Expectations that China will jump start its economy with more accommodative policies and rising hopes for an effective debt-sharing plan in the Eurozone have led commodities to take a breather. The slight improvement in market sentiment comes after a week of continuous decline for oil and base metals as traders fretted over the impact that Europe’s sovereign debt crisis could have on the global economy.
Germany vetoed plans for the Eurozone to underwrite joint debt issuance this week, but market players are looking to Italian Prime Minister Mario Monti to persuade German Chancellor Angela Merkel to compromise.
“A united Europe is in Germany’s interest. We’ll have euro bonds if the euro area, and therefore Germany, will want them,” Monti said in a television interview with La7, according to Bloomberg. Of course, whether or not Greece will remain in the Eurozone after its June 17 elections remains an unknown factor that could rattle not just Europe, but the global economy at large.
Hopes that Beijing will take action to reverse seven consecutive months of contraction in the manufacturing sector are also lifting demand for commodities. Earlier in the week the Chinese government said it will encourage more investment in the private sector in major industries like energy and telecommunications.
“We must proactively take policies and measures to expand demand and to create a favourable policy environment for stable and relatively fast economic growth,” said the government. Investors are expecting looser monetary policy, which should ease capital flow and bolster industrial growth, to be part of that stimulus package.
A failure to reach an agreement with Iran regarding Baghdad’s nuclear program is pushing up oil prices, which had been falling steadily over the past several weeks. As the only thing that all sides agreed upon was to meet again in Moscow on June 18, concerns are rising once again about sanctions disrupting crude supply from the Middle East.
On the corporate front, Repsol (ETR:REP) said that a block of the Campos Basin site offshore of Brazil contains at least 700 million barrels of light crude and 3 trillion cubic feet of gas. The site is being explored together with China Petroleum & Chemical Corp., better known as Sinopec (NYSE:SNP). Repsol has a 21 percent stake in the block, while Sinopec holds 14 percent. Statoil (NYSE:STO) has a 35 percent share while the remaining 30 percent is held by Petrobras (NYSE:PBR).
“In order to show our commitment to a vibrant upstream sector…we have started the renewal of leases in good faith…renewals with Chevron and Shell are expected to be concluded by June at the latest,” Alison-Madueke said.
“This new lease provides us with a foothold in another field that will open up new opportunities for us. As we continue to meet our objective of expanding our acreage position, this new lease will provide us with significant additional drilling locations which will enable us to further expand our drilling program and build cash flow and reserves,” stated President, CEO, and Director Warren Dillard.
There is a production deficit in refined copper worldwide to the tune of 81,000 metric tonnes, according to the International Copper Study Group (ICSG). At the same time, global use of copper rose by 6 percent during the first two months of 2012 from a year ago due to strong demand from China, which accounted for 43 percent of the market. Excluding China, copper use fell by 6.5 percent. The ICSG reported mine production rising 3.8 percent from a year ago, with output in Chile, China, Mexico, and the United States more than offsetting declines in Indonesia and Peru.
Codelco CEO Diego Hernandez resigned this week and will be replaced by CFO Thomas Keller. The unexpected resignation came days after Anglo American (LSE:AAL) agreed to negotiate an out-of-court settlement with Codelco.
Glencore International (LSE:GLEN) acquired a majority stake in Congo’s copper and cobalt group, Mutanda Mining, for $340 million. The company now holds 60 percent of total shares, up from 40 percent, through two equity stake purchases. It will be assuming $140 million in debt as well.
Copper Fox Metals (TSXV:CUU) acquired additional mineral tenures contiguous to its Schaft Creek project. President and CEO Elmer Stewart commented that “[t]he land acquisition is in line with Copper Fox’s interpretation of the porphyry copper potential along strike of the Schaft Creek deposit.”
Gold is expected to trade between a range of $1,525 and $1,600, with many investors taking advantage of the yellow metal’s recent slide. UBS reported that more buying interest from central banks will also give gold firm support.
“While continuing to advance the development of the Company’s flagship Eagle Project in Yukon, we have been successful in finding value in our non-core properties. The sale of the Mill Canyon property combined with the recent sales of the Relief Canyon and Cove properties is anticipated to provide aggregate consideration of approximately C$49,000,000 to be used for Eagle construction,” stated CEO John McConnell.
Coeur d’Alene Mines (NYSE:CDE,TSX:CDM) said production has resumed to full capacity at its Palmarejo mine in Northern Mexico; the mine faced labor unrest last weekend as workers protested against low wages. The company does not expect the shutdown to impact total annual output significantly.
Marathon Gold (TSX:MOZ) will acquire Halifax-based Mountain Lake Resources (TSXV:MOA), which will lead Marathon to become the sole owner of the Valentine Lake project in Newfoundland. The remaining Mountain Lake projects will be transferred to a spin-off company, Mountain Lake Minerals. Mountain Lake Resources shareholders will receive 0.40 of a Marathon common share and 0.40 of a common share in Mountain Lake Minerals for every share in Mountain Lake Resources.
In other news
Mining is certainly a lucrative business, with Australia’s Gina Rinehart named the world’s richest woman. She is worth about $29.17 billion, and is executive chairman of Hancock Prospecting, which was founded by her father, the late Lang Hancock.
Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.