'Panic' grips global markets
John Heinzl
Thursday, September 04, 2008
Enjoying September are you? Didn't think so.
Living up to its reputation as one of the cruellest months for stocks, September has a perfect score so far: Three days, three gut-twisting losses.
In the span of just 72 hours, the S&P/TSX composite index has plunged 957 points or 7 per cent, including a 324-point tumble Thursday that could have been much worse: At one point, the index was down as much as 428 points before a few brave – or reckless – bargain hunters stepped in.
“The sentiment has gone from euphoria to panic,” said John Stephenson, senior vice-president and portfolio manager at First Asset Investment Management.
“Right now people want out at any price.”
For the S&P/TSX index, the September freefall is worse than in virtually every other market globally. The S&P 500 is off just 3.6 per cent, Britain's FTSE 100 is down 4.9 per cent and Japan's Nikkei has shed 3.9 per cent. (All figures in local currency.) One exception is the 7.7-per-cent skid on Brazil's Bovespa index, which, like Canada's, is stacked with commodity producers.
Until a few months ago, having a commodity-rich market made you the envy of the world. Even as the U.S. housing downturn was worsening and subprime bombs were exploding all over Wall Street, investors could count on China, India and other emerging economies to prop up demand for oil and metals.
Now that the global growth is slowing and China's sizzling economy is expected to cool, being a resource-rich market has suddenly become a curse.
“There's just so much uncertainty out there,” said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier in Toronto.
“It seems to be a loss of faith in the economy,” Mr. Nakamoto said.
Stoking worries about a U.S. recession, the Labour Department said claims for unemployment insurance rose last week, reversing course after three weeks of declines and surprising economists who were expecting a small drop. The jobless data, combined with mixed August sales results from U.S. retailers, helped send the Dow Jones industrial average down 344.65 points or 3 per cent to 11,188.23.
Adding to the global economic concerns, factory orders in Germany unexpectedly dropped in July, raising recession fears for Europe's biggest economy.
Apart from slowing global growth, commodities have been hammered by a resurgent U.S. dollar, which has gained for six consecutive days against the euro. Exacerbating the commodity rout was Ospraie Management LLC's decision to close its biggest hedge fund, which at one point was worth $4-billion (U.S.) but has suffered steep losses after its bets on resource stocks backfired.
Fearing that Ospraie will liquidate its portfolio of natural gas, oil, metals and other commodity holdings at fire-sale prices, many investors are selling their resource equities now in an attempt to minimize their losses. But the pre-emptive selling is only pushing prices lower.
“You've got people saying, ‘We've got to get out in front of this before we get crushed,'” Mr. Stephenson said.
On Thursday, the price of oil continued to slide, dropping $1.42 to $107.93 a barrel on the New York Mercantile Exchange. Gold and copper also fell. So did former market darling Potash Corp. of Saskatchewan, which has tumbled for five days in a row and is off 35 per cent from its high in June.
But it's not just commodities that have suffered September's wrath. All 10 S&P/TSX sector indexes are down on the month, ranging from a 1.5-per-cent dip for financials to a 12.3-per-cent wipeout for materials.
Just three days in, this is already shaping up as a September to remember – but for all the wrong reasons.
© Copyright The Globe and Mail
Friday, September 5, 2008
'Panic' grips global markets
OPEC might need to cut supplies by as much as 1.5 million bpd by early next year
OPEC likely to trim oil supply
Barbara Lewis and Simon Webb
Friday, September 05, 2008
LONDON/DUBAI — Slower demand, an economic downturn and cheaper oil could convince OPEC it needs to trim supply unofficially, but the producer group is expected to leave public output targets unchanged when it meets next week.
Prices have plunged from a peak of more than $147 (U.S.) a barrel in July after leading oil exporter Saudi Arabia took a unilateral decision to pump at the fastest rate since 1981.
At the same time, demand in top oil consumer the United States fell at the fastest rate since 1982 in the first half of this year and traditional price hawks Iran and Venezuela have raised the prospect of reining in oversupply.
Given the potential for oil stocks to build, the Organization of the Petroleum Exporting Countries (OPEC) will need to cut output at some point this year to prevent a further price fall, said David Kirsch of Washington-based consultancy PFC Energy.
