Sep

26

Check out best bets for crude, gold, copper

September 26, 2011 | Leave a Comment

Rajini Panicker, head of commodities research at MF Global Commodities India recommended a short on Multi Commodity Exchange (MCX) crude oil contract at levels of 4,120 for a stop loss of Rs 4,185 per barrel and target of Rs 3,920-3,900 per barrel levels. She told CNBC-TV18, “At levels of 4,120, the October crude would be below key moving averages and the midline of the Bollinger band.” This indicates that there could be downside movement. The RSI levels indicates that crude can still move lower, he added.

Moreover, director of Brics Securities, Ram Pitre suggested a buy on crude between Rs 3,960-3,970 per barrel with a stop loss of Rs 3,940 per barrel and a target price of Rs 4,010-4,040 per barrel.

However, from the precious metal space, Ashish Shah of Sushil Global Commodities expects gold prices to correct to USD 1,630 per ounce. According to him, the most important level for gold would be USD 1,575-1,560 per ounce. He advised to look at the prices correcting to Rs 25,800 per kilogram, which would be a target strategy for going short and looking at that region to go long.

Fears of a double dip recession in the US and negative Chinese manufacturing data last week will weigh on the copper prices in the short-term, said Admisi Commodities’s head of commodities Suresh Nair. “The LME prices would test 7,000 levels on the downside on the local markets,” he pointed out. He recommended selling on rallies the November copper above Rs 370 per kilogram with a stop loss at Rs 375 per kilogram and a profit at Rs 360 per kilogram.

Sep

26

The doctor’s diagnosis on the great world economy

September 26, 2011 | Leave a Comment

Let’s forget about Greece for the moment. Or even the US for that matter. What else is going wrong in the global economy that’s causing global markets to head southwards so sharply? The S&P 500 is down almost 10% for the year. But, the BSE-Sensex is down over 20% year to date (YTD). China and Hong Kong are down 15% and 25% respectively. Is the sky falling on our heads, or is this a green signal to buy?

Well, the global economy is clearly in the midst of a slowdown, and we may be far from a recovery. So, what are the telltale signs of a slowdown? You can tell when water is boiling by seeing bubbles forming on its surface. In a similar way, when copper prices fall sharply it should set off warning bells in your mind. This commodity is often called Dr Copper for its ability to give a diagnosis on economic health. Copper has a variety of industrial uses and demand for the metal helps determine levels of economic activity. Copper wires go into various appliances, vehicles, construction of buildings etc. That is why, the 22% drop in copper prices this month is signaling a severe drop in manufacturing activity across the globe. And since China is the world’s biggest consumer of this red metal, the dragon nation may very well be running out of steam. Growth is definitely on a downward trajectory in the country. Its property market is in the dumps and exports have also slowed.

Other signs are also showing that the brakes have been pressed on the global growth engine. Shares of steel, coal, mining, auto companies etc have been seeing selling pressure across the globe. Junk bonds have also been under the scanner, spelling trouble for companies saddled with debt. All these are troubling signs.

Emerging markets were earlier seen as global growth engines. They were supposed to be the cogs in the worldwide growth machine that would never tire or stop moving. But, these countries are not immune anymore. The sovereign debt crisis in Europe and America’s stagnation has contaminated the entire world. “The world is now in a synchronised slowdown,” says Mr El-Erian, the head of Pacific Investment Management, the world’s biggest bondholder. Ominous though his words are, we have no choice but to believe them. But, while negative news is bad for the economy in the short term, it may be excellent for the long term prospects of your portfolio.

Sep

26

Persistent selling mars indices

September 26, 2011 | Leave a Comment

Indian stock markets traded in the red throughout today’s trading session. The indices opened on a weak note and selling pressure intensified in the ensuing hours pushing the indices deeper into the red. That said, in the afternoon session, investors resorted to buying at lower levels which resulted in the markets paring some losses. However, it was not enough and the indices closed below the dotted line in the final trading hour. While the BSE-Sensex closed lower by around 111 points (down 1%), the NSE-Nifty closed lower by around 32 points (down 1%). The BSE Mid Cap and the BSE Small Cap were not spared either as they closed lower by 1% and 2% respectively. Barring IT stocks, all sectoral indices closed in the red today.

