Commodity Blog

Archive for December, 2008

Reduced global steelmaking in 2009 will cut demand, push supply into surplus and halve the price of coking coal, forecast analysts Alan Heap and Alex Tonka at Citigroup Global Markets. They forecast that global steel production will fall 4.2% next year-to an estimated 1.403 billion metric tons-as mills continue to cut production in the face of weakening demand.

Under such a scenario, Heap and Tonka expect coking coal prices to fall 50% to an annual average $150/metric ton next year. “Spot prices had gone to the moon, to record levels, before the financial meltdown,” says Jim Thompson, editor of Coal & Energy Price Report, an industry newsletter, who expects 2009 prices to settle around $200.

Spot prices for metallurgical coking coal used to make steel increased as high as $300/metric ton throughout Asia in the first half of 2008 (depending on supplier and buyer), up from an average $120 in 2007. The price was due to strong first-half steel demand in India, China and some other Asian nations-and to numerous supply problems. The regional disruption hasn’t affected prices in the European Union or North America, where the delivered price of $110 was only slightly above the 2007 average of $95.

Steelmakers in China already have begun lobbying for calendar-year pricing for iron ore, rather than fiscal-year contracts-and some analysts expect the same to happen in the coal contracts. “Many U.S. steelmakers already have settled on 2009 prices, which were phenomenally high,” says Thompson of the Coal & Energy Price Report. “I doubt those settlements will sit now and suspect they will be renegotiated.”
Heap and Tonka add that “this cycle has seen an unprecedented level of steel production cuts,” so the Citigroup analysts believe that continuing curtailments in production are likely to result in delays to price settlements. “Neither producers nor consumers see it in their interest to settle annual prices in such a turbulent market,” Heap and Tonka write.

Gold N.Y. Spot $ 879.90
Silver N.Y. Spot $ 10.94
Lead LME Cash $ 0.4082
Copper LME Cash $ 1.2891
Zinc LME Cash $ 0.5015
Nickel LME Spot $ 4.42
Aluminum LME Spot $ 0.6620
Platinum N.Y. Spot $ 0913.00
Palladium N.Y Spot $ 185.50
Oil WTI Cushing $ 038.30
Natural Gas (Henry Hub)($/MMBtu) $05.37

USD-AUD $ 1.4411
AUD-USD $ 0.6939
CAD-USD $ 0.8247
USD-CAD $ 1.2125
EUR-USD $ 1.4242

Demand for metallurgical coal next year will be 7% lower than in 2008, as global steel production continues to drop, a new report from Credit Suisse says.
World steel production contracted a year-on-year 12% in October and the investment bank says the markets are concerned steel production could go down by as much as 20% next year.
But that forecast seems “overly pessimistic” the investment research arm of Citigroup Global Markets notes in its Dec. 17 note to clients, especially when one compares it with the biggest downturns in steel production since 1900 (apart from the Great Depression and War years). World steel production fell 7.5% in 1958; 9% in 1975; 8.9% in 1982 and 4.4% in 1991.
Major steel production cuts will persist in the first quarter of 2009, however, and Credit Suisse warns that “there needs to be a swift response from the met coal producers.” (Hard coking coal is a basic ingredient of blast furnace based steel production.)
Credit Suisse forecasts that coking coal prices in 2009 will bottom at US$135 per tonne, US$113 per tonne and US$108 per tonne for hard coking, PCI and semi-soft coals.
In terms of thermal coal, Credit Suisse predicts a 2% supply surplus in 2009. As for demand, “2009 is likely to see the lowest growth in thermal coal imports on the internationally traded market for nearly two decades at 0.5%.

