Commodities At Six Year Lows

Sydney, Dec 5, 2008 (ABN Newswire) - Lead by oil and metals, especially copper, the downward march of commodity prices continues apace.

Oil fell under $US44 a barrel yesterday; it's more than $US103 down from the July peak of $US147.47 a barrel. Oil is at a three and a half year low.

Non-traded spot prices for coal and iron ore are weak. 

Vale, (CVRD), the big Brazilian iron ore and nickel miner, yesterday chopped its global workforce by 2.1%, or 1300 people. More than 6,000 others will be sent on unpaid leave or be retrained.

Copper fell again, off another cent and pushing the US front futures price under $US1.50 a pound: yesterday's finish was around the lowest since early, 2005. 

Copper is down more than 70% from its May peak of  $US4.2605 a pound. Copper fell 9.75% on Thursday alone.

The same is happening across the board: even gold remains hesitant, the fear of recession and sluggish demand is undermining confidence.

The Reuters-Jefferies CRB index, a major global benchmark for commodities prices, dropped to its lowest level since 2002 yesterday when it fell to around 218: the index has plunged 60% from July's record of 473.97.

The drop came after oil prices fell to fresh three-and-a-half year lows on successive days.

Oil is the main driver, especially with OPEC's odd decision last week to sit still and not cut production. Prices hit a four year low overnight Thursday of around $US43.60 a barrel, down almost 7% in one day.

UK analysts wonder if there's a split in the group between countries which need extra output (Nigeria and Venezuela) and those who see the dangers from sparking another oil price surge, or the futility of trying to in the midst of a global recession

OPEC said at a weekend meeting in Cairo that it would delay production cuts until mid-December, when it will convene again in Oran, Algeria. 

Futures prices see the global price falling to $US40 a barrel in the next couple of months: it could come earlier than that, by year's end given the flood of depressing news about the global economy, despite rate cuts and other pump priming measures.

Merrill Lynch said in a report on Thursday that prices may dip below $US25 a barrel next year if the recession spreads to China. Without a recession in China, the firm saw prices around $US50 a barrel.

Much will depend on the Oran meeting of OPEC, when the group is expected to cut output by 1m-1.5m barrels a day. 

But even that confidence has been undermined by news that the financially-strained Kuwait and the United Arab Emirates reportedly told some of their larger customers in Asia that they would supply them with more oil in January than in December.

The group has so far cut about 1m to 1.2m barrels a day of a promised 1.5m b/d cut.

Copper and other metals have eased despite suggestions that China is buying metals for a national strategic reserve.

China is certainly attacking the iron ore and coking and thermal coal supply contracts held by Australian, Indonesia, Canadian and other suppliers to drive down prices next year. Volumes will also fall.

Copper prices fell to the lowest since July 2005 on growing worries that the price is heading for the important $US1 a pound market thanks to the growing global slump.
That's being reflected in the surge in London Metal Exchange stocks of unsold metal. (The LME is a terminal market, so when its stocks rise and fall, you know that demand is strong or weak. At present it's weak to getting weaker). Copper stocks are running around 293,000 tonnes, the lowest since mid 2004.

The slump has produced a flood of decisions this week from major producers and processors.

Freeport-McMoRan Copper & Gold Inc., the world's largest listed copper producer, suspended its dividend and will reduce output over the next two years. 

Freeport said it will now produce 4.1 billion pounds (1.86 million tonnes) in 2009, down from the October decision to lift output to 4.3 billion pounds. That's around 90,000 tonnes less.
Its 2010 output will fall 11% and the company yesterday said more cuts would happen if the price weakened.

Freeport is really hunkering down: besides cutting out and suspending the dividend it is more than halving its capital expenditure in 2009 to $US1.1 billion from October's estimate of $US2.3 billion.

In Japan, Nippon Mining Holdings Inc, Japan's leading copper producer, is considering cutting production by 10% to 20%. It expects to make a decision by month's end.

An output cut by Nippon Mining, which has an annual copper production capacity of about 610,000 tonnes, would follow curbs at its Chinese competitors.

Tongling Nonferrous Metals, China's second largest copper producer, has reduced copper output due to low prices.
If The Nippon Mining cuts output, it will buy less copper concentrate in 2009.

According to the London based Bloomsbury Mineral Economics, global copper production will outpace demand by 244,000 tonnes in 2009, a 109,000 tonne surplus.

Last week RBS Capital analysts reckoned next year's surplus would be 250,000 tonnes and possibly double that in 2010.

In September, the Japan Copper and Brass Association cut its estimate for Japanese copper demand to 977,000 tonnes for the year to March, a decline of 2.1 percent from the previous year.

Lead dropped to a two-year low in London after Ivernia Inc., the former supplier of 3% of world output, was given the greenlight to resume an 8,000 tonne shipment from Western Australia. Aluminum prices hit four year lows. 

That missing metal has seen lead stocks fall this year by just over 5%. But the Ivernia news came as stocks jumped 2.7% in a day.

Three month lead fell 11% on Wednesday on the news to $US975 a tonne after touching $US970 a tonne, the lowest since June 2006. lead prices recovered slightly Thursday 

The Financial Times reported that China was looking to buy commodities:

"China, the world's largest metals consumer, is considering a plan to build up state reserves of base metals to help fight the impact of the global economic slowdown, according to an industry association.

"Wen Xianjun, vice-chairman of the China Nonferrous Metals Industry Association, told a conference that central government was considering buying all types of base metals to boost domestic demand.

"It was the second time this week that Chinese officials had suggested that the country might buy base metals.

"On Monday, in a statement greeted with widespread scepticism by the market, the government of Yunnan province, a base for significant Chinese metal production, said it would buy 1m tonnes of base metals.

"But Zhang Liqun, director of the financial research institute at the State Council, the country's cabinet, said on Wednesday that the government's goal was still to force a restructuring of inefficient mining companies."

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