The latest Market Talks covering Commodities. Published exclusively on Dow Jones Newswires throughout the day.
0645 ET - Glencore shares are attractively priced after a roughly 15% fall from recent highs, UBS analyst Myles Allsop writes as he upgrades the stock to buy from neutral. The target price rises to 6.50 pounds from 6.20 pounds. Shares in the commodity giant have fallen due to macroeconomic risks, coal prices and governance concerns surrounding Radiant World, he says. The risk/reward profile is now more positive, he says, citing a strong performance in Glencore's marketing division and exposure to rising commodity prices. Shares could also be set for a rerating soon as Glencore's copper expansion plans become more visible, he says. Overall, cash flow and returns over the remainder of the year are set to be strong as commodity prices rise and Glencore disposes of some assets, he adds. Shares rise 1.5% to 5.57 pounds. (adam.whittaker@wsj.com)
0606 ET - Palm-oil futures ended lower, weighed down by weaker soybean oil and crude oil prices, says David Ng, a trader at Kuala Lumpur-based Iceberg X. The oils often trade in tandem as they are used for similar purposes. A stronger ringgit added further pressure to the palm-oil market, he adds. Ng expects prices to find support at 4,600 ringgit a ton and face resistance at 4,750 ringgit a ton. The Bursa Malaysia Derivatives contract for December delivery fell 99 ringgit to 4,673 ringgit a ton. (jiahui.huang@wsj.com; @ivy_jiahuihuang)
0527 ET - ArcelorMittal faces a small downside risk to its third-quarter earnings due to being unable to safely restart its Ukrainian site, J.P. Morgan's Dominic O'Kane says. The company will record a non-cash impairment of around $1 billion, which is not expected to impact earnings before interest, taxes, depreciation and amortization. However, JPM sees a risk of higher EBITDA losses in the "other" segment, which includes the Ukraine operation. The contribution of the site to group profit is relatively small, the analyst notes. Wider disruption at Ukrainian steelmaking sites could positively impact European steel prices, JPM noted. Shares are up 2.2%. (michael.hennessey@wsj.com)
0345 ET - London's miners gain after oil prices ease. Brent crude and WTI fall as investors assess the likelihood that U.S.-Iran diplomatic efforts could reopen the Strait of Hormuz. Miners are some of the world's largest consumers of diesel and higher prices eat into margins. High oil prices also raise the prospect of interest rate rises to combat inflation. This would hurt investment and consumer sentiment, and drag on demand for mined minerals and metals. With sentiment improved, Glencore rises 2% while Anglo American gains 1.3%. Antofagasta is 0.9% higher. Precious metal miners Fresnillo, Hochschild Mining and Endeavour Mining all gain over 1.2%. Brent crude futures are down 1.1% to $105.45 a barrel, while West Texas Intermediate falls 1.9% to $92.85 a barrel.(adam.whittaker@wsj.com)
0307 ET - Gold prices are headed for a weekly loss as a stronger dollar and growing expectations that the Federal Reserve will raise interest rates again next month weigh on the precious metal. In early European trading, New York futures rise 0.3% to $4,311 a troy ounce but are down 2% on the week. The U.S. dollar index is instead headed for a weekly gain, making dollar-denominated commodities more expensive for overseas buyers. "Investment metals faced a bond-market stress test, with surging Treasury yields supporting a stronger dollar and raising the opportunity cost of holding non-yielding assets," analysts at Saxo Bank say. According to the CME Group's FedWatch tool, traders are now pricing in a 73% probability of a rate hike in October. (giulia.petroni@wsj.com)
0016 ET - Mining shares and mined commodities tend to outperform when the yield curve steepens, and underperform when it flattens, says Jefferies. "This holds true across physical copper, gold, silver, and platinum, as well as copper and gold equities," the bank says. By comparison, the S&P 500 tends to perform best when there is no clear trend, it says. Jefferies says this poses a risk for the mining sector ahead. "We seem to have exited the bull steepening of the past two years and may be heading for bear flattening, where yields rise and spreads compress," it says. "History suggests a headwind for mining, with copper faring best" and iron ore the worst, says Jefferies. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)
