It sounds like more of the same from the past few weeks: sharemarkets rattled, financial stocks rattled and commodities on the slide. 

Well, it was up till Friday when it suddenly became a very different story.

And this morning, a switchback, with oil under the $US100 a barrel mark in New York trading early today as damage from Hurricane Ike wasn’t as bad as feared.

The US dollar fell Friday as the slide in the euro came to an end; the Australian dollar bounced a couple of cents; gold, copper and several other commodities rose and Hurricane Ike was the big influence.

But the big question was whether Friday’s bounce was due to Ike coming ashore and apparently not leaving too much damage to the oil and gas producing, refining and distribution facilities along the Texas coast between Houston and Galveston.

At least 13 refineries in Texas were shut for the passage of Ike.

That was 3.64 million barrels a day of refining capacity.

But as we have seen after storms in the past month, once the situation is clarified, then the prices of oil, petrol and gas will ease quite quickly.

And that’s what seems to have happened after Ike as oil fell in early electronic trading in new York to $US99.25 after dropping to $US98.75 a barrel early this morning, our time.

The October New York contract briefly dipped to $US99.99 on Friday, falling under the $US100 level for the first time since April 1.

But Nymex crude in New York rose 31c to close at $US101.18 a barrel.

In London, October Brent North Sea crude eased 6c to settle at $US97.58 a barrel.

Oil prices are down $US47.29 a barrel since the peak of $US147.47 on July 11.

For all the sound and fury of Ike, the real story remains the continuing dip in American consumption of oil-based energy products.

US energy consumption is down 3.8% over the past four weeks compared with the same period in 2007, while petrol consumption is down 2.1%.

 

---

On the Chicago grain markets, the emphasis is shifting as the harvest gets underway and the yields of wheat, corn, soybean and other crops becomes clearer.

The United States Department of Agriculture said on Friday that the hugely important corn harvest won’t be as big as thought because of widespread dry, warm weather last month.

The USDA said farmers will harvest 1.8% less corn than forecast last month, while the soybean harvest will be down 1.3%, but wheat output will be higher in both the US and globally.

The USDA forecasts steeper increases in corn and soybean prices, which have eased from the record levels set earlier in the year.

December corn rose 30 USc, or 5.6% on Friday to $US5.6325 a bushel in Chicago. That pushed prices up 2.7% this week. That left the price of the most active contract down 30% from the all time high of $US7.9925 in late June.

November soybean futures rose 26c, or 2.2%, to $US12.02 a bushel in Chicago. The price rose 2.1% last week. Beans are down 27% from the all time high of $US16.3675 hit in early July

The USDA said the average cash corn prices in the crop year that began September1 were $US5.50 a bushel, compared with $US5.40 estimated in August and $US4.20 in the most recent year.

The Department said cash soybean prices will average $US12.35 a bushel this crop year (which started on September 1), up from last month’s estimate of $US2.25 and up from $US10.15 in the previous year.

 

---

Wheat was the odd one out with prices falling for a third straight week after the USDA made no change in its estimate of US domestic stocks in the coming year, suggesting that there might be more grain than the market thought.

The USDA said it expects US carryover stocks on May 31 (the end of the wheat crop year) will be around 574 million bushels, while exports will total 1 billion bushels, matching the forecasts made in August by the USDA.

December wheat futures fell 7c to $US7.1925 a bushel on Friday, down 4.3% over the week and 19% this year.

The USDA also increased its estimate of global production to a record 676.3 million tonnes, up from last month’s forecast of 670.8 million tonnes.

Canadian farmers will harvest 25.4 million tonnes, up slightly from the August forecast of 25 million tonnes; European Union output will be 147.2 million tonnes, up from 143.2 million tonnes in the August forecast and these will offset declines in Australia and Argentina: Australia will produce 22 million tonnes, down from the 25 million tonnes in the August forecast and Argentina growers may harvest 12.5 million tonnes, 1 million tonnes down on the August estimate.

According to the USDA’s forecast, the US is expected to be the largest exporter of wheat, followed by Canada, Russia, Australia, Ukraine and Argentina.

 

---

Copper had its best week in three, rising sharply on Friday as the US dollar lost ground against the euro.

