Commodities

Glencore’s giant cash call puts squeeze on rivals

7 Sep 2015

The Swiss trader’s $10 bln debt reduction plan eases balance sheet jitters by cutting net borrowings by a third. Investors get stability at the expense of their dividend. But the move offers a grim view of commodity prices that undercuts the investment case for the whole sector.

Why oil investors are so behind the curve

2 Sep 2015

Investors used to assume that the cost of pulling oil out of the ground was relatively static – or changed slowly. Reality is slipperier. Rethinking the way the “cost curve” works may help explain recent gyrations in oil and other commodity markets.

Miners’ dividends are a fragile commodity

25 Aug 2015

BHP Billiton has raised its payout even as prices fall. That helps win investor support for its aggressive iron ore production strategy. Yet across the sector, funding generous payouts will become tough unless supply and demand rebalance. There is little to suggest they will.

Glencore tripped up by faith in rational markets

19 Aug 2015

The commodity trader’s earnings have disappointed as copper and coal have tumbled. Anticipating the market is getting harder because both rivals’ behaviour and Chinese demand for raw materials are even more unpredictable. Glencore is thus focusing on what it can control: cash.

Noble Group clears first of four comeback hurdles

11 Aug 2015

A detailed review by PwC has gone some way towards reassuring investors about the group’s mark-to-market accounting. Next the embattled commodity trader must adopt the report’s recommendations; reassure shareholders in person - and generate some actual operating cash flow.

Rio Tinto is winning in dirty ore wars

6 Aug 2015

The Australian miner’s earnings from iron ore more than halved in the first half, yet production is booming. Low costs give Rio and big peers ammo to drive others out of the market as metal prices crater. It’s a brutal demonstration of market forces, and geological good luck.

Noble could use new backer for confidence shortcut

4 Aug 2015

Attracting a heavyweight investor would show faith in the commodity trader’s accounts. Better yet if this signals Noble is neither desperate for funds nor fully valued by the market. A convertible bond would achieve those aims while minimising the pain for existing shareholders.

Gold’s support is melting away

20 Jul 2015

Bullion has fallen to a five-year low, briefly trading below $1,100 per ounce. Chinese demand is underwhelming and Greek fears are abating. With the dollar and U.S. policy rates set to rise, the opportunity cost of holding gold will increase. The price slide can easily continue.

Vedanta could pay more for Cairn India

15 Jun 2015

The debt-laden Indian miner wants full control of its cash-rich oil subsidiary. The fate of the $2.3 bln all-share bid hangs on Cairn’s two big outside investors. If they object, Vedanta could afford to lift the skinny 7.3 pct premium by paying more in preference shares.

Molycorp unearths definition of a commodity

1 Jun 2015

The rare-elements miner missed an interest payment, which could herald a descent into bankruptcy protection. Since peaking at $6 bln in 2011, Molycorp’s market value has collapsed 99 pct. It’s a classic case of investors confusing a demand surge, tight supply and real scarcity.

Rio, BHP will show market trumps Aussie politics

19 May 2015

Prime Minister Tony Abbott might want to do something about the fiscal pain caused by slumping iron ore prices. But he won’t get far. He can’t tell the big miners to abandon their “saturate and dominate” strategy. The tactics are bang in line with Australia’s free-market ethos.

Bond turmoil signals new era of return-free risk

15 May 2015

Forget the risk-free rate - investment safe havens are in short supply. Cash can be costly. Gold is a dollar proxy. And recent gyrations in the largest debt markets have undermined the concept of risk-free returns. When this last compass fails, investors are really at sea.

SocGen hints at end to bank commodities exodus

10 Apr 2015

The French bank is acquiring energy and metals trading positions from Jefferies. Higher capital charges and deleveraging have seen peers, apart from Citi and Goldman, shrink their activity. But clients still need to hedge exposures – and business may slowly be ticking up.

Copper collapse accurately indicates global pain

14 Jan 2015

The sharp drop in the price of the red metal may have more to do with traders’ positions than a sudden decline in underlying demand. Still, supply constrained copper is a bellwether for the global economy and for share prices. The readings on both are grim.

Oil price trough could be far away

13 Jan 2015

Petro-economics are painfully simple for producers. Lower prices hardly push up demand. And it will take a price below $30 a barrel before supply falls enough to balance the market. Unless producers can regroup into an effective cartel, their suffering will continue.

No-yield world removes some of gold’s tarnish

6 Jan 2015

One good reason not to buy the yellow metal used to be that alternative safe investments had much higher yields. That disadvantage is dwindling with negative yields and deferred rate rise expectations. The price of gold may still fall, but it has become a less expensive haven. 

Petrodollar drought is new risk for markets

6 Jan 2015

Low oil prices are not only a blight for energy producers. They could hurt global financial markets too. After years of surplus petro-earnings gushing into a range of assets, notably fixed income, the flows are at risk of reversing. The sharp equity market fall may be a first sign. 

Edward Hadas: The oil price is just plain wrong

5 Jan 2015

At $55 a barrel, crude is still too expensive for the industry to be rational about development. But after the big price drop, some consumers will pay too little for a rational economy. And the market drama wastes resources. The right goals are a weak cartel and high user taxes.

Repsol takes risky $13 bln bet on Talisman

16 Dec 2014

The Spanish oil group is paying a big premium for the Canadian producer. The deal adds diversification after Argentina expropriated its YPF unit but also brings problematic North Sea assets. Repsol is hoping for a Talisman turnaround and an oil price recovery. Both are uncertain.

Gold’s rally won’t outlast tectonic rate shift

11 Dec 2014

The yellow metal is up as tumbling oil prices and a rising dollar destabilise many financial markets. Euro zone fears and Russian gold buying have also helped. But U.S. rate rises will create major shifts in the financial world. Gold is set for a bad 2015.