Elliott’s BHP acquisition: Dividends Yes; Total Victory – Not yet;

, , , ,

 

Who lightened the area?

Firstly, if we observe the subject closely, it is inviting to consider BHP Billiton as the one who gouged into demands by Elliott Advisors. As well they seem to have together agreed about selling BHP’s U.S. onshore oil & gas business.

The main thing to mention is that in an official letter from April, Elliott had 3 major points. Two of which were depriving the U.S. shale assets and pushing up the shareholder returns.

But the thing we ask ourselves is, whether the BHP’s decision was firmly inspired by Elliott.. Or it would have happened either way.

Observing the dividends, it is clear that BHP would follow it’s bigger fellow Rio Tinto moves. Trying to return as much cash as possible to their investors. In particular the huge boost of free cash flow coming from higher prices of their base: Iron ore and Coal.

 

Overview

Last Tuesday BHP said that it would triple its final dividend to $0.43 a share. Which is slightly below the expectations of analysts.

”The world’s largest mining company also posted a five-fold rise in annual underlying profit to $6.7 billion for the year to June 30, which was below the market consensus for earnings of around $7.4 billion. (Reuters)”

It could be argued the increase in the dividend was generous.

Second thing worth mentioning, is that BHP decided to pay down net debt. The debt was at the beggining reduced at $10 billion, and this move is definitely to strengthen the company’s balance sheet.

Furthermore, it is possible that Elliott would have preferred the FCF being generated by BHP & used for a share buyback. Makes it much more effective than being used in cutting debt.

“We have determined that our onshore U.S. assets are non-core.”

“We are actively pursuing options to exit these assets for value.” BHP said in its results presentation (Reuters)

Elliott definitely deserves credits for finding a way to enter BHP’s underperforming assets. It is also clear that at some point they saw that $20 investment in shale, made 6 years ago, was not the greatest move they made.

 

Investors Aims

What is likely to be of more relevance to Elliott, and other investors, is how sustainable are BHP’s increased dividends.

When making a commentary, the company was very cautious. Stating that Crude Oil prices will trend higher. Steel demand will slightly grow. While the cost curve for the iron ore is going to continue flattening.

BHP is seeing a slight uncertainty in China’s metallurgical coal; but the outlook for overseas market is in all positive.

In tanto, it seems that BHP isn’t expecting the prices of its major commodities to rally strong. But, it equally it is not forecasting any important declines.

In conclusion, the company should remain a strong generator of cash.  Adding & assuming it remains committed to capital discipline. Returns to main shareholders can increase. But, it’s highly unlikely that the massive jump in dividends, as the one from June 30th will repeat soon…

 

/0 Comments/by

SHFE morning report; weaker U.S. and Chinese data

Important Facts about Today’s Market:

 

  • New Zealand Employment Change QoQ rose to actual 1.2% (forecast 0.8%)
  • Germany Unemployment Change – 30K actual (forecast -10K)
  • UK Construction Purchasing Managers Index (PMI) fell to actual 52.2(forecast 52.4)
  • The US ADP Nonfarm Employment Change to actual 263K (forecast 187K)
  • Also US ISM Non-Manufacturing PMI fell to 55.2 (forecast 57.0)
  • US Crude Oil inventories to -3.641M while exp. was -1.661M
  • FED Statement & FED Interest Rate Decision

 

SHFE

 

Base metals today on the Shanghai Futures Exchange were broadly lower during Asian morning trade, as desolate economic data from China and the USA weighed on market sentiment.

US Car sales

Firstly, under-performance in US car sales during April combined with China’s weaker PMI data has left market participants concerned over weaker economic growth in these two countries, according to a Shenzhen-based senior analyst. 

Secondly,the perceived weakness has dampened market sentiment and sent the base metals prices into retreat this morning.

“Prices drifted lower as investors fretted about weaker than expected manufacturing activity in China. Metals also fell as US carmakers reported steeper-than-expected US sales declines, suggesting demand will be weaker in that region.”

