Articles in Category: Commodities

President Donald Trump said today that his administration has approved the Keystone XL pipeline, reversing the Obama administration’s decision to block the oil transportation project.

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Speaking from the Oval Office, Trump officially announced the approval shortly after the State Department issued TransCanada‘s permit, making good on one of his campaign promises. The approval greenlights the Canadian company to complete construction on the pipeline that will funnel crude oil from Canada to refineries on the Gulf Coast.

The American Petroleum Institute praised the approval.

“Today’s action to approve the Keystone XL pipeline’s cross-border permit is welcome news and is critical to creating American jobs, growing the economy, and making our nation more energy secure,” said API President and CEO Jack Gerard. “This critical infrastructure project has been studied longer than any pipeline project in U.S. history with exhaustive reviews by the State Department concluding that the project is safe for the environment and the best option for transporting domestic crude and Canadian oil to U.S. refineries.”

The 1,179-mile addition to existing pipelines that will stretch from Alberta, Canada to the U.S. Gulf Coast is estimated to create 42,000 construction jobs but only 35 full-time, maintenance positions once it’s completed.

Lopez Allows Suspended Mines to Ship Out Stockpiled Nickel Ore

The Philippines’ environment ministry, led by Environment and Natural Resources Secretary Regina Lopez, has allowed eight suspended nickel ore miners to ship out stockpiles of mined ore, sources told Reuters, temporarily boosting supply from the world’s top exporter of the raw metal after a major crackdown.

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More than half of all the mines in the Philippines have been ordered to permanently shut to protect watersheds in an eight-month campaign led by Lopez.

The strike at Chile’s Escondida, the world’s largest copper mine, is ending after workers decided to invoke a rarely used legal provision that allows them to extend their old contract, the union said on Thursday.

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Hours earlier, talks between the two sides failed, and Escondida, which is operated by BHP Billiton, said it would attempt to restart production, presumably with replacement workers. The workers said they would present their decision to the government on Friday and return to work on Saturday.

Escondida produced 5% of the world’s copper last year.

Asian LNG Buyers Come Together

The world’s biggest liquefied natural gas buyers, all in Asia, are clubbing together to secure more flexible supply contracts in a move which shifts power to importers from producers as oversupply grows.

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Korea Gas Corp. said on Thursday it had signed a memorandum of understanding in mid-March with Japan’s JERA and China National Offshore Oil Corp (CNOOC) to exchange information and “cooperate in the joint procurement of LNG.”

The Organization of Petroleum Exporting Countries in general, and Saudi Arabia in particular, have done the U.S. oil industry a massive favor, and they are probably ruing the day they tried to squeeze America’s shale industry out of existence.

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The collapse in oil prices that ensued after Saudi Arabia-led OPEC opened the spigots two years ago forced American companies, and their many subcontractors, to innovate in a way that would never have happened so fast or gone so far without the imminent threat of survival forcing the pace.

Oil Prices Allow Reopening of Old Wells

Now, U.S. shale producers have achieved economies of scale that allow them to return to previously closed wells in fields like Eagle Ford and achieve 30% returns even at $40 a barrel. U.S. explorers may be making hay in the domestic market, but huge potential exists for these same firms to take their technology abroad. Read more

The Architecture Billings Index returned to growth mode in February, after a weak showing in January. An economic indicator of construction activity, the ABI reflects an approximate nine-to-12 month lead time between architecture billings and construction spending.

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The American Institute of Architects (AIA) reported the February ABI score was 50.7, up from a score of 49.5 in the previous month. This score reflects a minor increase in design services (any score above 50 indicates an increase in billings).

ICE Delays London Gold Price Benchmark

Intercontinental Exchange (ICE) has delayed the launch of clearing for London’s benchmark gold price because not all participants in the auction will be ready, two sources involved in the process told Reuters on Tuesday. The delay could weaken its bid to become the dominant exchange in London’s $5 trillion-a-year bullion market, sources say.

 

For an industry that has for decades been criticized by environmental groups as the root of all evil it is ironic that oil and gas producers are aligned in championing carbon capture with such enthusiasm.

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The fossil fuel industry is at the forefront of lobbying for radical changes in public policy into research to cut the costs of extracting CO2 from hydrocarbon energy. Industry leaders like Bob Dudley from BP are quoted in the Telegraph as saying, “we can’t just keep our heads in the sand”.

The reality is the hydrocarbon industry has seen the writing on the wall. Public attitudes are hardening, aided by worries about particulate emissions from diesel cars and air pollution in major cities from Beijing to Delhi and even in western capitals like London. The industry is under huge pressure from sovereign wealth funds, pension funds and activist shareholders to find long-term solutions to the carbon question and thwart claims that hydrocarbons are our sunset energy source. Read more

The U.S. dollar fell sharply last Wednesday against a basket of currencies as the Federal Reserve announced a rate increase of a quarter point.

US Dollar index: Source @stockcharts.com.

The move seems to contradict common economic wisdom. In theory, higher raters in the U.S. should make the dollar more attractive for yield-seeking investors when interest are rates are lower around the globe. Then, what caused the currency to weaken?

