While the demand for commodities in China without a doubt has been weak, that doesn't mean China isn't a buyer in this market, because it is.
What must be understood is the demand now isn't domestic or for exports, but from the fact the prices have fallen so much, China, as it has done historically, is buying up the resources at bargain prices.
When measured by customs data, there are at least 21 commodities China has increased imports in by over 20 percent in July, according to Reuters.
Agricultural imports were especially strong, "with wheat up 158 percent, barley by 67.9 percent, corn by 1,184 percent, cassava by 28.5 percent, rice by 78.2 percent, soy oil by 25.8 percent, palm oil by 53.3 percent, natural rubber by 70.1 percent and sugar by 72.7 percent."
Crude oil imports jumped 29.3 percent in July.
Metals were also strongly represented. Molybdenum imports climbed 139.8 percent; uranium was up 227 percent; zinc ores up 84.5 percent, and silver up 63.3 percent, among others.
Among major commodities, copper ore and concentrates increased 7.2 percent, and iron ore imports were up a modest 4.4 percent.
What was also interesting in this was China's decision to increase imports at a time its currency was extremely weak. While low prices were definitely a part of the impetus, a declining yuan also had to play a part. If the currency loses more value, the cost of imports would rise even if commodity prices remained stable.
It looks like China was pressed into acquiring the depressed commodities before its currency weakened further. Or course China knows what its policy is going to be, and it's possibly a nod to further debasing of its currency after it buys the commodities it wants at low prices.
Showing posts with label Commodity Prices. Show all posts
Showing posts with label Commodity Prices. Show all posts
Tuesday, August 25, 2015
Wednesday, February 20, 2013
Commodities Plunge on Concerns of Demand, Fed Comments, and Hedge Fund Rumors
Several elements on Wednesday fueled a plunge in prices of many commodities, as the perfect storm of information resulted in big sell offs.
Among the major concerns was the release of the minutes from the latest meeting of the U.S. Federal Reserve, which hinted at the possibility of it slowing down its latest QE or stimulus program before the hiring numbers it was targeting are even close to being met.
It sounds like a deliberate attempt by the Fed to influence the market, as the chances of it stopping its stimulus any time soon is very unlikely at best. Hiring really hasn't moved at all since the introduction of the latest round of QE, so the idea the central bank is going to just slow down or close up shop is pretty ludicrous.
Nonetheless, a somewhat spooked market over responded by punishing commodities across the board. Gold and silver were hit particularly hard by the news, with gold settling down 2.6 percent and silver 2.7 percent. That brought gold to 7-month lows, while silver experienced its sharpest decline in 2 months.
The other ambiguous news was a rumor a commodity hedge fund had to liquidate positions in oil and metals, putting more downward pressure on commodities. As of this writing there is no proof this has even happened. Most of the sell-off in commodities happened between 10 am and 11 am, the time the rumor of the hedge fund sell off was at its peak.
Some analysts look at it all as speculative trading more than anything else. The fact that the majority of the commodities fell on average about 2 percent points to a blip more than a rush out of the sector.
Finally, what has some potential legs one way or the other for commodities is the demand factor, in that regard there continues to be mixed data and outlook concerning the growth rate of the U.S. and global economy, causing ongoing uncertainty in the commodity markets
There is no doubt though that this was a news-related downward push on commodity prices, and shouldn't continue on until there is more clarity over the issues, which outside of the rumored hedge fund, will take time to reveal itself.
Commodity demand and the presumptions the Fed may end easing sometime soon, are things that won't be known for some time, with the ending of stimulus assuredly not going to happen any time soon. Once that's realized, things will level off again until commodity demand is better understood.
Among the major concerns was the release of the minutes from the latest meeting of the U.S. Federal Reserve, which hinted at the possibility of it slowing down its latest QE or stimulus program before the hiring numbers it was targeting are even close to being met.
It sounds like a deliberate attempt by the Fed to influence the market, as the chances of it stopping its stimulus any time soon is very unlikely at best. Hiring really hasn't moved at all since the introduction of the latest round of QE, so the idea the central bank is going to just slow down or close up shop is pretty ludicrous.
Nonetheless, a somewhat spooked market over responded by punishing commodities across the board. Gold and silver were hit particularly hard by the news, with gold settling down 2.6 percent and silver 2.7 percent. That brought gold to 7-month lows, while silver experienced its sharpest decline in 2 months.
The other ambiguous news was a rumor a commodity hedge fund had to liquidate positions in oil and metals, putting more downward pressure on commodities. As of this writing there is no proof this has even happened. Most of the sell-off in commodities happened between 10 am and 11 am, the time the rumor of the hedge fund sell off was at its peak.
Some analysts look at it all as speculative trading more than anything else. The fact that the majority of the commodities fell on average about 2 percent points to a blip more than a rush out of the sector.
Finally, what has some potential legs one way or the other for commodities is the demand factor, in that regard there continues to be mixed data and outlook concerning the growth rate of the U.S. and global economy, causing ongoing uncertainty in the commodity markets
There is no doubt though that this was a news-related downward push on commodity prices, and shouldn't continue on until there is more clarity over the issues, which outside of the rumored hedge fund, will take time to reveal itself.
