Commodities rebound as risk appetite returns

By Kevin Morrison

Published: June 22 2006 18:21

Commodity markets started briskly with strong gains across the board in a sign that investors had regained their risk appetite.

However, towards the end of Thursday, most of the gains had turned into declines or pared gains in the case of oil.

In London, IPE Brent futures for August delivery gained 41 cents to $69.58 a barrel in late afternoon trade, off its intra-day peak of $70.01.

August West Texas Intermediate added 22 cents to $70.55 a barrel in late morning trade on the New York Mercantile Exchange. Oil prices have been boosted by the weekly US inventory report, that showed that petrol stockpiles had not risen by as much as expected. This in turn fuelled concern over tight supplies this summer when US petrol demand peaks.

However, gold prices dropped from their intra-day high of $594.80 a troy ounce to $584.40/$585.40 in late London trade, down almost $5 on the day. The market ignored positive comments from a Chinese central bank official, who said China should convert some of its foreign exchange reserves, the worlds largest, into gold to hedge against the dollars weakness.

Converting part of foreign exchange reserves into gold reserves would help protect and increase the value of reserve assets, said the article written by Luo Bin, an official with the central banks accounting and finance department, and Zhao Qingming, an economist at the banks institute of finance and banking.

The authors, writing in the May edition of the Chinamoney magazine, said buying more gold with foreign exchange reserves, at a record $875.1bn at the end of March, would help ease upward pressure on the renminbi.

Copper prices rose by more than 5 per cent at one stage to more than $7,000 a tonne yesterday, before succumbing to a bout of profit-taking that dragged prices down by more than $130 to $6,677 a tonne on the London Metal Exchange. Copper in LME registered warehouses extended their fall to critically low levels.

Robin Bhar, base metals strategist at UBS, said copper stocks held in the warehouses of other metal exchanges were similarly very low. The combined copper stocks of the three exchanges, LME, Comex and Shanghai Futures Exchange currently total 168,000 tonnes compared with about 800,000 at the end of 2003.

Mr Bhar said the current total equates to just under four days of global copper consumption and although there are stocks held by producers, merchants and consumers, exchange stocks are reported on a daily basis and are highly visible to the market.

It comes of little surprise then why copper prices continue to remain very high - there is little or no buffer against unexpected supply problems, of which there has been many this year, with consumers scrambling to restock amid strong demand, he said.

Market report: Thursday close
Mickey Clark, Evening Standard
22 June 2006

A COMMODITIES-fuelled rally and a strong performance by Wall Street overnight led share prices in London to high ground today.

Mining shares and oil companies were to the fore again as the FTSE 100 index climbed back above 5700, sporting a lead of 19.1 points at 5684.1. The price of crude oil on the world market rose back above $70 a barrel, reflecting growing tension over Iran and North Korea.

The price of raw materials such as copper and gold was also up sharply, with copper supplies threatened by a proposed strike in Chile.

22 June 2006. Source: Dow Jones

Chile Escondida receives union demands for pay increase


Chilean mining company Minera Escondida Ltda. Thursday said it has received the draft of a collective bargaining agreement from its workers.

The BHP Billiton (BHP) mine "has received a draft collective agreement, prepared by Labor Union No. 1 as part of the normal renegotiation process," it said in a press release.

"We will review the draft agreement and are committed to reaching an agreement which is of mutual benefit to both our employees and our business," it added.

The sole union at Chilean copper mine Escondida seeks a 13% pay increase and a $29,299-per-person bonus, the union said Wednesday.

The 2,055 miners that make up the union and represent 97% of union- eligible workers at the mine argue that the city of Antofagasta is the second most expensive in the country and that their wages must be adjusted accordingly.

The bonus sought as the sum of a copper-price bonus and the end-of-conflict bonus miners usually receive after successfully completing negotiations represents 5.4% of Escondida's first-quarter profits, the union said in a statement.

The company has 15 days to respond, according to local labor laws. Contracts expire Aug. 2.

In their previous contract negotiations in 2003, when copper prices averaged $0.66 a pound, Escondida workers obtained a 1.5% wage increase.

Copper prices have soared since mid-2003, with periodic labor disputes contributing to price spikes. Traders in London said the union's tough talk contributed to price gains in copper in Thursday trading early. LME copper ended at $3.19 per pound, according to data published by Chile's government copper commission.

While an Escondida strike would be about two months away, the union doesn't rule out striking sooner if the company disregards their petition.

According to Chilean labor laws, a strike could only start after the contracts expire. The law also allows for two five-day mediation periods after the contract expiration date to avert a possible strike.

Escondida is the world's largest privately owned copper mine. It produced 1,271,472 metric tons of copper last year, as well as 182,472 ounces of gold.

BHP Billiton owns 57.5% of the mine, with 30% owned by Anglo-Australian company Rio Tinto PLC (RTP), 10% owned by a Mitsubishi-led Japanese consortium, and 2.5% owned by the International Finance Corp.

Fri Jun 23, 2006 - By Martin Hayes

Nickel set for further strength as LME stocks fall


LONDON, June 23 (Reuters) - Nickel prices are near May's record highs and look set to remain strong through to next year in a tightly supplied market.

On the London Metal Exchange (LME), three months prices were around $19,500 a tonne on Friday, steady from Thursday levels and against a peak of $23,000 a month ago.