Comex December copper futures added 7.15 USc, or 2.3%, to $US3.194 a pound. The price was up 3.1% last week

The metal climbed from Wednesday-Friday, as signs of declining mine output increased concerns that supplies may be tight next year. Some analysts, especially at Citigroup, are forecasting demand to run ahead of production next year.

Copper was also supported Friday by a fall in Chinese stocks.

Stocks overseen by the Shanghai Futures Exchange dropped 29% to 13,554 tonnes, the lowest level since 2003.

On the London Metal Exchange, three month copper rose $US192, or 2.8%, to $US7,122 a tonne, or $US3.23 a pound.

---

Gold jumped Friday, ending a nine-day losing streak, thanks to the US dollar’s fall against the euro.

The euro rose as much as 1.5% against greenback, but ended off 0.3% for the week.

The Australian dollar finished at $US82.36 in New York, up from $US80.48 in Sydney on Friday afternoon and $US81.64 in Sydney the week before.

It was a rare gain for the currency, the first for a month or more over the week and the strongest daily performance for weeks.

Gold fell 4.8% over the week, despite a $US19 dollar an ounce rise on the day.

Comex December gold rose $US19, or 2.5% to $US764.50 an ounce in New York. The metal had fallen 11% from the end of August to last Thursday

Silver also had a rare rise, finishing up 24c, or 2.3%, to $US10.795 an ounce for the December contract. The metal still dropped 12% last week and is down 28% this year.

Gold is down 26% from the record $US1,033.90 reached in March and is off 8.8% in 2008.

 

 .

Price developments change very quickly on commodities markets these days. For instance, copper. In our last update, on August 15, we said, “the technical indicators are still bearish. The previous intermediary support (around 7,850) could be the immediate resistance for the current new rebound. Investors would then be tempted to test the long-term support of the triangle and pull the price back towards 7,200 or 7,100.”

Less than one month later, the price has cleared the long-term support line on the downside (that goes through points A and B on the chart). As a result, the bearish sentiment strengthens and will probably drive the price even lower in the coming weeks. The price closed at $6,860 a tonne 2 days ago on the London Metal Exchange (LME).

Click to Enlarge

What is going on?

Copper has fallen 22 percent from the peak of $8,775 posted on June 30, as increasing stockpiles signalled weaker demand. Imports of copper and copper products by China fell 4% in August compared with July.

Another element that has an impact globally on commodities markets is the recovery of the US Dollar. Remember that despite the exchange being based in London, copper is priced in US Dollars. A rebound of the Greenback therefore reduces the dollar-priced investments.

The price had moved within a long-term indecision triangle pattern. The basis line of this triangle was the long-term support line that backs the bullish trend started in late 2003. It had been tested and validated in February and December 2007 (points A and B on the chart) where the price bounced back strongly.

The upside of the indecision triangle pattern was the resistance line that goes through the highs posted in May 2006, and in March and April this year. This resistance zone was set around $US 8,900.

The last retracement level (61.8%) of the sharp bullish trend occurred between last December and last March (between points B and D). This had been the opportunity for a small rebound (point H) but it failed to cross above the 38.2% level (point K).

Since the beginning of this month, both the 61.8% level and the long-term support have been broken on the downside. This means the negative trend still goes on.

The MACD has just triggered a new bearish signal, and the Momentum indicator and the RSI are also negatively oriented. In this bearish scenario the next important target is the level of the previous long-term low which is the low posted in December last year (point B), around $6,300.

