Newswire: Commodities

China Nurtures Futures Markets in Bid to Sway Commodity Prices - WSJ

ZHENGZHOU, China — Chinese leaders are concerned that their nation’s enormous economic expansion is becoming an excuse for foreign suppliers to inflate commodity costs. So, they hope to use their three futures exchanges to fight back.

“It is true we have a long-term goal of increasing our influence in terms of pricing, but to do that we have to create conditions and do it step by step,” Jiang Yang, chief futures-industry policy maker and assistant chairman of the China Securities Regulatory Commission, said in an interview. “But as the Westerners say: ‘Rome was not built in a day.’

But Beijing believes hosting big futures markets will enhance the country’s economic security by essentially advertising what the world’s biggest customer for some commodities considers a fair price. For the rest of the world, the exchanges could mean less guesswork about China’s buying habits, possibly reducing volatility in the global market.

Silver Lining: Jim Rogers Talks Up Commodities – Time Magazine

Jim Rogers’ daughters may not have been born with silver spoons in their mouths, but they’ve got them now. Not silver spoons, exactly, but silver bullion. “My little girls don’t own stocks — they own commodities,” he says, “and that’s why they’ll be able to take care of me in retirement.”

Rogers sees three big secular trends now, and he’s acting on all of them. First, America’s role as the dominant economic power is declining, so why own American stocks? (He doesn’t.) Second, China is emerging, and even though it may have crises from time to time, it is a good place to invest. (He does.) Third — and this is the biggie — emerging nations including China are greatly increasing the future demand for commodities such as oil. (He’s in with both feet.)

“Thirty years ago, 3 billion people were not even participating in the world economy, and now they are trying to live like we do,” he notes. That emerging megaforce, says Rogers, will put a supertight squeeze on commodity prices across the board, from beef to bullion.

Oil Climbs Above $73, Nat. Gas Rallies as Equities Fly High – Rigzone

Jumping toward $74 a barrel on an American holiday, crude oil rallied more than $1 from last week’s closing price, bolstered by a weaker dollar and a rise in the equities market. Also gaining today, natural gas closed 12 cents below $5 as the energy commodity continues to strengthen despite bearish fundamentals.

After rallying to an intra-day high of $73.84, the price of crude oil settled slightly lower to $73.27 on the NYMEX Monday, a gain of $1.50 from Friday’s close. Additionally, the US dollar eased against a basket of foreign currencies, helping to spur a rally in today’s commodity prices.

China Iron Ore Imports Exceed Real Demand, CISA Says – Bloomberg via Chinamining.org

Iron ore imports by China, the world’s largest buyer, have exceeded real demand by 50 million metric tons this year, the country’s steel association said.

China’s iron ore imports surged to a record this year, hurting the group’s bid to negotiate a contract price cut bigger than the 33 percent offered by Rio Tinto Group and BHP Billiton Ltd. The nation is looking at cutting the number of licensed importers, industry minister Li Yizhong reiterated today.

Abundant mineral wealth in china

Two articles grabbed my attention from Chinamining.org this morning. They both relate to the fact China’s ethnic regions also happen to be home to a great proportion of the countries commodity and energy wealth.

You can click on the titles of each respective article to access the stories in full from Chinamining.org.

–> Tibet has copper ore reserves of 30 mln t, half of China’s total

Southwest China’s Tibet Autonomous Region has geological copper ore reserves of more than 30 million tons, accounting for over a half of the country’s total, according to the region’s geological prospecting bureau.

The bureau director said that Tibet is the largest region in China by its copper resources reserves. By 2008, 329 copper ore deposits had been found in the region, including 11 large deposits and six mid-size ones. Its Qulong copper ore mine, the largest one in Asia, is estimated to possess copper reserves of more than 10 million tons.

–> 1st Kunming Mining & Cooperation Forum (Sept 2-4, 2009)

Entering the 21st century, the global mining industry is writing a new chapter. It is an era of resource economy. Mining market becomes more open and capitalized. Mineral exploring as well as financing becomes more diversified.

