Weekly Round-Up: Commodities Drop on Greece, China Anxieties

By Shihoko Goto – Exclusive to Resource Investing News 

Worries about Greece’s continued financial woes spilling over across Europe and beyond, together with concerns about China’s growth prospects are weighing down on commodities across the board. Demand for energy as well as industrial metals is falling as a result, while investors’ appetite for gold too has waned.

While Greek legislators were able to agree on austerity measures in order to receive more financial aid from the international community, finance ministers from the Eurozone cautioned that there would be no immediate approval for additional funding until the Greek parliament ratifies the conditions required for a second 130 billion euro bailout package this upcoming weekend. They also said that Athens would have to identify another 325 million euros worth of spending reductions by February 15, when the ministers will meet again. In the meantime, Greek public workers went on strike Friday to protest against further austerity measures to meet Brussels’ demands.

China is also putting a damper on the commodities market, as Beijing reported imports falling by 15.3 percent in January from a year ago, the biggest drop since August 2009. Exports dropped by 0.5 percent, the first decline in over two years. The slump in imports has raised questions about the strength of China’s domestic demand and its ability to be a steady source of growth in an otherwise sluggish global economy. Even as the United States has shown signs of steady recovery in recent months, Chinese exports to the United States only rose 5.5 percent in January compared to an 11.9 percent increase in December.

Hopes remain high though for China’s real estate market to bolster demand worldwide, as the government this week declared that it would continue to support pushing for more affordable housing to the tune of 36 million units of affordable housing by 2015. In 2011, it spent about $24.2 billion on building affordable homes.

In early morning trade Friday, Brent crude is down 1.3 percent at $117.04 a barrel while copper is 1.0 percent weaker at $3.93 a pound and gold is 1.1 percent lower at$1,722.90 an ounce.

Oil

The latest report by the International Energy Agency too is troubling to oil investors, as the Paris-based agency cut its global oil demand forecast for 2012 by 250,000 barrels a day to 800,000 barrels a day. The IEA said that the reduction was based on “recent economic downgrades, and resultant weaker oil products demand growth for 2012.”

Meanwhile, the IEA said that Canada will need to find alternative markets to the United States for its crude output, as President Barack Obama rejected TransCanada’s (NYSE:TRP) application to build the Keystone XL pipeline. The agency said that the White House’s decision has long-term implications for Canada’s oil producers, and they will need to find a West Coast export point by five years’ time.

Markets have been following the latest development of Glencore International’s (LSE:GLEN) planned $39 billion takeover of Xstrata (LSE:XTA), including how the merger may affect the mining industry at large.

On the earnings front, Total (NYSE:TOT) reported fourth quarter profit reaching nearly 2.29 billion euros compared to 2.03 billion a year ago, leading to 2011 earnings rising 16 percent on year to $12.3 billion. The improved performance was a result of higher oil prices, and the French group plans to invest 20 billion euros this year in order to ensure a return to production growth.

Copper

In the copper market, Freeport-McMoRan (NYSE:FCX) sold $3 billion in a multi-tranche issue Wednesday, with $500 million three- and five-year tranches, and $2 billion of 10-year bonds. Proceeds will be used to redeem a portion of outstanding 8.375 percent senior notes that are due in 2017.

In the OTC market, Mustang Alliances (OTCBB:MSTG) is upbeat about a new mining law under review by the Congress of Honduras. The new law would restructure procedures to allow an accelerated process in licensing and to simplify rules for companies in a bid to attract more investment to the Honduran mining sector. CEO Robert Faber said the latest development “indicates that the government of Honduras is serious about encouraging private-sector investment in the mining sector.”

Gold

As for gold, investors’ appetite for the yellow metal could remain strong in the longer term as interest rates remain low and economic outlook appears brighter, according to RBC Capital Markets senior vice president George Gero.

Meanwhile, gold production increased at each of White Tiger Gold’s (TSX:WTG) three producing mines in 2011, and expects higher increases in gold production in 2012. “White Tiger is forecasting marked improvement in production 2012 for both the Lamaque and San Juan Mines with increased mill throughput and increased grades,” CEO Daniel Major said.

Securities Disclosure: I, Shihoko Goto, have no interests in the companies mentioned in this article.