Yes, 2007-08 was a record year for mining and mining exports, but the sinking Australian dollar has thrown in a big spanner into prospects for 2009. That 2008 outcome indicates we remain the lucky country, despite the slump in most metal and oil prices now. If it hadn’t been for that great inflationary surge from March onwards, with gold, oil copper, plus iron ore and coal all rising, we would have seen lower export income for 2008. Total earnings from Australia’s mineral resource exports rose 11% to $116 billion in 2007-08, but it could have been a lot more, given the stronger dollar during the year. ABARE (the Australian Bureau of Agricultural and Resource Economics) said this rise reflected the combination of higher prices for energy and some mineral commodities and growth in export volumes for most commodities and these factors more than offset the effect of a 14% appreciation of the Australian dollar. But with the Australian dollar now down more than 19% in the past seven weeks, and running around the levels of August 2007, the value of 2009 exports will be much harder to work out because most commodities have experienced very sharp falls in price in recent week (and a bit longer in the case of some of the metals). Our currency fell under 80 US cents yesterday and the trade weighted index is also down, indicating we have lost ground across the board. It hit a low of 79.12 US cents in New York and ended around 79.65. In fact the 11% rise in export income for minerals came as a result of soaring prices for oil and related products, and the jump in iron ore, coking and thermal coal export receipts because of big price rises applying from April 1. Higher gold and copper prices (it hit an all time high in May, gold’s all time high was in March, Oil’s was in July). In fact it was that rise in the June quarter which completely changed the picture so far as the question of export revenues for the 2007-08 financial year is concerned. Lucky country indeed, and that surge in revenue showed up in a 13.6% rise in our terms of trade in the June quarter. ABARE figures for the March quarter show the impact of slumping prices, especially for metals. “In the March quarter 2008, the index of export prices of Australian mineral resources (export unit returns) increased marginally by 0.5 per cent compared with the December quarter 2007, as higher energy prices were almost fully off set by lower prices for metals and other minerals. “Strong oil and coal prices supported a 5 per cent increase in prices for energy minerals.  “Compared with the March quarter 2007, the index of export prices was nearly 4 per cent lower, with higher energy prices (up nearly 8 per cent) more than offset by a decline in prices for metals and other minerals (down 10 per cent). “Prices for metals and other minerals have declined over the past 12 months, largely as a result of increased supply for some commodities and weaker demand growth driven by the uncertainty surrounding the outlook for the US economy.” But in its review of 2008 this week, the Bureau showed a very different picture on pricing to that at the end of March. “In 2007-08, the index of export prices of Australian mineral resources (export unit returns) increased by 25 per cent compared with 2006-07. “Record price increases for energy minerals during the year, such as oil (53 per cent), thermal coal (19 per cent) and liquefied natural gas (LNG) (16 per cent), underpinned this rise, with the index of energy export prices increasing by 54 per cent. “Prices for metals and other minerals also increased by nearly 8 per cent as higher world prices for gold, silver, lead and copper offset price declines for zinc, nickel and aluminium. “A significant proportion of the growth in the index of export prices occurred in the June quarter with total mineral export prices increasing by 21 per cent compared with 4 per cent in the previous quarter.

 

So the 4% drop in march had changed to a 4% rise with revisions, and then risen again in the June quarter to record levels.

The growth in the June quarter reflects the increase in contract prices of metallurgical and thermal coal, and iron ore, which took effect from April, as well as higher crude oil and gold prices.”

More interestingly, our production of energy and minerals was steady in 2007-08, with higher production of metallic metals broadly offsetting lower production of energy minerals.

So if the prices that had ruled during the March quarter had continued into the final quarter of the year, we would have been looking at a noticeable fall in earnings from mineral exports.

Looking at various industries, ABARE said:

In 2007-08, there were significant increases in export earnings for: iron ore, up $4.8 billion (31 per cent) to $20 billion; crude oil and condensate, up $2.2 billion (26 per cent) to $10.5 billion; thermal coal, up $1.6 million (23 per cent) to $8.3 billion; manganese ore, up $1.1 billion (218 per cent) to $1.5 billion; metallurgical coal, up $755 million (5 per cent) to $15.8 billion; LNG, up $632 million (12 per cent) to $5.9 billion; refined gold, up $582 million (6 per cent) to $10.9 billion and uranium, up $227 million (34 per cent) to $887 million.

Apart from gold, LNG and lead, which recorded declining export volumes, higher export values for the other commodities reflect both increased volumes shipped and higher export prices.

Commodities which recorded a decline in export earnings in 2007-08 include: nickel, down $2.1 billion (33 per cent) to $4.2 billion; zinc, down $932 million (22 per cent) to $3.4 billion; aluminium, down $679 million (12 per cent) to $5 billion; and alumina, down $432 million (7 per cent) to $5.8 billion.

The decline in the export values for zinc, aluminium and alumina reflect lower prices more than offsetting higher export volumes, while the fall in the value of nickel earnings is the result of both lower export volumes and lower world prices.

