The Ins and Outs of Physically Backed Commodity ETFs

Wednesday, March 17th, 2010

This article is a guest contribution by Tom Lydon, ETFTrends.com.

Commodity exchange traded funds (ETFs) have attracted a rabid investor following in a relatively short period of time. To play in the commodity sandbox before ETFs came along, you needed risk tolerance and capital. Today, you just need desire.

Last week, we discussed physically backed ETFs, which are just as the name implies: each share is backed by a physical product. Right now, physically backed ETFs only give exposure to precious metals. You won’t find an ETF backed by barrels of oil or livestock. [4 Types of Commodity ETFs.]

Physically backed ETFs have a special appeal to smaller investors who either lack the space for storage, or the inclination to hunt down and pay for storage themselves. In ETFs backed by physical metals, all you need to do is show up and buy a share. The rest is taken care of for you. [Contango and What You Can Do About It.]

These ETFs tend to correlate more closely to the spot price than commodity funds that hold equities or futures. The taxes are a bit different, too: profits in bullion-based ETFs are taxed at 28% (but consult your personal tax professional for specific advice). [ETFs and Taxes: What You Should Know.]

Physically backed commodity ETFs also enjoy the other benefits of ETFs, including cost-efficiency, tax efficiency and transparency (the bullion holdings in these funds are subject to regular audits and the results are posted on the ETF provider’s website).

For more stories about commodity ETFs, visit our commodity ETFs category.

• SPDR Gold Trust (NYSEArca: GLD)
• ETFS Physical Platinum (NYSEArca: PPLT)
• iShare COMEX Gold Trust (NYSEArca: IAU)
• ETFS Physical Palladium (NYSEArca: PALL)
• iShares Silver Trust (NYSEArca: SLV)
• ETFS Silver Shares (NYSEArca: SIVR)
• ETFS Gold Shares (NYSEArca: SGOL)

Tags: Audits, Bullion, Comex Gold Trust, Commodity Etfs, Commodity Exchange, Commodity Funds, Commodity Gold, Cost Efficiency, ETF, Exchange Traded Funds, Gold, Gold Shares, Inclination, Ins And Outs, Ishare, Palladium, Personal Tax, Physical Metals, precious metals, Risk Tolerance, Sandbox, Tax Efficiency
Posted in Markets | No Comments »

Adam Hewison: A Sneak Peek S&P 500, Dollar, Gold, and Crude Oil

Tuesday, March 16th, 2010

Adam Hewison is back with four new videos, sharing his outlook for the S&P500, the dollar, gold, and crude oil in the near term. Even if you’re not a trader, Hewison’s seasoned way of explaining ideas is very well informed and useful, and his videos are worth watching, and keeping tabs on.

Title : A Sneak Peek At The S&P 500

This week could be shaping up to be an extraordinary week in the markets. I strongly recommend that traders everywhere take precautionary measure measures to protect capital.

“While the S&P 500 made new highs for the year last week, it did not do so in a very convincing manner. In today’s short video I show you some of the elements that I think should be cause for concern.”

Title: Is The US Dollar Reversing Again?

“It’s been a while since we did a video on the euro/dollar relationship. This relationship may be reversing again based on recent price action. In today’s short video I point out some of the changes we see happening in this market.”

Last week, Jim Rogers discussed his long position in the euro. The reversal of the dollar, may also be a sign that ‘risk’ is back on, though I suspect that will have more to do with the USDJPY cross. For the time being, however, the dollar looks set to weaken against the yen too.

This week could be shaping up to be an extraordinary week in the markets. I strongly recommend that traders everywhere take precautionary measure measures to protect capital.

Title: A Sneak Peek At Gold

This week could be shaping up to be an extraordinary week in the markets. I strongly recommend that traders everywhere take precautionary measure measures to protect capital.

“Last week we gave you a Trade Triangle alert to exit the gold market on the long side. Since that alert was issued gold has dropped significantly.”

Hewison points to a very specific key level of $1091.19. If gold breaches that level, Hewison says it will test around 1060, a he believes that gold will be range-bound for the next while.

