Guide to Commodities 2013

The recent fortunes made by investors in rare earth metals and gold are just two shining examples of what an extremely profitable investment class commodities can be. From aluminum and platinum to zinc and silver, oil and gas to cocoa and wheat, this Guide to Commodities from the Economist Intelligence Unit is a comprehensive overview of the forces at work in the world of commodities.

The price volatility of so many commodities over the past decade has underlined their economic importance and how dependent we are on them: the price of gold has soared to new peaks (before tumbling in the last few weeks) as currencies have endured a crisis of confidence, demand from China has pushed metal prices up, instability in the Middle East and North Africa has had its effect on the oil price and food prices have been increasing in parallel with worries about whether there is enough to feed the world. Read the rest of Guide to Commodities 2013 » » »

Corporate Social Responsibility in supply chains: an example of aluminum refining

Commodity production in many parts of the world causes huge problems for local communities. Extractive industries located in areas with poor environmental protection and enforcement can be particularly damaging.

For example this contentious aluminum refinery in Niyamgiri, India: The battle for Niyamgiri

Should purchasers have a role in influencing supply chains by avoiding companies with dubious social and environmental ethics? Would this be interfering with domestic governance and development, or does CSR (corporate social responsibility) pave the way for this type of decision? Are purchasers in a position to obtain and evaluate the information needed to make those decisions?

Base metals caught up in the turmoil

Industrial metals prices trading on the London Metal Exchange were shaken this week by an unexpected slowdown in Chinese growth, followed by gloomy indicators in the United States, which cast doubt on global growth strength.

Like oil and gold, base metals were taken Monday in a huge selloff movement affecting all commodities: speculative investors were rushing to withdraw from the market.

“The week started quietly in Asian trade … until China published macroeconomic statistics that totally reversed the trend“, said Edward Meir, analyst at broker INTL FCStone.

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Copper: biggest weekly drop since 2011

After a decade during which large copper companies have struggled to follow a demand driven by Chinese consumption, new projects are finally coming to life. Unfortunately, this increase in supply meets a slowdown in demand.

Benchmark three-month copper was down more than 2 percent at $6,909.50 a tonne from $7,088 at the close on Thursday. It hit a 1-1/2 year low of $6,800 during the last session, and is on track for its biggest weekly fall since late 2011.

A selloff in gold futures, which posted a record two-day slide earlier this week, has percolated into the copper market, traders and analysts said. Copper is often traded as part of a wider commodities basket such as an index-linked fund, and investors wishing to limit losses on one component of the basket must sell the entire group.

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The Carbon Benefits of Recycled Materials

The benefits of avoiding extraction and primary processing are usually significant, even when collection, transport and reprocessing of recycled material is taken into account.

An increasing range of recycled products are coming onto the market, such as glass, steel, aluminium, plastics and paper. Usually calculating the carbon benefit is reasonably straightforward. As the final products must perform to similar standards (whether from virgin or recycled materials) in order to compete in the market place, the carbon footprint during their ‘use phase’ will also be very similar.

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Commodities tumble on US retail sales news

Commodities tumbled to the lowest since July, led by a plunge in precious metals, as U.S. retail sales fell the most in nine months and consumer sentiment unexpectedly declined.

Gold fell into a bear market, and silver plummeted to the lowest since 2010. Crude oil slumped to a one-month low.

On the London Metal Exchange, a gauge of copper, aluminum, zinc, lead, nickel and tin fell 2.6 percent, the most in a year.

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Rare earth: a new Chinese giant

The Chinese authorities have led to the creation of a new state-owned rare-earth company combining the activities of Ganzhou Rare Earth Mineral Industry Company, and a number of smaller local companies including Longnan Wanbao Rare Earth.

The red clay hills of Ganzhou in Jiangxi are home to an estimated 36 per cent of China’s rare earth reserves, and China provides about 95 per cent of the world’s rare earth shipments. Now the only company in the area, Ganzhou Rare Earth Group will be present at all stages of the rare earth production process: mining, smelting, separation and trading. “From now on, Ganzhou will step up efforts to facilitate the merging and restructuring of the rare earth industry,” said Liu Jianping, vice mayor of Ganzhou.

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Aluminum outlook – Forecast 2013

Stuck in a pattern of structural oversupply, Barclays Research forecasts the price of aluminum to stay around 2,000 dollars per ton. It has tested several alternative scenarios to try to understand how the light metal market will evolve.

Despite ever more abundant surplus, producers have not taken adequate measures to balance the aluminum market. The surplus reached 889,000 tonnes in 2011, 1.5 million tonnes (Mt) in 2012 and expected to peak at 1.8 Mt in 2013. In this context, the average price of aluminum has fallen year on year by 16% in 2012 to 2,017 dollars per tonne, its lowest level since 2009, when it collapsed under the impact of the financial crisis.

While the above fundamental narrative is a simple one, it belies a number of significant distortions that mean the metal is “generally viewed in far more uncertain terms by market participants in 2013″ than it would be otherwise.

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Cheap Natural Gas Drives down Costs for Chemicals and Fertilizer

Plunging prices have turned the U.S. into one of the most profitable places in the world to make chemicals and fertilizer, industries that use gas as both a feedstock and an energy source. And they have slashed costs for makers of energy-intensive products such as aluminum, steel and glass.

“The U.S. is now going to be the low-cost industrialized country for energy,” the energy economist Philip Verleger says. “This creates a base for stronger economic growth in the United States than the rest of the industrialized world.

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Metals up on ECB and Fed news

Metal prices on the London Metal Exchange have significantly increased last week, boosted by measures from the European Central Bank (ECB), infrastructure spending in China and hopes to see U.S. Federal Reserve (Fed) do more.

The week started with a new stronger than expected decrease of the manufacturing activityin the USA and in China, the largest consumer of metals in the world.

These indicators have put metal prices under pressure Monday and Tuesday, but this decline did not last long, because these statistics also enhanced the likelihood of support measures by the central bank of China and the U.S.

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