The market is tight, with LME warehouse stocks at their lowest since September 2005 and the cash/threes benchmark backwardation at $880/930, near 13-month peaks of $1,000 a tonne.


Although this acute tightness is set to ease in the coming months, the market is still heading for a significant supply/demand deficit this year, analysts said.

"We went from a situation last year when the market was in surplus, as stainless-steel producers cut production, to where we will see a large deficit as demand is strong," Adam Rowley of Macquarie Bank said.

"We are going to see a large deficit of around 16,000 tonnes this year," he said.

Annual production and consumption is in the region of 1.2-1.3 million tonnes.

Nickel's main end-use is in the manufacture of stainless steel -- some two-thirds of annual consumption -- and this sector has been bright recently, traders said.

"There has been a lot of physical business over the last few weeks, a lot has been booked out to the Far East," a trader said.

The market was also enboldened by bullish comments on Thursday by Canada's Inco Ltd. (N.TO: Quote, Profile, Research). Peter Goudie, Inco's vice-president of marketing, said he expected the market to be very tight for several years as demand outstripped limited supply growth.

LME warehouse stocks have been spiralling lower from February's six-year highs of 36,822 tonnes and now stand at just 12,588 tonnes, the lowest since September 2005.

When cancelled warrants are taken out of the equation -- metal that is earmarked for removal -- just 8,712 tonnes are freely available.

This has meant nearby tightness, with the key daily premium for TOM/next (tomorrow/next day) -- belated business against the previous day's cash -- hitting $50 as large long positions are in place.

Latest LME data show one long accounts for between 30 and 40 percent of physical warrants and cash and another for 50-80 percent, meaning backwardation-limit restrictions have come into play.

"That (tightness) is probably going to ease off now. The cancelled warrants will come out, but we are expecting more stock in the next two or three weeks," the trader said.

More metal will be shipped by Russia's Norilsk Nickel (GMKN.RTS: Quote, Profile, Research) as it has begun loading the first cargo ships at its main export outlet, the Arctic port of Dudinka, which has reopened after a seasonal halt, traders noted.

Norilsk interrupts loadings of nickel, copper and cobalt bound for export markets and concentrate for its refineries on the northwestern Kola peninsula at the end of May, when ice breaks up on the Yenisey river where Dudinka is located.

Source: MarketWatch. - 23 June 2006

Gold closes higher; gains 1.1% on the week


Gold futures closed higher Friday and gained 1.1% on the week, as traders shrugged off dollar strength to focus on the yellow metal's longer-term outlook as a hedge against inflation and global political instability

After declining for most of the day, gold for August delivery reversed course shortly before the close to finish up $2.60 at $588.0 an ounce on the New York Mercantile Exchange. The contract ended at $581.70 a week ago.

Gold had dropped as low as $574.5 on Friday under pressure from the rallying dollar, which surged to two-month peaks against the euro and yen on Friday. The U.S. currency gained strength from market expectations the Federal Reserve will raise rates again next week.

Other metals prices were mixed. July silver added 7.50 cents to $10.285 an ounce and July copper was up 10.50 cents at $3.2405. July platinum dropped $9.20 at $1,166.9 an ounce and September palladium was down $4.10 at $309.80 an ounce.

After suffering considerable short to intermediate technical damage, gold is most likely going to have a broad trading range of $525-$625 through the summer doldrums," said Peter Grandich, editor of the Grandich Letter. "The long-term secular bull market remains intact and a new yearly high above $736 before year-end is still in the cards."

Deutsche Bank also recommended building long gold exposure, although it's bearish on gold and silver in the short term.

"The latest U.S. capital flow data reveal a further improvement in the country's modified basic balance," said analyst Michael Lewis in a note to investors Friday. "This offers a summer of U.S. dollar strength and with it further downside in the gold price. Even so we remain long-term gold bulls."

The metal is still an attractive hedge against "U.S. weakness, inflation shocks and skittish equity market conditions over the coming year," Lewis said.

Supply-demand fundamentals and investment influences are the factors affecting the gold market and both are supportive of gold, said Alan Heap, a Citigroup analyst based in Sydney.

"Mine production is constrained," Heap said. "It is expected to increase by only 2% this year. Demand has been affected by the high prices but will likely recover, as jewelry manufacturers stocks are depleted, even if prices remain high." The economic environment, particularly the inflation risks and global political tensions, also favor gold, Heap said.

At its meeting next week, the Federal Open Market Committee is expected to increase U.S. interest rates to 5.25% in its 17th consecutive rate hike.

"It [the expected Fed rate hike] is discounted into financial markets, but that does not mean there will not be a response on the day," Heap said.

James Moore of TheBullionDesk.com said that gold's performance in the next few days will be closely related to the movement of the dollar ahead of the FOMC decision on interest rates.

"For the moment $550-600 should offer a broad trading parameter although developments in the U.S./Iran and U.S./North Korea nuclear argument still have the potential to trigger a break out," Moore said.

Earlier in the week, North Korea was reported to be preparing to test launch a missile and Iran said it will only reply to a U.N. incentives package to dissuade it from enriching uranium only by mid-August, disregarding U.S. calls for a quicker response.