Title: A Quick Peek at Crude Oil

Tags: Advertisement, Amp, Breaches, Capital Gold, Commodities, Convincing Manner, Crude Oil, Dollar Gold, Elements, Euro Dollar, Exit, Gold, Gold Market, Jim Rogers, Measures, New Highs, Outlook, Precautionary Measure, Relationship, risk, Sneak Peek, Tabs, Trade Triangle, US Dollar, Videos, Yen
Posted in Markets | No Comments »

Gold Market Highlights (3/15/2010)

Monday, March 15th, 2010

Gold Market

For the week, spot gold closed at $1,101.90 per ounce down $32.75 or 2.89 percent. Gold equities, as measured by the XAU Gold & Silver Index (XAU) fell 2.79 percent for the week. The U.S. Trade-Weighted Dollar Index (DXY) also slipped, losing 0.77 percent.

Strengths

• Hedge fund managers John Paulson and George Soros both made significant investments, at discounts to market, in a potential gold-mining company with significant mineral assets. These transactions point to an expectation of future economics in the gold mining sector which are deemed to be more attractive.
• John Embry, chief investment strategist at Sprott Asset Management, was recently interviewed on Mineweb.net and noted the public is becoming increasingly aware of the looming sovereign debt crises. He noted that historically they would counsel investors to have 5 to 10 percent of their assets in the precious metals sector, but now that suggestion is above 20 percent.
• A recent IMF Staff Position Note “Rethinking Macroeconomic Policy,” released this quarter, is making the argument that traditional inflation targeting of 2 percent may not be optimal and opens the discussion of inflation targets at 4 percent.

Weaknesses

• Some of the recent weakness in gold was attributed to liquidations of long position related to an upcoming hearing by the Commodity Futures Trading Commission to investigate speculative interest in the precious metal market.
• South African has fallen to the world’s fourth largest gold producer behind China, Australia and the United States. Falling production is partly being driven by declining ore grades, down 8 percent over the past year. Reportedly, China is very active within South Africa trying to secure supplies of industrial metals, but likely would not rule out opportunities to obtain production interest in the precious metals sector.
• The prime minister of Greece has been busy trying to find governmental allies to create regulations that would limit the use of credit-default-swaps in financial markets, which he blames for driving up the borrowing costs of issuing debt.

Opportunities

• Last year was the first time union membership in the public sector rose above private sector membership. The average hourly wage of public employees last year was $39.66, about 45 percent higher rate than the average hourly wage of $27.42 paid in the private sector. According to U.S. Bureau of Labor Statistics, businesses have cut 8.5 million jobs while government job losses are almost nil. Public spending to support these jobs could contribute to massive deficits that could weaken the dollar and benefit gold.

Threats

• RBC recently highlighted that the South African rand could rise 10 percent in the next three months as the country prepares to host soccer’s World Cup. Unless the gold price rises an equal amount, some of the miners could see a margin squeeze.
• Several reports have highlighted whether the days of big gold companies is over. While this can be an opportunity, uncertainty is more prevalent in the near term.
• The world’s biggest gold miner is planning to list its African assets as a separate company in London. In another case, the world’s third largest gold miner hinted the company could rationalize assets.

Tags: Chief Investment Strategist, China Australia, Commodity Futures Trading Commission, Futures Trading Commission, George Soros, Gold, Gold Equities, Gold Market, Gold Mining Company, Gold Producer, Imf Staff, Industrial Metals, Inflation Targets, John Embry, John Paulson, Ore Grades, Precious Metal Market, Precious Metals Sector, Prime Minister Of Greece, Silver Index Xau, Speculative Interest, Spot Gold
Posted in Markets | No Comments »

Gold Catches Traders by Surprise

Friday, March 12th, 2010

Adam Hewison, of MarketClub, a seasoned Chicago trader, shares his thoughts on gold in his latest trading video.

The move down in gold yesterday surprised many traders, March 9, and flashed an exit signal.

As we have mentioned before, we felt that gold was in a broad trading range and were not optimistic that it would shoot higher.

This week’s action confirms that we have more of a two-way market. I expect we’ll see further selling on any rallies from this level.

In today’s video, I share with you some thoughts I have on gold based on one important element: how gold energy fields propel this market.

Click here on the image below to watch the video:

You should watch this earlier video, Making Sense of Today’s Gold Market before watching today’s, for more background in to what Hewison is talking about.

You should also watch Energy Fields in Gold and How to Trade Them for a primer.