Commodity demand and the presumptions the Fed may end easing sometime soon, are things that won't be known for some time, with the ending of stimulus assuredly not going to happen any time soon. Once that's realized, things will level off again until commodity demand is better understood.
Monday, February 11, 2013
Goldman: Precious Metals, Livestock to Lead Commodities Over Next Year
Goldman Sachs (NYSE: GS) predicts over the next 12 months, livestock and precious metals will lead commodities to about a 1.1 percent jump in prices.
Precious metals will climb the most according to Goldman, estimating a jump of 5 percent, while it sees livestock prices rising 4.5 percent during the same period.
In other commodity sectors, Goldman sees energy increasing 2 percent; industrial metals will drop by 1 percent; and agriculture in general will fall 3.5 percent.
“Renewed optimism has been mostly based on momentum and forward-looking survey data and far less on hard data and physical markets, which remain lackluster,” Goldman analyst Jeffrey Currie wrote in the report. “We are maintaining our price targets and recommendations and will wait for hard data and physical markets to confirm the optimism before raising estimates.”
Citing the Chinese housing completion cycle, Goldman suggest investors acquire copper. The financial giant also sees benefit in taking a position in the Brent GSCI Index in order to take advantage of the low crude inventories which has produced backwardation.
Rolling over nearby contracts to longer contracts will result in profitable returns, said Goldman.
Precious metals will climb the most according to Goldman, estimating a jump of 5 percent, while it sees livestock prices rising 4.5 percent during the same period.
In other commodity sectors, Goldman sees energy increasing 2 percent; industrial metals will drop by 1 percent; and agriculture in general will fall 3.5 percent.
“Renewed optimism has been mostly based on momentum and forward-looking survey data and far less on hard data and physical markets, which remain lackluster,” Goldman analyst Jeffrey Currie wrote in the report. “We are maintaining our price targets and recommendations and will wait for hard data and physical markets to confirm the optimism before raising estimates.”
Citing the Chinese housing completion cycle, Goldman suggest investors acquire copper. The financial giant also sees benefit in taking a position in the Brent GSCI Index in order to take advantage of the low crude inventories which has produced backwardation.
Rolling over nearby contracts to longer contracts will result in profitable returns, said Goldman.
Tuesday, October 9, 2012
December Gold Drops Over $10 an Ounce
Some commodity prices were under pressure Tuesday after a report from the International Monetary Fund revealed it slashed global economic growth for the year from 3.5 percent to 3.3 percent.
Gold for December delivery dropped $10.70 an ounce to settle at $1,765. December silver was down 3.2 cents an ounce to $33.985. January platinum fell $3.50 to settle at $1,695.30 an ounce.
Unsurprisingly, the IMF confirmed the leading economies of the world are at risk of recession, although the reality is we've really never emerged from latest recession, and there has been no recovery.
Those commodities moving up on the day included energy, palladium and wheat. Soybeans fell a penny to $15.50 a bushel. Palladium climbed to $658.20, up $1.25 an ounce.
Concerns over supply because of a slowdown in production in the North Sea and rising tensions in the Middle East were behind the rise in energy prices. Recent fires at a refinery in the U.S and another in Russia has also added price support in some energy segments.
Benchmark crude oil futures climbed $3.06, or 3.4 percent, to settle at $92.39 a barrel in New York. That is the highest level in over a week. Brent crude closed at $114.50, jumping $2.68, or 2.4 percent.
Heating oil increased by 5.89 cents to $3.2032 a gallon, and wholesale gasoline was up 6.56 cents to $2.9587 a gallon. Natural gas was up by 6.4 cents to $3.467 per 1,000 cubic feet.
The Dow Jones Industrial Average plunged 110 points to close at 13,473, a loss of 0.8 percent. The S&P 500 Index dropped to 1,441, losing 14 points or just under 1 percent.
The ICE dollar index climbed to 80.023, up from Monday's 79.595.
Gold for December delivery dropped $10.70 an ounce to settle at $1,765. December silver was down 3.2 cents an ounce to $33.985. January platinum fell $3.50 to settle at $1,695.30 an ounce.
Unsurprisingly, the IMF confirmed the leading economies of the world are at risk of recession, although the reality is we've really never emerged from latest recession, and there has been no recovery.
Those commodities moving up on the day included energy, palladium and wheat. Soybeans fell a penny to $15.50 a bushel. Palladium climbed to $658.20, up $1.25 an ounce.
Concerns over supply because of a slowdown in production in the North Sea and rising tensions in the Middle East were behind the rise in energy prices. Recent fires at a refinery in the U.S and another in Russia has also added price support in some energy segments.
Benchmark crude oil futures climbed $3.06, or 3.4 percent, to settle at $92.39 a barrel in New York. That is the highest level in over a week. Brent crude closed at $114.50, jumping $2.68, or 2.4 percent.
Heating oil increased by 5.89 cents to $3.2032 a gallon, and wholesale gasoline was up 6.56 cents to $2.9587 a gallon. Natural gas was up by 6.4 cents to $3.467 per 1,000 cubic feet.
The Dow Jones Industrial Average plunged 110 points to close at 13,473, a loss of 0.8 percent. The S&P 500 Index dropped to 1,441, losing 14 points or just under 1 percent.
