GRG55
03-10-08, 04:08 AM
Here's something that is just begging for a good anti-spin treatment.
For months we have been subjected to analysts, and even some producer groups like OPEC, patiently explaining that commodity price rises are entirely due to those dreaded, and faceless, "speculators". The advent of commodity ETFs, desire to "flee bonars", announcements of new commodity index funds, and news stories of pension & endowment funds entering commodity investments lend credence to the speculation theory. Given the rather spectacular price moves in recent weeks, I will be the first to admit that current action appears to have "financial event" fingerprints all over it.
But then along comes an item or two that makes me wonder just how much speculation is really going on. Items like these (highlights mine):
Iron-Ore Prices to Rise 30% in 2009, Citigroup Says
By Mark Herlihy
March 3 (Bloomberg) -- Iron-ore prices, which have advanced to a record this year, will rise 30 percent next year because of ``continued robust demand growth,'' Citigroup Inc. said.
``Persisting tight market conditions through 2008 and 2009 will provide the driver for further price increases next year, and sustained high prices for the following two years,'' Citigroup analysts including Sydney-based Alan Heap (http://search.bloomberg.com/search?q=Alan+Heap&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) said in a report today.
Asia's three largest steelmakers agreed Feb. 18 to pay Brazil's Vale do Rio Doce, the world's largest iron-ore producer, at least 65 percent more than last year for the steel-making raw material. The deal means prices will rise for a sixth year as demand increases from emerging markets...
Full article:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a75c2kkHBO8Q
BHP, Rio May Get Double for Coking Coal Contracts
By Jesse Riseborough
Feb. 28 (Bloomberg) -- BHP Billiton Ltd. (http://www.bloomberg.com/apps/quote?ticker=BHP%3AAU) and Mitsubishi Corp. (http://www.bloomberg.com/apps/quote?ticker=8058%3AJP), owners of the world's largest coking coal exporter, may get twice as much for contract shipments of the steelmaking raw material because of shrinking global supply.
Prices for hard-coking coal for the year starting April 1 may surge to a record $200 a metric ton from $98 this contract year, according to the median forecast of eight analysts surveyed by Bloomberg. Talks between producers and Japanese customers may start ``in earnest'' next month, the Tex report said yesterday...
Full article:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=azVf9DUhRawQ
Baoshan to Raise Steel Prices for the Second Quarter
By Helen Yuan
Feb. 25 (Bloomberg) -- Baoshan Iron & Steel Co. will boost second-quarter prices more than some analysts had expected as the publicly traded unit of China's biggest steelmaker passes on higher raw-material and fuel costs to customers. The stock rose.
The price of benchmark, hot-rolled products will rise by as much as 800 yuan ($112) a metric ton, or 20 percent, compared with the first quarter, according to a statement today from the Shanghai-based company. Cold-rolled product prices will also rise by 800 yuan, or 17 percent.
``The price gain beat our expectations,'' said Luo Wei (http://search.bloomberg.com/search?q=Luo+Wei&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), a Shanghai-based analyst with China International Capital Corp. ``Steelmakers' profit in the second quarter will gain as prices more than offset the rise in raw-material costs.''
Baoshan joins rivals including Japan's Nippon Steel Corp. the world's second-biggest steelmaker by output, in increasing prices to bolster profits (http://www.bloomberg.com/apps/quote?ticker=600019%3ACH). Baosteel Group Corp., Baoshan's parent, agreed on Feb. 22 to pay Brazil's Cia. Vale do Rio Doce 65 to 71 percent more for iron ore from April.
Full article:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=afiB6Rrk8YSI
Wheat Shreds Goldman, USDA Forecasts Belied by Gains
By Tony Dreibus and Jeff Wilson
Feb. 19 (Bloomberg) -- The biggest rally in the history of wheat trading defied even some of the best conventional wisdom, humbling forecasters Goldman Sachs Group Inc. and the U.S. government.
Wheat has more than doubled since May, reaching a record $11.53 a bushel on Feb. 11 and driving up costs for everything from Eggo waffles and Italian pasta to Pakistani flatbreads and Japanese pastry. This month the world's biggest securities firm scrapped projections for a price drop within 90 days, and the U.S., the biggest exporter (http://www.bloomberg.com/apps/quote?ticker=US46EXUS%3AIND), said it would ship 23 percent more than originally estimated before summer.
``The supply shortage has been much more acute than what we had expected,'' said Ruifang Zhang, a commodities analyst at Goldman in London. The firm, which was right about the trajectory of crude oil last year, raised its three-month price target to $13.50 from $9.20 on Feb. 8.
