Commodity market headline (18th of Dec)

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Daily Summary of Baltic Exchange Dry Indices

Baltic Exchange	Dry	Index	BDI	766 ( DOWN 18)
Baltic Exchange	Capesize	Index	BCI	1403 ( DOWN 37)
Baltic Exchange	Panamax	Index	BPI	815 ( DOWN 24)
Baltic Exchange	Supramax	Index	BSI	742 ( DOWN 3)
Baltic Exchange	Handysize	Index	BHSI	444 ( UP 1)

Drummond sees Colombia coal output up 31 MT in 2013 - Report

According to an interview published in local media on December 15th, Drummond, Colombia's second largest coal exporter, expects coal output to rise to up to 31 million tonnes next year from a lower than expected 26 million to 27 million tonnes this year.
Colombia is the world's fourth largest coal exporter and all major producers are expanding their mines, railways and ports to take advantage of an expected rise in demand for the material, especially from Asian countries.
Mr Jose Miguel Linares VP at Drummond said that the company expected output of 26 million tonne to 27 million tonnes this year. In February, added that it expected 29 million tonnes.
Mr Linares said that "We will be working to increase production levels to reach 30 million tonne to 31 million tonnes. We'll also seek to continue with the expansion of the El Descanso and get the environmental license that allows us to operate in the south."
Mr Linares, who has worked for Drummond for 25 years, will become interim president next year after the current head steps down. Drummond's operations are in the northern Cesar province.
Source: Reuters

India: Government advises power companies to import 46 mt coal in 2012-13

The government has advised power generating utilities to import 46 million tonnes of coal in the current fiscal to bridge the gap between demand for coal and its domestic supply, power minister Jyotiraditya ScindiaBSE -4.96 % said on Thursday.
The total requirement of coal in 2012-13 has been calculated as 500 million tonnes including 476 million tonnes indigenous coal and 24 million tonnes imported coal, the minister said in Lok Sabha.
The total domestic coal availability from Coal India LtdBSE -0.06 %, Singareni Colliery Company Ltd and captive mines is only 407 million tonnes. Coal India Limited has decided to acquire coal resources abroad to bridge the increasing demand supply gap and enhance energy security of the country, he said.
The thrust areas of this overseas venture are to acquire thermal coal assets, undertake their exploration, operate the mines and import the produce to India for supply to thermal power plants, he said.
Also against a gas requirement of around 85 million metric standard cubic meter per day(MMSCMD) at 90% plant load factor, 35 MMSCMD gas is being supplied to the gas-based power stations in the country, he said.
Source: Economic Times

India Wheat production to reach record levels in 2012-13

Wheat production in India is expected to reach record level, this year on bumper kharif harvest and improved winter season sowing.
Wheat plantings for rabi season has completed at over 227.45 lakh hectares against last year’s 220.82 lh. Wheat acreage is now three per cent higher, year on year - states a recent data from the Agriculture Ministry, government of India.
Wheat acreage is up for rabi season in Madhya Pradesh, Rajasthan, Assam, Bihar, Chhattisgarh and Jharkhand, while it is lower in Maharashtra, Uttarakhand, Gujarat, West Bengal, Karnataka and Haryana.
Improved winter season whether for wheat crop is expected to help farmers to boost their existing wheat stocks.
Wheat marketing year in India commences in April and ends in March.
The government has kept a target of 86 mn tons of wheat in the 2012-13 rabi (winter) season. The country had harvested a record 93.90 mn tons in 2011-12 crop year (July-June).
On the other hand, the government has a wheat stock of 37.65 mn tons as of Dec 1, 2012, which is above the stipulated buffer and strategic stock requirement of 11.2 mn tons as of January 1, 2013.
Wheat prices on both spot and futures market are expected to show down trend on higher wheat stocks and anticipated higher production.
Wheat spot prices recorded flat trend on Friday. Desi wheat varieties quoted between Rs. 2,500 and Rs. 2,550 per 100 kg on Friday.
Wheat futures on India's National Commodity and Derivatives Exchange (NCDEX) were down by 0.13 percent at Rs. 1587 per 100 kg for January contract as of 11.04 IST on December, 15.
“It is trading in the range of 1570-1610 from long time and looking range bound as of now. 1610 is the strong resistance for the prices to resume up trend,” says Milan Shah, Agri Research Manager at Commodity Online reacting to the wheat trend for January contract.
“Wheat for January contract shows sideways trend and I expect some corrections are possible after 1610 level,” Milan added.
India's wheat exports are pointed to touch a record level of 5 mn tons in the 2012-13 marketing season on the back of all time high harvest and large carry over stocks states, Food and Agriculture Organisation (FAO) of United Nations.
"In India, given the estimated bumper wheat harvest and larger carry over stocks, exports are anticipated to reach a record level of 5 mn tons in 2012-13," said FAO in its latest Crop Prospects and Food Situation report.
Source: Commodity Online