The ICE dollar index climbed to 80.023, up from Monday's 79.595.
Monday, September 24, 2012
Goldman (GS) Sees Commodities Jumping 18 Percent
Over the next year, Goldman Sachs (NYSE: GS) said they see commodities providing a return of 18.2 percent, led by industrial metals and energy prices.
Interestingly, and I think wrongly, Goldman sees precious metals rising only six percent during the same period, as measured in Standard & Poor’s GSCI Enhanced Commodity Index.
Goldman Sachs analyst Jeffrey Currie said, “Apart from being attractive in its own right, we also continue to see an overweight in commodities as a hedge against the risk of the impact of sharply higher commodity prices on economic growth and other asset classes, if oil supplies were to disappoint against a backdrop of very limited spare capacity.”
As for other commodities, Goldman sees agriculture overall dropping by 5 percent over the next year, although it sees livestock climbing 4.5 percent.
For the year, expectations are the Standard & Poor’s GSCI Enhanced Commodity Index will jump 26.5 percent. For the next quarter Currie sees it up by about 8.6 percent.
Globally, these numbers are lower that projections of a 32.8 percent increase in the Tokyo Stock Exchange Topix and 25.5 percent boost in Stoxx equity index.
Thursday, September 13, 2012
Bernanke Initiates Endless QE
Ben Bernanke and the Federal Reserve put into place a policy whereby there will be the acquisition of $40 billion in mortgage-backed securities on a monthly basis until there is a sustainable improvement in the labor market. At least that's the theory behind the action.
The FOMC said in a statement:
"If the outlook for the labor market does not improve substantially, the committee will continue its purchase of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability."
Also announced was the Fed would continue to have Operation Twist in effect until the end of 2012, as well as keep interest rates low through the middle of 2015.
After all of this is said and done, the most likely and predictable outcome will be an astounding and growing national debt which is already beyond the ability of Americans to pay.
And with no real positive impact on the economy coming from QE1 and QE2, there is no reason to believe anything different will come about from this latest round, which is likely to go on for years, as there's little hope of the economy rebounding in any significant manner, which means little in the way of new and sustainable job creation.
What will benefit is a number of commodities and some of the miners accompanying the sector. The U.S. dollar will now start to plunge in value against some of the major currencies.
As for the effect on the euro zone, it could get even worse there with the U.S. dollar falling, as they couldn't even do well on exports when the euro was weak against the dollar.
In reality, this is a disastrous decision, although investors rightly positioning themselves will do very well in the months ahead.head.
The FOMC said in a statement:
"If the outlook for the labor market does not improve substantially, the committee will continue its purchase of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability."
Also announced was the Fed would continue to have Operation Twist in effect until the end of 2012, as well as keep interest rates low through the middle of 2015.
After all of this is said and done, the most likely and predictable outcome will be an astounding and growing national debt which is already beyond the ability of Americans to pay.
And with no real positive impact on the economy coming from QE1 and QE2, there is no reason to believe anything different will come about from this latest round, which is likely to go on for years, as there's little hope of the economy rebounding in any significant manner, which means little in the way of new and sustainable job creation.
What will benefit is a number of commodities and some of the miners accompanying the sector. The U.S. dollar will now start to plunge in value against some of the major currencies.
As for the effect on the euro zone, it could get even worse there with the U.S. dollar falling, as they couldn't even do well on exports when the euro was weak against the dollar.
In reality, this is a disastrous decision, although investors rightly positioning themselves will do very well in the months ahead.head.
Tuesday, July 24, 2012
Commodity Prices and QE3
Debate is raging over whether another round of quantitative easing will in fact help boost the price of commodities.
Bears look at it from the point of view of demand alone, while bulls look at it from a more holistic view.
While demand is obviously a major factor in commodity prices, the U.S. dollar is just as important, and also can determine the demand because commodities are bought with U.S. dollars being used as the medium of exchange.
So if the U.S. dollar is strong, the demand for commodities can go down because of the high cost of acquiring them. That is what has been happening as it has strengthened against a number of currencies as the sovereign debt crisis in Europe continues to push down the price of competitive currencies.
If the Federal Reserve eases, that is sure to put downward pressure on the dollar and commodity prices in general will start to rise again.
There are other factors involved, but the strength of the U.S. dollar is among the top elements that impact most commodities.
Gold and silver will especially respond strongly if there is more easing, as they are also considered alternative currencies or safety against inflation, along with many industrial uses in regard to silver.
Over the short term it's any one's guess as to the price movement of commodities, but over the long haul there is no doubt commodities will, for the most part, continue on their upward price run.
Some commodities, for example grains, are already outside the impact of whether or not more easing will come, as other factors like the ongoing drought in America, and now parts of Europe and Australia, are aiding in pushing grain prices like corn and soybeans to record highs.
Bears look at it from the point of view of demand alone, while bulls look at it from a more holistic view.
While demand is obviously a major factor in commodity prices, the U.S. dollar is just as important, and also can determine the demand because commodities are bought with U.S. dollars being used as the medium of exchange.
So if the U.S. dollar is strong, the demand for commodities can go down because of the high cost of acquiring them. That is what has been happening as it has strengthened against a number of currencies as the sovereign debt crisis in Europe continues to push down the price of competitive currencies.