Gold N.Y. Spot $ 845.70
Silver N.Y. Spot $ 10.86
Lead LME Cash $ 0.3969
Copper LME Cash $ 1.3197
Zinc LME Cash $ 0.5126
Nickel LME Spot $ 4.52
Aluminum LME Spot $ 0.6695
Platinum N.Y. Spot $ 0858.00
Palladium N.Y Spot $ 175.50
Oil WTI Cushing $ 041.90
Natural Gas (Henry Hub)($/MMBtu) $05.68

USD-AUD $ 1.4671
AUD-USD $ 0.6816
CAD-USD $ 0.8147
USD-CAD $ 1.2275
EUR-USD $ 1.3952

Gold N.Y. Spot $ 853.00
Silver N.Y. Spot $ 11.10
Lead LME Cash $ 0.4286
Copper LME Cash $ 1.3086
Zinc LME Cash $ 0.4835
Nickel LME Spot $ 4.29
Aluminum LME Spot $ 0.6486
Platinum N.Y. Spot $ 0861.50
Palladium N.Y Spot $ 178.50
Oil WTI Cushing $ 038.30
Natural Gas (Henry Hub)($/MMBtu) $05.79

USD-AUD $ 1.4170
AUD-USD $ 0.7057
CAD-USD $ 0.8293
USD-CAD $ 1.2058
EUR-USD $ 1.4478

Gold N.Y. Spot $ 869.40
Silver N.Y. Spot $ 11.42
Lead LME Cash $ 0.4384
Copper LME Cash $ 1.3594
Zinc LME Cash $ 0.4740
Nickel LME Spot $ 4.40
Aluminum LME Spot $ 0.6489
Platinum N.Y. Spot $ 0870.00
Palladium N.Y Spot $ 180.50
Oil WTI Cushing $ 043.50
Natural Gas (Henry Hub)($/MMBtu) $05.75

USD-AUD $ 1.4436
AUD-USD $ 0.6927
CAD-USD $ 0.8171
USD-CAD $ 1.2239
EUR-USD $ 1.4312

Gold N.Y. Spot $ 836.55
Silver N.Y. Spot $ 10.52
Lead LME Cash $ 0.4604
Copper LME Cash $ 1.3948
Zinc LME Cash $ 0.4822
Nickel LME Spot $ 4.58
Aluminum LME Spot $ 0.6536
Platinum N.Y. Spot $ 0833.00
Palladium N.Y Spot $ 176.00
Oil WTI Cushing $ 049.50
Natural Gas (Henry Hub)($/MMBtu) $05.56

USD-AUD $ 1.4870
AUD-USD $ 0.6725
CAD-USD $ 0.8031
USD-CAD $ 1.2452
EUR-USD $ 1.3661

The U.S. dollar tumbled yesterday between 1 and 4.7 per cent against the world’s major currencies and that could be good for U.S.-dollar-denominated commodity prices.
The main beneficiary of the swing during the past few days has been gold, which is once again trading above $800 (U.S.) an ounce. Oil prices have also shown some signs of strength.

WHAT ARE THE EXPECTATIONS?
But the question shell-shocked investors in commodities must be asking is whether the flight to safety that has pushed the U.S. dollar higher, and commodities lower, over the past few months is over?
“This has been the sharpest and steepest downturn in aggregate in commodity and energy prices ever,” said Bart Melek, global commodity strategist for BMO Nesbitt Burns Inc. “In terms of magnitude it’s not much different; it’s the speed of it.”
Much of the pullback is a result of the trade finance cutbacks and de- leveraging by banks and hedge funds as a result of the credit crisis because the commodity price declines are far in excess of the supply and demand fundamentals, he said. “We still have more pain coming, but I don’t see a lot of downside remaining.”
However, base metals and bulk commodities could remain under pressure for much of 2009 with only a modest turnaround expected in the latter part of the year, according to BMO Nesbitt Burns. Large segments of the nickel, zinc, aluminum and copper markets are operating below their cost of production, it said.
The rise in oil during the past few days is a result of the stronger dollar and talk of production cuts by the Organization of Petroleum Exporting Countries, said Robert Tebbutt, vice-president of Peregrine Financial Group Canada Inc.
As far as the equity markets’ ability to look ahead goes, the only major index up strongly during the past month is China’s CSI 300 index, which has climbed 13.6 per cent. That could bode well for commodities.
So it looks like the beleaguered manufacturing sector at least can expect continued relief from declining costs. The producer price index scheduled for release today is forecast to have declined 2 per cent in November, compared with a 2.8-per-cent drop in October, according to a survey of economists by Bloomberg.
That would mark the fourth consecutive monthly decline.

