Commodities Roundup: GFG Alliance’s financing problems; Gold price slides; Oil producers walk fine line

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For the buyers and category managers out there, here’s a quick rundown of news and thoughts from particular commodity markets, including coverage of GFG Alliance, gold prices, the ups and down of oil and much more.

MetalMiner, a sister site of ours, scours the landscape for what matters. This week:

GFG Alliance and financing challenges

The SpendMatters team has covered the collapse of Greensill Capital extensively.

From a metals perspective, Sanjeev Gupta’s GFG Alliance has leaned on Greensill Capital for much of its financing. As a result, questions are building about GFG’s financial and operational future.

The GFG brand employs 35,000 people in 30 countries and reports annual revenues of $20 billion, information on the company’s website states.

MetalMiner’s Stuart Burns delved into the challenges GFG faces going forward.

Media reports last week indicating that the GFG Alliance’s main source of finance, Greensill Bank, is on the brink of collapse will probably not come as a total surprise to anyone following the history of what has always been a very opaque, almost murky source of finance,” Burns explained.

“The speed of events has spurred competitors to circle in the hope the more saleable bits of Gupta’s empire may shortly be up for sale as the group seeks to bolster its finances.”

In short, GFG finds itself in a precarious position if it does not find alternative sources of finance.

“Greensill Bank provides about €2 billion of financing to the group, with other supply chain facilities provided by other parts of the Greensill group,” he added.

“GFG’s Liberty Steel operation in the UK is still operating normally. However, the Rotherham plant has questions over how it will finance operations after the current production run comes to an end on Friday.

“Some scrap suppliers have apparently already started to reduce financial exposure. They are asking for cash upfront or not renewing contracts on the advice of their trade credit insurers.”

Gold price slide

The gold price has lost ground since August, when it reached over $2,035 per ounce.

Gold fell below $1,800 per ounce before eventually recovering to around $1,950 around the start of the new year.

Since then, however, the slide has begun anew. Gold closed just below $1,700 per ounce earlier this week.

Meanwhile, the US dollar — to which the gold price generally correlates inversely — has gained some strength. The US dollar index reached 92.30 earlier this week, marking an increase of 2.64% from the beginning of the year.

In other important indicators of economic sentiment, US 30-year treasury yields this week rose to 2.31%, up from 1.66% at the start of the year.

China’s steel industry

Last week, the Chinese government announced its latest five-year plan for the coming years, one that has large-scale ramifications for several industries and the global economy at large.

The environmental impacts of China’s massive steel and aluminum sectors have long been points of contention around the world (in addition to the price-depressing effect of overcapacity).

However, to some degree, China’s latest five-year plan could lead to the acceleration of the transition to “greener” methods of production.

“Apparently, local governments have already begun to impose curbs,” Burns wrote.

“Seven blast furnaces are under pressure to shut by next week in the city of Tangshan. The news raises fears that reduced output will result in higher steel prices. In turn, it will increasingly drive Chinese producers further up the value chain.

“As a result, they would venture into technically more sophisticated product areas to which Western producers had retreated in the face of relentless competition from China at the commodity end of the market.”

On the heels of the news, Chinese steel firms' share prices rose.

Rio Tinto to invest in new tellurium plant

Miner Rio Tinto plans to invest $2.9 million to build a new tellurium plant at its Kennecott mine in Utah.

Tellurium, in the form of cadmium telluride, is an important semiconductor used in solar panels.

Tellurium will be recovered as a byproduct of the copper smelting process, the miner said.

Oil price trajectory

The oil price, meanwhile, has been rising steadily on the back of slowly recovering demand. In addition, improving sentiment from vaccine rollouts and supply management by OPEC have boosted oil.

The Brent crude price rose above $70 per barrel but has since pulled back.

Burns weighed in on the oil price’s trajectory and where it could go from here.

“This week, prices were driven over $70 a barrel by news of Houthi rebels’ drone and ballistic missile strikes on Saudi oil facilities and cities on its eastern seaboard,” Burns explained. “While no casualties were reported, and no infrastructure was damaged, or production lost the jolt it sent through the oil markets was significant.”

In terms of supply management, oil producers are walking a fine line. On the one hand, they are aiming to manage supply to support prices. In doing so, however, they could potentially dent the fragile demand recovery.

“For now, OPEC and its partners are walking a fine line between managing output to support prices without allowing them to rise to the point where they impact recovering demand or stimulate increased supply,” he wrote. “Within bulls’ short-term view of an $80 oil price, they still have some room for maneuvering but demand remains subject to economic recovery and any significant increase in output would be taken negatively by the market, some analysts suggest, potentially resulting in a sell-off.”

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