If the Federal Reserve eases, that is sure to put downward pressure on the dollar and commodity prices in general will start to rise again.
There are other factors involved, but the strength of the U.S. dollar is among the top elements that impact most commodities.
Gold and silver will especially respond strongly if there is more easing, as they are also considered alternative currencies or safety against inflation, along with many industrial uses in regard to silver.
Over the short term it's any one's guess as to the price movement of commodities, but over the long haul there is no doubt commodities will, for the most part, continue on their upward price run.
Some commodities, for example grains, are already outside the impact of whether or not more easing will come, as other factors like the ongoing drought in America, and now parts of Europe and Australia, are aiding in pushing grain prices like corn and soybeans to record highs.
Thursday, October 28, 2010
Bank of America (NYSE:BAC) Sees $1 Trillion QE, Goldman (NYSE:GS) - $2 Trillion
What's a trillion here or there for the Federal Reserve, which is drunk on printing money, and depending on who's right - such as Bank of America (NYSE:BAC), which sees them printing $1 trillion, and Goldman Sachs, which sees them printing $2 trillion - the fallout will even crush American more during the long term, as the company teeters on the precipice of insolvency.
Goldman and Bank of America see the Fed buying up government debt incrementally in order to keep the huge amount from being digested immediately by ordinary Americans. Both expect a $500 billion plan to be initiated immediately after the meetings held on November 2 and November 3.
This will push up the price of gold and other commodities, which will cause inflation to rise, as far as commodities used for industrial purposes. Some agricultural commodities will continue to rise as well, or at least maintain support at fairly high levels.
Goldman and Bank of America see the Fed buying up government debt incrementally in order to keep the huge amount from being digested immediately by ordinary Americans. Both expect a $500 billion plan to be initiated immediately after the meetings held on November 2 and November 3.
This will push up the price of gold and other commodities, which will cause inflation to rise, as far as commodities used for industrial purposes. Some agricultural commodities will continue to rise as well, or at least maintain support at fairly high levels.
Friday, October 8, 2010
Bank Of America (NYSE:BAC): Commodity Prices Will Benefit from Quantitative Easing
Although Commodity Surge doesn't support the inflationary practices of the Federal Reserve and other central banks (they call it quantitative easing now), Bank of America (NYSE:BAC) is correct in saying it will help support the price of commodities when it is again introduced into the economy.
The financial giant said in a report titled "The Liquidity Supernova," that they see quantitative easing adding 15 percent annually to copper, oil and precious metals.
As far as commodities go, the good news is they don't need the misguided actions of the Federal Reserve to go up in price, as demand from emerging markets guarantees many commodities would move up whether or not interference comes from the Federal Reserve or other central banks around the world.
This is one of the reasons why inflationary actions from the central banks will do no good. Demand is driving the commodities market, and other sectors, no matter how much money they throw at them, aren't going to be affected in any way, as the hundreds of billions in stimulus has already revealed to us. Trillions when you include the entire world.
So while throwing money into the market could offer support for commodity prices, they in fact don't need it, and when you consider the long-term consequences and need to pay back these outrageous sums of money, it isn't worth any short-term benefit from it, even if it does come.
Bank of America sees that even if commodity prices find support from inflationary actions of the Federal Reserve, the broader economy may not benefit at all. I would say it won't benefit at all, and we, our children, and our grandchildren will be stuck with the unethical bill to pay.
The financial giant said in a report titled "The Liquidity Supernova," that they see quantitative easing adding 15 percent annually to copper, oil and precious metals.
As far as commodities go, the good news is they don't need the misguided actions of the Federal Reserve to go up in price, as demand from emerging markets guarantees many commodities would move up whether or not interference comes from the Federal Reserve or other central banks around the world.
This is one of the reasons why inflationary actions from the central banks will do no good. Demand is driving the commodities market, and other sectors, no matter how much money they throw at them, aren't going to be affected in any way, as the hundreds of billions in stimulus has already revealed to us. Trillions when you include the entire world.
So while throwing money into the market could offer support for commodity prices, they in fact don't need it, and when you consider the long-term consequences and need to pay back these outrageous sums of money, it isn't worth any short-term benefit from it, even if it does come.
Bank of America sees that even if commodity prices find support from inflationary actions of the Federal Reserve, the broader economy may not benefit at all. I would say it won't benefit at all, and we, our children, and our grandchildren will be stuck with the unethical bill to pay.
Monday, August 16, 2010
Citigroup (NYSE:C) Raises Deere (NYSE:DE) Price Target
Citigroup (NYSE:C) said it has increased its price target on Deere & Company (NYSE:DE) to $75. Earnings estimates were also raised, while a "Buy" rating was maintained.
Citigroup's Timothy Thein said in a note, "Our price target, and relative ranking amongst Buy rated names, both go up for DE as we see better N.A. large Ag equipment demand, and a more favorable price/cost spread driving upside to near-term numbers. Importantly for the stock, global grain price outlook has improved meaningfully on a tighter supply/demand outlook, with Citi Futures forecasting 8.2% stock-to-use for 2010-11 US corn crop (well below current USDA est. of 9.7%). In the last 30 crop years, US corn STU has fallen below 10% twice (95/96 and & 03/04) - two periods of solid relative outperformance for DE stock."
