Friday, November 28, 2014
- Already hit hard over the last two years by declining prices, gold and silver miners saw more pain today as commodity stocks in general got hammered thanks to OPEC's decision not to slash crude production.
- Decliners: ABX -8%. GG -6.1%. AUY -9.8%. KGC -8.2%. GFI -9.9%. SLW -7%. NEM -5.8%. AGI -6.9%. PAAS -9%. AG -15.4%. SSRI -11.6%. CDE -11.4%. HL -8.8%. TAHO -7.8%.
- Previous: Precious metals slide alongside oil; Swiss vote ahead
- "OPEC, like Rockefeller, ultimately damned itself," writes Wolfe Research's Paul Sankey. He doesn't see oil demand ratcheting upwards because of the drop in oil prices; instead, he says, the market will only clear at the point of U.S. supply growth destruction.
- This could take months and a price of around $50 per barrel ... "And then we squeeze radically higher. As a result, the world accelerates its move away from oil."
- "This is going to be volatile, and we can't understand how that helps the Saudis. Volatility sells Teslas."
- WTI crude (NYSEARCA:USO) tried bouncing earlier, but is now lower by 8.5% at $67.43 per barrel. The Energy Select SPDR (XLE -6.6%) is also set to close today's shortened session on the lows.
- ETFs: USO, XLE, OIL, UCO, ERX, VDE, OIH, SCO, XOP, ERY, DIG, BNO, UGA, DTO, DBO, DUG, IYE, XES, IEO, CRUD, IEZ, UWTI, PXE, USL, FENY, PXJ, DWTI, DBE, DNO, PSCE, RJN, RYE, SZO, FXN, OLO, JJE, DDG, ONG, RGRE, OLEM, TWTI, UBN
- Atlantic Equities has downgraded Dow Chemical (NYSE:DOW) to Neutral, and slashed its target by $5 to $55. The firm expects weak crude oil prices to pressure Dow's polyolefin margins.
- Crude prices have plunged below $70/barrel today after OPEC decided not to cut production. Commodity stocks aren't taking the news well.
10:20 AM| 6 Comments
- The looming Swiss vote (Sunday) on a referendum to force the SNB to hold more gold as well as bring back metal held for it by central banks overseas makes could be the reason, but most have never expected this to pass.
- More likely at work is the general fall in commodity prices led by the collapse in oil (now off 5.8% to $69.39) following OPEC's decision yesterday not to cut output.
- Gold (NYSEARCA:GLD) is lower by 1.6% to $1,178 per ounce. Silver (NYSEARCA:SLV) is down 4.7% to $15.82.
- ETFs: GLD, SLV, AGQ, IAU, USLV, SIVR, SGOL, ZSL, UGL, DGP, GLL, UGLD, DZZ, SLVO, GLDI, DSLV, OUNZ, DGL, DBS, DGZ, DGLD, AGOL, TBAR, USV, UBG, GLDE, BAR, GYEN, GEUR, BARS, GGBP
- As we ate, OPEC - seemingly interested in taking it to the U.S. shale industry - decided to maintain output levels in the face of the bear market in oil. WTI crude oil is lower by $5 per barrel to $68.64.
- Major U.S. index futures are moderately lower, but the Energy Select SPDR (NYSEARCA:XLE) is down 4.4% premarket.
- The 10-year Treasury yield is down four basis points to 2.20%, and gold is off $16 per ounce to $1,181.50.
- ETFs: SPY, QQQ, DIA, SH, SSO, SDS, VOO, PSQ, IVV, SPXU, UPRO, TQQQ, SPXL, RSP, QID, SQQQ, DOG, QLD, DXD, RWL, EPS, UDOW, SDOW, DDM, BXUB, QQEW, QQQE, SPLX, BXUC, SFLA, QQXT, SPUU
Wednesday, November 26, 2014
- Potash producers Agrium (AGU -2.6%), Potash Corp. (POT -0.3%), Mosaic (MOS -0.2%), CF Industries (CF -1.3%) and Intrepid Potash (IPI -1.1%) continue to give back the gains that followed Uralkali’s mine suspension, and BofA Merrill's downgrade of AGU hasn't helped.
