Australian Dollar Tumbles on RBA Cash Rate Cut

The Australian dollar tumbled by more than one and a half cents on the Reserve Bank of Australia's decision to cut the cash rate to a historic new low.

The local currency hit a fresh five-and-a-half year low to US76.57¢ on Tuesday afternoon, down from US78.16¢ just before the release. The reaction followed the central bank's decision to cut the cash rate by 25 basis points to 2.25 per cent after 18 months of holding the rate steady.

Despite the sharp fall in the Aussie dollar – nearly 20 per cent in the past six months – the Reserve Bank said the exchange rate remained high. 

"The Australian dollar has declined noticeably against a rising US dollar over recent months, though less so against a basket of currencies," the Reserve Bank said in its statement on monetary policy.

"It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy."

Market forecasts the exchange rate to continue to fall. On Commonwealth Bank of Australia figures, the local currency is expected to fall towards 73¢ by June this year, but the bank's senior currency strategist Elias Haddad said there was a risk the Australian dollar will fall even further and the bank will be revising its forecast.

"We expect a further downside movement here, not just against the US dollar but also on the crosses, due to narrowing interest rate, falling commodity prices and still unimpressive Chinese economic data," Mr Haddad said.

National Australia Bank will also be revising its forecast in light of Tuesday's tumble. Back in November last year the bank forecast the Australian dollar to hit US78¢ by the end of 2015. NAB global co-head of FX strategy Ray Attrill said the bank will be reviewing its forecast after the central bank releases its statement on monetary policy on Friday.

"The market already priced in the expectations of a rate cut, but the currency still lost. It shows the market is still prepared to sell," Mr Attrill said.

In an exclusive interview with The Australian Financial Review in December last year, Reserve Bank governor Glenn Stevens said an appropriate level for the Australian dollar would be US75¢.

Mr Attrill said the currency could be heading towards the US70¢ mark, given the fall in the commodity prices since December.

"You can argue, if US75¢ was about the right level in mid-December, and taking into account what's happened with commodity prices generally, maybe US70¢ is more appropriate," he said.

A batch of data fuelled RBA jitters earlier on Tuesday. The Australian dollar jumped by more than third of a cent to US78.30¢ after slightly better-than-expected economic data was released: building approvals slipped 3.3 per cent in December (better than the predictions of a 5 per cent slide) and trade deficit narrowed to $436 million in December, beating expectation of more than $850 million.

#AustralianDollar #RBA #interestrates

Iron Ore Won't Rebound Any Time Soon

Why Iron Ore Won't Rebound Any Time Soon

Economists may teach that low prices and declining demand encourage producers to decrease supply, but the iron ore industry appears to have skipped class that day.

"The combination of a further increase in global iron ore supply this year and only subdued demand growth suggests iron ore prices will continue to drift lower," said Caroline Bain, an analyst at Capital Economics, in a note Monday. She forecasts iron ore prices at $60 a tonne by year-end, with risks to the downside. Iron ore touched a more than five-year low Monday of around $63.30 a tonne, although some forward contracts are already pricing it under $60.

Output has picked up over the past few years, encouraged by expectations China demand would continue to post strong growth and by low production costs in Australia and Brazil, she said. She noted Rio Tinto and BHP Billiton put their average production cost in Pilbara, where most of Australia's iron-ore production is located, at around $25 a tonne, compared with 2010-13 average market prices at $145 a tonne. Even at current prices, these producers are still profitable, Bain noted. Australia is the world's second-largest iron-ore producer after China.

Despite 2014's around 50 percent decline in iron ore prices, the big four producers -- Vale (Sao Paulo Stock Exchange: VALE'A-BR), Rio Tinto, BHP Billiton and Fortescue (ASX:FMG-AU) - continue to expand production and other companies are also bringing projects on line this year, she said, forecasting Australian production will rise 6 percent this year, although that's down from 2014's 20 percent rise.

Don't count on China

At the same time, despite China producers' higher costs and lower ore grades, production there isn't likely to see much slowdown, especially as many steel plants have "vertically integrated" operations, owning mines nearby, Bain said. Closures on the mainland are likely to focus on less efficient operations, leading to a leaner and meaner industry there, she said.

"The multinational producers will be only partially successful in their bid to oust higher-cost producers globally and oversupply will continue to weigh on prices," she said. At the same time, China's iron ore usage will stagnate at best, hit by a combination of high inventories and lower demand to use the metal as part of financing deals, she said.

Goldman Sachs also expects iron ore producers won't be able to count on China for growth, noting it's become a mature market.

