Monday, February 19, 2007
LME REVIEW
DJ LME Review: Quiet Trading On US Holiday; Consolidation Seen
LONDON (Dow Jones)--Trading activity on London Metal Exchange base metals was quiet Monday because of the U.S. Presidents Day holiday, but consolidation is expected to be a key feature over the next few days, traders said.
Earlier Monday, three-month lead pushed to a new record high of $1,817.50 a metric ton before retreating to a PM kerb of $1,775/ton on profit-taking.
Systematic buying and trade short covering provided strong upside momentum that was underpinned by supply concerns.
News last week that Xstrata PLC declared force majeure at its Northfleet lead refinery in the U.K. following reduced supplies from its Mount Isa smelter in Australia, provided further price support. Northfleet produced around 161,350 tons of lead last year, using feedstock from Mount Isa.
LME lead stocks Monday fell 825 metric tons to 32,475 tons, adding to price strength, and stocks have fallen roughly 20% since the start of 2007.
"With the U.S. out on holiday, we've seen incredibly light volumes traded Monday," said one LME trader. "Many of the markets are in consolidation mode which I expect will continue for the next several days, particularly as the Chinese are out for the week celebrating the Lunar New Year," the trader added. China is the world's largest consumer of a variety of base metals.
Three-month tin was lightly supported, rising 0.03% to a PM kerb of $13,195/ton.
Tin industry specialist ITRI said Monday that 2007 global tin production is estimated at 337,000 tons while global tin consumption is estimated at 377,000 tons. Combined with a U.S. stockpile disposal of roughly 10,000 tons, this leaves a 2007 supply deficit of roughly 30,000 tons, ITRI said.
Three-month copper, nickel and aluminum were under modest pressure due to profit-taking, the LME trader said.
Aluminum prices fell 0.5% to a PM kerb of $2,780/ton from Friday. "The squeeze in aluminum seems to be falling apart as the dominant long position has give up part of its position," said a LME broker.
In addition, LME aluminum stocks are readily available with inventories having climbed nearly 10% since the start of 2007.
Ongoing political tensions in Guinea - the world's largest exporter of bauxite - have provided underlying support despite the head of Guinea's military relaxing a nationwide curfew Sunday.
Bauxite is a key raw ingredient to make alumina, which is in turn refined to make aluminum.
According to an official at Norwegian shipping company Torvald Klaveness Group Monday, there haven't been any bauxite shipments yet from Guinea's port of Kamsar despite the restart of limited production at the country's operations.
Sources in the panamax-bulkers market said full port activity is unlikely until the end of martial law there, currently scheduled for Feb. 23.
Guinean President Lansana Conte declared martial law early last week after dozens died in riots and clashes between protesters and security forces over Conte's appointment of a political ally as prime minister.
Prices in dollar a metric ton.
3 Months Metal Bid-Ask Change from
Friday PM kerb
Copper 5800.0-5805.0 Dn 5
Lead 1775.0-1780.0 Dn 10
Zinc 3392.0-3395.0 Up 12
Aluminum 2780.0-2783.0 Dn 13
Nickel 38700.0-38800.0 Dn 200
Tin 13195.0-13200.0 Up 55
Aluminum Alloy 2190.0-2210.0 Dn 20
Aluminum Alloy 2170.0-2180.0 Dn 10
LONDON (Dow Jones)--Trading activity on London Metal Exchange base metals was quiet Monday because of the U.S. Presidents Day holiday, but consolidation is expected to be a key feature over the next few days, traders said.
Earlier Monday, three-month lead pushed to a new record high of $1,817.50 a metric ton before retreating to a PM kerb of $1,775/ton on profit-taking.
Systematic buying and trade short covering provided strong upside momentum that was underpinned by supply concerns.
News last week that Xstrata PLC declared force majeure at its Northfleet lead refinery in the U.K. following reduced supplies from its Mount Isa smelter in Australia, provided further price support. Northfleet produced around 161,350 tons of lead last year, using feedstock from Mount Isa.
LME lead stocks Monday fell 825 metric tons to 32,475 tons, adding to price strength, and stocks have fallen roughly 20% since the start of 2007.
