu) $09.26

USD-AUD $ 1.0739
AUD-USD $ 0.9312
CAD-USD $ 0.9749
USD-CAD $ 1.0257
EUR-USD $ 1.5562