Commodity Blog

Archive for January, 2009

Global commodity prices have not yet hit bottom, but they are not falling as fast as they have been, Bank of Nova Scotia said Thursday.
“The pace of decline is slowing and the forced, indiscriminate asset selling by funds — triggered by investor redemptions and tight credit — appears to be subsiding,” Patricia Mohr, vice-president of economics and commodity market specialist at the bank, said in a monthly report.
“Many prices are approaching average world cash costs, triggering substantial production cuts, new project deferral and tighter supplies.”
The report showed that Scotiabank’s commodity price index fell in December for the fifth month in a row, this time dropping to 164.5 from 174.1 in November, a decline of 5.5 per cent.
This means the index, whose baseline value is 100 in 1997, has now plunged by 39 per cent from its cyclical peak.
Ms. Mohr said in the report that the shift from boom to bust in many commodities have been the most rapid in the index’s history. It has been magnified by the funds’ rush for the exits along with ongoing problems in the U.S. and British financial services industries and ”rapidly worsening economic conditions.”
In particular, economic growth in China, which had been a key driver of soaring commodity prices, slowed to 6.8 per cent in the last quarter of 2008, about half the 2007 rate of 13 per cent, the report noted.

Iron ore contract prices may fall as much as 50 percent this year amid a slowdown in China, the world’s biggest consumer of the raw material, according to Australia’s richest woman and mining magnate Gina Rinehart.

“We’re hearing 30 percent, 40 percent, 50 percent discounts to last year’s contract price,” Rinehart, who controls closely held Hancock Prospecting Pty, said in an interview with Bloomberg Television. That compares with the average forecast of a 30 percent cut in a Bloomberg survey of 11 analysts last week.
Chinese steelmakers are likely to win their first cut in contract prices in seven years as a global recession curbs demand for commodities. Rinehart’s partner, Rio Tinto Group, the world’s second-biggest exporter of the ore, and Baosteel Group Corp. began talks this month to set prices from April 1, according to two company executives who asked not to be identified.
“The economy in China is very sad right now,” Rinehart said. China’s economy may rebound soon and ”ultimately, prices will rise,” she said. Hancock isn’t party to the talks.
Hancock Prospecting is partner with Rio in the Hope Downs iron ore project in Western Australia. Hancock is also seeking to develop the Roy Hill iron ore mine in Western Australia.
Rio, BHP Billiton Ltd., and Brazil’s Cia. Vale do Rio Doce, which handle three-quarters of traded iron ore, sell the steelmaking material under long-term contracts to China’s 20 biggest mills and traders at agreed annual prices.
China may be asking for a price cut of between 40 percent and 45 percent, Macquarie Group Ltd. analysts led by London-based Jim Lennon said in a Jan. 12 report. UBS AG analysts have forecast a decline of 40 percent. A 30 percent cut would still be the second- highest price on record.

Gold N.Y. Spot $ 855.50
Silver N.Y. Spot $ 11.39
Lead LME Cash $ 0.5012
Copper LME Cash $ 1.4306
Zinc LME Cash $ 0.5049
Nickel LME Spot $ 5.03
Aluminum LME Spot $ 0.5944
Platinum N.Y. Spot $ 0928.00
Palladium N.Y Spot $ 185.00
Oil WTI Cushing $ 042.60
Natural Gas (Henry Hub)($/MMBtu) $04.85

USD-AUD $ 1.5312
AUD-USD $ 0.6531
CAD-USD $ 0.7849
USD-CAD $ 1.2741
EUR-USD $ 1.2959

Gold may average higher for each of the next three years and climb to a record driven by increased demand and a declining dollar as governments ramp up spending to battle the global recession, according to Morgan Stanley.

