Gold drops for fourth day on stronger dollar, shares

Gold fell on Wednesday as a stronger dollar and a rebound in stock markets reduced its appeal as a safe asset. 

PHOTO: REUTERS

JAN 13, 20167:32 PM

[LONDON] Gold fell on Wednesday as a stronger dollar and a rebound in stock markets reduced its appeal as a safe asset.

Asian shares made their first real rally of the year after better-than-expected Chinese trade data, which offered some rare optimism for the global economy.

The pan-European FTSEurofirst 300 index rose 1.4 per cent after four declining sessions, making gold less attractive.

Spot gold was down 0.4 per cent to US$1,082.30 an ounce by 1056 GMT while US gold futures were down 0.4 per cent at US$1,080.80.

Gold rallied to a nine-week top of US$1,112 last week, but expectations of further US interest rate increases lowered demand for the non-interest-paying metal while boosting the dollar.

"The pause in the gold's rally underlines the difficulty gold has in rallying when there is expectation of Fed rate hikes, even if other news is supportive," Macquarie analyst Matthew Turner said.

"People still think the dollar and rates are going up and therefore the medium-term case is bearish."

The Federal Reserve raised rates in December and attention has shifted to how many hikes will follow in 2016.

The dollar and risk-sensitive currencies recovered ground against the yen and the euro after China's central bank held the yuan steady and better-than-expected Chinese trade data helped reduce some of bearishness toward the world's second largest economy.

But with Chinese economic growth slowing and its stock markets still vulnerable, analysts see it as unlikely that gold will lose too much ground.

"It doesn't mean it's all over, the market is pretty short and a lot of the uncertainty about the global economy has not been resolved," Macquarie's Mr Turner said.

Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, rose 2.1 tonnes on Monday, data from the fund showed.

China launched interbank gold trading at the beginning of this year as part of a broader drive to open up the country's bullion market and increase financial investment in the world's largest consumer of the precious metal.

Among other precious metals, palladium rose 3 per cent to US$485.20 an ounce, after sliding to a 5-1/2-year low of US$449.55 on Tuesday.

Silver gained 0.3 per cent at US$13.83 an ounce, while platinum was up 1.4 per cent at US$844.69 an ounce.

"Platinum has now been cheaper than gold continuously for precisely one year, which should generate increased jewellery demand for platinum," Commerzbank said in a note.

REUTERS

    
 

Amid oil price plunge, price-setting Brent supported by Shell sales to Asia

JAN 14, 201612:47 AM

[LONDON] As oil prices fall to new multi-year lows on a global glut, the structure of the niche but crucial benchmark Brent market has shown counter-intuitive signs of tighter supplies and strengthening.

The reason, according to some in the market, was an unusual accumulation of British Forties crude oil cargoes by Royal Dutch Shell, and the expected shipment of many of these out of Europe to South Korea and China.

Shell may have bought more than half of the Forties cargoes loading in January, according to estimates from North Sea crude traders. Price differentials for Forties, which is the largest of the four North Sea crudes that underpins the dated Brent physical benchmark, rose.

"I think it has to do with Shell's position," said a North Sea trader with another company, referring to the strengthening in Forties differentials seen during late December. "Lack of Forties availability." A spokesman for Shell, which usually does not comment on trading, declined to comment on Wednesday.

See who is talking about SHELL

Last 30 days:

• 5254
• 77
• 473

30 days avg

HOT COMPANIES

Sports Direct Intl +296% messages

• Sainsbury +170%
• CRH +120%
• RBS +93%
• Intu Properties +86%
• 3i Group +38%
• BP +38%
• Tesco +30%
• Shire +25%
• ITV +17%

• Sainsbury +170%
• CRH +120%
• RBS +93%
• Intu Properties +86%
• 3i Group +38%
• BP +38%
• Tesco +30%
• Shire +25%
• ITV +17%

In January, Shell is shipping three or four Very Large Crude Carriers of Forties to Asia, according to Reuters shipping data and trade sources. If all sail, that would be about 8 million barrels, more than half of the month's Forties production.

South Korea is a regular buyer of Forties as its crude imports from the European Union are tax-free under a free trade agreement. Still, four supertankers of Forties heading east would be an unusually large volume - the most that one trader could recall seeing in a single month.

