Russia

After hitting an all-time low in December 2015 — dipping down into the 60s — the Global Precious Metals MMI rebounded a bit and is now hovering at 70 for the second consecutive month.

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Of the three heaviest-weighted metal price points within this precious sub-index, gold bullion in both the U.S. in China, and silver ingot/bars in the U.S. all increased over the the last month, the primary drivers buoying the February MMI reading.

Global-Precious-Metals_Chart_February-2016_FNL

Gold Price Outlook

The longer-term outlook, though, may not be all that rosy for gold prices. “Despite talks of China and Russia buying gold, I still see main factors such as a strong [U.S.] dollar and a bear commodity market keeping a lid on gold prices,” Raul de Frutos, metals procurement specialist for MetalMiner, told me. “The price rally seen in January is way too small to consider that something is changing in the long-term picture.”

“I still have a neutral/bearish view on gold,” he concluded.

The Bigger Price Story: Palladium Downtrend

However, in a more interesting trend on the industrial metals side of the precious sector, two of the PGM price points we track on the MetalMiner IndX – for U.S. platinum and palladium bars – dropped 1.7% and 8.1% (!), respectively.

The U.S. palladium price has ticked up for a few days in a row since we took our MMI reading on Feb. 1, but it’s lost a whopping 26.3% in value since the beginning of November 2015.

So what’s going on in the palladium market?

The recent stock market selloff in China, which caused global tumult, is the real culprit hurting both palladium and platinum. A strong dollar is not helping matters, either.

Strong car sales globally – in Europe, China and the U.S., with the latter two hitting all-time highs – did not correspond with stronger performances for platinum and palladium prices.

Despite analysts calling again for deficits in palladium and platinum markets this year, Raul has written that “it’s hard to imagine these two metals rising while China keeps driving everything down.”

Exact Precious Prices, Trends

The U.S. palladium bar price dropped 8.1% to $497/oz, from $541/oz in January. U.S. platinum bars also dropped, by 1.8%, down to $864/oz. China gold bullion rose slightly more than a dollar per gram, ending up at $35.98/gram.

Today in MetalCrawler, major oil exporters Saudi Arabia and the Russian Federation talked about possible cuts in production to combat low, low prices caused by a worldwide glut. Final figures for 2015 showed that US construction had a great year.

Russia and Saudi Arabia Talk Oil

Senior OPEC and Russian oil industry officials had vague talks, Reuters reported, about possible joint action to remedy one of the worst supply gluts in decades, while Saudi Arabia signaled its resolve to allow the market to balance itself.

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The latest volley of comments highlighted the intensifying pressure of $30 a barrel oil prices on cash-strapped countries such as Russia, but did not appear to tilt the scales meaningfully towards any concerted action to reverse the price crash from the Saudis and their controlling bloc of votes in OPEC. The Saudis are said to have asked for more “cooperation” on any future production cuts.

US Construction Starts Up in 2015

Dodge Data and Analytics reported that, for the full year of 2015, residential construction was up 14% to $265.4 billion, beating 2014’s increase by 4%, and non-building (mostly civil projects such as utility work) rose an impressive 23% to $176 billion, bouncing back from last year’s 8% decline.

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By contrast, non-residential construction fell 8% to $204.2 billion, giving back some of the 2014 increase of 24% but still 14% higher than 2013.

As the oil price continues to fall, there was an interesting proposal doing the (unofficial) rounds ahead of last week’s Organization of Petroleum Exporting Countries meeting in Vienna.

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Detailed in a Financial Times article, the rumor was that Saudi Arabia would have been willing to cut output to support oil prices if other OPEC, and some non-OPEC producers, matched its cutbacks. Crucially, the rumor went, that would require Iraq, Iran and non-member Russia to cut back along with Saudi Arabia for the “deal” to be acceptable to the Kingdom.

At the end of the day, the other OPEC nations, Russia and the Saudis all decided not to cut output. Or at least they couldn’t come to an agreement to do anything other than stand pat.

OPEC oil ministers even dropped any reference to the group’s output ceiling for the first time in decades, highlighting disagreement among members about how to accommodate Iranian barrels of oil once Western sanctions are rolled back.
Source Telegraph Newspaper

Source: London Telegraph

Without a doubt, all those countries would have liked to have seen higher prices. Iraq’s production may have roared back after the war there, but at $43/barrel the country is still bankrupt and, according to a Telegraph article quoting RBC Capital Markets, it can’t even pay the salaries of its security forces. Read more

Under Vladimir Putin, Russia bet its future on its abundant natural resources, believing it was irreplaceable as an energy source to the economies of Western Europe.