On the supply side, gold inventories were unchanged at 8.03 million troy ounces as of late Thursday, according to Nymex data. Silver supplies rose by 22,815 troy ounces to 104.6 million.

Copper fell by 64 short tons to 7,417.

Bloomberg - 23/06/2006

Copper Rises Most in a Week in New York on Signs Demand May Climb in U.S.


June 23 (Bloomberg) -- Copper prices rose the most in a week after a report showed a gain in orders of most U.S.-made durable goods, renewing speculation that demand will grow for metal used in wiring for cars, machinery and appliances.

Orders excluding transportation equipment rose 0.7 percent in May, including improved demand for computers and communication equipment, the Commerce Department said today. Copper, after doubling in the past year, has plunged 24 percent from a record high last month on concern rising global interest rates would slow economic growth and metals demand.

``Manufacturing continues to be in decent shape, and that's a positive for copper,'' said Donald Selkin, director of equity research at Joseph Stevens & Co. in New York. Current copper prices are ``a good area to buy'' after falling from the record high, he said.

Copper futures for September delivery rose 3.05 cents, or 1 percent, to $3.079 a pound at 10:24 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would be the biggest gain since June 16.

Copper for delivery in three months on the London Metal Exchange rose $16 to $6,725 a metric ton.

Gold May Rise on Concern Fed Will Struggle to Curb Pace of U.S. Inflation

June 26 (Bloomberg) -- Gold may rise for a second week on speculation the Federal Reserve will need to keep raising interest rates to curb inflation, boosting demand for an alternative to stocks and bonds.

Eleven of 28 traders, investors and analysts from Sydney to Chicago surveyed by Bloomberg News on June 22 and June 23 advised buying gold, which rose 1.1 percent to $588 an ounce in New York last week. Nine said to sell and eight were neutral.

Gold rallied 50 percent since June 2004, when the Fed began a series of 16 straight increases in the overnight lending rate between banks to combat higher energy, commodity and consumer prices. Fed Bank of Atlanta President Jack Guynn said last week inflation remains ``bothersome'' and that he sees ``elevated'' risks in the pace of price gains.

``The Fed is behind the curve,'' said James Turk, founder of Nassau, Bahamas-based GoldMoney.com, which stores gold for investors. ``They have been more focused on trying to keep the economy from buckling under than to stop the growing inflationary pressures.''

Gold futures for August delivery rose $6.30 last week on the Comex division of the New York Mercantile Exchange, ending five straight declines. The gain was expected by a majority of analysts surveyed June 15 and June 16. The Bloomberg survey has forecast the direction of prices accurately in 69 of 113 weeks, or 61 percent of the time.

Fed policy makers meet June 29 in Washington to review the current benchmark interest rate of 5 percent. The rate was at a 46-year low of 1 percent two years ago.

Too Little, Too Late

``Even if they raise rates by one-quarter, which is what I expect, it's still too little, too late to stop gold's bull market,'' Turk said.

U.S. consumer prices excluding food and energy rose 0.3 percent in May, capping the biggest three-month gain in the so- called core rate since March 1995, the Labor Department said June 14. The rise last month was the third straight that exceeded analysts' estimates.

Some investors buy gold to preserve purchasing power in times of accelerating inflation. Gold futures surged to $873 in 1980, when a jump in the cost of oil led to a 13 percent annual rise in U.S. consumer prices.

The Fed will raise the overnight lending rate by 0.25 percentage point this week, all but two of 122 economists said in a separate Bloomberg survey. Fed Chairman Ben S. Bernanke told a June 5 conference in Washington that recent gains in inflation are ``unwelcome.''

Longer Rally

``This gold bull market is only five years old,'' said Gregory Orrell, who manages $150 million gold investments including the $100 million OCM Gold Fund in Livermore, California. ``It still has at least another five years to go.''

The Fed's rate increase this week probably will be the last for this year because ``the U.S. economy is softening and the housing market is softening,'' Orrell said. ``The Fed doesn't want to totally implode the system. There's too much debt out there.''

The Conference Board's index of leading economic indicators fell last month by the most since September, the New York-based group said June 22. The index, which predicts economic activity for the next three to six months, dropped 0.6 percent after a 0.1 percent decline in April.

Building permits, a sign of future construction, fell 2.1 percent to an annual pace of 1.932 million, the lowest since November 2003, the Commerce Department said June 20. The National Association of Home Builders/Wells Fargo's index of builder confidence declined to an 11-year low of 42 this month, from 46 in May. A number below 50 means pessimists outnumber optimists. The index hasn't increased for the last eight months, the longest such stretch since 1994.

Dollar Weakness

Demand for gold also is improving on speculation the dollar will weaken against the euro and yen. Gains in the U.S. currency contributed to a 24 percent decline in gold from a 26-year high of $732 an ounce on May 12.

``We are starting to see gold claw back some of its losses as the market contemplates a more medium-term view of the dollar,'' said Alastair McIntyre, head of marketing at ScotiaMocatta in Hong Kong.

``Dollar strength is squeezing every possible drop of one or two rate hikes in the future,'' McIntyre said. ``But once the market figures out that that's it, along with prospects of a rate cut next year and Japan and Europe potentially tightening, the dollar has nowhere to go but down. Gold is sensing this and now is shaking off the correction.''