While the outright price of Brent crude - which traded at $30.34 a barrel on Tuesday, near a 12-year low - was falling, Forties and the wider Brent market were getting stronger.

Forties price differentials BFO-FOT rose and on Jan. 4 reached their highest since February 2014, and have since fallen.

Short-term swaps called contracts for difference(CFDs) used by traders to hedge price risk briefly shifted to a premium for supplies for prompt delivery - a structure known as backwardation and unusual when supply is generally ample.

In a further sign of unusual strength, the spread between the prompt and second-month Brent futures prices rose sharply even as the outright price of Brent tumbled.

The spread moved into backwardation on Wednesday, a day before the February Brent contract expires, while the rest of the Brent market remains in the opposite structure, contango, until 2017.

Another reason for the strength in differentials was bidding by oil refiner Petroineos for Forties cargoes, which in the view of other market sources were unlikely to be sold as they were heading for Asia. "You could say Petroineos was bidding into a vacuum as Shell was unlikely to sell the cargoes," said an industry source who declined to be identified. Petroineos did not immediately respond on Wednesday to a request for comment on why it was bidding.

There are a small number of participants in the Forties market and it is not uncommon for them to accumulate large positions and this does not contravene any regulations.

Shell itself took a similarly large Forties position four years ago, trade sources said at the time.

REUTERS

    
 

US gasoline stocks surge for second week; crude inventories build: EIA

JAN 13, 201611:56 PM

[NEW YORK] US gasoline and diesel stockpiles surged with a second large weekly build and crude stocks rose more than expected in the last week, data from the Energy Information Administration showed on Wednesday.

Gasoline stocks rose by 8.4 million barrels, compared with analysts' expectations in a Reuters poll for a 2.7 million barrels gain. Last week, the stockpiles rose more than 10 million barrels, the largest build since 1993. The increase sent futures for heating oil and gasoline blendstock sharply downward.

"I think today's inventory report is all about products. Between distillate and gasoline, we've had roughly a 15 million barrel build there," said Dominic Chirichella, senior partner at the Energy Management Institute. "It's pretty bearish." Crude inventories rose by 234,000 barrels in the last week, compared with analysts' expectations for an increase of 2.5 million barrels.

Distillate stockpiles, which include diesel and heating oil, rose by 6.1 million barrels, versus expectations for a 2.0 million barrels increase, the EIA data showed.

Crude stocks at the Cushing, Oklahoma, delivery hub rose by 97,000 barrels, EIA said.

Refinery crude runs fell by 194,000 barrels per day, EIA data showed. Refinery utilization rates fell by 1.3 percentage points.

US crude imports rose last week by 678,000 barrels per day.

REUTERS

    
 

China's iron ore imports surge to record as prices hammered

JAN 13, 201611:24 PM

[SINGAPORE] China's iron ore imports jumped to a record last month, a sign that overseas miners are winning a greater share of the market in the world's biggest consumer. Steel exports soared as the nation sells its glut overseas.

Inbound iron ore shipments climbed 17 per cent to 96.27 million metric tons from a month earlier, according to customs data Wednesday. Full-year imports were 2.2 per cent higher at 952.72 million tons, also an all-time high.

The figures signal that exporters including Rio Tinto Group and BHP Billiton Ltd. in Australia and Vale SA in Brazil are managing to increase market share in China even as steel output and demand contract amid an economic slowdown. Supply expansion by the top miners has boosted oversupply and hurt prices while forcing smaller rivals to close. The steel-making raw material tumbled last month to the lowest in at least six years as demand growth stalled.

"China can get iron ore from Australia and Brazil so cheaply that there's less need for domestic supplies," said Ralph Leszczynski, head of research at Genoa-based shipbroker Banchero Costa & Co, estimating that domestic output fell 8 per cent last year. "The ridiculously cheap iron ore and freight rates have allowed mills to keep producing steel and flood international markets."

To compensate for shrinking demand at home, steelmakers in China are exporting at record levels. Outbound cargoes of steel products rose 11 per cent to 10.66 million tons in December from the previous month, the second highest ever, according to customs data. For the full year, exports surged 20 per cent to 112.4 million tons, an all-time high. China makes about half the world's steel and buys more than two-thirds of seaborne iron ore.