Thirdly, sales at all six of the biggest automakers in the USA fell again in April, with each company’s figures coming in below analysts’ estimates resulting in the fourth consecutive month of falling sales in aggregate, according to National Australia Bank (NAB). (Metal Bulletin)

“On Monday, March US personal spending figures disappointed (0.0% compared with 0.2% expected) and now the new drop in car sales confirms the view that not all is well with the US consumer. The recent soft US data releases are challenging the view that a rebound in activity should be expected in [the second quarter].”

 

China

Meanwhile, China has also had its fair share of disappointing data this week.

Following, China’s official NBS manufacturing PMI fell to 51.2 in April from 51.8 in March and below market expectations of 51.6, while the country’s non-manufacturing PMI also dropped to 54.0 in April from 55.1 in the previous month. Additionally, China’s Caixin manufacturing PMI fell to 50.3 last month from 51.2 in March.

“These three numbers taken together point to the same issues, that there is a slowdown in new domestic orders, export orders are falling, there is rising unemployment and a fundamental weakening in business confidence. Also, looking at the extreme, we may have to face the fact that the Chinese economy may be starting to embrace a downtrend,” Bands Financial Ltd said on Tuesday.

 

Copper price dips

SHFE June copper contract stood at 46,610 yuan per tonne as of 03:48 London time. Down 180 yuan compared with the previous session’s close.

“Tightened credit in China during April will continue to put pressure on copper prices,” China’s Galaxy Futures said on Wednesday.
After suffering a mild downturn in April, copper is facing more headwinds going into May, according to INTL FCStone Inc analyst Edward Meir.
“The market finds itself in somewhat of a soft spot going into [the second quarter] given that the big events driving values higher last quarter, namely the Escondida and Grasberg outages, are now behind us and the next wave of labour negotiations will not take place until later this year,” Meir said. (M.B.)

In conclusion, workers at PT Freeport Indonesia have continiued a month-long strike. At the world’s second-largest copper mine Grasberg. The strike is expected to hinder expansion plans at the mine.Strikers are persistent, it is the 3rd day of protests.

 

 

 

/0 Comments/by

Week Ahead: Forecasts and Expectations

Short recollection of the past week:

Firstly, “Things have been fairly quiet today and for the last few days, but it is starting to pick up as we head into May.”

Friday: “Copper hit highs of 5,750 per tonne today and finished trading up $43 on yesterday’s close. Nickel bounced back from a decline earlier in the week with a price hike of $120 per tonne, while tin sits just $100 shy of the $20,000 per tonne mark.

Secondly, “Over the past month, copper inventories [on the LME] have fallen over 16%, while zinc is down 9%, lead 8% and aluminium 6%. All have had recent supply disruptions which may have impacted this.”

Thirdly, “Base metals bounced overnight with volumes improving compared with earlier this week, although lead and nickel are the only metals to register above average turnover.” (inspired by Metal Bulletin)

Next Week:

Following, this is the list of next Week’s happenings along with the dates they will happen on.(inspired by www.investing.com )

 

Monday, May 1:

  • The US Commerce Department reports personal spending. Economists project an increase since March, as they expect improvement in demand at the end of a disappointing quarter.
  • ISM Manufacturing: Economists anticipate a report that US manufacturing growth slowed in April, after doing so during March as well. That’s after rapidly advancing to a 2.5 year-high in February. Could equities follow?
  • US Treasury Secretary Steven Mnuchin will be interviewed by Fox at the Milken Institute Conference. Note: Mnuchin has been partially responsible for the dollar’s decline this year. Also he repeatedly expressed that too strong a dollar may hurt short-term economic growth in the US.

 

Tuesday, May 2:

  • The Reserve Bank of Australia will announce its monetary policy decision. Its benchmark interest rate has remained unchanged since September
  • Russian President Vladimir Putin and German Chancellor Angela Merkel meet for talks on economic sanctions. This meeting has the potential to create wild fluctuations in the Russian ruble.
  • The FOMC begins its two-day monetary policy meeting.
  • The BOJ releases the minutes of its March policy meeting
  • Economy: US auto sales
  • Energy: American Petroleum Institute oil inventory weekly report.

