Morning Mumble: The Year's Round Up...+ some sundry

Good Morning, I'm not sure what I have done to the layout/settings or should I say what my daughter has done. Having been sat on my lap in the office whilst I took a call it appears as though she elected to change something. 

It's been hard to summarise the year where negativity crept in to the markets and sell-side was on the increase, only at the last minute to be FED fuelled (read as crack) by their commentary on interest rates. It should be noted that up until more recently there was a lack of speculation amongst commodities save for the more recent run (up and down) on gold and the big boys positions in copper. Its wholeheartedly absent, almost as though funds/investors are unwilling to commit. 

The reasoning for the contraction in speculation has been multifaceted and doing damage from all angles. It has been exacerbated by the likes of Citigroup (WSJ article: Citigroup Was Wary of Metals-Backed Loans. Bank Forged Ahead in a China Commodities Market Now Roiled by Fraud Allegations), BNP Paribas SA, UBS AG and Deutsche Bank AG looking at what lending (repos) they have and whether the metal is actually there. 

The saga continues in court:UK court reserves judgement in Citi, Mercuria's Chinese metals dispute. One would be wise to follow the case as pending on the outcome, could prompt the most radical changes in commodity financing for near 100 years. 

In addition, investors wrongfully overexposed themselves in 2013 to all commodities causing further contraction in 2014 including the bet on equities. Prime examples being gold, silver, iron ore and copper as they brought forward monies/leverage to take advantage of the "almost guaranteed appreciation." Most people then believed that prices would slip moderately but did not realise that demand was and is slipping as the realities of global economies become known. So the rush to the door in-conjunction with reducing demand has caused the slump. The longer-term consensus and speculators will no doubt be starting to take a view and grasp opportunity. 

More recently companies have been predicting demand or expectations of demand with surplus and/or oversupply expectations being reviewed downwards. Glencore are forecasting a copper deficit (FT) that not only contradicts the swelling in supply and better managed inventory levels by the Chinese but the reality of the housing market in China (key growth driver). They would perhaps be wise to look at realities of better stock management and a decline speculation. 

So with the Dollar gaining strength, Russia formally going tits up via their own making (read as sanctions) and their lack of investment in their economy preferring instead to spend everything (and more), miners are set to have their best opportunity to make a profit. Those marginal companies whom operate around the world should be able to make a profit if they can't its time to get shot of the management! In addition, those more remote miners reliant on diesel generators should be able to reduce their OPEX per lb/oz or tonne near 20-25%, expect some crap to get funded as well! 

Its wise to reserve judgement on the longer term outlook until its fully formalised, what is being evidenced in a consolidation across markets at a lower level, this includes in China where expectations are being slowly repositioned (downwards). With the likely risks of default in developing countries whom are reliant on oil there's going to be more conflict locally and volatility on the market as a result. 

Reading across, with costs reduction globally, especially utilities the M&A scene is set to be one of the most active we've had for a long-time. Expect action in utilities and mid-cap miners whom are able to produce at a profit. Services and Engineering within O&G (if the oil price continues to average down over the longer-term) may have a double hit. The recent fall and levelling in Weir Group et Al is is insufficient. One would be wise to wait for the oil companies final thoughts before catching that knife. Its likely at these prices CAPEX will have to be further reduced below the 15-20% consensus. 

Will leave the specific equity commentary for another time, save for Premier Oil (PMO) getting some cash in by selling two assets for Circa $147.5 million and Rare Earth Minerals (Scoping Study) which has a few assumptions based on demand; one just needs circa $500M to get the earth moving. Today's cheeky Christmas trade goes to TINCI HOLDINGS LIMITED Proposed Cancellation of Admission of Ordinary Shares to trading on AIM & 20 pence offer and Tesco...+ people would be wise to look at FXPO (Ferrexpo Plc)'s power issues. Its not likely to convince the shorts to close out from the obvious. 

Some Christmas cheer for Circle Oil (COP) in Morocco. Rumours still going round of a take out for COP. No prizes for guessing who...on the Moroccan results it might just convince me to become a buyer in the New Year. 

Atb Fraser