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Europe’s debt crisis dominates the headlines and oil continues to slide, but interest in base metals is up on bargain hunting and concerns that demand will exceed supply down the line.
Europe remained at the forefront of the minds of many commodity traders this week as uncertainties about the Eurozone’s outlook continued to weigh down on energy. Still, bargain hunters have been sweeping in to shore up base metals while demand for gold has risen amid growing worries about the European sovereign debt crisis. Support for bargain hunters can be found outside of Europe, not least from a rebound in Japan’s economy and improvements in US industrial production.
Investors and policymakers alike are on their toes about the path Europe will take to ensure the future stability of the Eurozone, and market eyes will be closely following this weekend’s G8 meeting, which is to be held at Camp David and hosted by President Barack Obama, for clues. German Finance Minister Wolfgang Schaeuble said in an interview with France’s Europe 1 radio that “a calming of the financial markets” could be reached “in 12 to 24 months.”
Still, market appetite for risk clearly exists if the overwhelming demand for Facebook shares is any indication. For some investors, the fact that the bears are clearly beating out the bulls in the commodities market may make this an opportune time to buy. With the second round of Greek elections a month away and Athens certainly remaining in the Eurozone until then, some analysts have argued that this may present an ideal time to do so. Indeed, a rebound in the Japanese economy as its first quarter GDP increased by an annual rate of 4.1 percent and a 1.1 percent increase in US industrial output in April indicate that demand for materials is steady.
In early morning trade Friday, Brent crude is 0.2 percent lower at $107.24 a barrel, while copper is up 0.5 percent at $3.49 a pound and gold is 0.8 percent higher at $1,586.80 an ounce.
For now, though, worries about a global economic slowdown are pushing down shares in mining giants, including Rio Tinto (ASX:RIO) and BHP Billiton (ASX:BHP), which closed down 5 percent and 4 percent respectively on the Australian Stock Exchange Friday.
Oil and gas
Crude is seen heading lower next week with stockpiles reaching 381.6 million barrels, up 2.13 million barrels from a week ago and the highest level since 1990. Still, fossil fuel producers may take a breather from green energy competition; the US could slap import tariffs averaging 31 percent on solar panels from China after its Department of Commerce’s preliminary ruling found that Chinese producers are selling solar cells and panels below fair price. The anti-dumping ruling would make it more expensive not only for Chinese manufacturers to export their products, but also may make the development of solar energy more expensive across the board, which in turn may boost oil as a still-attractive energy source.
Natural gas demand is poised to grow in Japan too as the country weans itself off nuclear energy. Chevron (NYSE:CVX) signed a contract with Tohoku Electric Power (TSE:9506) to supply up to 1 million metric tonnes of liquefied natural gas from its Wheatstone project in Australia. Chevron has already locked in long-term supply deals with Japanese electricity giant Tokyo Electric Power (TSE:9501), better known as Tepco, among others.
As for ExxonMobil (NYSE:XOM), it expects the Asia-Pacific region to account for about one-third of global gas demand by 2040. The company’s vice president of Asia Pacific and Africa, Emma Cochrane, said that Australia is well-positioned to meet the growing global demand for gas, but cautioned that taxes and other government policies may hamper that vantage point.
Houston-based Vanguard Energy (OTCQX:VNGE,OTCBB:VNGE) reported second quarter revenue reaching a record $862,505, up from $397,915 a year ago. Net income reached $254,367 compared to a net loss of $1.24 million during the same period the previous year.
Copper
Bargain hunters are giving firm support to the red metal as investors assess that demand will outstrip demand in the coming months. Supply is certainly a constraint worldwide amid a wave of labor unrest, the latest being at Codelco’s Andina mine as workers demanding greater job security blocked road access to the site. In addition, workers at its Chuquicamata, Radomiro Tomic, and Gaby mines are demonstrating against the company, according to news reports.
As for Xstrata (LSE:XTA), UBS cautioned that Glencore International’s (LSE:GLEN) bid for the mining group will not be enhanced. “We think almost all Xstrata shareholders would likely want a bump in the exchange ratio agreed with Glencore….[h]owever, when the vote actually takes place, there is a risk that the Xstrata shareholders will relent and get concerned about the potential near-term consequences of the merger not happening,” UBS was quoted as saying in a Financial Times article.
Meanwhile, the chairman of copper group Kazakhmys (LSE:KAZ), Vladimir Kim, was named Kazakhstan’s richest man by Forbes magazine this week.
Carmax Mining (TSXV:CXM) is upbeat about the potential of its Eaglehead copper project in British Columbia, with its president, Jevin Werbes, stating that “we are very encouraged with the results of the current resource estimate which indicate that the resources at the East Zone and Bornite Zone can potentially be mined by constructing open pits. Our plan is to increase the tonnage of the deposit and upgrade the classification from Inferred to Indicated Mineral Resources of the Eaglehead Cu-Mo deposit on the property by drill testing the remaining mineralized targets.”
Gold
Demand for the yellow metal is on the rise as worries about Europe drive up investors’ appetite for safe haven assets. HSBC stated that “[t]he ability of gold to move higher despite declines in risk assets may be a turning point for gold as it may have regained some of its status as a safe haven, we believe.”
Kirkland Lake Gold (TSX:KGI) reported that its full-year gold production increased by 22 percent from a year ago to 100,275 ounces. For the current fiscal year, the company expects to “achieve significantly higher tonnage rates of up to 2,200 tons per day by May 2013,” said Chairman Harry Dobson.
Gold Fields (NYSE:GFI) reported a net profit of $272 million in the first quarter, up from $204 million a year ago, on the back of stable gold prices as well as a tax credit of $33 million.
Atocha Resources (TSXV:ATT) signed an agreement with Goldstrike Resources (TSXV:GSR) that allows the latter to acquire up to an 80 percent interest in 14 minerals in theYukon.
Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.