``The next rate hike, which was pressuring gold and stocks, is now well discounted,'' said Adrian Day, who manages $105 million at Annapolis, Maryland-based Adrian Day's Asset Management. ``The sell-off has probably been overdone. Below $600 is a good level to be building positions for the longer term.''

Platts Metals Alert. - 06/26/06

What's Moving The Market?

With prices little changed from their previous closes and trade very much subdued, a trader said Monday that summer has officially arrived with on the London Metal Exchange. News that should set tongues wagging in the market is the three way, $56 billion tie-up between Phelps Dodge Corporation, Inco Limited and Falconbridge Limited. The new company will be named Phelps Dodge Inco Corporation. The move should create "the world's leading nickel producer, the world's largest publicly traded copper producer and a leading producer of molybdenum and cobalt." Copper was bid at $6,820/mt at 0943 GMT up modestly on its previous close on Friday at $6,780/mt. "There's very little happening in the market at the moment, interest is very low, trade is very light. Traders are waiting for the US to make their decision later in the week on interest rates and until then summer has landed in the metals market," the London-based trader said.

Analyst with UBS Robin Bhar echoed these thoughts. "Metals markets have opened quietly steady this morning with players reluctant to take on fresh exposure until the Fed's decision on interest rates is announced late this Thursday," he said, adding: "Metals are still ranging in wide trading bands reflecting low volumes and liquidity." This means that while traders may be hugging the sidelines, a short sharp move could take place in the market on the back of such limited liquidity. However, on the FOMC interest rate decision, Bhar suggested that "While we are not expecting a 50 basis point rate hike this week, neither are our US economists expecting any major changes in the statement from the May meeting, which should leave market pricing of a further hike at the August meeting intact." Copper stocks remain at 95,050 mt which is about four days of global copper consumption, without taking into account stocks held by producers, consumers or traders elsewhere.

"The funds have got what they want and they've taken some profits so until they see prices that they think they can make even more money on, they're likely to stay out of the market," the trader said, adding: "We're seeing very little from physical consumers they have all stocked up, so we've very little business slated for this week."

Financial Times - Published: June 26 2006 17:26

Commodity markets rangebound awaiting Fed - By Chris Flood


Commodity markets were rangebound in light trading on Monday as investors looked ahead to this weeks Federal Reserve meeting when the outlook for US interest rates and growth should become clearer.

IPE August Brent moved 1 cent higher to $69.94 a barrel while Nymex August West Texas Intermediate added 18 cents to $71.05 a barrel.

Irans threat over the weekend that it was prepared to use oil as a weapon in any confrontation with the West over its nuclear enrichment programme provided some support for energy prices.

The impact was limited because hedge funds have significantly reduced their long speculative positions in crude. The Commodity Futures Trading Commission reported a further decline in long positions last week.

Iraqs oil minister said the countrys output could rival Saudi Arabias within a decade after daily production reached 2.5m barrels in May, starting to recover from its post-war collapse.

Oil demand in China continued to grow strongly in May with a 13.5 per cent year-on-year increase. Refiners have increased output and cut exports ahead of a domestic price increase to meet peak summer demand.

Price action for precious metals was muted as many investors attended a conference in Switzerland organised by the London Bullion Market Association.

Gold edged 0.7 per cent lower to $579.15 a troy ounce and dealers said a period of sideways trading was likely with bullion balanced between inflation fears and growth concerns.

Silver fell 1.8 per cent to $10.11 a troy ounce while platinum rose 1.4 per cent to $1,182 a troy ounce and palladium gained 3 per cent at $310 az troy ounce.

The $40bn takeover of the two Canadian miners Inco and Falconbridge by US rival Phelps Dodge underlined industry confidence that metals prices will stay strong.

Copper rose 2.3 per cent to 6,937.5 a tonne in late trading in London. However, dealers said that some Chinese buyers were waiting to see how prices developed after the recent pull back in the market.

Global copper mine capacity over is forecast to grow at 4.3 per cent a year until 2009, exceeding the expansion of smelter capacity, according to the International Copper Study Group. The ICSG said annual mine capacity was expected to reach 19.6m tonnes in 2009, a total increase of about 3m tonnes or 18 per cent from 2005.

Nickel increased 2.7 per cent to $19,775 a tonne supported by a 750 tonne decline in London Metal Exchange stocks to 11,800 tonnes.

Source: MarketWatch - 26 June 2006

Gold dips as investors wait for Fed decision



Gold futures closed slightly lower Monday, finding little support in a weaker dollar as investors kept to the sidelines ahead of a widely expected interest-rate increase at the Federal Open Market Committee meeting this week

Gold for August delivery closed down 30 cents at $587.70 an ounce on the New York Mercantile Exchange.

"Gold is starting the final week of June on a mostly neutral note, drifting slightly higher but not making any true attempts at piercing the $600 mark that lies just above," said Jon Nadler, investment products analyst at Kitco.com. "For the moment, traders appear satisfied to await the FOMC meeting and the results thereof."

After staging a broad rally last week that pressured gold prices, the dollar declined against major currencies on Monday.

James Moore of TheBullionDesk.com said that the dollar and the political uncertainty surrounding the nuclear ambitions of North Korea and Iran will continue to affect gold this week.

