Thursday, March 5, 2015
- U.S. inventories are at their highest levels in at least 80 years, and the U.S. is running out of places to store it, prompting some analysts to predict already depressed prices could spiral even lower.
- When storage is full, there is pressure on those holding oil in storage to "dump that inventory,” says the CEO of energy consulting firm Perry Management, who believes the space shortage could cause prices to drop to as low as $30/bbl.
- U.S. oil production rose for the fourth consecutive week to a rate of 9.3M bbl/day, even as drilling rigs are being idled at a rapid clip; U.S. inventories also rose, for the eighth straight week, jumping 2.4% to 444M barrels, the U.S. Energy Information Administration reports.
- Producers are pumping nearly 1.5M bbl/day more crude than the world needs, due to a combination of slowing demand and rising production in the U.S., meaning oil put in storage today could be there for years; should the glut worsen, more producers could be forced to shut their wells, effectively storing the oil in the ground.
- Storage operators at Cushing, Okla., including Plains All American (NYSE:PAA) and Phillips 66 (NYSE:PSX), said recently they expect the tanks there to hit capacity - currently they are about two-thirds full.
- ETFs: USO, OIL, UCO, SCO, BNO, DTO, DBO, UWTI, USL, DWTI, DNO, SZO, OLO, TWTI, OLEM
- DuPont (NYSE:DD) says an unplanned outage at its Chambers Works chemical plant in New Jersey will challenge Q1 productivity and earnings in its safety and protection segment.
- In discussing its presentation at today's JP Morgan Aviation, Transportation and Industrials Conference detailing its efforts in advanced materials, the company says it is focused on "a $50B portion of a $500B potential market.”
- Shares -0.4% AH.
- Noble Group (OTCPK:NOBGF) issues a defense against accusations of accounting irregularities made by Iceberg Research, and claims a former employee who was fired for misconduct is behind the claims.
- Noble says its fair values on the assets were not overstated and the methodology was based on International Financial Reporting Standards.
- Iceberg has likened Noble to Enron, and claimed the commodities trader overstates the value of its holdings in associated companies and that the unrealized gains it records on its contracts are not matched by its actual cash flow.
Wednesday, March 4, 2015
- Huntsman (NYSE:HUN) unveils a plan to restructure its color pigments business, which will include site closures, cost reduction initiatives and a cut of 120 positions.
- Manufacturing sites to be closed by year-end 2015 include Cartersville, Ga., East St. Louis, Ill., and King of Prussia, Pa. in the U.S., as well as a plant in Germany.
- HUN says the move will contribute $20M by the middle of 2016 to its plan to deliver more than $140M in synergies.
- HUN +0.3% AH.
- Alcoa (AA -4.9%) tumbles to five-month lows following BofA's downgrade, which cited worsening aluminum fundamentals and the expectation that falling premiums can no longer offset price strength on the London Metal Exchange in the near term.
- The downgrade coincides with BofA's lowering of its average 2015 aluminum price forecast by 7.8%, and its global average premium forecast to $300/ton.
- A lower price is not the only impact from the downgrade, as implied volatility in the shares has jumped by 8.7% to 31.6% and stands just above the historic reading of movement on the underlying share price.
- Canadian banks are getting nervous as they struggle to find buyers for Silver Wheaton's (SLW -1.2%) $800M bought deal financing, Financial Post reports, as the company's stock continues to trade below the offer price.
- Sources say a very large portion remains unsold, with one describing the deal as a "train wreck.”
- The bought deal, announced Monday after the close, was priced at US$20.55/share, representing a 3% discount to SLW’s closing price that day.
- This is the third time in recent months where banks had trouble selling a very large mining stock offering, following Barrick Gold and Franco Nevada offerings that proved to be tough sells; FP says it shows that investor appetite for these stocks is not endless amid rough market conditions.
- Alcoa (NYSE:AA) -2.5% and Century Aluminum (NASDAQ:CENX) -1.6% premarket after BofA Merrill downgrades each to Neutral from Buy, as the firm lowers its aluminum forecasts to reflect worsening aluminum fundamentals from increased Chinese exports and pressure from LME warehouse rule changes.
