Category Archives: Commodities

Morgan Stanley’s #Commodities Outlook – Business Insider

MORGAN STANLEY: This Is What The The World’s 14 Most Important Commodities Will Do

mauritius sugar cane
Sugar cane plantation in Mauritius

With the growing global population increasingly demanding goods, many financial advisors have advised clients to invest in commodities. Morgan Stanley’s commodities team led by Hussein Allidina favors soybeans, corn, and wheat as poor weather conditions slam supplies.
They also like precious metals, particularly gold and silver, as loose monetary policy sends investors seeking something with more stable value.  In fact, Morgan Stanley recently called the Federal Reserve’s latest action a game changer for the yellow metal.
What follows are Morgan Stanley’s opinions and price targets for 14 major commodities.

Brent oil continues to be affected by geopolitical tensions

Projected 2012 average: $110 /bbl
2013 price: $115 /bbl

Middle East unrest and and easy central bank monetary policies continue to support oil prices, though softer fundamentals heading into 4Q12 should weaken year-end crude prices. Risks are skewed to the upside for 2013.

Source: Morgan Stanley

Natural gas supplies will tighten by the end of the year, eventually sending prices higher

Natural gas supplies will tighten by the end of the year, eventually sending prices higher
Natural gas compressor station

Projected 2012 average: $2.74 /mmBtu
2013 price: $4.00 /mmBtu

Oversupply continues to weigh, but slowing gas-directed drilling may begin to help tighten balances by late 2012.
Source: Morgan Stanley


Aluminum prices will stay at low levels due to oversupply and too much production

Aluminum prices will stay at low levels due to oversupply and too much production
Sean Gallup/Getty Images
Projected 2012 average: $2,100 /MT
2013 price: $2,200 /MT
Very high global inventory and excessive production capacity will lead to up to two years of headwinds.
Source: Morgan Stanley

Copper prices will lead the industrial metals due to supply concerns

Projected 2012 average: $7,900 /MT
2013 price: $8,300 /MT
Supply difficulties will keep copper prices elevated — the global inventory pipeline remains soft.
Source: Morgan Stanley

Nickel supplies remain high, but price risk is to the upside

Nickel supplies remain high, but price risk is to the upside
Projected 2012 average: $17,800 /MT
2013 price: $18,300 /MT 
Supply risks from any new project delays and the impact of developments in Indonesia will keep the market primed for a price rally.
Source: Morgan Stanley

Zinc will continue to suffer from oversupply for several more quarters

Projected 2012 average: $2,000 /MT
2013 price: $2,100 /MT
Record-high inventories at the current rates of demand weigh on prices, but production is slowing. 
Source: Morgan Stanley

Gold is the best commodity to own right now

Projected 2012 average: $1,677 /oz
2013 price: $1,816 /oz
Interest rates, risk aversion and strong physical market fundamentals will serve as tailwinds.
Source: Morgan Stanley

Silver prices will be supported by the same forces fueling gold’s rally

Projected 2012 average: $32 /oz
2013 price: $35 /oz

Negative real interest rates will limit downside price risk.
Source: Morgan Stanley

Platinum lacks the safe-haven status of gold or silver

Projected 2012 average: $1,554 /oz
2013 price: $1,715 /oz
Platinum lacks safe haven status and has limited investment demand. Slowing global GDP and lower discretionary spending remain headwinds.
Source: Morgan Stanley


Commodity Red Flag…

Commodity Red Flag…

The MasterMetals Blog

>Brazil – prepare for devaluation

>Brazil – prepare for devaluation
Guest post By Thierry Apoteker, CEO and chief economist at TAC

TAC quantitative models show that the BRL is currently overvalued by about 25 to 30 per cent. The IMF index for the BRL real effective exchange rate suggests a 50 per cent overvaluation. With a combination of slower growth, higher external deficits, large speculative inflows and difficulty in cyclical management, the question is now not if the currency will depreciate, but when and by how much.

Guest post: Brazil – prepare for devaluation

>Mongolia plans to issue first sovereign bonds


The money has not yet come in, but the debt has already started…

Mineral-rich Mongolia plans to issue first sovereign bonds –

Mongolia plans to issue its first sovereign bonds this month, marking a milestone for capital markets in this resource-rich democracy.