- While BofA remains positive on earnings from nitrogen, it believes potash is oversupplied and global demand growth could regress from 2014's ~11% pace.
- But Stifel analysts are not throwing in the towel on the potash producers, citing potash supply constraints from declining North American producer inventories as well as the potential for the permanent closure of the Russian mine offsetting the negative impact of potentially lower North American planted corn acreage.
- Crude oil prices are steady this morning, with Brent crude hovering below $79/bbl and WTI at ~$74, as Saudi Arabia oil minister says the "market will stabilize itself" - a strong suggestion that no production cuts are necessary - on the eve of the OPEC meeting in Vienna.
- Rosneft's (OTC:RNFTF) Igor Sechin says Russia would not need to cut output even if prices fell below $60; Russia's finance minister says lower oil prices are here to stay for the long term, and the country’s budget should be adjusted accordingly.
- Oil price tracker Tom Kloza says oil could plummet to $35 next year without an agreement; he expects at least a "lip service agreement" from OPEC members, but they will largely ignore it, creating a bigger crisis in about six months.
- ETFs: USO, OIL, UCO, SCO, BNO, DTO, DBO, CRUD, UWTI, USL, DWTI, DNO, SZO, OLO, OLEM, TWTI
Tuesday, November 25, 2014
- Crude oil prices tumble, with West Texas crude hitting session lows and slipping below $75/bbl, on news that meetings among Saudi Arabia, Venezuela, Mexico and Russia oil minister failed to produce any agreements for oil production cuts.
- January WTI crude now -1.7% at $74.49/bbl.
- ETFs: USO, OIL, UCO, SCO, BNO, DTO, DBO, CRUD, USL, UWTI, DWTI, DNO, SZO, OLO, OLEM, TWTI
- China’s barriers to imports of some U.S. genetically modified crops are disrupting seed companies' plans for new product launches and keeping at least one variety out of the U.S. market altogether, Reuters reports.
- Dow AgroSciences (NYSE:DOW) and Syngenta (NYSE:SYT) are tightly controlling U.S. launches of new GMO seeds, telling farmers where they can plant new corn and soybean varieties and how can the use them, while Bayer CropScience (OTCPK:BAYZF, OTCPK:BAYRY) is keeping a new soybean variety on hold until it receives Chinese import approval.
- China is taking longer than in the past to approve new GMO crops and began rejecting U.S. imports a year ago, saying they were tainted with a GMO corn variety approved in the U.S. but not in China.
- Controlled launches are at best a temporary fix because they are costly, complicated and risk accidental contamination of other export grains, says the head of the U.S. Soybean Export Council.
- Goldcorp (NYSE:GG) signs a resource development agreement with four First Nation communities in the area of its Porcupine Gold Mines operation in Ontario and establishes a framework for continued consultation on existing and future operations.
- Under the agreement, GG recognizes and respects Aboriginal rights and interests, and the four First Nation communities recognize and support GG’s rights and interests in the operation and future development of the mine.
- Iron ore trades below $70 for the first time in five years, as rising low-cost supplies by the world’s top miners widen a global glut amid slowing demand from China.
- Ore with 62% content delivered to Qingdao fell 1.2% to $69.58/dry metric ton, the lowest since June 2009, and has dropped 48% YTD.
- “The biggest problem is on the supply side as majors like BHP and Rio are pushing huge volumes into the lackluster demand environment," says Bernstein's Paul Gait, who adds that $65 "feels like a floor."
- BHP -1.8%, VALE -0.6%, RIO -0.4% premarket.
- Glencore (OTCPK:GLCNF, OTCPK:GLNCY) and Peabody Energy (NYSE:BTU) form a joint venture to develop an open-cut coal mine between existing operations run by the two companies in Australia's New South Wales state.
- The 50-50 JV will dig the pit between Glencore's United coal mine in the Hunter Valley and BTU's Wambo operations nearby; the project is expected to start in mid-2017 and could produce 6M metric tons/year of thermal coal used in power stations.
- The plan, expected to take effect in mid-2017, would improve recovery of coal from the combined operations and sharply cut capital and operating costs.