Tags: Element Gold, Energy Fields, Energy Market, Exit Signal, Gold, Gold Fields, Gold Market, Rallies, Surprise
Posted in Markets | No Comments »

Stephen Foerster: The Long Term Verdict for Gold

Wednesday, March 10th, 2010

Tags: Alcan Inc, Bmo Nesbitt Burns, Canadian Securities Institute, Cases In Financial Management, Chartered Financial Analyst, Emba Programs, Executive Mba Program, Gold, Ivey School Of Business, Journal Of Financial And Quantitative Analysis, Rbc Asset Management, Rbc Dexia, Rbc Dominion Securities, Richard Ivey School, Richard Ivey School Of Business, Scotia Capital Markets, Steve Foerster, Toronto Stock Exchange, University Of Western Ontario, Value Based Management, Wharton School University Of Pennsylvania
Posted in Markets | No Comments »

Gold bullion – advancing in all currencies

Thursday, March 4th, 2010

The gold price is not only making headway in US dollar terms, but also in most major (and minor) currencies as illustrated by the table and graph below. Bullion veterans will recognise this phenomenon as a manifestation of solid investment demand (and a vote of no confidence in fiat paper per se).

The picture and the numbers tell the full story.

Source: Plexus Asset Management (based on data from I-Net Bridge).

Source: Plexus Asset Management (based on data from I-Net Bridge).

Illustrating the message even more vividly is the chart below of gold expressed in a basket of emerging-market currencies by dividing the dollar bullion price by the Wisdom Tree Dreyfus Emerging Currency ETF (CEW). Also note that the chart has again climbed back to above its 50-day moving average line.

Source: StockCharts.com

I remain bullish on gold in the medium term, especially as I believe the vast money printing by central banks could set off strong inflation pressures down the road. I will not be surprised to see bullion remaining in a secular uptrend for some time to come. Add bullion to your portfolios but, given the notorious volatility of the metal, only do so on pullbacks.

Tags: Bullion Price, Central Banks, Dollar Terms, Dreyfus, Emerging Market, ETF, Gold, Gold Bullion, Gold Price, Headway, Inflation Pressures, Investment Demand, Line Advertisement, Line Source, Medium Term, Minor Currencies, Money Printing, Pullbacks, Solid Investment, Story Source, Uptrend, Vote Of No Confidence, Wisdom Tree
Posted in Markets | No Comments »

Making Sense of Today’s Gold Market

Monday, March 1st, 2010

Adam Hewison, MarketClub, explains a gold indicator that has stood the test of time:

It’s been about eight days since we did a video on gold, and given the market action today I thought I would look at what is causing the downward pressure in this market.

If you did not watch my last video on gold, I strongly recommend you click here to watch the video titled “Five Reasons Why Gold Will Not Make a New High This Time” as it will give you a bigger picture of how we see this market playing out in the next 12 months.

In today’s short video we look at an indicator that we have not talked about before in any of our videos. The indicator, which is an overlay on top of the chart, is called the Donchian Channel Indicator.

Richard Donchian, who has since passed away, came up with this indicator in the late ’40s. The reason why I like this indicator is the fact that it has successfully stood the test of time. I think you’ll really enjoy seeing how it can help you make money in the gold market.

Also in this video, I point out one very important cycle that is in play now and where I think the next tradable low is coming into this market.

Tags: 12 Months, 40s, Donchian Channel, Downward Pressure, Eight Days, Gold, Gold Market, Marketclub, Money Market, Reason, Richard Donchian, Test Of Time, Videos
Posted in Markets | No Comments »

Gold Market Highlights (February 28, 2010)

Sunday, February 28th, 2010

Gold Market

For the week, spot gold closed at $1,117.60 per ounce down $1.60 or 0.14 percent. Gold equities, as measured by the XAU Gold & Silver Index (XAU) fell 1.85 percent for the week. The U.S. Trade-Weighted Dollar Index (DXY) fell 0.36 percent.

Strengths

• Gold and equities were able to rebound as Federal Reserve Chairman Ben Bernanke appeared before Congress and reaffirmed that short-term interest rates would remain low for an extended period of time and predicted the economic recovery would remain slow.
• Desjardins Securities said copper stockpiles in China are declining swiftly and that many in the market are wrong in thinking that speculation, rather than fundamental demand, has underpinned imports of copper into China. The company also said fundamental demand far exceeds general expectations.
• The Bombay Bullion Association said India’s gold imports in February are most likely between 30-35 tonnes. This is at least a 280 percent increase year-over-year when compared to 2009 imports of 7.9 tonnes during the month of February.