With the economic conditions much worse than has been reported, commodity prices are back in favor in a big way, which has been driving up the price and optimism concerning companies serving that market, like Deere does with its mining and farming machinery, and other companies like miners who are directly involved with commodities.
There's nothing in the economic outlook suggesting this will change any time soon.
Citigroup's Timothy Thein said in a note, "Our price target, and relative ranking amongst Buy rated names, both go up for DE as we see better N.A. large Ag equipment demand, and a more favorable price/cost spread driving upside to near-term numbers. Importantly for the stock, global grain price outlook has improved meaningfully on a tighter supply/demand outlook, with Citi Futures forecasting 8.2% stock-to-use for 2010-11 US corn crop (well below current USDA est. of 9.7%). In the last 30 crop years, US corn STU has fallen below 10% twice (95/96 and & 03/04) - two periods of solid relative outperformance for DE stock."
With the economic conditions much worse than has been reported, commodity prices are back in favor in a big way, which has been driving up the price and optimism concerning companies serving that market, like Deere does with its mining and farming machinery, and other companies like miners who are directly involved with commodities.
There's nothing in the economic outlook suggesting this will change any time soon.
Tuesday, July 13, 2010
Copano Energy (Nasdaq:CPNO) Downgraded by UBS AG (NYSE:UBS)
Copano Energy (Nasdaq:CPNO), which is in the business of providing natural gas companies with services like natural gas gathering, fractionation, treating and transportation, was downgraded by UBS today (NYSE:UBS) from "Buy" to "Neutral."
Earnings per share estimates for the second quarter were also lowered by UBS for Copano, dropping from $0.10 a share to $0.05 a share, based on commodity prices.
The price target on the other hand was upped slightly from $25.50 50 $26.
UBS feels the shares are fairly valued, after recently outperforming. Today at 1:11 PM EDT, shares were at $27.83.
Earnings per share estimates for the second quarter were also lowered by UBS for Copano, dropping from $0.10 a share to $0.05 a share, based on commodity prices.
The price target on the other hand was upped slightly from $25.50 50 $26.
UBS feels the shares are fairly valued, after recently outperforming. Today at 1:11 PM EDT, shares were at $27.83.
Tuesday, June 1, 2010
Commodity Collapse Close at Hand?
Not too long ago before the depth and width of the sovereign debt crisis in Europe was known, as well as the condition of the Chinese property market, along with its inflation, commodities and commodity companies were considered some of the best bets in the marketplace, and at least a mid-level recovery believed to be close at hand.
That has quickly changed in the last couple of months, with little more than gold being the one commodity that can be counted on to continue rising in price.
“As risk-taking falls, expected growth is reduced,” said Colin P. Fenton, the chief executive officer of Curium Capital Advisors LLC. “Demand for commodities is going to be softer than it might otherwise have been.”
Manufacturing in China, the U.S. and Europe dropped in May, and consequently prices for energy and industrial metals fell along with that.
One of the major commodities uses as an economic indicator is copper, and that fell 7.4 percent in May, the largest drop since January.
Some analysts say it's early in the game to see this in the numbers yet, but they expect guidance to be downwardly revised as the year goes on.
That has quickly changed in the last couple of months, with little more than gold being the one commodity that can be counted on to continue rising in price.
“As risk-taking falls, expected growth is reduced,” said Colin P. Fenton, the chief executive officer of Curium Capital Advisors LLC. “Demand for commodities is going to be softer than it might otherwise have been.”
Manufacturing in China, the U.S. and Europe dropped in May, and consequently prices for energy and industrial metals fell along with that.
One of the major commodities uses as an economic indicator is copper, and that fell 7.4 percent in May, the largest drop since January.
Some analysts say it's early in the game to see this in the numbers yet, but they expect guidance to be downwardly revised as the year goes on.
Saturday, May 22, 2010
Why Commodity Prices Remain Down
While there is no doubt the bull commodity market will continue on, as demand for raw materials isn't going to decline any time soon, we do have to look at what is causing the temporary drop in commodity prices in the midst of the bull market.
Although there are numerous variables, I only want to touch on the major ones, as most of the others are primarily offshoots of these several factors, and aren't as important in understanding the big picture.
First of all, nothing has changed in ordinary market behavior. Prices fall because demand falls. There's nothing else to it.
Having said that, we need to understand what's behind demand falling in order to grasp the implications and how to invest in response to them.
I do want to start with natural gas, not because it's actually connected to what I want to get into, but because it has unique elements outside what we're going to talk about, so I want to get that out of the way.
It's not that there isn't the potential for a lot of natural gas demand, it's that there is now so much more natural gas to supply our needs, that the sheer volume of it has changed the supply/demand picture, and prices are falling because of the enormous quantities in the U.S., and continually being discovered in other parts of the world.
So there's an oversupply for decades, if not longer, and that has changed the prices as far as natural gas goes.
Now as far as most other commodities, there's a different reason for demand falling, and that's because banks are doing little lending, and businesses are doing very little borrowing. Even though we here the occasional media story to the contrary, the truth is there is no confidence in the economy, as it has been propped up by government spending on dubious stupid and unsustainable projects and not by the private sector.
