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BHP is unlikely to attack Anglo or Teck in its pursuit of organic growth
Investors and bankers on Wednesday said that BHP, the world's largest copper miner, is focusing on growing its own assets as it transitions to a new leadership. This means it will not be able to gatecrash a planned $53 billion merger between Anglo American Resources and Teck Resources. Anglo American, a London-listed company, and Teck Resources, a Canadian firm, announced their merger on Tuesday. This is the second-largest tie-up in this sector. The goal of the merger is to create a global heavyweight focused on copper. The deal was announced just over a month after BHP canceled a $49-billion bid for Anglo, which would have boosted the Australian miner’s position in the metal considered essential to the energy shift. Investors said that BHP's strategy has been consistent, and it suggests it will not be making a move against Anglo or Teck. Andy Forster, portfolio manager of Argo Investments, Sydney, which owns BHP shares, said that any move by BHP would be a surprise, given BHP's statement, "We have moved forward." BHP spent instead $2 billion on a stake in two Argentinian projects with Lundin, including the Josemaria Mine, whose life last month was extended by six more years. It also has pushed to increase production at the top copper mine Escondida, in Chile. BHP refused to comment on the AngloTeck deal, but pointed out recent comments made by its CEO who said that M&A is just one of many levers for growth. Mike Henry, CEO of BHP, said in an August results call that it was difficult to find the right combination between commodities we want, and asset quality we desire, at a cost that would still allow us to unlock value for BHP's shareholders. Anglo, despite its recent inability to sell its Australian coal assets has worked hard to increase its share price compared to a year earlier, according to a M&A banker. Both miners are now in the game. Anglo's shares are up. They could likely put in a strong defence, like they did the last time," said he. Anglo shares are up 20% since BHP's late April bid, while BHP has dropped 8%. Two people told me that the deal was clever because it benefited Canada in ways that other companies that might be interested in buying Teck would find difficult to duplicate, like moving the headquarters of the new company to Canada. The Australian government required that the holding company's headquarters be in Australia as part of the conditions it set for the approval of BHP's 2001 merger with South Africa’s Billiton. Another potential stumbling-block is succession. BHP Chair Ross McEwan succeeded Ken MacKenzie as CEO in March after a decade of his tenure. Henry, however, is now more than five years deep into the typical six-year period, so BHP's focus may be on replacing him, rather than on large M&A. Bankers don't rule out BHP's possible involvement in the future, particularly if the deal does not go as planned. A M&A banker who was not directly involved with the deal said, "You would have to seriously think about it. The two most obvious targets for a deal that has no premium." The parties anticipate the deal to take between 12 and 18 months to close. They have time. A deal does not have to be completed tomorrow.
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Austria loses its legal challenge against EU 'green gas' and nuclear rules
Austria lost its legal challenge to the European Union's rules classifying nuclear energy and gas as climate-friendly investment on Wednesday. Europe's second highest court sided in favor of the EU. Austrian government challenged the decision of the European Commission to include nuclear and gas in the EU "taxonomy", which is a list of investments in Europe that can be labeled and marketed. The court agreed with Brussels in a ruling that said the EU Commission was "right to believe that certain economic activities within the nuclear energy sector and the fossil gas sector can, under certain circumstances, contribute significantly to climate change adaptation and mitigation." Gas and nuclear were included in the EU taxonomy for 2022, which exposed deep rifts among countries about what energy sources they should use to achieve climate change goals. Spain and Denmark, among others, had said that it was not credible for gas, which is a fossil fuel emitting CO2, to be labelled as climate-friendly. Poland and Bulgaria are among the countries that have sought to support investments in gas as a way to get rid of more polluting coal. Austria's legal case, filed to the EU general court, argued that Brussels should annul rules because nuclear energy can't meet the requirement of "doing no significant harm" to environment due to concerns about radioactive wastage. Austrians are generally against nuclear power, and the country never built an atomic reactor. (Reporting and editing by Charlotte Van Campenhout, Charlotte Abnett)
