INSIDE COMMODITIES Monday, October 20, 2014 MARKET VOLATILITY AND OIL MARKETS SNAPSHOT Click on the chart for full-size image Brent edged higher after robust U.S. data buoyed global financial markets .London copper was under pressure from a deteriorating fundamental outlook tracking gold which slipped by worries over the end of U.S. monetary stimulus and dimmed the metal's safe-haven appeal, . European stocks were expected to open higher mirroring Asian markets. Wall Street ended positive on Friday. To read more, please click here Contract (AS OF 0614 GMT) Last Change YTD NYMEX light crude $83.18 0.52% -15.92% NYMEX RBOB gasoline $2.24 0.15% -19.85% $740.25 0.71% -22.16% $3.73 -0.88% -10.97% $1,236.80 -0.07% 2.72% ICE gas oil NYMEX natural gas Spot Gold TOP NEWS  Global economy week ahead-getting used to the "new LME Copper $6,603 -0.54% -9.80% LME Aluminium $1,970 -0.10% 9.56% CBOT Corn $3.46 -0.72% -17.54% CBOT Wheat $5.13 -0.53% -14.75% R2,129 -0.61% -19.44% Malaysia Palm Oil (Ringgit) (3M) mediocre"  Two rival Libyan governments claim to control oil policy Index (Total Return)  GRAPHIC-Oil price and foreign exchange: impact on consumers and producers  Russia and Ukraine reach tentative gas deal in tough Milan talks  Hershey says U.S. cocoa stocks will last 'well into next year'  Cotton industry quietly renegotiates contracts after market rout  GMO labeling foes spend big on campaigns in Oregon, Colorado  LMEWEEK-Stakes high as LME bets on china expansion, luring fund investors  India delays decision on iron ore licence for POSCO's $12 bln plant  Indonesia raises vale nickel royalty, forces share sale BEYOND THE HEADLINES  Chile copper boom begins to fade as production headaches mount Latest Close Change YTD Thomson Reuters/Jefferies CRB 273.2932 -0.02% -2.66% S&P GSCI 4210.6231 0.30% -12.89% Rogers International 3198.19 0.55% -13.57% Dow Jones - UBS 134.6268 - - Cont Commod Indx 486.7769 -0.21% -4.19% Latest Close Change YTD 16380.41 1.63% -1.18% US DOLLAR INDEX 85.261 0.18% 6.34% US BOND INDEX (DJ) 340.37 -0.04% 7.20% Index (Total Return) US STOCKS (DJI) ECONOMIC WATCH GMT 10:00 Indicators SK Unemployment Rate* CLICK HERE FOR TECHNICAL CHARTS Unit Reuters Prior pct 12.72 12.6 INSIDE COMMODITIES October 20, 2014 MARKET MONITOR Brent crude edged higher, holding on to gains scored in the previous session that took it above $86 a barrel after robust U.S. data buoyed global financial markets, with a cut in Saudi-Kuwait oil output providing further support. Brent for December delivery had risen another 0.15 percent to $86.29. U.S. crude gained 0.57 percent to $83.20 a barrel. Gold ticked lower as strong U.S. economic data allayed fears about a slowdown in the global economy and dimmed the metal's safe-haven appeal. Spot gold had slipped $1 to $1,236.60 an ounce. The metal, however, has gained nearly 4 percent in the past two weeks and hit a one-month high of $1,249.30. The dollar gained after upbeat data restored some calm to the financial markets, prompting equities to rally back from deep losses and triggering a rise in Treasury yields. The dollar was up 0.4 percent at 107.345, pulling further away from a five-week low of 105.195 hit the previous week. Chicago soybean futures slid to their lowest in almost a week and corn fell for a second session, under pressure from forecasts of dry weather in the U.S. Chicago Board of Trade frontmonth soybeans fell as much as 0.7 percent to $9.45-1/2 a bushel, while corn gave up 0.7 percent to $3.45-3/4 a bushel and wheat lost 0.5 percent to $5.13-1/4 a bushel. London copper was under pressure from a fundamental outlook after hitting its lowest level in six months in the previous session, hurt by worries over the end of U.S. monetary stimulus and rising stocks. Three-month copper on the London Metal Exchange had dropped 0.5 percent to $6,606. The most traded December copper contract on the Shanghai Futures Exchange was little changed at 47,120 yuan ($7,695) a tonne. European stocks were expected to open high mirroring Asian markets after solid U.S. data and earnings calmed the tumult in global financial markets and reassured investors worried about the health of the world economy. Wall Street ended positive on Friday. TOP NEWS Two rival Libyan governments claim to control oil policy Global economy week ahead-getting used to the "new mediocre" A self-styled rival government controlling Libya's capital announced its own oil policies this week, drawing a rebuttal from Prime Minister Abdullah al-Thinni who said oil revenues continued to go to the elected government. Underscoring the turmoil gripping the major oil producer, at least 17 people were killed on Friday in the main eastern city Benghazi where pro-government forces backed by locals are ```fighting Islamists. A suicide bomber killed three, witnesses and medics said. Libya is struggling with two competing governments vying for control after Operation Dawn, an umbrella of armed groups from the western city of Misrata, seized Tripoli in August, forcing Thinni's government to withdraw to the east. The Misrata-led forces have since formed their own rival parliament and government, which has taken over some ministries and effectively controls parts of western and central Libya. Oil traders are concerned about the uncertainty