Investment Themes - Precious Metals / Commodities

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June 02 2015

Commentary by Eoin Treacy

Platinum sector faces Kodak moment in fuel cell technology

This article by Clara Denina & Silvia Antonioli for Mineweb may be of interest to subscribers. Here is a section: 

The world’s three largest platinum producers Anglo American Platinum (Amplats), Impala Platinum and Lonmin are all investing in projects related to fuel cell technologies, which generate electricity that can power vehicles by combining hydrogen and oxygen over a platinum catalyst.

But analysts doubt fuel cell vehicles will rival the growth of their electric counterparts, mostly because battery recharging stations are less costly and already more widespread than hydrogen refuelling stations.

“As out of the two new technologies only fuel cells use platinum, I guess the miners think they have no choice,” Macquarie analyst Matthew Turner said. “But people are buying electric cars…and that’s not the case for fuel cells.”

Amplats, which has invested about $35 million in the last five years in companies developing new uses for platinum, mostly through fuel cell technology, is mindful of the stakes.

“I don’t want Anglo American Platinum, or any of our partners or customers to be a Kodak,” Amplats Chief Executive Chris Griffith said last week, referring to the once mighty photography pioneer that was slow to transition to digital photography.

 

Eoin Treacy's view -

Platinum miners are not the only companies making big bets on hydrogen fuel cells. Toyota’s decision to release its Mirai fuel cell vehicle later this year and to open its patents to developers highlights their efforts to pioneer new technologies. After all it was Toyota’s Prius that was the first mass market hybrid vehicle. 

Nevertheless, electric cars are gaining increasing traction as solar cell efficiency increases. There is also the potential for wind turbines to be smaller and less noisy. With the advent of home batteries the outlook for electric vehicles is looking even more promising. 



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June 02 2015

Commentary by Eoin Treacy

Seven diamond miners form group to fight synthetics

This article by Cecilia Jamasmie for mining.com may be of interest to subscribers. Here is a section: 

The group, called the Diamond Producers Association (DPA), will promote diamonds as a luxury item for high-end consumers and highlight the attraction of natural diamonds amid concerns that some consumers may soon begin favouring cheaper synthetic rocks.

The association, which counts with a $6 million yearly budget, claims to be “the first-ever international representative organization to be formed by some of the leading diamond producers,” DPA said in an e-mailed statement.

The freshly formed entity will step into a role once filled by De Beers, which at one point controlled over 80% of the world’s mined diamonds

The freshly formed entity will step into a role once filled by De Beers, which at one point controlled over 80% of the world’s mined diamonds and pioneered the use of diamonds in engagement rings.

Eoin Treacy's view -

The price of rough diamonds has little to no correlation with the price of polished/ cut stones. However, despite the fact that cut diamond prices have fluctuated considerably over the last year, rough stone prices have been very stable. This is cutting into the margins of intermediaries such as diamond dealers and jewellers. The Diamond Producers Association stated aim may be to counteract a nascent threat from lab grown diamonds but will probably also succeed in ensuring that miners continue to get an attractive price for their rough stones. 



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May 29 2015

Commentary by Eoin Treacy

5 Junior Gold Miners Trading at Less Than $110 Per Ounce

This article from SmallCapPower.com may be of interest to subscribers. Here is a section: 

A gold producer is often valued based on the Net Asset Value of its operations. In other words, an investor needs to value the company’s assets (reserves) and subtract its liabilities. Its future resource production is estimated based on current reserve levels, and it is used in accordance with projected gold prices to calculate future cash flows. With the current price of gold trading at the US$1,200 an ounce level, it is relatively hard to understand why certain companies trade at $100/ounce. Regardless, the five gold juniors on this list are being valued by the market at a substantial discount to its ounces in ground.
 

Eoin Treacy's view -

Gold miners are back trading at their lowest level relative to the gold price since 2001 which is an interesting situation. Looking at the above title one could be tempted to see value which is a view I am sympathetic with. However for this ratio to reverse what has been a major downtrend investors will need to see evidence that gold is going to hold the current range. Only then will they conclude gold miners represent a high beta play. In other words just because the above miners are trading at $110 per ounce does not mean that number won’t rise if gold prices fall. 



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May 27 2015

Commentary by Eoin Treacy

Barrick deal fulfills Thornton aim of forging China link

This article by Simon Casey for Bloomberg may be of interest to subscribers. Here is a section

Barrick said Tuesday that Zijin will buy 50 percent of its interest in a Papua New Guinea mine for $298 million. Looking ahead, Toronto-based Barrick and Zijin will evaluate opportunities for future cooperation, including the potential to jointly construct mines. Barrick said it may take advantage of Zijin’s access to “low-cost capital from Chinese institutions.”

“A twenty-first century mining company with global reach and the intention to become an industry leader must, by definition, have a distinctive relationship with China,” Thornton said Tuesday in a statement.

Even before Thornton took over as chairman last year, succeeding Barrick founder Peter Munk, he was looking to build links with China. That’s a recognition of the nation’s growing importance not just as a user of key commodities but also as a producer. While Barrick has long been the world’s largest gold producer ranked by sales, Zijin is catching up fast and is now the second-biggest, according to data compiled by Bloomberg.

Eoin Treacy's view -

China is among both the largest consumers and producers of gold so it makes sense for Western companies to wish to gain access. They have an added incentive as access to additional capital for either acquisitions or expansion dwindles. Meanwhile Chinese companies are well capitalised and have access to attractive borrowing terms.

Barrick Gold needed this deal more than Zijin and the response of the respective share prices bears this out. Barrick has been ranging between $10 and $13.30 since November and pulled back from the region of the 200-day MA last week. It will need to sustain a move above that level in order to signal a return to demand dominance beyond the short-term  



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May 19 2015

Commentary by Eoin Treacy

BHP left with $2.8bn of reject assets after spinoff

This article by David Stringer for Bloomberg may be of interest to subscribers. Here is a section: 

Despite BHP Billiton’s spin off and sale of about $15 billion of unwanted assets over the last three years, the biggest miner remains saddled with a portfolio of even harder-to-shift rejects.

A total of nine assets — from a US thermal coal mine to UK oil and gas platforms — haven’t made the cut for a new slimmed-down parent or the demerger company South32.

The unloved operations, valued at more than $2.8 billion according to RBC Capital Markets, are hampering Chief Executive Officer Andrew Mackenzie’s quest to halve the size of BHP’s core portfolio to focus on big ticket earners including crude oil, iron ore and copper.

“They did the big clean up with South32 and these are what are left,” said Michelle Lopez, a Sydney-based investment manager at Aberdeen Asset Management Ltd., which holds BHP shares. “I’m sure they’ve been on the sale slate for a long time. It’s a disappointment.”

Global mining companies are trimming portfolios to focus more closely on their most profitable operations as commodity prices have tumbled and amid a drive to reduce costs.

BHP, Rio Tinto Group and Glencore Plc have agreed the sales of $14.3 billion of assets since 2012, according to data compiled by Bloomberg.

An attempt to sell one of BHP’s reject assets, the Nickel West unit of mines and facilities in Australia, ended in November after it failed to attract a suitable bid. BHP has taken $1.8 billion in writedowns on the operation since 2012.

 

Eoin Treacy's view -

BHP Billiton has a market cap of approximately £78 billion. South32, which represents the spin-off of industrial metal businesses not least alumina, has a market cap of over £6 billion so the additional assets the company could neither sell nor spin-off represent a comparatively small proportion of the overall business. I have added both the UK and Australian listings of South32 to the Chart Library. 



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May 18 2015

Commentary by Eoin Treacy

The Big Golden Book 26 Gold Stocks in the One Report

Thanks to a subscriber for this report from Morgan Stanley focusing on the Australian gold mining sector. Here is a section: 

Our gold price outlook remains relatively subdued:
A strengthening USD, rising US interest rates and a muted inflation outlook are all headwinds to gold prices, though geopolitical tensions (such as rising concerns around Greece’s debt position) and extensions to consensus views on timing of US rate tightening have added volatility. Under this backdrop, equity selection is critical.

Reduced capital spend has been the collective approach: 
Within the ASX gold miners discussed in the Big Golden Book, total cash costs have declined ~7% since the last Golden Book six months ago, while production is up 4%, implying relatively flat absolute operating costs over the period. The “cost-out” trend continued to include some capital spend reductions, particularly from Newcrest following completion of Cadia East and Lihir investments, but capex reduction trend looks to have slowed, with improved sector free cash generation appearing to now include real cost reductions at the operating level.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Australian gold miners have faced a number of the same issues as their counterparts elsewhere but have been insulated somewhat by the weakness of the Australian Dollar. The price of gold in Australian Dollars dropped from A$1800 to A$1400 between 2011 and early 2013. It broke out of a yearlong range in January and has returned to test the upper side of the underlying base near $1500. A sustained move below that level would be required to question medium-term scope for additional upside. 



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May 18 2015

Commentary by Eoin Treacy

Ivanhoe, First Quantum lead the pack

This article by Kip Keen for Mineweb may be of interest to subscribers. Here is a section: 

Leading the pack is, hands down, First Quantum: up 50%. It had pretty close company, however. Copper Mountain Mining, Imperial Metals, Lundin Mining, and Turquoise Hill all zoomed ahead between 30-40%. Not far behind with 20-30% gains were Sherritt, Capstone, Freeport, Hudbay, and Southern Copper. Thereafter came Antofagasta, Trevali, Taseko and Nevsun between 10% and 20%. Then in the single digits, were BHP Billiton, Rio Tinto and Vedanta. Among a selection of leading base metal resource developers – 19 of the larger cap juniors on the TSX or TSX-V – the impact was more muted but still positive (see chart below). There were three heavy losers during the period: Highland Copper (-33%), Pilot Gold (-32%) and Panoro (-25%). Continuing up the ladder, but still in negative territory, were Rathdowney (-9%), North American Nickel (-8%), NGEx (-2%). Drawing more or less even was Western Copper and Gold.

Eoin Treacy's view -

Mining companies have been among the most unloved of any sector over the last few years as major declines in iron-ore and coal contributed to investor malaise while other sectors such as biotech took off. This forced them into major periods of consolidation where costs were cut, expansion cancelled and cashflow optimised. A number are now completing medium-term bases. 



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May 18 2015

Commentary by Eoin Treacy

May 14 2015

Commentary by Eoin Treacy

DoubleLine Presentation: Summer insects

Thanks to a subscriber for inviting me to Jeff Gundlach’s presentation yesterday down the street in Beverly Hills. The presentation was an updated version of the talk he gave in May with a number of additional slides on debt issuance. I posted that presentation in Comment of the Day on May 7th

Eoin Treacy's view -

The title of yesterday’s talk “summer Insects” is in reference to a quote from the Chinese philosopher  Zhuangzi “You can’t discuss ice with a summer insect” This is in reference to the fact that almost everyone active in the bond market today has no experience of trading in a secular bear market. This is a point I have made repeatedly over the last few years not least at The Chart Seminar. If you started out in your career in 1980 and bought the dips in Treasuries for the next thirty five years you would be a wealthy person today and will have cruised into late middle age without experience of a secular bear market. 



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May 14 2015

Commentary by Eoin Treacy

Solar and Silver

Eoin Treacy's view -

David posted an article from the Telegraph on Monday highlighting the role silver plays as a conductor in solar cells. Considering the fact that silver suffered from a loss of demand with the demise of photographic film, the potential for growth in another industrial sector is a potentially important bullish catalyst. In order to gain some additional perspective on just how much of a growth sector this might represent for sliver there are two key considerations. The first is demand growth projections which are bullish and second the capacity for technological innovation which is potentially bearish.



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May 13 2015

Commentary by Eoin Treacy

Pareto Securities on Pretium Resources

Thanks to a subscriber for this report which may be of interest to subscribers. Here is a section

We expect Brucejack to have sizeable production and free cash flow
Based on Pretium Resources' June 2014 feasibility study and starting from 2018, we believe the Brucejack deposit has the ability to produce average annual life-of-mine (LOM) gold production of 404.1koz at an all-in sustaining cost (AISC) of CAD 500/oz for 18 years, post an initial capital cost of CAD 811.9m.

We initiate with a BUY rating and a target price of CAD 10.88/share.
Our target price is based on a sum-of-the-parts valuation composed of the following: 1.0x NPV9% of our LOM assumptions for the Brucejack project, balance sheet items, the after-tax PV9% of general and administration and exploration costs, PV7% of the after-tax interest costs, financing assumptions and in-the-money (ITM) instruments.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber;s Area.

The post credit crisis environment has been difficult for explorers as energy prices surged, access to credit was restricted and gold prices fell from their 2011 peak. More recently the outlook has improved not least because energy prices no longer represent so much of a headwind and gold prices have stabilised. The rationalisation that has purged the sector of wildcat investors has resulted in leaner, more disciplined and cheaper operations. This is reflected in the valuation of the Gold BUGS Index relative to the bullion price. 



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May 12 2015

Commentary by Eoin Treacy

Continuous Commodity Index and related shares

Eoin Treacy's view -

The CCI which is the unweighted Old CRB, fell from 700 in 2011 to a recent low above 400. It has at least steadied, not least because energy markets have stabilised and industrial metals have been exhibiting relative strength. The consistency of the fall from above 550 has now been broken, but a sustained move above the 200-day MA will be required to confirm more than temporary steadying. 



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May 11 2015

Commentary by Eoin Treacy

Miners balance out rough day for banks on ASX

This article by Max Mason for the Sydney Morning Herald may be of interest to subscribers. Here is a section: 

The bad performance of the banks on Monday was more or less balanced by a strong day for the big miners.

BHP Billiton lifted 1.7 per cent to $31.82 and Rio Tinto pushed 0.3 per cent higher to $58.62, while iron ore miner Fortescue Metals Group gained 2.8 per cent to $2.57.

Miners were enjoying a strong run, thanks to a 30 per cent jump in the price of iron ore over the past weeks to $US61.40 ($77.76) a tonne, Metal Bulletin said.

However, UBS was forecasting iron ore to fall back to $US45 a tonne in the second half, thanks to increasing supply and China's economy continuing to soften.

This is more likely to affect the smaller miners, who have higher costs and lower-quality ore.

"We have back-calculated our company net present values to the current share price in order to determine what iron ore price the equity market is currently factoring in," UBS analyst Glyn Lawcock said.

"Our analysis suggests an average implied price of $US51.50 per tonne, which suggests the market is still implying discount to spot."

 

Eoin Treacy's view -

At The Chart Seminar in Sydney last year delegates were at pains to highlight that fact that just about all of them had positions in Australian banks because it had been the go-to sector since the resources sector peaked not least because the banks continue to have full franking on top of attractive dividends. 

The sector has outperformed since 2009 but has pulled back sharply over the last month and is now testing the relative uptrend and the upper side of the underlying congestion area. This is now an important point for Australia¡¯s banks since they are approaching potential areas of support. Westpac is representative and will need to find support within the next $1 if the medium-term progression of higher reaction lows is to hold. 



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April 27 2015

Commentary by Eoin Treacy

April 24 2015

Commentary by Eoin Treacy

Iron Ore Rallies Into Bull Market After BHP Billiton Shift

This article by Jasmine Ng for Bloomberg may be of interest to subscribers. Here is a section: 

Iron ore advanced into a bull market after BHP Billiton Ltd. curbed expansion plans and supplies from higher-cost mines dropped, easing concern global output will outpace demand and feed a global glut. Miners’ shares jumped.

Ore with 62 percent content at Qingdao rose 5.5 percent to $57.81 a dry metric ton on Friday, the highest since March 16, according to Metal Bulletin Ltd data on its website. The benchmark is still 60 percent below the peak of $144.18 reached in August 2013.