As regards global markets, Asian indices closed weak today while European indices have opened on a positive note. The rupee was trading at Rs 49.66 to the dollar at the time of writing.

Food stocks closed in the red today and the key losers here were Britannia, GSK Consumer and ITC. As per a leading business daily, ITC’s Personal Care Products Division is looking to foray into the domestic deodorant market. The deos market is valued at about Rs 9 bn and the company wants to capitalise on the fact that this market is growing at a strong rate. That said, this space is already crowded with around 60 players present. It must be noted that ITC is already present in the fragrances market through its Essenza range of fragrances which fall in the premium category. The company has no presence, however, in the deo range priced between Rs 100 and Rs 150, a segment that is quite popular in the country. Whether this business turns out to be profitable for the company remains to be seen given that there is fierce competition in this space. Especially since players such as Wipro, Hindustan Unilever and sports brands such as Reebok and Nike already corner a significant chunk of this market.

As per a leading business daily, Hindalco Industries has outlined an investment of Rs 100 bn in FY12 in its ongoing projects Mahan Aluminium in Madhya Pradesh, Aditya Alumina and Aluminium and Utkal Alumina in Orissa. The company will also invest Rs 7 bn this fiscal to enhance capacity at the Dahej unit of its subsidiary Birla Copper. The latter produces cathodes, continuous cast copper rods and precious metals. The funding for this capex is expected to be through internal accruals given that the company has cash reserves to the tune of Rs 295 bn. That said, there had been a delay in the commissioning of both the Mahan Aluminium and Aditya Alumina projects due to delay in obtaining environment clearances and procuring land. Availability of skilled and semi-skilled labour was also an issue.

On an overall basis, the sovereign debt crisis in Europe and downgrade of USA may lead to more risk aversion in the financial markets and can have adverse impact on investment flows in commodities sector. This could lead to lower aluminium and copper prices on the London Metal Exchange (LME). High input costs and an uncertain regulatory environment as well as subdued profitability of the copper business are likely to keep margins under pressure. The stock closed lower today.

Sep

26

World stocks, euro off lows on ECB easing hopes

September 26, 2011 | Leave a Comment

LONDON: World stocks came off their lows and the euro inched up from an earlier 10-year trough against the yen on Monday as speculation that the European Central Bank might cut interest rates to help the economy countered concern over the euro zone debt crisis.

Concerns about the global economic slowdown have not gone away, with gold tumbling and copper suffering its biggest one-day drop since the 2008 financial crisis.

ECB Governing Council member Ewald Nowotny was quoted as saying that the possibility of interest rate cuts should not be ruled out.

Germany’s Ifo economist Klaus Abberger also said he expected the ECB to cut interest rates towards 1 percent, although it was not clear what the time frame would be for such a move.

Speculation over euro zone easing countered investor concerns about how effective Europe’s latest steps to stop fallout from any Greek default, including finding ways to beef up their existing 440 billion euro rescue fund.

“Until policymakers come up with a long-term solution to address the debt crisis, the short-term prospects for copper and equities will remain bearish,” said Phillip Futures analyst Ong Yiling.

The MSCI world equity index halved its losses to be down 0.5 percent on the day, having hit its lowest since July 2010 on Friday. The index has fallen more than 23 percent since hitting a three-year high in May and is also down 17 percent since January.

European stocks reversed losses to rise 0.8 percent. Emerging stocks were down 1.5 percent after hitting their weakest since September 2009.

US crude oil dropped 1.5 percent to $78.68 barrel. Gold dropped more than 5 percent in Asian trading , while copper fell as much as 6.1 percent to $6,914 a tonne, its sharpest fall since October 2008.

Concerns over the potential impact of a Greek default, especially on the banking sector, and worries over a U.S. economic slowdown had been weighing on world stocks, fanning safety-seeking flows into top-rated government bonds.

Deep differences remain over whether the ECB should commit more of its massive resources to shoring up Europe’s banks and help struggling euro zone member countries.