Wheat set a record 16 times since September, resonating around a world that relies on the grain more than any food crop except rice. Exporters Argentina (http://www.bloomberg.com/apps/quote?ticker=US46EXAR%3AIND) and Russia halted sales or raised taxes to protect dwindling reserves. Pakistan boosted imports as inflation in January rose 12 percent, the most in 33 months...
...Even farm animals, which eat 16 percent of the world's wheat, are driving consumption as alternatives such as corn feed get more expensive. The appeal of corn-based ethanol (http://www.bloomberg.com/apps/quote?ticker=CUSEETHA%3AIND) is increasing as the U.S. government sets mandates for alternative energy sources.
``There is a tremendous competition for food,'' said William Doyle (http://search.bloomberg.com/search?q=William+Doyle&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), chief executive officer of Potash Corp. of Saskatchewan Inc., the largest maker of crop nutrients. Corn may jump another 15 percent this year to $6 a bushel, he said....
...In Japan (http://www.bloomberg.com/apps/quote?ticker=US46IMJP%3AIND), Asia's biggest wheat importer, companies such as Yamazaki Baking Co., the No. 1 bread and pastry maker, are passing costs to consumers as the government charges more for the grain. The Ministry of Agriculture, Forestry and Fisheries said Feb. 15 prices will rise an average 30 percent in April, the biggest increase since 1973...
...The American Bakers Association, a trade group that represents about 85 percent of wholesale bakeries in the U.S., said increased global demand is raising ``serious food-security issues'' and urged the government to curb wheat exports.
Stockpile Reserves
``We alerted USDA a year ago that wheat was going to be in short supply, and now three of the five wheat categories are extremely short,'' the association said in a statement on its Web site. ``Other countries are stockpiling their strategic grain reserves. The United States should do the same until USDA can ensure adequate supply.''
A shortage of higher-protein varieties has been extra expensive for bakers such as Pechters Baking LLC in Harrison, New Jersey. On the Minneapolis Grain Exchange, which trades protein-rich spring wheat used for making bread, prices tripled in the past year and touched a record $16 a bushel on Feb. 15.
``Our customers just don't believe how much our costs have gone up,'' said Pechters Vice President Anthony Battaglia (http://search.bloomberg.com/search?q=Anthony+Battaglia&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), who plans to raise a two-pound loaf to almost $3 from $2.47 by the end of March. ``This industry has never had to move this quickly before and it is not structured to change pricing daily, like fruits and veggies do.''
Full article:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOkjUbOT_JdE
Rice Rises to Record, May Extend Gains as U.S. Planting Falls
By Tony C. Dreibus
Jan. 10 (Bloomberg) -- Rice, the world's most abundant food, rose to a record in Chicago and may keep rallying this year as U.S. production falls and global demand increases, said farmer and trader Dennis DeLaughter (http://search.bloomberg.com/search?q=Dennis+DeLaughter&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1).
Full article:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aODJP.BiR11k
Financial Times: Rice prices surge to 20-year high
“Rice prices have surged to a 20-year high in the latest sign of global food inflation, creating policy headaches in Asia where more than 2.5 billion people depend on cheap and abundant supplies of the grain.
“Robert Zeigler, director at the International Rice Research Institute in Manila, said policymakers should be concerned. ‘If history is any indicator, we should be worried because rice shortages have in the past led to civil unrest,’ he said.
“Experts have attributed the surge in rice prices to bad weather that has hit supply; urbanization that has cut the acreage given over to the grain; and strong demand on the back of rapid income growth in China, India and other Asian countries.
“Vichai Sriprasert, honorary chairman of Riceland International, a leading Thai rice trading company, said he expected the price of rice to rise ‘much, much more’.
“Asia, where most of the world’s rice is consumed, has not known famines since the 1970s, and recent price rises for rice and other basic foodstuffs have sparked unrest.”
Source: Javier Blas and Raphael Minder, Financial Times (http://www.ft.com/cms/s/0/87de5e8c-e98c-11dc-8365-0000779fd2ac.html), March 4, 2008.
So here are the questions:
Is it reasonable to conclude that at least some commodity producers have tremendous pricing power? The price for steel and it's main raw material inputs, hard coal and iron ore, appear to be set in contract negotiations, not on a traded futures exchange subject to those dastardly speculators.
Likewise for grains? Governments such as Argentina and Russia which are restricting exports, and organizations like the American Bakers Association, which is advocating the USA do the same, would appear to be responding to factors that have little or nothing to do with speculation.
Are speculators really playing a material role in the current commodity markets?
Does it vary greatly by commodity? Could what OPEC says about oil be correct, while steel, coal, and iron ore are running up on a different dynamic?
Or is all this really only due to one factor - the indiscriminate expansion of global fiat money supply over time?