U.S. wheat export prospects for 2012/13 continue to decline

U.S. wheat exports for the 2012/13 July-June international trade year are projected down 1.0 million tons this month to 29.5 million. U.S. exports, though, are still expected to be up 1.4 million tons on the July-June year.
Even though it has been expected that U.S. wheat exports will be back-loaded, with more exports occurring in the later part of the year when the main competitors exhaust their supplies, the current U.S. pace of exports is extremely poor.
Already 5 months into the international year (and 6 months into the local marketing year), it is getting increasingly difficult to achieve projected exports, especially with larger wheat supplies and stronger competition from Australia and Canada. Also, the outlook for next year’s U.S wheat crop has grown increasingly uncertain, given unfavorable November crop conditions. If this pessimistic outlook is realized, domestic prices could rise more than would be expected seasonally, intensifying competition for U.S. exports.
Census exports for July through October 2012 are 8.5 million tons, still 12 percent down compared to a year ago. Grain Inspections for November were 1.3 million tons, down 21 percent from 2011.
At the end of November 2012, outstanding export sales for the current marketing year were 4.45 million tons, almost 4 percent lower than last year at the same time. The total export commitment (U.S. Census for October, plus November inspections, plus November 29 outstanding sales) comes to 14.2 million tons, versus 15.9 million last year, a decline of 10 percent while 2012/13. U.S. exports for the July-June year are still forecast about 5 percent higher than in 2011/12.
For the local June-May marketing year, U.S. exports are down 50 million bushels (or 1.4 million tons), to 1,050 million (or 28.6 million tons) this month.
Source: Cattle Network

Outlook for steel sector changing: Experts

Amidst all the gloom surrounding the Indian steel sector, prices are again looking up showing signals of a better 2013.
Some steelmakers have started to give out feelers to the market that steel prices will go up in the coming months. A dealer based in Mumbai said that prices for flat steel have already started moving up. Rashtriya Ispat Nigam Ltd (RINL) increased rates by Rs 500 per tonne this month when it followed most of the bigger steelmakers who had raised prices by upto Rs 1500 a tonne.
Although the move has been initiated to protect profit margins as raw material prices have gone up in the same range, it is a positive sign as earlier companies did not have the confidence to increase prices.
Steel demand growth in the current year has been low at 5-6% as against industry expectations of 8-10%. This, is anticipated to have made companies cautious in their approach towards pricing.
An analyst tracking the sector said, “There has been a demand push off-late and this has helped steelmakers in raising prices.” He said that there has been a good 5-7% price hike in both flat and long steel products on an year-on-year basis.
Prasad Baji and Navin Sahadeo of Edelweiss Research in a report dated December 4, said that there are signals of the end of slowdown in the metals sector. They also indicated that lead indicators have been bottoming or improving in recent months. They said, “One of the indicators we monitor has indeed turned up. Sequential growth in projects under implementation across all three categories—infrastructure, capex and construction—has moved up in the past one-two quarters, indicating that the worst is probably over.”
Although, steelmakers are yet to report a spurt in sales, this year is generally better than the previous one. Tata Steel, country’s largest steelmaker, said its sales for the first half of the year were at 3.31 million tonne as against 3.24 million tonne in the same period last year.
State-owned Steel Authority of India (SAIL), too, said that it is seeing a demand pickup in the recent weeks. This demand push in long steel metal is giving steelmakers the required confidence to push prices upwards. With the increase in long steel demand which is used in infrastructure and the construction sector, even flat steel sales and prices are looking up.
Flat steel is mainly used in making automobiles like cars and consumer durables like refrigerators and air conditioners, etc. Till around 2008, flat steel contracts were normally signed for one year period with price lock-ins. However, after sharp fluctuations in coking coal and iron ore prices during the global meltdown, steelmakers scrapped the ritual and resorted to much shorter contracts, in most cases, quarterly, with an option to negotiate prices on a regular basis.
Based on this, flat steel price hikes, car-makers have already started increasing rates. India’s largest carmaker, Maruti Suzuki, raised prices in October and will be doing it again in the new calendar. Hyundai Motor and Volkswagen India, too, are considering hikes because of the rising input prices, including steel.
Source: Business-Standard