- BofA says it still believes aluminum can be more defensive vs. other commodities, but it no longer expects falling premiums can be offset by LME price strength near term.
- The open bars, oysters, prime rib, rowdy parties, and luxury hotel suites are a thing of the past at the annual Toronto gathering of the Prospectors and Developers Association of Canada, having instead given way to chips and dip and Airbnb rentals thanks to the years-long slump in the sector.
- "I’m really depressed that I have to drink bourbon versus single malt scotch, it just doesn’t do it for me," says Ben Cox, CEO of Aston Bay Holdings (check out a price chart; it's a bet his shareholders feel even worse). "Everyone is panicked in the industry. If you are not humbled this year, whether you work for a major or a junior or anyone in-between, you are insane."
- "Flat is the new up," says another attendee. The gathering is "a little bit depressing," but a sign of the times.
- ETFs: GDXJ, JNUG, XME, JDST, SILJ, IGE, JUNR, PICK
Tuesday, March 3, 2015
- DuPont (NYSE:DD) nixes a request from Trian Fund Management to use a universal ballot in a coming vote on directors, just weeks after the company rejected the hedge fund’s board nominees and proposed two of its own.
- DuPont says it will continue to rely on proxy cards, which will force shareholders to either vote for or against its slate of directors; a universal ballot would put both Trian’s four nominees and DuPont’s full 13-member board on the same paper document sent to shareholders.
- While the issue seems technical, the decision can affect the ability of smaller investors to pick and choose directors from each side’s slate, which is particularly important at DuPont since it has a base of nearly 600K individual shareholders.
- DuPont and Trian are engaged in a bitter fight over the performance and future of the company, with the hedge fund believing the company's agriculture and industrial chemicals businesses should be separated.
- "This is a bad deal. It's a very bad deal. We're better off without it," says Israeli PM Benjamin Netanyahu, speaking before Congress about U.S. negotiations with Iran over its nuclear ambitions. "The alternative to this deal is a much better deal."
- For now, the clarity of his speech looks to have set back the chance of sanctions being lifted on Iran, and crude oil is more than $1 per barrel higher to $50.25 since the address' 11 ET start.
- USO +0.95%
- ETFs: USO, OIL, UCO, SCO, BNO, UGA, DTO, DBO, UWTI, USL, DWTI, UHN, DNO, SZO, OLO, TWTI, OLEM
- U.S. Steel (NYSE:X) -2% and AK Steel (NYSE:AKS) -3.7% premarket after Nomura downgrades each stock to Neutral from Buy, with respective price targets of $21 (lowered from $37) and $4 (cut from $10).
- The firm sees two major structural changes underway that should significantly alter the global steel landscape in the coming years: dollar strength and cost curve deflation driven by lower raw material prices and freight rates.
- Flat-rolled and long product import pressure have been significant headwinds for the industry over the past year, and Nomura expects further dollar appreciation into 2016 will keep import pressure high.
- The biggest takeaway from Glencore's (OTCPK:GLCNF, OTCPK:GLNCY) latest earnings report was that the miner is continuing to surprise with returns to shareholders despite a challenging commodity price environment.
- Glencore's 9% increase in annual dividend to $0.18/share follows a $1B share buyback program announced last year, of which $930M has been completed; CEO Ivan Glasenberg has said the company will return any excess cash to shareholders if it can’t find a way to generate a better return by reinvesting in the business.
- In the meantime, Glencore’s saving grace is its commodities trading division, where EBIT rose 18% Y/Y to $2.8B, helping offset a 23% drop in EBIT from its industrial activities to $3.9B; the slump in oil prices helped raise trading volumes and profit because future prices became higher than current prices, which led some energy companies to buy oil at current prices.
Monday, March 2, 2015
- Silver Wheaton (NYSE:SLW) -3% AH after agreeing to sell ~$800M of stock to fund its purchase of an additional supply of gold from a Vale's (NYSE:VALE) Salobo mine in Brazil.
- SLW says it will use the proceeds of the offering to fund its acquisition of an additional 25% gold stream from the mine, which is in addition to the 25% of the mine's gold production SLW acquired in 2013.
- The deal raises SLW’s production and cash flow profile by adding expected average gold production of 70K oz./year for the first 10 years and 60K oz./year over the first 30 years.