Yunnan is rich in natural resources, known as “the Kingdom of non-ferrous metals”. More than 150 kinds of minerals have been proved there, accounting for 92.6% of Chinese total. Among the proved 92 minerals, 9 of them have the largest reserves in China and 21 of them are listed within top three. Mining as one of the five pillar industries in Yunnan plays an important role in the development of the local economy.

Earlier this summer another ethnic region grabbed world headlines. Does the region of Xinjiang ring any bells? Xinjiang is home to a large number of China’s ethnic Muslims, is culturally quite similar to other republics in central Asia and is often referred to as East Turkestan. Xinjiang is also on track to become China’s most important oil and gas producing region.

This article, “Xinjiang’s oil and gas equivalent ranks first in China” is from little over a year ago (July 2008), asserts that Xinjiang has already passed Daqing (China’s other oil producing region) as the number region in oil and gas output.

As one hand seizes development, the other taps into the potential to allow Xinjiang’s oil output to soar. The latest statistics show that Xinjiang’s annual oil and gas equivalent output has already exceeded that in Daqing and ranks the first in the country.

The third national resources evaluation shows that: Xinjiang’s total oil and natural gas resource reserves exceeded 30 billion tons. Although it is rich in resources, Xinjiang still requires development and a reduction in consumption. Recently, Xinjiang has been producing 75,000 tons of crude oil daily, occupying 14.4 percent of the country’s daily crude oil output. In 2007, Xinjiang’s oil and gas equivalent reached 44.94 million tons, and ranked at the top.

In all likelihood, the development of commodity sectors in these regions will be controlled by Beijing…not locals. What industries can these regions develop as to diversify their economic development from commodity sector led growth?

Yunnan and Tibet have great potential for becoming tourist meccas in China. Yunnan, the less politically sensitive of the two, has already emerged as one of China’s most popular tourist destinations.

Furthermore, Yunnan’s strategic location in SE Asia put it in a good place to be at the center of the future growth of trade and exchange between China and the countries of Vietnam, Myanmar and Laos.

[Map courtesy of leafgovso.co.uk]

Tibetan tourism is growing as well, but remains inhibited by the sporadic changing of restrictions and the need to acquire a special internal visa or permission to visit.

When analyzing this situation from a the perspective of the people in the Chinese government determining domestic policy, China can not and will not simply let three of its most resource rich regions control the development their natural resource industries.

Sad as it may be for some members of the minority groups in these regions, one thing is sure–Xinjiang, Tibet and Yunnan are all going to remain integral pieces of China for a long time and be subject to increased inflows of ethnic Han Chinese seeking economic opportunities.

Let me clearly state, the opinions expressed in this analysis not reflect how I the author, (Bennett A. Reiss) feel on a personal level. Allow me to try to put things into perspective with two analogies which I feel help explain the Chinese point of view.

Canada is full of resources from top to bottom. I am by no means an expert, but I highly doubt the Eskimo and Native American populations have much say about development of Canadian mining and energy companies in their ancestral territories.

Likewise, a more mainstream analogy might be the US in Iraq. To the “logic” driven Chinese bureaucrat, China is far more justified in their domestic policy towards these resource rich regions than the United States is in Iraq. On the surface the US is subjugating a foreign population in a country half way across the globe from its own territory. China in its own official opinion is not subjecting anyone, and to further add to the Chinese argument, these regions have been a part of China for centuries if not thousands of years.

Even if your feelings on the war in Iraq produce other rationalizations for the US invasion (outside of oil), try to justify this to a country with over 1.4 billion people to feed and improve the lives of.

I welcome debate in this area to any readers who would like to discuss this topic further.

As promised… China steps up overseas investments in commodities

Aug 14, 2009 — State-owned Yanzhou Coal Mining Co. buys Australia’s Felix Resources Ltd. for about A$3.5 billion ($2.9 billion), reports Bloomberg

Aug 13, 2009 — Sinochem Corp., China’s biggest chemicals trader, makes an offer to buy to buy Emerald Energy Plc for 532 million pounds ($881 million). Giving Sinochem Corp., access to oil fields in Syria and Colombia, reports Bloomberg

“The Chinese don’t have enough nickel, don’t have enough oil, and they don’t have enough copper. There’s a crisis coming. They are going around the world buying up what they can. They’re preparing for a rainy day.” Jim Rogers, chairman of Rogers Holdings and the author of books including “Investment Biker” and “Adventure Capitalist”, said in a telephone interview yesterday.