over who is in charge of Libya's vast oil reserves after the Misrata group appointed its own oil minister and took over the official website of state firm National Oil Corp (NOC). The power struggle adds to uncertainty about the oil industry, which had just started to show signs of recovery after Thinni managed to end a blockage of major eastern ports by groups of rebels demanding autonomy. In an interview with local news agency Press Solidarity, the newly appointed oil minister, Mashallah al-Zawi, said the ministry was working to resolve oilfield protests and discussing early retirement schemes for staff to make room for fresh recruits. "The ministry is working to resolve the issue of sit-ins by youth through dialogue and by meeting some demands," he said, outlining his policies the first time, according to the agency's website. Evaporating inflation and slowing growth have put financial markets into such a spin that they could inflict further damage on the world economy. Until a dramatic selloff, exuberant markets had raced well ahead of the economies that underpin them, partly because the U.S. Federal Reserve and other central banks flooded the financial system with new money. With the Fed set to turn off its money taps at the end of this month, investors appear to have woken up to poor growth prospects in much of the world, something International Monetary Fund chief Christine Lagarde has termed a "new mediocre". It's not all doom and gloom. The outlook for the world’s largest economy has not suddenly taken a turn for the worse. And a 25 percent plunge in the price of oil since June should put more money in the pockets of companies and households. "U.S. momentum has softened a little but we expect growth to remain solidly above trend. At the same time, the drop in oil prices is as much a reflection of supply as demand factors," economists at Goldman Sachs said in a note. "For consumers in the largest economies, it should provide meaningful relief, offsetting the pressure from tighter financial conditions and weaker global demand." Fears are centred on recession and even deflation in the euro zone and the extent of China's slowdown. When the world financial crisis raged from 2007-2009, China's resilience was one of the major silver linings. It may not be this time. Chinese third-quarter gross domestic product numbers due on Tuesday are forecast to show growth at its weakest pace in more than five years, at 7.2 percent year-on-year. Beijing is expected to roll out a stream of stimulus measures in coming months, though most economists believe it will hold off on an interest rate cut unless conditions deteriorate sharply. 2 INSIDE COMMODITIES October 20, 2014 TOP NEWS (Continued) GRAPHIC-Oil price and foreign exchange: impact on consumers and producers Russia and Ukraine reach tentative gas deal in tough Milan talks Oil's sharp price decline is a boon for major oil-consuming nations at a time of renewed economic concerns while a headache for oil producers. Yet its impact differs significantly country by country, determined to a large extent by foreign exchange policies. A steep fall in the value of the Russian rouble has helped the Kremlin mitigate the impact of lower oil prices and will allow authorities to keep high domestic spending. However, Moscow will have to sharply curtail increasingly expensive imports. The situation is similar in Iran and Venezuela although the forex impact is more difficult to assess because the respective currencies are not freely traded. Iranian sources told Reuters this week the country could live with lower prices as the stronger dollar was helping. Russia and Ukraine made progress on Friday towards resolving a dispute over gas supplies in time for winter, but European leaders said Moscow still had to do much more to prop up a fragile ceasefire and end fighting in eastern Ukraine. The mooted deal could re-open Russian gas to Ukraine cut off since June, and ensure supply to European buyers further west before demand surges in the cold months and stocks run down. It came as something of a surprise after talks in Milan that the Kremlin said were "full of misunderstandings and disagreements". Russia's Vladimir Putin told reporters that a deal ensuring gas supplies "at least for the winter" had been reached after a final one-on-one meeting with Ukraine's Petro Poroshenko, which followed talks attended by European leaders. "We agreed on all the parameters of this deal," Putin said, but he urged European countries to help Ukraine meet a debt for gas, which he said stood at $4.5 billion. Hershey says U.S. cocoa stocks will last 'well into next year' U.S. chocolate manufacturer Hershey said on Friday that U.S. cocoa stocks are high enough to prevent disruption to supplies well into 2015, playing down concerns that Ebola in West Africa could roil the $12 billion global cocoa market. More than half of the annual cocoa supply needed for the United States is already in the country, one of the world's top consumers, a company spokesman said in an email to Reuters. The comments from the maker of Hershey's Kisses, some of the most candid from the industry, came as the global death toll from the disease that has ravaged three West African countries rose and calls for a U.S. travel ban from West Africa