The metal may average $900 an ounce this year, up 20 percent from an earlier target of $750, the bank said today in a report. It may average $1,000 in 2010, $1,050 in 2011 and $1,075 in 2012, up as much as 34 percent from previous estimates, the report said. The commodity peaked at $1,032.70 on March 17.
Morgan Stanley joins Standard Chartered Plc in raising its target for gold prices amid concern that the dollar may drop as the supply of the currency is increased. President Barack Obama, sworn in yesterday, plans an $850 billion stimulus on top of a $700 billion bank-bailout package enacted under his predecessor.
“Devalued currencies, growing global incomes and a renewed appreciation for gold should keep prices higher,” Morgan Stanley’s New York-based analyst Hussein Allidina wrote. “A globally synchronous and aggressive fiscal and monetary stimulus may be needed to re-inflate the global economy, and we think this continues to present significant upside to gold prices.”
The International Monetary Fund has forecast that advanced economies including the U.S. will contract simultaneously this year for the first time since World War II, spurring stimulus plans backed by more state debt. Gold, regarded by some investors as a safe-haven asset, can rise when the dollar falls.
‘Weaker Dollar’
“Gold will remain relatively stable in the first half of the year, then later, a weaker dollar, pickup in inflation and flight to safety will help gold test its record high again,” said Chen Yonglin, an analyst at Citic Securities Co.
Gold climbed for an eighth year in 2008, gaining 5.8 percent “in a year when most other asset classes saw double- digit losses,” Morgan Stanley’s Allidina wrote. “The U.S. dollar should weaken as the global economy recovers.”
The metal for immediate delivery traded at $851.35 an ounce at 2:37 p.m. in Singapore, and has averaged $846.18 an ounce this year.
Standard Chartered said in a report e-mailed Jan. 15 that gold may average $971 an ounce in 2009, up 11 percent from the bank’s previous forecast. A weaker dollar, lower supply of the metal and safe-haven buying by investors should drive gold to more than $1,000 an ounce in the second half of this year, according to StanChart analysts led by Helen Henton.
Jim Rogers, the chairman of Rogers Holdings who correctly predicted in April 2006 that gold would reach $1,000 an ounce, said last month that he planned to buy more of the metal, adding that the price “will go much higher.”
Platinum may average $875 in 2009, $1,000 in 2010, $1,050 in 2011, and $1,150 in 2012, down as much as 42 percent from previous estimates, according to Morgan Stanley. Palladium may average $180 in 2009, $200 in 2010, $220 in 2011 and $240 in 2012, down as much as 39 percent from earlier calls, it said.

Gold N.Y. Spot $ 863.30
Silver N.Y. Spot $ 11.35
Lead LME Cash $ 0.5171
Copper LME Cash $ 1.4855
Zinc LME Cash $ 0.5430
Nickel LME Spot $ 4.90
Aluminum LME Spot $ 0.6126
Platinum N.Y. Spot $ 0946.50
Palladium N.Y Spot $ 184.00
Oil WTI Cushing $ 036.80
Natural Gas (Henry Hub)($/MMBtu) $05.08 (holiday)

USD-AUD $ 1.5235
AUD-USD $ 0.6564
CAD-USD $ 0.7987
USD-CAD $ 1.2521
EUR-USD $ 1.2933

Iron, coal prices to halve contract prices for Australia’s iron ore and coking coal exports are forecast to halve. The dour outlook comes from Access Economics, which expects the Australian economy to fall into recession as growth slumps in China. The crisis and the effects on the domestic economy are expected to deepen as commodity prices fall because of reduced global demand.