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ANZ increases gold price forecast by ANZ to $3,800 due to solid demand
ANZ Group, an Australian bank, raised its gold price forecast for the year to $3,800 on Wednesday. It expects that prices will peak at $4,000 per ounce by June next year, due to strong demand from investors. Gold prices reached a record high of $3,673.95 Tuesday. They have gained 38% this year due to a weak dollar, central bank purchases, dovish monetary policies and increased global uncertainty. ANZ analysts stated in a report that "prospects of continued accommodative monetary policies, increasing geopolitical challenges, ongoing macroeconomic issues, and concerns about the Fed's independent will strengthen the investment case" for gold. The central bank's gold purchases in 2025 are expected to be between 900 and 950 tons, which translates to 485 to 500 tons of purchases in the second half of the calendar year. China's central banks added gold to their reserves in August. This is the 10th consecutive month that they have purchased bullion. The U.S. Fed will probably maintain its current easing policy until March 2026, due to rising risks on the labour market. This will put downward pressure on U.S. Treasury rates, which usually increases the appeal of Gold," ANZ stated. The Australian lender raised its silver price target for the year to $44.7 an ounce. It cited support from the gold bull run, and strong ETF inflows. On Monday, spot silver rates reached a record high of $41.65/oz.
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The energy transition in Asia is threatened by coal subsidies and policy instability
Industry executives warned on Wednesday that Asia's clean-energy push would stall unless the governments cut fossil fuel subsidies and offered a stable policy direction. They also said they needed to invest in upgrading grids. Executives cited the cancellation of renewables' auctions and the subsidies given to fossil fuel industries as the main obstacles to growth for green investments, at a time that data centres are driving the growth in energy demand. "Coal is still subsidised, and energy and power in general are used to gain votes." Lawrence Wu, Chief Financial Officer for Asia at Portugal-based renewable energy firm EDP Renewables told the APPEC Conference in Singapore that this was the biggest obstacle. The coal industry in major Asian economies, including Indonesia and India, continues to be rewarded, claiming that it keeps retail electricity tariffs low. They also cite lower emissions per capita to justify their dependence on fossil fuel. Nitin Apte is CEO of General Infrastructure Partners' Vena Group in Singapore. The company has quadrupled the construction of renewable energy project in Asia. We can estimate the risk if we know that a permit will take four years to obtain and we are certain of all the steps. Apte explained that the concern arises when an auction is run and then cancelled, or if the power purchase contract is not bankable. Taiwan has revoked its offshore wind generation licenses following a review in this year. India, on the other hand, has cancelled 11,4 gigawatts of renewable energy tenders over the past two years due to high tariffs. He said that data centres are causing a surge in demand for power across the region. This is not due to renewable energy. "I don't believe they (data centers) really care about the carbon intensity of their data centres." "They just want energy," Apte stated. Malaysia, one the most important data centres markets in Southeast Asia, has increased coal-fired electricity production and imported fuels at record levels to take advantage of low prices. The executives said that delays in obtaining permits and other challenges were increasing financing costs. They also called for a long-term plan and predictable timelines. Wu said EDPR was "doubling down" in Japan and Australia because they had "sustainable" risk that the company is "prepared to accept". The predictability of the project helped to reduce capital and financing costs. (Reporting and editing by SonaliPaul; Sudarshanvaradhan)
