Commodity Blog

Archive for October, 2008

Gold N.Y. Spot $ 752.00
Silver N.Y. Spot $ 09.95
Lead LME Cash $ 0.6895
Copper LME Cash $ 2.0389
Zinc LME Cash $ 0.5284
Nickel LME Spot $ 5.72
Aluminum LME Spot $ 0.9231
Platinum N.Y. Spot $ 0837.50
Palladium N.Y Spot $ 203.00
Oil WTI Cushing $ 065.60
Natural Gas (Henry Hub)($/MMBtu) $06.59

USD-AUD $ 1.4901
AUD-USD $ 0.6711
CAD-USD $ 0.8125
USD-CAD $ 1.2308
EUR-USD $ 1.2921

Gold N.Y. Spot $ 763.20
Silver N.Y. Spot $ 09.86
Lead LME Cash $ 0.6940
Copper LME Cash $ 2.0049
Zinc LME Cash $ 0.5380
Nickel LME Spot $ 5.67
Aluminum LME Spot $ 0.9544
Platinum N.Y. Spot $ 0823.50
Palladium N.Y Spot $ 195.00
Oil WTI Cushing $ 066.70
Natural Gas (Henry Hub)($/MMBtu) $06.36

USD-AUD $ 1.5181
AUD-USD $ 0.6587
CAD-USD $ 0.7726
USD-CAD $ 1.2943
EUR-USD $ 1.2942

The prospect of a ”severe” recession has increased concern that demand will wane for industrial commodities, Citigroup Inc. said.
Copper and aluminum prices will slide into a ”trough cycle” in 2009 as a drop in consumption creates a surplus of metals used in homes, appliances and automobiles, the bank said. Citigroup, which earlier this year cited a ”super cycle” of elevated commodity prices, said it is now forecasting a global slowdown that will be deeper than expected.
“Extreme disruptions in markets and credit rationing suggests a more severe recession in many developed countries,” Sydney-based analysts Alan Heap and Alex Tonks said today a report e-mailed to clients. “Turbulent fiscal conditions have heightened uncertainty into the demand and supply outlook for all commodities.”
Prices for copper, crude oil and wheat have plunged more than 50 percent from record highs earlier this year. The Reuters/Jefferies CRB Index of 19 commodities is down about 30 percent in 2008, heading for its largest annual decline on record. The credit crisis will continue to choke economic growth and spur further declines for commodities, Citigroup said.
The bank slashed its 2009 copper-price forecast by 45 percent. The metal will average $2 a pound next year, the analysts said. That compares with a previous estimate of $3.65 a pound and the average since June 30 of $3.16. Aluminum will average $1 a pound next year, down 23 percent from the previous estimate.

Gold N.Y. Spot $ 729.80
Silver N.Y. Spot $ 09.00
Lead LME Cash $ 0.5466
Copper LME Cash $ 1.6715
Zinc LME Cash $ 0.4881
Nickel LME Spot $ 4.40
Aluminum LME Spot $ 0.8550
Platinum N.Y. Spot $ 0764.50
Palladium N.Y Spot $ 170.50
Oil WTI Cushing $ 063.10
Natural Gas (Henry Hub)($/MMBtu) $06.29

USD-AUD $ 1.6464
AUD-USD $ 0.6074
CAD-USD $ 0.7854
USD-CAD $ 1.2732
EUR-USD $ 1.2427

Gold N.Y. Spot $ 714.80
Silver N.Y. Spot $ 08.99
Lead LME Cash $ 0.5148
Copper LME Cash $ 1.6874
Zinc LME Cash $ 0.4817
Nickel LME Spot $ 3.99
Aluminum LME Spot $ 0.8500
Platinum N.Y. Spot $ 0772.50
Palladium N.Y Spot $ 169.50
Oil WTI Cushing $ 064.40
Natural Gas (Henry Hub)($/MMBtu) $06.75

USD-AUD $ 1.6171
AUD-USD $ 0.6184
CAD-USD $ 0.7954
USD-CAD $ 1.2573
EUR-USD $ 1.2719

Gold N.Y. Spot $ 746.30
Silver N.Y. Spot $ 09.72
Lead LME Cash $ 0.5602
Copper LME Cash $ 1.9432
Zinc LME Cash $ 0.5098
Nickel LME Spot $ 4.72
Aluminum LME Spot $ 0.8988
Platinum N.Y. Spot $ 0855.50
Palladium N.Y Spot $ 179.00
Oil WTI Cushing $ 068.30
Natural Gas (Henry Hub)($/MMBtu)* $06.76

USD-AUD $ 1.4784
AUD-USD $ 0.6764
CAD-USD $ 0.8195
USD-CAD $ 1.2202
EUR-USD $ 1.2879

Gold N.Y. Spot $ 770.80
Silver N.Y. Spot $ 09.85
Lead LME Cash $ 0.6056
Copper LME Cash $ 2.0362
Zinc LME Cash $ 0.5146
Nickel LME Spot $ 4.73
Aluminum LME Spot $ 0.9267
Platinum N.Y. Spot $ 0882.50
Palladium N.Y Spot $ 183.00
Oil WTI Cushing $ 071.80
Natural Gas (Henry Hub)($/MMBtu) $06.98