In its Business Outlook, the Canberra economic agency says the ”spectacular fall from grace” of commodity prices will slash tax revenue and cause businesses to shelve investment in infrastructure and project development.
There are concerns that, as mines shut down or reduce capacity, the benefits of the next boom could be missed when the economy and the resource cycle turn.
“We’re amid the largest market meltdown in modern history,” Access says.
“Commodity markets came to this late but they saw the same shocking rout in pricing recently seen in many markets.
“We’ve long thought that commodity prices have had to come back, substantially so.
“We didn’t think the blow-up would come this soon or be quite this spectacular, but blow up it has.”
The Access analysis finds that spot market prices are back to the level of five to six years ago, with current weakness abolishing all of the gains.
The unprecedented rise in commodity prices delivered the Government a revenue windfall of at least $40 billion, causing the surplus to balloon.
As the credit crunch pushes the world into recession, Access forecasts that April contract coking coal and iron ore prices will be halved.
Access’s outlook is more negative than that of Goldman Sachs, which says iron ore prices will be off by up to 30 per cent as demand sours.
“Given what has happened to global steel prices, we expect coking coal and iron ore contract prices to be slaughtered come April, with steaming coal prices to also be hit hard,” Access says.
“It took four or five years for the good news to build on industrial commodity prices. It will take rather less than two years for the bad news to carve a very large and painful chunk from Australian incomes.”
In its broader outlook, Access said it believed mining output would be cut back to 7.8 per cent in the next two financial years but the greatest pain would be felt in the resources labour market.
As the national jobless rate edges up to 4.5 per cent, it is predicted that thousands of mining and resources jobs will be slashed as profits fall..
Access forecasts an 11.4 per cent decline in the number of mining jobs in the next financial year, as mining capacity is cut back.
But Access predicts the jobless figure will then rebound slightly to slow workforce growth of just 1 per cent.
“Mining has been the powerhouse of the Australian economy in recent years, with the income it earned encouraging a rapid lift in investment and firing up a bunch of other sectors,” the agency said.
The negative outlook for the Australian economy is now shared by NAB, which believes a technical recession will be narrowly avoided in the next year.
In a revised outlook, the bank’s economists tipped that the economy would contract by 0.2 per cent in the final quarter of the past calendar year.
NABCapital chief economist Robert Henderson said the prospects for the economy would be grimmer if agriculture did not strengthen after recent rains.
“Our current forecasts for Australia have the economy just missing by a whisker the shorthand recession definition of two quarters of negative growth,” Mr Henderson said.
“The forecasts include a strong contribution from the farm sector as the drought breaks and the rural economy bounces back.
“Under most definitions, Australia’s non-farm economy is in recession now and we will remain there until the middle of the year.”

Gold N.Y. Spot $ 810.70
Silver N.Y. Spot $ 10.37
Lead LME Cash $ 0.5148
Copper LME Cash $ 1.4846
Zinc LME Cash $ 0.5602
Nickel LME Spot $ 4.74
Aluminum LME Spot $ 0.6593
Platinum N.Y. Spot $ 0934.50
Palladium N.Y Spot $ 180.50
Oil WTI Cushing $ 037.20
Natural Gas (Henry Hub)($/MMBtu) $05.71

USD-AUD $ 1.5129
AUD-USD $ 0.6610
CAD-USD $ 0.8159
USD-CAD $ 1.2257
EUR-USD $ 1.3148

Gold N.Y. Spot $ 824.25
Silver N.Y. Spot $ 10.68
Lead LME Cash $ 0.4876
Copper LME Cash $ 1.4234
Zinc LME Cash $ 0.5357
Nickel LME Spot $ 4.69
Aluminum LME Spot $ 0.6532
Platinum N.Y. Spot $ 0933.50
Palladium N.Y Spot $ 184.00

Oil WTI Cushing $ 038.30
Natural Gas (Henry Hub)($/MMBtu) $05.59

USD-AUD $ 1.5022
AUD-USD $ 0.6657
CAD-USD $ 0.8280
USD-CAD $ 1.2077
EUR-USD $ 1.3173

Gold N.Y. Spot $ 824.90
Silver N.Y. Spot $ 10.91
Lead LME Cash $ 0.5194
Copper LME Cash $ 1.4384
Zinc LME Cash $ 0.5498
Nickel LME Spot $ 4.58
Aluminum LME Spot $ 0.6691
Platinum N.Y. Spot $ 0969.00
Palladium N.Y Spot $ 188.50
Oil WTI Cushing $ 038.20
Natural Gas (Henry Hub)($/MMBtu) $05.59

USD-AUD $ 1.4633
AUD-USD $ 0.6834
CAD-USD $ 0.8387
USD-CAD $ 1.1923
EUR-USD $ 1.3339

Gold N.Y. Spot $ 855.70
Silver N.Y. Spot $ 11.18
Lead LME Cash $ 0.5352
Copper LME Cash $ 1.4876
Zinc LME Cash $ 0.5532
Nickel LME Spot $ 5.16
Aluminum LME Spot $ 0.6895
Platinum N.Y. Spot $ 0981.00
Palladium N.Y Spot $ 188.00
Oil WTI Cushing $ 039.70
Natural Gas (Henry Hub)($/MMBtu) $05.98

USD-AUD $ 1.4188
AUD-USD $ 0.7048
CAD-USD $ 0.8412
USD-CAD $ 1.1888
EUR-USD $ 1.3506