"With the U.S. out on holiday, we've seen incredibly light volumes traded Monday," said one LME trader. "Many of the markets are in consolidation mode which I expect will continue for the next several days, particularly as the Chinese are out for the week celebrating the Lunar New Year," the trader added. China is the world's largest consumer of a variety of base metals.
Three-month tin was lightly supported, rising 0.03% to a PM kerb of $13,195/ton.
Tin industry specialist ITRI said Monday that 2007 global tin production is estimated at 337,000 tons while global tin consumption is estimated at 377,000 tons. Combined with a U.S. stockpile disposal of roughly 10,000 tons, this leaves a 2007 supply deficit of roughly 30,000 tons, ITRI said.
Three-month copper, nickel and aluminum were under modest pressure due to profit-taking, the LME trader said.
Aluminum prices fell 0.5% to a PM kerb of $2,780/ton from Friday. "The squeeze in aluminum seems to be falling apart as the dominant long position has give up part of its position," said a LME broker.
In addition, LME aluminum stocks are readily available with inventories having climbed nearly 10% since the start of 2007.
Ongoing political tensions in Guinea - the world's largest exporter of bauxite - have provided underlying support despite the head of Guinea's military relaxing a nationwide curfew Sunday.
Bauxite is a key raw ingredient to make alumina, which is in turn refined to make aluminum.
According to an official at Norwegian shipping company Torvald Klaveness Group Monday, there haven't been any bauxite shipments yet from Guinea's port of Kamsar despite the restart of limited production at the country's operations.
Sources in the panamax-bulkers market said full port activity is unlikely until the end of martial law there, currently scheduled for Feb. 23.
Guinean President Lansana Conte declared martial law early last week after dozens died in riots and clashes between protesters and security forces over Conte's appointment of a political ally as prime minister.
Prices in dollar a metric ton.
3 Months Metal Bid-Ask Change from
Friday PM kerb
Copper 5800.0-5805.0 Dn 5
Lead 1775.0-1780.0 Dn 10
Zinc 3392.0-3395.0 Up 12
Aluminum 2780.0-2783.0 Dn 13
Nickel 38700.0-38800.0 Dn 200
Tin 13195.0-13200.0 Up 55
Aluminum Alloy 2190.0-2210.0 Dn 20
Aluminum Alloy 2170.0-2180.0 Dn 10
Copper
Copper may surge on spill-over effect from Zambian oil workers' strikeLONDON (AFX) - A strike at Zambia's sole oil refinery, Indeni, may spill-over to push copper prices higher.Zambian mines rely heavily on oil and any disruption to production will dent global supply of the metal.The country's 500,000-tonne a year copper industry could suffer, as a "similar thing happened last year and had a knock on effect on (copper) prices" said Standard Chartered analyst, Tariq Salaria."The Zambian copper market is reliant on this one oil refinery, which serves the whole industry." The refinery processes up to 20,000 bpd.Reports said negotiations between management and the National Union of Transport and Allied Workers Union failed to reach an agreement, forcing management to halt operations.At 4.23 pm, LME copper for three month delivery was down 5 usd at 5,805 usd a tonne against 5,810 usd at the close Friday.
Irish newspaper article on TLW
18 February 2007
The Sunday Independent (Ireland)
Tullow Oil squeezed by soaring costs
INVESTORS who bought into oil companies four or five years ago have enjoyed a great run as global fuel prices soared - and Tullow Oil has done better than most, with its share price more than quadrupling from €1.48 to €5.94 over the past five years. Unfortunately for their pockets, investors have paid less attention to the escalating costs of prospecting for, and then extracting that same oil and gas. Last week, the energy consultants at Cambridge Energy Research Associates published their upstream capital costs index. This showed that a basket of exploration and production costs had risen by 53 per cent over the past two years. The bad news for investors is that price inflation in this sector shows no sign of easing. Tullow Oil produced the equivalent of 58,000 barrels of oil per day in 2005. The cash cost of extracting this oil was the equivalent of stg£4.84 per barrel (Tullow presents its accounts in sterling), which amounts to just over stg£102m for the full year. This year, Tullow is producing the equivalent of over 80,000 barrels a day. Given the sort of inflation being experienced in the oil and gas sector, the company probably won't get any change out of stg£7 a barrel to extract the stuff. That's at least stg£205m for 2007. Back when oil prices were at over $70 and gas prices at over stg70p per therm (ie: per unit of heat), these escalating exploration and production costs were no more than a minor nuisance. Not any more. With their recent mini-rally now run out of steam, oil prices are falling again - and were down to $56 by the end of last week. Meanwhile, gas prices - at just over stg20p per therm - are at their lowest for over three years. Tullow is being squeezed between lower prices and higher costs. This means that the only direction the shares are headed is down.