“The question is not whether to cut, but when,” said Mr. Kirsch. “But... do you want to be taking oil off the market when you are heading into essentially peak demand in the fourth quarter?”
Consensus was building within OPEC, supplier of more than a third of the world's oil, on the need to reduce output, he said.
But with the price still above $100 a barrel, OPEC could be reluctant to risk the political backlash of making a public cut at its meeting late on Tuesday in Vienna.
“This will be a quick meeting, of that I am sure,” said one OPEC insider on condition of anonymity. “The most likely outcome will be to roll over formal output quotas.”
The clamour for more oil from consumers has abated as the price has fallen, but record fuel costs triggered protests world-wide earlier this year and oil has been one of the top issues in the U.S. election campaign.
Soaring prices meant OPEC members earned almost as much money from oil exports in the first seven months of this year as in the whole of 2007, according to U.S. government data.
“It would be unseemly of OPEC right now to officially cut production,” said Adam Sieminski, chief energy economist at Deutsche Bank. “But a quiet understanding to trim back production might be the order of the day.”
OPEC supply has been rising since May, led by extra production from Saudi Arabia and any call for tighter compliance would apply mostly to the kingdom.
It pledged to pump at 9.7 million barrels per day (bpd) from July, about 750,000 bpd above its target. Some independent assessors have said Saudi never reached 9.7 million bpd, but the kingdom has not confirmed this.
Other OPEC members have very limited spare capacity and are producing much closer to agreed levels.
The twelve of OPEC's thirteen members that have targets pumped a total of 790,000 bpd above their collective ceiling in August, according to a Reuters survey.
Informal rather than formal changes provide a means to test how much oil the market needs and how high a price consumers can stand.
OPEC meets again in Algeria in December, by which point the group might feel able to make a public output cut, sending a more decisive signal to the market.
“We can take this step later if we consider it necessary,” said Iran's OPEC Governor Mohammad Ali Khatibi this week. “There are so many factors that are uncertain right now, we may need to do this in December.”
He said OPEC might need to cut supplies by as much as 1.5 million bpd by early next year and could make a start at Tuesday's meeting by reining in supply above targets.
Together with Venezuela, Iran has implied it wants oil prices of no less than $100 a barrel. Both have big-spending populist governments that need high oil revenues, and were the first to raise the alarm as the price fell.
Others from OPEC, including Saudi Arabia, have taken a more moderate line. Saudi King Abdullah said in July after oil hit a record of $147.27 the kingdom was “already unhappy” when the price first hovered around $100 earlier this year.
Another OPEC source said last month the producer group was unlikely to make any formal cuts unless the price for OPEC's oil slipped below $80 a barrel.
To an extent, the impact of lower prices on producer finances has been offset by a strengthening dollar.
It has recovered from record lows earlier this year as the global economy has slowed and investors have started to price into other currencies interest rate cuts around the world, following aggressive cuts by the U.S. Federal Reserve.
The producers are in uncharted waters. Prices have risen more than five-fold in the past six years, and a year ago the idea of a cut at these prices would have been unthinkable.
At a meeting in Vienna in September 2007, when oil prices were below $80 a barrel, OPEC agreed a modest output increase of 500,000 bpd. It has since kept its production targets steady.
© Copyright The Globe and Mail
Thursday, September 4, 2008
Cro-X News 13 million additional lbs Added Over Mine Lifetime No Extra Costs
Arrow's President, Kim Tyler, comments "The impact of the new resource estimate and higher metal recoveries are substantial for the project. Not only are 13 million additional lbs of recovered nickel expected over the life of the mine but they will be produced at no extra operating or capital cost relative to the January '08 PEA.
They are also expected to be produced earlier in the mine life allowing for rapid payback of pre-production capital costs. The exceptional improved metallurgical recoveries thus contribute to Kenbridge achieving an 89% increase in pre-tax net present value over the first PEA, all other assumptions being equal. With expected net cash costs of US$3.47/lb of nickel, Kenbridge would be one of the lowest cost nickel sulphide operations in Canada.
Given these results and the fact that the deposit remains open at depth and along strike we are confident to move the Kenbridge project into feasibility as soon as possible".
January '08 PEA including average life of mine US$10.00/lb nickel and US$2.50/lb copper prices and a CD$1.00:US$0.90 exchange rate.
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