But the reason why the private sector isn't participating in the recovery, is because they, along with the banks, don't trust this so-called recovery either, and aren't trying to secure loans because there has to be projected demand for products and services, and they don't believe that the demand is out there. And no matter how hard politicians call for business loans to be made, there aren't that many buyers out there that want or need them.
So with with bankers and businesses not trusting the recovery, or that there really is one, other than taxpayer money being thrown at the problem in attempts to prop up prices, it's likely that commodity prices will continue to be under downward pressure, with occasional exceptions related to a specific commodity.
Here's another example of that to watch for, so you don't take this as a blanket statement for every commodity. I'm just talking about commodities as an overall sector will probably continue to lose value.
One exception may be aluminum. A unique factor has recently been introduced which could drive the price up because of a new source of demand, and that is the introduction of several aluminum ETFs in the latter part of the year, which will include in the holding of physical aluminum, just like gold ETFs do with physical gold.
That means there will be an increased aluminum demand that has never been there before in history; at least in the way the ETFs operate.
So near the end of 2010 and onward, we could see aluminum prices go up because Rusal, and to a lesser degree, Alcoa (NYSE:AA), will be the major providers of aluminum for the funds, and Rusal is reportedly having a difficult time coming up with enough aluminum, so Alcoa will be a secondary provider.
The point is revealing this is to understand any commodity can be an exception at one time or another, and even though the overall commodity sector will probably continue to fall in prices in the near-term, there are always exceptions, and we need to remain vigilant while understanding why prices are being pushed downward.
Once banks start releasing their money into the economy again, i.e., lending to businesses, there could be, and should be, an explosion of upward commodity price movement. Until that happens, we have to watch for anomalies in the market which could make it different for specific commodities within the sector.
Without getting into it, gold should be another exception for pretty obvious reasons, as it will continue going up for some time, and is of course unique to the overall picture concerning commodities.
Although there are numerous variables, I only want to touch on the major ones, as most of the others are primarily offshoots of these several factors, and aren't as important in understanding the big picture.
First of all, nothing has changed in ordinary market behavior. Prices fall because demand falls. There's nothing else to it.
Having said that, we need to understand what's behind demand falling in order to grasp the implications and how to invest in response to them.
I do want to start with natural gas, not because it's actually connected to what I want to get into, but because it has unique elements outside what we're going to talk about, so I want to get that out of the way.
It's not that there isn't the potential for a lot of natural gas demand, it's that there is now so much more natural gas to supply our needs, that the sheer volume of it has changed the supply/demand picture, and prices are falling because of the enormous quantities in the U.S., and continually being discovered in other parts of the world.
So there's an oversupply for decades, if not longer, and that has changed the prices as far as natural gas goes.
Now as far as most other commodities, there's a different reason for demand falling, and that's because banks are doing little lending, and businesses are doing very little borrowing. Even though we here the occasional media story to the contrary, the truth is there is no confidence in the economy, as it has been propped up by government spending on dubious stupid and unsustainable projects and not by the private sector.
But the reason why the private sector isn't participating in the recovery, is because they, along with the banks, don't trust this so-called recovery either, and aren't trying to secure loans because there has to be projected demand for products and services, and they don't believe that the demand is out there. And no matter how hard politicians call for business loans to be made, there aren't that many buyers out there that want or need them.
So with with bankers and businesses not trusting the recovery, or that there really is one, other than taxpayer money being thrown at the problem in attempts to prop up prices, it's likely that commodity prices will continue to be under downward pressure, with occasional exceptions related to a specific commodity.
Here's another example of that to watch for, so you don't take this as a blanket statement for every commodity. I'm just talking about commodities as an overall sector will probably continue to lose value.
One exception may be aluminum. A unique factor has recently been introduced which could drive the price up because of a new source of demand, and that is the introduction of several aluminum ETFs in the latter part of the year, which will include in the holding of physical aluminum, just like gold ETFs do with physical gold.
That means there will be an increased aluminum demand that has never been there before in history; at least in the way the ETFs operate.
So near the end of 2010 and onward, we could see aluminum prices go up because Rusal, and to a lesser degree, Alcoa (NYSE:AA), will be the major providers of aluminum for the funds, and Rusal is reportedly having a difficult time coming up with enough aluminum, so Alcoa will be a secondary provider.
The point is revealing this is to understand any commodity can be an exception at one time or another, and even though the overall commodity sector will probably continue to fall in prices in the near-term, there are always exceptions, and we need to remain vigilant while understanding why prices are being pushed downward.
Once banks start releasing their money into the economy again, i.e., lending to businesses, there could be, and should be, an explosion of upward commodity price movement. Until that happens, we have to watch for anomalies in the market which could make it different for specific commodities within the sector.
Without getting into it, gold should be another exception for pretty obvious reasons, as it will continue going up for some time, and is of course unique to the overall picture concerning commodities.
Monday, May 17, 2010
Commodity Prices Plunge Today
Commodity prices today are down significantly, as industrial metals led the plunge, as concerns over demand from Europe and China hinder the market.
Fighting the debt in Europe and inflation in China has optimism in commodities shake for the first time in awhile, and some companies and countries are concerned over how much the possible drop in demand will have an effect upon them.