"More of the same is expected in the week ahead, particularly with the FOMC set to meet Wednesday," he said.

Most economists are expecting a quarter-point hike, with some even forecasting a half point hike, following a stream of recent anti-inflation speeches from Fed officials.

A member of the governing board of the Swiss National Bank said Monday that central banks were unlikely to change their gold reserves in the foreseeable future, according to research firm Action Economics. SNB's Philipp M. Hildebrand made the remarks at the annual meeting of the London Bullion Market Association in Switzerland.

Posted: Mon, 26 Jun 2006 07:10 | Moneyweb Holdings Limited, 1997-2006
Julius Cobbett

Take profits in commodities experts

TWO of Moneywebs regular market commentators are nervous about the prices of commodities stocks. Advantage Asset Managers deputy MD Wayne McCurrie says, if there is any market overvaluation its in the resources shares.

McCurrie looks at the price:earnings multiple of the two sectors. The overall market is 15. The banks are 11, the resources are 20. So what that means is, relative to the banks the resources are twice as expensive.

Peter Major, mining analyst at Cadiz, agrees that its time to take some money off the table in commodities shares. He says that on June 13, after the whole index had fallen about 20% in the space of a month, there was some value in the smoking rubble.

But now theyre back up to where they were over a month ago, says Major, and I cant see the rand losing very much more. But I dont see the commodity prices going up in dollar terms.

For the year to date the resources and gold indices are up 16%, while the financial and industrial indices are up 2,5% and 1,8% respectively.

So if you say, gee, thats what I made so far this year, argues Major, its almost logical to think that in the next six months youll probably get a reversal of those.

Says Major: I hate giving up my favourite sector, which has always been the greatest sector over most time periods but, yes, with the rand at R7,50 and the commodity cycle on the way down, as we all say and agree, the other two asset categories by the end of the year will probably beat resources from here on.

McCurrie argues: We all recognised three years ago our market was dirt cheap, and weve had a fantastic run. The banks are almost the same price as what they were three years ago on a price:earnings ratio. So literally they are within 10 or 15% of where they were three years ago, and that was incredibly cheap at that stage.

McCurries sentiments echo those of a number of top-performing money managers. In the quarter to March 31 Allan Grays equity fund increased its exposure to banks. Standard Bank rose from comprising 6,5% of the fund to 8,1%. Nedbank underwent a similar increase from 4,6 to 5,1% and Absa from 3,6 to 4%.

Investecs John Biccard is also bullish on banks, which comprised about 20% of his fund at the end of the quarter.

Speaking on Moneyweb Radio earlier this month, Biccard downplayed concerns that rising interest rates will put bank shares under pressure. Moderately high interest rates do not affect banking earnings. Its substantially quick, large quick rises in interest rates do affect banking earnings, but under a scenario of a few percentage points at the most, on a year, or year and a half, it actually could enhance earnings in the banking sector because the endowment effect helps them, argues Biccard. As long as bad debts dont get out of control, which they shouldnt on a moderate increase on the interest rate. So to me the banks look quite a defensive to be, on quite low valuations.

Reuters - June 28 2006

Commodities set to attract more investors



LONDON: Commodities are expected to attract a growing range of investors over the next five years, but careful selection and more actively managed portfolios will be the key to making money, fund managers said.

Last month, many raw materials notched up their highest prices in several decades, if not their stron- gest ever, causing many to liken the bull run to the technology stocks bubble.

A panel of fund managers gathered in London for a seminar on asset management developments organised by the International Fund Investment said there were still plenty of reasons why money will continue to flow into the sector.

They cited a weak US dollar, lack of investment in supply infrastructure, boo- ming demand from emerging economies and saw commodities as a proven hedge against falling equity markets.

Large institutional investors like pension funds should not be worried about recent big fluctuations in commodities prices, panelists said.

"It doesn't really matter if it (the commodity boom) is a long-term trend or a bubble as we are investing to match our liabilities that sometimes go out 60 years," said Charlie Metcalfe, deputy chief executive of Hermes, Britain's biggest private sector pension fund.

Hermes manages funds for British telecoms group BT and decided earlier this year to invest US$1 billion (US$1 = RM3.68 billion) into commodities.

"I think the 600,000 beneficiaries of the BT fund will look back in 20 to 30 years time and think that it was a sensible allocation to make."

Mark Shipman, a trader who invests via spread-betting and who has recently written a best-selling book on commodity investment, dismissed talk of a bubble developing in the asset class.

Using the Reuters/Jefferies CRB index as a barometer for commodities, he said this basket of 19 prices was up 75 per cent from its 2002 low, versus gains of 77 per cent for the FTSE and Nasdaq.

"Commodities haven't exhibited anything near the exponential growth of the Nasdaq," he said, referring to the dotcom bubble.

Omar Kodmani, senior executive officer of Permal, one of the world's largest funds using hedge funds as an investment vehicle, with US$25 billion under management, said the commodity bull run could have another 10 years to run.

But he said the rally was now entering a phase which required a much more actively managed and selective approach to investment, rather than just buying "commodities" and waiting for the returns to flow in. - Reuters

Mining Weekly - 28 June 2006

Copper edges up, eyes US Fed meeting for direction


Copper prices tiptoed up on Wednesday, a day after tumbling nearly 4 percent on data showing a global surplus in the first quarter of the year, but trade was cautious ahead of the US Federal Reserve's policy meeting.