USD-AUD $ 1.4491
AUD-USD $ 0.6901
CAD-USD $ 0.8350
USD-CAD $ 1.1976
EUR-USD $ 1.3186

With oil prices tumbling below $70 US per barrel on Thursday — to their lowest levels since August 2007 — one might think the sky is falling. It’s equally tempting to start pointing fingers at all the elected officials who were crying for inquiries last July regarding the high price of oil; if they were so convinced the price had been driven upwards to the record close of $145.29 price by speculators, it’s surprising they are not suggesting the short-sellers have driven it down.
But no. The high price is about politics. The low price of crude means consumers are no longer phoning constituency offices to complain about be gouged at the gas pump. It’s safe to assume, therefore, taxpayers dollars will not be wasted looking into why oil prices have fallen so far, so fast.
All kidding aside, however, it would be foolhardy to suggest that there hasn’t been a collective gasp in Canada’s oilpatch as crude prices have plummeted; investors had gotten used to seeing a triple-digit price for crude, even though the market was not valuing energy stocks at that level, nor were companies planning capital expenditures with oil beyond the century mark.
While no one really believed an oil price beyond $100 was sustainable, companies and investors had gotten used to it. It’s now back to reality — where prices will be a more accurate reflection of supply and demand, at least for now.
Here are a few things to chew on.
First, the oilsands projects that are up and running are not at risk. As FirstEnergy’s William Lacey was quick to point out Thursday, oilsands operations did not shut down when oil hit $10 a barrel in 1998 and early 1999.
“They will keep running, no matter what. .. unless there is a massive shift somewhere. .. these are not easy projects to shut down or start up. But it’s the new projects like Fort Hills that we estimate need a $115 oil price to achieve a 10 per cent after-tax return, that are in the territory of now being uneconomic,” he said.
As to what the break-even oil price is for these operations, Lacey says the way to look at it is the cash cost per barrel to operate. The cash cost calculation typically includes operating costs, including expenses such as general and administrative costs, royalties and interest expense.
He says Suncor’s all-in cash cost is $46 a barrel, with $33 being associated with operating costs. Canadian Oil Sands Trust pays out $43 per barrel, of which $27 is related to operating expenses.
Meanwhile, Imperial Oil’s Cold Lake operations are the cheapest to run — $30 per barrel, with $17 being the operating component.
In the context of Suncor and its $20-billion Voyageur expansion that was announced in January, Lacey says the company has the luxury of slowing down the development of the four-phase, in-situ development.
“At $60 a barrel, Suncor doesn’t have enough credit to get through 2009 in terms of funding Voyageur from debt and cash flow, but at $80 a barrel it can easily meet the costs through 2009,” he says.
The good news, then, is that in each of these cases, a $60 oil price doesn’t shut anything down. Besides, the lower commodity price environment that is driving down the value of the Canadian dollar means cash flows go up for any company producing a commodity priced in U.S. dollars. The price for WTI might have closed at $69.85 US per barrel on Thursday, but Edmonton Light ended the day at $85.89 Canadian.
So that’s one argument against the ”sky is falling” sentiment. And that’s the short-term view.
The long-term view gets more interesting.
That’s because a low oil price — and therefore low gasoline price — is going to do nothing in the context of encouraging conservation or prompting reinvestment.
If the oil price — and therefore prices at the gasoline pump — remain low for the next 12 months, there is no reason to believe that the dramatic drop in gasoline consumption that has been recorded in the U.S. will continue; low gas prices means the mothballed Hummer will soon be back on the freeway. And this does nothing to solve the long-term issue of the U.S. addiction to oil.
The second point is that low prices, tight credit markets and no possibility of raising money through the sale of shares means companies will not be stretching themselves on the reinvestment front. When the global economy resumes its growth, the supply issues will not have been solved; they will have been made worse. Don’t forget that the Middle East accounted for a big share of the growth in oil consumption in 2007, while China was responsible for about a third. Then there’s the subsidy factor — with Venezuela selling gasoline at 16 cents a litre; these practices or consumption patterns are not about to change.
The only thing that might come out of all this is a round of acquisitions by companies — especially the super majors — that have big cash positions on their balance sheets and have struggled to add reserves. ExxonMobil has been one company whose name keeps surfacing; it could easily scoop up the 30 per cent of Imperial Oil it doesn’t already own for about $8 billion and still have money left over. There were also reports Thursday that BP — which has suffered in Russia with its BP-TNK joint venture — might just be looking at natural gas producer Chesapeake Energy because it too has been challenged in terms of reserve additions. Royal Dutch Shell is another company whose name keeps coming up, for similar reasons.
As they like to say in these parts, all these companies with sizeable cash positions are sporting big hunting licences.
In the short-term, however, hard as it may be, it’s important to remember that the oilpatch has been through much worse over the years. It is better capitalized than it has ever been and even at $60 oil will be generating more than enough cash flow to fund operations — even reinvestment — because costs are coming down.
The reality is that the high prices over the past year had stymied the asset sale world because of the huge gaps in terms of expectations between buyers and sellers; lower prices and the tight credit markets means the old-fashioned values of succeeding on the basis of competitive advantages, looking for growth opportunities at reasonable prices and using plain vanilla financial instruments to meet financing needs are back.
The world has changed. But in the context of long-term oil prices, the question of supply has not been solved and low oil prices only serve to push up demand. All this does is set the world up for higher prices in the years to come.