The Sunday Independent (Ireland)
Tullow Oil squeezed by soaring costs
INVESTORS who bought into oil companies four or five years ago have enjoyed a great run as global fuel prices soared - and Tullow Oil has done better than most, with its share price more than quadrupling from €1.48 to €5.94 over the past five years. Unfortunately for their pockets, investors have paid less attention to the escalating costs of prospecting for, and then extracting that same oil and gas. Last week, the energy consultants at Cambridge Energy Research Associates published their upstream capital costs index. This showed that a basket of exploration and production costs had risen by 53 per cent over the past two years. The bad news for investors is that price inflation in this sector shows no sign of easing. Tullow Oil produced the equivalent of 58,000 barrels of oil per day in 2005. The cash cost of extracting this oil was the equivalent of stg£4.84 per barrel (Tullow presents its accounts in sterling), which amounts to just over stg£102m for the full year. This year, Tullow is producing the equivalent of over 80,000 barrels a day. Given the sort of inflation being experienced in the oil and gas sector, the company probably won't get any change out of stg£7 a barrel to extract the stuff. That's at least stg£205m for 2007. Back when oil prices were at over $70 and gas prices at over stg70p per therm (ie: per unit of heat), these escalating exploration and production costs were no more than a minor nuisance. Not any more. With their recent mini-rally now run out of steam, oil prices are falling again - and were down to $56 by the end of last week. Meanwhile, gas prices - at just over stg20p per therm - are at their lowest for over three years. Tullow is being squeezed between lower prices and higher costs. This means that the only direction the shares are headed is down.
Tullow
There are mixed views on Tullow Oil with KBC urging that holdings be reduced while Merrill Lynch is a buyer and Bridgewell overweight.
Recent note from Goodbody stockbrokers
In a report this morning we revisit our models and recommendations for the E&P’s under coverage, on the foot of recent pre-close statements and ahead of the release of FY06 results in March. The tone of those statements ranged from positive in the case of Dragon, to broadly in line in the case of Tullow, to disappointing with respect to Burren. FY06 earnings adjustments range from +12% for Tullow (largely due to one-off exceptional items), to -3% for Burren and +1% for Dragon. Variations for FY07 are more pronounced, particularly in the case of Tullow – down 22% (higher interest charges and share count as a consequence of the Hardman deal) and Dragon - up 15% (due to an increase in FY07 forecast average gross production from 24.0 kbopd to 27.5 kbopd). NAV revisions include 11% and 4% upgrades to total NAV for Tullow and Dragon, but a 13% decline in the case of Burren. Notwithstanding further positive news from Uganda this morning (see below), we are raising our recommendation on Tullow from ADD to BUY. Ongoing success in Uganda eases prior concerns associated with a high proportion of the NAV attributed to the region. The Hardman deal further expands the exploration portfolio and the pipeline of opportunities (20 wells scheduled for 2007) ensures a steady stream of newsflow with stand-outs in the shape of Uganda, India and Kudu. Applying a 10% premium to total NAV across the group results in a price target for Tullow of 460p (425p previously), a marginal uplift for Dragon, from 205p to 210p, but a significant reduction for Burren from 930p to 800p, on a re-assessment of the exploration portfolio. We maintain our BUYrecommendation on Dragon and ADD while our price target on Burren suggests it is currently trading at fair value. Tullow (Buy, Closing Price £4.00); Ugandan ‘good news’on tap. Following on from the discovery of oil at two higher levels, Heritage, the operator of the Kingfisher well in Block 3a in Uganda (Tullow 50% stake), has announced that it is to test three intervals with a gross pay of 44m between 2,260m and 2,367m in Kingfisher-1a. The reason stems from “encouraging indications of hydrocarbons” from wireline logs and pressure testing and the fact that the current rig, which has drilled to a depth of 3,195m has reached the limit of its operational capability. One of the intervals to be tested is 21m thick. Heritage has indicated that it expects testing of the zones to commence in 10 days time with the process to take up to three weeks to compete. While inconclusive as yet, the latest news continues to enhance the ultimate commerciality of the Lake Albert basin. The question remains as to ultimate prospect size, an answer to which is likely to take well over a year to ascertain.