Weaknesses

• Weaker-than-expected consumer confidence and new home sales reports set the mood earlier in the week as traders and investors remained on the sidelines.
• Investors remain risk averse after ratings agency Fitch downgraded Greece’s largest banks ahead of Greece’s 10-year bond auction. Gold has been under pressure as of late due to a strengthening dollar primarily due to a weakening euro.
• The National Energy Regulator of South Africa has approved Eskom’s 28 percent tariff increases in 2010 and nearly 26 percent the next two years. With the South African economy is still in recovery mode, tariff increases on power utility will impact mining and the wider economy.

Opportunities

• Platinum Guild International has released a report stating young women are spurring demand for platinum jewelry demand in China. The report states that two-thirds of platinum jewelry buyers in China are women between 18 and 34 years old.
• The Financial Times reported the London Metals Exchange will be launching derivatives contracts on cobalt and molybdenum. The new offerings come as investor appetite for commodities continually increases as strong consumption in China drives demand and higher prices.
• JPMorgan said the dollar may fall against Japan’s currency to as low as 87 yen as investors reduce bets that the Federal Reserve will further tighten monetary policy in the near future.

Threats

• The Commodities and Futures Trading Commission (CFTC) will discuss position limits for gold, silver and copper futures markets next month.
• America’s third largest bank recently notified customers that effective April 1, 2010, they reserve the right to require seven days advance notice before permitting a withdrawal from all checking accounts.
• In efforts to ease the housing debacle, the Obama Administration may ban all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program.

Tags: Bond Auction, Consumer Confidence, Dollar Index, Dxy, Economy Opportunities, Energy Regulator, Federal Reserve Chairman, Federal Reserve Chairman Ben Bernanke, Fundamental Demand, Gold, Gold Equities, Gold Imports, Gold Market, Jewelry Buyers, Platinum Guild International, Platinum Jewelry, Recovery Mode, Report States, Silver Index Xau, South African Economy, Spot Gold
Posted in Markets | No Comments »

Gold and Silver for the Time Being

Wednesday, February 24th, 2010

Adam Hewison, CEO, MarketClub, is back with two new educational videos about Gold and Silver. Hewison, a seasoned trader and source of sound market guidance shares his near term views on the two very different metals.

Title: Five Reasons Why Gold Will Not…

Gold has made some exciting moves recently, but what can we expect in the future? In today’s video, I point out five reasons that I do not expect gold to make a new high just yet.

If the current cycle persists, there will be some interesting trades to be had in this market and a possible new high before summer.

Title: Looking At Silver for All the Wrong Reasons

Late in 2009 a lot of folks began asking us about buying silver instead of gold. At the time, we stated exactly how we felt, in that, why would you try to buy something that is not in the same league as gold? The two markets are completely different and are driven by a different set of emotions and fundamentals.

This is the first video that I’ve done on silver in quite some time, but I think it’s an important one for you to see.

One of the standout features that I noticed was the fact that when gold was making new all-time highs in early December, silver failed to take out the March 2008 high. I consider this to be a negative.

In this short video you will very quickly see how we feel about silver and how you can benefit from looking at this market from a different perspective.

Tags: All Time Highs, Buying Gold, Ceo, Current, Different Perspective, Driven, Educational Videos, Emotions, Gold, Gold And Silver, Gold Silver, Market Guidance, Marketclub, Metals, New Videos, Quite Some Time, Silver, Standout Features, Trades
Posted in Markets | No Comments »

Gold and Euro: A New Tango For 2010

Sunday, February 21st, 2010

By Dian L. Chu,  Economic Forecasts & Opinions

The U.S. dollar rose, commodity prices dropped and stocks fell last Friday after the Federal Reserve unexpectedly lifted an emergency lending rate for the first time since the financial crisis.

The dollar hit an eight-month high against a currency basket, while gold prices rose as investors bought the metal to hedge against paper currencies and debt default risks in Europe. Gold futures ended on Friday with a weekly gain of 3.1% at $1,122.10 an ounce.

Gold’s Retreat

Gold had rallied to a record of $1,218.30 an ounce on Dec. 3, 2009, as near-zero U.S. interest rates and government spending weighed on the dollar and countries including India and China boosted gold reserves.