The newly created Development Bank of Mongolia will issue $700m in sovereign bonds to fund lending programmesin areas that include infrastructure, industry, energy and roads. 

the issuance would take place in tranches beginning this month, with the first slice likely to be $100m.

The bond will be in tugrik, the Mongolian currency, which has appreciated by 1.6 per cent against the dollar since January.
investment in the mining sector has soared in the past two years along with global commodities prices.

Government revenues from the mining sector are set to jump next year as the Oyu Tolgoi copper and gold mine comes online, and politicians in Ulan Bator are looking for ways to manage the coming influx into state coffers.

The Development Bank is being set up with training from the Korean Development Bank and the Development Bank of Japan. 
yields on the bonds could be quite low, perhaps 6-8 per cent.

Mongolian sovereign debt has a B1 non-investment grade rating from Moody’s

Read the full article here: / Capital Markets – Mineral-rich Mongolia plans to issue first sovereign bonds

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>Ivory Coast Splinter Dictator Captured By French Forces, Handed Off To Rebels; Cocoa Plunges


Ivory Coast Splinter Dictator Captured By French Forces, Handed Off To Rebels; Cocoa Plunges
 zero hedge –Author: Tyler Durden

And like that, we now have one less conflict. From Reuters “French special forces have detained Ivory Coast’s Laurent Gbagbo and handed him to leaders of the rebel opposition, after French tanks forced their way into his residence, a Gbagbo adviser in France said. “Gbagbo has been arrested by French special forces in his residence and has been handed over to the rebel leaders,” Toussaint Alain told Reuters.” We would prefer not to visualize what happens to Gbagbo in the hands of his news captors. Importantly, considering the primary determinant in cocoa prices YTD has been the ongoing civil war in the African country, the promise of an end to hostilities sends Cocoa prices plunging, dropping the 10 metric ton contract by nearly $100 in the span of seconds.

Read more…

>CBOE Futures Exchange: Trading Volume Tops One Million for First Time


Thank you QE2!!!

Trading Volume Tops One Million Contracts for the First Time at CBOE Futures Exchange

April 4, 2011
The CBOE Futures Exchange, LLC (CFE) today announced that March 2011 was the most active trading month in CFE history as volume surpassed the one-million-contracts milestone for the first time ever.  The 1,066,367 contracts that changed hands during March was a new all-time high and the third consecutive record month at CFE, following the previous highs of 789,734 contracts in February and 778,157 contracts in January.  When including November 2010’s volume of 751,481 contracts, the four busiest months in CFE history have occurred during the last five months.  
March 2011 volume exceeded the 217,429 contracts traded in March 2010 by 390 percent.  March 2011 was the most active month of March on record at CFE and marked the eighteenth consecutive month in which total volume registered an increase when comparing year-over-year trading activity.
Average daily volume (ADV) of 46,363 contracts during March 2011, which was also a new record, topped the March 2010 ADV of 9,453 contracts by 390 percent.  When compared to 41,565 contracts per day during February 2011, which was the previous high, ADV in March rose 12 percent.  This was the second consecutive month in which CFE daily volume averaged over 40,000 contracts, a first for CFE.  
Current Month