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Asia stocks rise, bonds fall when traders look at odds of a bigger Fed cut
Asian stocks followed Wall Street higher Wednesday, and safe-haven bond prices fell. Traders increased their bets on the possibility that a softening U.S. labor market would prompt the Federal Reserve to lower rates by at least one quarter point next Monday. S&P 500 Futures rose 0.3%, while STOXX50 futures in Europe gained 0.2%. The dollar is little changed after two days of crucial U.S. inflation data, which will begin later on Wednesday and continue until the Fed's September 17, decision. After Israel's attack against Hamas leaders in Qatar, crude oil prices continued to rise. Geopolitical concerns remained at the forefront of investors' thoughts after Poland and NATO scrambled their air defences in order to shoot down drones as a result of a Russian air strike on western Ukraine. The Nikkei 225 index in Japan rose 0.8%. South Korea's KOSPI increased by 1.7%. Taiwan's equity benchmark reached a new record high of 1.5%. Hong Kong's Hang Seng rose 1.3% while mainland Chinese blue-chips rose 0.3%. Overnight, S&P 500 and Nasdaq Composite, as well as Dow Jones Industrial Average, each finished the day with new all-time records. The CME Group's FedWatch Tool reveals that traders see a Fed rate cut next Wednesday as an almost certain thing. They even place odds of 8.4% on a half-point increase. Investors were convinced that the Fed could not wait to support the economy any longer after a dismal payroll report last week. The final obstacles to this view will be the readings of consumer and producer inflation on Wednesday and/or Thursday. Kyle Rodda is a senior financial market analyst at Capital.com. He said that an upside inflation surprise would cause the probability of a rate cut to be reduced, not just for September but also for future months. According to current risk appetite, the rapid deterioration of U.S. data on the economy, especially jobs, is the reason that markets are pricing such aggressive easing by the Fed. The markets have taken the court ruling, which temporarily prevented President Donald Trump from removing Federal Reserve governor Lisa Cook. This case is likely to be heard by the Supreme Court. Investors are closely following this unprecedented legal battle, as it could threaten the long-held independence of the central bank. Treasury bonds in the United States fell for a second consecutive day on Wednesday. This pushed yields up. After a nearly 3-basis-point increase on Tuesday, the 10-year Treasury yield increased by 1 basis point, to 4,088%. The equivalent yields on Japanese government bonds rose by 0.5 basis points, to 1.565%. This is a slight decline from the earlier increase after a successful auction of five-year bond. When bond prices drop, yields increase. The U.S. Dollar Index, which measures currency against six rivals retreated slightly to 97.707 and reversed earlier gains. The dollar was unchanged at $1.1715 for the euro and down by 0.07% to 147.31 yen. This Thursday, the European Central Bank will set its policy and it is expected that rates will remain unchanged. Last month, economists were divided on whether the ECB would continue to reduce rates. However, recent data shows that inflation is close to 2% and unemployment has reached a new low. On Friday of next week, the Bank of Japan will announce its latest policy decisions. It is widely expected that they will not raise rates this time. Bloomberg and the BOJ published contradictory reports Tuesday regarding tone. Bloomberg reported that policymakers were looking at a hike in this year, whereas Bloomberg suggested the BOJ could wait a little longer before tightening policy. Investors are also watching politics. They're concentrating on who will succeed Shigeru Shiba as Japan’s next Prime Minister, and the longevity of France's fifth newly appointed prime minister in just two years. Gold prices rose by 0.5%, to $3644 an ounce. This is a drop from the previous day's record high of $3673.95. Brent crude futures increased 1.1%, to $67.13 per barrel. U.S. West Texas Intermediate Crude futures also rose 1.1%, to $63.34. Prices settled at 0.6% higher in the previous session, after Israel claimed it had attacked Hamas leaders in Doha. Qatar's Prime Minister said that this attack threatened to derail talks between Hamas & Israel.