 

Wednesday, May 3:

  • The FOMC is expected to keep the Federal Funds rate unchanged within a target range of 0.75-1.00 percent.
  • Economy: ADP employment for April, Markit Services PMI (April final) and ISM NON-Manufacturing Index for April
  • Energy: US Energy Information Administration weekly crude oil report

 

 

Second Half of the following week:

 

Thursday, May 4:

  • UK local elections. Following, Results may indicate the outcome of the general elections in five weeks.
  • However, ECB President Mario Draghi will speak at event in Lausanne, Switzerland. The euro is very sensitive to anything he says.
  • Also, Bank of Canada Governor Stephen Poloz speaks at CanCham Mexico and Club de industrials in Mexico City.

Friday, May 5:

  • Commodities: Commodity Futures Trading Commission report on futures and options weekly positions, Baker Hughes US weekly rig count.

Saturday, May 6:

  • Berkshire Hathaway annual shareholder meeting.

 

In conclusion, the beginning of May is holiday in Europe, while U.S. market functions as usual. This is going to be an exciting Week, and we will witness the outcomes of important situations together.

/0 Comments/by

Oil prices plummeting even On Wednesday, the 26th of April

Who are the winners and losers?

 

Plummeting oil prices are leading to significant revenue shortfalls in many energy exporting nations, while consumers in many importing countries are likely to have to pay less to heat their homes or drive their cars.

 

Wednesday, the 26th of April

Oil prices lower even on Wednesday. U.S. crude inventories again rose and record supplies in the rest of the world. It cast doubt over OPEC’s ability to cut output and constrict the market.


U.S. West Texas Intermediate (WTI) was trading down 4 cents at $49.52 per barrel at 0845 GMT, after gaining 0.7 percent in the previous session. The WTI price has fallen for seven of the past eight sessions.

North Sea Brent crude, the international benchmark for oil prices, eased 3 cents to $52.07 per barrel. Brent is around 8.5 percent below its April peak. (Reuters)

Market players pointed to the American Petroleum Institute’s (API) in report issued late on Tuesday, as weighing on prices. The report showed crude oil stocks rose 897,000 barrels in the week to April 21, defying expectations of a 1.7 million barrel draw. Also, it showed a huge build in gasoline stocks, unusual for this time of the year.

 

EIA

“Widespread worries over stubbornly high OECD oil stocks will be justified in what would be a setback to the global oil rebalancing process. So these figures might should be examined by the EIA.”Said an analyst.

The U.S. Energy Information Administration (EIA) will issue its inventory data at 1430 Greenwich Mean Time Today.

Both Brent and WTI prices pared losses and came close to flat after Saudi Energy Minister Khalid al-Falih said his country was interested in further talks between the Organization of the Petroleum Exporting Countries and non-OPEC producers to stabilize oil prices.

OPEC and a group of other producing countries, including Russia but excluding the United States, have pledged to cut output by 1.8 million barrels per day (bpd) during the first half of the year in order to rein in years of oversupply and prop up prices.

Yet prices have largely slumped this year as U.S. inventories remained brimming and global fuel supplies set new records, despite the pledges to cut output.

OPEC-led supply cut started at the start of the year. The average value of the Brent crude forward curve has fallen by over $5 per barrel since then. The slump in Brent is a result of record crude oil volumes in circulation on ships around the world. Despite the cuts.

Thomson Reuters Eikon shipping data showed 50 million bpd have been booked for shipment on tankers this month, up 10 percent since last December, contributing to rising stocks not just in the United States but in key markets like Japan. (Reuters)

/0 Comments/by

Bright Monday morning on LME; All Base metal prices slightly up

Overpassing the last week

 

Monday morning was a bright period, after last week’s price crashes. All base metal prices were slightly UP during morning trading on LME. Tin was the only one who had a price decline.

Firstly, copper started trading at $5,660 per ton after hitting a three-month low this time last week, as all other base metals followed its upward trend and saw slight price increases.

There has not been any immense movement in prices.

Secondly, investors are keeping a close on the outcome of the French presidential election.

“Presidential candidates Emmanuel Macron and Marine Le Pen have won the first round of voting in the French election and will head into a run-off second round on May 7.”

