Author Topic: Commodities  (Read 14379 times)

Patrick

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Re: Commodities
« Reply #15 on: October 01, 2014, 11:55:01 am »
I think Orca said a while back that commodities were for trading, not investing. I'm so glad I listened!

jaDEB

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Re: Commodities
« Reply #16 on: October 01, 2014, 01:10:32 pm »
Copper is more than the main ingredient in wire and gold is more than what we wear on our fingers and around our necks. These commodities, along with others like oil and grains, are used by investors to gauge the health and short-term direction of the market, but how does it work

Gold
Gold is the best-known commodity because it appeals to investors and non-investors alike. Consumers may not think of gold as an investible product, but the story of gold is actually complicated. Not only does it serve as a commodity, but also as a currency. In the latter part of 2011 and into 2012, it has taken on the behavior of a stock often mirroring the overall market.
Traditionally, gold tends to move in the direction opposite the market. Investors use gold as a market hedge, dumping money into the commodity when the market is trending lower. In times when it is acting like a commodity, investors watch gold closely. When they see money pouring into GLD, the ETF that tracks the performance of gold or gold futures markets, they believe that a market downturn may close at hand.

Copper
Copper doesn't have the allure of gold since it's a base metal used largely for industrial purposes, but that doesn't change the fact that investors watch it closely for hints of the overall market sentiment. Because Copper is an industrial metal, investors use it as a way to gauge the health of the manufacturing and housing sectors of the world's economies.

Investors also use Copper as a way to gauge trader sentiment. When copper is rising, some see that as investors having an appetite for risky assets, since Copper is known as a volatile commodity. When copper loses value, it may indicate that investors are selling risky assets and a market correction may be imminent.

http://www.investopedia.com/financial-edge/0312/how-commodities-predict-market-movement.aspx

jaDEB

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Bevan

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Re: Commodities
« Reply #17 on: October 01, 2014, 04:25:49 pm »
Softs
US is busy unleashing the largest grain crop for many years. Corn has sold off significantly and should start recovering from here. SA prices have also sold off and expect farms to plant less for next season. Bread or other refined carb prices "should" come down on the back of this but millers never like to pass on price benefits, unless of course everyone starts Paleo / Banting / Noakes diet.

Metals - Precious & Base
Gold underperforming in current climate of fear as stocks sell off. Reason being that no-one expects interest rates to rise anytime soon and gold is really an interest rate trade. Similar for platinum although expect platinum : gold spread to widen further. Copper undervalued at moment but market still suffering from excess supply and weak Chinese housing market. However, supply / demand balance expected to come back into line and copper should start recovering from here, especially as LME and Shanghai stocks now on the low side versus historic levels. Chinese warehouse fraud still looming large in bank and physical traders minds... Aluminium, nickel and steel-feed stocks (chrome, nickel etc.) all quite weak as Chinese steel plants continue to close due to weak demand and pollution constraints.

Energy & Ores
Coal and Iron Ore continue to get decimated as Chinese demand evaporated and majors seem determined to oversupply market to drive out smaller, higher cost producers. Ivan Glasenberg must be pulling his hair out. This is not going according to his regular game plan.

Natgas prices climbing in Europe and stable in US. US crude now almost completely divorced from global crude markets and WTI:Brent spread to blow out further. European refinery runs being decimated as European refiners close. Refined product East of Suez reaching oversupplied situation and West African crudes looking for new homes now that US no longer taking their product. Dubai and Tapis to fall further but Brent probably reaching stable floor.

Overall, probably best returns to be had from copper and coal going forward, although coal could take years to recover from here. Expect many more coal miners to go out of business before then.
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Bevan

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Re: Commodities
« Reply #18 on: October 01, 2014, 04:34:27 pm »
Only coal still in contango with most other commodities in sensible backwardation. For first time iron ore curve now showing signs of contango, along with freight prices. Dry freight expected to recover but wet freight still in doldrums. Coal traders like to shift risk and losses further out on the curve as spot prices fall so best coal trade going forward is long front and short back end of curve. Floating storage crude trades being looked at again as crude showing signs of contango but structurally the market is not the same of post 2008 and doubtful whether there's enough contango to justify being long the freight. Probably better to go long Dec-15 ATM calls without covering delta in spot months.
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Bevan

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Re: Commodities
« Reply #19 on: October 01, 2014, 06:16:24 pm »
In terms of resource shares, Exxaro probably represents a nice play on coal and renewable energy i.e. a great hedge going forward. Eskom coal sales will provide them with nice, profitable annuity earnings whilst they build out their renewable wind and solar projects with Tata through Cennergi. Iron ore will continue to lose money for them but they have written their West African iron ore off and locally Kumba is still making money at current FOB iron ore prices, although only just....

Glencore is probably the most overvalued resource stock relative to the other resource plays. Although they have bought back shares this will probably end up losing them money and their trading engine is structurally set on bullish mode most of the time. Their acquisition of Xstrata now looks quite expensive and they have wrung as much cost savings out of these assets as they can already.
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jaDEB

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Re: Commodities
« Reply #20 on: October 01, 2014, 06:38:24 pm »
Thanks Forward Curve. U seem to know your commodities. U should post more often  :TU:
jaDEB

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Bevan

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Re: Commodities
« Reply #21 on: October 02, 2014, 11:57:41 am »

Yup, I was head of the metals and energy desk for a large investment bank. Now I only trade commodity futures and options in spare time. I couldn't really be bothered with share trading because once you've tasted the thrills (and spills) of commodity trading there really is no other equivalent.

If anyone wants any specific insight into commodities etc. then feel free to get in touch. I am connected to all the major commodity brokers and get daily market updates from London, Geneva, Singapore etc.

Out of interest, what seems to happen in the commodity world only seems to get picked up by share traders a few months down the line. For instance, I could have told you in July that iron ore prices were falling out of bed and that all was not well in China land. However, it's only in the last month or so that share traders have sold down their holdings in Kumba, Assore etc.  I only realised this by recently checking out the share prices. I could have made a fortune by shorting these shares early on but I just assumed they would be falling and didn't bother to check....  I can tell you for free now that there are a few coal shares on the JSE that you should probably be avoiding (Keaton, Buffalo, COAL, WCC) due to their debt exposure and links to international coal price....
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Peter01

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Re: Commodities
« Reply #22 on: October 02, 2014, 12:52:15 pm »
You could have saved me some heart break... but all is well now or is it? thanks for the posts helps allot

Bevan

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Re: Commodities
« Reply #23 on: October 02, 2014, 07:01:17 pm »
In terms of iron ore, all is definitely not well. There is a huge oversupply situation and everyone wants to hang onto their production just in case prices recover. Everyone knows that the majors (BHP, Rio and Vale) are trying to force everyone else out of business by oversupplying so it is a battle of egos and debt service cover ratios right now. The forward curve for iron ore is slightly positive so you will probably see some hedging of future supplies. Expect iron ore producers to be reporting flat results for many months to come. SA producers might get some uplift from weak Rand but USD:ZAR also looks like it might have had its run for now.

I also think equities should now be at a relatively safe level to start buying back in now. However, expect some bouncy price action as the market tries to find the floor here...
Audi, vide, tace, si vis vivere in pace. Pax vobiscum.
Happiness belongs to the self-sufficient - https://www.thrivecentre.co.za