"The decade-long love affair between China and iron ore is cooling. Chinese steel consumption has increased to unsustainable levels and is bound to decline," it said in a note Friday. "Significant overinvestment to date will ensure that the market is well supplied."

It expects a "long war of attrition" will be needed to balance the market, cutting its long-term price forecast by 25 percent to $60 a tonne.

The Oil Effect

Falling oil prices are also set to weigh on iron ore prices, as they result in "substantial cost reductions", and commodity prices are likely to fall to meet these new lower levels, Citigroup said in a note Monday.

It's also concerned about oil-fueled deflationary pressures affecting commodity demand. 

"Falling prices increase the real cost of debt repayments and could see increased defaults. This not only affects direct commodity demand, but also drives lower inventories and threatens commodity financing trade," it said, noting that falling commodity prices also leave companies with little incentive to build up inventories.

In a note earlier this month, the bank cut its 2015 iron ore price forecast to $58 a tonne from $65

Interest in Oil (as indicated through search volume) is Abnormally High at the Moment Due to Recent Price Decline

Interest in Oil (as indicated through search volume) is Abnormally High at the Moment Due to Recent Price Decline.

Looking at the google trends chart above, we can see Interest in Oil (as indicated through search volume) is abnormally high at the moment.



 This data tells us more people are searching for oil using google, likely correlation to investment therefore we can assume that people are looking to invest in oil and are researching or looking to purchase shares and futures commodities contracts online.



 Last time oil price was this low four years ago, price quickly rebounded and went in access of $150 US per barrel.

Gold looks to feature more prominently also the last few months, the Swiss Gold Referendum, Swiss Depeg (de-ceiling) and repatriation of gold by European central banks lately have all been popular news story's on-line.



By Joseph Gale

Miners to Reveal Impact of Iron Ore Price Slump

Miners to reveal impact of iron ore price slump

It is well and truly a buyer’s market in iron ore and this week we should find out the extent of the damage for some of the smaller players.

With iron ore prices now below $US70 a tonne after falling by half and still threatening to go lower, there are serious doubts that the full complement of miners will survive the downturn.

While the big, low-cost players Rio Tinto and BHP Billiton are still ramping up production, the smaller operators are struggling, with Atlas Iron admitting it was losing money in the December quarter until oil prices dipped and returned it to slim profitability.

Chinese Government-backed Citic has announced it will be writing down the value of its Sino Iron project in Western Australia by up to $2.2 billion and further writedowns of up to $2.3 billion have already been flagged by Atlas, Mount Gibson Iron, Gindalbie Metals and Grange Resources.

On Thursday it is the turn of number three player Fortescue Metals to outline its December quarter production figures and perhaps give some guidance as to its profitability at current prices.

Fortescue chief executive Nev Power has already been critical of WA government plans to offer a 50 per cent iron ore royalty rebate to smaller players while prices are below $US90 a tonne, a move designed to keep them going in a really tough market.

BC Iron’s second quarter production is also out on Friday.

Other struggling commodities may also produce some surprises with copper/gold miners OZ Minerals, PanAust and Sandfire Resources all reporting quarterly production on Wednesday, along with oil and gas companies Beach Energy and Oil Search.

While copper and oil have both been dropping, at least gold has been heading in the other direction, which may become apparent with struggling gold giant Newcrest’s quarterly production on Friday.

The focus will also be on continuing reaction to the European Central Bank’s more than €1 trillion stimulus package, and also inflation figures due on Wednesday.

Speculators Looking for Havens from Slowing Growth are Piling Into Silver

Speculators Looking for Havens from Slowing Growth are Piling Into Silver

Silver headed for a bull market in its best start to a year in more than three decades, supported by speculation that slowing global economic growth will spur demand for havens.

Holdings in exchange-traded products backed by the metal have posted three straight weekly gains, while U.S government data show money managers raised their net-bullish wagers to the highest since August. An ounce of gold bought 71.4 ounces of silver on Thursday, compared with an average of about 58 over the past decade, signaling the white metal is inexpensive relative to gold.

Investors are returning to precious metals amid concern that U.S. growth won’t be enough to offset weakness in other countries. A collapse in oil prices has boosted the appeal of gold amid the threat of economy-damaging deflation, and prices this week topped $1,300 an ounce for the first time since August. Policy makers at a European Central Bank meeting Jan. 22 are expected to announce new stimulus measures.

“The drumbeat of stimulus across the globe is bringing people to silver and gold,” Dan Denbow, a portfolio manager at the $1.1 billion USAA Precious Metals & Minerals Fund in San Antonio, said in a telephone interview. “Also, the ratio between gold and silver got very, very inexpensive, indicating that silver had some catching up to do.”