Iron ore has jumped 14 percent this week after BHP said it was curbing the pace of its expansion by deferring port works in Australia. A floor in prices may now be forming, according to Australia & New Zealand Banking Group Ltd. and Pacific Investment Management Co. There’ll be no net growth in supply in 2015 as new low-cost output is offset by mine closures, CLSA Ltd. said Tuesday.

 

Eoin Treacy's view -

It’s a little hasty to declare iron-ore is in a bull market. However the decline from $140 accelerated to recent low and a mean reversion rally may now be underway. The iron-ore oligarchy of BHP Billiton, Rio Tinto and VALE pursued a deliberate policy to drive prices lower more than a year ago and have succeeded in driving higher cost producers out of the market. 

There have been a number of bankruptcies not least African Minerals and London Mining. Additionally the decline in prices has necessitated emergency measures among a number of miners to contain costs which has reduced potential for supply to increase further. With iron-ore prices down significantly over the last year, the decision of major producers to restrict investing in additional supply may be the catalyst the market has required. 

 



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April 20 2015

Commentary by Eoin Treacy

Report from The Chart Seminar in Singapore

Eoin Treacy's view -

Last week’s event was another enjoyable visit to Singapore and was an apt time to ruminate on Lee Kwan Yew’s legacy of turning a tropical backwater into a first world private banking and high end manufacturing centre. Delegates came in from Argentina, Australia, Japan and of course Singapore which led to some interesting and varied discussions.

Singapore’s stock market is being led higher by the banking sector and shares a high degree of commonality with Taiwan and South Korea. The Index is somewhat overbought in the short-term and some consolidation of recent gains in looking likely. However a sustained move below the 200-day MA, currently near 3400, would be required to question medium-term scope for additional upside.

As one might imagine the main topic of conversation was on the outlook for the Asian region not least following China’s explosive breakout over the preceding three weeks.  Delegates were also interested in the outlook for the European region and we also looked at the S&P 500. We looked at the oil price and a number of related instruments. We also looked at gold prices and a number of miners, select Singapore shares as well as a wide range of international bank shares. We also had a wide ranging discussion on currencies. 



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March 31 2015

Commentary by Eoin Treacy

Randgold: Ups reserves, raises dividend, seeks more growth

This article by Lawrence Williams for Mineweb may be of interest to subscribers. Here is a section: 

Bristow commented, “We have looked closely at all our mines to ensure that they will still be profitable at $1,000 per ounce and we’ll continue to review our operations against a range of gold price scenarios. With the inclusion of Gounkoto underground we are now able to demonstrate a 10 year plan of plus 1 million ounce production per year and all our operations will be profitable at a $1,000/ounce gold price which is unique in the industry.”

In the event, despite mining 1.15 million ounces thereby effectively ‘depleting’ its reserves by this amount, the company managed overall to actually increase its total ore reserves by 1% mainly through ongoing brownfields exploration and drilling programmes. It would seem there is plenty of scope around its existing operations, to continue to do so in the future, even though it is mining at a plus 1 million gold ounces/year rate.

But looking ahead, Bristow notes that there is great potential in the existing low price environment for additional growth opportunities resulting from the squeeze on developers and explorers resulting from this. “Organic growth will remain our core driver but, as we look ahead from this position of strength, we will consider opportunities that are often generated by stressed markets and may well elect to play a part in the likely restructuring of the gold mining industry,” he says.

 

Eoin Treacy's view -

Randgold Resources is in an enviable position within a benighted sector. By concentrating on an all-in cost of production metric that is well below current prices the company has the wherewithal to engage in M&A activity. However while this is likely to create shareholder value over the medium-term the share is still subject to short-term swings in sentiment. 



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March 20 2015

Commentary by Eoin Treacy

Golden dragon

This article by Kip Keen for Mineweb may be of interest to subscribers. Here is a section: 

By 2020 Barclays sees China surpassing its banner year for gold consumption (based on somewhat contested statistics, a matter it acknowledges) in 2013 by 150 tonnes. Simply put, it bases its vision on increasing personal incomes in China amid ongoing urbanisation and with gold’s dual attraction as jewellery and store of value for investment. It notes China’s saving rates were as high as 42% a few years ago with gold benefitting as a result.

Price wise Barclays sees some, albeit moderated, bargain hunting. “We believe longer term, this year and next are likely to offer sound buying opportunities with (gold) prices approaching their nadir,” writes Barclays. “It is not our base case that we will see triple digit gold prices, but in turn we are not likely to see a repeat of 2013’s buying frenzy.”

 

Eoin Treacy's view -

There has been a great deal of commentary centring on the ability of gold to find support at the lower side of its range, not least as the Dollar has rallied. However as the Dollar unwinds its short-term overbought condition, it is lending a tailwind to commodities generally, not least the precious metals. This pump piece, kindly forwarded by a subscriber, from Malaysia’s The Star highlights the fact Asian buyers are being encouraged into the market. 



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March 04 2015

Commentary by Eoin Treacy

Glencore profit tops estimates

This article by Jesse Riseborough for Bloomberg appeared in Mineweb and may be of interest to subscribers. Here is a section: 

To combat falling prices and waning demand, investors have demanded the world’s biggest mining companies slash spending on new mines and return more cash to shareholders.

Producers will cut spending on projects and exploration by $20 billion this year, according to estimates from Macquarie Group Ltd., as they rein in growth plans amid waning prices. Last month, Glencore trimmed its spending for 2015 to a range of $6.5 billion to $6.8 billion from an earlier target of $7.9 billion.

Net debt dropped 15 percent to $30.5 billion, Glencore said. The company booked $847 million of impairment charges on platinum, iron ore and oil assets for the year.

Glencore completed the $29 billion acquisition of Xstrata Plc in 2013 to add coal, copper, zinc and nickel mines to its trading empire.

Its approach to Rio Tinto about a possible merger was rebuffed by its larger rival in October. That effectively barred it from bidding for six months under U.K. takeover rules. Rio last month reported a 9 percent decline in underlying profit for 2014 and announced a plan to buy back $2 billion of shares.

Eoin Treacy's view -

Miners have spent a great deal of money developing new supply which is increasingly reaching market. Unfortunately the demand growth forecasts this investment was made under are not panning out. 



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February 23 2015

Commentary by Eoin Treacy

Interesting charts

February 13 2015

Commentary by Eoin Treacy

A Cynical Ukraine Deal That Just Might Work

This article from Bloomberg may be of interest to subscribers. Here is a section: 

The more important ambiguity, however, concerns sealing the border between Russia and the separatist-held areas of Donetsk and Luhansk. Thursday's agreement says that Ukrainian border guards should resume control of the frontier. This is a rare win for the Ukrainian side, and vital, because as long as there is no functioning Russian-rebel border, the separatist-held areas are in effect a frozen conflict zone. Only with Ukraine's border sealed can there be any hope for stability in the country.

Unfortunately, though, in a clear concession to Putin, the agreement turns re-establishing the border into a process that will take at least until the end of the year, after the separatists have consented, the two regions have held elections, and Ukraine has adopted a new constitution. Until then, Russia may continue to supply the rebels with weapons and troops as needed, until it gets what it wants from the government in Kiev.

As frustrating as this loaded process must be to Poroshenko, he and his European supporters must press ahead in the hope that Ukraine’s border can be resurrected. Whether Ukrainian forces keep or lose control of Debaltseve in the coming days won’t determine the success or failure of the agreement. But if Ukraine can ultimately control its eastern border and regain stability, it will have a chance -- with help from the International Monetary Fund's new $17.5 billion support program -- to restore its wrecked and bankrupt economy.

 

Eoin Treacy's view -

Just how Ukraine can secure a border with Russia when it will lack a clear supply line across separatist-held territory remains a question that has not been answered. The result is that this agreement gives Russia most of what it was looking for without any clear indication that discipline can be enforced on separatists. 

The Russian stock market retested its 2008 low late last year and a reversionary rally is currently underway. Despite the reasonably favourable technical picture this remains a high risk environment subject to political whim. 

 



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January 28 2015

Commentary by Eoin Treacy

Email of the day on Caterpillar earnings

I've attached below the transcript of CAT's conference call following its latest earnings report-I believe the company is a good bellwether for the global economy. A bit depressing, but does give you a good picture of slow growth worldwide.  Note how Chairman expects stronger dollar & how that will hurt US manufacturing.  Also note how CAT expects that there might be a quarter or 2 delay in a slowdown of their sales (they'll work off their inventory first which will hit profits right away).  Company has cautious view on mining and expects flat oil & gas prices for 2015.

Eoin Treacy's view -

As a globally diversified company with operations in power systems, construction and resources Caterpillar is heavily influenced by both the extraction and construction sectors. The sharp declines in oil, iron-ore and copper represent significant headwinds for the company’s customers who have been cutting back on spending plans. Since investment in energy projects in particular represents a significant source of income for the company the outlook is likely to remain uncertain for the foreseeable future as spending on new projects is cancelled. 



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January 23 2015

Commentary by Eoin Treacy

Review of the FTSE 350

Eoin Treacy's view -

The ECB’s massive QE program will put pressure on the BoE to delay any plans it may have had to raise short term interest rates. Along with its own easy monetary policy, the prospect of recovering demand on mainland Europe should be a positive for the UK’s economy and it may also be subject to additional capital flows since not all the money created by the ECB will stay inside the Eurozone. 

I thought it might be an opportune time to look at the FTSE 350 since its constituents may be among the beneficiaries of ECB largesse. The Index has surged over the last two weeks to retest its peak and a while some consolidation is possible in the current area a sustained move below 3500 would be required to question medium-term scope for additional upside. 

I clicked through the constituents of the FTSE 350 this morning and also created a section for the FTSE All Share REIT Index in the Chart Library. Here is a link to an Excel sheet of the FTSE350’s constituents ranked by sector then by market cap. 
Among Autonomies:

In the banking sector HSBC (Est P/E 10.65, DY 5.27%) has firmed in the region of 600p. It is now testing the 200-day MA and a sustained move below 600p would be required to question potential for additional upside.  

 



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January 21 2015

Commentary by Eoin Treacy

BHP Billiton cuts US shale oil rigs by 40% amid sliding price

Thanks to a subscriber for this article from The Guardian which may be of interest. Here is a section: 

BHP said on Wednesday it would reduce the number of rigs from 26 to 16 by the end of the June in response to weaker oil prices. However, shale volumes were still forecast to grow by approximately 50 percent during the period.

“In petroleum, we have moved quickly in response to lower prices and will reduce the number of rigs we operate in our onshore US business by approximately 40% by the end of this financial year,” chief executive Andrew Mackenzie said.

“The revised drilling programme will benefit from significant improvements in drilling and completions efficiency.”

Mackenzie said while the firm’s drilling operations would focus on its Black Hawk field in Texas, “we will keep this activity under review and make further changes if we believe deferring development will create more value than near-term production”.

 

Eoin Treacy's view -

Energy companies are aggressively cutting back on investments in additional supply as prices fall but production from existing wells continues to flow. The constant need for new drilling, associated with the swift peaking of unconventional wells, means that the supply response of related drillers is likely to be swifter than might have otherwise been the case. This may bring forward the point at which the market returns to balance but some evidence of short covering will be required before we can conclude that demand is returning to dominance. 



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January 19 2015

Commentary by Eoin Treacy

Email of the day on total ETF holdings of gold

I remember seeing a chart in a comment of the day of total gold holdings in GLD (or maybe it was all physical Gold ETFs combined)

Eoin Treacy's view -

Thank you for this question. Considering how much of an influence ETFs have on the gold market it is reasonable to monitor their holdings as a barometer of investment demand. You can find the chart for the Total Known ETF Holdings of hold in the Chart Library by using a keyword in the search such as “holdings” or with the ticker ETFGTOTL. It can also be found in Commodity Indices section 

Gold has now posted a failed downside break from its $1200 - $1400 trading range and is currently rallying towards the upper boundary. ETF holdings increased last week but more will be needed to signal renewed investment demand beyond the short term. 

 



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January 14 2015

Commentary by Eoin Treacy

Copper breakdown

This article by Kip Keen for Mineweb may be of interest to subscribers. Here is a section: 

As the price falls, miners are now coming under greater scrutiny. It’s not yet a panic. By and large copper miners have enjoyed a healthy profit margin with copper over $3/lb and around $2.70/lb – if quite a bit lower – few market observers see massive issues for miners at this point. That would require a much deeper and persistent decline in the copper price.

But the falling price is starting to bite, at least a little, and there is smoke on the horizon. As others, BMO Research notes in a recent commodities overview that at $2.80/lb copper, more than 90% of miners have lesser basic cash costs (BMO’s C1). Yet add more expenses and consider miners according to BMO’s C3 cash costs and the field shrinks to 75%. The C1 midpoint, for reference, is about $1.50/lb.

So for now the copper miners are relatively safe. The spectre of widespread mine shutdowns and project delays or cancellations along with painful writedowns is not yet clearly on the horizon at recent sub-$3/lb copper prices. That would take much lower prices.

Speaking with Reuters Robert Edwards, CRU consultant on mining costs, pegged $5,000/tonne (or about $2.30/lb) as being very uncomfortable for miners. At that point pressure to close down money-losing mines and delay projects would mount.

Likewise, copper prices would have to persist in the mid-$2/lb range for several years to force major writedowns, BMO Research says. “Unlike the precious metals sector, most of the copper producers’ reserves are calculated at prices at or below spot (averaging US$2.65/lb, ranging from US$1.60/lb to US$3.30/lb), so copper prices would have to remain below US$2.65/lb for three years to warrant a notable revision.”

 

Eoin Treacy's view -

The above section throws into sharp relief just how much of a decline in prices would be necessary to force mines to shut down. The low price of oil may reduce production costs even further. A meeting I had with a Beijing based project manager at the International Copper Association Asia in December highlighted the fact that the Chinese government considers aluminium a more important industry than copper. 

The number of people employed in aluminium production far outweighs that of copper and is one of the reasons aluminium is still used as a conductor in China.  Chinese copper demand will increase as copper prices decline but as building permits slow, demand growth forecasts for the metal may have to be revised downwards  

 



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January 14 2015

Commentary by Eoin Treacy

2014 in the Rearview Mirror; 2015 as Cool as the Other Side of the Pillow

Thanks to a subscriber for this report from H.C.Wainwright & Co focusing on emerging gold miners. Here is a section: 

Highlights: We anticipate a number of coverage companies with a focus on gold to continue forward in 2015 irrespective of volatility in the gold markets. Of note, we anticipate Pretivm Resources to be in a position to make a construction decision at the high-grade Brucejack project in 2H15. Looking into Nevada, Gold Standard is striving to further expand the Railroad-Pinion project as well as upgrade components of the deposit to higher resource categories. Allied Nevada Gold is striving to improve operations at the Hycroft Mine which has the potential to improve cash flow in 2015. Pershing Gold has a goal of completing a Preliminary Economic Assessment (PEA) at the Relief Canyon project, which could allow the company to make a production decision shortly afterwards. Brazil Resources continues working not only on its multiple gold projects in central Brazil but also is making plans to pursue a spin-out of the Rea uranium project into a separate public company. Vista Gold plans on a number of optimization studies at the Mount Todd project in Australia with an eye on final environmental permits in hand by the end of 2015.

In our opinion, the key to success in 2015 is fairly basic for each company although dissimilar goals have been set forth. Each management team should not over promise either on the timeline or scope of what can be accomplished in 2015. While we have seen a modest rebound in the gold market since fall 2014, the overall climate does not warrant nor reward overreaching endeavors. Our advice to any gold company is to dedicate time and efforts toward more efficient and long-term enhancements to individual projects while keeping a tight budget. The companies which can deliver better operating results in a cost effective manner could see a positive reception from the market.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The falling price of oil in tandem with the relatively steady performance of gold is generally positive for gold miners provided they can control costs in other parts of their businesses. The sector was one of the worst performers for two consecutive years with the result that individual miners are now being judged on their individual merits. 