“The base metals started to find some strength towards the end of last week but the buyers did not appear to be in any particular hurry. That may have happened due to uncertainty ahead of the French election,” William Adams, Metal Bulletin senior analyst, said. (Fast Markets)

 

Copper price rises as inventories fall

Following, three-month copper price rose by $37 to $5,660 per ton. While copper inventories dropped 3,550 ton to 264,850 ton, with 7,775 tons of freshly re-warranted copper. Anglo American has reported a 3% year-on-year drop in copper production during the first quarter of 2017.

Workers at Freeport-McMoRan’s Grasberg copper mine are said to be planning a month-long protest around the same time that exports are expected to resume. “All 9,000 union workers at the mine are expected to strike for the month of May, as they protest against staff cuts.” Chile’s Codelco has suspended operations at a concentrator plant at its Salvador copper mine after a supervisor died in an accident. The facility produced 60,000 tons of copper in 2016.

 

Base metal prices increased; Tin sank a bit

Three-month aluminium price was at $1,937 per ton this morning, a $4 increase on Friday’s close price. Aluminium Inventories were down 9,625 tons to 1,678,250 tons.

  • Nickel price recovered slightly and saw a $10 increase to $9,355 per ton as it looks to make up for free falling prices earlier this month. Stocks for nickel fell by 450 tons to 380,495 tons.
  • Three-month zinc rose by $6 as it looked to jump back above the $2,600 per ton mark. It is currently trading at $2,590.50 per ton. Zinc inventories fell 1,950 tons to 353,200 tons.
  • “Data released by China’s NBS showed its domestic zinc production fell to 504,000 tons in March, the lowest level in a year as smelters conducted maintenance during the recent ore shortage.”
  • Lead prices were up $4 to $2,146 per ton. Stocks were down 250 tons to 166,925 tons.
  • Tin was the only base metal to see a decline; the three-month price fell $60 to $19,690 per ton.
  • Inventories for tin fell 25 tons to 3,170 tons after staying unchanged for two trading days.

 

Currency moves and data releases

  • The dollar index fell 0.72 to 99.03.
  • Brent crude oil spot price rose by 0.85% to $52.36 per barrel.
  • In equities, the FSTE 100 was up 108.09 to 7222.64.
  • In data, the agenda is fairly light today with German Ifo business climate, UK CBI industrial order expectations and China’s CB leading index.
  • In addition, US Federal Open Market Committee member Neel Kashkari is giving two speeches today.
/0 Comments/by

Wall Street losses after US drops mega-bomb on Afganistan

 

Global

Geopolitical risks remain front and center, following the bombing of Afghanistan.

Most noteworthy, markets in Japan, South Korea and China closed lower on Friday. As geopolitical tensions in the region heightened, while other major bourses in Asia remained closed for a public holiday.

In Japan, the benchmark Nikkei 225 closed down 91.21 points, or 0.49 percent, at 18,335.63, while the Topix slid 9.24 points, or 0.63 percent, to 1,459.07. Across the Korean Strait, the Kospi closed down 13.73 points, or 0.64 percent, at 2,134.88. Chinese mainland markets were also down — the Shanghai composite finished down 31.47 points, or 0.96 percent, at 3,244.48 and the Shenzhen composite fell 28.01 points, or 1.39 percent, to 1,986.64. Taiwan’s Taiex fell 103.75 points, or 1.05 percent, to 9,732.93. (CNBC info)

Asias sessions

The Asia’s sessions followed a lower finish on Wall Street. It happened after US has dropped its biggest non-nuclear bomb on Afganistan. There are many consequences of this move, especially on the stock-exchange markets.

This is the first time the GBU-43 bomb, known as the “mother of all bombs,” has ever been used in combatThe bomb contains 11 tons of explosives and is also known as the Massive Ordnance Air Blast bomb.

In the meantime, the geopolitical tensions are just taking an upwards trend. US and North Korea are problematic. After official for the reclusive regime on Friday blamed President Donald Trump for escalating tensions on the Korean Peninsula.

Vice Minister Han Song Ryol warnes the U.S. against provoking North Korea military with words: “We will go to war if they choose.”

Dollar Index

The dollar index, which measures the U.S. dollar against a basket of currencies, traded at 100.59 at 2:17 p.m. HK/SIN, climbing from levels near 100.01 in previous sessions.