However, bullion in the spot market has declined more than 6% since December, as the U.S. dollar benefited from the unfolding debt crisis in Dubai, Greece and the rest of southern Europe.

New Inverse Tango with Euro

Since gold is primarily a hedge against the dollar and inflation, it typically has the strongest inverse correlation with the US dollar. In the last month, however, the trend has broken with gold trending inversely with the euro and positively with the dollar (Fig. 1). The euro has now taken center stage in dictating the price of gold as it pertains to the fiscal health of Greece and other eurozone countries.

Fears over the outlook for the euro have been driving investors out that currency, and lifted both bullion and the dollar as alternative assets. The euro has declined, particularly against the dollar and gold, almost 5% against the dollar, and gold in euro terms is up 4.2%, so far in 2010.

Mariachi - PIIGS & The Fed

The new trend between the euro, dollar and gold is expected to continue amid fiscal challenges in the UK and Eurozone, PIIGS (Portugal, Iceland, Italy, Greece and Spain) in particular. Uncertainty over the details of any financial rescue package for Greece will likely keep the mood in the markets nervous, and the currency markets volatile in the near term.

In addition, the Fed’s discount rate hike signals that other central banks will likely follow suit in exiting from stimulus measures, while the eurozone, UK and Japan will likely lag behind. This view has partly triggered selling of the euro against the dollar, and some other currencies to seek a positive yield and perceived safety.

These two factors will likely continue to be the major forces driving the euro’s direction for the rest of Q1, and may spill over into Q2 depending upon solutions to the Eurpoean Union`s debt problems and dearth of future growth opportunities.

Technicals - Short-term Mixed

Technically speaking, the short term indicators of gold are mixed and still trending bearish as gold prices remains in the lower part of its recent trading range.

Technical analysts have widely diverging views as well. For instance, Chartered Market projects gold to reach about $1,400 within 12 months as long as the $1,000 level holds; whereas Barclays Capital considers a “fair value” for gold around the $700 to $800 an ounce level.

Meanwhile, Nouriel Roubini, economics professor at the Stern School of Business, New York University, says that there is a bubble in commodities, and that the price of gold should be no higher than $1,000 an ounce given the current market conditions.

Techincal levels of significance would be a breakout above the $1150 level, which would be bullish; and breakout below the $1050 level of support, which would be bearish for the commodity.  (Fig. 2)

Vulnerable to Rapid Unwind

According to the Commodity Futures Trading Commission (CFTC), NYMEX gold futures open interest increased 3.2% in January. Commercial traders increased their long positions, while holding net short positions. Non-commercial speculators held net long positions but increased their short positions. Overall, about 54% of the participants held net long positions in January. (Fig. 3)

Gold has attractions for those managers of private institutional funds. Many investors from George Soros to John Paulson have been buying gold as lower interest rates and continued money-printing could devalue the U.S. dollar in the long term.

Billionaire fund manager George Soros, for instance, told the financial elite at Davos that gold represented the “ultimate asset bubble”; however, data from SEC filing showed his fund more than doubled the stake in the SPDR Gold Trust (GLD) three months earlier. In fact, the gold trust is now his fund’s biggest investment, valued at $663 million.

The large number of long speculators playing in the Gold market could leave the market vulnerable to a rapid unwinding when sentiment changes – the crowded trade scenario. One can only speculate that Mr. Soros could be seeking to exploit this market vulnerability with his seemingly uncharacteristic and contradictory actions.

Other Market Factors

Furthermore, the gold price direction also hinges on several events about to unfold within the next few months:

1) Greece’s borrowing needs are covered only until mid-March, and is set to launch a new bond offering of $7 billion in coming days – Eurozone/euro could stand or fall on the success or failure of this bond sale.

2) European finance ministers gave Greece a one-month reprieve to show its deficit reduction plan was being rolled out effectively.

3) Dubai World will present a proposal to creditors in March to restructure about $22 billion of debt.

4) The IMF’s phased open-market sales of the remaining 191.3 tons of gold it planned to sell last year as there are no more official buyers – Bearish for gold, unless another central bank steps up.

5) The Federal Reserve will end a $1.25 trillion program of mortgage-debt purchases in March – Gold-bearish as it reduces liquidity.