By 0430 GMT, London Metal Exchange copper for delivery in three months was at $6 750 a ton, up $10 from the previous day's London close. The metal had traded between $6 700 and $$6 780 on electronic trading platform Select.

On Tuesday, copper ended down $260, or 3,7 percent, at $6 740 after the International Copper Study Group (ICSG) said world refined copper production exceeded consumption by 64 000 tons in the first quarter, against a deficit of 89 000 in the same year-ago period.

But Peter Richardson, chief metals economist at Deutsche Bank, said in a daily note that the ICSG had omitted inventory changes at the State Reserve Bureau, the body responsible for managing China's strategic copper reserves, in assessing Chinese consumption.

"If allowance was made for the large drawdowns in stocks in the first quarter of 2006, we estimate that the copper market balance is currently, on a seasonally adjusted basis, either balanced or in small deficit.

"Fundamentally, the copper market remains extremely tight as global exchange stocks are at historically very low levels and another large draw from LME inventories overnight (2 000 tons) exemplifies the delicate balance in the market," he said.

Furthermore, threats to supply would continue to limit any sharp decline in copper prices.

Unions at BHP Billiton's Escondida mine in Chile are pushing for a pay rise of up to 10 percent and improved health benefits, while striking workers at two Grupo Mexico's copper facilities in Mexico have forced the company to declare force majeure.

An LME dealer in Hong Kong said the market's focus was shifting to the US Federal Reserve's meeting later Wednesday and Thursday, putting resistance for copper at $7 200 and support at $6 500.

Analysts expected a quarter of a percentage point rise in U.S interest rates to 5,25 percent and would scan the post-meeting statement for clues to the pace of future policy tightening.

If the Fed hikes rates more than expected, it may slow economic growth and crimp demand for industrial metals.

Gold Rises in Asian Trading as Higher Oil Prices Spark Inflation Concern

June 29 (Bloomberg) -- Gold rose in Asia on speculation oil's rise to near a three-week high will boost the precious metal's appeal as a hedge against inflation.

Bullion reached a 26-year high last month as record oil prices in April triggered higher gasoline costs. Crude supplies fell last week more than twice as much as forecast in a Bloomberg News survey, an Energy Department report showed.

``When you get the oil price in the ballpark where it is now, it tends to bring out people's fears about inflation,'' Gavin Wendt, a resources analyst at Fat Prophets Ltd. said from Sydney. ``Over the next couple of months we'll be into the peak demand period for oil and gasoline in the U.S. The direct beneficiary of this is going to be gold.''

Gold for immediate delivery rose as much as $2.57, or 0.4 percent, to $582.72 an ounce. It traded at $582.05 as of 11:30 a.m. in Tokyo. Gold for delivery in August gained 0.6 percent to $584.30 an ounce on the Comex division of the New York Mercantile Exchange as of 11:28 a.m. in Singapore.

Some investors buy gold to hedge against higher energy prices, and also against inflation, which erodes the value of fixed-income assets such as bonds.

Crude oil for August delivery rose as much as 50 cents, or 0.7 percent, to $72.69 a barrel in after-hours electronic trading on the New York Mercantile Exchange.

(AFX UK Focus) 2006-06-29 04:33 GMT:

China May iron ore imports from Australia hit 9.27 mln tons


BEIJING (XFN-ASIA) - China's iron ore imports from Australia last month well exceeded all other suppliers at 9.27 mln tons, representing around 38 pct of China's total imports, the Steel Business Briefing reported, citing a customs official.

This is up by around 0.25 mln tons month-on-month and 0.60 mln tons year-on-year, the briefing said.

China's May iron ore imports sourced from India amounted to 6.01 mln tons, representing around 24.5 pct of its total imports, compared to 6.43 mln tons the month earlier.

Brazil's market share dropped to 4.85 mln tons or 19.8 pct in May, from 6.58 mln or 24.1 pct in April.

China imported a total of 24.57 mln tons of iron ore in May, up by around 2.82 mln tons or 13 pct year-on-year, local media previously reported.

Earlier this month, Baosteel, China's designated iron ore price negotiator and the country's largest mill, finally accepted a 19 pct price hike for imported iron ore this contract year from leading miners in Australia and Brazil.

Thu Jun 29, 2006 7:32 AM BST163

Chinese copper plant's July start delayed to 2007
By Polly Yam

HONG KONG, June 29 (Reuters) - A new 200,000-tonne-a-year Chinese copper smelter expected to be up and running in July will miss the target date, industry officials said on Thursday.

An official for Fambros Group, which is also known as Shandong Fengxiang Group, said in April the plant could begin production in July this year.

But now the start-up is expected between May and June 2007, said an executive for Xiangguang Copper Co. Ltd., a Fambros subsidiary that will operate the plant. He gave no reason for the delay.

Xiangguang is a newcomer in China's copper industry and has approval from Beijing to build the plant, which is intended to have an annual capacity of 400,000 tonnes.

It was trying to bring in Norddeutsche Affinerie (NAFG.DE: Quote, Profile, Research), Europe's largest copper producer, to joinly operate the plant in the Shandong province but talks between the two parties ended without success earlier this year.

