Articles in Category: Commodities

MetalMiner’s Global Precious Metals MMI dropped two points this month to 79, from 81 in November; a 2.5% decrease. But that’s less the story than what happened within this precious metals sub-index.

The PGM Story

As we said last month, longer-term structural concerns remain for the platinum-group metals (PGMs), especially platinum and palladium. However, in the short term, one of those two precious metals that are instrumental in automotive catalytic converters kept the Global Precious MMI from falling even further for December.

Global-Precious-Metals_Chart_December-2016_FNL

Indeed, with gold and silver falling across all four geographic markets (see below), our U.S palladium bar price jumped to an 18-month high, rising a whopping 24% month-over-month. Japanese palladium also rose appreciably.

The platinum bar price, however, did the reverse. Our U.S. platinum bar price hit a 10-month low, dropping 7% since Nov. 1.

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Crossing like ships in the night, one heading north, one heading south, what should buyers make of the platinum/palladium divergence?

According to HSBC senior analyst James Steel, talking to Platts, “the platinum-palladium spread has narrowed substantially, from $375/ounce before the U.S. election. This reflects clearly tighter underlying fundamentals for palladium.”

With car sales in the U.S. and China continuing to be robust, and with Johnson Matthey predicting another supply deficit in 2017, palladium could continue its buoyancy for the near future.

The Dollar –> Infrastructure –> Gold

Raul de Frutos gave MetalMiner readers this helpful rundown in late November:

A rising dollar depresses commodity prices, especially precious metals. It does have less of an effect on more economically-sensitive groups like energy and industrial metals. Indeed, industrial metals are on the rise despite a strong dollar. This is because the dollar is rising on expectations of higher rates down the road but, at the same time, metal prices are getting an additional boost because of Trump’s plans to spend big on the nation’s infrastructure. However, gold’s demand won’t be affected by infrastructure spending. As a result, investors are left without reasons to buy gold at this moment.

That still appears to be the case here in early December, as the US gold price on our MetalMiner IndX hit its lowest point in 10 months, falling to $1,173/oz on Dec. 1 — just over an 8% drop from Nov. 1.

(Silver prices followed suit across 4 markets globally, all dropping from November to December.)

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About 44% of all solar power that’s installed on residential rooftops, known as distributed solar capacity, is owned by private businesses, such as SolarCity, according to new government data.

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Distributed solar capacity in the U.S., which includes all solar power capacity other than utility-scale installations 1 megawatts or larger, increased to 12.3 gigawatts as of September, according to new figures from the Energy Information Administration. In comparison, a cumulative 11.6 gw had been installed in the U.S. by the end of 2015.

Renewables_Chart_December-2016_FNL

According to the report, third-party owners own 44% of distributed solar capacity in the U.S. residential sector, compared with 11% in the commercial and industrial sectors. The residential sector accounts for 56% of distributed solar capacity but 84% of third-party-owned solar capacity. Nearly half of U.S. solar capacity is privately owned. However, panels owned by individual homeowners and businesses are expected to eclipse TPO as the largest owner-category in the next five years.

Like the Cleveland Browns losing, the sun rising or winter bringing cold weather and shorter days, the Renewables MMI didn’t move this month and held flat at 52 as it has for four straight months. That follows four years of relative flatness, too.

We’ve previously written about the relationship between manufacturers of crystalline silicon photovoltaic panels and incentives for solar expansion and this report highlights the cozy relationship between production and ownership. If, however, individuals, can really eclipse corporate owners like SolarCity in the next few years, it could be a watershed moment for solar power in the U.S. as lower costs are expected to finally make owning cheaper and better than leasing.

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Could an ownership society push more adoption of solar? It’s hard to tell, but anything that increases demand, as falling prices generally do, would be welcome at this point.

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The copper market will go into deficit by 2020, just when Rio Tinto‘s, extension to the Oyu Tolgoi mine in Mongolia comes online, the company said on Tuesday.

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The Anglo-Australian mining major gave approval in June for a $5.3 billion expansion of Oyu Tolgoi, one of the world’s largest copper mines and a project central to the major’s efforts to become less dependent on iron ore.

Traders Still Skeptical of OPEC Output Cut

The Organization of Petroleum Exporting Countries‘ output set another record high in November, rising to 34.19 million barrels per day from 33.82 million bpd in October, according to a Reuters survey.