Inquiring minds wanna know... :confused:
For months we have been subjected to analysts, and even some producer groups like OPEC, patiently explaining that commodity price rises are entirely due to those dreaded, and faceless, "speculators". The advent of commodity ETFs, desire to "flee bonars", announcements of new commodity index funds, and news stories of pension & endowment funds entering commodity investments lend credence to the speculation theory. Given the rather spectacular price moves in recent weeks, I will be the first to admit that current action appears to have "financial event" fingerprints all over it.
But then along comes an item or two that makes me wonder just how much speculation is really going on. Items like these (highlights mine):
Iron-Ore Prices to Rise 30% in 2009, Citigroup Says
By Mark Herlihy
March 3 (Bloomberg) -- Iron-ore prices, which have advanced to a record this year, will rise 30 percent next year because of ``continued robust demand growth,'' Citigroup Inc. said.
``Persisting tight market conditions through 2008 and 2009 will provide the driver for further price increases next year, and sustained high prices for the following two years,'' Citigroup analysts including Sydney-based Alan Heap (http://search.bloomberg.com/search?q=Alan+Heap&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) said in a report today.
Asia's three largest steelmakers agreed Feb. 18 to pay Brazil's Vale do Rio Doce, the world's largest iron-ore producer, at least 65 percent more than last year for the steel-making raw material. The deal means prices will rise for a sixth year as demand increases from emerging markets...
Full article:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a75c2kkHBO8Q
BHP, Rio May Get Double for Coking Coal Contracts
By Jesse Riseborough
Feb. 28 (Bloomberg) -- BHP Billiton Ltd. (http://www.bloomberg.com/apps/quote?ticker=BHP%3AAU) and Mitsubishi Corp. (http://www.bloomberg.com/apps/quote?ticker=8058%3AJP), owners of the world's largest coking coal exporter, may get twice as much for contract shipments of the steelmaking raw material because of shrinking global supply.
Prices for hard-coking coal for the year starting April 1 may surge to a record $200 a metric ton from $98 this contract year, according to the median forecast of eight analysts surveyed by Bloomberg. Talks between producers and Japanese customers may start ``in earnest'' next month, the Tex report said yesterday...
Full article:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=azVf9DUhRawQ
Baoshan to Raise Steel Prices for the Second Quarter
By Helen Yuan
Feb. 25 (Bloomberg) -- Baoshan Iron & Steel Co. will boost second-quarter prices more than some analysts had expected as the publicly traded unit of China's biggest steelmaker passes on higher raw-material and fuel costs to customers. The stock rose.
The price of benchmark, hot-rolled products will rise by as much as 800 yuan ($112) a metric ton, or 20 percent, compared with the first quarter, according to a statement today from the Shanghai-based company. Cold-rolled product prices will also rise by 800 yuan, or 17 percent.
``The price gain beat our expectations,'' said Luo Wei (http://search.bloomberg.com/search?q=Luo+Wei&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), a Shanghai-based analyst with China International Capital Corp. ``Steelmakers' profit in the second quarter will gain as prices more than offset the rise in raw-material costs.''
Baoshan joins rivals including Japan's Nippon Steel Corp. the world's second-biggest steelmaker by output, in increasing prices to bolster profits (http://www.bloomberg.com/apps/quote?ticker=600019%3ACH). Baosteel Group Corp., Baoshan's parent, agreed on Feb. 22 to pay Brazil's Cia. Vale do Rio Doce 65 to 71 percent more for iron ore from April.
Full article:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=afiB6Rrk8YSI
Wheat Shreds Goldman, USDA Forecasts Belied by Gains
By Tony Dreibus and Jeff Wilson
Feb. 19 (Bloomberg) -- The biggest rally in the history of wheat trading defied even some of the best conventional wisdom, humbling forecasters Goldman Sachs Group Inc. and the U.S. government.
Wheat has more than doubled since May, reaching a record $11.53 a bushel on Feb. 11 and driving up costs for everything from Eggo waffles and Italian pasta to Pakistani flatbreads and Japanese pastry. This month the world's biggest securities firm scrapped projections for a price drop within 90 days, and the U.S., the biggest exporter (http://www.bloomberg.com/apps/quote?ticker=US46EXUS%3AIND), said it would ship 23 percent more than originally estimated before summer.
``The supply shortage has been much more acute than what we had expected,'' said Ruifang Zhang, a commodities analyst at Goldman in London. The firm, which was right about the trajectory of crude oil last year, raised its three-month price target to $13.50 from $9.20 on Feb. 8.
