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Commodities are lower across the board as Europe’s financial situation continues to worry investors and industrial production in both China and India declines more than expected. Energy and base metal demand are expected to remain sluggish, while a rise in the greenback is keeping investors from shoring up gold.
By Shihoko Goto — Exclusive to Resource Investing News
Commodities are weaker across the board, with worries about Europe’s outlook, sluggish industrial output in Asia, and a massive speculative trading loss posted by JPMorgan Chase all giving cause for the bears to take the lead in driving the market.
India reported industrial production dropping 3.5 percent in March from a year ago, a sharp contrast from the 4.1 percent increase posted in February. Manufacturing in the subcontinent fell 4.4 percent, while mining declined by 1.3 percent from the same period a year ago; inflation increased and a global economic downturn hurt domestic demand. China too reported this week that industrial production in April fell to its lowest level since May 2009, rising by 9.3 percent from a year ago compared to an 11.9 percent increase in March.
In Europe, worries that a lack of leadership in Greece may impact the country’s ability to follow the austerity measures that will ensure continued financial support, combined with concerns about whether the new French administration will be able to work closely with Germany to pursue a united economic policy for Europe are weighing down on commodities demand. Regarding Greece, German Finance Minister Wolfgang Schaeuble suggested that the Eurozone’s stability will not be affected even if Greece drops out. According to the Rheinische Post, Schaeuble said that “we have learned a lot in the last two years and built in protective mechanisms….[t]he risk of effects on other countries in the eurozone have been reduced and the eurozone as a whole has become more resistant.”
Turning to the United States, JPMorgan Chase’s announcement that its trading losses since the beginning of April reached $2 billion has rattled investors not just in the banking sector, but in all sectors, especially as CEO Jamie Dimon cautioned that losses could increase further depending on market conditions.
In morning trade Friday, Brent crude is down 0.2 percent at $112.46 a barrel while copper is 1.2 percent weaker at $3.64 a pound. Gold is down 0.7 percent at $1,584.20 an ounce.
Oil
Energy demand has also been hit by an increase in supply even as global demand continues to falter. The Organization of the Petroleum Exporting Countries (OPEC) continued to pump more crude for the seventh consecutive month, amounting to 31.85 million barrels a day in April, according to the International Energy Agency. OPEC had set a 30 million output ceiling in December, but increased output from Iraq, Nigeria, and Libya is pushing up production. Nonetheless, continued tensions between Iran and the international community are expected to keep oil prices high, the IEA said.
Shell (LSE:RDSA) and Chevron (NYSE:CVX) are likely to win contracts to develop shale gas fields in Ukraine, according to Reuters. Other companies vying for the contracts include Eni (NYSE:ENI), ExxonMobil (NYSE:XOM), and TNK-BP (OTC Pink:TNKBF). Ukraine has Europe’s third-largest shale gas reserve with 42 trillion cubic feet, and development will require fracking.
Newly-appointed ConocoPhillips (NYSE:COP) CEO Ryan Lance said at his first news conference that the company sees potential in shale development. Much of the $15 billion in capital investment slated each year will be used to increase output of oil and natural gas in the US and Canada, mostly in Eagle Ford and the Permian Basin, both of which are in Texas.
California-based NiMin Energy ( TSX:NNN) reported a net loss for the first quarter of $1.54 million compared to a net loss of $8.48 million a year ago. Net revenues reached $6.15 million, up from $5.23 the previous year.
Copper
The world’s biggest copper-consuming nation reported this week that copper imports dropped nearly 19 percent in April to 375,259 metric tons, the lowest level in seven months. While the sharp decline in Chinese imports was expected amid growing copper inventories, there is concern that Chinese demand will remain sluggish in coming months.
Chinese aluminum giant Aluminum Corporation of China, better known as Chinalco (NYSE:ACH), will spin off its copper assets in Peru and list Chalco Mining on the Hong Kong exchange. The initial public offering is slated to raise around 7.76 billion Hong Kong dollars, which would make it the second-largest IPO this year.
Zijin Mining (HKEX:2899) said its copper mine in Zijinshan will resume production in the near future as the company repaired a toxic leak and accepted fines from the China Securities Regulatory Commission. About ten percent of the company’s copper comes from the mine.
Vancouver’s Copper Fox Metals (TSXV:CUU) acquired more mineral tenures around its Schaft Creek project in British Columbia and released its latest exploration plan, which will “focus on the regional evaluation and exploration of the project outside the limits of the Schaft Creek deposit and is expected to cost approximately $10.0 million,” according to President and CEO Elmer Stewart.
Gold
The yellow metal has lost its luster as the dollar gains ground on worries about the global economic outlook. Still, KPMG reported that mergers and acquisitions deals in the gold sector dominated Canadian mining in the first quarter. The financial group said that gold was the main commodity of interest for Canadian transactions, and accounted for nearly 60 percent of mining M&A deals by both value and volume.
Shanta Gold (LSE:SHG) reported that final drilling results from its New Luika mine in Tanzania will encourage it to enlarge its open pit mines. Production is expected to begin by the third quarter of this year.
Colt Resources (TSXV:GTP) said drilling at its Boa Fé project in Portugal has found high-grade gold. President and CEO Nikolas Perrault stated that “our programs designed to twin holes drilled by previous companies and to infill previously drilled deposits have been generating positive results.”
Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.
CUU:CC