As the Eurozone’s rescue capacity is increased, energy and base metals demand is gaining ground. Still, China continues to weigh on investors’ sentiments, which even strong economic data from the United States cannot offset.
By Shihoko Goto — Exclusive to Resource Investing News
Commodities across the board have been lifted as European risks appear to have abated somewhat. Geopolitical risks, namely in Iran and the Middle East in general, are driving energy prices ever higher, while an upturn in global economic sentiment is increasing demand for industrial metals. Gold is holding steady despite the greenback’s slide against major currencies.
There is no longer panic about a potential financial meltdown in Europe as there has been in previous months, as finance ministers from the region agreed today to increase the cap on their financial rescue capacity. Following a meeting in Copenhagen, the 17 member countries of the Eurozone agreed to combine two rescue funds temporarily to allow up to 700 billion euros to be available for bailouts until the middle of 2013, up from 500 billion euros.
Market eyes will focus on the release of China’s Purchasing Managers’ Index in Beijing next Monday. The Flash Purchasing Managers’ Index, compiled by HSBC, fell to 48.1 in March from 49.6 the previous month. In Japan, factory production fell more than expected to 1.2 percent, marking its first decline in three months.
But while a slew of economic data indicating a solid US rebound has recently pushed up equity prices, its impact on the commodities market has been more muted as energy and base metal investors have both focused more of their attention on other issues.
Crude is rising steadily in large part on worries about Iran. Tehran is threatening to close off access to the Strait of Hormuz, which is a transit route for about 20 percent of the world’s total oil supply. While investors expect greater energy consumption as the economies of Europe as well as the US strengthen, worries are greater about the supply side. While there has been debate in the US about whether or not to release the Strategic Petroleum Reserve, France’s Prime Minister, Francois Fillon, said in an interview with France Inter radio that European governments are now closer to reaching an agreement on how and when to release the reserves.
The US government is withholding evidence that would show that the Gulf of Mexico oil spill in 2010 was less than reported, according to BP (LSE:BP). In a court filing with the New Orleans federal court, the company identified 10,000 documents that would prove its point.
PetroChina (HKG:0857) became the world’s biggest publicly-traded oil producer this week, overtaking ExxonMobil (NYSE:XOM) as it reported pumping out 2.4 million barrels a day in 2011. That beats ExxonMobil by 100,000 barrels.
Calgary-based Canacol Energy (TSX:CNE) said that C&C Energia finished the drilling and testing of the Tardigrado-1 well in the Andaquies Exploration and Production contract located in Colombia, and has subsequently abandoned the well. The Tardigrado-1 well encountered 60 feet of sandstone from the Caballos reservoir with an average porosity of 19 percent.
While the recovery in the US economy has pushed up share prices across the board, the fact that the US consumes only ten percent of the world’s total copper while China uses about 40 percent has given greater influence to the Chinese in driving the red metal market. As such, a slowdown in manufacturing and government policy to cool off the real estate market have weighed down on copper prices this week. In addition, Beijing’s new GDP target growth rate of 7.5 percent will rebalance the role of the private and public sectors in driving the country’s economy, according to a study by credit rating agency Moody’s this week.
“The new target underscores the government’s desire to engineer a soft landing, consistent with its long-term goal of seeking more balanced growth, decreasing the economy’s reliance on investment and exports, while increasing the share of consumption,” stated Tom Byrne, a senior vice president with Moody’s Sovereign Risk Group.
BHP needs “to clearly indicate to the market what their strategy around Olympic Dam is, around shale gas is, all of these things, to return confidence that they are not spending huge amounts of capex for very low returns,” said BlackRock fund manager Catherine Raw. “Which at the moment is the perception in the market and one of the reasons why we don’t need to be having such a large position.”
ABB will be supplying gearless mill drives for six ball mills and twin-drive systems for eight high-pressure grinding rolls at Freeport-McMoRan’s (NYSE:FCX) Cerro Verde mine in Peru. Deliveries are scheduled for the fourth quarter of 2013 and the first quarter of 2014.
Vancouver-based Sunward Resources (OTCQX:SNWRF), which focuses on exploring copper and gold projects in Colombia, will begin trading on the Toronto Stock Exchange Monday. Its shares on the TSX Venture Exchange will be delisted as it begins trading on the Toronto Stock Exchange.
The price of gold has inched up as the dollar fell to a one-month low. Gold producers in Mali are closely monitoring the situation in the African nation, which is now under the control of soldiers of the Committee for the Restoration of Democracy and State, ousting President Amadou Toumani Toure.
Gold Fields (NYSE:GFI) has stopped operations at its Yanfolila project amid growing concerns about the political situation in the country. Desert Gold Ventures (OTC Pink:DAUGF) stated that “there is no reason to believe that due processes, established over a long period, will be affected.” It added that “Desert Gold’s operations are not impacted by these events and the Company is pleased to report that the drilling program in Rwanda is proceeding as planned. Corporate objectives continue to be met.”
Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.