Commodities for which production increased included: lead bullion (33 per cent), rutile concentrate (19 per cent), zinc ores and concentrates (14 per cent), iron ore (13 per cent) and silver ores and concentrates (12 per cent).

Lead bullion production increased in 2007-08 as recent expansions to the Mt Isa zinc-lead concentrator in Queensland and the mining of higher grade ores increased smelter output.

Rutile concentrate production was also higher as a result of increased production at Consolidated Rutile and Iluka’s Queensland Douglas operation, offsetting lower production at Iluka’s Western Australian operations.

Silver ores and concentrates production recovered in 2007-08, as annual production at BHP Billiton’s Cannington mine in Queensland returned to capacity following maintenance in 2006-07.

Zinc production was higher as a result of one-off production at Perilya’s Beltana mine in South Australia and increased production at Century, Cannington and Mt Isa mines in Queensland.

Iron ore production was also higher as BHP Billiton, Rio Tinto and Fortescue Minerals increased output from new mines in Western Australia.

Commodities which recorded a decline in production included: refined tin (100 per cent), diamonds (33 per cent), intermediate nickel (22 per cent), crude oil and condensate (10 per cent) and mined gold (9 per cent).

Production from Australia’s only refined tin project, Sons of Gwalia’s Greenbushes project in Western Australia, ceased in early 2007 when the company’s administrators closed the mine. This meant no refined tin was produced in Australia in 2007-08.

Diamond production was lower as a result of variability in mine production at Rio Tinto’s Argyle mine in Western Australia where the open pit operation is approaching the end of its life and the company continues its transition toward an underground operation.

Production at Argyle was also affected by cyclone activity in the March quarter which increased water levels at the mine, restricting access to higher grade ores.

Intermediate nickel production was lower as a result of reduced output from the Kalgoorlie nickel refinery in Western Australia. Production of crude oil and LPG declined in 2007-08 because of technical difficulties at a number of oil fields and natural field decline.

Gold production was also lower as a result of the closure of a number of gold operations with lower production also reflecting the mining of lower grade ores. Gold output was the lowest since 1989, according to ABARE.

Gold prices fell below $US750 an ounce overnight Thursday to take the fall in 2008 to 28%. very hard to see another year of solid export earnings from gold on that basis.

Kagara Ltd (ASX:KZL) is a diversified mining company engaged in exploration, development and production (zinc and copper).

The stock has been experiencing a long-term bearish trend since November 2006 despite sharp up and down moves. A downtrend is characterized by lower highs and lower lows. Here the historical high price (point A) posted at $7.81 is followed by lower highs (points B, C and D).

Click to Enlarge

The downside of this bearish trend is a support line built by lower lows (points E, F, G, H and I).

There are no elements that allow us to think that this long-term bearish trend is over. However there are a lot of elements that allow us to think that the current rebound has some further development potential during the coming weeks.

First, have a global look at the chart: each time a low price is posted on this support line, a strong rebound (increase with double digits percentage) followed. A support which is tested and validated over the time gets stronger. This is the case here.

Second, the stock has been hammered during the last 2 months. It lost more than half of its value between the high posted in May (point D) and the recent low (point I). The price action bounced back a bit in last July (from point H) but it failed to retrace a significant portion of the massive decline. A new attempt is therefore expected as the stock still has been oversold but holds above the long-term support.

There is consequently a good opportunity for investors and traders to buy back the stock with a high risk/reward ratio. Indeed market players know that a breakout below the support line would quickly drive the stock further down. On one hand a stop-loss not too far below this support level is a low risk. On the other hand, as there is no major resistance near the current levels, there is a huge potential on the upside. The trade is worth it.

The MACD is slightly rising and has crossed above its signal line. This is a bullish signal.

The stock has experienced large swings and trend reversals since November 2006. A rebound that would build up some momentum could drive the price quickly higher. The next few trading sessions will give an indication about the strength of the rebound and its expected duration as the first intermediary resistance, the 23.6% Fibonacci ratio, should be reached soon.

If the price jumps above the recent small rebound, therefore above $3.6, the first target may be the 50% Fibonacci retracement level of the recent decline (between points D and I), around $4.3. Yesterday the price closed at $3.16 with an intraday high posted at $3.29. Therefore it’s a further 36% potential increase. Higher, the key level of $5.9 would become the main target on a medium-term perspective.

