Commodities report:
Weekly Commodities Review from U.S. Global Investors
Investor Alert for 6/15/2007
Gold Market
For the week, spot gold closed at $648.65, down $23.10 or 3.4 percent. Gold equities, as measured by the XAU Gold Index , fell 4.94 percent for the week. The U.S. Trade-Weighted Dollar Index gained 0.45 percent for the week.
Strength
Gold hit a 5½-month high this week.
According to industry experts, the use of platinum in catalytic converters will see no end in the near future, despite its high prices. In addition, jewelry demand is keeping prices over $1,000/oz.
Weakness
A rally in the value of the dollar in the second half of the week took some of edge off gold’s strength.
The IMF rebutted a story that it was going to change its accounting policies regarding reporting its positions in gold.
The world’s fourth-largest gold producer closed out roughly a million-ounce hedge book they acquired in a recent acquisition. This was likely a catalyst to the recent strength in bullion and has now passed.
Opportunity
If the IMF were to indeed change its policies (currently under review), gold investing could become appealing to investors due to the increased transparency in the market.
According to the latest KPMG Global Mining Reporting Survey, financial reporting by mining companies in different countries is still difficult to compare, but inconsistency has diminished notably since 2003.
The Egyptian Oil Ministry has signed a memorandum of understanding to restructure the gold mining sector in Egypt. According to its own estimates, the country could become one of Africa’s top gold producers.
Threat
Bolivia’s government wants to double taxes on silver mining and almost triple them on gold, according to La Razon. Silver would be taxed at 11.15 percent, up from 6 percent, if silver prices reach $13.296/oz., and gold would be taxed at 20 percent, up from 6 percent, if spot prices reach $850 an ounce.
Worker stoppages are occurring all over the world for various reasons: A platinum mine in northeast South Africa was brought to a halt by striking miners. A gold mine in Surinam also was stopped due to striking workers last night. These add to a Canadian nickel mine and a general strike in Guinea (the world’s second largest bauxite producer).
According to an official of a leading Zimbabwean gold producer, the company is at the mercy of the government and survives from one monetary policy to another. Stringent exchange regulations and galloping inflation does not help its cause.
Strength
The International Energy Agency raised its 2007 global oil demand forecast by 200,000 barrels per day to 1.7 million barrels per day. The IEA’s latest report also marks the fourth consecutive month that the agency has urged OPEC to make more oil available due to growing demand and declining inventories in OECD countries.
According to Reuters, China’s crude imports were at 3.05 million barrels per day in May, up 4.7 percent from a year ago.
China’s power output rose 15.8 percent year over year in the first five months of 2007, its fastest rate of growth in three years.
According to a USDA crop progress report released this week, 90.45 million acres of corn have been planted in 2007, compared with 78.32 million acres last year, which bodes well for fertilizer demand.
Weakness
Copper concentrate imports to China declined by 23.4 percent in May to 370,000 metric tons, but are still 26 percent above last year through the first five months of 2007, according to China Customs.
Bloomberg reports CVRD's Goro nickel project will start production in 2009, later than expected, and will take two years to reach full production, according to company officials.
8Bits comment.. this is a huge project.. obviously good for the remaining currently producing Nickel miners out there.
BHP declared force majeure on thermal coal shipments out of Newcastle due to flooding. Disruptions are expected all week and approximately 2 million metric tons of exports may be cut, according to coal and rail system officials.
Nigeria’s May oil production is the lowest since 2003 according to the Oil & Gas Journal. The International Energy Agency’s latest monthly report showed a 10 percent decline in Nigerian production as 800,000 barrels per day is currently shut-in due to militant attacks against oil-producing infrastructure, and increasing violence following the country’s disputed elections in April. The IEA estimates that only half of May’s production shut-ins have been brought back online thus far.
Opportunity
The Dubai Multi Commodities Centre may build a $2 billion liquefied-natural-gas storage plant in Fujairah, on the east coast of the United Arab Emirates, instead of Dubai on the Persian Gulf, to avoid the Strait of Hormuz, officials said.
• Hyperion Resources, a closely held Dallas investment firm, said it might build an oil refinery in South Dakota to capitalize on record gasoline prices. Hyperion is looking at a tract of land in Union County, S.D., along with other sites in the Midwest, for a refinery with a capacity of 400,000 barrels a day, the company said. The last American refinery was built in 1976 and the last one in Canada was completed in 1984.
Threat
Royal Dutch Shell PLC is may cut at least $100 million in spending from its Nigerian operations in the next few years to offset rising costs and lost revenue as security concerns curtail oil production.
Bloomberg reports contract workers at Codelco, the world's largest copper producer, may strike on June 20 if an contract cannot be agreed upon by then, citing union representatives.
China's government is expected to announce imminent changes to monetary policy, possibly including a rate hike and a lifting in the ratio of funds banks must hold in reserve against deposits as officials step up efforts to cool the nation's accelerating economy, analysts said.
Emerging Markets: China Region
Strength
Fixed-asset investment in China rose 25.9 percent in the first five months of this year, compared with the same period last year. This measures investment in urban areas. Fixed-asset investment for the whole society is usually a percent or two lower than urban FAI. Therefore, overall FAI is still in the government’s comfort range of 20 to 25 percent.
China’s industrial production rose 18.1 percent in May. This is after a 17.4 percent gain in April.
China’s trade surplus rose 73 percent to $22.5 billion in May.
Weakness
Chinese Premier Wen Jiabao said that lending curbs need to be stepped up to combat inflation. This could come in the form of higher interest rates or higher reserve requirements.
China’s inflation rose 3.4 percent in May on a year-over-year basis. The culprit was higher food prices as CPI –excluding food – rose only 1 percent.
Opportunity
The U.S. and China signed a memorandum of cooperation with Chinese customs officials to fight against China-based counterfeiters. Areas of focus include movies, music and software. This accord shows that the two countries can cooperate on trade-related issues.
Although China’s May CPI was higher than expected, one group that has benefited are the Chinese farmers who are getting an income boost from higher food prices. This bodes well for the concept of a “harmonious society,” as well as higher levels of consumer spending.
Threat
The trade surplus figures may prompt legislative action by the U.S. Congress as some U.S. lawmakers believe the Chinese currency is undervalued by as much as 40 percent.
Although Thailand remains the cheapest market in the region, political instability and continued terrorist attacks keep it a very uncertain market. |