Three Best Practices for Buying Commodities

Russia pumped oil and gas, nickel, aluminum and other commodities at the expense of building its manufacturing base. With few exceptions, manufacturing suffered at the alter of a strong ruble and, for a time, was flattered by a strong domestic economy playing catch up after years of Soviet waste. The following graph of real effective exchange rate against exports of non-oil goods shows how the strength of currency correlates with falling exports of manufactured goods.

REER appreciation has adversely affected no-oil imports.

Source: London Telegraph

But now, a combination of falling commodity prices, particularly oil and gas, and western sanctions following Russia’s misadventure in Ukraine in 2014, have left the economy in a state of decline. According to the London Telegraph Russia is running a budget deficit of 3.7% which may not sound like much, but for an economy without developed capital markets it shouldn’t be running a deficit at all according to sources quoted by the paper. Read more

There is a close linkage between emerging markets and commodity prices. This connection becomes stronger for net commodity exporters. The two most notable examples are Russia and Brazil, both of which are commodity and energy exporters. These two countries have been two of the hardest hit among emerging markets.

Russia market vectors (Black). Brazil iShares (Orange)

Russian market vectors (Black). Brazilian iShares (Orange) since 2012. MetalMiner analysis with data from Stockcharts.com.

These markets have historically moved with commodity prices. When commodities fall, exporters of commodities make less money which is bad for their economy. In many cases, the movement of these markets helps to give clues to future moves in commodities.

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As we can see in the chart above, Russian (in black) and Brazilian (in orange) stock markets have been in bearish mode since 2011. Both, however, rallied this year but we can see that the rally is falling short of their previous peaks. The recent drop also coincided with falling commodity prices worldwide since April.

What This Mean For Metal Buyers

Weakness in emerging markets validates weakness in commodity prices. The dollar is still strong while commodities and emerging markets fall. It’s hard to become bullish on commodities until we start seeing some divergences.

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First it was China, now India’s steel makers face a similar “cheap imports” threat from a neighbor, this time Russia. The depreciation of the Russian ruble against the US dollar has started to have its effect felt in India’s steel sector.

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Since the last two months, even as steel majors have watched the developments from the sidelines, the steady decline in the ruble’s value has led to local players increasingly importing Russian alloy. It is Russia as the flavor of the month, much to the consternation of Indian steel companies, and the situation is not going to improve anytime soon.

To combat the trend, India’s steel ministry has proposed an immediate upward revision of import duties on steel products such as long products and hot-rolled coil. The logic is “to safeguard the TMT/rebar industry.”

Read more

After signing a deal for 12 new nuclear power plants in India by 2035, Russian President Vladimir Putin and India Prime Minister Narendra Modi didn’t provide much detail on where the proposed plants will be.

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As a former Congress Minister Mani Shankar Aiyyar posted on NDTV.com, Kudankulam had demonstrated that finding locations for nuclear plants “was always going to be problematic and will increasingly be so.”

Already, a nuclear power plant project in Jaitapur in the western province of Maharashtra and another in the State of West Bengal have run into local problems  because of protests by residents who do not want the plants in their backyards. There are apprehensions, which almost everyone connected with the issue feel are justified in the wake of nuclear accidents such as Chernobyl in Russia and of late, the one at Fukushima in Japan, that the plants pose a major threat to life and the ecology if something goes wrong in their operations.

Power sector analysts in India claim that the only country as of now that seems convinced of the potential of nuclear power for civilian use, especially in power generation, was India. They extend the example of Germany, a highly industrialized country, which had decided in the wake of Fukushima that it would phase out all existing nuclear power plants and build no new ones.

But such examples seem to be no deterrent to India, which has made its newfound love of nuclear energy public at all available forums. R.K. Sinha, Chairman, Atomic Energy Commission and Secretary, Department of Atomic Energy, for example, recently told a meeting that India was committed to its nuclear program “without any interruption,” irrespective of decisions taken by other countries.

He was obviously referring to Germany and Japan, which planned to end their dependence on nuclear energy, saying India had no reason to follow them.

Sinha said India had been pursuing the nuclear program on its own steam, and the country was in the process of establishing new nuclear power plants across India, without being dependent on any foreign country. There was no question of following them and halting our nuclear program, he told The Hindu newspaper. It’s also true that countries such as France derive 75% of their energy from nuclear power and have been able to achieve the type of energy security that the world’s largest democracy desires by doing so.