Metals like copper, tin, zinc, lead and aluminum are all down, as traders and investors look at the near-term for the metals, and whether or not the recently expected commodity demand is sustainable over the mid-term.
This also seems to have affected the price of oil and gas, as the question now is whether or not consumers will travel and spend as much with this weighing on their minds.
Fighting the debt in Europe and inflation in China has optimism in commodities shake for the first time in awhile, and some companies and countries are concerned over how much the possible drop in demand will have an effect upon them.
Metals like copper, tin, zinc, lead and aluminum are all down, as traders and investors look at the near-term for the metals, and whether or not the recently expected commodity demand is sustainable over the mid-term.
This also seems to have affected the price of oil and gas, as the question now is whether or not consumers will travel and spend as much with this weighing on their minds.
Monday, May 3, 2010
Marc Faber: China May Collapse within the Year
Marc Faber says he sees signs China's economy may be poised for a collapse and it could possibly happen within nine months to a year.
In a television interview with Bloomberg, Faber said this:
“The market is telling you that something is not quite right. The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.”
When the credit crisis exploded and American consumers stopped spending, China did the usual thing governments and central banks do, they attempted to stimulate their economy by spending billions on domestic property development and construction projects, which may account for about 60 percent of the Chinese domestic product at this time.
In the interview Faber also said the mining companies in Australia, which supply a large portion of raw materials to China, are acting "heavy," meaning they may be feeling exterior pressures of slowing demand.
It also looks like China has no intention of changing their policies either, as Finance Minister Xie Xuren said China will continue their expansion until the recovery takes hold.
One step the Chinese government has taken is to forbid taking out a mortgage on a third home while also raising interest rates on mortgages and increasing the requirements on down payments.
Estimates are that could cause the value of properties to fall by up to 20 percent in the second half of 2010 in hopes of cutting down are investing in risky real estate deals.
Faber says these measures could push investors toward the Chinese stock market, but since that's fully valued at this time, they could choose gold as their investment of choice, and who knows where that would bring the price gold to in light of the European sovereign debt crisis, which is only beginning to unfold.
Either way, if Faber is correct at the high end of his projection, the economy of China will slow, and what happens to the prices of commodities at that time when so many companies and countries have been relying upon to bring them out of the recession?
Couple all of this with the EU sovereign debt debacle and it's hard to figure how the financial press can endlessly repeat the mantra that we're in an economic recovery.
In a television interview with Bloomberg, Faber said this:
“The market is telling you that something is not quite right. The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.”
When the credit crisis exploded and American consumers stopped spending, China did the usual thing governments and central banks do, they attempted to stimulate their economy by spending billions on domestic property development and construction projects, which may account for about 60 percent of the Chinese domestic product at this time.
In the interview Faber also said the mining companies in Australia, which supply a large portion of raw materials to China, are acting "heavy," meaning they may be feeling exterior pressures of slowing demand.
It also looks like China has no intention of changing their policies either, as Finance Minister Xie Xuren said China will continue their expansion until the recovery takes hold.
One step the Chinese government has taken is to forbid taking out a mortgage on a third home while also raising interest rates on mortgages and increasing the requirements on down payments.
Estimates are that could cause the value of properties to fall by up to 20 percent in the second half of 2010 in hopes of cutting down are investing in risky real estate deals.
Faber says these measures could push investors toward the Chinese stock market, but since that's fully valued at this time, they could choose gold as their investment of choice, and who knows where that would bring the price gold to in light of the European sovereign debt crisis, which is only beginning to unfold.
Either way, if Faber is correct at the high end of his projection, the economy of China will slow, and what happens to the prices of commodities at that time when so many companies and countries have been relying upon to bring them out of the recession?
Couple all of this with the EU sovereign debt debacle and it's hard to figure how the financial press can endlessly repeat the mantra that we're in an economic recovery.
Tuesday, April 6, 2010
Canadian Dollar Trading at Parity with U.S Dollar
Canadian Dollar
For the first time since July 2008, the Canadian dollar has traded at parity with the U.S. dollar, and even beyond it today.
The increasing price of crude oil and inevitable raising of interest rates in Canada are cited as the key reasons behind the increase in value of the Canadian dollar.
This is familiar territory as it relates to crude oil, as the last time the Canadian dollar was trading at parity to the U.S. dollar, oil had reached a record high of $147.27 a barrel.
With commodity prices expected to continue to skyrocket, the Canadian dollar should remain strong for years to come against the dollar, and its past behavior will no longer be the norm as it passes into an entirely new era.
This will be great for Canadian consumers who should enjoy lower prices, but a challenge to exporter, whose prices will struggle to compete on the basis of the strength of the Canadian dollar.
For the first time since July 2008, the Canadian dollar has traded at parity with the U.S. dollar, and even beyond it today.
The increasing price of crude oil and inevitable raising of interest rates in Canada are cited as the key reasons behind the increase in value of the Canadian dollar.
This is familiar territory as it relates to crude oil, as the last time the Canadian dollar was trading at parity to the U.S. dollar, oil had reached a record high of $147.27 a barrel.
With commodity prices expected to continue to skyrocket, the Canadian dollar should remain strong for years to come against the dollar, and its past behavior will no longer be the norm as it passes into an entirely new era.