Monday, November 24, 2014
- Various hedge funds were told this month by a prominent London mining banker to prepare for an all-but-inevitable takeover of Rio Tinto (NYSE:RIO) by Glencore (OTCPK:GLCNF, OTCPK:GLNCY), Bloomberg reports.
- Former JPMorgan Chase dealmaker Ian Hannam, who now runs a boutique advisory firm, reportedly convened reps of more than 20 investors to share his views on the potential deal, perhaps intended in part to help position his firm to win a role in the transaction.
- Glencore said last month it had abandoned a bid for Rio after a July proposal worth ~$160B was rebuffed.
- The flooding of Uralkali's Russian potash mine is confirmation for BHP Billiton (NYSE:BHP) CEO Andrew Mackenzie of the wisdom of his company’s planned move into the industry.
- No major new mines have begun production since the 1970s, and the halt of operations at the Solikamsk-2 mine - which accounts for 3% of the world's total supply - is a sign of the vulnerability of supply as the need to feed a growing global population spurs demand, the CEO says.
- BHP hopes to build its Jansen project in Saskatchewan sometime in the next decade, though Mackenzie is cautious about giving an exact timeline.
- Trevali Mining (OTCQX:TREVF +2.1%) CEO Mark Cruise predicts zinc will extend its bull run as the company reopens a mine in New Brunswick to more than double output.
- Trevali, which gets ~60% of its revenue from zinc, is seeking to boost production to 5K metric tons/day of ore by 2016 from 2K/day now, Cruise says, while a decrease in output next year from China, the world’s largest producer, would cut world supplies 10% as demand increases 5%.
- Trevali’s New Brunswick mine closed in 2008 due to depressed commodity prices amid the global financial crisis; commissioning of the mine, whose mill will be able to process 3K tons/day, will begin in Q2 2015.
- BHP Billiton's (BHP -2.2%) commitment to target $4B/year in cost cuts and other productivity gains in its core portfolio is a clarion call to the big mining contractors that times are about to get tougher.
- Despite the spending cuts and productivity gains, analysts think it will not be enough to deliver a round of share buybacks or special dividends in February.
- "If you look at the iron ore price, no one would reasonably be expecting any of the majors would be in a strong position to return capital above the base dividends. In this market people are questioning the ability to in some cases even pay that base dividend," says CLSA's David Radclyffe.
- Iron ore prices currently are ~$70/metric ton, while prices hit a high of $180 less than three years ago; coal, oil and other commodities are also taking a bath, crunching the profit margins of the miners.
- India's gold imports were up 300% year-over-year for the quarter ending last month, thanks in part to the recovering rupee and easy comparisons as import constraints in place one year ago were not there this year.
- On its face good news for gold bulls, the jump could put pressure on the government to put even more stringent restrictions in place, says Morgan Stanley's Joel Crane, as the fast pace of imports is likely to have expanded the trade deficit to $13.35B from $10.6B a year ago.
- The current account deficit, however, continues to narrow (1.7% of GDP from 4.8% a year ago), and the Modi administration might find it a good time to try and protect this improvement.
- Gold is flat on the session at $1,197 per ounce.
- ETFs: GLD, IAU, SGOL, UGL, DGP, GLL, UGLD, DZZ, GLDI, OUNZ, DGL, DGZ, DGLD, AGOL, TBAR, UBG, GLDE, BAR, GYEN, GEUR, BARS, GGBP
- "The market would question the credibility of OPEC and its influence on global oil markets if there was no [production] cut," says Daniel Bathe of Lupus Alpha Commodity Invest Fund, figuring Brent crude (NYSEARCA:BNO) - currently around $80 per barrel, could plunge all the way to $60 if there is no cut agreed to. Bathe puts the likelihood of a production cut at no more than 50%.
- OPEC is meeting in Vienna this week.
- Others suggest even a cut of 500K-1M barrels per day wouldn't be enough to end the bear market, though something higher than that amount might shock oil all the way back to $85.
- Both Brent and WTI crude (NYSEARCA:USO) are lower by about 0.2% in morning action
- ETFs: USO, OIL, UCO, SCO, BNO, UGA, DTO, DBO, CRUD, USL, UWTI, UHN, DWTI, DNO, SZO, OLO, OLEM, TWTI
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