Convincing citizens of the safety of the use of such alternate sources of power, and making land available for such projects are thus the 2 main hurdles the Indian Government will have to cross if it wants to get anywhere near its stipulated goal. A look back in time, though, will show that on an average, any project in India takes about 5 years to implement, so for now at least, the 2035 dream seems just that.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

The recent announcement that Russia will build 12 nuclear reactors for India by 2035 was really, mostly, a reiteration of earlier agreements.

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Manpreet Sethi, Indian Council for Social Science Research Senior Fellow affiliated with the Centre for Air Power Studies, writing in the EuraAsia Review has said the main statement and a parallel document outlining the ‘strategic vision’ for cooperation on the civil nuclear energy front reiterate earlier plans calling for a total of 12 Russian reactors to be built at Kudankulam and another (yet to be identified) site in India.

What was new, however, was the commitment to “progressively and significantly enhance the scope of orders for materials and equipment from Indian suppliers and establish joint ventures, including by transfer of technology.”

Siddharth Varadarajan, Senior Fellow at the Centre for Public Affairs and Critical Theory, Shiv Nadar University, while writing in the Eastern Mirror, has explained that it was during Russian President Vladimir Putin’s official visit to India in October 2000, that the Declaration on Strategic Partnership between the Russian Federation and India was signed.

From all counts, what is important about this most recent agreement  is India’s oft-stated belief that nuclear power will now play a big role in augmenting its power capacity, is being acted on. The country’s 20 nuclear generators provide less than 2% of the nation’s power capacity today, and the government now wants to take that up to 62 gigawatts by 2032.

Indian officials were quoted in other media as saying that 6 of the 12 reactors would be built around Kudankulam, while sites for the remaining reactors were yet to be chosen.

Therein lies the rub. Even if one were to go by the official position, getting sites to set up 6 nuclear plants in India will be no easy task.

As a former Congress Minister Mani Shankar Aiyyar posted on NDTV.com, Kudankulam had demonstrated that finding locations for nuclear plants “was always going to be problematic and will increasingly be so.”

Already, a nuclear power plant project in Jaitapur in the western province of Maharashtra and another in the State of West Bengal have run into trouble because of protests by locals who do not want the plants in their backyards. There are apprehensions, which almost everyone connected with the issue feel are justified, in the wake of nuclear accidents such as Chernobyl in Russia and of late, the disaster at Fukushima in Japan, that the plants pose a major threat to life and the ecology.

Power sector analysts in India claim that the only country, as of now, that seems convinced of the potential of nuclear power for civilian use, especially in power generation, was India. They extend the example of Germany, a highly industrialized country, which had decided in the wake of Fukushima that it would phase out all existing nuclear power plants and build no new ones.

The initial euphoria over Russia agreeing to build at least 12 nuclear reactors in India by 2035 has died down as sector experts get around to analyzing the Russian move vis-à-vis India’s ongoing nuclear power program.

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The agreement, one of 20, was inked during Russian President Vladimir Putin’s summit meeting in New Delhi last week.  Both Indian Prime Minister Narendra Modi and Putin pledged to take ties between the 2 nations to a “new degree of closeness,” with cooperation in nuclear energy acting as the lynchpin. A report by Indian news agency Press Trust of India said both nations would strive to complete the construction and commissioning of not less than 12 nuclear units in the next 2 decades, according to a strategic vision document.

That makes it great propaganda material for official press releases and for the official summit photographs, but going behind the scenes, as many Indian analysts and media following the nuclear program and India’s power sector have done, it emerges that the agreement is merely old wine in a new bottle.

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Russian President Vladimir Putin may have announced that the proposed South Stream gas pipeline is dead, but it would seem this has given him a good opportunity to widen the growing rift between the EU and Turkey.

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Work on the 930-kilometer (580-mile) South Stream project was started October 2013 but was suspended in June after the European Commission said it might be breaking EU competition rules. The pipeline was to be partially funded, owned and wholly operated by Russia’s Gazprom and the reality is the EU is increasingly nervous about tying Europe any closer to the Russian monopoly supplier than it already is. Critics say with northern states safe with the already operating North Stream pipeline, they can afford to make an example of Moscow in the current climate over a project that would have favored the southern and Baltic states for supply security and transit fees.

Source: BBC

Source: BBC

Not to be outdone, though, Russia is using the cancellation to build bridges with Turkey and add encouragement for the increasingly important former EU ally to build alliances with Eurasia rather than the EU. Turkey has all but given up on EU membership after years of Brussels hand-wringing and prevarication.

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