Commodities

Beware of overhyping the oil dividend

9 Dec 2014

The sharp crude decline is widely seen as good for growth. Yet its main impact is not to boost the world’s total output but to change the distribution of income. Even then, the GDP shift from oil-exporting to oil-importing countries is likely to be substantially less than 1 pct.

U.S. Senate commodities probe gets bank risk right

20 Nov 2014

The two-year investigation into Wall Street’s ownership of oil and other physical holdings is bigger on assertions than new evidence. But its warnings about capital shortfalls and systemic hazards ring true. They’re problems that need fixing regardless of the type of asset.

Oil price fall challenges all the theories

13 Nov 2014

In the summer, producers seemed to have finally found the key to price stability. But the stable cartel model was faulty. The supply-demand equilibrium and marginal costs explanations look even lamer. Will the principle that lower oil prices lead to faster GDP growth also fail?

Safety scare shows Chinese dairy’s fragile premium

12 Nov 2014

An official probe into China Modern Dairy’s sale of infected cows has knocked 6 pct off shares in the country’s largest milk maker. In a scandal-tainted industry, the company’s quality reputation allows it to charge higher prices. But customers and investors are easily spooked.

Russia tries Chinese path out of European impasse

11 Nov 2014

Moscow has signed another mega gas deal with its southern neighbour. Vladimir Putin may have to accept bad terms, but the point is to show Europe that he can turn to China if the standoff over Ukraine persists. And that in the short term, Russia can bear the economic pressure.

Gold bulls have precious little to cling to

6 Nov 2014

The asset was first to swoon when investors awoke to the end of U.S. money-printing. Coin sales, a recovering Indian rupee and declining supply offer some hope. But even after a near-40 pct fall, the price hasn’t adjusted to the end of speculative fervour. Sub-$1,000/oz looms.

Commodity producer/trader boundary starts to blur

14 Oct 2014

Glencore’s interest in a deal with Rio Tinto was about more than corporate ambition. Commodity traders are keen to buy hard assets to secure supply, while producers view logistics and marketing as a way of boosting returns. Expect more convergence, and shrinking trading margins.

China coal tariffs blacken Aussie free trade talks

14 Oct 2014

Import taxes will help China to protect its ailing domestic producers from a glut of cheap foreign supply. Yet raising the defences makes it even harder for Australia, a top exporter, to present a long-awaited agreement with its top trading partner as evenly balanced.

Rio Tinto can dig in against Glencore

7 Oct 2014

The miner’s shares leapt after it admitted rebuffing the commodity trading giant. Yet the timing is opportunistic, as iron ore slumps, and a $160 bln merger looks suspiciously like a takeover on the cheap. So Rio’s board can justifiably demand a big premium, or no deal. 

Glencore Rio takeover would be harder than Xstrata

7 Oct 2014

Ivan Glasenberg’s miner-trader is stalking $90 billion iron giant Rio Tinto. Though there’s some logic to a deal, Glencore will be loath to pay much of a premium, and the clash of cultures would be extreme. Rio is also in a better position to resist than rival Xstrata in 2012.

Asset price disinflation may be next big thing

6 Oct 2014

Iron ore led the way, oil is following and stocks may be joining the bandwagon. Even some hot property markets are cooling. Less ultra-loose U.S. monetary policy is blamed, but this looks more like the spread of a disinflationary tide. If so, safe bond prices will keep rising.

Mining short-termism will prolong iron ore misery

6 Oct 2014

The commodity’s price is slumping due to oversupply. Group discipline among producers could stop the rot. Instead, BHP Billiton plans to squeeze more out of existing facilities. Others may do the same. Unfortunately, offering shareholders jam today may mean harder times tomorrow.

Double-digit oil forces majors into more self-help

2 Oct 2014

The Big Oil groups already had a profitability issue before prices started falling. There’s no quick fix. They will have to step up efforts to boost cashflow by cutting costs and capex, and selling assets. At least balance sheets aren’t stretched, so dividends are safe – for now.

Commodity bear market looks entrenched

29 Sep 2014

A rising dollar, the prospect of U.S. rate rises, and moderating Chinese growth are casting long shadows over the asset class. The threats to the bear case are strong supply-side responses, or successful economic stimulation by the ECB. Neither looks very likely.

Commodity prices mirror global growth pessimism

17 Sep 2014

Fading hopes of 3 percent-plus global GDP growth are bringing down prices of everything from oil and cotton to corn and sugar. Expectations of monetary tightening are also playing a role. Equities remain sanguine, but some sagging currencies suggest the selloff could go further.

Double-digit oil promises lubrication not seizure

9 Sep 2014

Brent fell below the $100 a barrel threshold on Monday. The decline is mostly an adjustment to less money-printing, a firmer dollar and shale supply, not a sign of impending deflationary doom. Oil could fall further. That will be good for consumer spending and global recovery.  

Gold’s geopolitical ledge won’t hold up

1 Sep 2014

International tension has helped stabilise the gold price after a 2013 plunge. But the fundamentals are bad. ETF redemptions persist while bar and coin investment has dropped heavily. Jewellery demand remains soft. Consumers want cheaper gold. They are likely to get it next year.  

Sinopec petrol sale attracts a motley bunch

19 Aug 2014

The Chinese oil giant is seeking investors for its vast network of filling stations. Retail, energy, technology and private equity groups are keen. With a price tag of $16 bln for a minority stake, they will have to club together. That will make it harder to exert influence.    

BHP cheer shows premium on focus

15 Aug 2014

The miner’s shares rose on news its demerger idea is nearer fruition. A split won’t transform the business, and it’s hard to see the separated $12 bln-plus unit being bid for. But simplicity is in vogue. So creating stocks for distinct investor bases can create shareholder value.

Review: Inside commodity traders’ "Secret Club"

18 Jul 2014

During the 2000s, speculating in commodities became the new fad, contributing to soaring prices and increased volatility, says Kate Kelly in a new book. She oversimplifies some of the dynamics of this complex world, but the powerful club she exposes should not be overlooked.