An industry official who recently visited the plant site said Xiangguang had nearly finished the refining system at the plant but would take months to complete the flash furnace, used to smelt raw material concentrate.

The plant could use about 140,000 tonnes of concentrate this year if it began production in July, according to traders' estimate.

Traders said Xiangguang's delay was adding to concentrate supply because its suppliers were reselling its contracted cargoes to other Chinese smelters, driving up processing fees.

Overseas suppliers were offering the fees of more than $80 a tonne for treating and 8 cents a pound for refining their spot concentrate, up from $60 to $70 and 6 cents to 7 cents in early June.

But China Smelters Purchase Team, which is made up China's eight largest copper smelters, is demanding $100 and 10 cents. The smelters buy about 80 percent of China's imported concentrate to jointly import spot concentrate.

"By July to August, we will adjust our output if the fees do not meet that level," a team official said of production cuts.

The team was asking Beijing not to issue import permits to its members for spot concentrates that were concluded at fees below that level, after July 10.

The fees are an important source of revenue for smelters such as Jiangxi Copper Co. Ltd, China's largest maker.

Source: MarketWatch - 29 June 2006

Gold surges as dollar falls on Fed statement


Gold futures climbed back above $600 an ounce in electronic trade Thursday, after the Federal Reserve raised interest rates by a quarter percentage point as expected and came across as less hawkish than anticipated, sending the dollar sharply lower

Gold for August delivery touched a high of $602.90 an ounce in late afternoon trade, breaking through $600 for the first time since June. Earlier, it had closed official trade up $7.90 at $588.90 on the New York Mercantile Exchange.

Other metals prices were mixed. July silver closed up 17.8 cents at $10.333 an ounce, July platinum closed up $27.50 at $1,205.7 an ounce and September palladium ended up 60 cents at $313.40 an ounce. July copper edged up 13 cents at $3.423 a pound.
Fed less hawkish than expected

The Federal Open Market Committee raised interest rates by 25 basis points to 5.25%, the highest level since March 2001. "Some inflation risks remain," the committee said in a statement, which analysts viewed as less hawkish than expected.

"The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information," the committee said.

"The quarter-point interest rate raise by the Fed and its softer-tone policy statement have removed any fears that gold would be strangled by sharply higher interest rates and the U.S. dollar," said Peter Grandich, editor of The Grandich Letter.

A more aggressive move, "would be bearish for the price of gold," said Amaury Conti, equity trader at Austin Calvert-Flavin. "The Fed is still looking at a lot of data and people will continue to discuss what the Fed will do over the next couple of weeks."

For now, "$600 may be the top of the trading range," Conti said, adding that the positive trends in metals of the last few days will most likely continue given rising oil prices and the weakness of the dollar.

The dollar plunged to one-week lows against the euro and yen right after the Federal Reserve decision, prompting speculations by analysts about a possible surge in gold prices.

With Tuesday's $599 price now breached, "there's a decent chance that the rally can continue right up to major resistance at 609.40, which is the 100-day moving average," said Dale F. Doelling, chief market technician at Trends In Commodities.

However, "if gold is going to test that resistance level, it will take some serious fund buying along with continued dollar weakness, which just hasn't been evident of late."

In another development that strengthened gold, crude oil futures hit a three-week high above $73 a barrel Thursday after Energy Department data indicated the largest weekly drop in crude supplies since last November. The drop was attributed mostly to the shutdown of a key Louisiana channel and the resulting decline in production at four local refineries.

Crude for August delivery was last trading up $1.16, or 1.6%, at $73.35 a barrel.

On the supply side, gold inventories were unchanged at 8.03 million troy ounces as of late Wednesday, according to Nymex data. Silver supplies fell by 68,563 troy ounces to 102.7 million and copper inventories were flat at 8, 174 short tons.

Source: Bloomberg - 29 June 2006

Copper jumps most in a month on supply concerns; nickel gains


Copper prices in London surged almost 6 percent, the most in a month, on speculation demand will outpace supplies in the second half of 2006. Zinc, nickel and aluminium also gained.

Inventories of copper monitored by the London Metal Exchange have tumbled 16 percent this month. Supplies of copper, used in plumbing and wiring, will fall short of demand by 200,000 metric tons this year, Mitsui Bussan Commodities, a unit of Japan's second-largest trading company, said yesterday.

"The market is coming back to the view that supply is tight," said Peter Hickson, a strategist at UBS AG in London.

Copper for delivery in three months jumped $400, or 5.8 percent, to $7,300 a metric ton on the LME, the biggest percentage gain since May 23. Prices reached a record $8,800 a ton on May 11.

A gain above $7,200 a ton triggered more buying by investors who follow price charts, said Michael Skinner, a London-based analyst at Standard Bank London Ltd. Purchases by funds also boosted prices, said Scott Meyers, a New York-based trader at Man Financial Ltd.

Copper closed at $6,709 on June 22, down 24 percent from the mid-May record on concern higher global interest rates intended to combat inflation will slow economic growth and curb demand for commodities.

Nickel prices rose $350, or 1.7 percent, to $20,750 a ton. Prices have climbed 41 percent from a year ago.