Commodity Prices Rose in November Despite Looming Fiscal Cliff

The UBS Bloomberg Constant Maturity ("CM") Commodity Total Return Index (ticker: CMCITR), a modern commodity index designed to reduce the potential negative effects of contango, returned 1.79 percent in November, bringing year-to-date (YTD) performance through the end of the month to 4.11 percent, according to data released today by Van Eck Global and Bloomberg.
Markets showed a slight optimistic lean in November due to positive U.S. employment and consumer confidence data and news that China's manufacturing sector expanded for the first time in 13 months, a signal of new strength to support commodities. However, since President Obama's reelection on November 6th, fiscal cliff negotiations have remained at a standstill, which has generally had a negative impact on the asset class.
Industrial metals were the best performing sector in November due to optimism spurred by positive economic news out of the U.S. and China. Energy, livestock and precious metals all posted positive gains on global growth optimism. Agriculture was the worst performing sector, declining on improved supply expectations for the South American crop, continued dry weather across the U.S. plains and weaker than expected U.S. exports.
CMCITR roll yield was negative for the month. WTI contango and Brent backwardation both narrowed, while natural gas contango narrowed significantly and moved into very mild levels. Sugar backwardation and wheat contango narrowed during the month. Copper moved into contango and silver contango narrowed, while gold contango widened slightly.
CMCITR outperformed the two other main "constant maturity" indexes during November and remains ahead of both on a YTD basis. These indexes include the Continuous Commodity Index (CCITR: +0.88 percent in November; -1.77 percent YTD) and the Greenhaven Continuous Commodity Index (GCC: +0.89 percent in November; -0.44 percent YTD).
During November, CMCITR also outperformed the more traditional S&P Goldman Sachs Commodity Index (SPGSCITR), which returned 1.48 percent (+0.73 percent YTD), and the Dow Jones UBS Commodity Index (DJUBSTR), which returned 0.05 percent (+1.59 percent YTD). CMCITR also remains ahead of both indexes in terms of performance on a YTD basis.
CMCITR diversifies across 28 commodity components and up to five maturities. The Index was designed to minimize investment exposure to the front end of the futures curve; and by diversifying exposure across multiple maturities the Index seeks to mitigate the impact of contango, a major concern for commodity investors.
CMCITR is the underlying index for the Van Eck CM Commodity Index Fund (tickers: CMCAX, COMIX, CMCYX), an open-end, index-based mutual fund launched at the end of 2010.
Contango Defined
Contango refers to an upward-sloping futures curve. When a curve is in contango, the futures price is greater than the spot price. As a result, the price of a futures contract is greater than the price of an expiring contract. When this occurs, investors will incur an added cost each time a contract expires and it is rolled over and replaced it with another contract.
Source: Van Eck Global

South Korea’s LNG Imports Climb 30% in November as Prices Drop

Imports of liquefied natural gas into South Korea, the world’s second-largest buyer of the fuel, rose 30 percent in November as the price paid dropped.
Shipments increased to 3 million metric tons from 2.3 million a year earlier, data on the Korea Customs Service’s website showed today. Imports also increased from 2.68 million tons in October.
The cost of the purchases rose to $2.02 billion last month, compared with $1.62 billion a year earlier, the data showed. The average price paid per ton fell to $667.45 from $703.88 during the same period, according to the website.
South Korea buys most of the cleaner-burning fuel under multi year contracts from suppliers including Qatar, Indonesia and Oman. Last month’s purchases included 60,158 tons on the spot market for about $668.82 a ton from Norway, data showed.
State-run Korea Gas Corp. (036460), the world’s biggest LNG buyer, said on Dec. 11 that November sales rose 31 percent to 3.5 million tons.
Source: Bloomberg

