INSIDE COMMODITIES
Monday, February 16, 2015
U.S OIL– TECHNICAL OUTLOOK
MARKETS SNAPSHOT
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Gold extended gains to a third session, bolstered by safe-haven bids
amid a softer dollar and jitters ahead of negotiations regarding Greece's
future. Oil traded lower while copper steadied. European stocks were
set to steady. Asian markets rose. Wall Street closed positive on Friday.
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$52.72
-0.11%
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0.67%
13.30%
$584.00
0.09%
13.91%
$2.86
2.00%
-2.94%
$1,233.28
0.33%
3.86%
ICE gas oil
NYMEX natural gas
Spot Gold
TOP NEWS
Japan emerges from recession but subdued growth underscores policy challenge
LME Copper
$5,752
0.30%
-8.97%
LME Aluminium
$1,845
0.44%
-0.86%
CBOT Corn
$0.00
-100.00%
-2.46%
CBOT Wheat
$5.33
$9.87
0.00%
-8 2/8
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CBOT Soybeans
Index (Total Return)
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Thomson Reuters/Jefferies CRB
229.7615
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S&P GSCI
3219.659
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-0.41%
Libyan oil pipeline sabotaged, gunmen storm Sirte offices
Rogers International
2693.07
0.00%
-3.57%
Indonesia's PT Timah suspends all new tin sales on low
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440.9233
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US DOLLAR INDEX
93.985
0.11%
4.36%
US BOND INDEX (DJ)
346.53
-0.28%
1.31%
Managers bunk down at U.S. refineries as strike enters
third week
prices
De Beers diamond division becoming Anglo American's
crown jewel
U.S. oil rig count falls to lowest since august 2011-Baker
Hughes
U.S. port strike pushes up freight rates with ships held up
offshore
Canada confirms new case of mad cow disease, cattle
prices rise
After December high, North Dakota oil output may stall
European "refining spring" won't save plants from the
axe
BEYOND THE HEADLINES
From cattle to corn, crude oil dive ripples through farm
economy
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INSIDE COMMODITIES
February 16, 2015
MARKET MONITOR
Oil prices steadied as Japan's economy emerged from recession and as strong demand for refined products translated into
healthy orders for crude. Benchmark Brent crude futures were
trading lower by 0.21 percent at $61.39 per barrel U.S. WTI
crude was down by 0.17% cents at $52.67 a barrel.
London copper held steady near a three-week top, underpinned by a slightly weaker dollar, as volumes dwindled ahead
of Chinese New Year and with a holiday in the United States.
Three-month copper on the London Metal Exchange drifted
0.22 percent to $5,747 a tonne. The most-traded April copper
contract on the Shanghai Futures Exchange was up by 1.17
percent, at 42,220 yuan a tonne.
The euro edged up on hopes that Greece and euro zone finance ministers will find common ground to support Greece
beyond the expiry of the current bailout programme at the end of
February. The common currency, which has been drifting in a
slim $1.1262-1.1534 range in the last few weeks due partly to
uncertainties over Greece, traded at $1.1411 , up 0.2 percent
from late U.S. levels. The dollar slipped to 118.60 yen while the
pound climbed as far as $1.5437 in early trade.
Gold extended gains to a third session, bolstered by safe-haven
bids amid a softer dollar and jitters ahead of negotiations regarding Greece's future in the euro zone. Spot gold edged up
0.48 percent to $1,232.40 an ounce.
European stocks were set for a steady open, as investors
awaited the euro zone finance ministers' meeting in Brussels to
see if common ground would be found with Greece's new government while Asian markets rose. Wall Street closed positive
on Friday.
TOP NEWS
Japan emerges from recession but subdued growth underscores policy challenge
Managers bunk down at U.S. refineries as strike enters
third week
Japan's economy rebounded from recession in the final quarter
of last year but growth was weaker than expected as household
and corporate spending disappointed, underlining the challenge
premier Shinzo Abe faces in shaking off decades of stagnation.
The annualised 2.2 percent expansion in October-December
was smaller than a 3.7 percent increase forecast in a Reuters
poll, suggesting a fragile recovery as the hangover from last
year's sales tax hike lingered.