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Oil prices pared losses slightly after inventory data released late Tuesday from the American Petroleum Institute showed U.S. crude stocks dropped more than expected last week despite a hefty build of 4 million barrels in Cushing, Oklahoma.

The Census Bureau reported late last week that U.S. construction spending was up during October by 0.5% compared with the September total. Year-over-year, construction spending in October was up by 3.45. During the first 10 months of the year, construction spending amounted to $972.2 billion, 4.5% above the same period in 2015.

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Our Construction MMI was up 8.7% as domestic demand for construction metals shot up just as prices increased nearly across the board for the entire industrial metals complex.

Construction_Chart_December_2016_FNL

Construction demand in the world’s largest metals consumer, China, continues to grow even as the central government there tries to restrict home buying, the engine for that demand.

“It’s likely that the government will expand infrastructure investment to make up for the gap left by property-related investment falling,” Julia Wang, China economist at HSBC told the Financial Times.

What is buoying construction the most is an investor class now excited about all industrial and construction metals. The election of President-elect Donald Trump promises $1 trillion in U.S. infrastructure investment and stronger protections against dumping of foreign imports.

Trump’s policies, while still in their formative stages, are seen as bullish for public construction, particularly infrastructure such as roads, bridges and airports. Stocks of construction companies and materials providers also jumped after Trump’s election.

Public construction spending actually accounted for most of the increase in U.S. construction spending in October — unusually, since that sector has been contracting in recent years — gaining 2.8% compared to September. Spending on educational facilities was especially brisk, up 4.1% for the month, while highway construction gained 1.9%. Compared with last year, however, public construction spending as a whole was off 0.6%.

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While Chinese demand remains a concern, it’s a very good time to be a construction metals investor with positive sentiment nearly across the board when it comes to both construction and metals.

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The Obama administration slammed the brakes on the Dakota Access pipeline on Sunday, refusing to issue a required easement from the Army Corps of Engineers while saying it will conduct a more stringent environmental review to consider alternate routes and consult further with the Standing Rock Sioux tribe, which has bitterly opposed the project.

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However, the 1,172-mile pipeline may not be dead in its current form. Nearly all of the pipeline has been completed except a few miles that are planned to flow underneath the Missouri River and the manmade Lake Oahe in North Dakota. The Army has said they will ask Energy Transfer Partners, the developer of the pipeline, to consider alternative routes and said that would be best accomplished through an environmental impact statement with full public input and analysis.

The Army Corps had actually approved the easement back in June but stepped in again after a federal judge dismissed a lawsuit by the Standing Rock Sioux whose reservation is near Lake Oahe. President-elect Donald Trump came out in support of completing the pipeline as planned last week and his administration could, potentially, undo these recent actions by the Obama administration.

Yesterday, the Organization of Petroleum Exporting Countries finalized a deal to cut production by 1.2 million barrels a day starting in January, its first reduction since 2008.

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The production deal will last six months with a committee composed of three OPEC country members monitoring and reviewing the decision at their next meeting in May to determine if the cuts will extend for another six months.

Trading volume (at the bottom) surged as crude moved up on Wednesday

Trading volume (at the bottom) surged as crude moved up on Wednesday. Source: @StockCharts.com.

On Wednesday, U.S. crude jumped 9.3% to settle at $49.44 a barrel. The number of contracts traded on Wednesday rose sharply as prices made a one-month high. Rising volumes confirm that new money is supporting the price move, increasing the likelihood that the trend will continue. Read more

Washington news organizations such as Politico are reporting more details about what a potential Trump Administration $1 trillion infrastructure plan might look like.

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The pictures that the Washington, D.C. media are portraying are quite dramatic and some of them engage in a level of speculation about funding mechanisms that likely only have a tangential relationship to what is being discussed right now at Trump Tower.

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Could more transit projects be part of a Trump infrastructure plan? Source: Jeff Yoders.

Politico’s analysis is a case in point, with speculation and quotes from both democrats and republicans about everything from a new gas tax indexed to the inflation rate to a quote from U.S. Rep. Peter DeFazio (D. Ore.), the top Democrat on the Transportation Committee, who said that public-private partnerships “won’t do much for the 143,000 bridges that need work nationwide unless you’re going to toll 143,000 bridges… it’ll help with individual sorts of big projects, but it’s not any kind of cure-all, and it certainly isn’t going to get the big bang that Trump has talked about in infrastructure.”

Federal Infrastructure Bank?

