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General Category => Shares => Topic started by: Moonraker on April 29, 2013, 08:19:20 pm

Title: Commodities
Post by: Moonraker on April 29, 2013, 08:19:20 pm
Credit Suisse says stay bearish on commodities. Gold stocks most oversold since 2008.

Quote
Credit Suisse says: "We agree with the bearish stance on commodities held by Ric Deverell, the head of the Credit Suisse Commodities Research team. We are cautious, given that:

"Elevated prices have triggered a significant capex response, leading to excess supply in many instances;

"Chinese risks are high: the investment-share of GDP, at 48%, must fall, total debt is now 230% of GDP and quantitative tightening has started;

"Global macro momentum is slowing (we think until mid-year);

"We believe the dollar trade-weighted index has the potential to continue strengthening (typically bad for commodities);

"Commodity prices are still high relative to their long-run averages (in real terms) and producers' break-even (especially for iron ore and oil); and

Equities are a better inflation hedge than commodities, in our view.

"We remain underweight the resource sectors, which suffer from poor capital discipline, sub-market FCF yields, still optimistic positioning and in nearly all instances spot prices are below consensus (implying downgrade risks).

"Mining is the most sensitive sector to ISM and China infrastructure spending; yet, P/E relatives are only middling. When the sector has been this oversold, it has typically still underperformed over the next three months.

"Big-cap oil tends to outperform only when equities are falling, credit spreads are rising or the oil price is spiking, none of which is likely. The sector is not cheap on relative P/Es after adjusting for under-depreciation. However, we reverse our preference among the resource sectors - and now prefer energy to mining (the oil price looks more resilient than industrial commodities prices and valuations more attractive).

"Quoted gold stocks look very cheap (with P/B and forward P/E relatives both at 12-year lows) and are the most oversold since 2008.

Impact of lower commodities prices: each 10% off oil adds 0.2% to developed world GDP growth, takes 0.4% off inflation and thus allows central banks (esp. the ECB) to be more aggressive. It also adds 1.4% to European EPS (1.2% in the US). GEMs in aggregate are hurt by lower commodity prices, but commodity importers like India, Turkey and Korea benefit. Akzo Nobel, PPG, BMW and Safran are Outperform-rated commodity users with pricing power."


Title: Re: Commodities
Post by: jaDEB on April 30, 2013, 07:52:29 am
Dr Copper
Title: Re: Commodities
Post by: Moneypenny on April 30, 2013, 08:42:34 am
Also our labour market historically gearing up for increases (double digit recently) now, with upcoming union elections in sight.
Title: Re: Commodities
Post by: Moonraker on May 02, 2013, 10:25:36 am
Glencore boss on acquisition trail (http://www.fin24.com/Companies/Mining/Glencore-boss-on-acquisition-trail-20130502)

Quote
London - After years of on-off talks, months of brinksmanship and often bitter negotiations, Glencore's head Ivan Glasenberg gets to complete the $30bn acquisition of Xstrata on Thursday, the mining industry's biggest takeover yet.

But even as the champagne pops, investors and rivals are asking where the highly ambitious South African will look for his next deal. Many are already pointing to vulnerable or undervalued rivals, including Anglo American [JSE:AGL]
.

Quote
Anglo has now set itself on a turnaround path with a new CEO, but is still battling to overcome the impact of overruns at its $8.8bn Minas-Rio iron ore project in Brazil and an unprecedented squeeze in platinum, where it faces weak prices, high costs and combative unions. Its shares trade at discount to the sum of the parts that some analysts put at 50%.

"I still see Anglo as vulnerable, and I see Glencore as a natural buyer for it," Gait said.

Go for it Ivan, I need to remove AGL from my portfolio and am hoping for something like this to boost the price a little.
Title: Re: Commodities
Post by: Moonraker on May 05, 2013, 07:00:43 pm
Israeli rocket attacks on Syria. Syria regards it as a declaration of war and Egypt views it as an act of aggression - duh.
Crude oil should rise, SOL might benefit provided the R doesn't strengthen.
Title: Re: Commodities
Post by: aspire on May 05, 2013, 09:27:24 pm
It's been a while coming. Should there be a war oil is likely to rise, I wonder if there'll be any effect on gold?
Title: Re: Commodities
Post by: jaDEB on May 08, 2013, 04:11:15 pm
Dr Copper  ;D
Title: Re: Commodities
Post by: Moonraker on May 13, 2013, 02:02:39 pm
Can copper fall to $2.94 a pound ? (http://www.bloomberg.com/video/can-copper-fall-to-2-94-a-pound-6xeqPPN9SNSM3nLix6qFQQ.html)
Title: Re: Commodities
Post by: jaDEB on May 13, 2013, 02:08:50 pm
Mr Bond, u did watch the video I take? u did notice they are both blonde....
Title: Re: Commodities
Post by: Moonraker on May 13, 2013, 02:13:40 pm
Mr Bond, u did watch the video I take? u did notice they are both blonde....
I did, but you know me, the archetypal pessimist with regard to commodities.  8)
Title: Re: Commodities
Post by: Moonraker on July 29, 2013, 12:28:05 pm
I think, JaDEB and maybe some other resources optimists might want to read the following .. (different opinions are aired, but overall it ain't looking hunky dory).

China 3% Growth Risk Seen by Barclays (http://www.bloomberg.com/news/2013-07-28/china-3-growth-risk-seen-by-barclays-signals-likonomics-anxiety.html)

Quote
A copper price collapse of more than 60 percent, zinc cut by up to a half and oil down to $70 a barrel. That’s the fate facing world commodity markets should China’s growth dip to 3 percent in the next three years -- a scenario economists at Barclays Plc (BARC) are now examining.

They’re not the only ones building models based on a steep decline in growth in the world’s second-biggest economy. Nomura Holdings Inc. (8604) estimates a one-in-three chance of a sharp drop by the end of 2014, and Societe Generale SA sees a “non-negligible risk” of less than 6 percent growth this year and an outside chance of 3 percent average expansion for this half and next.
Title: Re: Commodities
Post by: Orca on July 29, 2013, 02:04:49 pm
Only a collapse in the world economy will drive the copper price that low.  :wtf:
I'm supposed to have left for Portugal already then I read stuff like this. :'(
Title: Re: Commodities
Post by: jaDEB on July 29, 2013, 02:06:43 pm
Thanks Mr Bond. I am thinking of getting back into gold, but I am bit late. Will wait for it to fall again, before you shout  :frustrated: at me, I am thinking, not going to, maybe, where is my tablets. Currently in people (CML) and fishies (OCE)...but am getting bored.... :wall:
Title: Re: Commodities
Post by: Orca on August 06, 2013, 09:42:54 am
A scary chart of S&P 500 vs Commodities index.
There should be some correlation all the time but it lasted till end 2012. Something is bound to happen as this is not sustainable.
Title: Re: Commodities
Post by: jaDEB on October 01, 2014, 10:45:06 am
Copper  :wall:
Title: Re: Commodities
Post by: Patrick 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!
Title: Re: Commodities
Post by: jaDEB 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

Title: Re: Commodities
Post by: Bevan 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.
Title: Re: Commodities
Post by: Bevan 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.
Title: Re: Commodities
Post by: Bevan 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.
Title: Re: Commodities
Post by: jaDEB on October 01, 2014, 06:38:24 pm
Thanks Forward Curve. U seem to know your commodities. U should post more often  :TU:
Title: Re: Commodities
Post by: Bevan 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....
Title: Re: Commodities
Post by: Peter01 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
Title: Re: Commodities
Post by: Bevan 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...