grew louder. Ivory Coast and Ghana, which together produce 60 percent of the world's cocoa beans, have not reported any cases of the deadly Ebola virus, which has killed more than 4,500 people in Liberia, Sierra Leone and Guinea. But concerns are mounting the epidemic may spread across the border, cutting off critical supplies of raw materials from Ivory Coast, which produces 40 percent of global supplies. Cotton industry quietly renegotiates contracts after market rout Cotton spinning mills and merchants are confidentially renegotiating contracts so that they can delay delivery of fiber by as much as a year following the market's worst rout in years, market sources said and data show. Last week, buyers in Honduras switched delivery of an order for 5,600 bales of upland U.S. cotton to the 2015/16 crop year that starts on Aug. 1, 2015, a weekly U.S. Agriculture Department (USDA) report showed on Friday. That amount is low compared with the estimated 16 million bales being harvested in the United States, but the shift was conspicuous after similar moves made in the last two weeks. Trade sources said dealers have been pushing sales signed when prices were at seasonal highs to later delivery dates, rather than ripping up contracts. LMEWEEK-Stakes high as LME bets on china expansion, luring fund investors GMO labeling foes spend big on campaigns in Oregon, Colorado London Metal Exchange, the world's biggest industrial metals market, heads into LME Week on Monday fresh from a legal victory that enables reform of its warehousing system and winning a foothold in benchmarking precious metals. But those two successes alone will not ensure that the $2.2 billion deal by Hong Kong Exchanges and Clearing Ltd (HKEx) in 2012 to acquire the 137-year old exchange will pay off. To churn out profits, the LME plans to attract more financial investors such as hedge funds and expand its tentacles into mainland China, which for now remains elusive. Fund managers, who are not interested in hedging physical metal, want a more standardised way to trade LME contracts to ensure that they can buy and sell large amounts easily. Opponents of GMO food labeling proposals on the ballot next month in Oregon and Colorado have contributed roughly $20 million for campaigning against the proposed laws, nearly triple the money raised by supporters of the initiatives, campaign finance reports show. Both measures would require labels on foods made with genetically engineered crops, which are common in the United States. Voters in Colorado and Oregon weigh in on the issue in midterm election voting on Nov. 6. Similar mandatory labeling measures failed at the ballot box in California in 2012 and in Washington state in 2013. Vermont passed a mandatory labeling law this year, but a group of grocery manufacturers has sued to block the law. Opponents who have contributed to defeat the measure include a long list of corporate powerhouses such as Monsanto Co., the leading developer of biotech crops. Other large contributors include PepsiCo Inc., Kellogg Co. and Kraft Foods. 3 INSIDE COMMODITIES October 20, 2014 TOP NEWS (Continued) India delays decision on iron ore licence for POSCO's $12 bln plant Indonesia raises vale nickel royalty, forces share sale Brazil's Vale SA said on Friday that a revised nickel-mining contract with Indonesia will raise maximum royalties, cut land holdings and require its Indonesian unit to sell another 20 percent of its shares to local investors. Royalties were set at 2 percent in the deal and could rise to as high as 3 percent, more than double the previous 0.6 percent and 0.7 percent, said Nico Kanter, chief executive of Vale's Indonesian subsidiary PT Vale Indonesia TBK. The royalty hike will "definitely affect our bottom line," Kanter told reporters in Indonesia. He didn't elaborate on the impact. Vale officials in Rio de Janeiro were not immediately available for comment. Vale preferred shares, the company's most-traded class of stock, have lost about 20 percent in Sao Paulo in the last 12 months. The shares rose 0.3 percent to 23.08 reais in Sao Paulo on Friday. India's federal government has again delayed a decision on permitting POSCO to mine iron ore, seeking more clarifications from Odisha state where the South Korean company has waited nine years to set up a $12 billion steel plant. Former Prime Minister Manmohan Singh said in January POSCO's request for a mining licence - the final regulatory hurdle for the project which would be the biggest foreign direct investment in India - was at an "advanced stage of processing". But nine months on, little progress has been made on the ground. The company has yet to start work on the planned 12million-tonnes-a-year plant due to stiff opposition to land acquisition and delays in securing permission to mine iron ore, a raw material for steel. The federal Mines Ministry last week wrote to Odisha seeking clarity on how much of the mining land sought by POSCO was notified as an iron ore bearing area where commercial mining was allowed. Mining in non-notified areas needs more approvals than in notified areas. BEYOND THE HEADLINES Michelle Bachelet's new center-left government. Workers are demanding a greater share of the pie and more local communities, often backed by the courts, are