As ever gold thrives on financial, economic and monetary uncertainty, there is certainly plenty of that in the world today.  Sovereign risk will likely remain the main theme for 2010, and possibly 2011.  This all sets the stage for the next five years of monetary and fiscal policy decisions around the globe which will ultimately define the future for this precious metal from an investment standpoint.

Disclosure: No Positions

Tags: Alternative Assets, China, Commodity Prices, Currency Basket, Debt Crisis, Debt Default, Economic Forecasts, Emerging Markets, Euro Dollar, Europe Gold, Eurozone Countries, Fiscal Challenges, Fiscal Health, Gold, Gold Bullion, Gold Futures, Gold Prices, Gold Reserves, India, Inverse Correlation, Italy Greece, Paper Currencies, Price Of Gold, Southern Europe
Posted in Emerging Markets, India, Markets | No Comments »

Gold Market Highlights

Saturday, February 20th, 2010

Gold Market

For the week, spot gold closed at $1,119.20 per ounce, up $25.82, or 2.36 percent. Gold equities, as measured by the XAU Gold & Silver Index (XAU) gained by 3.03 percent for the week. The U.S. Trade-Weighted Dollar Index (DXY) gained 0.41 percent.

Strengths

• The World Gold Council said China was the only emerging country to record growth (22 percent) in investment demand in 2009. Also, strong investment demand in developed markets offset weaker emerging-markets demand.
• Gold, at more than $1,100 per troy ounce, has been supported by concerns over the outlook for the currency markets. VM Group Analysts say the only feasible solution to the debt crisis in Greece is either through a devaluation or inflation, both of which are gold-supportive.
• Contrary to earlier reports, India retained its position as the largest gold-consuming nation in 2009 primarily because of higher consumer demand in the fourth quarter of the year. Indian festivals and weddings created demand, and jewelry dealers offered year-end promotions to strengthen sales.

Weaknesses

• The Federal Reserve raised the discount rate by 25 basis points to 0.75 percent, causing the U.S. dollar to strengthen across a basket of currencies as risk-averse investors flock to where monetary tightening is evident in efforts to avoid market turbulence.
• The World Gold Council has said that total identifiable gold demand fell 11 percent to 5,386 metric tons in 2009.
• The U.S. Labor Department said core consumer prices fell 0.1 percent in January, signifying that the outlook for inflation remains low. Bonds linked to inflation are losing ground globally as investors see little need to protect against price increases as the dollar rallies and banks restrict credit growth.

Opportunities

• The chart above, courtesy of Pimco, marks the countries in red that have the potential for public debt to exceed 90 percent of gross domestic product within a few years, making sovereign credit risk a greater threat. Bullion stands to benefit as the economies of countries in the “ring of fire” experience anemic growth rates that weaken their currencies.
• The most recent Treasury capital flows report showed that China sold a record $34.2 billion in American debt in December 2009, in the process relinquishing for the first time in many years its position as the top U.S. debt holder. China has been marginally diversifying its reserves into other currencies and other assets.
• South African President Jacob Zuma silenced the African National Congress’ Youth League, which earlier called for nationalization of mines, by reiterating that nationalization is not government policy. Gold miners firmed upon Zuma’s comments.

Threats

• The International Monetary Fund announced it will start selling 191.3 metric tons of gold in the open market, after already selling 212 metric tons to central banks in India, Sri Lanka and Mauritius.
• Greece’s prime minister said Greek workers and companies have evaded more than $42 billion in taxes, more than 10 percent of GDP. Repairing the country’s fiscal imbalance by lowering debt levels to acceptable European Union standards may be more difficult than initially expected.

Tags: China, Core Consumer, Currency Markets, Debt Crisis, Devaluation, Dollar Index, Dxy, Emerging Markets, Feasible Solution, Gold, Gold Demand, Gold Equities, Gold Market, India, Indian Festivals, Investment Demand, Investors Flock, Jewelry Dealers, Losing Ground, Market Turbulence, Silver Index Xau, Spot Gold, Troy Ounce, World Gold Council
Posted in Emerging Markets, India, Markets | No Comments »