Ore with 62 per cent content delivered to Qingdao retreated 4.1 per cent to $39.51 a dry ton on Wednesday, dropping for a seventh straight day, according to Metal Bulletin Ltd. The commodity bottomed at $38.30 on Dec. 11, a record low in daily prices dating back to May 2009.

"With prices dipping below $40 a ton early in December, there appears to have been some opportunistic buying," Australia & New Zealand Banking Group Ltd. said in a note. "However, the fact that a lot of that iron ore was stockpiled suggests end use demand remains tepid." Annual aluminum product exports and copper ore and concentrate importswere also at record highs. Shipments of aluminum products rose 9.8 per cent to 4.76 million tons in 2015, while imports of copper ore and concentrate advanced 13 per cent to 13.29 million tons, customs data show.

BLOOMBERG

    
 

Auto sales underpin demand for Asia refiners

As oil producers agonize over tumbling crude prices, strong car sales in India and China are underpinning demand for gasoline, giving makers of refined products and petrochemicals healthy margins. 

PHOTO: BLOOMBERG

JAN 13, 201610:11 PM

[SINGAPORE] As oil producers agonize over tumbling crude prices, strong car sales in India and China are underpinning demand for gasoline, giving makers of refined products and petrochemicals healthy margins.

While that means share prices of refiners with little or no crude production are outperforming primarily crude producers, much could hinge on China's economy and Beijing's policy of tax breaks for small car buyers.

Crude oil prices fell to their lowest in over a decade this week, trading close to $30 a barrel, and are down 70 per cent since mid-2014. This has been painful for oil producers and exporters, but has boosted refinery margins as feedstock costs have tumbled.

"If (the annual average) oil price is $40-$50 a barrel, we're quite confident margins will be higher than last year,"Sukrit Surabotsopon, CEO of Thai refiner IRPC, told Reuters. The average price for Brent last year was close to $54 a barrel, and most banks have cut their oil price forecasts for this year to $37-$50 a barrel.

Cheap and plentiful feedstock for refineries has been supported by strong retail demand, especially for gasoline and plastics, though demand for diesel is stalling largely because of China's slowing heavy industry.

HSBC says 2016 demand for refined products will be between 1 million and 1.2 million barrels per day (bpd), while refining capacity is seen growing at 540,000 bpd. "Demand growth in 2016 ... should easily outpace capacity growth, barring a serious macroeconomic downturn," the bank said in a Jan. 8 note that recommended stocks of SK Innovation and Thai Oil - the leading refineries in South Korea and Thailand, respectively.

After a slow start last year, China's car sales picked up pace to increase by 4.7 per cent, averaging well over 2 million new private vehicles a month. Growth this year is forecast at 6 per cent.

Most Chinese passenger cars run on gasoline, boosting demand for refiners, though analysts note that much of the recent growth in sales has been pegged to generous tax breaks for car buyers.

In India, passenger car sales have been growing at an even faster pace, and are forecast to increase by more than 10 per cent in the year to March, providing another strong pillar of fuel demand.

Reliance Industries saw its gross refining margin hit a 5-year high of $10.50 last year, and is expected to hold at $9.70-$9.80 a barrel in 2016, refining sources said, as it meets double-digit demand growth for gasoline and 7-8 per cent growth for diesel.

Refiners are also benefiting from action they took when crude supplies were tight, as many invested in refinery upgrades to allow them to process whatever crude was available.

Now, amid oversupply and a discount war between exporters that sees anywhere between half a million and 2 million barrels of crude produced every day in excess of demand, refiners can cherry-pick the grades that best suit their facilities - heavy or light, sweet or sour.

The healthy refining conditions are visible in stock market performance. Refiners that do not have large crude production, such as SK Innovation and India's Reliance Industries, far outperform refining-lite producers such as Chevron or China's CNOOC. Taiwan's Formosa Petrochemical has also been among the winners from the crude slump. In another support move for refiners, Chinese authorities on Wednesday set a floor for domestic retail gasoline and diesel prices, saying these would not be trimmed again while global oil prices are below $40 a barrel.

Last month, China said it plans further reforms to retail fuel pricing as part of moves to make prices more market-driven. For the first time, China has allowed independent companies to import crude oil and export refined fuel, breaking the long dominance by the major state refiners. "We believe refining companies such as Shanghai Petrochemical and Sinopec, and also the teapot (small independent) refineries could be big beneficiaries of this policy," Nomura analyst Gordon Kwan said.

