Weekly Round-Up: US Leads the Way in Lifting Commodities

By Shihoko Goto — Exclusive to Resource Investing News

Further signs of continued gains in the US economy as well as some signs of slight recovery in Europe and Asia are pushing industrial commodities higher across the board. Investors remain cautiously optimistic as worries about the Eurozone’s economic outlook and China’s longer-term growth prospects persist.

US December home sales were revised up by the Department of Commerce to 324,000 units, the highest pace in a year. Still, there was disappointment as January US single family home sales fell 0.9 percent on year to 321,000 units. Meanwhile, US weekly jobless claims remained unchanged at 351,000, the fewest since March 2008, according to the Department of Labor Thursday.

German business sentiment has also improved as the Ifo Institute reported Thursday that its business climate index rose to 109.6 in February compared to 108.3 in January, its highest level since July and the fourth consecutive month that it has risen.

Asia is also showing signs of improved sentiment as South Korea’s confidence rose in February. The Bank of Korea reported Friday that the consumer confidence index rose to 100 from 98 in January, while sentiment on current living standards rose to 86 from 83.

Turning to China, the Conference Board Leading Economic Index for China rose 1.6 percent in January to 225.7, marking the third straight monthly gain. Nevertheless, Andrew Polk, the Conference Board’s China economist, stated that the pace of increase “remains slower than the first half of 2011 and equal numbers of its components have been rising and falling over the past several months, indicating a broad-based slowing.”

In fact, HSBC and Markit Economics’ Manufacturing Purchasing Managers’ Index release on Thursday reached 49.7 in February, below the 50 threshold which indicates a contraction. Still, the reading is an improvement from 48.8, which was reached in January.

Europe’s outlook remains foggy at best, as this week’s interim report on the EU’s economy from the European Commission found that the Eurozone is heading into its second recession in three years, and cautioned that the region has yet to break out of its debt cycle. Such a downbeat view offset many of the gains posted following the release of a second bailout package to Greece earlier in the week.

In late morning trade, Brent crude is up 0.1 percent at $123.70 a barrel, while copper is up 1.9 percent at $3.89 a pound. Gold is 0.3 percent weaker at $1,780.90 an ounce.

Oil

Oil is on track to post its seventh straight daily gain, which would be its longest winning streak since January 2010. The possibility of further supply disruption from the Middle East in light of rising tensions with Iran and production losses in Syria and South Sudan are driving up the price of crude.

Still, some US lawmakers are discouraging President Barack Obama from tapping into the Strategic Petroleum Reserve to offset rising prices. The reserve should be available for “a serious supply disruption down the road,” said Republican Senator Lisa Murkowski, ranking member of the powerful Energy & Natural Resources Committee.

BP (LSE:BP) is preparing to go to trial next week over its responsibility in causing the 2010 Gulf of Mexico oil spill disaster. Plaintiffs of the non-jury New Orleans trial sitting before US District Judge Carl Barbier include the federal government as well as workers both in and surrounding the oil industry whose livelihoods were battered by the worst environmental disaster to date.

Private equity group Apollo Global Management may be close to acquiring El Paso’s (NYSE:EP) oil exploration business for about $7 billion, according to Bloomberg. Apollo is working with Riverstone Holdings and at least one other partner to arrange between $4.5 and $5 billion in financing, the report said.

ExxonMobil (NYSE:XOM) reported that it added 1.4 billion barrels of oil and 400 million barrels of natural gas to its proven reserves last year. Its total petroleum assets are now 49 percent oil and liquid hydrocarbons, up from 47 percent at the end of 2010.

Western Canadian junior oil and gas production and exploration group Aroway Energy (OTCQX:ARWJF) listed on the OTC market this week. The company is also listed on the TSX Venture market.

Copper

The red metal is up over three percent for the week, but worries about a decrease in Chinese copper demand are weighing down on market sentiment. Investors are also closely monitoring Australia’s upcoming snap election between Prime Minister Julia Gillard and Kevin Rudd. Brown Brothers Harriman expects the mining tax to be high on the agenda, stating that “since Rudd originally proposed the mining tax and can be viewed in favor of this policy shift, a Rudd victory should be viewed a negative for the Australian dollar.”

Chile’s Collahuasi mine, the third-largest copper mine in the world, resumed operations following the death of a worker earlier in the week. The mine, owned by Anglo America  (LSE:AAL) and Xstrata (LSE:XTA), produces about three percent of the world’s copper.

Workers at Freeport-McMoRan‘s (NYSE:FCX) Indonesian Grasberg mine stopped working on Thursday. Union official Virgo Solossa told Reuters that “management didn’t abide by the deal we agreed in December.” The stoppage came shortly after miners at Grasberg ended a three-month strike, which was resolved only after Freeport agreed to significant wage increases as well as improved health and safety mechanisms at the mine.

Excelsior Mining (TSXV:MIN) said that M Partners has initiated equity research coverage of the company. The company has a copper project located in the copper-porphyry belt of Arizona.

Gold

A rise in the euro and continued low interest rates in major countries are expected to keep investors’ appetite for the yellow metal steady moving forward, but market eyes will be following the upcoming G20 finance ministers’ meeting this weekend for further clues on global risks and impact on gold demand.

US gold giant Newmont Mining (NYSE:NEM) posted a fourth quarter loss as a result of a $1.61 billion write-down of its Hope Bay project in Canada. The company reported a net loss of $1.03 billion, compared to a net income of $812 million the previous year. Located in the Canadian Arctic, the Hope Bay project is expensive to operate because of its location, said Randy Engel, Newmont’s Executive Vice President for strategic development.

Toronto-based Yamana Gold (NYSE:AUY), reported that its earnings for the latest quarter reached $184.2 million, or 25 cents per share, compared to $170.98 million or 23 cents per share. The company said it will be focusing on exploration and aims to produce 1.75 million gold equivalent ounces by 2014. Yamana posted record production in 2011 with 1.10 million gold equivalent ounces; gold production was at 916,284 ounces and silver output was at 9.3 million ounces, a five percent increase. Gold equivalent ounces are calculated to include silver production at a ratio of 50:1.

Oremex Silver (OTC Pink:ORAGF) said its wholly-owned Mexican subsidiary, Minera Mantos, entered into an agreement with Oremex Gold to dispose of the Cerro del Oro project, which is comprised of two concessions totaling 78.9 hectares in the Melchor Ocampo district in Mexico’s Zacatecas state. The acquisition remains subject to approval by the TSX Venture Exchange.

Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.