fighting against projects they see as degrading the environment. This month, for instance, Goldcorp's $3.9 billion El Morro gold and copper mine was halted by Chile's Supreme Court, which said the company must consult again with local indigenous groups. "It is a structural phenomenon and it is very much linked to greater technical challenges and regulatory compliance, which new projects have had to deal with," Sergio Hernandez, vicepresident of Cochilco, told Reuters. Chile copper boom begins to fade as production headaches mount By Fabian Cambero and Rosalba O'Brien The shine may soon come off Chile's decade-long copper boom as technical and regulatory problems in getting new mines into production highlight just how hard it will be to keep ratcheting up the supply. Chile is expected to produce a record 5.83 million tonnes of copper this year, rising to 6.23 million next year, state copper commission Cochilco forecast on Friday. Many in the industry are confident new mines will keep boosting supply, and are worried more by falling demand in the key buyer, China. But the optimism over output may be misplaced. Already, the official estimate for production in 2014 has been downgraded twice, cut from 6.07 million tonnes - a drop equivalent to the output of a medium-sized mine - after teething problems at three new projects and falling output at older ones. And soon the growth of recent years will likely grind to a halt, industry experts say. "Next year and towards 2016 we will see the peak of production in this decade but I don't think we will see very significant increases in Chile until the next decade, when we hope large projects in the pipeline will be unblocked," said Juan Carlos Guajardo, head of local copper think-tank CESCO. CESCO sees growth in new production falling off sharply after 2016, with a market "balanced or in deficit through to the end of the decade", Guajardo said. The easy pickings in Chile have gone, leaving miners to scrabble through stony and contaminated ores at remote locations, where water is scarce and energy expensive. The investment environment is also not as welcoming as it once was. Some tax incentives were recently removed by President FADING FAST Chile's copper production has risen in fits and starts from 5.41 million tonnes in 2003 to 5.78 million last year. That far outweighs production in any other country and Chile still accounts for more than 30 percent of output worldwide, although its share is falling. Sales of the base metal, used in wiring and construction, are crucial for the Andean country's economy, accounting for over half its export revenue. But many of Chile's older mines are fading fast. Century-old Chuquicamata, for instance, has seen production since 2004 fall from 983,000 to 752,000 tonnes, according to Cochilco figures, which include ouput from the nearby the Radomiro Tomic mine. New mines are helping to bridge the gap. Three smaller projects that were not in operation in 2004 produced nearly half a million tonnes in total in 2013. Some older open pit mines such as Chuquicamata hope to keep ticking over by going underground, while others are turning to new technology, such as Radomiro Tomic, which is employing bioleaching. 4 INSIDE COMMODITIES October 20, 2014 BEYOND THE HEADLINES Efficiency improvements have boosted production at projects such as Glencore and Anglo American Collahuasi. But the increase has been from a low base and the pace of growth is unlikely to continue, industry experts say. Meantime, new projects, even once they obtain the necessary permits, face a raft of problems. Earlier this year, state-run Codelco, the world's top copper producer, had problems with a key piece of equipment designed to remove arsenic from ore at its new Ministro Hales mine, leading it to cancel some sales in China. Labor conflicts pushed up costs and delayed the start of JX Nippon's Caserones mine, while KGHM's Sierra Gorda raced to begin production on time, increasing its spending on engineer- ing as it did so. Sierra Gorda's project head, Maciej Sciazko, said KGHM wanted to be a low-cost producer so it could invest in an expansion of the mine but that "energy costs were a major concern". Like other miners, KGHM is also keeping a fearful eye on the falling copper price, down around 10 percent so far this year. "At current copper prices, although (the problems) aren't a disaster, they are not an incentive to speed ahead with the mine, particularly if you are a privately run producer," one market operator said. 5 INSIDE COMMODITIES October 20, 2014 3 month TECHNICAL CHARTS (12 and 50 days Exponential Moving Average) Click on the chart for full-size image NYMEX Crude ICE BRENT Crude Spot Gold Spot Silver CBOT Corn CBOT Wheat (Inside Commodities is compiled by Atiqul Habib in Bangalore) For more information: Learn more about our products and services for commodities professionals, click here Contact your local Thomson Reuters office, click here For questions and comments on Inside Commodities click here Your subscription: To find out more and register for our free commodities newsletters click here © 2014 Thomson Reuters. All rights reserved. This content is the intellectual property of Thomson Reuters and its affiliates. 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