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Aramco, the Saudi oil giant, will sell two-part Islamic bonds
A term sheet obtained by revealed that Saudi Aramco has opened the books for the sale a U.S. Dollar Islamic bond (sukuk) with a maturity of five and ten years. The sukuk is expected to be priced later on Wednesday. Aramco, a company in which Saudi Arabia is the majority shareholder and Aramco planned to raise debt to Leverage your balance sheet Last week, it was reported that oil prices were falling and the sale could generate between $3 billion to $4 billion. The term sheet stated that the initial price target was 105 basis points above U.S. Treasuries for the five-year portion, and 115 for the longer-dated tranche. Aramco’s issue coincides with a surge of bond issuance in the Gulf region, including Saudi Arabia’s $5.5 billion Sukuk. This was driven by strong investor interest and large inflows to bond funds. It will also test the appetite of investors for regional deals, a day after Israel tried to kill Hamas political leaders with an Airstrike on Qatari neighbour The military action of the United States in the Middle East has been intensified. Al Rajhi Capital Company is mandated as the active bookrunner on this transaction. Saudi Aramco has not responded to an immediate request for comment on the transaction. (Reporting and editing by Christopher Cushing, Kim Coghill and Scott Murdoch)
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The specter of stagflation clouds Fed's optimism
Kevin Buckland gives us a look at what the future holds for European and global markets. The market is optimistic about monetary policy. Rising equity prices and falling bond values are a good indicator of this. A rate cut next week at the Fed meeting has a decent chance to be a big one. Wall Street closed with new record highs over night, Taiwan's benchmark has reached a new peak and Japan's Nikkei index is moving back to Tuesday's unprecedented level. The unquestionable weakness of labour market indicates that policy easing will be imminent. The question is, however, how much the Fed's rate cut trajectory is complicated by the still-sticky inflation. Markets will receive two crucial days of data, namely PPI today and CPI the following day. The Fed would be forced to take a risky course of action if inflation levels were high. The market currently has 66 basis point of easing priced for the end of the year, with 7% odds on a 50 basis-point cut coming next Wednesday. The Fed is still the most important story on the global markets, but European investors should keep an eye on the geopolitical situation after NATO member Poland shot down for the first time apparent Russian drones it claimed had infringed on its airspace when it launched an attack against western Ukraine. French politics is also a major topic. The deeply unpopular President Emmanuel Macron has named Sebastien lecornu, a 39-year old loyalist, as his fifth Prime Minister in less than two-years, raising the question of just how long either of them can hold on to power. The outcome of ECB’s two-day summit that begins today is now more certain. Economists are almost unanimous in their expectation for rates to remain unchanged. The ECB's two-day meeting that begins today is more certain, with economists almost unanimously expecting rates to remain steady. The following are key developments that may influence the markets on Wednesday. US PPI (August). -Sweden monthly GDP (July) -Norway, Denmark CPI (both August) Italy, Spain, Greece Industrial Output (all July).
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US inflation data and gold rates are in focus
Investors were watching for key inflation reports this week, as well as expectations of an interest rate reduction in the United States this month. As of 0101 GMT spot gold was up 0.3%, at $3,635.329 an ounce. It had hit a record-high of $3,673.95 per ounce on Tuesday. U.S. Gold Futures for December Delivery eased by 0.2% to $3673.70. "Sentiment has been very bullish." Gold prices are being driven by several factors. "The primary factor is U.S. interest rate expectations," Capital.com's financial market analyst Kyle Rodda stated. The near-term outlook is heavily dependent on these inflation data. If the data is a little spicy, rate cuts may be triggered marginally. This could spark a correction in a market that's technically overbought. Watch closely the U.S. producer prices inflation data due at 1230 GMT and the consumer price reading on Thursday for further clues about the Federal Reserve's rate path. The U.S. government reported on Tuesday that the economy probably created 911,000 less jobs than originally estimated in the 12-month period through March. This suggests that the job growth had already slowed before President Donald Trump imposed aggressive import tariffs. The U.S. Nonfarm Payroll Data released last week indicated a weakening of labor market conditions and sealed the case to cut rates at the Fed’s September Policy Meeting. According to CME Group’s FedWatch Tool, markets are pricing in a rate cut of 25 basis points, with a probability of a 50-basis point cut at 6%. Gold prices are up 38% this year after a 27% increase in 2024. This is due to a soft dollar, central bank accumulations, dovish monetary policies and increased global uncertainty. Gold that does not yield is usually a good investment in an environment with low interest rates. Silver spot rose by 0.3%, to $41 an ounce. Palladium remained flat at $1148.57 while platinum gained 0.9%. (Reporting and editing by Sherry Jac-Phillips in Bengaluru, Eileen Soreng and Brijesh Patel from Bengaluru)
Product streams at risk should Trump spark tit-for-tat trade war: Russell
Much of the dispute surrounding the ramifications of a possible 2nd U.S. presidential term for Republican Donald Trump has focused on what may take place to the U.S. and international economies.
