Commodity Blog

Archive for February, 2009

Gold N.Y. Spot $ 911.60
Silver N.Y. Spot $ 13.10
Lead LME Cash $ 0.5216
Copper LME Cash $ 1.5694
Zinc LME Cash $ 0.5194
Nickel LME Spot $ 4.94
Aluminum LME Spot $ 0.6296
Platinum N.Y. Spot $ 1033.00
Palladium N.Y Spot $ 214.50
Oil WTI Cushing $ 040.50
Natural Gas (Henry Hub)($/MMBtu) $04.77

USD-AUD $ 1.4990
AUD-USD $ 0.6671
CAD-USD $ 0.8202
USD-CAD $ 1.2192
EUR-USD $ 1.3012

Last week’s furore over the controversial ‘Buy America’ clause included in the American Recovery and Reinvestment Act of 2009 — passed by the US House of Representatives on January 28 — ended the week with the White House promising to review the protectionist proposal.
This latest move, which came after outcry from industry bodies and governments across the globe, is likely to be unpopular among US steelmakers, many of which came out in support of the proposal during the week.
“We need to put Americans back to work,” Nucor ceo Dan DiMicco said at a Congressional Steel Caucus hearing last week.
“The best way to do that is with a strong stimulus package that focuses on rebuilding our nation’s infrastructure, including our roads, our bridges, our schools and our buildings, as well as our energy infrastructure, both conventional and alternative.”
“The ’Buy America’ laws are consistent, I repeat consistent, with our international obligations,” he added.
“They have not and will not start a trade war.”
Chairman of the Congressional Steel Caucus Representative Peter Visclosky, a champion of stronger provisions, agreed.
Bottom line
“The bottom line is that requiring American steel to be used in economic stimulus projects is a surefire way to quickly create American jobs, and the American taxpayers deserve to know that their hard-earned tax dollars are being used to revitalise the American economy and help Americans who want to work,” he said.
But others elsewhere were not so sure, and a number of foreign government bodies, including the European Commission, welcomed President Obama’s new tack on the proposed trade legislation, particularly when the US premier took a softer tone in an interview with Fox News.
“I’m encouraged by the words of President Obama,” European trade commissioner Baroness Ashton told MB. “He realises, like we do in Europe, that we need to trade our way out of the current economic difficulties. Trade is part of the solution as it acts as a stimulus.”
But the ’Buy America’ clause has ruffled feathers in more than one nation outside Europe, and Obama and his administration will have to tread carefully if they wish not to trigger further ire in these quarters.
“It’s trade protectionism, which is against the common practice of the World Trade Organisation, but then, so far, it has been more propaganda than reality, so it is still too early to make any formal protest,” said an official at China Iron & Steel Assn (Cisa).
“In a global economy, the market should be the decision- maker, not the government. Even China, a 500 million tpy steelmaker, has to import some products every year, how can the US be different?,” he continued. “The US triggered the financial crisis and global economic recession, which has hit Europe harder. All countries are making an effort to help each other out, and [if the US passes 'Buy America' provisions] it will turn all the other countries against the US,” he said.
And Serdar Kocturk, president of the Turkish Steel Exporters’ Assn, was similarly unimpressed.
“The law favours American producers in government tenders. In this act there are some countries called ‘designated countries’ which are treated like local suppliers. If there is a public interest, if the product is not available and if the cost is unreasonable, some products may be excluded with prior approval,” he told MB.
Trade barriers
“In the past, prices up to 6% higher were acceptable for local suppliers. I think that such protective laws are against free trade practices and it’s not fair. However, we are going through tough times and most nations are not respecting free trade rules — they’re applying trade barriers and tariff barriers,” he added.