 

“The U.S. dollar took its cue from yields, weaving in and out of negative territory.” (Kathy Lein, managing director of foreign exchange strategy at BK Asset Management. )

 

 

Yen Indexes

Among other currency majors, the yen strengthened to 108.92 against the greenback Friday afternoon local time, after weakening to an earlier high of 109.22. The Japanese currency remained stronger than levels above 110.7 reached against the dollar earlier in the week.

 

Australian Dollar

Following, the Australian dollar fetched $0.7562 and the euro traded at $1.0613.

 

Oil summary

Oil prices finished modestly in the Thursday session even as U.S. oil rig count rose to its highest level in two years and threatened the re-balancing of markets, according to Reuters. Energy services firm Baker Hughes said drillers added 11 oil rigs in the week to April 13, bringing the total count up to 683.

Global benchmark Brent settled up 3 cents at $55.89 a barrel in the previous session, while U.S. crude was up 7 cents at $53.18.

 

/0 Comments/by

Imports from Argentina and Indonesia hurting U.S. biodiesel producers ?

A research

 

Firstly, some very interesting news are happening. Following, U.S. said it would start an investigation into its import of biodiesel. As mentioned, this biodiesel is coming from Argentina & Indonesia. It is possible that there are some signs of dumping and subsidization in the importing process.

In addition, the United States International Trade Comision is doing a research on this subject. It is scheduled to make a preliminary decision on May the 8th. The decision will be about whether such imports from Argentina and Indosnesia hurt U.S. economy and its diesel producers.

U.S. biodiesel producers asked their government last month to impose anti-dumping duties on imports of biodiesel. They said it has flooded the U.S. market. While it also violated the trade agreements. As that is happening, there are few more days left ahead Mike Pence’s visit to Indonesia. Mike Pence, U.S. Vice President is visiting Indonesia to check some real issues about anti-dumping prices of biodiesel.

Indonesian government stating the opposite

 

-“The Indonesian government, especially the trade ministry, will be cooperative in the investigation by providing arguments and supportive data. We can also give the documents which show that there was actually no dumping or subsidies.” (Indonesia’s director for international trade, Oke Nurwan.)

Following, the biodiesel group from Indonesia is saying that it had asked its government to bring up the issue. To bring it during Pence’s visit to Jakarta next week. Previously, Argentina’s biodiesel association called CARBIO rebuffed dumping accusations.

Indonesia is a world’s top producer of PALM OIL. As a very competitive resource it can be used to ruffle the biodiesel. Indonesia relies heavily on exports. Yet their economy highly depends on palm oil. Being able to export tons of palm oil to the world’s market, Indonesia puts itself to a very high place in trading with this resource.

Charts show amount of CPO to be used in biodiesel production in Indonesia. Those are the forecasts based on Indonesias Estate Corp Fund for Palm oil. Information From 2016, predictions are till the year 2020.

 

U.S. Imports

 

 

Charts: Showing 2016 & 2017 statistic data. U.S. production and import. (Millions of gallons, in January & February)

Total U.S. imports rose to 3.5 billion liters (916 million gallons). It was a record in 2016 according to the U.S. government data published in March. Argentina represents about two-thirds of United States foreign imports. It is followed by Indonesia and Canada.

In the meantime, Indonesia is facing a pressure in Europe too. It is happening because of its government filling a WTO complains against European Union’s anti-dumping duties on Indonesian biodiesel.

Finally, the European parliament voted last week to call on the EU to easily phase out the use of Palm Oil in biodiesel by 2020. Indonesia, along with Malaysia is planning to send a joint mission to Europe next month. They want to prevent the adoption of this resolution.

 

/0 Comments/by

Asia’s fuel demand stubmbles, after years of soaring growth

ASIA

 

The explosive growth of fuel consumption in Asia, is taking a downwards trend. Fuel consumption in Asia’s biggest economies is plummeting under the OPEC’s decision to end a global supply glut and lift prices.

 

First of all, Asia takes third place over the global supplies. Asia Is the worlds fastest growing region in oil consumption. Surely the insatiable fuel thirst has long been a core support for prices.

Yet some resources say that picture of buoyant growth in demand is crumbling.

