Weekly Round-Up: China Data Bites, but Easing Hopes Remain

Disappointing economic data from China took a bite out of energy and industrial metal prices across the board, offsetting signs of improvement in the US jobs market. Looking ahead, expectations of further monetary stimulus measures from Beijing and other central banks should continue to rise, while worries about weak global growth will keep investors on their toes. Gold is increasing its allure amid persisting global uncertainties.

Chinese exports rose by just 1 percent in July from the same period a year ago to $176.9 billion. That follows an 11.3 percent increase in June, and is a lower gain than analysts expected, according to the customs bureau. Imports rose 4.7 percent on year to $151.8 billion against a 6.3 percent increase in June, and China’s trade surplus narrowed to $25.1 billion from $31.7 billion in June.

Also this week, China reported that factory output hit a three-year low in July as industrial production for that month rose 9.2 percent against 9.5 percent in June.

The latest figures from China are putting a damper on both energy and base metal demand, as the world’s second-largest economy has been pivotal in keeping the world economy afloat, particularly amid continued economic uncertainty in Europe and patchy signs of growth in the United States. Indeed, investors shrugged off the latest strong US jobs data despite the fact that initial jobless claims in the latest week unexpectedly fell by 6,000 to 361,000.

Still, there is a silver lining to China’s weak trade and manufacturing numbers. Investors have their sights set on a third round of central bank stimulus action this year and are hoping that the government will lower rates and boost domestic spending and investments.

In early morning trade Friday, Brent crude is 0.7 percent lower at $112.46 a barrel, while copper is 0.7 percent weaker at $3.39 a pound. Gold is up 0.3 percent at $1,625.60 an ounce.

Oil and gas

The International Energy Agency (IEA) lowered its projection for oil demand worldwide this week as the global economy continues to face challenges. In addition, the Paris-based agency said that Japan’s resumption of nuclear energy use will curb demand for oil. The IEA projects that global oil demand will average 90.5 million barrels a day in 2013, down 400,000 barrels a day from its estimate in July.

On the other hand, the fire at Chevron’s (NYSE:CVX) Northern California refinery earlier this week has already raised prices at the pumps on the west coast of the United States. Chevron expects repairs to the second-largest refinery in the state, which produces over 15 percent of the region’s gasoline supply, to take up to three months.

BP (LSE:BP,NYSE:BP), Total (NYSE:TOT), and Azerbaijan’s state-owned oil group, SOCAR, will be joining forces to fund the Trans Adriatic Pipeline (TAP), which will carry natural gas from the Caspian Sea to Southern Italy via Greece and Albania. Shareholders in the TAP are Switzerland’s EGL and Norway’s Statoil (NYSE:STO), which own 42.5 percent of total shares each, and Germany’s E.ON Ruhrgas, which holds the remaining shares.

Vancouver-based Simba Energy (OTCQX:SMBZF) identified numerous oil seeps in Guinea. The Africa-focused company’s chief technical officer, James Dick, stated, “we are very pleased with the magnitude and number of seeps found, with hydrocarbon odor present at some of these locations. The Company is pleased with its progress to date and will continue with its activities to prepare for further appraisal work.”

Copper

While China’s exports fell more than expected, its copper imports rose 6 percent from a year ago in July, giving hope to investors as the country consumes over 40 percent of the world’s copper.

Meanwhile, a group of six Indian companies has put in bids to acquire copper and gold deposits in Afghanistan. Four state-run companies — namely Hindustan Copper, Steel Authority of India, National Aluminum, and Mineral Exploration — together with privately-held Monnet Ispat & Energy (BSE:513446) and Jindal Steel & Power (BSE:532286), are vying for projects in the provinces of Ghazni, Badakhshan, Herat, and Sar-e Pol.

Hudbay Minerals’ (NYSE:HBM) plans to invest $1.5 billion to develop its Constancia copper mine in Peru were approved by its board of directors. The Constancia mine is expected to generate an unlevered internal rate of return of 14.5 percent and a net present value of $571 million, assuming a discount rate of 8 percent and longer-term copper prices of $2.75 a pound, the company said.

Cobriza Metals (TSX:CZA) said significant copper as well as gold and silver mineralization have been intersected at its Arikepay project in Peru. “This initial drill campaign was very successful in the discovery of a large porphyry system which contains significant Cu [copper], Au [gold] and Ag [silver] mineralization. We are now busy compiling and interpreting all of the results in order to plan Phase II of exploration at Arikepay,” said Michael Thicke, company president.

Gold

Moscow-based Highland Gold (LSE:HGM) said it expects to meet its 2012 output target of producing 200,000 to 215,000 troy ounces of gold and gold equivalents. For the first six months of the year, its output increased by 9.5 percent from the same period a year ago to 101,900 ounces. The average sale price of the yellow metal rose by 13 percent on year to $1,641 per ounce.

AngloGold Ashanti (NYSE:AU) is planning to increase production over the next three months to offset cost increases, as the cost to produce gold may increase up to $865 an ounce in the third quarter, and output is expected to reach between 1.07 million and 1.1 million ounces. In the second quarter, production costs averaged $801 an ounce while output reached 1.073 million ounces.

RX Gold & Silver (OTC Pink:RXEXF) and US Silver (TSXV:USA) received a final order from the Ontario Superior Court of Justice to proceed with their merger. Under the terms of the combination transaction, each outstanding common share of US Silver will be exchanged for 0.67 of a common share of the combined company and each outstanding common share of RX Gold will be exchanged for 0.109 of a common share of the combined company.

Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.