Newswire: China and Commodities in focus

China stops expansion projects in steel industry for three years – Xinhua

China’s Ministry of Industry and Information Technology (MIIT) Thursday announced a three-year moratorium on approvals of new expansion-related proposals in the iron and steel industry, as the government pledges to eliminate outdated capacity.

CISA stance hurts small steel mills – China Daily

China’s top negotiators in the bitter and protracted row over the price of iron ore seem destined never to agree – risking a loss of face that will raise questions about whether they are up to the job and who it is they are actually representing.

Their apparent refusal to compromise is damaging the competitiveness of smaller domestic steel mills, forcing them to buy from their larger counterparts, say analysts. The bigger firms have been content to pay whatever the spot price is for ore and pass on the premiums.

CNPC to speed up oil assets buy plan - Xiao Wan of eChinaCities

China National Petroleum Corp (CNPC), the country’s largest oil and gas producer, will speed up overseas acquisitions in regions such as Africa and South America this year, in a bid to boost China’s quest for energy security.

Coal mines to merge in new plan – China Daily

A large-scale restructuring of the coal industry in China’s major coal-producing province of Shanxi, starting at the end of this month, will reduce accidents and improve efficiency by shutting down small coal mines, officials said.

“The restructuring this time is the largest after years of adjusting the coal industry’s structure,” Miao Huanli, planning section director of Shanxi provincial coal bureau, said yesterday.

Chinese Oil Firms Bid for Repsol's Argentine unit

Chinese oil conglomerates China National Petroleum and Cnooc have offered to pay an estimated $17 billion usd for all of Repsol YPF’s state in its Argentine unit called YPF.

You can read the Wall Street Journal’s paraphrased article (the original costs money) at thestreet.com, by visiting this article.

Will this deal actually be completed? China South America reported on this possible deal back on July 7, 2009. You will notice, the offer at this point was only $14.5 billion for a 75% stake. China has since upped the offer and is now looking to buy the entire thing.

Why China? Are you angry over Australia rejecting your Rio bid? Are you feeling flustered that countries from the industrialized world, but also in Africa and Latin America are starting to think twice about selling the rights to their raw materials?

I don’t blame them, after all, Australia is quite similar to South American commodity producing countries. Two note worthy and simple similarities include

1. A large portion of GDP is generated from commodity exports
2. The relative strength or weakness of domestic currencies such as the Ausie Dollar, Argentine Peso, Peruvian Sol and Brazilian Real, are all inherently linked to the global market price of the commodities the countries export. [ie: if the spot price for copper drops 50%, observe what happens to Peru and Chile’s Peso’s.

According to the WSJ article, the main obstacles to this deal include

• Spain is hesitant to see some of its best assets in Argentina be sold to China

• Argentina’s government has no financial stake in YPF, but nonetheless under Argentine law has the right to veto decisions such as transfer of ownership. In my personal opinion, this translates into who is willing to pay more “under the table” to the Argentine government.

• China National Petroleum and Cnooc are state owned organizations. Despite their growing influence and presence in oil markets around the world, many governments still remain weary of doing business with companies officially tied to a foreign government.

China to buy Repsol Assets in Argentina – Update

[China - Argentina - Spain]

China’s CNPC said offering $14.5 billion for Repsol investment – Market Watch

SAN FRANCISCO (MarketWatch) — China National Petroleum Corp. has offered up to $14.5 billion for a majority stake in the Argentine unit of Spanish oil company Repsol YPF SA, according to media reports published on Tuesday.

The South China Morning Post, citing unnamed sources, reported that CNPC has offered between $13.2 billion and $14.5 billion for a 75% stake in the unit.

