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Commodities are steady following the release of strong US jobs data suggesting an improved economy. But worries about the Eurozone still loom.
By Shihoko Goto – Exclusive to Resource Investing News
Commodities are holding steady this week, as investors weigh the downside risks stemming from Europe’s ongoing debt challenges and the upside potential of the US economy, particularly after the release of a better-than-expected US jobs report. Energy demand is gaining ground on the news as well as from worries about the impact of a possible Iranian oil export ban, while copper is seen lower amid worries about a continued economic doldrums. Gold, meanwhile, is on the rise as the appetite for the safe haven asset gains traction once again.
The US Department of Labor’s Bureau of Labor Statistics reported the nation’s unemployment rate for December reaching its lowest level in nearly three years, while 200,000 new jobs were added during the month. The report is the latest in a string of economic data suggesting that the US economy is on the mend.
Still, worries persist about the Eurozone’s outlook, not least as the European Commission’s statistics group Eurostat reported that retail trade volume in the euro area fell by 2.5 percent from a year ago in November, and down 0.8 percent from the previous month. The euro hit a 15-month low against the US dollar, increasing Europe’s difficulties in getting its debt situation under control.
In mid-morning trade Friday, Brent crude was up 0.4 percent at $113.20 a barrel, while copper was 0.2 percent lower at $3.42 a pound, and gold gained 0.4 percent at $1,626.20 an ounce.
Iran dominated the headlines in the energy market, as the prospect of European sanctions against Iranian oil are seen disrupting crude supply from the Middle East in general, which in turn has pushed up energy prices. However, refiners in Asia are already looking for alternative supplies to Iranian oil in anticipation of disruption, according to Bloomberg. In particular, Taiwan’s Formosa Petrochemical (TPE:6505) has already bought extra crude, while Japan’s JX Nippon Oil & Energy (TSE:5020) is already in talks with Saudi Arabia to replace shipments should Iranian supply be disrupted. Asia accounts for 65 percent of Iran’s oil market.
On the earnings front, Tesoro (NYSE:TSO) said it expects to lose between 55 cents to 80 cents a share in the fourth quarter as discounts for US crude oil shrank.
“Contributing to the net loss was an extremely weak margin environment in California and the collapse of the West Texas Intermediate to Brent crude oil spread,” Tesoro stated Thursday in releasing its latest projection for the fourth quarter. The company will release its latest results February 2, and some analysts expect Valero Energy (NYSE:VLO), among others, to face challenges similar to that of Tesoro.
Copper demand, meanwhile, is expected to remain weaker as market eyes continue to focus on the risks in the global economy. As for the price of the red metal moving forward, BHP Billiton (ASX:BHP) has settled 2012 copper concentrate treatment and refining charges with Chinese copper smelters at $60 a tonne and 6.00 cents a pound, up from $56.5 a tonne and 5.65 cents a pound in 2011, according to Reuters. The news agency pointed out, however, that BHP’s price is lower than the $63.5 a tonne and 6.35 cents a pound for 2012 Freeport McMoRan (NYSE:FCX) has agreed to for clean, standard concentrate from China’s Jiangxi Copper and Japan’s Pan Pacific Copper.
As for gold, its allure as a safe haven asset is on the rise once again, and the US Mint reported selling 45,000 ounces of American Eagle coins already in January, compared to 65,000 ounces for the entire of month of December and 41,000 in November.
Yet both HSBC and Barclays lowered their gold price targets for 2012 by over $100 an ounce. HSBC’s chief commodity analyst James Steel now sees gold at $1,850 an ounce, down from his previous estimate of $2,025. Barclays’ precious metals analyst Suki Cooper sees gold at $1,875, down from its earlier projection of $2,000.
On the corporate front, Queensland-based Allied Gold Mining (ASX:ALD) agreed to a new three-year $80 million hedge-free gold loan with RK Mine Finance, which specializes in funding for mining companies. The loan will be used to repay Allied Gold’s existing $55 million in corporate borrowings and will provide substantial liquidity for the group as it completes its existing capital expenditure projects, Allied Gold stated. The loan is repayable in physical gold and the number of ounces to be provided is linked to the prevailing gold price.
I, Shihoko Goto, have no interests in the companies mentioned in this article.