23 23 19 62 61
1,066,367 217,429 +390 789,734 +35 2,634,258 626,690 +320
46,363 9,453 +390 41,565 +12 42,488 10,274 +314
On Tuesday, March 15, Wednesday, March 16 and Friday, March 11, CFE experienced the three busiest single days in its history when 97,385, 97,254 and 77,619 contracts traded, respectively.  CFE also set back-to-back weekly volume records during the month: a total of 282,287 contracts traded March 7 through 11, which was then surpassed when a total of 334,692 contracts traded March 14 through 18.  Additionally, exchange open interest reached a new high of 210,495 contracts on Wednesday, March 16.    
Total trading volume for the first quarter of 2011 was 2,634,258 contracts, which now ranks as the busiest quarter in CFE history.  The trading volume during the first three months of 2011 surpassed the volume of 1,787,035 contracts during the previous quarter (4Q 2010) and the 626,690 contracts during the first three months of 2010 (1Q 2010) by 47 percent and 320 percent, respectively.  ADV during the quarter was 42,488 contracts, compared with 27,922 contracts in the fourth quarter of 2010 and the 10,274 contracts in the first quarter of 2010.  
March 2011 volume in VIX futures, based on the CBOE Volatility Index (ticker VX), totaled a new record of 1,065,374 contracts, exceeding the 216,800 contracts traded last March by 391 percent and the 788,908 contracts in February 2011, which was the previous high, by 35 percent.  March was the first month ever for VIX futures volume to surpass the one-million-contracts milestone.  
Average daily volume in VIX futures also reached a new high of 46,320 contracts during March.  This ADV surpassed the 9,426 contracts per day a year ago and topped the 41,521 contracts per day in February 2011 by 12 percent.  VIX futures experienced the top three most active single trading days in CFE history during the month:  97,337 contracts on Tuesday, March 15; 97,113 contracts on Wednesday, March 16; and 77,556 contracts on Friday, March 11.    
CFE currently offers futures on six different contracts, including: the CBOE Volatility Index (VIX), Weekly options on VIX futures (VOW), CBOE mini-VIX (VM), CBOE Gold ETF Volatility Index (GVZ), CBOE S&P 500 3-Month Variance (VT) and CBOE S&P 500 12-Month Variance (VA).  
On March 25, CFE launched security futures on the CBOE Gold ETF Volatility Index (GVZ), further expanding tradable CFE volatility products into a new asset class.  The calculation of the CBOE Gold ETF Volatility Index (“Gold VIX”) is based on the well-known CBOE VIX methodology applied to options on the SPDR Gold Trust (NYSE:GLD).  The Gold VIX is an up-to-the-minute market estimate of the expected 30-day volatility of GLD, calculated using real-time bid/ask quotes of GLD options that are listed on CBOE.  For more information on CBOE Gold ETF Volatility Index futures and options, see
CFE, a wholly owned subsidiary of CBOE Holdings, Inc. (NASDAQ:CBOE), offers an all-electronic, open-access market model, with traders providing liquidity and making markets.  CFE trades are cleared by the AAA-rated Options Clearing Corporation (OCC). CBOE Futures Exchange is regulated by the Commodity Futures Trading Commission (CFTC).  
More information on CFE and its products, including contract specifications, can be found at:  
CBOE®, Chicago Board Options Exchange®, CFE®, CBOE Volatility Index® and VIX® are registered trademarks, and CBOE Futures Exchange(SM) , GVZ(SM) and Weeklys(SM) are servicemarks of Chicago Board Options Exchange, Incorporated (CBOE).  Standard & Poor’s®, S&P® and S&P 500® are registered trademarks of Standard & Poor’s Financial Services, LLC,. and have been licensed for use by CBOE.  
SOURCE CBOE Futures Exchange, LLC

>Japan and precious metals: a snapshot – SILVER NEWS | Mineweb

>Japan and precious metals: a snapshot

As the country still reels from the devastation of a massive earthquake and tsunami, we provide a brief view of where Japan fits into the world precious metals markets

Author: Rhona O’Connell
Posted: Monday , 14 Mar 2011


It feels callous writing about such an awful tragedy in terms metals markets, but sadly there is perhaps a call for a quick review of Japan’s typical position in terms of normal demand levels. This piece is not designed to take a view on the prospects for longer-term increased demand in terms of reconstruction, not to try and quantify how demand may contract in the short-term as some of Japan’s industries have to struggle to contain their losses or temporary shut-downs; it is aimed more at giving a snapshot of Japan’s market share in different sectors.

The PGMs

The platinum group metals are the logical place to start, especially given Japan’s long history of platinum jewellery demand. This is based partly, but not only on the concept of purity. Platinum jewellery needs to be a minimum of 85% and there is no ‘caratage’ concept as such; this partly informs the fact that for many decades Japan was the world’s largest consumer of platinum in jewellery as Japanese people have high standards and have always valued high purity (this though has been changing in the gold market through economic force of circumstances). The other reason goes back some centuries to the Shogun era, when the Emperor desired his merchants to wear while metal rather than yellow, in an effort to minimise ostentation – this was more important than the generally accepted concept of white metal looking better on the Japanese complexion than yellow metal.