Yet, a mere 45-minute drive away, the Baltimore Sun praised another idea supposedly being debated by President-elect Trump and his advisors. U.S. Rep. John K. Delaney (D. Md.)’s Partnership to Build America Act would use repatriated corporate profits now held overseas (made available by a reduced tax rate on overseas earnings brought home and a larger tax on profits that remain off-shore) to put billions into the Highway Trust Fund and to create a new U.S. investment bank — with a $750 billion infrastructure fund — that would be available to state and local governments. Read more

India’s mining sector has the potential to contribute as much as $70 billion to the country’s economy by 2030 and generate about 6 to 7 million jobs, believes the country’s industry association, the Confederation of Indian Industry.

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A report titled, Mining Opportunities – Realizing Potential was recently released by the CII, though with an added a cautionary note: clearances “still remain an impediment for a smooth transition from auction stage to implementation stage.”

Mining Reforms Having an Effect

The current Modi government initiated reforms in the mining sector, which underperformed during the previous regime, many say, due to red tape. One of the most important steps was the clearance of the National Mineral Exploration Policy (NMEP) by the government in.

NMEP has the following main features for facilitating exploration in the country:

  1. The Ministry of Mines will carry out auctioning of identified exploration blocks for exploration by the private sector on a revenue-sharing basis. If exploration leads to auctionable resources, the revenue will be borne by the successful bidder of those auctionable blocks.
  2. Creation of baseline geoscientific data as a public good for open dissemination free of charge.
  3. A National Geoscientific Data Repository was supposed to be set up to collate all baseline and mineral exploration information generated by various central and state government agencies and also mineral concession holders and to maintain these on a geospatial database.

While these policy changes have been welcomed overall, there has been some criticism over the implementation. The CII report, for example, talks of the “inordinately long time that is required for obtaining this clearance and the cumbersome process involved therein.”

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The report was recently released at the International Mining and Machinery (IMME) and Global Summit 2016. It said that the Environment and Forest clearance processes take a long time and added that there was significant room for improvement in the clearance system in terms of efficiency, speed of decision making, predictability and transaction.

There’s also unexpected criticism from another quarter on the new mining policy. A report in the DNA newspaper, quoting global miner Anglo American PLC, said the Indian auction system discourages foreign direct investment as the auction process does not provide adequate risk-reward incentive.

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In the report, John Vann, group head of exploration at Anglo, said the auction system makes it difficult to see India competing with other countries where Anglo American invests. According to him, the granting of licenses rather than auctioning off mines would give confidence to foreign investors.

Once investors got over the shock of a Donald Trump victory, it didn’t take them long to realize promises and pledges made in the run-up to the presidential election, if implemented, would translate into a significant stimulus to the U.S. economy.

Such levels of investment in infrastructure, if supported with Buy America and some level of protectionist support for domestic producers, further coupled with significant reductions in corporate and personal taxation, would add up to a rather inflationary repackage. Not surprisingly, last week all four of the main U.S. equity indexes closed at new record highs on Monday.

According to the Financial Times, The S&P 500, the Dow Jones Industrial Average, the NASDAQ Composite and the Russell 2000 closed up 0.8%, 0.5%, 0.9% and 0.5% respectively, breaching their respective records as investors remain optimistic about a U.S. economic stimulus package next year. In their wake, European, Japanese and Chinese indexes all rose as well. Read more

The Organization of the Petroleum Exporting Countries was trying this morning to rescue a deal to limit oil output as tensions grew among the producer group and non-OPEC member Russia, with top exporter Saudi Arabia saying markets would rebalance even without an agreement.

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OPEC experts started a meeting in Vienna at 0900 GMT and were due to make recommendations to their ministers on how exactly the organization and its member-states should reduce production when it meets on Nov. 30.

Meanwhile, the Algerian and Venezuelan oil ministers were to travel to Moscow on Monday and Tuesday in a final attempt to persuade Russia to take part in cuts instead of merely freezing output, which has reached new highs in the past year.

Steel Futures Surge on Upbeat Chinese Demand

Chinese steel futures jumped over 6% to the highest in 31 months on Monday, as investors raised bets that strong property and infrastructure investment will sustain demand in the world’s top consumer, spurring a similar rally in iron ore and zinc.

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The red-hot rally in steel is bound to push iron ore above $80 a metric ton for the first time since October 2014, having already lifted zinc to a nine-year high.