January Rally

Silver for immediate delivery climbed 0.7 percent to close at $18.127 on Jan. 21, according to Bloomberg generic pricing. A settlement at $18.4064 would leave the metal up 20 percent from the recent closing low of $15.3387 in November, meeting the common definition of a bull market. Prices are up 15 percent this month, the best start to a year since 1983. It traded at $18.0197 at 2:24 p.m. in Singapore on Thursday.

Gold for immediate delivery fell 0.4 percent to $1,287.43 an ounce on Thursday, after advancing a day earlier to $1,305.25, the highest price since Aug. 15.

“Silver will benefit from all the stimulus measures and rate cuts being announced aggressively by the central banks,” Caroline Bain, a commodities economist at Capital Economics Ltd. in London, said in a telephone interview. “Also, the stimulus measures will at some point boost usage of the metal.” Bain said she expects silver to rise to $20 by the end of the year.

Consumption is forecast to grow to almost 680 million ounces by 2018, up 142 million ounces from 2013, as demand in industries ranging from appliances to solar energy will rise, CRU Consulting said in a report on December 10, 2014

Physical Market

A tighter physical market will provide some support to prices this year, Philip Klapwijk, managing director of Hong Kong-based Precious Metals Insights Ltd., said at a conference in London on Jan. 21.

The consulting firm expects global silver supply from mine production and scrapping to fall 2 percent in 2015, and physical demand for uses including industry, photography and jewelry to grow 2 percent. The physical silver-market surplus will shrink by 40 million ounces to 211 million ounces in 2015, according to Precious Metals Insights.

“Silver is rising along with gold as a hedge against uncertainties,” George Gero, a New York-based precious-metal strategist at RBC Capital Markets LLC, said in a telephone interview. “Also, some funds are betting on future growth with so much money being pumped into the system.”

BHP Ramps Up Iron Ore, Petroleum Production Despite Price Slumps

BHP Ramps Up Iron Ore, Petroleum Production Despite Price Slumps

BHP Billiton says it has raised group production by 9 per cent in the December half year, despite slumping prices for its key commodities.

For the 2014 December quarter BHP Billiton lifted iron ore output by 16 per cent compared with the same period a year earlier to 56.4 million tonnes.

That compares with a 12 per cent rise in Rio Tinto's output over the same period, announced yesterday, although Rio remains the bigger producer.

Both companies have lifted output over the past year despite a dramatic slump in benchmark iron ore spot prices in China from around $US135 a tonne in early 2014 to less than $US70 a tonne at the end of last year.

The benchmark Tianjin spot price was at $US67.40 yesterday.

BHP Billiton says cost cuts, some of which are related to the scale associated with extra capacity, are offsetting some of the price declines.

"We are reducing costs and improving both operating and capital productivity across the group faster than originally planned," said the company's chief executive Andrew Mackenzie.

"These improvements will help mitigate some of the impact of lower commodity prices and we remain alert to opportunities to further increase free cash flow."

While iron ore prices have fallen fast, crude oil prices have fallen faster still.

Despite this, BHP Billiton's December quarter petroleum production was 10 per cent higher than the same period a year earlier, although it was 6 per cent down on the September quarter of 2014.

Mr Mackenzie said that BHP Billiton is already cutting back its planned US petroleum investments in response to oil prices which have more than halved from their 2014 peaks.

"We have moved quickly in response to lower prices and will reduce the number of rigs we operate in our onshore US business by approximately 40 per cent by the end of this financial year," he noted in the report.

"Our ongoing shale investment program will remain focused on our liquids-rich Black Hawk acreage. However, we will keep this activity under review and make further changes if we believe defer ring development will create more value than near-term production."

Elsewhere in its portfolio of mines, BHP revealed that metallurgical coal production was up 17 per cent compared to the December quarter a year before.

Energy coal used in power stations saw a 5 per cent rise in output.

Copper production fell 4 per cent in the December quarter compared with a year earlier, alumina was 3 per cent higher, aluminium 15 per cent down and nickel 10 per cent lower.

Despite weak prospects for any price recovery in the short term, BHP Billiton said it is on track to increase petroleum and copper output by 5 per cent this financial year, iron ore by 11 per cent and steel making metallurgical coal by 4 per cent.

Silver Investment News: Short Term Silver bottom?

Has Silver hit a Short Term bottom? 

Gold and silver mining stocks will likely bottom before the price of the underlying metal. Are mining shares telling us that a bottom is near?

#silver #silverbullion #silvermining #bullion #miningstocks #commodities