Gold N.Y. Spot $ 821.80
Silver N.Y. Spot $ 10.21
Lead LME Cash $ 0.4445
Copper LME Cash $ 1.3522
Zinc LME Cash $ 0.4717
Nickel LME Spot $ 4.63
Aluminum LME Spot $ 0.6645
Platinum N.Y. Spot $ 0814.00
Palladium N.Y Spot $ 173.00
Oil WTI Cushing $ 045.10
Natural Gas (Henry Hub)($/MMBtu) $05.87

USD-AUD $ 1.5218
AUD-USD $ 0.6571
CAD-USD $ 0.8208
USD-CAD $ 1.2183
EUR-USD $ 1.3332

Global oil demand will contract for the first time since the early 1980s as world economic growth slows to a near standstill, the US government says.
The forecast for 2008 and 2009 is bad news for energy companies and oil producing nations that depend on robust prices, but could benefit cash-strapped consumers by sending gasoline and heating costs lower, according to a US Energy Information Administration report.
World oil demand is projected to fall by 50,000 barrels per day in 2008 and 450,000 barrels per day next year, the EIA said, led by a 1.2 million bpd contraction in top consumer the United States this year a 200,000 bpd drop in 2009.
The report marked the first major forecast for shrinking energy demand tied to the current global financial crisis.
The lower forecast came as the EIA revised down its projection for 2009 global economic growth to 0.5 per cent next year, from the 1.8 per cent projection it made in its previous report issued in November.
“The current global economic slowdown is now projected to be more severe and longer … leading to further reductions of global energy demand and additional declines in crude oil and other energy prices,” the EIA said.
The last time world petroleum demand fell was in 1983, part of four years of straight declines in oil consumption that began in 1980, the agency said.
The weak economy and lower petroleum demand has already caused US crude oil prices to sink from a record $US147 a barrel in July to $US43 on Tuesday — a slump that has rattled energy producing nations like Saudi Arabia, Russia and Venezuela, and triggered massive cutbacks in investment in oil projects like those in Canada’s oil sands.
“The increasing likelihood of a prolonged global economic downturn continues to dominate market perceptions, putting downward pressure on oil prices,” the EIA said.
Demand still is expected to grow next year in emerging economies such as China, which helped drive the six-year rally in oil prices to record highs. Still, the latest EIA report revised demand from this group down by 40,000 bpd.
Price drop
The EIA slashed its 2009 forecast for crude oil prices to $US51 a barrel from $US63.50 a barrel in its previous forecast.
“I don’t think they are done revising. I think next month will be lower. I’m having a hard time seeing GDP growth anywhere — we may see pockets of growth — but not worldwide or regionally,” said Peter Beutel, president of Cameron Hanover, based in New Canaan, Connecticut.
Meanwhile, the World Bank said on Tuesday that the world financial crisis will sharply slow world economic growth next year, ending the five-year global price boom for crude oil and other commodities.
The weaker energy prices could mark a bright spot for consumers who have been hard hit by the financial turmoil.
The EIA said it cut its winter heating oil forecast to $US2.53 a gallon from $US2.75 a gallon, and its 2009 gasoline price forecast to $US2.03 a gallon from $US2.37.
Average US gasoline price are currently running about $US1.70 a gallon, down from a record $US4.11 this summer.
“We’ve lowered the bar for gasoline demand so much that it’s going to take years for it to recover to the type of demand numbers that we had in the past,” Phil Flynn, analyst at Alaron Trading in Chicago, said.