“The signs of growing demand aren’t quite what they seem. Chinese fuel growth is at a three year low, Japanese fuel demand is down,” said Matt Stanley, a fuel broker at Freight Investor Services (FIS) in Dubai. “Considering the sheer volume of product available… sooner or later I think we could see some distressed sellers.”

http://www.nasdaq.com/markets/crude-oil-brent.aspx

Speaking about Brent Crude Oil, futures have risen by 5.5% this month to 55.75$ per barrel. As traders bet on a broader commodity market , risk is present. And there are also Middle East risk premium after the U.S. missile attack on Syria last week.

Top exporter Saudi Arabia this month lowered the price for its May. Crude for Asian customers by 30 cents versus Apri. And to a discount of 45 cents compared with the benchmark Oman/Dubai average. There remains an abundance of oil available to buyers. In conclusion, that abundance is more opaque& physical oil market is not as convinced by the rally in financial markets.

 

CHINA AND INDIA GASOLINE EXPORTS

 

China’s gasoline exports in February climbed to their second-highest monthly level on record. As refiners increasingly turned to exports to Asian markets to drain a domestic supply glut. A glut that almost wiped out imports altogether.

In India also, which is not rarely considered as the next driver of global demand growth, fuel consumption fell 0.6%. In comparison with March from a year earlier.

“The stutter in Indian demand may have been caused due to the effects of demonetization,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

 

Especially relevant, India abolished existing 500 and 1000 rupee notes last year, which made up the mush of the country’s cash in circulation.

India’s annual fuel demand is still expected to grow this year. But it is unlikely to recover enough to fully offset the demonetization impact.

K.Surana, chairman of Hindustan Petroleum Corp, said: “I expect India’s fuel demand to rise by 5.5 to 6 percent this year.” Though that is still a high growth rate by global standards, it is a far cry from 2016’s refined product demand growth of more than 10.9 percent.

 

POPULATION FALLING

Analysing the other major Asian oil buyers, their terminal also declines. For example South Korea and Japan face major demographic problems. Low birth rates, and an aging population. A Japaneese government agency predicted that before 2065 population will fall by nearly a third.

Improving fuel efficiency and the long-term picture for oil producers trying to sell to Japan, appears to be bleak.

“Because of structural factors such as the improvement of vehicle fuel economy, domestic demand has been weakening… and that is continuing.”

Japan’s oil demand is expected to fall by more than 1.5 percent per year on average over the next five years, forecasts by the government’s energy committee show.

In South Korea, oil products demand fell by 0.4 percent in January-February from a year earlier, according to data from Korea National Oil Corp.

“This year’s overall domestic oil products demand growth is expected to slow,” said Lee Seung-moon, a research fellow at the state-run Korea Energy Economic Institute.

The longer-term trend in South Korea is similar to that in Japan. Aging population, rising efficiency, and alternative fuels are making a fuel market fuss.

 

IS THERE AN END TO GLUT?

In the beginning, Goldman Sachs wrote in a note to clients on Wednesday that its long-term forecast for benchmark U.S. crude is $50 per barrel versus the current price of $53.08 per barrel.

Other data shows that global oil supplies on average exceeded demand by 680,000 bpd in 2016. And that 2017 will still see oversupply, albeit of less than 100,000 bpd, excluding stored oil.

Lots of fuel remains stored on tankers. Which are in Asia’s oil trading hub around Singapore. Eikon data shows that around 20 supertankers are currently sitting offshore Singapore and southern Malaysia, filled with oil.

While this is slightly lower than a month ago, it is a sign of continuing oversupply.

Keeping oil on tankers is only profitable if fuel prices for future delivery are significantly higher than those for imminent discharge.

Yet the forward price curve for Brent crude futures, shows only a slight increase of 90 cents in prices between now and a peak in November, at $57.20 per barrel.

“That’s not enough to make it profitable to store oil on tankers..” said an anonymous ship broker.

What’s worse, Brent prices start falling from November onward, back toward $56 a barrel for delivery toward the end of 2018 and into 2019.

Such a price curve, “makes it commercial suicide to store oil on tankers, so the only reason to do that is if you have nowhere else to put it,” the broker added.

 

/0 Comments/by