A Japanese steel producer said Monday that metallurgical coal buyers have accepted that sagging global steel demand doesn’t warrant the cancellation of all unwanted contract tonnage in the current fiscal year, but they are still holding out for suppliers to cancel some high-priced fiscal 2008 term deliveries. The source also said 2009 contract prices may have to be settled higher than in 2007 to allow for long-term sustainability in met coal supplies.
Representatives of market leader, BHP Billiton-Mitsubishi Alliance, kicked off FY 2009 talks with their North Asian customers in late-January, and have told buyers that “a contract is a contract,” the Japanese source said. BMA is expected to resume talks in Japan later this month, the source added.
Previously, market sources said Asian steel mills are finding it difficult to take delivery of their outstanding contracted FY 2008 coal tonnages and buyers were hoping that the current situation could be considered a force majeure condition.
EARLY 2008 PROJECTIONS MISSED THE MARK
FY 2008 tonnages for annual contracts starting April 1 were procured at record-high prices in early 2008. Prime hard coking coals from Australia and Canada were priced at about $300/mt FOB, largely as a result of flooding in the main Australian metallurgical coal-producing state of Queensland in early 2008, and partly due to harsh winter conditions in Canada.
In early calendar 2008, the metallurgical coal supply situation was extremely tight, forcing steelmakers to cough up high annual prices for their FY 2008 coal supplies. Mills also entered into contracts for additional tonnages on top of projected requirements for FY 2008 in anticipation of events that could further constrict supply–such as mine accidents, weather disturbances and equipment failure.
Projections made in early 2008 were too optimistic and were overshadowed by the global financial meltdown, which started in mid-September and sent commodities pricing and freight rates on a downward spiral. For the mills, the financial crisis meant they had to cut down on their steel production. This put them in a quandary regarding how to deal with outstanding, high-priced, contracted 2008 tonnages that they no longer required.
BMA LIKELY TO FIND PROPOSAL HARD TO SWALLOW
In late January 2009, BMA informed its customers that FY 2008 contracts must be honored, the Japanese source said. However, buyers are still negotiating with their suppliers to reduce the delivery of a portion of their outstanding FY 2008 contracts.
“We know this kind of proposal will be very hard for BMA and other suppliers to accept,” the Japanese source said. “We want to talk to our suppliers on a commercial basis, not on a legal basis,” the source added. The Japanese coal buyer also said that the FY 2007 price of $98/mt FOB for prime hard coking coal “is too low” as a price settlement for FY 2009. He said he personally believes that FY 2009 prices should settle at between the FY 2007 and FY 2008 prices, suggesting a price of $120 to $150/mt FOB.
“We don’t want our suppliers to go under. We have to think of future availability of coking coal. Pressuring suppliers to agree to very low prices for 2009 will not be good for buyers in the long term,” the source said.

The IMF has warned the US against pursuing protectionist policies such as a ”buy American” clause inserted into the US stimulus-package legislation, saying such approaches don’t work and would be harmful to the recovery.
Speaking at a briefing on the outlook for Asia, the IMF’s chief-executive, Dominique Strauss-Kahn, said that in crises, the idea of finding a domestic solution was always tempting.
“The problem is with globalisation, even more than previously, it won’t work. The idea is understandable, but really, no one can believe there is a solution in that direction, and we have to explain and explain again that beggar-thy-neighbour policies do not work,” he said.
The Obama Administration faces its first real test on free trade when it confronts moves by both the Senate and the House to insert “buy American” provisions in the stimulus bill.
Virtually every major trading partner of the US — including the EU, Australia, Canada, Japan and China — has warned that such a move could trigger a trade war and would be a breach of international obligations.
Mr Strauss-Kahn also said the idea that Asia had been decoupled from the rest of the world economy had clearly been demonstrated to be false and that it had held up only because of a delay in the way the downturn affected the region.
The IMF is now forecasting 6.8 per cent growth for China in 2009, down from 9 per cent forecast in November. Developing Asia is expected to growth by 5.5 per cent. But Mr Strauss-Kahn stressed there was “a lot of downside risk”.
He said a driver for recovery in Asia would be an upturn in demand in the US and Europe, which are expected to recover somewhat in late 2009 or early 2010. Asia could be expected to recover in 2010, he said.
Mr Strauss-Kahn stressed that there had been early measures by Asian nations to implement countercyclical responses that should help speed Asia’s recovery.