Wheat set a record 16 times since September, resonating around a world that relies on the grain more than any food crop except rice. Exporters Argentina (http://www.bloomberg.com/apps/quote?ticker=US46EXAR%3AIND) and Russia halted sales or raised taxes to protect dwindling reserves. Pakistan boosted imports as inflation in January rose 12 percent, the most in 33 months...
...Even farm animals, which eat 16 percent of the world's wheat, are driving consumption as alternatives such as corn feed get more expensive. The appeal of corn-based ethanol (http://www.bloomberg.com/apps/quote?ticker=CUSEETHA%3AIND) is increasing as the U.S. government sets mandates for alternative energy sources.
``There is a tremendous competition for food,'' said William Doyle (http://search.bloomberg.com/search?q=William+Doyle&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), chief executive officer of Potash Corp. of Saskatchewan Inc., the largest maker of crop nutrients. Corn may jump another 15 percent this year to $6 a bushel, he said....
...In Japan (http://www.bloomberg.com/apps/quote?ticker=US46IMJP%3AIND), Asia's biggest wheat importer, companies such as Yamazaki Baking Co., the No. 1 bread and pastry maker, are passing costs to consumers as the government charges more for the grain. The Ministry of Agriculture, Forestry and Fisheries said Feb. 15 prices will rise an average 30 percent in April, the biggest increase since 1973...
...The American Bakers Association, a trade group that represents about 85 percent of wholesale bakeries in the U.S., said increased global demand is raising ``serious food-security issues'' and urged the government to curb wheat exports.
Stockpile Reserves
``We alerted USDA a year ago that wheat was going to be in short supply, and now three of the five wheat categories are extremely short,'' the association said in a statement on its Web site. ``Other countries are stockpiling their strategic grain reserves. The United States should do the same until USDA can ensure adequate supply.''
A shortage of higher-protein varieties has been extra expensive for bakers such as Pechters Baking LLC in Harrison, New Jersey. On the Minneapolis Grain Exchange, which trades protein-rich spring wheat used for making bread, prices tripled in the past year and touched a record $16 a bushel on Feb. 15.
``Our customers just don't believe how much our costs have gone up,'' said Pechters Vice President Anthony Battaglia (http://search.bloomberg.com/search?q=Anthony+Battaglia&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), who plans to raise a two-pound loaf to almost $3 from $2.47 by the end of March. ``This industry has never had to move this quickly before and it is not structured to change pricing daily, like fruits and veggies do.''
Full article:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOkjUbOT_JdE
Rice Rises to Record, May Extend Gains as U.S. Planting Falls
By Tony C. Dreibus
Jan. 10 (Bloomberg) -- Rice, the world's most abundant food, rose to a record in Chicago and may keep rallying this year as U.S. production falls and global demand increases, said farmer and trader Dennis DeLaughter (http://search.bloomberg.com/search?q=Dennis+DeLaughter&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1).
Full article:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aODJP.BiR11k
Financial Times: Rice prices surge to 20-year high
“Rice prices have surged to a 20-year high in the latest sign of global food inflation, creating policy headaches in Asia where more than 2.5 billion people depend on cheap and abundant supplies of the grain.
“Robert Zeigler, director at the International Rice Research Institute in Manila, said policymakers should be concerned. ‘If history is any indicator, we should be worried because rice shortages have in the past led to civil unrest,’ he said.
“Experts have attributed the surge in rice prices to bad weather that has hit supply; urbanization that has cut the acreage given over to the grain; and strong demand on the back of rapid income growth in China, India and other Asian countries.
“Vichai Sriprasert, honorary chairman of Riceland International, a leading Thai rice trading company, said he expected the price of rice to rise ‘much, much more’.
“Asia, where most of the world’s rice is consumed, has not known famines since the 1970s, and recent price rises for rice and other basic foodstuffs have sparked unrest.”
Source: Javier Blas and Raphael Minder, Financial Times (http://www.ft.com/cms/s/0/87de5e8c-e98c-11dc-8365-0000779fd2ac.html), March 4, 2008.
So here are the questions:
Is it reasonable to conclude that at least some commodity producers have tremendous pricing power? The price for steel and it's main raw material inputs, hard coal and iron ore, appear to be set in contract negotiations, not on a traded futures exchange subject to those dastardly speculators.
Likewise for grains? Governments such as Argentina and Russia which are restricting exports, and organizations like the American Bakers Association, which is advocating the USA do the same, would appear to be responding to factors that have little or nothing to do with speculation.
Are speculators really playing a material role in the current commodity markets?
Does it vary greatly by commodity? Could what OPEC says about oil be correct, while steel, coal, and iron ore are running up on a different dynamic?
Or is all this really only due to one factor - the indiscriminate expansion of global fiat money supply over time?
Inquiring minds wanna know... :confused: