Expectations of higher energy prices, amid escalating geopolitical tensions and more strong US economic data, are driving up commodities prices.
By Shihoko Goto — Exclusive to Resource Investing News
As political tension in Iran and across the Middle East persists this week, energy prices are expected to remain high. At the same time, more signs of economic strength, in the US in particular, are pushing up demand for industrial metals. The more bullish outlook on the global economy has weighed down on gold demand, but bargain hunting may give the yellow metal support.
Market eyes are closely following the possibility of the US aligning with Israel to attack Iran’s nuclear facilities if Tehran does not clarify the objectives of its nuclear research program. In addition, there is growing nervousness about the situation in Saudi Arabia, due to rumors of a pipeline explosion in the country. While the explosion, first reported by an Iranian media outlet, appears to have simply been a small fire near the Ras Tanura refinery, the report has heightened awareness of the geopolitical risks in the region.
The US continues to lead the way in buoying global economic sentiment, as its Labor Department reported this week that weekly US jobless claims fell to a four-year low, down 2,000 to a seasonally adjusted 351,000. A rise in car sales too is lifting spirits, as February auto sales in the US reached their highest level in nearly four years despite higher energy prices. General Motors, Ford, Chrysler, and Nissan all beat analysts’ expectations in the latest month.
The most recent development in Europe is also lifting market sentiment; European Union nations are expected to provide capital for a planned permanent bailout fund faster than expected.
In the near-term, though, profit-taking on recent gains has led to prices falling. Brent crude was 1.1 percent lower at $124.85 a barrel in early morning trade Friday, while copper is down 0.3 percent at $3.92 a pound, and gold is 0.7 percent weaker at $1,709.80 an ounce.
As oil prices show no signs of decreasing, speculation is growing that BP (LSE:BP) is looking to reach a partial settlement of claims over the Gulf of Mexico oil spill disaster. The civil trial to determine claims for damages was delayed last week to allow more time for negotiations, and US District Judge Carl Barbier is scheduled to hear the case without a jury.
As for Kinder Morgan (NYSE:KMI), Delaware Chancery Court Judge Leo Strine rejected claims that Goldman Sachs‘ conflict of interest in the company’s $21.1 billion takeover bid for El Paso (NYSE:EP) warranted blocking the deal. Some El Paso shareholders are looking to block Kinder Morgan’s $25.91 per share offer. Goldman has a 19 percent stake in Kinder Morgan, and also served as an advisor to El Paso on the deal.
“Having progressed this well early on sure helps the company gain some traction,” stated President and CEO Robert Dinning. “There’s no question things are heating up in the area so we’re looking forward to maintaining our aggressive pace on the ground in Kenya.”
There is concern in mineral-rich Australia that corporate executives in the industry are wielding their economic influence to shift policy, according to Australian Treasurer Wayne Swan. In an opinion piece about vested interests with The Monthly, Swan said that the mining companies’ campaign against the resource profit tax in 2010 contributed to the ousting of former Prime Minister Kevin Rudd.
“The infamous billionaires’ protest against the mining tax would have been laughed out of town in the Australia I grew up in, and yet it received a wide and favourable reception two years ago,” Swan said. “A handful of vested interests that have pocketed a disproportionate share of the nation’s economic success now feel they have a right to shape Australia’s future to satisfy their own self-interest.”
Industry giant Freeport-McMoRan (NYSE:FCX) said that shooting incidents at its Grasberg mine in Indonesia have affected operations. Since July 2009, 15 people have been killed and 56 people injured. Victims include not just Freeport employees, but also contractors and civilians.
Still, “the identity of the perpetrators is unknown as is the motivation for the shootings,” Freeport-McMoRan stated.
Ivanhoe Mines (NYSE:IVN) said that its Oyu Tolgoi copper and gold mine in Mongolia is on track to meet its initial production plan to begin output by the third quarter of this year. The mine is expected to be one of the top five copper mines in the world, as it is projected to produce over 544,000 tonnes of copper a year over the next decade.
Trevali Mining (OTC Pink:TREVF) said Glencore International (LSE:GLEN) will acquire 7.8 percent of the company through an $18 million private placement. The funds will be used to advance Trevali’s Santander mine in Peru and to provide working capital for the Halfmile mine in New Brunswick.
The yellow metal has been falling as signs of steady global recovery decreased investors’ appetite for safe haven assets. Still, gold demand is expected to remain steady as bargain hunters swoop in. UBS reported that March tends to be a seasonally strong month for gold demand in the key physical markets of China and India.
US Mint bullion coin sales fell in February, with gold coin sales falling to 21,000 ounces compared to 127,000 ounces posted in January.
Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.