There is considerable variation in the performance gold miners and those that pay a dividend have tended to outperform.



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January 13 2015

Commentary by Eoin Treacy

Copper Falls for Fifth Day, Extending Drop to Lowest Since 2009

This article by Joe Deaux and Agnieszka de Sousa for Bloomberg may be of interest to subscribers. Here is a section: 

Copper fell to the lowest in more than five years on speculation that cheaper energy costs will encourage mining companies to increase production.

Crude oil in New York traded below $45 a barrel today and has plunged about 50 percent in the past year as the U.S. pumped at the fastest rate in more than three decades and OPEC resisted calls to cut production. The decline will help cut costs to produce and transport metals, according to Natixis SA.

“OPEC is sticking to the plan of continued production, which is driving oil lower,” Mike Dragosits, a senior commodity strategist at TD Securities in Toronto, said in a telephone interview. “That’s seemingly driving the cost of production lower for copper, which was already seen as being in surplus.”

 

Eoin Treacy's view -

Energy represents a major factor in the cost of production for just about every commodity from grain to industrial metals. Falling oil and natural gas prices have contributed to lower costs for miners and allowed marginal production to survive at lower prices than many might once have expected. This reduced the price at which a tightening of supply due to lower prices might occur for at least some commodities. 



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January 09 2015

Commentary by Eoin Treacy

Bank of America Sees Norilsk as 2015 Standout: Russia Overnight

This article by Halia Pavliva and Elena Popina for Bloomberg may be of interest to subscribers. Here is a section:

The weaker ruble has driven inflation to the highest in more than five years while at the same time helping some commodity exporters that make sales abroad while covering their costs in the local currency. Nickel prices may rise 18 percent on average this year, according to Bloomberg Intelligence.

Norilsk pays half its earnings before interest, taxes, depreciation and amortization as dividend, plus a special payout for 2015, according to Bank of America’s research report dated Jan. 5. Analysts also cited its exposure to nickel and palladium as well as an “attractive valuation” as reasons they like the stock. The London-traded shares trade at 5.5 times projected 12- month earnings, less than half the average of 16 global peers, data compiled by Bloomberg show.

“Investors are focusing on non state-run companies that benefit from a weaker ruble, demonstrate strong cash flow and pay dividends,” Slava Smolyaninov, the chief strategist at UralSib Financial Corp. in Moscow, said by phone Monday. “The idea is that they can avoid the sanctions risk that way.”

 

Eoin Treacy's view -

It is open to question whether one really needs to get involved in Russia considering the geopolitical risk attached to the current administration. Falling oil prices have been an enormous benefit for many Asian countries but couldn’t be worse for countries like Russia or Venezuela. The Ruble has bounced from its lows but we do not yet have conclusive evidence of bottoming while the threat of an additional geopolitical deterioration remains non trivial.



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January 07 2015

Commentary by Eoin Treacy

Email of the day on gold, oil and shorting opportunities

I'm finding the current moves in the dollar versus gold to be fascinating. Usually, if the dollar is going up, gold goes down in dollar terms (almost as if gold is a currency, hmm). Right now, both are going up, which of course means gold is really going up in non-USD currencies... suggesting that demand is quite strong.

I'm short again, market-wise... shorted QQQ this morning... so many of the big stocks have made lower highs and lower lows (AAPL, CAT....) and others, (F, SBUX, DE) have 1 or the other. The QQQ now has both. Even the transports (IYT) look toppy to me. Of course the price action will tell...

Lol, this morning oil had a 5 hour rally, which the bobbing heads on TV claim is a bottom... of course it's dropped 1.60 in the past hour or so. Reducing drilling plans for next year does not shut down the rigs currently completing wells (rig count is still not dropping - it will, but these things take a lot of time). Short term, everything still points to increasing supply in the next few months. 

As always, your comments would be greatly appreciated :)
Hope all is well...

 

Eoin Treacy's view -

Thank you for your kind words and this informative email. In an environment where almost every central bank, with the notable exception of the Fed, is increasing supply of fiat currency, the relative attraction of gold tends to be burnished. In many respects deflation is a more bullish factor for gold than inflation since it is less likely to have to compete with higher yielding assets.

For example, while gold experienced a deep decline in US Dollar terms over the last few years it has been confined to a range when redenominated to Yen which has been among the weakest currencies. While gold is holding steady relative to weak currencies it will a more convincing bullish catalyst to reignite medium-term demand dominance against the US Dollar. 
 



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January 06 2015

Commentary by Eoin Treacy

Commodities Outlook 2015

Thanks to a subscriber for this report dated December 15th from Deutsche Bank which may be of interest. Here is a section: 

The fundamentals of copper do not mirror that of oil. In copper, there is no technological breakthrough which has opened up vast new resources, therefore copper should not suffer the same fall in pricing as that of oil. The fallout from oil has however impacted the overall sentiment towards commodities. However, copper remains a well-supplied market, and a lower oil price in combination with weaker producer currencies will lower the marginal cost support level, which we now estimate at USD5,800/t.

We continue to forecast a surplus market in copper for 2015E and 2016E, which in our view will see prices grind lower. However, we have cut the magnitude of the surpluses in both 2014 and 2015E by 200kt over the course of the year. The big increase in mined supply growth that we had previously forecast has been eroded by the latest round of downgrades to company guidance. Although we forecasts a more substantial surplus in 2016, we think risks are skewed to the downside, given the poor industry track record in delivering growth.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Energy represents a significant cost for mining companies and has been a major contributor to the commodity price inflation witnessed over the last decade. One might expect lower energy prices to be a benefit for mining companies and they are. However the hard reality is this only helps marginal producers to survive longer and therefore prolong the supply surplus.

Oil prices are accelerating lower so energy costs for mining operations have halved since the summer. This has contributed to the recent weakness in the industrial metal prices. The LME Metals Index broke downwards to new three-year lows this week and a clear upward dynamic would be required to check potential for additional weakness. 

 



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December 30 2014

Commentary by Eoin Treacy

Iron Ore in Longest Streak of Gains Since July on China Stimulus

This article by Jasmine Ng for Bloomberg may be of interest to subscribers. Here is a section: 

The steel-making ingredient is set for the biggest annual loss in at least five years as BHP Billiton Ltd., Rio Tinto Group and Vale SA expanded output. Gripped by a property downturn and excess capacity, China is set to grow 7.4 percent this year, the slowest expansion since 1990. To support growth, the central bank will broaden the definition of a deposit in 2015, boosting the lending capacity of Chinese banks.

Iron ore received support “after the PBOC changed its savings deposit definitions, which effectively increases funds available for commercial bank lending,” Melinda Moore, a London-based analyst at Standard Bank Plc, said before today’s price data. China will probably scrap housing purchase limits next year, adding to positive sentiment, she said in a note.

 

Eoin Treacy's view -

The decline in iron-ore prices has lost momentum somewhat over the last month. However a rally of more than $10 will be required to question the consistency of the medium-term decline. The four-day rally suggests that a reversionary move, back up towards the still declining 200-day MA, is increasingly likely.  



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December 29 2014

Commentary by Eoin Treacy

Copper Drops to Four-Year Low in London on Slowing China Growth

This article by Joe Deaux and Agnieszka de Sousa for Bloomberg may be of interest to subscribers. Here is a section: 

China’s industrial profits fell the most in more than two years last month, according to National Bureau of Statistics data published last week. A private report scheduled for later this week is expected to show manufacturing in the country contracted. The London Metal Exchange resumed trading today after a two-day holiday.

“The international picture hasn’t been great, the growth story out of Asia is not robust,” Timothy Evans, the chief market strategist at Long Leaf Trading Group Inc. in Chicago, said in a telephone interview. “It’s amazing how copper so accurately predicts what economic activity will look like globally.”

Eoin Treacy's view -

This morning’s two-second bear raid on copper highlights just how active automated programs remain in the commodity markets. From a medium-term perspective the large banks are selling off their warehouses and closing trading operations but open interest in the front month of Comex copper is at five year highs. This suggests that while big investment banks are exiting the market, their place is being taken by private trading houses and automated programs. This leaves the market more susceptible to intraday volatility and temporary price swings.

 



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December 23 2014

Commentary by Eoin Treacy

The Commodity Manual

Thanks to a subscriber for this report from Morgan Stanley. Here is a section on the cattle market: 

Cattle on feed data partially vindicates last week’s stampede. Cattle markets locked limit-down early in the week as participants squared positions ahead of Friday’s Cattle on Feed report in the face of weakening slaughter data and concerns over potentially improving seasonal feeder cattle supply. The feeder cattle contract, which has outperformed live cattle by 1100 basis points YTD, lost 4% in the first three days of the week before recovering slightly on Friday. Live cattle faced a similar, though shallower decline, ending the week down less than 1% WoW. Friday’s data largely justified the bearish move, with Dec 1 feedlot inventories rising 1.4% YoY vs consensus expectations of a 1.2% increase. Some may read this report as more bearish for live cattle than for feeders, as an 11.1% decline in marketings YoY (vs consensus expectations of just a 9.8% decline) indicated continued weakness in slaughter demand. Meanwhile placements down 4% YoY (vs consensus predictions of a 3.4% decline) could be read as a sign that feeder supply remains challenged. However, we see the weakness in placements as signaling poor demand from feedlots rather than supply constraints. Average placement weights set a 5+ year high in Nov, signaling that ranchers are still holding back cattle to raise them to higher weights, artificially inflating prices. With high feeder cattle prices keeping feedlot margins under pressure and slaughter demand prospects weakening, feeder cattle prices may need to weaken further relative to live cattle to increase the flow of feeder cattle onto feed as winter reduces grazing options.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Cattle prices have been among the best performing commodity contracts this year. Part of the reason for this was that the 2013 surge in grain and feed prices advanced the slaughter schedule resulting in a smaller herd and an inability to increase supply in 2014. Against this background demand has been relatively stable. 

A look at a long-term chart of cattle pricing highlights its cyclical nature. What has been different about this move has been its size and longevity which can at least be partially explained by rising feed and energy costs as well increasing demand from the global middle class. 

 



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December 17 2014

Commentary by Eoin Treacy

Ruble Rebounds on Central Bank Stability Steps as Sberbank Soars

This article by Ksenia Galouchko and Lyubov Pronina for Bloomberg may be of interest to subscribers. Here is a section: 

“Authorities made a combined effort, giving strong signals to the market that they are doing anything it takes to stem the ruble rout and turn things around,” Bernd Berg, a London-based emerging-market strategist at Societe Generale SA, said in e- mailed comments. “As a result the ruble is gaining strongly.”

Russian lenders and companies are concerned about coming foreign-currency debt payments, central bank First Deputy Governor Ksenia Yudaeva said in an e-mailed statement today. The measures are intended to balance supply and demand to help stabilize the ruble rate as soon as possible, she said.

 

Eoin Treacy's view -

Yesterday’s action had a climactic feel to it and today’s rebound suggests that the central bank’s interest hike to 17% is gaining some traction. However if yesterday’s low is to hold beyond the next few weeks and months some bullish catalysts will need to fall into place for Russia. Among these would be a firmer oil price, easing of sanctions or a de-escalation of military tensions in Ukraine.



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December 16 2014

Commentary by Eoin Treacy

Global Metals Playbook: 2015 Outlook

Thanks to a subscriber for this informative report from Morgan Stanley which may be of interest to subscribers. Here is a section: 

Metal’s flagship has got upside: Copper’s price has come under pressure late in the year, reflecting the energy sector sell-off and a perceived short-term metal surplus. Weaker, but the price remains well above its long-term average, and above the industry’s 90th percentile. Robust support of its value comes mainly from two drivers: China’s overwhelming dependence on imports (70% of supply); and the fickle nature of copper’s complex supply chain (mine supply; concentrates; scrap). Unlike other commodities, copper’s mine supply growth never quite matched demand growth during the Super Cycle, a condition that is unlikely to change over the medium term – underpinning our bullish price outlook.

Why so bearish? Consensus view: copper’s trade will now report persistent surpluses. Yes, current signals point to adequate supply: inventories are rising; key merchant premia are soft; backwardation may just reflect concentrated LME positions. Elsewhere, concentrate flows are adequate (TC/RCs are high); scrap flows are expanding. We acknowledge these bear signals. We’re just not convinced by the mine supply growth story. Low-risk re-rating of Escondida output over the past two years was actually unusual. To expect short-term green/brownfield deployments to proceed without disruptions at a lower price level (assuming unchanged demand growth) ignores the history of this industry.

Projects to watch: Key mine supply growth drivers to watch include Las Bambas, Toromocho, Sentinel, Cerro Verde; track Codelco’s ability to fund growth to >2Mtpa; Indonesia’s exports remain at risk, politically; in 2016, Escondida may de-rate again on lower grades; Rio Tinto has pared Kennecott’s supply outlook. We expect ongoing supply disappointments, simply because it is a feature of the industry.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

There are a lot of moving parts to the commodity sector but the biggest change by far to the economics of production has been the falling oil price. We do not yet know at what level prices will eventually stabilise but the fact remains energy costs have fallen almost 50% in six months. Considering how important energy costs are for miners, this move will improve the average cost of production and prolong the ability of marginal producers to increase supply.



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December 16 2014

Commentary by Eoin Treacy

Norway Krone Drops to Parity With Sweden, First Time Since 2000

This bulletin by Paul Dobson for Bloomberg may be of interest to subscribers. Here is a section: 

NOK/SEK -2.2% to 0.9992, having fallen 5.8% so far this year.
* Norway’s krone is worst-performing major currency in 2014, having dropped more than 20% versus USD
* USD/NOK +1.5% today to 7.5989, reached 7.6091, strongest level since 2003
* NOTE: Sweden Readies Arsenal of Measures to End Deflation

 

Eoin Treacy's view -

As a major energy exporter Norway has not been immune from the effects of the falling price of oil. However considering the fact that it has one of the world’s largest sovereign wealth funds and standards of governance on par with anywhere in the world, one might conclude that the indiscriminate selling of commodity currencies has fallen disproportionately on the Nordic nation. 



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December 15 2014

Commentary by Eoin Treacy

Ethiopia Agriculture ministry rolls out specialized phone service for farmers

This article for GizMag may be of interest to subscribers. Here is a section: 

Populous Ethiopia has one of the fastest growing GDPs on the continent after years of famine and civil war. The nation now has one of the largest "agricultural extension" systems in the world, after major powers such as China and India. These days it is a broad term but generally it means the educating farmers on how to apply scientific research and new farming methods. The nation has some 60,000 agricultural extension officers. The 8028 phone service is a new component of that. Farmers can request targeted information via SMS or Interactive Voice Response. The project, still in its pilot phase, began in July and according to a government source has already had calls from some three million farmers. It is run and operated by government ministries and the national telco and it was created by the Ethiopian Agricultural Transformation Agency (ATA). The Economist reported last year that Ethiopia lags behind its neighbors in terms of cell phone penetration; only 25 percent of its 90 million people use cell phones compared with the regional average of 70 percent.

"Farmers can 'pull' practical, real-time advice available in their regional language by calling 8028 as often as they like," says Ato Khalid Bomba, Chief Executive Officer of ATA. "The hotline administrator can 'push' customized content (such as in cases of drought, pest and disease) to callers based on crop, geographic or demographic data captured when farmers first register to use the system." Given the dozens of languages spoken, targeted information remains important, though the system is only operating in some half dozen of the more than 60 regions in Ethiopia at this point. It’s estimated that currently the 90 service lines get close to 1375 phone calls each hour.

 

Eoin Treacy's view -

Africa has not been spared from the pressure coming to bear on commodity producers with currencies and stock markets pulling back. However when one contrasts the improving governance and positive demographics of Africa compared to the deterioration in somewhere like Russia, the current period of underperformance represents a potential entry opportunity when signs of bottoming emerge.



