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Expectations of Chinese stimulus and renewed hopes that the ECB will buy bonds are keeping base metal demand strong. But oil is faltering on profit-taking even as supply remains tight.
Renewed optimism about Europe’s latest plans to tackle its debt problem and hopes for more stimulus measures from global economies have pushed up base metal demand. Energy prices, however, are weaker on profit-taking even as oil supply remains tight.
This week, German Chancellor Angela Merkel’s support for European Central Bank President Mario Draghi’s plans to buy out Eurozone government bonds has given a lift to industrial materials. Meanwhile, comments from Premier Wen Jiabao suggesting that Beijing will take action to keep growth from sagging further are increasing investors’ hopes for fresh Chinese stimulus measures, which would boost global demand.
A mixed bag of US housing sector data, which remains pivotal to the country’s steady economic recovery, is also keeping investors on their toes. While housing starts fell 1.1 percent in July to 746,000 units, building permit applications increased by 6.8 percent to 812,000 units during the same period, the highest level since August 2008.
In early morning trade Friday, Brent crude is 1.1 percent lower at $113.97 a barrel. Copper is up 1.1 percent at $3.42 a pound and gold is 0.1 percent higher at $1,620.20 an ounce.
Oil and gas
Speculation that the US will release its strategic oil reserves is rife among market players as prices reached a three-month high this week amid a slump in crude stockpiles. According to the US Energy Information Administration, crude oil inventories have fallen 3.7 million barrels in the latest week.
Meanwhile, Goldman Sachs analysts David Greely and Stefan Wieler told clients in a note that South Sudan may be able to make up for the crunch in global oil supply by offsetting the fall in Iranian oil exports.
On the corporate front, Chevron (NYSE:CVX) has been sued by nine people for negligence in maintaining its California refinery and dealing with the August 6 fire in Richmond. The refinery produces about 16 percent of the state’s oil supply and has led prices at the pumps in California to rise above $4 per gallon, well above the national average.
BP’s (LSE:BP) Russian joint venture, TNK-BP, said it has begun using hydraulic fracturing to tap into reserves in Western Siberia. “The use of new technologies to develop mature fields has enabled TNK-BP to tap reserves that could not be commercially produced before. The success of the pilot project creates opportunities to scale up the new technique across other company assets,” the company stated.
New Zealand-focused TAG Oil (OTCQX:TAOIF,TSX:TAO) of Vancouver reported that its first quarter production revenue more than doubled to $11.83 million from $5.85 million during the same period a year ago. Net income reached $5.56 million, up from $2.18 million on year.
Copper
Mining giant Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO) sold $3 billion worth of bonds in its second sale for the year. The bonds have a weighted average coupon of 2.67 percent and a weighted average maturity of 12.9 years, with Moody’s Investors Service rating them A3.
Anglo American (LSE:AAL) and Codelco are unlikely to reach an agreement regarding Anglo American’s Chilean unit before August 24, according to local media reports. The companies were given until August 24 to reach an agreement out of court.
Southern Hemisphere Mining (TSXV:SH) is set for a resource upgrade at its Llahuin copper project in Chile later this month. “The ability to feed high-grade material to a plant in the early stages of production will boost the economics of the project significantly, both by increasing production and reducing costs. We are looking forward to finalising the resource upgrade, reporting further results from this high-grade zone and advancing the Llahuin project,” said Trevor Tennant, managing director of Southern Hemisphere.
Benton Resources (TSXV:BEX) granted 8.05 million stock options to its executives and staff. The options will be excercisable at 15 cents for a period of five days from the date of granting. Benton has 348,000 shares in Stillwater Mining (NYSE:SWC) and 782,500 shares in Marathon Gold (TSX:MOZ), among other interests.
Gold
Global demand for gold dropped 7 percent from the same period a year ago to 990 metric tons, according to the World Gold Council. In dollar terms, the amount fell 1 percent to $51.2 billion. India’s appetite for the yellow metal was particularly weak, falling 38 percent from a year ago to 181.3 metric tons.
China National Gold Group is currently in the early stages of discussing the possibility of buying a stake in African Barrick Gold (LSE:ABG), according to numerous media reports. However, Barrick Gold (NYSE:ABX,TSX:ABX) cautioned that “there can be no certainty that these discussions will result in the acquisition of all or part of Barrick’s holding in ABG.”
Vancouver’s Monument Mining (TSXV:MMY) completed the gold processing treatment plant expansion at its Selinsing mine in Malaysia, increasing its treatment capacity to 1 million tons of ore per year. “Even though the market for capital equipment supply was tight, the Company managed to complete the project within 5% deviation from the budget through its own production cash flow. The increased capacity will enable us to double the amount of ore to be processed in fiscal 2013 comparing to fiscal 2012 when the mill feed grades are expected to be lower,” CEO Robert Baldock stated.
Market eyes are also on South Africa as police in that country killed 34 workers striking at Lonmin’s (LSE:LMI) platinum mine.
Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.
BEX:CA