2324 ET - The latest meeting between President Trump and Chinese leader Xi Jinping is a "stability summit, not a breakthrough" one, according to Charu Chanana, chief investment strategist at Saxo. "The extension [of a trade truce] lowers the risk of an immediate escalation, but it leaves companies facing much the same uncertainty about the rules they will operate under next year," Chanana says in a research note. Investors are looking for "practical" signals, such as published tariff changes, actual rare-earth shipments, agricultural purchases beyond existing soybean commitments, and any change to chip-export licenses, she says. The outcome looks "too thin to drive a sustained rerating of Chinese equities," she adds. (tracy.qu@wsj.com)
2247 ET - Palm oil falls in Asian trading, tracking declines in soybean oil on the Chicago Board of Trade overnight. Technical analysis also indicates cautious sentiment, AmInvestment Bank says in a note. Still, crude palm oil futures could witness bargain hunting after recent losses. India's lower import duties for edible oils may also support prices, it adds. AmInvestment Bank expects CPO futures to find support at 4,702 ringgit a ton and face resistance at 4,870 ringgit a ton. The Bursa Malaysia Derivatives contract for December delivery is down 52 ringgit at 4,720 ringgit a ton. (yingxian.wong@wsj.com)
2240 ET - Copper prices strengthen in early Asian trade, as tight physical supply continues to provide support, Baocheng Futures analysts write in a note. Chinese inventories remain at a low level while spot availability continues to be tight, they add. Demand is also showing signs of improvement. Investors are watching for the outcome of the meeting between President Trump and Chinese leader Xi Jinping. The three-month LME copper contract is up 0.1% at $14,631.00 a ton. (jiahui.huang@wsj.com; @ivy_jiahuihuang)
2205 ET - Delivering new, large-scale copper supply will likely be more costly, slower and riskier than anticipated, says Jefferies. That justifies higher copper prices and reinforces the case for miners to buy copper growth, rather than building new mines, in some instances, it says. In a review of major projects, the bank found many failed to deliver the production volumes expected when a final investment decision was made. A "combination of capex inflation and production underperformance suggests that industry forecasts may systematically overestimate the amount of copper supply likely to be delivered from greenfield projects and underestimate the true incentive price to build new mines," Jefferies says. "The implications for copper supply are significant" and support premiums increasingly being assigned to some operating mines, brownfield expansions and "derisked" development assets, it says. (rhiannon.hoyle@wsj.com; @RhiannonHoyle)
2138 ET - Potentially higher edible oil demand from India might mitigate concerns over Malaysia's rising palm oil stockpiles, following lower Indian import duties that took effect Thursday, Maybank analyst Ong Chee Ting says in a note. Sunflower oil is expected to be the key beneficiary, as its import duty was reduced by 10 percentage points, compared with 5 percentage points for crude palm oil and soybean oil, he reckons. This could encourage higher sunflower oil imports and support overall edible oils demand ahead of Diwali, he says. The increase in Indian demand may provide some support to Malaysian CPO prices, which are currently around 4,400 ringgit-4,500 ringgit a ton, he adds. Maybank maintains a neutral rating on Southeast Asia's plantation sector, pegging Kuala Lumpur Kepong, Sarawak Oil Palms and Genting Plantations as top buys. (yingxian.wong@wsj.com)
2122 ET - Malaysia's plantation sector could face greater regulatory uncertainty rather than immediate earnings or land bank risk following Indonesia's passage of an agrarian reform law on Tuesday, CIMB Securities analyst Ivy Ng Lee Fang says in a note. The law introduces limits on land ownership and control by business and affiliated entities, with actual thresholds to be set later. Plantation companies holding cultivation rights might also be required to allocate at least 20% of relevant land for agrarian overhauls or provide equivalent profit sharing, she notes. The impact will depend on how the rules apply to existing landholdings, affiliates and the 20% provision, she says. SD Guthrie, Genting Plantations and Kuala Lumpur Kepong have the largest Indonesian exposure among Malaysian planters, she adds.
Comments