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December 12 2014

Commentary by Eoin Treacy

Email of the day on targets

Would be interested to know whether - using your behavioral chart analysis approach - it is possible to even begin to predict how low iron ore prices might go 

Eoin Treacy's view -

Thank you for a topical question. Estimating how high or low prices might move can only begin with the understanding that any conclusion is at best a guess. Regardless of what method one uses no one definitively knows at what level prices will find support. What behavioural technical analysis will help with is analysing the price action so that you will be able to recognise a bottom when you see it. 

“A consistent trend is a trend in motion” has been an adage at The Chart Seminar for decades. Provided the trend remains consistent we can conclude that it will proceed as it has been doing. Let’s look at iron-ore prices and ask whether the trend is consistent?

 



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December 12 2014

Commentary by Eoin Treacy

December 09 2014

Commentary by Eoin Treacy

Pretium Resources

Thanks to a subscriber for this note from Cowen & Company which may be of interest. Here is a section: 

Zijin Mining Group has agreed to make a strategic investment in PVG, which, upon closing, will make Zijin a 9.9% owner of PVG's outstanding shares. Upon closing of the transaction, Zijin will own approximately 12.84MM PVG shares; PVG will receive gross proceeds of C$80.87MM.

Pretium intends to use the proceeds from the Offering to fund capital expenditures including the procurement of long-lead items and camp infrastructure. In November, PVG announced that AMEC had been awarded EPCM services for Brucejack. ¦ Permitting continues to move through the 180-day Environmental Assessment application period, which commenced on August 13, 2014. Provincial and Federal reviews remain coordinated. The company continues to expect receipt of permits in 1H15. Once permits are received, conditional on a positive production decision, the company plans to initiate construction in 1H15.

The offering is scheduled to close on or about January 16, 2015, subject to regulatory approvals and approvals from the Chinese government. Zijin will be entitled to nominate one person to the PVG Board, and will have a pre-emptive right to participate in any of PVG's future equity financings to maintain its approximately 9.9% interest.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Zijin’s investment in Pretium highlights the fact that Chinese buyers are still in the market to secure promising resources following major price declines. Over the last decade there have been plenty of examples of this type of investment timing. From a supply and demand perspective, the entry of buyers of distressed companies represents a change from the environment that has prevailed over the last year; when the majority of gold mining shares fell to historic lows relative to the gold price. 



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December 03 2014

Commentary by Eoin Treacy

December 02 2014

Commentary by Eoin Treacy

Gold miners in trouble Hambro/Raw

This article by Lawrence Williams for Mineweb may be of interest to subscribers. Here is a section: 

One has to add though that the previous speaker, Peter Boockvar of the US’s Lindsey Group, was more positive on current prospects for the gold price pointing to the continuing scale of central bank money printing, despite the US Fed’s withdrawal; the Fed’s worries about dollar strength impacting the US economy; the symbolism of the Swiss gold referendum, despite the ultimate low vote, the loosening of import restrictions by the Indian government and with his comment that demand for physical gold is off the charts. He predicted that the gold price has bottomed – but warned that he also said that a year ago too!

But back to Evy Hambro’s update since his last Mines & Money presentation two years ago. He commented that the gold mining sector faces huge challenges with cash flows for most having fallen dramatically, which means that there are ongoing strictures on the sector in repaying the vast debt levels built up when they were being pushed into, in retrospect, debilitating hugely expensive new mine developments and expansion programmes. They also dropped grades which was part of the reason for the ever ongoing cost pressures they found themselves under when the gold price started falling three years ago. 

Some of the cost pressures have indeed been addressed and there have been non-core asset sales to try and mitigate some of the debt problems, although given that some have been at low valuations which may provide some great opportunities for perhaps more flexible junior and mid-tier purchasers, they will probably not have helped much in terms of debt reductions. 

 

Eoin Treacy's view -

Gold miners have been underperforming the gold price and the wider market for years as a result of the issues outlined in the above paragraphs. Declining ore grades, a dearth of new discoveries and rising costs have all taken their toll while the advent of ETFs has sapped a major source of demand for gold shares.  

The NYSE Arca Gold BUGS Index fell to a new low relative to the gold price in November, emphasising just how deep the crisis is for the sector. 

 



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December 01 2014

Commentary by Eoin Treacy

Email of the day on BHP Billiton and Australian monetary policy

Today's audio was very thought provoking.  Please keep up the good work.

Your audio made me realize I have been too sentimental with some of my investments in particular I have kept a modest holding in BHP.  BHP will survive and prosper - especially with the three big economies in this region of Japan, China and India.  However investment prospects look more attractive elsewhere in particular the new economy.

The RBA should lower the OCR next Tuesday.  Will they wait for more data?  This opportunistic timing pre-Christmas should compel them to go sooner rather than later. Once the RBA starts lowering the cash rate it will not stop at a single 1/4 point drop.  They could easily lower rates by 1% over the next 9 - 12 months.  Of course I have no special information on RBA monetary policy however I did make a good living many years ago pre-empting RBA rate moves.

Thank you again for the excellent commentary in today's Audio.

 

Eoin Treacy's view -

Thank you for your kind words. There are some big new items in the pipeline with regard to BHP Billiton’s demerger and Glencore’s potential acquisition of Rio Tinto both of which have the potential to be market moving events. At least in BHP’s case the rump of long life assets with established mines will carry less risk than those spun off and the company’s title as the only miner that is an S&P Europe 350 Dividend Aristocrat is likely to remain intact. 

The share bounced from a new low today and potential for a reversionary rally has increased. 

This note from Alliance Bernstein kindly forwarded by a subscriber may be of interest with regard to the RBA’s intentions. Here is a section:

 



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December 01 2014

Commentary by Eoin Treacy

Email of the day on the Friday review of copper and other large movers:

Eoin, the steep reactions in these charts appear to offer opportunities, whether buying energy shares or shorting airlines. Your thoughts?

Eoin Treacy's view -

“Acceleration is a trending ending but of undetermined duration” has long been the definition of Type-1 trend ending as taught at The Chart Seminar, so yes these extreme moves increase potential for reversions toward the mean and potentially medium-term bottoming and topping activity.



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November 28 2014

Commentary by Eoin Treacy

Copper Falls to 8-Month Low on Concern Oil Slump Will Cut Costs

This article by Agnieszka de Sousa for Bloomberg may be of interest to subscribers. Here is a section: 

Mining is an energy-intensive industry and lower oil costs have a deflationary impact on producers, according to Macquarie Group Ltd. Copper also declined as a strike was set to end at Peru’s Antamina mine, the world’s sixth-largest copper mine.

“Whatever positive connotations lower energy might have for global growth, the extent and pace of the decline in oil seems the more worrying factor for the moment,” RBC Capital Markets Ltd. said in a note.

 

Eoin Treacy's view -

Shale gas and oil are gamechangers for the energy sector has been a refrain here at FullerTreacyMoney since 2007. Just how much of a gamechanger is quickly coming into focus. Oil is by far the most globally significant commodity because of its utility, portability and energy intensity. Increasing global supply prompted by the high price environment represent a problem for traditional producers. Additionally, rising energy prices were a substantial component in the rising cost of producing just about all commodities. 

Falling energy prices improve the economics of mining operations, allowing greater production. However, in a falling price environment this is not a positive factor. The medium-term result of falling energy prices will be to encourage economic growth and therefore demand but prices could easily fall further before a rebalancing is achieved. 

 



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November 26 2014

Commentary by Eoin Treacy

Shorting Chickens Becomes Hot Trade in Stock Market

This article by Megan Durisin and Shruti Date Singh for Bloomberg may be of interest to subscribers. Here is a section: 

With higher chicken prices and lower feed costs, the industry has been “operating under the most advantageous conditions possible,” Francesco Pellegrino, a New York-based analyst for Sidoti & Co LLC, who recommends buying Sanderson Farms shares, said in a telephone interview yesterday. He doesn’t cover Pilgrim’s Pride. Short interest has risen because investors are questioning how much longer “peak” conditions can persist, he said.

Whole chickens sold by farmers in Georgia, the biggest producing state, rose 9.4 percent this year to an all-time high of $1.14 a pound, which has held through much of November. A retail gauge of composite wholesale-chicken prices has climbed 24 percent this year to average 90.404 cents a pound in October, USDA data show.

Chicken production will climb 3 percent next year to an all-time high of 39.206 billion pounds, the USDA forecasts.

That’s at least 65 percent higher than estimated beef or pork output. A USDA index of chicken-feed costs was 24 percent lower in September than a year earlier as American farmers collect record corn and soybean crops.

Eoin Treacy's view -

While there is no futures contract for chicken we do have the price of boneless chicken breast in the Chart Library Library. Prices have been volatile but a progression of higher reaction lows is evident since 2008 and a sustained move below 180 would be required to question medium-term potential for continued higher to lateral ranging. 



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November 21 2014

Commentary by Eoin Treacy

Email of the day on the outlook for 2015

Hi David & Eoin, I wanted to get FTM thoughts and opinion on where the best investment returns could be had over the next 12 months and what would be the key things to watch for? Thanks for an excellent service 

Eoin Treacy's view -

Thank you for your kind words and your question. This is a topic we cover almost daily in the written commentary and the audio but it is a good time to summarise our views. 

Let’s ruminate for a moment though on the timing of your question. Generally speaking, the last six weeks of the year is given over to thinking about the possibility of a Santa Claus rally and people don’t generally look at the outlook for the next year until the last week of December or the first week of January. It made headlines during the week that Goldman Sachs had released its prognostication for the coming year, which may have prompted your email. However I believe it is worth considering that the stock market is a discounting mechanism and as a bull market progresses we tend to want to discount cash-flows from increasingly further into the future. It is a measure of how strong the market has been over the last month that investors are already planning for next year. Five consecutive weeks to the upside suggest some consolidation is increasingly likely.

 



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November 20 2014

Commentary by Eoin Treacy

Email of the day on the iron-ore price

The Iron Ore price in The Chart Library doesn't seem to be updating past November 3rd. Has Bloomberg changed something? It seems a bit of Murphy's Law as the Iron Ore price has been slumping further of late!

Eoin Treacy's view -

Thank you for continuing to highlight the iron-ore price. One of the primary reasons we are having such difficulties with providing a reliable price for the commodity is because it is not freely traded. Following some consultation with Bloomberg I have updated the price once more and will monitor it daily to ensure it continues to update. 

Iron-ore remains in a consistent medium-term downtrend. Major investment in new supply has resulted in the three major producers ramping up supply just as demand peaked. Mines cannot simply be closed because prices have fallen since some revenue is better than no revenue and debt needs to be repaid. This is similar to the conditions that resulted in the triple waterfall crash of resources shares during the early 1980s and the greatest pressure falls on higher cost producers. 

 



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November 18 2014

Commentary by Eoin Treacy

Uranium Climbs to Highest Since January 2013 Amid Utility Demand

This article by Ben Sharples for Bloomberg may be of interest to subscribers. Here is a section: 

Demand from utilities is driving prices higher after uranium entered a bull market in September amid a labor strike at Cameco Corp.’s McArthur River operation in Canada, the world’s biggest mine for the fuel. Kyushu Electric Power Co. this month received local approval for reactors at its Sendai power station to resume operations, clearing the way for the first nuclear plants in Japan to restart as soon as early 2015.

While uranium for immediate delivery is in demand through January, there’s also been a rise in buying interest for distribution of supplies later in 2015, Ux said. It has recorded 22 transactions for 3.8 million pounds this month.

Uranium and nuclear energy is on a “more positive trajectory with a lot of upside to come,” John Borshoff, the chief executive officer of Paladin Energy Ltd., said on a conference call Nov. 13. Global production cuts of 6 million to 8 million pounds are starting to take effect, he said.

 

Eoin Treacy's view -

Increasing tensions with Russia have reduced supplies from that country while the restarting of at least some of Japan’s reactors represents some good news from the demand side of the equation. 

Uranium prices rallied in August to break the almost four-year progression of lower rally highs and continue to extend the rebound. Until recently the majority of related shares have been slow to respond but as metal prices extend the breakout investor interest in the sector is increasing once more. 

The following charts are in log scale in order to highlight the base formation characteristics without focusing on the depth of the prior declines. 

 



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November 17 2014

Commentary by Eoin Treacy

Peg worth its weight in gold: a detailed analysis of the Swiss gold referendum

Thanks to a subscriber for this report from Deutsche Bank which may be of interest to subscribers. Here is a section: 

On 30 November, the Swiss will vote in a referendum to amend the constitutional mandate of the Swiss National Bank (SNB) with respect to its gold reserves. The proposal is that

the SNB never sells any gold reserves once acquired,
the SNB stores all its gold reserves on Swiss territory,
the SNB holds at least 20% of its official reserve assets in the form of gold.

Gold reserves would have to be repatriated within two years of the referendum, while the SNB would be given five years to align its gold reserves to the 20% minimum requirement. 

The background to the proposal is concern among conservative observers that the SNB’s reduction in its gold reserves in recent years has constituted a plundering of the nation’s intergenerational wealth and economic status. The rationale behind a gold reserve ratio is the perceived association of gold backed currencies with price stability: the exogenously constrained supply of gold is hoped will restrain the central bank in its creation of fiat money.

Opponents of the proposal have warned against the constraints that would be placed on the SNB¡¦s monetary policy instruments. While the camps appear to have reached stalemate over the fundamental objectives of monetary policy, opponents of the “gold initiative” have argued that gold reserves in the central bank’s balance sheet yield no distributable interest and are excessively vulnerable to price shocks. Two-thirds of SNB profits have traditionally been distributed to the cantons and are an important source of regular income.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

There are a number of moving parts to this argument not least because of Switzerland’s long history as a strong currency regime. The Austrian school of economics, which has a suspicious attitude to the inflationary bias of modern central banking is particularly strong among a certain segment of the Swiss electorate so there is a real possibility that at least some of the above measures will be adopted. Repatriating Swiss gold has obvious merit from a security perspective for example. However the other questions impose limits on the central bank’s ability to influence the currency market which would be a headwind for exporters. As a result they will be more difficult to pass.  

 



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November 07 2014

Commentary by Eoin Treacy

Gold mining companies making losses

This article by Julian Philips for Mineweb may be of interest to subscribers. Here is a section: 

Around 50% of the world’s gold mining companies are now making losses. Close to 100% of platinum mining companies are. Silver miners may be faring better, but as the bulk of silver is produced as a by-product of base metal mining we do not think silver production itself will be hurt by lower prices. Scrap sales of gold are down as sellers are seeing prices too low, so market supply overall is falling.

Eoin Treacy's view -

Miners have done a bad job of containing costs in a declining gold price environment. Issues relating to free cash flow and offering investors the leverage to the gold price they desire are well known and fully priced in. If half of all miners are now selling gold at below their all-in cost, the situation is unsustainable beyond the short term. Some will go bust, but the stronger performers will subsequently be left in a better position to compete. 

The NYSE Arca Gold Bugs Index / Gold price ratio hit a new all-time low this week.  Gold shares are now trading below where they traded relative to gold before the bull market started. 

 



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November 03 2014

Commentary by Eoin Treacy

Email of the day on lithium

LITHIUM SUPPLY/DEMAND PROJECTIONS 2015 & Beyond. Please advise whether You or the Collective have some figures/feedback on the above subject? Thanks, and regards

Eoin Treacy's view -

Thank you for this question which the Collective may have some additional input on. What is clear from a brief perusal of the shares in the lithium miners section of the Chart Library is that there are some clear winners and losers. This suggests that the more efficient producers are prospering and those with a longer lead time to production are struggling. We might also conclude that supply is ample at this stage.



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November 03 2014

Commentary by Eoin Treacy

Email of the day on iron-ore price charts

The China Iron ore chart isn't updating. It’s stuck on Sept 30th has Bloomberg changed the code number? 