Bund futures fell 48 ticks on the day. The dollar was steady against a basket of major currencies.

The euro fell as low as 101.90 yen and hit an eight-month low of $1.3361 , before trimming losses.

A smaller-than-expected decline in the Ifo index, which gauges German business morale, also helped sentiment a little.

“(A modest decline in) the Ifo index should dampen the current recession fears for the time being but sends at the same time a clear warning to German policymakers that the solid growth should not be taken for granted. Discussions on possible stimulus packages could be revived in a couple of months,” said Carsten Brzeski, an economist at ING.

Sep

26

US market exceedingly weak, buy gold on dips: Fat Prophets

September 26, 2011 | Leave a Comment

Prices of gold and silver plunged on Monday as investors liquidated their positions on fears of an impending recession. US gold dropped 2% to USD 1,607.2 per ounce, while US silver shed 6.6% to USD 28.10.

David Lennox, analyst at Fat Prophets, in an interview to CNBC-TV18, gave his view on how precious metals will perform going forward and what strategy should investors follow.

“When the market decides that the US yields will no longer support the current levels and start to rise, the one should be buying gold on dips because that’s where the speculative money will return to,” added Lennox.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: Was there a bubble in gold prices? How are you looking at that entire unwinding?

A: We have seen a significant amount of speculative funds coming out of the gold market. The news, which has been impacting the price of gold, has been stalled, and hence, the market moved out of gold went to US treasuries.

So, the market is deciding which way to move in terms of precious metals. The treasury yields that we seen in the US will not be able to maintain and we will see yield stack to arise over the short to medium-term. With that, the market will move back towards gold as a safe heaven investment.

Q: So it’s a buy on dips kind of strategy that you are advising?

A: Certainly, we would advise to buy on the dips. We do believe that all the elements that have pushed gold up to that 1,900 level or its peak are still in play. They have not gone away; they have not diminished to any great extent. In fact, in some circumstances, they have actually become more uncertain.

When the market decides that the US yields will no longer support the current levels and start to rise, then you should be buying gold on dips because that’s where the speculative money will return to.

Q: The other big slip-off came in crude. The data on crude has not been that weak but we have seen a big sell-off over there. Do you think the trend will continue to be bearish?

A: The USD 80 per barrel level for West Texas Intermediate (WTI) is probably a level, where the fall-off should diminish. We do think that Saudi Arabia will step in if it sees the oil price going any lower than that and will start shutting production.

The US markets have been exceedingly weak for a number of years and that weakness has been replaced by growth in the Asian region. With economic growth now being put in the suspicious basket in terms of growth, we have seen the speculative end of the market very quickly coming out of the oil price, and hence, the prices have been pushed very low.

Q: How much lower does it get at all for both crude and gold?

A: Both commodities are around at their basic levels at this particular point. We cannot see them wanting to fall significantly lower unless there is a real move on the speculative end for the second time. All the factors surrounding the global economies are very much in play.

Q: Is this rise of the dollar index to 78 a transient phenomenon, will it head back to 73 when things improve in Europe?

A: Yes, because the factors that have pushed that particular index up have probably been the speculative factors as investors have moved through into US treasuries.

We can’t see staying in that particular investment class for any significant period of time because to unwind these bonds in due course, they will probably start to suffer capital losses. They will start to move back towards gold and oil. At this point in time, nobody really wants to be in risk assets, and hence, we have seen significant changes in prices.

Q: Base metals have also dipped, copper is down 10%. Which is the base metal that would worry you the most now?

A: We are a bit bemused by the fall that we have seen in the copper price. It is a matter of investors moving out of the speculative end of the copper market.

Copper will face supply constraints going forward; it’s a matter of how much that supply constraint is. Copper prices are getting impacted due to concerns on global economic growth. But that’s a very short-term view and investors should be looking a bit longer at what could happen in the supplies for copper.

Sep

26

Sterlite: Weak outlook priced in

September 26, 2011 | Leave a Comment

Even as metal prices weaken, the company’s zinc, lead & silver businesses should provide cushion.