Coal poses EU power price risk: Wynn

A return to rising world coal prices next year would underscore the European Union's energy dependence, given global gas prices also appear on a long-term upward trend.
European coal import prices have this year fallen following a shale gas boom which suppressed U.S. power prices and coal demand.
But the forward curve projects steadily rising benchmark prices, presumably based on expectations of returning demand from Asian emerging economies including China where government stimulus efforts are expected to kick in.
The forward curve suggests a return to levels seen either side of peak European coal import prices in 2011.
That is bad news for European wholesale power prices recently suppressed in countries able to substitute gas for cheaper coal.
For example, German power prices have fallen even as gas prices rose, reflecting lower power demand and growing use of cheap coal and zero marginal cost renewable energy.
In Britain, by contrast, particularly exposed to gas and with less renewable energy, power prices have risen compared with levels at the start of 2011.
The EU-27 has seen a more than doubling of imports of U.S. coal since 2009.
In the first half of 2012, Germany, Italy and the Netherlands respectively imported 37 percent, 83 percent and 86 percent more hard coal from the US than in the first half of 2011, according to European Commission data published in last week's "Quarterly Report on European Gas Markets".
GAS PRICES
Higher coal prices would remove a buffer against higher gas prices and expose the EU vulnerability to globally traded energy.
Global traded LNG prices have risen on the back of demand from Japan (following the Fukushima nuclear crisis) which has replaced a U.S. collapse (following a domestic shale gas boom).
That rising trajectory in LNG prices may now be a long-term trend, reversing a previous dip.
"There is no guarantee that with recovering demand for natural gas in the EU, relatively cheap LNG ... will continue to be as easily or cheaply available as in recent years," said the EU quarterly market report.
"The significant falls in imports of LNG currently being observed in the EU (in excess of falling consumption) could be a first warning sign," it said.
ENERGY DEPENDENCE
The trouble for the EU is a high energy dependency, which has recently fallen, just slightly, to 52.7 percent from a 2008 peak of 54.6 percent, as reported in the European Commission's "Energy Markets in the European Union in 2011", published last week.
Import dependency is measured as the ratio of net energy imports to total consumption.
The EU's executive Commission has several approaches to curbing its vulnerability to global energy prices, including: increased investment in cross-border transmission capacity to balance EU-wide energy demand and supply better; and more investment in indigenous resources including renewable energy.
The trouble is that both are incredibly capital-intensive.
The Commission reports that Europe's energy system requires investment of 1 trillion euros ($1.28 trillion) by 2020 to secure the bloc's security of supply.
Some 750 billion euros of that total is required in power generation and electricity and gas networks, alone, it says.
That partly reflects a massive shortfall in installed renewable energy, for example, compared with binding 2020 goals under the bloc's energy and climate policies.
Installed renewable power capacity reached 288 gigawatts (GW) as of 2010, way short of the level of 487 GW which countries have committed to in 2020.
Member states have notified the EU of investment plans for an extra 40 GW, some way short of the nearly 200 GW additional capacity needed by 2020, the Commission reported in its briefing paper, "Investment projects in energy infrastructure", published last week.
It is tempting to view shale gas as a neglected plank in the bloc's energy strategy, bearing in mind how it has curbed U.S. power prices.
A case in point is Bulgaria, which has the highest and fastest rising gas price in the EU, at an average of 43.3 euros per megawatt hour in the second quarter (compared with an average UK market hub price of 24.5 euros), and which rose by half again between the first half of 2011 and the first half of 2012.
In conjunction with Hungary and Romania it has technically recoverable shale gas resources of 19 trillion cubic feet (tcf), according to the U.S. Energy Information Administration, compared with Bulgarian conventional natural gas production in 2010 of 0.002 tcf.
But it has maintained a ban on shale gas exploration using hydraulic fracturing, alongside France which has the top or second biggest estimated shale gas resource in Europe.
Source: Reuters

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