Eoin Treacy's view -

Thank you for this email which highlights just how difficult it is to get reliable data for iron ore. Part of the reason for this is because a large proportion of the global market is represented by relatively long-term contracts. 

This is the third time in as many months that Bloomberg has stopped updating a price for what is a globally significant commodity. I have now replaced the China 62% fines price with the new index that rebases the old index to Qingdao port prices. This can be found in the Metals section of the Chart Library.
 

 



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October 28 2014

Commentary by Eoin Treacy

Email of the day on commodity market correlations

As an occasional medium term commodity investor (Long or short) and hopefully aware of the importance of risk management in regard to correlation between commodity markets do you have any advice or data as to historical correlation between individual commodity sectors i.e. corn to wheat to soybeans (especially the grains) also correlation between the major country stock indices? I appreciate that at times we may read too much into this and often (apparent) correlation may be just random coincidence but in some cases the correlation is obviously relatively recurring and a useful guide in balancing risk and positioning sizes.

Back to my question; Do you have any reference data and/or views on market correlation?

Eoin Treacy's view -

Thank you for this question and the Collective may have additional feedback. We do not have any specific data sets on inter market commodity correlations but I found this report on commodity market correlations which may be of interest.

Here are some additional thoughts: 



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October 27 2014

Commentary by Eoin Treacy

Email of the day on resources company shares

Hello I bought Vale and BHP Billiton, but reading this article quoting Goldman Sachs on copper has me worried, could you please comment? May it is too early to buy miners? : 

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. The article you attached appears to assume there will be a property and investment crash in China. This is still an open question but it seems reasonably clear that infrastructure investment is not going to just stop. Recently announced easing measures suggest the Chinese administration is well aware of the risks. 



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October 17 2014

Commentary by Eoin Treacy

Ebola and iron ore price put London Mining on life support

This article by Lawrence Williams for Mineweb may be of interest to subscribers. Here is a section: 

But London Mining was already on the downward path before the ebola outbreak struck its host country and exacerbated the situation, although no-one at the mine site appears to have fallen victim to the disease. Mining and upgrading 31% tenor iron ore to compete with those like Rio Tinto, Vale and BHP who can dig the stuff out of the ground at around 60% just became less and less economic as iron ore prices slumped. The company’s share price on London’s AIM market fell from comfortably over £4 in April 2011, down to around 4 pence and now trading is suspended. 

The company had been trying to find an investor to plug a financing gap which meant it had been running out of money to maintain operations. Indeed only a week ago the company’s CEO, Graeme Hossie commented that there was little or no value remaining in the company’s shares.

Now it is down to the PwC administrators to try and salvage something from the wreckage.  According to an announcement confirming the appointment of administrators, Russel Downs, joint administrator and PwC partner said "The collapse in iron ore prices and the resulting impacts on this business have been very dramatic and our focus is to ensure that a buyer is found for the Marampa Mine operations given it is such an important part of the Sierra Leone economy. We are liaising with key stakeholders and asking for a short window of forbearance as we look to conclude a transaction." 

 

Eoin Treacy's view -

This is exactly the kind of news the major iron-ore miners were looking for when they decided to flood the market with supply in order to overcome competition from higher cost producers. Cliffs Natural Resources announcing a $6 billion write down today on its iron-ore assets is an additional sign that their strategy is having the desired effect. They will now be waiting for similar news from Chinese iron-ore miners before attempting to stabilise the market. 

Despite the fact that the ebola scare has little to do with London Mining’s demise, the emotionality of the debate on how best to deal with the disease represents an additional impediment to securing an additional line of credit. 

This article from the Wall Street Journal, kindly forwarded by a subscriber, highlights how political correctness appears to be overcoming common sense in terms of the USA’s response to containing the disease in West Africa. I’ve even seen news commentary to the effect that it is racist to suggest a travel ban from the countries most badly affected. As this article from The Economist highlights, the disease has nothing to do with race and everything to do with limiting new exposures. 

 



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October 15 2014

Commentary by Eoin Treacy

Gold Set for Longest Rally in Two Months on Revived Haven Buying

This article by Debarati Roy for Bloomberg may be of interest to subscribers. Here is a section: 

“We are seeing some renewed interest in gold,” George Gero, a New-York based precious-metals strategist at RBC Capital Markets LLC, said in a telephone interview. Investors are “responding to weak economic numbers and the slump in the U.S. equities,” he said.

Eoin Treacy's view -

Gold posted an upside weekly key reversal last week from the lower side of its more than yearlong range and is following through to the upside this week. A clear downward dynamic would be required to question potential for an additional reversionary rally. 

 



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October 14 2014

Commentary by Eoin Treacy

Giant Battery Unit Aims at Wind Storage Holy Grail

This article by Whitney McFerron for Bloomberg may be of interest to subscribers. Here is a section: 

Electric-car battery prices already have fallen by 50 percent since 2010 to about $500 per kilowatt hour, and “by drawing on auto-battery technology, battery makers may also be able to supply storage batteries at a lower price,” Citigroup said in a Sept. 25 report. Tesla Chairman Elon Musk said in July that battery packs for electric cars will drop to $100 in the next 10 years. The Tehachapi batteries are supplied by LG Chem Ltd. and are the same type used in General Motors’ Volt.

The Southern California Edison project is part of a push for more wind and solar power in the state, among the sunniest in the U.S. A third of California’s electricity must come from renewable sources by 2020, and mandates also require that the three biggest investor-owned utilities store 1,325 megawatts by 2024. California already has more than 12,000 wind turbines, the most of any state, according to the American Wind Energy Association.

Eoin Treacy's view -

Many of the efficiencies claimed by battery manufacturers have been achieved via scale in manufacturing rather than technological leaps. Tesla’s gigafactory takes this process further by introducing additional economies of scale to further reduce the price of lithium batteries. So far ground breaking innovation has been more difficult to achieve than previously envisaged by companies but one benefit of building utility sized batteries is that power to weight ratios which are so important for car batteries are no longer a consideration.  

 



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October 13 2014

Commentary by Eoin Treacy

Corn, Soybeans Gain as Wet Weather Seen Adding to Harvest Delays

This article by Megan Durisin for Bloomberg may be of interest to subscribers. Here is a section: 

“It’s going to be pretty wet and soggy through the eastern belt this week,” Brian Grete, editor of the Professional Farmers of America newsletter in Cedar Falls, Iowa, said in a telephone interview. With projections for record U.S. corn and soybean output, “it’s going to be a long harvest season.

There’s no doubt about that. It’s just a matter of how many temporary slowdowns we have.”

Corn futures for December delivery rose 1.9 percent to $3.4025 a bushel at 10:19 a.m. on the Chicago Board of Trade. The most-active contract rose 3.3 percent last week, the largest advance since Aug. 15.

Soybean futures for November delivery gained 0.9 percent to $9.3075 a bushel. Trading was 43 percent above the 100-day average for this time of day, data compiled by Bloomberg show.

Eoin Treacy's view -

A lot of good crop news is already in the price for corn and soybeans which have experienced accelerated declines over the last couple of months to return to test multi-year lows. This is an important area of temporary support and with record yields priced in, any news that might reduce the extremely positive outlook may help prices unwind deep oversold conditions relative to their respective 200-day MAs. 



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October 09 2014

Commentary by Eoin Treacy

Long Run Crop Price Outlook: $6 Corn and $13 Soybeans

I met Michael Devlin from Cere Partners at last week’s Contrary Opinion Forum and had a long chat about the merits of farmland in a diversified portfolio. Here was kind enough to send me their outlook for corn and soybeans which they farm in Indiana. Here is a section: 

Brazil has been expanding its soybean acreage for 20 years, but $16.00 soybeans made the economics attractive on even marginal ground, which may not yet be fully conditioned to neutralize the naturally high acidity. Consequently, we witnessed the second biggest expansion of Brazilian soybean acreage ever. (See Exhibit 3) Furthermore, $7.50 corn made not only 1st-crop corn attractive in Southern Brazil, but also 2nd-crop or safrinha corn. In some parts of the world, including major parts of Brazil, farmers are often able to get 2 crops by planting a soybean variety with a shorter growing season, and then immediately planting the second crop (often corn, cotton, or sorghum). "is acreage is able to rotate annually to whichever crop offers the best economics. But second-crop corn is risky. Farmers are gambling that the rainy season will continue until the corn is mature. However, at $7.50 or even $6.00 the economics have been compelling and in Brazil there was a major expansion of second crop corn in 2012 and 2013. For the first time ever, second crop corn (safrinha means “little crop” in Portuguese) was bigger than first crop corn, comprising 56% of the total production. 

Where $7.50 corn (and $16.50 soybeans) signals an expansion of acreage, Ceres believes $4.50 corn (more precisely $10 soybeans) signals a reduction of acreage. Mato Grosso State in West Central Brazil grows approximately 10% of the global soybean crop. But Mato Grosso soybeans must be hauled more than 1,000 miles by truck over poor roads to get to market. Net of transportation costs, the price farmers receive for soybeans is significantly below the price quoted in Chicago.

Currently the “basis” on bids for 2014 soybeans is reportedly ~$3.00 under Chicago. So $10 soybeans in Chicago (the ~price equivalent to $4.50 corn) translates into $7 soybeans in Mato Grosso. But $7 is the breakeven price for the average producer in the state (See Exhibit 4) according to IMEA, the Mato Grosso Institute for Agricultural Economics. Put another way, half of the soybean producers in Mato Grosso, comprising ~5% of worldwide soybean production, would be below breakeven in a $4.50 corn/$10 soybean environment. $10 soybeans might not have an immediate elect on soybean acreage because Brazilian farmers typically buy inputs and market their crops in advance. So it could take $4.50 corn/$10 soybeans lasting a full year for soybean acreage to drop significantly.

Additionally, at $4.50 corn, we would anticipate much less corn acreage in the second crop. Based on crop budgets from IMEA it will cost ~$2.50 to grow a bushel of second crop corn in 2014. "is breakeven at ~$5.00 corn given that IMEA estimates it costs another $2.50 a bushel to truck corn from the interior to the major grain exporting ports. Second crop corn would at best be a breakeven proposition at $4.50-$5.00. We would see some acreage planted as farmers need a cover crop, but it will be significantly less than we saw in 2013.

 

Eoin Treacy's view -

A link to the full report is posted in the Susbcriber's Area.

Farmers respond to higher prices by planting more in an effort to capture as much benefit as possible. Inevitably supply increases. In the period from 2006 relatively high historical prices have been sustained for lengthy periods of time. The weak Dollar, high cost of energy, inclement weather, expensive nutrients and rising labour costs all contributed to this situation but the effect has been that supply increased nonetheless. 



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September 26 2014

Commentary by Eoin Treacy

Commodity currencies

Eoin Treacy's view -

The decline in the Continuous Commodity Index represents a challenge for commodity producers. What has been a constantly growing source of income has morphed into a much more volatile price environment which has been deteriorating of late. As investors take stock of the implications for the respective countries, pressure has come to bear on their currencies not least because of the relative strength of the US economy and the Dollar. 



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September 23 2014

Commentary by Eoin Treacy

China economic restructuring cuts demand for iron ore

This article quoting Fortescue Metals may be of interest to subscribers. Here is a section: 

Power said that while a slump in iron ore prices has pushed out some high-cost producers from the market, supply was "not being cut back fast enough to reduce the overhang in the market".

"The response by high-cost producers ... has been much slower than certainly what I thought and what most in the industry thought," he said. 

"But inevitably that needs to happen ... so the iron ore price will be low for long enough for that supply to exit the market. That's an economic reality." 

While stockpiles at China's ports remain high, Power said steel mills were running with relatively low stockpiles. 

Power said Fortescue's delivered cost into China is less than $50 a tonne.

"Our focus is on making sure that our production is as efficient and low cost as possible," he said.

 

Eoin Treacy's view -

The iron-ore oligarchy of Vale, BHP Billiton and Rio Tinto have been boosting supply even as prices have been declining. You don’t do that if you wish to sustain high prices. Rather they are attempting to drive high cost producers out of business in an effort to maintain market share and future pricing power. 

Iron ore prices dropped below $80 yesterday for the first time since 2009 and a break in this year’s progression of lower rally highs will be required to signal a return to demand dominance beyond potential for some short term steadying. 

 



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September 19 2014

Commentary by Eoin Treacy

Gold Falls on Equity Rally as Silver Slumps to Four-Year Low

This article by Debarati Roy and Nicholas Larkin for Bloomberg may be of interest to subscribers. Here is a section:

Holdings in exchange-traded funds backed by gold slumped to a five-year low as price volatility plunged to the lowest since 2010. The metal has dropped 13 percent from this year’s high as theU.S. economy gained traction amid prospects for rising interest rates and muted inflation.

“We are seeing a rush for equities,” Tom Winmill, who helps manage about $220 million of assets in Walpole, New Hampshire, for Midas Funds, said in a telephone interview. “Many investors don’t see the need for a safe haven as the dollar has gained strength.”

Eoin Treacy's view -

There has been understandable speculation about where the money would come from to fund the Alibaba IPO and the conspicuous declines in precious metal markets, coinciding with the shares launch, represent a tempting candidate. However, the recent strength of the Dollar, improving governance in India where desire of a safe haven is easing and slower Chinese economic growth are all also factors in the recent weakness of precious metals. 



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September 16 2014

Commentary by Eoin Treacy

Copper Soars Most in 13 Months as Trading Stops on China

This article by Joe Deaux for Bloomberg may be of interest to subscribers. Here is a section:

The surge triggered a “stop spike event,” and trading halted for 10 seconds with all transactions remaining valid, Damon Leavell, a spokesman for Chicago-based CME Group Inc. (CME:US), the Comex owner, said in a telephone interview. On Dec. 24, some deals were revised following an error after prices jumped as much as 4.2 percent.

Eoin Treacy's view -

Copper has not made headlines like this for quite some time. The price broke below the psychological $3 area in March as the massive Mongolian Oyu Tolgoi mine came on line but bounced back as the Chinese inventory fraud scandal broke. Today’s limit move suggests short covering and comes in the region of the progression of higher reaction lows evident since March. A sustained move below $3.05 would be required to question medium-term scope for continued higher to lateral ranging.



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September 15 2014

Commentary by Eoin Treacy

Sugar Has Longest Slump This Year Amid Expanding Global Glut

This article by Luzi Ann Javier and Marvin G. Perez for Bloomberg may be of interest to subscribers. Here is a section:

Anticipation of a large world crop and supplies are putting pressure on prices,” Boyd Cruel, a senior market analyst at Vision Financial Markets in Chicago, said in a telephone interview. “The market has also been weighed down by expectations for large deliveries” from Thailand, he said.

Raw sugar for March delivery fell 0.3 percent to settle at 16.27 cents a pound at 1:07 p.m. on ICE Futures U.S. in New York. The contract had a ninth straight loss, the longest streak since Dec. 9.

Traders in Thailand, the second-biggest exporter, plan to ship sugar for delivery against New York futures for the first time since 2012. About 625,000 tons probably will be supplied against the October contract, equal to 16 percent of this year’s surplus, according to a Bloomberg survey of analysts last month.

India, the second-largest producer, may export 3 million tons in the season starting next month, the National Federation of Cooperative Sugar Factories said today.

Money mangers more than doubled their bets on price declines last week, U.S. government data show. The net-short position reached 31,873 futures and options contracts as of Sept. 9, compared with 14,043 a week earlier.

 

Eoin Treacy's view -

The inclement weather than prevailed between 2011 and 2013 sent soft commodity prices higher and acted as an incentive for farmers to plant more. With supply disruptions easing the outlook for yields has improved and prices have fallen. This has been particularly evident in New York sugar prices which hit a new four- year low last week. 



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September 12 2014

Commentary by Eoin Treacy

India's love affair with gold may be over

This article by Rajendra Jadhav & Indulal PM for Reuters may be of interest to subscribers. Here is a section: 

A one-quarter drop in local gold prices over the past year has shaken the confidence of Indians in the precious metal as a store of value and dented demand in the world's second-biggest buyer.