But global financial mess means consumers will pay even less to fill up Oil and metals prices tumbled yesterday and two key commodity indexes sank again — a hint of what’s to come, analysts say, as investors brace for earnings reports from resource companies next week.
While the impact of the global financial crisis will kick in more fully in the fourth quarter, third-quarter reporting is expected to raise a curtain on how energy and mining companies plan to navigate the liquidity crunch.
“Most of what’s gone on has really been post-September, so it’s not until the fourth quarter — which starts coming out early next year — that you’ll see the extent of it,” said analyst Barry Allan of Research Capital Corp.
Falling commodity prices have an upside for consumers, particularly motorists who welcome lower costs at the pump. Gas prices in the GTA are set to drop below $1 per litre today, according to a website operated by Dan McTeague, the Pickering-Scarborough East MP who’s often critical of gasoline producers. Consumers are being “fleeced,” he says, calculating pump prices are 10.4 cents above the market price.
Base metals giant Teck Cominco Ltd., a top zinc producer, kicks off the earnings parade next Wednesday, with EnCana Corp., Canada’s biggest oil and gas producer, following on Thursday. Both companies have suffered lately through a big downturn in zinc and oil prices.
“Probably nickel and zinc producers will start seeing the effects first since those prices got hit first, and the others will follow,” noted Allan. “So stay tuned.”
Teck closed the Lennard Shelf lead-zinc mine in western Australia in August, citing rising costs and lower prices. Diversifying further while offsetting brutal prices, the Vancouver miner just scooped up the Fording Canadian Coal Trust.
Rough times are hitting the oil patch, too. EnCana this week suspended plans to split into separate oil and gas companies, citing volatility in global financial markets.
Yesterday, the price of oil slid to a 14-month low of under $70 (U.S.) a barrel — less than half its July peak of $147.27 — after the U.S. government reported massive increases in U.S. crude and gasoline supplies.
Light, sweet crude for November delivery fell $4.69, or 6.2 per cent, to settle at $69.85 a barrel on the New York Mercantile Exchange.
Safe-haven gold, which tends to move in the opposite direction to the U.S. dollar, fell the most in two weeks on speculation that investors will sell the precious metal to cover losses in other markets.
Spot gold fell $34 to close at $801.50 in New York yesterday.
“You don’t have a 700-point drop in the Dow that is not followed by margin- call liquidations,” explained Jon Nadler, a senior analyst at Kitco Metals & Minerals Inc. in Montreal, referring to Wednesday’s stock market sell-off, which hit gold yesterday.
Canada’s big gold guns are preparing to release results — Barrick Gold Corp. on Oct. 30 and Goldcorp Inc. on Oct. 31 — after watching gold tumble from an all-time high in March of $1,033 an ounce.
Yesterday, BMO Capital Markets released its Commodity Price Index, which fell 7.8 per cent last month.
Metal prices have sunk sharply since September. Copper, which sold for $3.17 in September, has fallen to about $2.09 a pound. Zinc has dropped to about 54 cents from 79 cents a pound. And nickel has slumped to about $5 a pound from $8. 07 in September.
The Baltic Dry Index, which tracks transport costs on international trade routes, fell 109 points, or 6.8 per cent, to 1,506 points in London yesterday, its lowest in almost six years, on concerns turmoil will sap demand for raw materials. The index has dropped 87 per cent since a May record of 11,793 points.

Gold N.Y. Spot $ 847.50
Silver N.Y. Spot $ 10.23
Lead LME Cash $ 0.6532
Copper LME Cash $ 2.2135
Zinc LME Cash $ 0.5459
Nickel LME Spot $ 5.18
Aluminum LME Spot $ 0.9573
Platinum N.Y. Spot $ 0967.50
Palladium N.Y Spot $ 194.00
Oil WTI Cushing $ 073.70
Natural Gas (Henry Hub)($/MMBtu) $06.65

USD-AUD $ 1.5165
AUD-USD $ 0.6594
CAD-USD $ 0.8473
USD-CAD $ 1.1802
EUR-USD $ 1.3473