Commodities surged this week as European leaders reached an unexpected breakthrough in resolving the Eurozone debt crisis. Backed by a recent slew of strong US economic data, many investors are hopeful that energy and base metal demand will continue trending upward. China’s policy aimed at ensuring steady credit and money supply is also driving bullish momentum.
On Friday, European leaders defied market expectations and reached an agreement to allow funds allocated to bailing out indebted governments to be used to directly bail out struggling banks as well. The move is expected to provide relief for Spain and Italy in particular as their borrowing costs have continued to rise rapidly.
European Central Bank President Mario Draghi said that he is “actually quite pleased with the outcome” as “[i]t show[s] the long-term commitment to the euro by all member states of the euro area. But also it reache[s] tangible results in the shorter term.”
Certainly, markets worldwide across all sectors, including stocks and commodities, welcomed the latest European development.
Strong economic data from the US, including durable goods demand beating analysts’ expectations and a 7.6 percent rise in single family home sales, have also boosted demand for energy and base metals.
In China, the monetary policy advisory committee of the People’s Bank of China stated this week that Beijing will use various policy tools to ensure a steady flow of capital that will keep the country’s economic engine humming and in a targeted range.
Oil and gas
Iran remains a wild card in the energy market, and has cautioned that it will reconsider its relations with South Korea if that country stops importing Iranian oil this weekend. Iran’s oil minister, Rostam Qasemi, said that “Iran is one of the major importers of Korean products. And in the eventuality that the policy of sanctioning Iranian oil is implemented, then that nation will suffer.”
A second lawsuit has been filed against Chevron (NYSE:CVX) by Ecuadorian plaintiffs seeking to collect $18 billion from their legal victory in Ecuador last year. The plaintiffs won their case, which argued that their land was contaminated by Texaco’s operations in the 1970s; Texaco was bought out by Chevron in 2001. Chevron, however, maintains that the “Ecuador judgment is a product of bribery, fraud, and it is illegitimate.”
Rex Tillerson, CEO of ExxonMobil (NYSE:XOM), said in a speech at the Council on Foreign Relations in New York this week that concerns about climate change are exaggerated, and the biggest challenge for the energy industry is “taking an illiterate public and try to help them understand why we can manage [the] risks” of environmental damage and accidents.
Rio Tinto‘s (LSE:RIO,ASX:RIO,NYSE:RIO) chief economist, Vivek Tulpule, said that the mining giant expects the Chinese economy to expand over 8 percent this year, which in turn should bolster global copper demand since China consumes over 40 percent of the world’s total market. The company is also upbeat about US demand for commodities as the housing market recovers.
As for Glencore’s (LSE:GLEN) bid for Xstrata (LSE:XTA), there is growing speculation that the $26 billion deal will not be able to move forward; shareholders’ objections to executive pay for Xstrata remains particularly strong. Qatar Holding, which is one of Xstrata’s largest shareholders, informed Glencore that it wants better merger terms than the US$271 million currently slated to be paid out to 73 Xstrata executives. A merger between the two mining giants would create the third-largest copper group in the world.
Toronto-based Gentor Resources (TSXV:GNT) and Oman’s Al Fairuz Mining have defined their first two near-surface copper volcanogenic massive sulphide resources in Oman. Exploration continues to identify further deposits, and the two companies aim to reach critical resource mass that will justify proceeding towards mine development.
Commerzbank expects gold prices to be supported by bargain hunters at current price levels, and anticipates a “sharp rise in price” later this year, even though gold is “behaving less like a safe haven at present and more like a risky asset class.”
On the corporate front, New Gold (AMEX:NGD) started production at its New Afton mine in British Columbia and processed its first ore through the mill circuit on June 28. New Gold anticipates that the mine will begin commercial production by August and will produce of 6,600 tons a day.
St. Barbara (ASX:SBM) and Allied Gold Mining (ASX:ALD) plan to merge to create a $1 billion mining group. If successful, the merger will be biggest deal in Australia’s gold mining sector since late 2010.
Rye Patch Gold‘s (TSXV:RPM) US subsidiary entered into a lease agreement with New Nevada Land for four parcels of private land in Nevada. The acquisition will extend Rye Patch’s land access for its Rochester project.
Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.