With declining base metal prices on the London Metal Exchange (LME), the stock of Sterlite Industries has lagged the broader market since end-July. It has lost almost 32 per cent in the past two months, including 4.5 per cent on Monday, the day it touched a 52-week low of Rs 115.05 before closing at Rs 117.30.

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The non-ferrous metal major has interests in aluminium, copper, zinc and lead, as well as silver. With fears of a slowing in global growth, prices of most of these metals have fallen, especially in September. Copper is down almost 15 per cent, zinc by 14 per cent and aluminium by 10 per cent and are trading at their 2011 lows (see chart). However, given that zinc and lead (along with silver) account for a large portion of the company’s profits, and their production is seen rising, analysts say the same will help partly offset the pressure on profits, due to weak metal prices. They say, while the volatility in metal prices may keep the stock under pressure, most concerns seem factored in at current levels.

Sep

26

Sterlite Industries, Hindalco hit 52-week low on falling copper prices

September 26, 2011 | Leave a Comment

NEW DELHI: Shares of Sterlite Industries & Hindalco touched their 52-week low on Monday as copper prices extended losses today.

“Copper extended losses as fears of a Greek default stirred worries of a global recession, which could slow industrial use, a scenario underlined by copper’s sharpest weekly fall in nearly three years last week,” according to a report.

Shares of Sterlite Industries touched their 52-week low of Rs 117.10 on the NSE and a high of Rs 122.15. At 10:55 a.m., Sterlite Industries Ltd was trading 4.4% lower at Rs 117.25.

Shares of Hindalco Industries Ltd touched their 52-week low of Rs 128.15 on the NSE and a high of Rs 133. At 10:56 a.m., Hindalco Industries Ltd was trading 4.03% lower at Rs 128.50.

Depreciating rupee also has a deep impact on copper prices as it helps in determining the landed cost of the red metal, which is quoted in dollars.

The partially convertible rupee was at 49.57/58 per dollar, after dropping to 49.69 in early deals and 0.3 percent weaker than its close of 49.42/43 on Friday.

Brokerage Call:

Morgan Stanley in a recent report on metals earlier this month downgraded Hindalco to ‘SELL’ from ‘Overweight’ with a price target of Rs126 and Sterlite Industries Ltd to ‘Equal weight’ or ‘Hold’ call from ‘Overweight’ with a price target of Rs 147.

“Heightened fears of a recession in developed markets and slower growth in emerging markets have given persistent high inflation. We reduce our forecast on aluminum, zinc, and copper for F2012-14 by 5-15%,” said the report.

The brokerage also trims F2012-14 earnings forecasts for Sterlite and Hindalco by 15-33%.

Further, Hindalco Industries and Sterlite’s competitive edge is being blunted due to increased cost and issues over the availability of coal and bauxite resulting from the policy impasse.

Higher downside risk to aluminum prices, likely project delays and rising coal crunch also imply Hindalco may have further downside.

Sep

26

Copper to remain uninspiring, range-bound in short term

September 26, 2011 | Leave a Comment

Copper, the bellwether for all base metals, is sensitive to the changes in world economic outlook. No surprise, then, that this growth-sensitive commodity sank to its lowest in 10 months, triggered by the US Fed missive on the economy’s downward risk, debt concerns in Greece, Spain and now Italy, slowing industrial output in the euro zone and global market turmoil. Where is the chance of recovery of market sentiment when developed countries are turning increasingly anaemic and growth projections for emerging economies are shaved because of capacity constraints, infrastructure limitations and tightening of money supply?

As bad news continues to pile up, Hindustan Copper chairman Shakeel Ahmed says prices of copper, which finds applications from wiring and plumbing to automobiles and consumer electronics, will remain uninspiring and range- bound in the short term. The International Monetary Fund lowering its global growth forecast to four per cent for this year and 2012 from the earlier 4.3 per cent and 4.5 per cent, respectively, could only lead operators to lighten their long positions in copper. Expect the market to take note of the IMF warning that the US and European Union could lapse into a recession and a decade of growth lost, unless governments of developed and emerging countries take some decisive actions.