Dow Jones Newswires reported that Repsol said last week that it had received proposals from a number of companies for a stake in the unit.

China has been acquiring energy assets as its growing economy demands more resources to support its needs.

Sinopec has also secured a deal with Brazilian firm Petrobras (PEFGF) to supply it with 150,000 barrels of crude a day this year, and 200,000 barrels per day for nine years starting in 2010, according to the state-run China Daily.

Argentina and Spanish oil giant Repsol still thinking…

[China - Argentina - Spain]

Pretty good Wall Street Journal articles hit the presses in NYC today relating to the topic of Repsol selling their assets in Argentina to China

CNOOC Says Interested In Cooperation, Not Takeovers – EFE

Argentina Still Weighs on Repsol

Repsol is playing down speculation about unloading some of its 85% stake in Argentinian oil business YPF. But shareholders must hope a deal materializes, and soon. Apart from its exposure to Argentina’s political and economic risks, YPF ties up capital that Repsol could use to develop large recent Brazilian oil discoveries.

Unfortunately, what makes it wise for Repsol to sell YPF may deter potential buyers. YPF’s reserves are declining. Buenos Aires has to approve any share sale, while Repsol has committed to keep at least a 50.1% stake until 2012.

YPF also has to satisfy domestic oil demand — where prices are capped — before it can export, paying a punitive export tax. Chinese suitors, in particular, will likely bridle at such restrictions.

Click here, or the links above to view the complete articles from the WSJ

[Commodities] — Is the rally over?

Commodity Rally May Falter on Supply, Speculators

June 29 (Bloomberg) — Commodities, heading for the first quarterly advance in a year, may struggle to repeat their gains in the next three months as supply expands and speculators sell.

Nickel may average 29 percent less in the third quarter than now, crude oil 16 percent, copper 14 percent and gasoline 10 percent, analyst estimates compiled by Bloomberg show. Hedge funds and speculators cut their bets on higher prices by 23 percent in the two weeks ended June 23, the first back-to-back drop since March, based on an index using U.S. Commodity Futures Trading Commission data. The World Bank said June 22 the global recession will be deeper than it expected three months ago.

“Commodities have gotten a little ahead of themselves,” said Walter “Bucky” Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama. “As long as there’s uncertainty about growth, that’s going to be headwind commodities won’t be able to overcome.”

Commodities rose 14 percent this quarter, led by nickel, oil and sugar, after three consecutive declines, according to the Reuters/Jefferies CRB Index of 19 raw materials. This year’s 57 percent advance in oil costs, combined with widening budget deficits, may cause another global slump, said Nouriel Roubini, the New York University economics professor who predicted the financial crisis.

Click here to access the full article from Bloomberg

Newswire: China South America

[Peru - China] — Peru, China relations “at best moment”

Chinese ambassador to Peru, Gao Zhengyue, said that relations between his country and Peru “are at their best moment” in history.

According to him, both countries have deepened the confidence in the political, economic, technological educational, cultural, tourism and justice areas, among others.

The Chinese diplomat noted the increase of the economic, trade flow and bilateral investments, and highlighted the increase of the Chinese investments in Peru, with over seven billion dollars.

“I am convinced that with joint efforts the relations between our two brotherly countries will enter a new stage of development and reach a higher level in the two peoples’ benefit,” said Zhengyue.

[Latin America - China - Africa] — China’s new frontier

Chinese telecom-gear makers Huawei and ZTE have already conquered Africa and Asia. Next stop: Latin America.

(Fortune Magazine) — At phone operator Movistar’s sales offices in Buenos Aires, customers line up to buy high-speed wireless services to access the web on their mobile phones. Most Argentines don’t realize, though, that the company providing the gear for their broadband connections isn’t a longtime supplier to Latin America like Alcatel-Lucent, Ericsson, or Motorola, but a relative newcomer called Huawei.

China’s telecom suppliers are coming to the Americas. Pursuing the same formula they’ve used to win business throughout Asia and parts of Africa (selling cheap gear in low-income countries), equipment makers Zhong Xing Telecommunication Equipment (also known as ZTE) and Huawei are now getting a foothold in countries such as Argentina, Chile, and Colombia. Says Leandro Musciano, project director at Movistar Argentina, a unit of Spain’s Telefónica: “Price is important.”