Metals
Metals - Base metals mkts quiet on Chinese, US holiday; lead hits all time highLONDON (AFX) - Base metals markets were quiet because of the Lunar New Year holiday in China and the Presidents Day holiday in the US, although most metals remained steady, underpinned by supply side issues.Lead hit an all time high of 1,810 usd a tonne earlier, on speculation Xstrata is shopping around for material for its customers, after declaring force majeur on exports from its Mount Isa smelter in Australia two weeks ago.At 12.14 am, LME lead for three month delivery was up at 1,806 usd a tonne against 1,785 usd at the close Friday.Copper was steady amid a fall of 2,725 tonnes in LME inventories and continued expectations the Chinese will return to the market after the week long Chinese New Year break."We are very positive on copper because of recovering Chinese demand. News during Copper Club Week in New York last week was very encouraging on this matter," said UBS Investment Bank analyst Robin Bhar.Data out last week showed Chinese imports of refined copper and copper alloy rose to 147,650 tonnes in January -- a 70 pct increase over year-earlier levels."Chinese import statistics indicate a strong pick up in Chinese copper imports implying re-stocking is taking place following a year where the Chinese have been running down their inventories," said Numis analyst John Meyer.Copper was flat at 5,810 usd a tonne.Aluminium edged down, under pressure from a resumption of bauxite exports from Guinea. Bauxite is used in the production of alumina -- the raw material used to make aluminium.Aluminium was at 2,790 usd a tonne against 2,795 usd at the close Friday.Tin edged up, still finding support from disrupted exports from Indonesia. Last week, Indonesian authorities shut down most of PT koba Tin's operations, sending tin top with an all time high of 13,300 usd a tonne on Friday.Tin was up at 13,250 usd a tonne against 13,145 usd at the close Friday.In other metals, nickel was down at 38,875 usd a tonne against 38,900 usd at the close Friday, while zinc was up at 3,402 usd a tonne against 3,380 usd at the close Friday.
LME MIDDAY
DJ LME MIDDAY: Lead Extends Strength On Supply Worries
LONDON (Dow Jones)--London Metal Exchange lead extended its recent strength to hit a fresh record high Monday, with analysts expecting further moves to the upside despite a holiday in the U.S.
Three-month lead pushed to a record high of $1,810 a metric ton Monday, up over 1% from Friday. At 1158 GMT, lead traded at $1,805/ton.
The recent price strength seen in LME lead might have further to run due to low stock levels, short covering, and ongoing supply concerns, said William Adams of BaseMetals.com/ Short covering seen above $1,750/ton and $1,770/ton have helped to push prices sharply higher, Adams added.
News last week that Xstrata PLC declared force majeure at its Northfleet lead refinery in the U.K. following reduced supplies from its Mount Isa smelter in Australia, provided further upside momentum. Northfleet produced around 161,350 tons of lead last year, using feedstock from Mount Isa.
LME lead stocks fell 825 metric tons to 32,475 tons Monday, adding to price strength, and have fallen roughly 20% since the start of 2007.
"Dips should be well supported (across the base metals) given various supply-side issues which have come to the fore," said Robin Bhar of UBS.
However, analysts said trading volumes may be light in the afternoon session because the U.S. is closed for the Presidents Day holiday.
Three-month nickel consolidated near its recent record high of $39,501/ton underpinned by another large cancelation in warrants.
Despite an increase in nickel stocks by 282 tons to 4,152 tons Monday, with canceled warrants - or material accounted for and to be drawn down at a later date - at 51% Monday, available stocks comprise roughly one day's worth of global nickel consumption.
At 1159 GMT, three-month nickel traded at $39,000/ton, up 0.25% from Friday.
In other metals, copper also consolidated within its recent range, underpinned by a 2,725-ton drawdown in stocks to 211,075 tons. At 1159 GMT, copper traded at $5,825/ton, up 0.2% from Friday.
Aluminum traded slightly below $2,800/ton pressured to the downside by a 3,150-ton increase in aluminum stocks to 764,975 tons. At 1159 GMT, aluminum traded at $2,799/ton, up 0.1% from Friday.
Ongoing political tensions in Guinea - the world's largest exporter of bauxite - have helped keep aluminum prices afloat despite the head of Guinea's military relaxing a nationwide curfew on Sunday.
Bauxite is a key raw ingredient to make alumina, which is in turn refined to make aluminum.
Late last week, Alcoa said a partial restart of production is in progress at the CBG bauxite operations in Guinea. However, Alcoa was unable to say whether bauxite shipments had resumed.
Guinean President Lansana Conte declared martial law early last week after dozens died in riots and clashes between protesters and security forces over Conte's appointment of a political ally as prime minister.
In other news, Dubai Aluminium, the United Arab Emirates' largest aluminum producer, said over the weekend that it will raise production capacity to more than 920,000 tons a year by 2008 to help it meet rising international demand. Dubal's production capacity presently stands at 861,000 tons a year.
In addition, the company has entered into a joint venture with Abu Dhabi investment firm Mubadala to build the world's largest aluminum smelter with a capacity of 1.4 million tons a year in Abu Dhabi at a cost of $8 billion.
LONDON (Dow Jones)--London Metal Exchange lead extended its recent strength to hit a fresh record high Monday, with analysts expecting further moves to the upside despite a holiday in the U.S.
Three-month lead pushed to a record high of $1,810 a metric ton Monday, up over 1% from Friday. At 1158 GMT, lead traded at $1,805/ton.
The recent price strength seen in LME lead might have further to run due to low stock levels, short covering, and ongoing supply concerns, said William Adams of BaseMetals.com/ Short covering seen above $1,750/ton and $1,770/ton have helped to push prices sharply higher, Adams added.
News last week that Xstrata PLC declared force majeure at its Northfleet lead refinery in the U.K. following reduced supplies from its Mount Isa smelter in Australia, provided further upside momentum. Northfleet produced around 161,350 tons of lead last year, using feedstock from Mount Isa.
LME lead stocks fell 825 metric tons to 32,475 tons Monday, adding to price strength, and have fallen roughly 20% since the start of 2007.
"Dips should be well supported (across the base metals) given various supply-side issues which have come to the fore," said Robin Bhar of UBS.
However, analysts said trading volumes may be light in the afternoon session because the U.S. is closed for the Presidents Day holiday.
Three-month nickel consolidated near its recent record high of $39,501/ton underpinned by another large cancelation in warrants.
Despite an increase in nickel stocks by 282 tons to 4,152 tons Monday, with canceled warrants - or material accounted for and to be drawn down at a later date - at 51% Monday, available stocks comprise roughly one day's worth of global nickel consumption.
At 1159 GMT, three-month nickel traded at $39,000/ton, up 0.25% from Friday.
In other metals, copper also consolidated within its recent range, underpinned by a 2,725-ton drawdown in stocks to 211,075 tons. At 1159 GMT, copper traded at $5,825/ton, up 0.2% from Friday.
Aluminum traded slightly below $2,800/ton pressured to the downside by a 3,150-ton increase in aluminum stocks to 764,975 tons. At 1159 GMT, aluminum traded at $2,799/ton, up 0.1% from Friday.
Ongoing political tensions in Guinea - the world's largest exporter of bauxite - have helped keep aluminum prices afloat despite the head of Guinea's military relaxing a nationwide curfew on Sunday.
Bauxite is a key raw ingredient to make alumina, which is in turn refined to make aluminum.