The main beneficiary has been Indian stocks, which have been clocking up records on hopes that Prime Minister Narendra Modi can deliver on the promise of "better days" ahead that swept him to power in May's general election.

Beyond short-term sentiment, a major push by Modi for every household to get a bank account, better education and living standards, and falling inflation expectations, could herald a more secular change in investing habits.

"The attachment of Indians to gold will remain," said Harish Galipelli, head of commodities and currencies at Inditrade Derivatives and Commodities Ltd., referring to gold's culturally embedded role in dowry gifts or decorating Hindu temples.

"But as the banking network expands and literacy rises, people in rural areas will explore other investment products like mutual funds or bank deposits. The mindset is slowly changing."

 

Eoin Treacy's view -

One could argue that having gold as an anchor in a portfolio is justified given its long history as a store of value but favouring it above all other alternatives is generally a sign of distrust in the financial system and value of fiat currency. Indian consumers have had more to fear from currency debauchment than most; with the Rupee susceptible to regular devaluations since independence. However as optimism grows that Prime Minister Modi can deliver on progressively higher standards of living for India’s burgeoning population, it is an open question as to whether India will represent such a potent demand growth region for gold in future. 



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September 09 2014

Commentary by Eoin Treacy

Email of the day on uranium mining investment vehicles

Your comment on the Uranium price is of interest to me. Prior to Fukishima , Geiger Counter was very much in vogue. Then came the collapse. I wondered what the view was now concerning the above and perhaps suggest other companies listed in London that have positive chart patterns .    

Eoin Treacy's view -

Thank you for this question which others may have an interest in. Geiger Counter generally runs a concentrated portfolio of high potential explorers and developers although its current holdings are peppered by some larger uranium names.  

I highlighted it as a potentially interesting fund offering exposure to the uranium market on August 22nd

 



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September 05 2014

Commentary by Eoin Treacy

Back to school, miners league table

Thanks to a subscriber for this interesting report from Deutsche Bank assessing the outlook for European listed diversified miners. Here is a section:

Vedanta's planned group restructuring was completed in 2H13 calendar, with the court clearance of Sterlite's merger into Sesa Goa. This was an important step in simplifying the group's structure, reducing the scope for future conflict between majority and minority shareholders. Post the merger of Sterlite and Sesa, we see the group's buyout of the Indian government's stakes in HZL and Balco as critical for maximising cash fungibility across all group entities and expect progress on this in the next 12 months. Beyond this, management has set three near-term priorities for improvement for the group: an iron ore mining re-start, bauxite sourcing in India, and Copper Zambia development. We expect all of these areas to show improvement in 2015. Buy. 

Valuation 
Our price target is set at a 5% discount to our DCF valuation, to reflect some of  the inherent delivery risks within Vedanta's growth plan. Our DCF valuation (10.9% WACC - cost of equity 13%, post-tax cost of debt 6.1% and target gearing 30%: RFR 4.0%, ERP 6%)is calculated using life of mine cash flow analysis. 

Risks 
Key downside risks include lower metal prices than we expect, sustained strength in the Indian rupee, higher import duties, slower execution of projects and the slow or noreceipt of government permits for the alternative bauxite mines in Orissa and the Lanjigarh refinery expansion programme. The company has a large capex program which may require further debt funding or capital raising, either at the Sterlite or Vedanta level.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

The new Indian administration under Narendra Modi has lofty ambitions. Urbanisation, export oriented manufacturing and chipping away at the country’s infrastructure deficit are all goals the new government is working towards. Greater per capita consumption of just about all industrial and energy commodities goes hand in hand with these objectives and India needs a concerted strategy for sourcing the resources it needs to fuel growth. 



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September 03 2014

Commentary by Eoin Treacy

Uranium poised to enter bull market

This article by Ben Sharples for Bloomberg may be of interest to subscribers. Here is a section: 

Uranium is poised to enter a bull market amid tightening supply as producers shut mines and delay projects, more than three years after the Fukushima nuclear disaster in Japan sent prices lower.

The atomic fuel has advanced as much as 18 percent from a May 20 low of $28 a pound, according to data from Ux Consulting Co. in Roswell, Georgia, which provides research on the nuclear industry. Prices closed 0.5 percent higher at $32.65 yesterday and have averaged $31.80 in 2014.

Eoin Treacy's view -

The uranium market still has to recover from the post Fukushima backlash that saw reactors shuttered in Japan and even France retiring some of its older plants. The news flow has been somewhat more positive recently with Australia agreeing to supply Indian reactors. Indian demand represents a significant growth trajectory not least because of the new Modi led government’s development focus. 



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August 29 2014

Commentary by Eoin Treacy

PGMs: Rhodium The Come Back Kid

Thanks to a subscriber for this report from Bloomberg which may be of interest to subscribers. Here is a section: 

Alongside subdued supply growth, the PGM sector enjoys strong demand side trends. Indeed palladium and rhodium are closely tied to the fast growing gasoline markets of the US and China. Increased gasoline penetration in Europe will also skew upside risks to palladium demand in the event of an eventual recovery in European demand. However, of the group, China is set to be the major driver of tightening physical fundamentals across the PGM sector and specifically palladium and rhodium. This will be driven by efforts to balance the growth in car ownership with combating the country’s pollution problem.

We estimate that the combination of low car penetration compared to other more developed markets and increasing emission standards will mean China will be the largest single source of increased autocat demand for palladium, rhodium and even platinum between now and the end of the decade. Figure 6 shows that between 2013 and 2020 global palladium demand growth for autocats will rise 2,166,000 ounces of which China will represent just under 1,000,000 or 44%. The equivalent figures for platinum and rhodium are 23% and 30% respectively.

While inventories are high across the PGM complex, market deficits over the coming years alongside increased ETF inflows will push inventory to consumption ratios down to critically low levels. Last month in the Commodities Quarterly report we attempted to establish which markets would experience significant inventory drawdown in response to market deficits and at what point inventories would hit levels that could trigger a more rapid appreciation in PGM prices. We showed that platinum inventories would only fall to 2007 levels by the end of the decade, but depending on ETF flows and how tightly this metal is held, the physical squeeze could occur as soon as next year. For palladium, inventories were estimated to drop to 2001 levels by 2018, but if ETF flows continued then physical tightness could start to take hold in 2016. A similar timeframe was seen for the rhodium market.

However, we find that ETF flows have been relatively modest into the rhodium market up until now. Indeed compared to market size and above ground inventories, there remains considerable room for more inflows if the platinum and palladium markets are a guide, Figure 9. Indeed the rapid price gains in palladium will increase the attractiveness of rhodium added to which rhodium is the most effective PGM at treating NOx emissions.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

The platinum group metals (PGMs) have been subject to a great deal of variation in their performance over the last couple of years as the mixed picture on global economic growth, excess supply, South African labour relations and the unfolding Russian situation have come to bear on the respective fundamentals of the metals. 



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August 28 2014

Commentary by Eoin Treacy

Zinc, nickel prices to move dramatically higher

This article by Dorothy Kosich for Mineweb may be of interest to subscribers. Here is a section: 

“Firmer potash and sulphur prices and the beginning of a recovery in uranium also contributed to the gain,” she noted. “Spot uranium prices have increased to US$31 per pound in late August alongside stepped-up Chinese buying, after bottoming at a mere US$28 in June.

Meanwhile, Mohr observed that the base metals rally in July was led by zinc with prices remaining firm at US$1.07 in late August, which is normally a time of summer doldrums. “Commodity funds and investors have bid up zinc prices, anticipating tightening supplies over the next three-four years—with mine supplies not keeping the pace with demand growth,” she said.

 

Eoin Treacy's view -

The sharp pullbacks currently underway among the major iron-ore miners tend to obscure the fact that the Continuous Commodity Index found support this week in the region of the psychological 500 area. Additional upside follow through next week would suggest at least a reversionary rally back up towards the MA is underway. 



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August 28 2014

Commentary by Eoin Treacy

Pretium Resources Inc.

Thanks to a subscriber for this informative report from GMP following a tour of the mine attended by a number of other analysts. Here is a section:   

An asset like Brucejack is a rarity today – high-grade, manageable capex and in a good location. We believe this will make Pretium of interest to existing mid/large-cap producers. The company also, however, seems to be preparing the way to build the project on its own. Financing would likely include a range of sources including equity, debt, and metal pre-sales and/or streams. We expect this to become clearer by year-end or the end of 1Q15 at the latest.

Where we HAVE changed our opinion is that we are now more comfortable with the geostatistically based approach for resource estimation. This comes from our direct observations of coarse electrum as streaks in narrow veinlets that are not part of the throughgoing structures which we focused on last year. Those structures ARE there and we expect that a large part of the gold to be mined will come from them, and that ultimately a mine plan will encompass both selective mining of such zones AND bulk mining of the type envisaged in the DFS. C$12.50 target price represents 0.66x our NAV10% of $16.97 at $1,350 gold. 

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

Photos such as that below, kindly forwarded by the same subscriber,  of heavy mineralisation in core samples within a wider high grade gold deposit are what miners’ dream of but it remains an expensive exercise to develop these resources. It will be two years before the mine reaches commercial operation according the above report.



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August 22 2014

Commentary by Eoin Treacy

Email of the day on uranium funds

I found your observations on uranium on the 19th very interesting. What vehicles for investing in this sector do you think might best suit private investors? There doesn't seem to be any ETC or the like - the closest I've come across is the Uranium Participation Corporation. This is a pure play on the Uranium price, but is currently trading at a hefty premium to NAV of about 26%. Many thanks! 

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. There were a considerable number of uranium funds listed when uranium prices were surging higher in 2005 and 2006. Many have since been delisted but there are still a small number that are reasonably liquid. 



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August 21 2014

Commentary by Eoin Treacy

Hormel pork margins to dip, as hog prices plunge

This article from Agrimoney may be of interest to subscribers. Here is a section: 

However, "pork operating margins are not expected to be as beneficial" in the current quarter, the last of Hormel's fiscal year, group chief executive Jeffrey Ettinger said.

Although pork producers are benefiting from lower feed costs, thanks to weaker corn and soybean prices, lean hog values have tumbled from the record high of 133.80 cents a pound for Chicago's spot futures contract on July 10.

Chicago's current spot lean hog futures contract, October, stood at 91.425 cents a pound on Thursday, down 1.2% on the day and 32% below last month's all-time high.

Futures have been undermined in part by the Russian ban on imports of US agricultural products, but also because of high hog slaughter weights, boosting supplies at a time when the knock-on effects of high retail pork prices are amplifying a seasonal downturn in demand.

"Cash pork markets have been on a downtrend, in part because of seasonality but also because the higher prices have finally been passed on at the retail level," a report from Paragon Economics and Steiner Consulting said.

"Ham prices are significantly lower and how they perform in the next 60 days will likely set the tone for the entire hog complex in the fall months."

 

Eoin Treacy's view -

Lean hog prices gave up their entire advance for the year from early July and returned to test the $80 area which offered support on a number of occasions from 2011. Some steadying in this area is taking place and there is some scope for an unwind of the short-term oversold condition. However, the most likely scenario is for a return to a predominately rangebound environment that prevailed from early 2011. 



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August 19 2014

Commentary by Eoin Treacy

Tony Abbott expected to sign uranium deal with India on visit next month

This article by Daniel Hurst for the Guardian may be of interest to subscribers. Here is a section:

Tony Abbott is expected to sign a deal to sell uranium to India during a visit to the country next month.

The Australian prime minister’s scheduled visit follows the completion of negotiations surrounding arrangements for the export of uranium, according to multiple news reports.

Indian officials convinced their Australian counterparts that the uranium would not be used for nuclear weapons, the Australian Broadcasting Corporation reported on Monday.

The Times of India reported earlier this month that negotiations between the two countries had concluded and the deal was likely to be signed during Abbott’s visit to India in early September.

The Australian government would not confirm the reports on Monday, but the assistant minister for infrastructure, Jamie Briggs, told the ABC it would be a welcome development if true.

 

Eoin Treacy's view -

Despite the fact Australia has the world’s largest deposits of uranium, it has no nuclear power stations and has often had a difficult relationship with its uranium mining sector; with the result that some states and territories permit mining while others don’t. Signing a deal with India for exports is a welcome development for the sector which has been languishing in the aftermath of the Fukushima disaster.

Uranium prices collapsed from their 2007 peak near $140 and, following a relatively brief rally in 2010, extended the downtrend to fresh lows. The recent three-week rally has closed the overextension relative to the 200-day MA but a sustained move above it will be required to begin to suggest a return to demand dominance beyond the short term. 



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August 18 2014

Commentary by Eoin Treacy

Email of the day on gold and silver

Good afternoon you seem to be positive on gold in the medium term, and more cautious on silver: isn't it necessary to see strength in silver to be optimistic on gold, as silver is usually a beta-gold play?

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. Generally speaking silver acts as a high beta version of gold. This is particularly true in a trending environment but is less of a factor in a range, as is currently the case. 



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August 15 2014

Commentary by Eoin Treacy

Ibovespa Rises as Investors Weigh Presidential Election Outlook

This article by Denyse Godoy for Bloomberg may be of interest to subscribers. Here is a section: 

“There’s still a lot of doubts regarding Silva’s government program and views, but investors are focusing now on the fact that there are less chances of Rousseff winning,” Guilherme da Nobrega, the chief economist at the brokerage firm Guide Investimentos, said by phone from Sao Paulo. “We’ve got to wait to get a better idea of her proposals to see how good or bad a Silva administration would be for the economy.”

Silva’s party, PSB, will probably appoint her as a presidential candidate after Eduardo Campos died in a plane crash on Aug. 13, newspaper O Estado de S. Paulo reported today, without saying how it got the information. Silva was Campos’s running mate. She came in third in the 2010 presidential election with 19.6 percent of the votes.

Eoin Treacy's view -

Brazil is likely to be a beneficiary of increased geopolitical tension in Europe not least if it results in further sanctions being levied against Russian interests. The potential for a change of government to an administration capable of imposing the reforms required to reignite growth represents an additional cause for optimism. 



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August 08 2014

Commentary by Eoin Treacy

Bull market in cattle 'to last for years'

This article from Agrimoney, dated last week, may be of interest to subscribers. Here is a section:

 

However, the 6.2% drop in placements in June of cattle on for fattening on feedlots, revealed by US Department of Agriculture data, and the particular drop in buy-ins of heavier animals suggest that "mid-term beef supplies will be tighter than expected".

The drop in placements comes against a backdrop of record prices of feeder cattle, those ready for fattening, as feedlots battle for supplies with breeders desperate for livestock to rebuild herds, and exploit the lower feed prices and improved pasture conditions brought by benign US weather.

Indeed, the extent of herd destruction encouraged by the 2012 drought, which extended in the southern Plains ranching areas until early this year, was reflected in separate USDA data showing a 2% drop in US beef heifers in the two years to June 1.

"This implies that herd rebuilding will likely take longer than expected and the market may not see the full effect until at least 2016," Mr Narayanan said.

Eoin Treacy's view -

Feeder Cattle prices had been surging higher but the early July peak is looking increasingly like a penultimate peak, following the loss of uptrend consistency. Prices failed to hold the move to new highs and fell by the limit of $3 today. Considering how overextended prices remain relative to the 200-day MA, mean reversion remains the most likely scenario.  

 

 

 



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August 01 2014

Commentary by Eoin Treacy

Twin Corn Ears Push U.S. Yields to Bin-Busting Crop

This article by Jeff Wilson for Bloomberg may be of interest to subscribers. Here is a section: 

Crop conditions are the best in a decade for this time of year, government data show, with 75 percent rated good or excellent as of July 27. The USDA probably will boost its production estimate in its monthly crop report on Aug. 12, said The Linn Group, a broker and adviser. The U.S. is the world’s largest grower and exporter.