Italian prime minister Silvio Berlusconi is dismissive of Standard & Poor’s downgrading of his country’s credit rating. But, to bankers, Italy’s credit rating lowering adds to the contagion risk generated earlier by Greek debts. The rising bond rates of many euro zone countries are a statement of the area’s deep economic malaise. As if all this was not enough bad news for commodities in general and copper in particular, the US new house construction data for August ,showing a fall of five per cent on July, are the worst in a three-month period. In developed economies in particular, copper finds extensive application in plumbing and electrical wiring. Ahmed says there is growing awareness in the developed world that use of door knob, and handle, made of copper are infection-preventive, particularly in hospitals. But only in better times, will this awareness will result in incremental demand. Now, however, the disappointing house start news from the US must have removed some support from copper.

No doubt, prices would have sought still lower levels had not Chinese August import of the metal gone up 11 per cent to 340,398 tonnes on July when imports rose 9.5 per cent on the month before to 306,626 tonnes. But the contracts for the imports that matured in August were made mostly during May to June. According to Aurubis, one of the world’s leading integrated copper producers, Chinese imports in the remaining months of this year will stay high, as copper stocks in warehouses are used up. Whatever commodity China is a regular importer, it will buy and build a comfortable inventory when prices are low. There will also be occasions when China will indulge in cross- trading by way of selling commodities in the world market when prices rule high.

The point remains had China not been pursuing a tight monetary regime, leading to more modest growth compared to what came to be the routine till the other year, the world perhaps would have seen bigger volumes of copper buying by a country accounting for as much as 38 per cent of world consumption. In the first seven months of 2011, Chinese copper imports were down 22 per cent year on year, a sure indication that the tight monetary policy has slowed demand. But China apart, when the US, the world’s second-largest user of the red metal and western European countries, which together use more copper than the US, are reporting disappointing industrial production, prices are more likely to take a knock. That’s what happened.

We have seen that whenever a big mine in Chile, Peru or in Indonesia is hit by a strike, copper prices move north. So, trust when reports surface that labour disputes at the world’s third largest copper mine in Indonesia owned by Freeport McMoran Copper & Gold, and at Peru’s Cerr Verde mine accounting for two per cent of the world copper output are getting resolved, the market will lose some steam. Copper prices here get set by trade rates at the London Metal Exchange. So far, as Ahmed explains, appreciation in the dollar value vis-a-vis our currency has offset the impact of price falls in copper.

Ahmed, who is leading his company to build copper ore mining capacity of 12.41 million tonnes by 2017 fiscal end from 3.6 million tonnes now is, however, “bullish about the commodity in the intermediate to long term”. While taking this stand, Ahmed must have put his bet on supply-side constraints. Mine owners in developed copper areas are contending with falling grades of ore that finally translate into higher production cost. Dollar appreciation will lead to higher new mines opening cost. Not many will dare to take a copper price view two to three years hence; such are the complexities of the present financial crisis. No one knows for sure how this is going to pan out.

Sep

19

Hindustan Copper sees prices staying high

September 19, 2011 | Leave a Comment

Hindustan Copper Ltd, the only miner of the metal in India, feels that copper is set to continue in comfortable zone for some more years despite fears of global recession keeping prices volatile for sometime.

“Globally, price of copper is expected to remain high in the next 3-4 years. The present scenario is highly favourable for copper mining industry and provides an opportunity to expand mines and develop new mines,” Shakeel Ahmed, chairman and managing director of Hindustan Copper told the company’s shareholders.

The recent turmoil being played out in the euro zone has taken a toll on copper prices — it has been extending losses on the London Metal Exchange (LME) over the past few days as worries about stalled economic growth in the West overshadowed robust growth in China’s copper imports.

However, long-term outlook remains bullish supported by some local factors as well, he said.

“Growing environment consciousness and an emphasis on using more energy-efficient appliances would also help to protect demand for copper in India. There is a ready market for copper concentrate in India due to huge deficit in mining as well as refining capacity. There has been insignificant investment in greenfield exploration of copper while preliminary exploratory studies have indicated that there is further scope of increasing reserves of the country,” he said.