Late last week, Alcoa said a partial restart of production is in progress at the CBG bauxite operations in Guinea. However, Alcoa was unable to say whether bauxite shipments had resumed.
Guinean President Lansana Conte declared martial law early last week after dozens died in riots and clashes between protesters and security forces over Conte's appointment of a political ally as prime minister.
In other news, Dubai Aluminium, the United Arab Emirates' largest aluminum producer, said over the weekend that it will raise production capacity to more than 920,000 tons a year by 2008 to help it meet rising international demand. Dubal's production capacity presently stands at 861,000 tons a year.
In addition, the company has entered into a joint venture with Abu Dhabi investment firm Mubadala to build the world's largest aluminum smelter with a capacity of 1.4 million tons a year in Abu Dhabi at a cost of $8 billion.
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LME INVENTORY
LONDON (AFX) - Metals - LME inventory data (Monday)Change in London Metal Exchange
inventory as of Friday, Feb 19:Copper down 2,725 tonnes at 211,075 tonnes
Lead down 825 tonnes at 32,475 tonnes
Nickel up 282 tonnes at 4,434 tonnes
Aluminium up 3150 tonnes at 764,975 tonnes
Tin down 145 tonnes at 10,080 tonnes
Zinc down 350 tonnes at 96,675 tonnes
inventory as of Friday, Feb 19:Copper down 2,725 tonnes at 211,075 tonnes
Lead down 825 tonnes at 32,475 tonnes
Nickel up 282 tonnes at 4,434 tonnes
Aluminium up 3150 tonnes at 764,975 tonnes
Tin down 145 tonnes at 10,080 tonnes
Zinc down 350 tonnes at 96,675 tonnes
Oil
Oil dips on falling demand ahead of warmer US weatherLONDON (AFX) - Oil dipped as US demand looked set to fall as temperatures become warmer. Short covering ahead of Presidents' Day (today) lifted prices Friday, so this morning's fall "could be a little profit taking," said Calyon analyst, Mike Wittner.At 9.22 am, front-month Brent North Sea crude contracts for April delivery were down 19 cents to 58.76 usd per barrel. On Friday, oil rose 1.35 usd to close at 58.95 usd.Meanwhile, front-month New York light sweet crude contracts for March delivery were down 36 cents to 59 usd a barrel, after gaining 1.40 usd to close at 59.39 usd on Friday.Since the beginning of this year prices had been under downward pressure as the US enjoyed a milder winter. In the middle of January oil briefly slumped below the critical 50 usd level in New York. A cold snap followed, pulling oil back to levels in the 55 - 60 usd range. But the cold snap seems to be slowly coming to an end."The market has had a lot of support because of the cold weather," said Wittner. "But, that support is going to be coming to an end sooner or later," he added.
Copper
0629 GMT [Dow Jones] LME copper moves sideways during Asian trading hours, traders expecting little change given low liquidity during Chinese New Year Holiday; Chinese demand after holiday seen to sharply rebound following Jan copper import data pointing to end of destocking phase of 2006. LME 3-month copper trades at $5,830/ton, up $25 vs Friday PM kerb. (EFB)
DJ MARKET TALK: LME Copper Subdued As Chinese Holiday Starts
0819 GMT [Dow Jones] Copper trade is seen subdued Monday and through the week ahead as Chinese lunar new year begins and expectations of impetus from buyers here fades, a broker notes. Small pockets of profit-taking is seen at the upper end of copper's current London Metal Exchange range with activity in the spreads quiet, he says. No pick up seen given absence of US due to Presidents Day holiday. LME copper trades last at $5,827 a metric ton, down 1% from Friday's high. (ADH)
DJ MARKET TALK: LME Copper Subdued As Chinese Holiday Starts
0819 GMT [Dow Jones] Copper trade is seen subdued Monday and through the week ahead as Chinese lunar new year begins and expectations of impetus from buyers here fades, a broker notes. Small pockets of profit-taking is seen at the upper end of copper's current London Metal Exchange range with activity in the spreads quiet, he says. No pick up seen given absence of US due to Presidents Day holiday. LME copper trades last at $5,827 a metric ton, down 1% from Friday's high. (ADH)
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