Were planning to write to you about a potential gold turnaround today, reader. But it’s just too unpredictable at the moment. Yesterday’s close told us little.

So even though gold’s fundamentals are solid, the time might not be right. Instead, let’s take a look at an interesting pattern in the copper market.

Like most other commodities, copper has been selling lower for weeks. The global retracement in commodities, driven by oil and gold prices, is hurting all products.

However, there are still significant differences in terms of performance. Nickel, zinc and lead prices have taken double-digit hammerings. But aluminium, tin and copper are still at higher levels than January 1.

The copper price is up 14.5% this year. But it’s also down 13% since June 30, when the price was trading at $US 8,775 a tonne. It closed on August 13 at $US 7,635.

As for the pattern…copper is moving in a long-term indecision triangle. The basis line of this triangle is the long-term support line that backs the bullish trend from late 2003. It has been tested and validated in February and December 2007 (points A and B on the chart below) where the price bounced back strongly.

The upside of the indecision triangle pattern is the resistance line that goes through the highs posted in May 2006, and in March and April this year. This resistance zone is currently around $US 8,900.

Like any triangle, this pattern is narrowing at the end, the price is likely to reach the downside of the triangle before eventually bouncing back once again.

A few ambitious LME (London Metal Exchange) traders are anticipating this. They jumped back in when copper hit a low 3 days ago (point H).

Why now then? As usual, a Fibonacci pattern gives the answer. The low of last Tuesday bounced a retracement level. It is actually the last retracement level (61.8%) of the sharp bullish trend occurred between last December and last March (between points B and D).

Those levels are important for commodities traders. In late March, as the copper prices were correcting, the first rebound came on the 38.2% ratio level (point F). It happened a second time in early June (point G).

Go easy though…this does not mean that copper will fly back to its historical highs straight away. We’re actually mildly bearish on copper right now. But it’s a good example of what you can expect in the commodities sector. Bounces from corrections. Higher highs and higher lows. We’ll let you know when we reckon the momentum has shifted.

 

Copper miner Aditya Birla (ASX:ABY) posted a double-bottom two days ago, reader. A technical rebound is just about due. And it looks like a 50% gain from here.

The stock has been a violent mover since it listed on the ASX in May 2006. It traded between $2 and $2.70 for a year…climbed sharply up to $4.30 last October…then fell by 67% by January 23.

The price today? Well, it’s about $1.50. That means ABY has already bounced off the same support as last time. There’s your double-bottom.

But there’s something more interesting about this chart. The most appropriate indicator to pay attention to isn’t your average fare.

You’re looking at the Klinger Oscillator. What it does is help you pin down a bottom…the turning point where profits begin. But it also reveals how much money is flowing into a stock.

In this case, there are two key signals. Firstly, the Klinger has crossed above its signal line. Like the MACD behaviour, it’s a bullish signal. But more importantly, it’s doing so when price action is at a low.

Here the stock plunged into oversold territory (watch the levels of the RSI) and posted a historical low ($1.41 on August 5, point E on the chart). The Klinger failed to confirm this, dear reader. This means that bearish trend has been losing momentum and is nearing completion. Look for a technical bounce.

Where to?

Prices will probably test the Fibonacci retracement levels from the October 2007/January 2008 fall. Those levels still act as resistance points. Yesterday the price closed at $1.525. The first target will be around $2.10, the 23.6% Fibonacci level.

Only a break below$1.40 (closing price) would cancel this rebound scenario.

The market is up 8. An unremarkable day. Financials down 0.7% after a dull performance overnight in the US. Resources up 0.2% after a strong lead from BHP, RIO and energy stocks in the US. Metal prices up. The SFE Futures were up 15 this morning.