“There will not be enough storage space for all the extra bushels this fall,” said Roy Huckabay, an executive vice president at The Linn Group in Chicago. He predicted on July 1 that the crop would increase 2.8 percent to 14.314 billion bushels with yields around 170 bushels an acre.

 

Eoin Treacy's view -

Corn prices continue to extend their decline but the pace of the fall has moderated somewhat since early July. A break in the short-term progression of lower rally highs, currently near 380¢, would signal more than a short-term low has been reached. 



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July 31 2014

Commentary by Eoin Treacy

Coffee Gains Most Since April on Brazil Crop Woes; Cotton Sags

This note by Fareeha Ali for Bloomberg may be of interest to subscribers. Here is a section: 

The current crop is severely compromised, and there will be lower production this season because of the drought and premature flowering,” Sterling Smith, specialist at Citi Futures, says in telephone interview.

“It’s impossible for next year’s crop to be bigger than this year’s, and it has sparked increased nervousness in the coffee world”

Eoin Treacy's view -

Arabica Coffee unwound its overbought condition relative to the 200-day MA following its impressive advance earlier this year and found support three weeks ago. A sustained move below $160 would now be required to question medium-term recovery potential.



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July 29 2014

Commentary by Eoin Treacy

Part II - The Tide Is Rolling In

Thanks to a subscriber for this report from Cowen and Co which may be of interest. Here is a section: 

As shown in Figure 1 the higher-levered seniors ABX and NEM have been focused on selling non-core assets (and were reportedly in talks to merge and rationalize assets; see our report Barrick/Newmont - Sorting Through The Noise). Meanwhile, AEM and AUY have taken advantage of healthier balance sheets and historically-depressed equity valuations to buy production and expand project pipelines. Looking to 2015, we expect GG to be in the best financial position to engage in M&A. That being said, we see NEM and AUY as having the capacity to make additional purchases, and ABX and KGC being the most challenged.

From a growth perspective, with their existing pipelines, both Agnico and Yamana are now both in a solid growth position after their joint purchase of Osisko – receiving not only operating assets, but both a near-term and longer-term development projects. Both Barrick and Kinross have little to no net growth ahead of them, and what production replacement they have will come at a heavy, up-front capital burden. With Barrick’s high financial leverage, we believe they will need to either delay major projects (Donlin, Goldrush, Turquoise Ridge O/P, Pascua-Lama completion), prioritize, or significantly reduce the initial scope – most likely all three. Like Barrick, Kinross has several large projects (Tasiast expansion, Lobo-Marte) that they need to execute on in order to counter declining existing production, but would face financial challenges.

Despite recent M&A activity, we see the senior gold producers as much better positioned both financially and operationally, to withstand a $1200/oz-$1300/oz gold price environment vs. last year. It is our view that they can now afford to make acquisitions to be built at a later date, and take advantage of low junior miner market valuations.

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The gold mining sector continues to go through a painful period of rationalisation but companies that did not engage in overly profligate spending before gold’s decline are now being rewarded with relative strength in their shares. 

 

 



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July 24 2014

Commentary by Eoin Treacy

Caterpillar Sees No Sign of Mining Upturn as Outlook Misses

This article by Elena Popina for Bloomberg may be of interest to subscribers. Here is a section:

Mining companies have cut billions of dollars of capital spending amid surplus commodities production and a drop in prices for coal, iron ore and other metals. Caterpillar, which completed a string of mining-related acquisitions when the market was stronger, said today the industry remains “weak” and order levels are still low.

The “mining slump is the No. 1 headwind for Caterpillar,” Matt Arnold, a St. Louis-based analyst with Edward Jones, said by phone. “It won’t last forever, but the question is, how well can the company harness improvement in its other segments in the meantime?”

Caterpillar’s sales of mining machinery through dealers dropped 38 percent in the second quarter, with declines in every region except North America.

 

Eoin Treacy's view -

Miners had little choice but to curtail spending on expansion as commodity prices deteriorated and investors fled to more attractive sectors. The situation has been mitigated by this year’s rally in industrial metal prices and the realisation that tight market conditions can boost the allure of mining companies. Here is a section from an additional article quoted Rio Tinto’s CEO suggesting investors are beginning to worry about how miners are going to replace reserves as their fortunes improve. 

Rio Tinto Group, the world’s second- biggest miner, sees renewed investor appetite for spending as it seeks to balance shareholder returns with capitalizing on growth opportunities from Australia to Peru.

“A year ago the market was talking about returns, returns, returns and stop investing,” Chief Executive Officer Sam Walsh told reporters in Perth today. “Now people are taking a long- term view and recognizing the fact there has to be a balance.”

 

 



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July 21 2014

Commentary by Eoin Treacy

Indonesia ends 6-month ban of metal concentrate exports

This article by Wilda Anmarini may be of interest to subscribers. Here is a section:

However, last week shipments of iron ore, lead and zinc concentrate left the country, after two firms agreed to pay a 20 percent export tax, coal and minerals director general Sukhyar told reporters late on Friday.

"There are two firms that have started to export; Sebuku Iron Lateritic Ores (SILO), and Lumbung Mineral Sentosa," Sukhyar said, adding that SILO had sent two shipments or around 100,000 tonnes of iron ore concentrate and Lumbung had shipped around 8,000 tonnes of lead and zinc concentrate already.

"They finally wanted to pay it," Sukhyar said referring to the escalating tax that has been the subject of a legal dispute involving U.S. miner Newmont Mining Corp.

Silo expected to export 8 million tonnes of Iron ore concentrate a year, while Lumbung should ship 29,000 tonnes a year, he added. Both companies were exporting to China, Sukhyar said.

 

Eoin Treacy's view -

Indonesia’s ban on ore-concentrate exports was one of the primary drivers in nickel’s impressive advance this year. The fact that the ban has been relaxed by the new administration suggests that while Indonesia may now require a greater share in its mineral exports via taxes, that exports will proceed. The projected deficit in the nickel market may ease as a result. 



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July 18 2014

Commentary by Eoin Treacy

Petrobras Said to Seek Contract Extensions at Biggest Fields

This article by Sabrina Valle for Bloomberg may be of interest to subscribers. Here is a section:  

The licenses include the three biggest producing fields in Brazil - Roncador, Marlim Sul and Marlim - which pumped 27 percent of Brazil’s total oil and natural gas output in May.

Petrobras started in 2012 a program to modernize infrastructure, increase efficiency and reduce operating costs at platforms in the basin to arrest faster-than-expected decline rates in recent years. The company’s overall output has remained stable since 2010 even amid a rapid expansion in the so-called pre-salt region in deeper waters of the South Atlantic.

Petrobras has been producing in Campos Basin since 1977 and its concessions include large areas where it hasn’t done exploration drilling. Petrobras acquired the licenses where it is seeking extensions in 1998 and has full ownership. Campos Basin provides about 70 percent of Brazil’s oil output.

Fields in the Santos Basin pre-salt area hold larger volumes of reserves and are set to surpass the Campos fields in production in the coming years as Petrobras adds platforms.

 

Eoin Treacy's view -

Petrobras has spent a great deal of money in its attempts to develop the pre-salt deep water fields that will eventually make it one of the most globally significant oil exporters. The fact that Brazil derives much of its electricity from hydro and has the world’s most efficient ethanol production and distribution system means that as oil production is ramped up, the country will benefit from increased revenue and growth in the petrochemical sector. 



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July 14 2014

Commentary by Eoin Treacy

Brazilian Real Climbs on Speculation Rousseff Will Lose Election

This article by Filipe Pacheco for Bloomberg may be of interest to subscribers. Here is a section: 

Speculation that Rousseff, who has overseen the slowest growth of any Brazilian president in two decades, is declining in popularity has helped push the real up 6.7 percent this year, the most among 24 emerging-market currencies. Brazil’s 7-1 defeat to Germany in a World Cup semifinal last week may hurt Rousseff’s standing in voter polls, according to Joao Paulo de Gracia Correa, a foreign-exchange trader at Correparti Corretora de Cambio in Curitiba, Brazil.

“Elections are going to be the main focus for investors now, and the real usually advances when Rousseff declines in polls,” de Gracia Correa said in a telephone interview.

A Datafolha poll conducted July 1-2 before Brazil’s World Cup loss to Germany indicated that Rousseff’s support jumped four percentage points to 38 percent following three straight drops this year. The poll of 2,857 people had a margin of error of 2 percentage points.

 

Eoin Treacy's view -

Speculation about the ramifications of Brazil’s failure to win the World Cup on home turf is unsurprisingly dominating headlines. By the time the presidential election’s first round, scheduled for October 5th, comes around, the World Cup is likely to be a distant memory. Dilma Rousseff’s failure to deliver on growth potentially opens up the potential for Aécio Neves, who has a successful record of infrastructure development, to pose a potent threat.  

 



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July 11 2014

Commentary by Eoin Treacy

Crop Forecast Sends Corn Prices to Near Taxpayer Subsidy Trigger

This article from Bloomberg may be of interest to subscribers. Here is a section: 

The $956.4 billion farm bill was touted as changing the subsidies that watchdog groups called excessive government support for farmers who last year had record profits. A $5 billion annual program to pay farmers regardless of crop price was eliminated, replaced by aid for insurance programs and a so- called Price Loss Coverage program, a vestige of the old subsidies approach that would still be an option for producers.

Booming prices for corn, soybeans, wheat and other commodities has led to less spending on traditional forms of payouts in recent years. Corn growers received $2.7 billion in 2012, down from a peak of $10.1 billion in 2005, according to Environmental Working Group, which tracks farm payments.

Assuming continued high prices, the farm bill was estimated to save $23 billion over 10 years, according to congressional estimates. That isn’t happening.

As surpluses push down prices, annual farm profits are forecast to drop 27 percent to $95.8 billion this year from last year’s record, the government said in February. Revenues from major crops will be $189.4 billion, down 12 percent.

Eoin Treacy's view -

Soft commodities and energy contracts have led declines on the Continuous Commodity Index this week sending it back below the 200-day MA despite the fact that industrial metals have been reasonably steady and precious metals advanced. 



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July 10 2014

Commentary by Eoin Treacy

Comments posted on central bank balance sheet charts

Terrific chart. Can you put it in the library please?

The BoJ appear to be keeping things afloat and rumours abound that they will have to go all in soon or the great experiment in Abemonics will get derailed. The economic stats recently have been less than encouraging...

And

I read that China is printing more money than the US - they have created Renminbi equivalent to 50 bn $ per month over the last six months. What is the graph like if this is added!

Eoin Treacy's view -

Thank you both for these additional comments on yesterday’s composite chart of major central bank balance sheet sizes.

The Bank of Japan has little choice but to proceed with QE, in its efforts to reignite growth and inflation, now that it has embarked on the extraordinary monetary policy route. While QE has had mixed results in achieving economic growth it has been much more successful in inflating asset prices. Loose monetary policy is important for Japan, but Abenomics is likely to succeed or fail based on their success in imposing regulatory and process reform and in controlling energy price inflation.

I have now also added the PBOC Balance Sheet Chart to the Chart Library and updated the total assets chart for the Fed, ECB, BOJ and PBOC. Unfortunately, it is not possible to add this chart to the Chart Library. 



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July 08 2014

Commentary by Eoin Treacy

Sibanye: Can raise $1B at 'the drop of a hat'

This article from Mineweb may be of interest to subscribers. Here is a section: 

"We are looking at all platinum assets including what Anglo Platinum may sell," Froneman said, reiterating that he wanted to do a deal this year. He would not be drawn on who else besides Amplats was flagging platinum assets.

Sibanye's management team has a reputation for squeezing profit out of mines nearing the end of their lives and it could potentially fund the purchase by tapping cheap Chinese sources of finance given its connection to investors from the country. 

Froneman formerly ran Gold One where he oversaw its acquisition by a Chinese consortium. Sibanye itself acquired Gold One's Cooke operations in an all-share deal that saw it issue new shares worth 17 percent of its total stock to the Chinese group known as the BCX Consortium. 

Chinese investors open up avenues to cheaper rates of finance than South African companies can normally get, for example through the Chinese Development Bank, but Froneman said he had plenty of options. 

Asked if he could raise, say, $1 billion for a platinum deal, he said he could do so "at the drop of a hat".

But he added that he did not think that any of the assets Sibanye was looking at "are anywhere near" $1 billion. 

Analysts have said the five Rustenburg mines plus its Union mine that Amplats may put on the block could be worth between $1 billion and $2 billion. 

"Since we have made our intention public, all the major investment banks have provided us with funding proposals. And in addition we have the support of our shareholders and in particular the Chinese," he said.

"We generate a lot of free cash ourselves. So it could well be a combination of equity, debt and other instruments. But the bottom line is that everything that is possibly doable in the sector can be financed by ourselves."

 

Eoin Treacy's view -

Sibanye has prospered since being split off from Goldfields not least because they have successfully contained costs and followed through on their commitment to become a high dividend paying South African gold miner.  The company’s commitment to only engage in an acquisition that helps achieve that goal should help moderate investor anxiety about the cost of talking additional mines. 



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July 08 2014

Commentary by Eoin Treacy

Minerals & Energy Commodities Update

Thanks to a subscriber for this report from National Australia Bank. Here is a section on iron-ore: 

Spot prices exhibited less volatility in June than they did in May –trading in a narrow range across the month –in contrast to a persistent downward trend since late 2013. In late June, prices for 62% fines edged back above US$95 a tonne (having fallen as low as US$89 a tonne)

Unlike other bulk commodities, imports of iron ore into China have remained strong –increasing by almost 19% in the first five months of the year to 383 million tonnes.
The strong level of exports have seen stockpiles at Chinese ports rise to record levels –at almost 114 million tonnes –albeit the level has remained fairly stable in June.

MySteelResearch had previously estimated that around 40% of stocks were connected to shadow banking-related financing deals, however a more recent estimate by Bank of America-Merrill Lynch suggests steel mills control 70% of current stocks.

Reuters report that some Chinese steel mills are selling future iron ore cargoes (delivered under long term contracts) and purchasing material currently at ports –for which the prices are lower. This trend may have supported the recent (albeit modest) recovery in spot prices.
Lower prices are likely impacting the viability of Chinese ore producers –with estimates that around 80% of Chinese iron ore mines have cash costs at between US$80 and US$90 a tonne (MySteel).

Our forecasts for iron ore prices are unchanged –our hybrid price consists of a weighted combination of spot and contract prices –however the recent weakness in spot prices highlights downside risk. We expect ironore at around US$100 at the end of 2014 and down to US$95 a tonne at the end of 2015.  

 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

We can assume that Chinese production of iron-ore represents the marginal cost for the global sector. Below $80 and part of China’s mining sector would need to be shuttered. Above $90 and they are still profitable. Quite apart from the fact that major foreign suppliers have better quality ore and long-term contracts, prices are unlikely to fall much below the $80 to $90 area. 



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July 04 2014

Commentary by Eoin Treacy

Rare earths industry teeters as Lynas heads to full ramp-up

This article by Sonali Paul for Reuters appeared in Mineweb. Here is a section: 

"The pressure is on Lynas and Molycorp to demonstrate that rare earths is a viable business," said Dudley Kingsnorth, a rare earths expert at Curtin University in Western Australia, whose forecasts are widely used in the industry.

Lynas now expects to reach its initial output rate target by December at the latest, which should shore up its shaky cash position, its new CEO said in her first interview.

Lynas mines rare earths at Mount Weld in Western Australia and then ships concentrated material in 2.5-tonne bags to Kuantan in Malaysia, where it has built the world's biggest rare earths plant on a 100-hectare site surrounded by other chemical plants and peat swamp forest.

It had hoped to be producing rare earth oxides of lanthanum, cerium, neodymium and praseodymium, used in super magnets for wind turbines, car brakes, batteries for hybrid and electric vehicles, and energy efficient light bulbs by early 2012. 