- Star Bulk Carriers (SBLK -8%) is downgraded to Sell from Hold with a $2 price target, cut from $5, at Deutsche Bank, "based on simple math": current rates are significantly below breakeven, resulting in a reduction in the firm's earnings forecasts to well below consensus, and potentially requiring further dilutive financing.
- While Deutsche Bank says SBLK has enough cushion to withstand increased cash burn, it believes prolonged weakness in spot rates will have significant negative implications on earnings - the best case - and may necessitate further equity financing at low valuations - the worst case, but not a stretch.
- Coffee prices are in retreat as extended rain in Brazil and increased production capacity has helped to soothe the market and push up forecasts on output.
- Data from the U.S. Commodity Futures Trading Commission indicates a sharp drop in bullish bets on coffee as experts now ease off some previous concerns on supply vs. demand.
- Arabica prices are still higher than where they were a year ago.
- There could be a lag factor for many companies to see a benefit from lower coffee commodity costs. Starbucks tipped off during its FQ1 earnings call (transcript) it has 94% of its 2015 coffee needs already priced.
- Arabica coffee price chart
- Related stocks: GMCR, SBUX, JVA, SJM, KRFT, DNKN
- Related ETFs: JO
- Newmont Mining's (NEM -0.3%) Indonesian copper export permit will not be renewed beyond March 19 unless it strikes a deal with Freeport McMoRan (NYSE:FCX) to invest in the latter's planned smelter, a mines ministry official says.
- NEM has said multiple studies show its Batu Hijau mine cannot sustain a smelter on its own, while fellow U.S.-based miner FCX is pushing ahead with expansion plans at Indonesia's sole copper smelter at Gresik.
- After a nine-month export tax dispute, NEM signed a deal with the government late last year that allowed for the resumption of copper concentrate exports, but the agreement is set to end unless NEM can show it is serious about domestic processing.
- Eldorado Gold (NYSE:EGO) -4.4% premarket on news that Greece's energy ministry has revoked the approval required to complete final construction of the processing plant at the Skouries project.
- EGO says the notice indicates that the government could reverse its decision once it completes an internal review process.
- EGO says it has invested more than $450M since 2012 on construction and development of the Skouries and Olympias mines in Greece, and had planned to invest another $200M this year on the continued construction of Skouries.
Friday, February 27, 2015
- Buenaventura (BVN +6.5%) is surging after reporting Q4 adjusted EBITDA of $167M and saying strong gold production at its Yanacocha mine helped results reach the high end of its production guidance.
- The Peruvian gold miner says it produced 245K gold oz. and 5.5M silver oz. during Q4, vs. 184K gold oz. and 4.8M silver oz. in the year-ago quarter; but full-year output was mixed, with gold production of 846K oz. coming in below the prior year's 895K oz., and silver up at 19.7M oz. vs. 18.9M oz. in 2013.
- Q4 net sales of $254M were 12% lower than the prior year's $287M, as the average realized prices for gold, silver and copper fell a respective 6%, 24% and 8% Y/Y; Q4 sales volumes rose 33%, 28% and 25% for gold, silver and copper.
- Banro (BAA +37.3%) spikes higher after saying it signed agreements for two gold forward sale transactions relating to the Twangiza mine and a gold streaming transaction relating to the Namoya mine, providing total gross proceeds of $100M.
- BAA says the purchasers are funded in part by investment funds managed by Gramercy Funds which have committed to fund the $40M in gold forward sales and $50M of the gold stream, for $90M in total committed funding; BAA will seek to obtain commitments for the remainder of the gold stream transaction prior to the expected close in April.
- Just 33 U.S. oil rigs were taken out of service this week, bringing the total down to 986, the lowest since summer 2011. The number of oil and gas rigs fell 43 to 1,267 - the lowest since early 2010.
- For oil traders, that's still too many rigs pumping, and WTI crude slides nearly $1 per barrel on the report, to $48.55 per barrel (it's still up by 0.85% on the session).
- ETFs: USO, OIL, UCO, SCO, BNO, UGA, DTO, DBO, UWTI, USL, DWTI, UHN, DNO, SZO, OLO, TWTI, OLEM
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