The preliminary reading for gross domestic product (GDP),
which translates into a quarter-on-quarter increase of 0.6 percent, follows two straight quarters of contraction, data by the
Cabinet Office showed on Monday.
Economic Minister Akira Amari told reporters after the data's
release that the economy was on track for a recovery with signs
consumer sentiment is picking up.
But analysts pointed to the weak rebound in consumption and
capital expenditure as worrying signs to the outlook.
"These are somewhat disappointing figures," said Takeshi Minami, chief economist at Norinchukin Research Institute. "The
situation remains weak and companies are clearly postponing
investments."
BOJ ON HOLD
The rebound from recession, however, will allow the Bank of
Japan to hold off on expanding monetary stimulus for now even
as slumping oil prices push inflation further away from its 2 percent target, analysts say. The BOJ is expected to keep monetary policy unchanged for a while to see the impact from the
latest easing," said Taro Saito, director of economic research at
NLI Research Institute.
U.S. oil refinery managers are going to the mats, literally, during
the biggest fight with union workers in 35 years, bedding down
for a third strike week that experts and some employees say
raises concerns over safety and operations.
At the 135,000 barrel-per-day refinery just outside of Toledo,
Ohio, run by BP Plc and Husky Energy Inc , most of the nearly
300-person staff have been calling the refinery home since Feb.
9. For the last week, they have slept on recently purchased mattresses inside rental trailers to rapidly respond to any problems
and avoid striking workers, sources say.
On Tuesday, a van full of washing and drying machines gingerly
cut through about a dozen United Steelworkers carrying pickets
and walking a strike line at the facility's front gate.
Those efforts underscore how far operators are willing to go to
retain normalcy in the face of the largest national U.S. refinery
strike since 1980. And as more replacement workers join the
ranks here and the other eight refineries where strikes have
occurred, more questions are arising about potential safety and
production risks from an extended walkout.
While such warnings may seem a self-serving negotiating tactic,
even some on the other side of the line are concerned. John
Ostberg, a non-union control engineer who works in the main
computerized control center at Toledo, quit his job on Monday
weeks before he was scheduled to retire.
For months, Ostberg has been warning his bosses in emails
about their plans to rely on replacement workers and supervisors if a strike occurred. He feared they were not properly
trained, or too far removed from the frontlines, to respond to unit
upsets and other problems that can escalate quickly without
experienced intervention.
2
INSIDE COMMODITIES
February 16, 2015
TOP NEWS (Continued)
Libyan oil pipeline sabotaged, gunmen storm Sirte offices
Indonesia's PT Timah suspends all new tin sales on low
prices
Libya's National Oil Corporation urgently called on Saturday for
more official protection for its installations after an oil pipeline
from its El Sarir field was sabotaged, halting flow to Hariga port.
In a separate incident, gunmen stormed government buildings in
the coastal city of Sirte, forcing officials out at gunpoint and taking over administrative offices and television and radio stations,
the state news agency said.
No group claimed responsibility for Saturday's pipeline sabotage, but oil infrastructure, ports and pipelines in the North African OPEC member state are often targets of attack.
Libya is riven by conflict, with two rival governments operating
their own armed forces under separate parliaments, nearly four
years after the civil war that led to the overthrow and death of
leader Muammar Gaddafi in 2011.
Indonesia's top tin miner PT Timah has suspended all new
sales until benchmark prices of the solder material rise above at
least $20,000 per tonne, an official at the state-owned firm said
on Saturday.
Indonesia is the world's top exporter of tin and the governor of
its main producing region of Bangka-Belitung is already spearheading a separate plan to impose an export moratorium in an
attempt to bolster prices that are trading near 2-1/2 year lows.
While PT Timah will not take part in any export moratorium, the
miner had suspended all sales until prices recover, with the aim
of achieving prices at around $20,000-$22,000 per tonne, Corporate Secretary Agung Nugroho told Reuters in a text.
"Stopped until prices bounce back to a certain level," Nugroho
said when asked whether PT Timah had halted sales. "We will
keep mining and exporting but stop sales."