"There's no question that fundamentals are looking pretty attractive," said Tony Warwick-Ching, an analyst at CRU International, a London-based consulting company. "The markets are still saluting that."
Nickel inventories

Inventories plunged 70 percent this year to 10,548 tons, equal to less than three days of global use. Demand will exceed output by 15,000 tons in 2006, Credit Suisse Group said earlier this month. Nickel is used to make stainless steel rustproof and malleable.

Stainless-steel production is soaring in Asia on demand for the metal used in construction, kitchen appliances and cutlery. Global stainless-steel output will rise 8.9 percent to 26.4 million tons this year, led by a 10 percent gain in Asia, the International Stainless Steel Forum said June 19.

Aluminium gained $72, or 2.9 percent, to $2,555 a ton. Zinc climbed $155, or 5.3 percent, to $3,100 a ton.

On the Comex division of the New York Mercantile Exchange, copper futures for September delivery surged 13.4 cents, or 4.2 percent, to $3.305 a pound. Prices have more than doubled in the past year.

The Business - 02 July 2006 - Jonathan Fenby


Iron ore proving a pig of a dilemma for China to solve

When a booming enterprise finds itself paying a 71% increase to its main suppliers, it is likely to re-examine its purchasing strategy. However great its demand and however buoyant its sales, it is bound to take steps to try to reduce its input costs.

In this case, the enterprise is China and the suppliers the iron ore producers of Australia and Brazil. Though China usually seems to be sweeping all before it, commodities such as ore face it with a knotty problem, with implications for world markets as a whole.

In the case of oil and gas, Chinas strategy is to develop new supply links with West Africa, Venezuela and Sudan as well as Iran. This involves working with governments of which Washington, in particular, disapproves, but that is not going to deter Beijing. In another major area of commodity purchases, metals, Chinese demand has been a powerful factor in booming prices, such as the 60% jump in copper since the end of 2005.

Though some analysts see metals prices falling, last weeks purchase by Americas Phelps Dodge group of two Canadian nickel firms, Inco and Falconbridge, points in the opposite direction while Shanghai contracts for autumn deliveries of aluminium have been rising. Australias Bureau of Agriculture and Resources Economics has just doubled its forecast for the growth in its metals exports over the next 12 months.

As with its oil strategy, Beijing wants to strengthen links with mining nations. Chinese authorities laid on a lavish reception for Robert Mugabe when he visited China, and Australias John Howard visited last week, though he brought with him an unwelcome call by his countrys gas exporters for a substantial increases in the price they receive. But the problems China faces have been well illustrated by its failed attempt to check the rise in iron ore following a 71.5% price increase in 2005.

The huge expansion of Chinas steel industry means it takes nearly half the ore exported from the main producing countries. Though over-supply of domestic steel looms after the breakneck building of new mills, the reaction has been a familiar one on the mainland price wars in a Darwinian struggle between companies to survive and emerge on top.

After China sought to limit the ore price increase in 2006 to 10%, talks became deadlocked, the supply outlook clouded by port bottlenecks and cyclones in Australia. Then the major Brazilian ore group, CVRD, made a sideways move, reaching agreement with a German steel maker, ThyssenKrupp, for an increase of 19% in the main ore categories. This was accepted by the other European firms and by the Japanese, leaving China isolated, and obliging it to go along if it wanted assured supplies.

Nineteen per cent is a long way from 71.5%, but the experience has taught Beijing a lesson in international trade negotiations. In politics, it can stand out for what it wants, backed by its permanent seat on the Security Council and the desire of countries around the world to profit from its growth. But, when it is the suitor, in a commodity which it badly needs to sustain that growth, a more sophisticated approach is required.

When talks on the 2007 ore price start around November, Beijing is likely to try to drive a price wedge between the three major producers by insisting that higher transport costs mean it should pay less for Brazilian ore. China is also seeking to reach agreements with smaller ore producers, particularly in Australia. Recent government moves to slow down the pace of fixed asset investment could reduce demand for the steel for construction and infrastructure projects.

China is caught in a trap of its own making. It requires commodities to continue the growth which the regime needs, even if President Hu Jintao and his colleagues aim to cut annual growth from 10% to 7.5% by 2010. But the huge new input to world demand, coming after years of reduced capacity and under-investment by producers, faces it with spiralling prices that it is loathe to pay. As well as feeling that it is being exploited by cartels of producers, the government is also increasingly concerned about high input prices fuelling inflation.

How the mainland reacts will help to determine whether the commodity boom continues, and mining stocks remain star performers. China can only hope that major mining and energy companies will expand capacity and fast. Otherwise its steel industry, in particular, could be heading for the worst of all worlds high-priced over-capacity, leading to dumping on world markets, with all the effect that would have on manufacturers elsewhere.

Jul 02, 2006 (The Australian Financial Review - ABIX via COMTEX) -- The global commodities market appears to have recovered from a recent correction. Macquarie Bank group commodity analysts claim evidence suggests the correction was caused by a "broad-brush pulling out" by investors, as opposed to a measurable change in fundamentals. Gold prices surged $US27 to $US615 an ounce in New York on 30 June 2006, the greatest rise since before the 11 September 2001 terrorist attacks in the US. Meanwhile, crude oil prices have rallied back to $US74 per barrel and copper prices have risen by about 11 per cent over the past two trading sessions.