By Shihoko Goto — Exclusive to Resource Investing News
Signs of further improvement in the US economy, and expectations that Greece will secure its second financial bailout package are lifting industrial as well as precious metals. Still, downside risks remain as traders fret about the future of Chinese demand, and worries persist about the Middle East and Iran affecting oil supplies.
Weekly US jobless claims fell to 348,000, their lowest level in almost four years, marking the third consecutive weekly decline, according to the Department of Labor Thursday. In addition, housing starts rose 1.5 percent in January to 699,000, above the expectations of many economists. Multi-unit building construction was particularly strong, surging 54 percent from a year ago to 188,000 units, the Department of Housing and Urban Development reported.
As for Greece, a government spokeswoman said that a bailout package is expected on Monday, when finance ministers from the Eurozone begin a debt swap with private bond holders. Late Thursday, the Greek government set out extra budget savings, as required by the European Union and the International Monetary Fund, to secure the latest $170 billion rescue deal.
Still, caution remains in the markets amid worries that Chinese demand for industrial materials may be cooling off. In a note to investors, Credit Suisse said that commodities may trend lower “until clearer signs of renewed Chinese buying” come forward. In addition, the Swiss group stated that “This year, mine production could continue to grow robustly but we would note that some of the projects are prone to delays, which could leave the market more tightly supplied than anticipated.”
In the oil market, market eyes are back on the Keystone XL project, as US House members approved by 237 to 187 Thursday a bill that overturns President Barack Obama’s decision last month to reject TransCanada’s (NYSE:TRP) $7 billion project, and require the Federal Energy Regulatory Commission to approve the project within 30 days. Earlier in the week, Senate Republicans introduced a bill that would prevent use of the US Strategic Petroleum Reserve unless the pipeline is approved.
The deputy chairman of Gazprom (OTC Pink:OGZPY), Alexander Medvedev, told Bloomberg that it looks to forge supply deals with India and China this year as it seeks to win customers outside of Europe. The Russian company also will be signing a contract this year to supply liquefied natural gas to India.
As for Saudi Arabian Oil, better known as Saudi Aramco, it plans to re-open the nation’s oldest oil field and produce there for the first time in 30 years as the company boosts output of heavy crude, according to the Economist Intelligence Unit. The Dammam field has about 500 million barrels of oil and may yield as much as 100,000 barrels a day of Arabian Heavy crude, according to the EIU.
Downside risks persist in the oil market, however, as Iran declared a breakthrough in its nuclear technology which may aggravate the nation’s relations with the international community. Iran’s Press TV reported that 3,000 domestically produced centrifuges were installed at its main uranium enrichment site at Natanz. While the US Department of State downplayed the report, Tehran’s actions may heighten already tense relations and force tighter sanctions.
Meanwhile, Alberta Star Development (OTCBB:ASX) said it placed its recently drilled and completed well, situated on its Landrose property in west central Saskatchewan, on production. The well has produced at an average rate of 50 barrels a day of heavy oil since late January.
In the mining sector, Anglo American (LSE:AAL) reported profit rising 23 percent in 2011 amid an increase in copper, as well as iron ore output. Earnings reached $5.06 a share compared to $4.13 a share the previous year, and the company said it will pay a dividend of 46 cents a share. The company expects demand for commodities to remain high on sustained growth from emerging economies. However, Anglo’s chief executive, Cynthia Carroll, anticipates “short-term volatility, while the signs of economic recovery and stimulus in the US should provide a further fillip.”
As for industry titans BHP Billiton (ASX:BHP) and Rio Tinto (ASX:RIO), they announced earlier this week that they will expand Chile’s Escondida mine in order to increase copper output by investing a combined $4.5 billion in the world’s biggest mine.
Still, the Escondida mine reported Wednesday that output dropped nearly 25 percent in 2011 from the previous year to 819,261 tons, its lowest level since 2002.
In fact, even as major copper producers bolster their output of the red metal, global demand for copper may be abating. According to the World Bureau of Metal Statistics, copper production exceeded demand by 69,100 metric tons last year. In contrast, there was a shortage of 175,000 tons in 2010.
Meanwhile, copper giants Freeport-McMoRan Copper & Gold (NYSE:FCX) and Newmont Mining (NYSE:NEM) said they will cooperate with the Indonesian government as it reviews the companies’ mining contracts. Freeport stated that “we believe our contract is fair to all parties and results in substantial contributions to the government.”
As for Nevada Copper (TSX:NCU), it welcomed Reps. Mark Amodei, Shelley Berkley, and Joe Heck’s introduction of the “Yerington Land Conveyance and Sustainable Development Act” on Capitol Hill. The bill involves the Bureau of Land Management lands that surround Nevada Copper’s private patented land owned by Nevada Copper. The benefits of land acquisition by the city of Yerington to Nevada Copper would allow permitting to proceed solely under the Nevada state mine, permitting regulations whilst complying with all applicable federal, state, and county laws. This would allow for mine permits to be received in 2013, the company said.
Turning to gold, the yellow metal too is gaining ground as the euro gained against the US dollar, making it cheaper for European investors to shore up dollar denominated assets.
On the other hand, African Barrick Gold (LSE:ABG) reported fourth quarter profit dropping 33 percent, and it projected its lowest production since the company listed in London in 2010. While it had previously projected producing 1 million ounces in 2014, the company now says it will need to make acquisitions to reach that goal.
Eagle Hill Exploration (OTCQX:EHECF) began trading on the OTCQX market this week. The Vancouver-based company focuses on the exploration and development of gold and precious metal prospects. The company is set to become an advanced stage gold exploration company with its acquisition of the Windfall Lake high-grade gold project, located in Urban Township, Quebec.
Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.