Weekly Round-Up: Asia and Europe Weigh on Commodities

Commodities ended the week lower as troubling news out of the Eurozone and Asia on Thursday offset a new stimulus plan from Japan’s central bank earlier in the week.

On Wednesday, the Bank of Japan announced that it will add 10 trillion yen, or $126 billion, to its current asset-purchase plan in an effort to revive the country’s flagging economy. That brings the total cost of the program to 80 trillion yen from 70 trillion. The new spending will be split evenly between government bonds and T-bills. The bank expects to complete these purchases by the end of 2013.

The Japanese central bank’s purchases follow the US Federal Reserve’s move last week to buy $40 billion worth of mortgage-backed securities a month from private banks. A week before that, the European Central Bank unveiled a similar strategy.

Commodities and stock markets rose on the news. However, those gains were largely erased on Thursday, after the release of the HSBC Flash China Purchasing Managers’ Index (PMI). The report, which is a preliminary look at the country’s manufacturing activity in September, showed a slight improvement, rising to 47.8 from 47.6 in August. However, the fact that the figure remains below 50 indicates that Chinese manufacturing continues to contract.

Still, the slight uptick indicates that the contraction is slowing. “I don’t think there’s much more downside,” said Alaistair Chan, an economist at Moody’s Analytics’ Asia desk. “I think these producers are reaching the point where their production is meeting demand. I don’t see them cutting production much more.”

Elsewhere, the Eurozone’s PMI slipped to 45.9 from 46.3 in August, and Japan reported that its exports declined 5.8 percent during the month.

In morning trade Friday, Brent crude is up 1.07 percent at $112.68 a barrel, while copper is up 0.94 percent at $3.79 a pound. Gold is up 0.98 percent at $1,787.60 an ounce.

Gold

The CEO of Newmont Mining (NYSE:NEM,TSX:NEM), Richard O’Brien, is sticking by his prediction of a continued rise in gold prices. “I still feel good about a $2,000 gold price,” said the head of the world’s second-biggest gold miner in a CNBC interview this week. In the wake of the Fed’s latest round of quantitative easing, O’Brien feels “employment has trumped managing the currency, and the U.S. dollar will come down and gold will come up.”

Higher gold would be an added plus for Newmont shareholders because the company’s dividend is tied to gold prices. Right now, the stock yields 2.49 percent.

Junior miner Brazilian Gold (TSXV:BGC) released an updated NI 43-101 compliant resource estimate for its wholly-owned São Jorge gold deposit in Brazil. The new estimate shows a 43 percent jump in the size of the indicated resource, partly due to an 18 percent increase in the indicated grade. According to the new estimate, the deposit contains an indicated 541,000 ounces of gold, along with an inferred 611,000 ounces.

Oil and gas

Putting further downward pressure on crude prices was a larger than expected jump in US inventories as production recovered after Hurricane Isaac. The Energy Department said supplies rose by 8.5 million barrels last week, to a total of 367.6 million. That was far higher than the 500,000 barrel increase that analysts expected.

ExxonMobil (NYSE:XOM) will pay Denbury Resources (NYSE:DNR) $1.6 billion for all of its properties in the Bakken shale region. Denbury will also get Exxon’s stakes in properties in Wyoming and Texas, which produce roughly 3,600 barrels of oil equivalent per day of natural gas and natural gas liquids.

The purchase, which includes a total of 196,000 acres, will increase Exxon’s holdings in the area by roughly 50 percent, to 600,000 acres. The company expects the properties to produce an average of 15,000 barrels of oil equivalent per day in the second half of 2012.

Chevron (NYSE:CVX) announced that its Australian subsidiary has made a new gas discovery in the Carnarvon Basin off the coast of Western Australia.

The company’s Satyr-2 exploration well confirmed about 39 meters of “net gas pay,” or gas that can be produced and sold. The well, which lies in 1,088 meters of water about 120 kilometers northwest of Barrow Island, was drilled to a depth of 3,796 meters. It is part of Chevron’s 50 percent owned WA-374-P permit area. Royal Dutch Shell (LSE:RDSA) and ExxonMobil own 25 percent each.

Nexen (NYSE:NXY,TSX:NXY) shareholders approved Chinese state-owned oil company CNOOC’s (NYSE:CEO,HKEX:0883) $15.1 billion takeover of Nexen at a special meeting held on Thursday. The bid received the support of 99 percent of Nexen’s common shareholders and 87 percent of holders of its preferred shares. Regulators — including the Canadian government — must still approve the deal.

Copper

The red metal fell the most in seven weeks on the negative news out of China and Japan, the number one and number four consumers of copper, respectively. COMEX copper closed at $3.76 on Thursday. The decline came after copper hit a four-and-a-half-month high on Wednesday on the Japanese central bank’s stimulus announcement.

Commodities trading firm Glencore International (LSE:GLEN) plans to spend $600 million to expand the Philippines’ only copper smelter and refinery. The move will double the facility’s capacity from 720,000 metric tons of copper concentrate a year to 1.2 million ounces.

Glencore should complete the financial and technical studies on the project by December, and work could begin in May 2013. The company says the expansion will take two to three years to complete.

The country’s president, Benigno Aquino, aims to build more refinery capacity in the Philippines and move away from exporting ore. The country’s resource wealth, which is largely unexploited, is estimated to be worth $850 billion.

Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.