This will be great for Canadian consumers who should enjoy lower prices, but a challenge to exporter, whose prices will struggle to compete on the basis of the strength of the Canadian dollar.
Thursday, April 1, 2010
Goldman Sachs (NYSE:GS): Commodity 'Price Spikes'
Commodity prices to explode upward
Goldman Sachs (NYSE:GS) said commodities may be in for “violent price spikes” as increasing demand from emerging markets leads to significant shortages. The constraints on supply is the second factor leading to the conclusion from Goldman.
Contrary to alleged manipulation of markets by speculators, the commodity price increases coming up will be related to supply, demand and storage, not investors.
Major price movements in commodities are largely related to when commodity inventories are low. When they're readily available, commodity prices are more stable.
Goldman added there's no proof or evidence currency movements affect commodity prices.
Goldman Sachs (NYSE:GS) said commodities may be in for “violent price spikes” as increasing demand from emerging markets leads to significant shortages. The constraints on supply is the second factor leading to the conclusion from Goldman.
Contrary to alleged manipulation of markets by speculators, the commodity price increases coming up will be related to supply, demand and storage, not investors.
Major price movements in commodities are largely related to when commodity inventories are low. When they're readily available, commodity prices are more stable.
Goldman added there's no proof or evidence currency movements affect commodity prices.
Friday, March 26, 2010
Commodities Rise as Greek Concerns Ease
Commodity Prices Going Up
Commodities had been taking a hit because of the indecision of Europe over the sovereign debt crisis in Greece. Now that a plan is in place to help Greece if they need it in the months ahead, commodities rebounded today in response to the news.
As far as the support from Europe, it's more of a support mechanism rather than loans offered to Greece in the present. It may or may not ever be used by Greece, but it's there as a backstop if the need ever arises. It also keeps many of the politicians in the region out of hot water with their constituents who largely opposed bailing Greece out.
If Europe is able to integrate better politically and learn from this crisis, gold should be a strong beneficiary, as it tends to move up when the euro is stronger and down when it is weaker against the U.S. dollar.
Almost all commodities responding be moving up in price on the news.
Commodities had been taking a hit because of the indecision of Europe over the sovereign debt crisis in Greece. Now that a plan is in place to help Greece if they need it in the months ahead, commodities rebounded today in response to the news.
As far as the support from Europe, it's more of a support mechanism rather than loans offered to Greece in the present. It may or may not ever be used by Greece, but it's there as a backstop if the need ever arises. It also keeps many of the politicians in the region out of hot water with their constituents who largely opposed bailing Greece out.
If Europe is able to integrate better politically and learn from this crisis, gold should be a strong beneficiary, as it tends to move up when the euro is stronger and down when it is weaker against the U.S. dollar.
Almost all commodities responding be moving up in price on the news.
Thursday, March 25, 2010
Commodity Prices Down on Greece Rescue Plans
Commodity Prices Down
Commodity prices and commodity stocks were down significantly for the day as plans to rescue Greece are implied to be in the works, underscoring the importance the market is placing on the European sovereign debt crisis and how it is affecting the euro, U.S. dollar and commodity prices.
Commodity companies taking a hit on the news of a plan for a Greece rescue include International Paper (NYSE:IP), which plunged 3.6%; Freeport McMoran Copper & Gold (NYSE:FCX), dropping 2.1%; and DuPont (NYSE:DD), falling 2.2%.
Commodity Prices Down
Commodity prices and commodity stocks were down significantly for the day as plans to rescue Greece are implied to be in the works, underscoring the importance the market is placing on the European sovereign debt crisis and how it is affecting the euro, U.S. dollar and commodity prices.
Commodity companies taking a hit on the news of a plan for a Greece rescue include International Paper (NYSE:IP), which plunged 3.6%; Freeport McMoran Copper & Gold (NYSE:FCX), dropping 2.1%; and DuPont (NYSE:DD), falling 2.2%.
Commodity Prices Down
Wednesday, March 17, 2010
Alcoa Inc. (NYSE:AA) Up On Little News
Alcoa Surges in Share Price Today
Aluminum giant Alcoa (NYSE:AA) helped lead the Dow Jones Industrial Average higher today, although little news emerged which gave a reason for the sudden spike in share price.
Also performing strong in the commodity sector was Exxon Mobil (NYSE:XOM), which also helped the Dow move higher. Exxon was easy to read as oil prices continue to go up.
It's possible with Alcoa that they were due for an upward adjustment after having a lot of downward pressure on them. We'll see if this is sustainable in any meaningful way, or just some investors attempting to guess and time the market in light of their recent performance.
Alcoa Surges in Share Price Today
Aluminum giant Alcoa (NYSE:AA) helped lead the Dow Jones Industrial Average higher today, although little news emerged which gave a reason for the sudden spike in share price.
Also performing strong in the commodity sector was Exxon Mobil (NYSE:XOM), which also helped the Dow move higher. Exxon was easy to read as oil prices continue to go up.
It's possible with Alcoa that they were due for an upward adjustment after having a lot of downward pressure on them. We'll see if this is sustainable in any meaningful way, or just some investors attempting to guess and time the market in light of their recent performance.
Alcoa Surges in Share Price Today
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