Refiners' margins in South Korea, a major fuel and petrochemical exporter, could hit $11.40 a barrel in the first half of this year, said Son Young-Joo, analyst at Kyobo Securities in Seoul, topping last year's average of $10.30 a barrel.

Petrochemical producers like Formosa, Shanghai Petrochemical and Lotte Chemical could also see healthy ethylene margins as supply of the key raw material for plastics is expected to tighten this year, said KGI analyst Aaron Liu.

Ultimately, the party-pooper for refiners could be Beijing closing the tap on new car subsidies, with current tax breaks due to expire on Jan. 1, 2017.

"The last time China lowered the tax on small cars was in 2009 ... (after) the global financial crisis. Car sales surged 53 per cent that year and 33 per cent in 2010, but (growth) slowed to single digits after the 2-year policy expired," Barclays said in a client note. "This time, our auto equity analysts expect the boost in sales to fade over this year."

REUTERS

    
 

Container and cargo throughputs fall at Port of Singapore

By

Tan Hwee Hweehweetan@sph.com.sg@HweetanBT

THE Singapore government is rolling out more measures to help container lines cope with the challenging economic conditions, which also have contributed to a contraction in container throughput at the Port of Singapore in 2015. 

PHOTO: ST FILE

JAN 13, 20168:05 PM

THE Singapore government is rolling out more measures to help container lines cope with the challenging economic conditions, which also have contributed to a contraction in container throughput at the Port of Singapore in 2015.

"2015 was yet another challenging year for many shipping companies," said Coordinating Minister for Infrastructure & Minister for Transport Khaw Boon Wan at the Singapore Maritime Foundation New Year cocktail on Wednesday.

"Demand for shipping remained weak due to sluggish trade growth (and) coupled with an oversupply in tonnage, freight rates have stayed low," he added.

According to statistics released by the Maritime and Port Authority of Singapore (MPA), container throughput contracted by 8.7 per cent to 30.9 million TEUs (20-foot equivalent units) in 2015 over 2014. The decline outpaced two separate projections The Business Times gathered from CTI Consultancy and BMI, which respectively forecast 6-8 per cent and 2.29 per cent decreases in container throughput at the Port of Singapore for 2015. Cargo throughput has likewise dipped 1.1 per cent to 574.9 million tonnes.

MPA attributed the decline in container and cargo throughput to weak global economic conditions and structural changes in the maritime industry. More specifically, it flagged "an overall slump in Asia-Europe volumes, compounded by developments such as the rebalancing of volumes across alliances agreements, and an increase in direct sailings due to lower bunker prices".

To help the container lines cope with the challenging economic environment, MPA and PSA Corporation have worked on a suite of measures unveiled by Mr Khaw on Wednesday.

Mr Khaw described these measures as "another reflection of the government's commitment to stand with and help our partners through challenging times".

MPA will grant from January 2015 an additional 10 per cent concession on port dues for container vessels calling at the Port of Singapore, if they are carrying out cargo works with a port stay of not more than five days. The additional concession will be in place for one year, and will be granted on top of existing port dues concessions such as the Green Port Programme incentives and the 20 per cent concession first introduced in 1996. In all, these concessions are expected to amount to more than S$17 million of annual savings for container lines.

PSA is working with its customers to enhance vessel productivity at the port and optimise network planning activities such as service deployments and phasing in and out of vessels, with the aim of lowering operational costs for the container shipping companies. PSA is also actively engaging container lines seeking a long-term strategic presence in the Port of Singapore.

The Port of Singapore has turned in a glowing report card outside the disappointing container and cargo throughputs in 2015. Annual vessel arrival tonnage reached 2.5 billion gross tonnage in 2015, a 5.6 per cent year-on-year increase. Singapore remained as the world's top bunkering port in 2015, on a 6.5 per cent year-on-year expansion of bunker sales to 45.2 million tonnes.

The total tonnage of ships under the Singapore Registry of Ships (SRS) grew 4.9 per cent to 86.3 million gross tonnage compared to 2014, consolidating SRS's position as one of the top five ship registries in the world.