Weekly Round-Up: Commodities Struggle Against Weak Economic Data

Commodities are ending the week lower after two new reports out Friday morning indicated that US economic growth may be sputtering.

First, the March retail sales report showed a 0.4-percent decline compared to February, The Street reported. Later, the preliminary University of Michigan-Thomson Reuters consumer sentiment index showed a reading of 72.3 for April. That’s the lowest level since July and down from March’s reading of 78.6.

“People presumably are responding to the news that Congress chose to implement the sequester. The cash-flow drain imposed by the payroll tax increase can’t be helping either,” Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors, wrote in a research note quoted by MarketWatch.

The news came after gold prices had started to stabilize in the wake of a decline on Wednesday following the release of minutes from the latest Federal Open Market Committee (FOMC) meeting. The Fed released the minutes early, at 9:00 a.m. instead of the usual 2:00 p.m., after it inadvertently sent them to congressional and trade group employees the day before.

The minutes indicate that some FOMC members are concerned about the long-term impact of the Fed’s $85-billion-a-month bond-buying program, known as quantitative easing. The Guardian reported that some members favor an immediate slowing of QE, while “a few” suggest scaling back purchases in the middle of the year — others are keen to do so toward the end of 2013. A slowdown is seen as a negative for gold because the program has the potential to spur inflation, something investors typically buy the yellow metal as a hedge against.

It’s important to note that the meeting, which occurred from March 19 to 20, happened before last week’s disappointing non-farm payroll report and Friday’s consumer data. “There’s been so much water under the bridge since then,” LPL Financial investment strategist and economist John Canally told CNBC. “If the FOMC (met) today, you might see a shift toward the more dovish side. We haven’t changed our view that you’ll continue to see these purchases.”

In morning trade Friday, Brent crude is down 2.36 percent, at $101.54 a barrel, while copper is down 2.56 percent, at $3.35 a pound. Gold is down 4.26 percent, at $1,498.30 an ounce.

Gold

Centamin (TSX:CEE,LSE:CEY), which owns the Sukari gold mine in Egypt, announced its preliminary first-quarter production results. During the quarter, output rose 77 percent from a year ago, to a record 87,016 ounces. The company’s guidance for the year, which it provided on March 14, is 320,000 ounces at a cash cost of $700 per ounce. Throughput at the mine’s processing plant was 1.4 million metric tons (MT), up 37 percent from a year ago on continued high productivity and reduced impact from work stoppages.

Allied Nevada Gold (TSX:ANV,AMEX:ANV) placed 9.6 million tons of ore, containing roughly 106,473 ounces of gold and 1.36 million ounces of silver, on the leach pads at its Hycroft mine in Nevada in the latest quarter. In all, the mine produced 38,019 ounces of gold and 188,000 ounces of silver. It sold 27,256 ounces and 174,766 ounces, respectively. Allied said it remains on track to meet its six-month production guidance of 90,000 to 100,000 ounces of gold. The company also said capital costs for the mine’s expansion, which will start up in the first quarter of 2015, remain at $1.24 billion.

Besra Gold (TSX:BEZ,ASX:BEZ), Vietnam’s leading gold producer, and a number of resource firms and other sponsors are teaming up to support the Great Honda 67 Ride, a motorcycle expedition that includes some of Besra’s top executives. The group aims to travel 2,000 kilometers, from Hanoi to Ho Chi Minh City, on Honda 67s, 100cc bikes that were first introduced as urban commuters in the 1960s, but remain a mainstay in Vietnam.

The riders are raising funds to help lower infant and maternal mortality rates in the area around Besra’s operations in Quang Nam Province. Other resource-related corporate sponsors include oil and gas producer Total (NYSE:TOT), equipment supplier Atlas Copco (STO:ATCO.A), blasting services and chemical provider Orica (ASX:ORI) and compressor maker Paramina.

Oil and gas

The Organization of the Petroleum Exporting Countries (OPEC) has lowered its forecast for 2013 oil consumption. OPEC now sees demand rising by 800,000 barrels a day, or 0.9 percent, this year, according to Bloomberg. That’s down from last month’s forecast of an 840,000-barrel-a-day increase. OPEC’s production slipped to 30.19 million barrels a day in March, from 30.29 million in February, on lower output from Iran, Kuwait and Nigeria. The organization is forecasting a rise in demand in the second half of the year, mainly from China.

General Electric (NYSE:GE) is paying $3.3 billion for Lufkin Industries (NASDAQ:LUFK), which makes pumps for oil and gas producers. The company’s pumps help lift hydrocarbons to the surface in reservoirs with low pressure and make naturally flowing wells more efficient. These systems are used in 94 percent of the world’s 1 million producing oil wells, according to General Electric. Lufkin will significantly add to General Electric’s oil and gas revenue: the company posted about $1.3 billion in revenue in 2012, compared to $1.9 billion for General Electric’s oil and gas unit, according to Reuters.

Pétrolia (TSXV:PEA) announced that a resource evaluation at its Bourque project in Quebec has revealed 1 thousand billion cubic feet of wet natural gas. Pétrolia is now preparing a production test program for two wells it drilled on the property in 2012, based on the recommendations in the evaluation, to better delineate the resource and recoverable volumes.

Copper

BHP Billiton (NYSE:BHP,ASX:BHP,LSE:BLT) has made a copper discovery that could open up an isolated part of the Western Australian outback to resource development, The Australian reported. Sources told the paper that BHP’s drilling at the Succoth prospect includes an intercept of about 200 meters grading 1.3-percent copper. A spokesperson for the company said the deposit remains under evaluation.

VMS Ventures (TSXV:VMS) reported that its Reed copper project in the Canadian province of Manitoba is on track to start production in the fourth quarter of 2013. VMS owns 30 percent of Reed, while Hudbay Minerals (TSX:HBM,NYSE:HBM) owns 70 percent and is the project’s operator. The mine is expected to hit full production of about 1,300 MT per day by the first quarter of 2014. So far, the partners have invested $30 million in the project and have committed to another $18 million. Capital spending at Reed is expected to total $44 million in 2013.

PolyMet Mining (TSX:POM,AMEX:PLM) filed a preliminary prospectus with regulatory agencies in British Columbia, Ontario and Alberta, as well as a registration statement with the US Securities and Exchange Commission, for a rights offering to its common shareholders to raise up to $60 million in gross proceeds. It will use the funds to repay a bridge loan that Glencore AG, a subsidiary of Glencore International (LSE:GLEN), has agreed to provide, as well as for expected permitting costs at its NorthMet project in Minnesota and other related expenses.

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

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