Energy and Natural Resources Markets Highlights

Saturday, February 20th, 2010

Energy and Natural Resources Market

Strengths

• Despite a severe recession in 2009, the World Bureau of Metals Statistics estimates that global copper consumption grew 1.8 percent to 18.43 million metric tons.
• U.S. coal stockpiles at utilities declined 2.3 percent this past week, according to Genscape Inc. Inventories are currently at 153.3 million tons versus 156.8 million tons the prior week and up 6.5 percent from a year ago.
• North American potash inventories at the manufacturer level fell sharply in January on strong seasonal dealer re-stocking and growing overseas sales momentum. Inventories have now fallen for a third straight month and are now only 6 percent above the prior 5-year average.
• Severstal is increasing its price for flat-rolled steel by $30 per short ton, in line with moves by AK Steel and Nucor earlier in the week. This increase takes Severstal’s price for hot-rolled coil to $640 per short ton.
• Japan’s crude steel output rose 37 percent to 8.72 million metric tons in January from a year earlier, the Japan Iron and Steel Federation said this week.
• China’s iron ore imports from Australia rose 42.9 percent in 2009 to 260 million tons and imports from Brazil rose 41.5 percent to 140 million tons from a year earlier, the official Xinhua News Agency reported, citing Chinese customs figures.
• China’s power consumption was strong in January, rising 2.7 percent month-over-month and 40 percent year-over-year.

Weaknesses

• Coal exports from Newcastle port in Australia fell 9 percent in the second week of February, with outbound loading for the month thus far running at 103.4 million metric tons on an annualized basis, slightly below the target of 104.7 million metric tons.
• Macquarie reports that thermal coal stocks at Chinese power stations appear to have returned to non-critical levels, with average days of usage rising to 12 days as of February 10 compared to eight days in mid-January.
• Estimates by the Energy Information Administration (EIA) of the U.S. Department of Energy showed Saudi Arabia’s crude exports to the U.S. plummeted to about 837,000 barrels per day in November, the lowest level in 21 years.

Opportunities

• Oil services firm Smith International Inc. is said to be in advanced talks to be acquired by Schlumberger Ltd., the world’s largest oilfield-services provider, in a $9 billion transaction.
• Brazil’s state controlled oil company Petrobras said it is importing gasoline to ensure ample supply to the domestic market after a spike in the demand for motor fuel. This is due in part to falling production of sugar cane ethanol, which is used in Brazil as an alternative fuel for cars.
• China, which has the world’s second-largest power capacity after the U.S., plans to add 85 million kilowatts (kW) of new capacity this year, boosting its total capacity to about 950 million kW, according to the latest report by the China Electricity Council. The council said that the newly added capacity this year would include 55 million kW for coal-fired power, 15 million kW for hydropower, 13 million kW for wind power and 1.08 million kW for nuclear power. Power consumption in China is expected to grow 9 percent to 3.97 trillion kWh in 2010, thanks to the economic recovery, according to the report.
• UC Rusal is expected to restart 100,000 metric tons of idled aluminum capacity. The company is in the preparatory stages of restarting the production, based upon strength in the company’s backlog, with Rusal indicating that its order book is 150 percent above its 2009 production level.
• Steel prices are expected to jump a further 15 percent to 20 percent after the Chinese New Year as governments in East Asia restart spending on major infrastructure-related projects and restocking activities increase, according to Malaysia Steel Works.
• The U.S. government committed to $8.3 billion of loan guarantees to Southern Co. and its partners in order to commission the construction of the first new nuclear power plant in three decades. Southern plans to add two reactors near Waynesboro, Georgia, in 2016 and 2017.

Threats

• In Niger, a coup attempt is underway against President Mamadou Tandja, according to AFP. Niger is one of the world’s top six uranium mining countries, producing 7 percent of the world total in 2008, according to the World Nuclear Association.
• Zimbabwe will reconsider legislation aimed at forcing companies to sell more than half of their assets to black investors after the law frightened off investors, according to the acting prime minister. Under the law, companies operating in the country with assets worth more than $500,000, among them Anglo American Plc and Old Mutual Plc, must sell 51 percent of their local units to black investors within five years. Zimbabwe has the world’s second-largest reserves of platinum and chrome after South Africa, and also has deposits of gold, coal, diamonds and nickel.

Tags: Ak Steel, China, Chinese Customs, Chinese Power, Coal Exports, Coal Stocks, Copper Consumption, Critical Levels, Crude Steel, Emerging Markets, Genscape, Gold, Hot Rolled Coil, Market Strengths, Million Metric Tons, Power Consumption, Sales Momentum, Severstal, Short Ton, Steel Output, Target, Thermal Coal, Xinhua News Agency
Posted in Markets | No Comments »