De Beers diamond division becoming Anglo American's
crown jewel
U.S. oil rig count falls to lowest since august 2011-Baker
Hughes
Diamond company De Beers, once a niche business for global
miner Anglo American , is rapidly rising to become the jewel in
its crown - with a brighter outlook than many of its metals.
The division's profit leapt by more than a third in 2014 at the
same time as its parent company Anglo saw earnings drop by
about a quarter, hammered by a dive in prices of metals such as
iron, copper and coal.
It overtook copper last year to become the second-largest contributor to group profit, fast closing the gap with the flagship iron
ore business.
De Beers increased production in 2014 to capitalise on diamond
prices having risen over the previous five years, and at the
same time managed to marginally lower production costs at its
mines in southern Africa and Canada.
The number of rigs drilling for oil in the United States fell by 84
this week to 1,056 - the lowest since August 2011 - a survey
showed on Friday, a clear sign of the pressure that tumbling
crude prices have put on oil producers.
It was the second biggest weekly drop on record, according to
data going back to 1987, and the 10th straight week of declines,
oil services firm Baker Hughes Inc said in its widely followed
report.
U.S. oil prices fell nearly 60 percent from June to late January
due to a combination of oversupplied markets and lackluster
demand, forcing oil firms like Apache Corp and Anadarko Petroleum Corp to cut spending.
But prices have rebounded over 15 percent since late January,
partly due to expectations the lower rig count will eventually
shrink U.S. production, curtailing the supply glut.
U.S. port strike pushes up freight rates with ships held up
offshore
A U.S. West Coast port strike is pushing up shipping freight
rates as delays in offloading and taking on new cargo mean
container ships are unavailable for new orders.
Dozens of container ships are lying in wait off the large U.S.
West Coast ports of Los Angeles, San Francisco and San
Diego. Many of them have been waiting more than a week to
enter port to unload or take on new cargoes, according to Thomson Reuters shipping data.
"The strike is affecting a lot of vessels. There's a lot of delays
and this is pushing up panamax (container) rates as fewer ships
are available for new orders," a leading Singapore-based broker
said.
The Shanghai Containerized Freight Index for U.S. West Coast
(USWC) rates rose 23 points last week to 2,265 and brokers
said quotes had risen a further five points on Monday.
Canada confirms new case of mad cow disease, cattle
prices rise
Canada confirmed its first case of mad cow disease since 2011
on Friday, but said the discovery should not hit a beef export
sector worth C$2 billion ($1.6 billion) a year.
The news, however, helped boost U.S. cattle prices.
The Canadian Food Inspection Agency (CFIA) said no part of
the animal, a beef cow from Alberta, had reached the human
food or animal feed systems.
Mad cow disease, formally known as bovine spongiform encephalopathy (BSE), is a progressive, fatal neurological disease. It is thought that the disease can be transmitted to people
from food made from cows sick with BSE.
3
INSIDE COMMODITIES
February 16, 2015
TOP NEWS (Continued)
After December high, North Dakota oil output may stall
European "refining spring" won't save plants from the axe
North Dakota's shale oil production appears to have reached a
plateau after a renewed rise at the end of last year, the state's
top oil official said on Friday, a sign that the U.S. oil boom might
be slowing sooner than expected.
Oil production in the No. 2 producing state rose nearly 40,000
barrels per day to 1.23 million bpd in December, resuming its
years-long rise after three flat months, monthly data from the
state's Industrial Commission showed on Friday.
Many forecasters, including the U.S. government, expect overall
U.S. production to continue rising until the middle of this year,
despite a sharp fall in drilling rigs, as increased efficiency and a
focus on sweet spots maintains the shale boom that has raised
U.S. output by nearly 70 percent in the last five years.
Lynn Helms, the state's head of Department of Mineral Resources (DMR), said the December figures were "encouraging,"
but warned they may not be bettered anytime soon. The number
of rigs drilling for oil in North Dakota could shortly dip below 130,
the level Helms previously estimated was necessary to maintain
output at around 1.2 million bpd.