After touching the $10,000-tonne mark at the LME in early February, copper prices have stabilised in the range of $8,700-9,200, Ahmed said.

High copper prices augur well for Hindustan Copper and not so much for other domestic companies, all of which are processors importing copper concentrate to feed smelters, he said.

“Profit margins of customer smelters such as Birla Copper (Hindalco Industries) and Sterlite would come under pressure due to high cost of copper concentrate and low TC/RC charges,” Ahmed said. TC/RC, or treatment charges (TC) and refining charges (RC), are indicators for copper price as the charges correlate with the percentage utilisation rate for global smelter capacity as rising charges indicate a surplus in the refined market, a position usually preceding a fall in copper prices.

On the status of Hindustan Copper’s greenfield ventures, Ahmed said that of the 20 mining permits applied, the reconnaissance permit at Balaghat is in the process of being finalised by Madhya Pradesh government while mining lease application has been submitted for Dhobani-Pathargora block in Jharkhand, which is being scrutinised at the district level.

The Kendadih, Jharkhand, mine lease is at the final stage of approval while execution of lease deed for Rakha mine is also set to be cleared, he said.

Sep

19

Some workers return to Freeport Indonesia copper mine

September 19, 2011 | Leave a Comment

Strike over pay still ongoing, output not at maximum

* Returning workers are contractors, union says

* Workers say any output cannot be shipped due to strike

* Copper prices at lowest this year (Adds company memo, port comment)

By Rieka Rahadiana

JAKARTA, Sept 19 (Reuters) – More than a thousand workers have returned to Freeport McMoRan Copper & Gold’s strike-hit Indonesia mine, the company said on Monday, leading the union to say some production has restarted at the world’s third-biggest copper mine.

The union, which declared a month-long strike for 8,000 mine workers from Sept. 15, said the returning workers were contractors who were operating machinery and doing maintenance, but this did not mean the strike was over.

The union said it had not reached an agreement and remained on strike, adding that the returning workers were contractors.

Freeport spokesman Ramdani Sirait declined to comment on the impact on production from workers returning to the remote Grasberg mine, which also has the world’s largest gold reserves.

“This morning, some hundreds went to the highlands,” said Sirait, adding that this came after 1,500 workers went to the firm’s Papua operations at the weekend, from various departments.

The possibility of some supply being restarted at Grasberg added to bearish sentiment on the copper market, where prices slid 3.3 percent on Monday to their lowest this year as traders worried about a global demand slowdown. Prices were at $8,415 a tonne, down 3.2 percent, by 1101 GMT.

The workers have yet to agree a pay deal with the company, union official Virgo Solossa said. Workers have demanded a pay rise to between $17.5 and $43 per hour, from a current $1.5 to $3 an hour rate.

“We haven’t reached any agreement. We are still on strike,” said Solossa.

“Workers, the company, and police agreed that employees, in this case contractors or whatever they are, can maintain the machinery. But in reality, the workers are running production machinery. This is what we see,” he told Reuters.

THREAT OF SACKING

An internal company memo seen by Reuters said workers were required to return, and if they remained absent for five working days without a written statement or legitimate evidence, they could be sacked. Monday is the fifth day of the strike.

It was not clear how many workers that were on strike had decided to return to the actual mine or to what extent production had restarted, with Solossa only saying output was not at its maximum level.

“Production at the mill operation is paralysed, at Grasberg as well. There are workers underground, working as drillers, but output cannot be carried out by conveyor to the mill as the machines are not running,” said one Freeport Indonesia worker.

Based on the mine’s daily output target, the strike potentially cut output of 230,000 tonnes of ore per day, said energy ministry official Thamrin Sihite on Friday, after a meeting with Freeport Indonesia’s management.

A shipping worker from Freeport’s Papua port said there were no ships that could load or be unloaded because the port workers were still on strike.

Last week, industry officials told Reuters the strike at Freeport’s port in Papua province had delayed around 133,000 tonnes of copper ore concentrate shipments. (Additional reporting by Samuel Wanda in Timika; Writing by Neil Chatterjee; Editing by Helen Massy-Beresford)