Back in 1991, purchases of platinum for jewellery manufacture in Japan were 1.26 million ounces or 39 tonnnes (Johnson Matthey figures). This was some 31% of world demand for platinum in all forms and 85% of the world jewellery sector, which was 4.1M ounces or 252t.

Preliminary JM figures for 2010 put world purchases of platinum for jewellery at 2.4M ounces or 149t. This of course is now dominated by China; the Japanese figure for 2010 is just 330,000 ounces, a fall of 74% from 20 years previously. GFMS is currently estimating actual Japanese fabrication demand in the sector at a lower figure and has noted recently, but before the earthquake, that while the bridal sector remained relatively steady, falls in adornment demand were likely to continue. This is ascribed both to slow economic growth and demographic shifts in spending patterns as well as other endemic changes in the local sector.

JM figures suggest that Japanese demand for platinum in the auto sector accounted for just over half a million ounces in 2010 or 18% of the world total, but the Japanese auto market is a palladium story rather than platinum.

Johnson Matthey’s estimate (which, as noted above, reflects purchases of metal for the sector as opposed to actual fabrication demand) for the overall Japanese share in the platinum market in 2010 is 1.2M ounces, or 15% of the world total. Autocatalyst and jewellery, as the two largest demand sectors, took up 75% of local purchases, with glass in third place.

Japan’s position in the palladium market is slightly larger than that of platinum, reflecting its greater use in the auto and electronics sectors. JM estimates that Japan’s overall demand for palladium in 2010 was 1.5M ounces or 16% of the world total.

More than 50% of this was accounted for by the auto sector, at 765,000 ounces. Japan’s share of palladium demand in the world auto sector was therefore 15%.

Globally, the second largest use of palladium is the electrical and electronics sector, notably the latter. This sector took up 1.4M ounces in 2010, or 16% of world demand. In Japan the offtake was 295,000 ounces, giving it a 21% share, well ahead of Europe and the United States and second only to China.

Meanwhile Japan‘s demand for palladium in the dental sector is the world’s largest at almost 47% of the total.


A fully up-to-date breakdown of silver demand by country is not yet available (GFMS will be publishing its World Silver Survey for the Silver Institute in early April). Broadly speaking, however, Japanese demand for silver is something over 2,000 tonnes, or 9% of world total. The largest end-use by far is the broad ‘industrial’ category, which includes the auto sector, construction, medical uses and solar cells, which latter are garnering an increasing amount of popular comment. The photographic sector has been falling as heavily in Japan as it has elsewhere in the face of the onward march of digital technology; the fall in Japanese demand between 2000 and 2009 was 63%, while world usage fell by 62%. Jewellery and silverware is a minimal end-use in Japan.


In the gold market, meanwhile, Japan’s share of world gold fabrication (i.e. exclusive of investment demand) is approximately 6% of the world total, with the majority of this concentrated in the electronics industry in which it has consistently been the world leader. The tonnage involved in Japan is close to 100t for a world total in the region of 250t. Jewellery demand is low, both on a gross and an outright basis, and scrap recycling has been relatively heavy in recent years, meaning that net demand has typically been well below 50% of gross demand – and more recently has been more like 20% of total. Caratage in new pieces has been falling as economic conditions have been constricting expenditure.

Gold investment bars, meanwhile, have been flowing back into the market. World Gold Council publication ‘Gold Demand Trends’ (figures compiled by GFMS) show that with the exception of the fourth quarter of 2008, Japanese investors have been net sellers of gold bars on a quarterly basis right back to the start of 2006, since when the net release of small bars has been over 220 tonnes. This negates the net purchases of gold bars going back to the second quarter of 2002. Between the start of 1999 and Q2 21002, net purchases were almost 300t – so we may yet find that these sorry circumstances lead to more such sales. – The world’s premier mining and mining investment website Japan and precious metals: a snapshot – SILVER NEWS | Mineweb

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