 

Dow up 40. Up 69 at best. Down 95 at worst. Main Point: Financials down 1% on Freddie Mac and AIG’s ugly results and Morgan Stanley freezing home-loans. Energy and resources outperformed on good results. 6 out of 10 sectors up – indexes at 6-week highs. Dow encouragingly turned around a 0.7% loss to make a 0.3% gain holding onto the 331 or 3% gain yesterday. Large cap techs offset bad news in the financials. Nasdaq up 1.2% on better-than-expected results from Cisco. Oil price down 5.4% for the week already. Resources up 1% with BHP and RIO up strongly – up 4.36% and 4.72%. Energy outperformed – up 1.9% on better-than-expected results from Devon Energy. Refiners up with Tesoro and Valero up 12% and 7%. Sunoco up 3.3%. Freeport-McMoRan up 11%. Morgan Stanley froze the home-equity lines of credit for thousands of clients while their homes dropped in value. Telecoms down 1.4% - underperformed – Sprint Nextel and Qwest both reported a lost subscribers. USD climbed to 8-week high against the euro and 7-month highs against the yen – the global slowdown and less fears of inflation are helping the USD to rise.

• Both BHP and RIO up in ADR form overnight, 4.36% and 4.72% respectively. BHP down 6c to 3716c. RIO up 110c to 11550c.
• Metals mostly up overnight – Nickel up 1.17%, Zinc up 1.1% and Lead 2.53%. Aluminium up 0.21%. Oz Minerals up 2c to 176c.
• Oil price down 14c to $118.57 after the U.S. Energy Department’s EIA said crude inventories increased by 1.7m barrels to 296.9m for the week ended Aug. 1, slightly more than the 1.2m-barrel increase expected. Woodside up 77c to 5149c.
• Gold down $3 to $878.80. Newcrest down 40c to 2500c.
• US Bonds down with the 10 year yield up to 4.05% from 4.02%.

Nickel and copper stocks mostly upon a small bounce in metal prices (although copper futures dropping intraday). KZL up 2%, JML up 4,4%, WSA up 0.4% and PAN up 3.5%. Banks down again, NAB down 2.1% and CBA down 0.8%. Big industrials up with a sentiment change towards the consumer discretionaries after the RBA flip flopped their bias towards rate cuts on Tuesday. WOW up 1.5%, WDC up 1.5% and WES up 1.2%.

Unemployment numbers are out at 4.3% - steady on last month – new jobs strong. A$ jumped on the numbers. The European Central Bank makes an interest rate decision tonight. Expected to remain hawkish on rates and leave them where they are. Dow Jones Futures down a worrying 47 at the moment. Enough to keep you out of an overnight trade.

Company news

• Tabcorp (TAH) up 6% early on results - booked a hefty loss but underlying results in-line and there was some relief they were not worse. Market happy with solid underlying earnings and dividend being kept.
• Connecteast (CEU) down 16% early on “disappointing” first week of tolling falling to half the rate of toll-free period - UBS also downgraded the stock.
• Minara Resources’ (MRE) weak 1H report shows net profit down 80% on-year with no interim dividend – below consensus. Our analyst thought they’d fall over…but only down 2.7%.
• Fortescue (FMG) signs a rail and port agreement with Atlas Iron to give AGO access to their rail and Herb Elliot Port – Atlas Iron (AGO) up 14% early on the announcement.
• West Australia Newspapers (WAN) downgraded by brokers on poor FY08 results yesterday and cautious FY09 outlook – seen as a warning to all media companies….but up 4.13%.
• News Corp (NWS) kept mostly at a BUY by brokers after they posted results and positive guidance yesterday. A falling A$ helps. Down 3.11% or 52c to 1621c.
• ResMed (RMD) had its target price boosted by Credit Suisse after results yesterday showing positive top-line revenue growth. Up another 3% today.
• UBS has downgraded the Infrastructure sector after reviewing their cost of equity assumptions.
• Merrills says CBA’s crucial results on the 13^th are unlikely to surprise due to fairly good transparency around solid volume growth, improved margins and bad & doubtful debts at 23bps of total loans. Says CBA is under-provisioned yet has limited exposure to single-names. Down 25c to 4360c.
• Merrills expecting Telstra’s August 18^th FY08 result to be “very strong” with net profit up 14.4% and management’s long-term guidance to be upgraded. TLS up 4c to 453c.
• St George Bank has a briefing next Tuesday. SGB up 13c to 2898c.
• Corporate Express (CXP) downgraded by brokers post yesterday’s results showing falling customer sales and deteriorating market. Down 2%.