But more than two years later it has yet to hit a stage one capacity of 11,000 tonnes a year, stalled by opposition to the project on environmental grounds and technical problems. Once it reaches that rate, Lynas will be cash flow positive, CEO Amanda Lacaze, who took the role in June, said on Wednesday.

"We have an opportunity here to take something and be significant in a worldwide sense," Lacaze said. "On the other side, there are a few hurdles or mountains to be climbed or pushed over to get to there."

Lynas is being shored up by the Japanese, who have looked for an alternative supply ever since China held back supplies amid a territorial dispute over the Senkaku Islands in 2010.
Trading house Sojitz Corp and state-run Japan Oil, Gas and Metals National Corp (JOGMEC) provided $225 million in debt for the second stage of its Malaysian plant, which included Sojitz taking 8,500 tonnes of product.

 

Eoin Treacy's view -

Rare earth elements represent strategic resources for a number of companies so developing multiple sources of supply makes sense. However China is jealous of its dominant position. Following the ill-calculated attempt to force high-end manufacturing to relocate and to influence geopolitics, China has flooded the market once more with supply in order to maintain market share. The result has been that nascent rare earth miners racing to get production underway saw their share prices plummet as access to credit became a lot more difficult. I’ve recreated the rare earth miners section from my Favourites in the Chart Library. 



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July 02 2014

Commentary by Eoin Treacy

The China Mini Stimulus Starts To Work

Thanks to a subscriber for this report from Deutsche Bank which may be of interest. Here is a section on copper

The copper market is showing the classic signs of tightness in the near term, with diminishing exchange inventories, widening spreads and high regional premia. However, we think SRB purchases have given the impression of a tighter market than is actually the case. The SRB bought nearly 500kt of metal in January and again in March/April, and has stated that its intention is to increase inventories to 2Mt, which implies a further 400 – 500kt of purchases. Given our view of a cumulative surplus of 1.4Mt, the purchase of c.1Mt certainly goes a long way to “balance” the market and would be supportive of prices.

Our view of price support at USD6,000 – 6,2000/t is based on the 90th percentile of the all-in-cash cost, but if SRB buying behavior continues when prices fall, there is perhaps a further reason to suggest support below USD6,500/t. In our view there are perhaps four key motives for SRB behaviour in supporting prices. The first may be as simple as the expectation of continued strong demand, and the need to stock up when there is perceived value in the metal. However, we expect the main reason is to keep prices at a reasonable level in order to continue incentivizing new production, support domestic production and also to keep a lid on price volatility for China’s downstream consumers, essentially acting as a buffer.

Figure 17 shows the drawdown of exchange stocks, with a con-current increase in China bonded warehouse stocks. The most recent drawdown in exchange stocks has seen bonded warehouse stocks also fall, suggestive of SRB buying. SRB purchases were also timed with sharp falls in the LME price. The current SHFE – LME arbitrage has closed suggesting higher exports in the coming months.

 

Eoin Treacy's view -

I suspect that SRB stands for Strategic Reserve Buying by China which represents a significant potential demand driver and has likely been boosted by the fact that stockpiles were not as large as previously expected. 

I thought that since copper prices continue to bounce from the lower side of their three-year range it might be an opportune time to re-highlight copper mining shares. I have recreated the copper miners section from my Favourites in the Chart Library and the View All Charts function is now also available in these sections. 



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July 01 2014

Commentary by Eoin Treacy

Gold investors pile into equities

This article by Deborah Roy for Bloomberg appeared in today’s Mineweb newsletter. Here is a section:

Gold prices are down 31 percent from an all-time high of $1,923.70 reached in September 2011. Holdings in global ETPs backed by the metal declined more than 47 metric tons this year, after slumping 869 tons in 2013, capping six straight quarters of declines, data compiled by Bloomberg show.

While investors are shunning gold, they’re buying ETPs backed by equities, which added $27 billion in June through June 27 and $44.8 billion in the second quarter, the data compiled by Bloomberg show. The Standard & Poor’s 500 Index of shares is up 6.1 percent this year, touching a record on June 24, while the MSCI All-Country World Index advanced for five straight months.

“The equity market continues to attract money as people expect that the economy will improve further,” Scott Gardner, who helps manage $450 million at Verdmont Capital SA in Panama City, said in a telephone interview. “Gold has risen this year, but it seems that some investors don’t expect the gains to stick.”

Eoin Treacy's view -

Generally speaking equity valuations are no longer cheap but momentum is still a powerfully bullish force. However value investors will be on the lookout for cheap sectors that have the capacity to play catch up. Following a painful process of rationalisation, gold miners have rediscovered the fact that they need to concentrate on making net profits if they wish to attract investor interest. As one of last year’s worst performing asset classes, a worst case scenario was priced into gold mining equities.

The Gold/NYSE Arca Gold BUGS Index ratio retraced its entire bull market advance over the last few years but has firmed in the region of the 2001 lows. Gold prices are reasonably stable above $1200 suggesting gold miners are cheap on a relative basis. 



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July 01 2014

Commentary by Eoin Treacy

Daily iron ore mine closures in China mean Citigroup is bullish

This article by Jasmine Ng appeared in Mineweb and may be of interest to subscribers. Here is a section

Local suppliers in Asia’s largest economy are cutting production even as mills increase steel output on improved margins, according to analyst Ivan Szpakowski. An iron ore mine in China is being shuttered every day, with closures seen in all main producing regions, he said in an interview from Shanghai.

Producers in China, the world’s largest user, face a rising challenge of lower-cost supplies from BHP Billiton Ltd., Fortescue Metals Group Ltd. and Vale SA after the biggest miners in Australia and Brazil expanded output and spurred a global glut. While benchmark prices in China posted the biggest three- month loss since 2012, they rose 2.2 percent in June, the first monthly advance since November.

“We’re one of the most bullish people in the market,” said Szpakowski, reiterating a forecast for prices to average $100 a ton in the fourth quarter and $104 this year. “Imported ore is much cheaper than domestic ore, so the shift in buying has moved to imported ore. That’s supporting imported prices.”

Eoin Treacy's view -

Earlier this year the major iron-ore miners made clear they were willing to tolerate short-term pain in order to re-establish their competitive advantage in the market. The central aim of this strategy has been to drive Chinese miners, dependent on high prices, out of business which now appears to be showing some success.

Iron-ore prices have at least stabilised near $90 over the last couple of weeks but will need to hold this level in order to convince investors the worst is over. 



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June 30 2014

Commentary by Eoin Treacy

Zinc Prices Surge as Supplies Shrink

This article from Morningstar may be of interest to subscribers. Here is a section:

The amount of zinc held in the LME's global warehouse network fell to a 3 1/2 -year low of 674,375 metric tons on Thursday. While the stockpiles increased by 1,900 tons on Friday, the amount of zinc in LME storage is still down 28% this year.

"That decline in stocks is helping to drive zinc higher, no question about it," said Michael Turek, senior director of metals with Newedge in New York. "In the meantime, demand is quite good in the U.S., and Europe isn't the basket case we expected it to be."

Global demand for zinc is likely to grow 5.7% this year to 13.85 million metric tons and expand a further 5.2% in 2015, according to Morgan Stanley analysts.

Zinc traders have been tapping the LME's stockpiles as they grapple with reduced output from the world's mines.

Last year, Glencore PLC shut down the Brunswick and Perseverance mines that produced zinc and lead in eastern Canada. MMG Ltd.'s Century mine in Australia, the world's third-largest open-pit lead-and-zinc mine, is expected to be closed by the end of 2015, as is Vedanta Resources PLC's Lisheen mine in Ireland. Lead and zinc are often found together, and the deposits sometimes contain other metals, such as silver or gold.

 

Eoin Treacy's view -

Zinc prices have been ranging mostly above $1700 since 2010 and have recently rallied back to test the $2200 area which has been an area of resistance since 2012. A growing trend of miners closing operations suggests the $1700 area represents a floor where additional production cuts would be necessitated. Some consolidation in the region of the range highs is a possibility but a sustained move below $2075 would be required to question current scope for continued higher to lateral ranging. 



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June 30 2014

Commentary by Eoin Treacy

Corn Heads for Biggest Decline in Year on Climbing Inventories

This article by Jeff Wilson and Megan Durisin for Bloomberg may be of interest to subscribers. Here is a section:

“Inventories were larger than expected and signal no shortfall in supplies ahead of the harvest this year,” Dale Durchholz, the senior market analyst for AgriVisor LLC in Bloomington, Illinois, said in a telephone interview. “Corn supplies are comfortable.”

Corn futures for December delivery fell 4.5 percent to $4.2725 a bushel at 11:39 a.m. on the Chicago Board of Trade, heading for the biggest decline since June 28, 2013.

Global grain stockpiles, excluding rice, are forecast to climb to a 15-year high by the end of the 2014-2015 season, the London-based International Grains Council said on June 26.
Soybeans Tumble

Soybeans fell to the lowest since January 2012 as the USDA said farmers will plant more than analysts expected.

Seedings will reach an all-time high of 84.839 million acres. Analysts expected 82.213 million acres, according to a Bloomberg survey. The USDA said in March that growers intended to plant 81.493 million.

“Certainly, we were all fearing for a record number, but this was way out of the range of expectations,” Bill Nelson, senior economist at Doane Advisory Services in St. Louis, said in a telephone interview. “We had the wet start to the corn planting season. In the end, that might have encouraged some farmers to switch from earlier intentions into soybeans.”

 

Eoin Treacy's view -

Due to a confluence of factors the commodity complex has experienced a rotation where the metal and energy sectors have returned to outperformance while volatility within softs and agriculture has resulted in a great deal of variability in terms of performance. Grains and beans have come under particular pressure.



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June 27 2014

Commentary by Eoin Treacy

Cattle Drop First Time This Week on Demand Concern; Hogs Gain

This article by Lydia Mulvany for Bloomberg may be of interest to subscribers. Here is a section: 

While supplies remain tight, high prices may spur a slowdown in demand, Chad Henderson, president of Brookfield, Wis.- based Prime Agricultural Consultants Inc., says in a telephone interview

“Even the most bullish markets can’t go up every day. It’s a pause, and the real question as we move forward is what are consumers going to do, and will we see a slowdown in demand?”

Eoin Treacy's view -

Cattle prices are no longer in backwardation across the curve but that is not unusual for this time of year considering how cyclical the slaughter schedule is. Last year’s drought and the high price of feed contributed to the present shortage of both cattle and hogs. The result of this year’s rally is that demand for calves and suckling pigs will have increased as farmers aim to profit from the high prices. Therefore this scenario is unlikely to be an exception to the commodity market adage that “the cure for high prices is high prices.” 



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June 26 2014

Commentary by Eoin Treacy

China Finds $15 Billion of Loans Backed by False Gold Trades

This article from Bloomberg News may be of interest to subscribers. Here is a section:    

The London-based WGC said it was confident that any fraud in China did not affect its overall estimate for gold demand.

The National Audit Office’s report was delivered by its chief, Liu Jiayi, at a National People’s Congress meeting June 24 and posted on the office’s website. The report covers a period beginning in 2012 and doesn’t specify an end date. It doesn’t identify companies or banks.

And 

Local lenders and foreign banks including Standard Chartered Plc, Citigroup Inc. and Standard Bank Group said they are reviewing potential fallout from any lending linked to Qingdao.

The Chinese agency that stockpiles strategic commodities is checking to ensure its copper purchases are free of collateral risks while the customs authorities issued new rules to help prevent goods being pledged multiple times as collateral, people with direct knowledge of these matters said previously.

Of the as much as $160 billion in transactions projected by Goldman, $80 billion may involve gold, $46 billion copper, $13.8 billion iron ore and $10.3 billion soybeans, according to a March 18 report.

 

Eoin Treacy's view -

China’s gold imports represent a major source of demand for the global market. Therefore any threat to this driver is a potential headwind for gold prices. On the other hand, the fact that inventories are $80 billion less than previously anticipated means someone will need to buy in order to reach their desired holding. 

 

 



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June 25 2014

Commentary by Eoin Treacy

Capex about to turn up: The missing link in the US recovery

Thanks to a subscriber for this report from Deutsche Bank which may be of interest. Here is a section: 

Spending on non-residential structures fell to unusually depressed levels following the financial crisis and has remained weak during this recovery. Similar to residential investment, much of this weakness can be attributed to a need to work through the overbuilding that occurred during the run up to the financial crisis, as structures share of GDP rose rapidly from 2004 through 2008. There are some indications that this excess supply has diminished materially and that pent up demand for non-residential structures should lead to stronger spending going forward. For example, the vacancy rate for office space nationally has declined steadily over the past four years toward historically more normal levels (Chart 18). In addition, in response to the shale energy boom in the US, investment in energy-related structures has been notably strong. This supports the outlook for a pickup in investment in commercial structures.

IPP: Uptrend should continue
Spending on IPP – composed of spending on software, R&D, and entertainment, literary and artistic originals – has displayed a steady uptrend as a share of GDP over the past several decades, which has been relatively impervious to cyclical factors. Recent strength in IPP spending has been driven primarily by the R&D component. IPP spending may also benefit from a shift away from investment in information processing (IP) equipment.

Equipment: IP equipment has been notably weak
Equipment spending as a share of GDP remains well below historical averages for this point of the recovery. In this section we take a more granular look at equipment’s components to analyze the underlying causes of this weakness. We have already determined that transportation equipment is near longer-term averages. We also find that recent contributions to BFI from industrial equipment and the “other” equipment category appear to be in line with longer-term averages. Conversely, IP equipment appears to be the component driving much of the softness in total equipment spending. Spending on IP equipment has been consistently below its longer-term average contribution to overall fixed investment during this recovery (Chart 19). 

Eoin Treacy's view -

The majority of established technology companies rely on corporate spending to boost earnings. The outperformance of the Nasdaq-100 highlights the fact the corporations have been spending on software and other services. The return to outperformance of the industrial sector in 2012 reflects increased spending on machinery and embedded processors. Generally speaking there is a perception that the US recovery is weaker than one might expect but the fact that companies are embarking on increased spending is a sign of confidence. 



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June 25 2014

Commentary by Eoin Treacy

Australia lowers 2015 iron ore price forecast to $94.60/t

This article by James Regan for Reuters may be of interest to subscribers. Here is a section

BREE's forecast iron ore price for 2015 is just above the current price of 93.30 .IO62-CNI=SI, following a 30 percent price drop this year. However, exports in fiscal 2014/15 were forecast to rise 13 percent to 720.7 million tonnes, BREE said, just below its previous estimate.

Jefferies has cut its earnings estimates for iron ore miners by 5-9 percent below consensus between 2014 and 2016, owing to expectations ore prices will continue to weaken as supply swells.

"This tsunami of supply is still rolling in, and supply growth is likely to be substantial until 2016," it said in a client note.

BREE also forecast a sharp dip in metallurgical coal prices to $118.90 a tonne in 2015, well down on its March forecast of $134.60. It slightly increased its forecast for exports to 180.5 million tonnes in 2014/15, just up on a year earlier.

Commissioning of new coal mines has more than offset lost production from ones that have closed, BREE said, but many producers were unprofitable at prevailing prices.

"This demonstrates the business of mining bulk commodities like coal and iron ore is almost exclusively the domain of big producers, which can benefit from their large economies of scale," said Minelife analyst Gavin Wendt in Sydney.

Eoin Treacy's view -

Over the last week iron-ore prices have stabilised near the 2012 low at $90. A short-term oversold condition is evident so even in a bearish scenario there is scope for a bounce from these levels. However investors are probably going to require some evidence of steadying before concluding a meaningful floor has been reached.

Coking Coal prices have fallen even further and are currently trading below their 2008 lows. A sustained move back above the 200-day MA would be required to begin to suggest more than a short-term low has been reached.



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