Someone had to do it. Call the bottom of the market that is. Given he was briefly Australia’s richest man with a $12 billion fortune in Fortescue shares, it was fitting it was Andrew Forrest who has made the call.
The Fortescue chief told 620 mining types at a Melbourne Mining Club lunch at the Town Hall that while 2009 was set to be quiet in terms of growth, he was prepared to call that we are “at or around the bottom of the stockmarket”.
And on the more mundane issue of Fortescue’s iron ore business, Mr Forrest disclosed that Fortescue would today issue a clarifying statement on its exposure to freight contracts that it cancelled when freight rates collapsed. Analysts estimate the group’s exposure at more than $200 million.
It would be tempting to think that Mr Forrest’s call that the market has bottomed would be his hope given his personal stake in Fortescue is now worth a little less than $2 billion. But Mr Forrest has continued faith in the urbanisation and industrialisation of China to once again fuel good times.
While it might take a few more fiscal stimulus packages to get things moving — Fortescue reckons China has another another six in the pipeline if needed — the ”fundamental factors of the boom have not changed”. “The stockmarket is bumping along the bottom and financial crises come and go,” Mr Forrest said.
What’s more, it could take 12–18 months for the pessimism to pass. As a result, there will be “fabulous opportunities out there” in the time being.
Fresh from news that Rio was in talks with Chinese state-owned Chinalco on its own $US15 billion-plus ($A23.5 billion-plus) stimulus package, Mr Forrest said that the level of interest from China/Asia to get “involved in Australian resources businesses is without parallel right now”.
“So if you think everything is crook in Tallarook and nobody is investing, I would say think again,” he said.
He said that as a result of the global financial crisis, there was now an understanding in China that “assets that really weren’t for sale at any price just might be for sale”. “So they have crossed the first Rubicon that perhaps they can get in to these industries. That doesn’t mean that people are going to sell them cheaply,” Mr Forrest said.
His comments came as Rio is understood to be planning to sell Chinalco a minority stake in its prized Pilbara iron ore business to overcome its debt woes. Fortescue itself “would never say never” to a Rio-type deal.
“We would always look at opportunities, but at this point of time we are well capitalised. If an opportunity comes across out table which really locks in long-term customer supply and which really locks us further and deeper in to China, of course, we will look at it seriously,” Mr Forrest said.
He said talk of Chinalco’s possible deal with Rio has been around for months. “All of us have received very strong interest,” he said of the iron ore producers.

Gold N.Y. Spot $ 898.20
Silver N.Y. Spot $ 12.27
Lead LME Cash $ 0.5049
Copper LME Cash $ 1.4517
Zinc LME Cash $ 0.5108
Nickel LME Spot $ 5.12
Aluminum LME Spot $ 0.6058
Platinum N.Y. Spot $ 0965.50
Palladium N.Y Spot $ 192.00
Oil WTI Cushing $ 040.30
Natural Gas (Henry Hub)($/MMBtu) $04.46

USD-AUD $ 1.5444
AUD-USD $ 0.6475
CAD-USD $ 0.8062
USD-CAD $ 1.2404
EUR-USD $ 1.3016

Gold N.Y. Spot $ 916.80
Silver N.Y. Spot $ 12.52
Lead LME Cash $ 0.5058
Copper LME Cash $ 1.4266
Zinc LME Cash $ 0.4967
Nickel LME Spot $ 5.08
Aluminum LME Spot $ 0.5967
Platinum N.Y. Spot $ 0974.00
Palladium N.Y Spot $ 195.00
Oil WTI Cushing $ 041.30
Natural Gas (Henry Hub)($/MMBtu) $04.78

USD-AUD $ 1.5850
AUD-USD $ 0.6309
CAD-USD $ 0.8088
USD-CAD $ 1.2364
EUR-USD $ 1.2802

Royal Dutch Shell PLC, Europe’s largest oil company, said the cost of producing Canadian oil sands rose to about $38 (U.S.) a barrel last year, including fuel expenses.
Shell’s oil-sands production in Canada last year was 80,000 barrels a day, chief financial officer Peter Voser said yesterday on an analyst call. Costs averaged $29 a barrel in 2007, when Shell produced 87,000 barrels a day, he said.
“We expect that to make a profit” in Canada, CEO Jeroen Van Der Veer said yesterday in The Hague.
Shell withdrew an application in November for government approval of its Carmon Creek oil-sands development in Alberta because of rising industry costs.
In October, the company postponed the second-phase expansion of its Athabasca oil-sands project. Energy costs account for about 20 per cent to 25 per cent of the oil sands production expenditure.
Van Der Veer said “very soon our big projects will kick in.”