[Caribbean - China] — China’s expanding relations with Latin America and the Caribbean

Commentary
By Odeen Ishmael

The recent visit of Brazil’s President Luiz Inacio “Lula” da Silva to China in May 2009 reflected the Asian nation’s expanding economic and political influence in Latin America and the Caribbean (LAC). One year ago, the Brazilian government had announced that China would surpass the United States as its major business partner. The results of da Silva’s visit verified this after the two nations signed 13 agreements, including a $10 billion loan from the China Development Bank to Brazil’s state oil company Petrobras. Petrobras also concluded a deal with a subsidiary of China’s oil refiner Sinopec for the export of crude oil. A major commercial agreement will also see the beginning of huge poultry exports to China.

Brazil’s two-way trade with China, one of the few economies still growing despite the global crisis, reached US$3.2 billion in April, surpassing the $2.8 billion trade total with the US. So far this year, Brazilian exports to China grew 65 percent over the same period in 2008, rising from $3.4 billion to $5.6 billion.

Newswire: China

Regulate with a Big Stick, Not a Fly Swatter
China’s securities regulators should focus on sound oversight and tough discipline to protect, not merely stabilize, the market.

Three cases that came to light during the second week of May drew attention to regulatory efficiency and tight enforcement in the securities market. A former president of China Galaxy Securities, Xiao Shiqing, was arrested May 13. That same day, Sinolink Securities (SSE: 600109) announced that its chairman, Lei Bo, had been placed under investigation. And a day later, Rongtong Fund Management booted fund manager Zhang Ye for suspected involvement in so-called “rat trading.”

On the surface, these cases seem unrelated. Each involves a different context. But deep down, each is connected to how regulatory agencies shoulder their responsibilities. And now, once again, concerns have been raised about regulatory oversight and regulatory capture.

Securities legislation protects investors
Small investors’ interests are high on the agenda in the revision of China’s Securities’ Law, which will be deliberated by China’s legislature later this year.

But the country’s legal system still needs improvement to enable investors to make full use of the Securities Law, including taking steps like “collective action” against listed companies that cheat, said a senior lawmaker.

China Spends 61.2% of 2009 Investment Budget
The central government has already spent 61.2 percent of its 2009 investment budget as it pours funds into infrastructure, education and health care, the official Xinhua News Agency reported on May 27.

China’s Manufacturing Expands for Third Month, Adding to Signs of Recovery
China’s manufacturing expanded for a third month, adding to evidence that the world’s third-largest economy is recovering from its deepest slump in almost a decade.

Geithner to Tell China No One More Concerned About U.S. Deficit Than Obama
Treasury Secretary Timothy Geithner arrived in Beijing with a pledge that the Obama administration will control its borrowing as he sought to reassure China its holdings of U.S. government debt are safe.

China’s Steel Association Rejects Iron Ore Prices Reached by Rio, Nippon
The China Iron & Steel Association rejected an agreement on ore prices reached between Rio Tinto Plc and Nippon Steel Corp., according to a statement on the group’s Web site. The price reached between Rio and Nippon Steel doesn’t reflect changes in the global market and would result in losses for Chinese steelmakers, the group said.

Treasuries `Only Game in Town’ as China Boosts Holdings While Dollar Falls
For all the hand-wringing over the dollar’s slide, the expanding U.S. deficit and the nation’s AAA credit rating, the bond market shows international demand for American financial assets is as high as ever.

China Increases Diesel, Gasoline Prices as Much as 8%, Aiding Oil Refiners
China, the world’s second-biggest energy consumer, increased fuel prices by as much as 8 percent today, allowing the nation’s refiners to pass on climbing crude oil costs.

Prices charged by refiners to wholesalers for gasoline and diesel rose by 400 yuan ($58.57) a metric ton, the National Development and Reform Commission, China’s Beijing-based economic planning agency, said on its Web site late yesterday.