Refining is propping up European oil majors hit by a sharp drop
in the price of crude, but executives are making it clear -- more
refineries will close as a result of overseas competition and
weak domestic demand.
Profit from processing crude oil into products such as diesel,
gasoline and aviation fuel more than doubled on average in the
fourth quarter of 2014 as the rapid decline in oil prices since
June boosted margins The results from refining and trading,
known as downstream, were critical in offsetting a slump in profits from crude oil production, which suffered along with oil prices
in the second half of 2014, according to company results.
But despite the "refining spring", as much as 2 million barrels
per day in European capacity is destined for the axe. Total ,
Royal Dutch Shell, BP and Eni plan to sell, close or cut millions
of bpd of refining.
"Even if we have good results, the fundamentals in Europe are
still the same," Total's Chief Executive Patrick Pouyanne said
this week after unveiling plans to halve production at its 207,000
-bpd Lindsey refinery in Britain.
BEYOND THE HEADLINES
Farmers in China, which accounts for more than half the world's
pork production, will get better returns, although gains will be
limited by government controls on fuel and corn prices.
"Overall production cost of livestock farmers has gone down in
China but not as steep as what we can see in the international
market," said Pan Chenjun, senior analyst at Rabobank in Hong
Kong.
Many exporting countries other than the United States benefit
from a strong dollar as well.
Since meat products are priced in dollars in the global market,
this helps producers in countries like Australia, where the local
currency has dropped around 30 percent since an all-time high
in 2011.
The Australian benchmark Eastern Young Cattle Indicator has
climbed 37 percent to 449 Australian cents a kilogram since late
last year.
From cattle to corn, crude oil dive ripples through farm
economy
By Karl Plume
Craig Uden, who fattens cattle for beef on his Nebraska feedlot,
expects to cut his energy costs by as much as a quarter this
year because of falling oil prices - a silver lining in an otherwise
tough rural economy.
The lowest energy prices since 2009, which have already benefited transport, retail and industrial companies, are giving farmers a boost just as the U.S. Department of Agriculture forecasts
their incomes will plunge 32 percent this year.
Cheaper diesel to run machinery and trucks along with lower
prices for propane gas used to dry grain or heat livestock buildings are all easing the pain of grain prices that are near 5-year
lows.
In the heart of the U.S. Midwest grains belt, oil's recent drop
could save farmers more than $1.1 billion in 2015, cutting $8
from the roughly $600-per-acre non-land cost of planting a corn
crop, and saving about $5 an acre on soybeans, data provided
by farm management professor Gary Schnitkey at the University
of Illinois show.
"A penny saved in fuel is a dollar earned on cattle ranches,"
Uden said.
Between transporting livestock to and from feed yards and firing
up trucks and tractors to water and feed them, he estimates
savings of $40,000 to $50,000 this year on production costs that
normally run around $200,000, thanks to crude oil's plunge of
over 50 percent since June.
GLOBAL FARM SAVINGS
Other winners include livestock farmers in top feed grain importers in Asia such as Japan and South Korea, and big meat producers Australia and China.
"The stars have aligned in favour of livestock farmers," said
Simon Quilty, an Australia-based livestock consultant.
U.S. ROW CROP SAVINGS
South Dakota corn, soybean and wheat grower Ryan Wagner
topped off his on-farm diesel tanks last month at the cheapest
prices since 2009. He is considering pre-booking propane,
needed for drying harvested grain, at less than $1 per gallon –
down from more than $4 seen in 2013 when tight stocks and
heavy demand sent prices soaring.
Wagner paid $2.11 per gallon for diesel for the semi trucks he
uses to haul grain to market, more than $1 cheaper than a year
earlier.
"Fuel is not a huge item for us, compared to chemicals, seed
and fertilizer, but a lot of guys who have on-farm fuel storage
are taking notice," he said.
But farmers still face steep prices for other fossil-fuel-based
farm inputs.
Up to 90 percent of the cost of nitrogen fertilizer, an essential
input for crops like corn and cotton, is tied to natural gas.
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INSIDE COMMODITIES
February 16, 2015
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(Inside Commodities is compiled by Vishaka George in Bangalore)
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