All About Expectations

A rate increase came as no surprise to U.S. markets. The real surprise came in the language that wrapped the announcement. Fed officials intend to keep raising rates, however they want to keep the economy from getting too hot… but also not too cold.

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Investors were probably betting on an acceleration in the path of raising interest rates, not a warming down. Read more

We haven’t heard much of late about President Donald Trump’s border adjustment tax, but that doesn’t mean to say it has gone away.

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Indeed, the fact that it has a measure of support in the Republican Party suggests it could be on the agenda in the not-too-distant future. The idea is to transform the corporate tax landscape from a system that has prevailed for nearly 100 years, in which profits are taxed at the place of production, to a system in which profits are taxed at the place of sale.

A-destination based cash flow tax (DBCFT), as proposed by the House Republican tax plan, would include border adjustments that exempt exports but include imports in tax bills rather than raising federal income from a corporate income tax. As William Gale, a senior fellow in Economic Studies at the Brookings Institution explained in a recent article, all advanced countries except the U.S. already have a form of value-added tax (VAT), generally levied on top of corporate income taxes. All of those VAT systems are border adjusted, such that goods that are imported are taxed and those that are exported are not.

BAT or VAT

As part of the president’s pledge to bring jobs back to America, the border tax could have much to commend it. For example, if the U.S. introduces the system unilaterally, a factory in Ohio will pay no tax on the goods it exports to the E.U. while a factory in the E.U. will pay the border tax on its exports to the U.S. If you are a multinational corporation, suddenly it makes a ton more sense to have your new factory based in Ohio rather than some “lower cost” location. Read more

This week, metals manufacturers, construction and automotive companies and even the Federal Reserve expressed optimism about the strong economy we’ve seen since the election of President Donald Trump.

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We love economic optimism as much as the next metals intelligence and price data service, but count us among the many who wonder if all these happy thoughts are based on real world data or just, well, feelings?

When Can We Get an Actual Bill?

We kind of expected to have at least something concrete (pun intended) out of the administration on infrastructure by now but even the most optimistic among us concede that an infrastructure bill might not even happen this year with a healthcare repeal currently sucking up all the oxygen in Washington and tax reform, supposedly, the next big hurdle.

The Fed raised interest rates a quarter-point this week and hinted at more rate increases later in the year, pointing to strong jobs and manufacturing data but the tax cut the administration promised looks like it will only happen after the Summer, if at all, this year.

Automakers got some good news this week in the form of a promised review of corporate average fuel economy emissions standards that the industry says will hurt sales and production by the time they’re fully implemented between 2022 and 2025, but the actual rules haven’t changed yet and no one knows what the final review will keep or cut.

All of this begs the question: Are we being too optimistic?

TIGERs Ensnared

While Trump’s budget blueprint cut construction TIGER grants that fund many transportation projects, including the New York-New Jersey Gateway, it did allocate $2 billion toward the design and construction of a  wall between the U.S. and Mexico. That’s not what many construction companies were planning on hearing.

“Looked at in the absence of any broader infrastructure plan, it is hard not to view proposals to eliminate programs like the TIGER grants and wonder how such cuts are consistent with the President’s oft-repeated pledge to invest in infrastructure,” the Associated General Contractors of America Executive Director of Public Affairs Brian Turmail said.

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We, too, would like to see the text of actual infrastructure and tax reduction bills from the administration before we predict continued economic growth or even a continuation of the metals bull market. Or at least a working framework. With the pace in Washington, many of the president’s priorities are going to have to move to year two and delays beyond that would further threaten action in this term.

Our March price trends report, which analyzes the entire month of February’s price data from the MetalMiner IndX, shows robust price increases in metals markets that are still running with the bulls.

March Price Trends

Our Stainless MMI led the pack, increasing 6.8%, but the copper, raw steels, aluminum and rare earths sub-indexes all showed strong gains, as well.

One area of concern this month is that oil prices have fallen back below $50 per barrel as U.S.
shale producers beat expectations by adding 8.2 million barrels to existing reserves. Low oil
prices would benefit metals producers by keeping energy and transportation costs lower, but
they also may drag down other commodities with them.

We don’t usually see investment metals such as platinum and gold increasing at the same time
as base metals, either, but positive sentiment about the economy had both increasing this month. So, until we see anything that points otherwise, a rising tide is still lifting all the (metals) boats.

On its journey of self-reliance, India still needs coal.

Highly dependent on imports for this crucial raw material needed for steel and power generation, India has decided to tackle its coking coal deficit by acquiring a foreign coking coal asset, and washing certain grades of coal to make it fuel-ready.

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Power Minister Piyush Goyal told news agency Press Trust of India that one of the ways the government was contemplating reducing its reliance on imports was to wash certain grades of coal to make available 20 million metric tons of coking coal in the next three to four years for the domestic steel industry.

Not Enough Coal for Steel Production or Power Generation

Chairman and Managing Director of Coal India Ltd. S. Bhattacharya has reiterated that coking coal requirements for the domestic steel industry are still not being met. State-run CIL, the country’s near-monopoly coal producer, is said to be looking at coking coal assets overseas as the country was faced with constraints of commercially viable domestic metallurgical coal reserves, the Minister told Parliament in a statement. CIL is looking to appoint a merchant banker to assist it in acquiring assets overseas. Read more