Trump's plan to impose tariffs of 10% on virtually all imports into the United States, and as much as 50% on those from leading trading partner China, have actually raised the spectre of greater inflation and rates of interest, and a less competitive market.
However for products, the larger danger of a Trump return to the White House is the reaction the remainder of the world is likely to have to the imposition of U.S. trade tariffs.
Political leaders across the globe will be unable to sit idly by if Trump locations barriers on their exports to the United States.
Any unilateral action by Trump is hence most likely to be met by retaliation from U.S. trading partners, even if they are erstwhile political allies, such as countries in Europe and some in Asia, such as Japan, South Korea and even India.
If it's inescapable that U.S. trading partners react to Trump's proposed actions by putting tariffs on imports from the United States, the primary concern is then what type will they take?
While major U.S. exporting business such as plane maker Boeing will have cause for concern, a far easier target for retaliation is likely to be U.S. commodity exports.
The United States is the world's biggest exporter of liquefied natural gas (LNG), and ranks fourth globally for exports of petroleum and all grades of coal.
A major buyer of U.S. products is China. If Trump were to enforce tariffs of 50% on its exports, Beijing could efficiently restriction all product imports from the United States, either formally or informally.
U.S. exports of crude oil to China were 10 million barrels in July, according to product analysts Kpler, and that figure is expected to rise to 16.58 million barrels in August, which would be the most because April 2023.
For the first eight months of this year U.S. unrefined exports to China are tracking at about 309,000 barrels daily (bpd),. which represents just about 3% of China's total imports, however. represent about 7.5% of total U.S. deliveries.
Simply put, it would likely be fairly easy for China to. stop buying U.S. crude and discover alternative providers, such as. Angola and Brazil.
But how simple would it be for U.S. oil manufacturers to change. the loss of Chinese purchasers?
Much will depend upon whether other countries place tariffs on. U.S. commodity exports.
Envision if the European Union, Japan and South Korea all put. a 10% tariff on U.S. crude in retaliation for Trump putting a. comparable impost on their exports to the United States.
The European Union, Japan and South Korea usually account. for about 60% of U.S. crude exports.
By putting tariffs on U.S. crude, LNG and coal, the rest of. the world could keep U.S. energy exports in the market, however. force U.S. companies to either deal discount rates to keep their. prices competitive or lower output.
United States LNG EXPOSED
U.S. LNG exporters might be more vulnerable than crude. producers, given they have no alternative markets aside from. exports.
For China, changing U.S. LNG would be more tough than. changing U.S. crude, but still most likely doable, provided the relatively. little proportion of U.S. LNG in its total imports.
In July, China's imports of U.S. LNG were 670,000 metric. tons, or about 10.5% of the monthly overall of 6.39 million.
For the United States, exports to China represent just about. 8% of its overall LNG shipments. However if Japan and South Korea are. added in too, then exports to the 3 main Asian buyers. increase to about a quarter of the total, based upon U.S. deliveries in. June of this year.
If tariffs were put on U.S. LNG by the North Asian. importers, it would put pressure on U.S. business to lower. costs to compensate.
U.S. coal exports have actually balanced about 7.5 million loads a. month for the first seven months of the year, however there is no. dominant buyer. Rather there is a broad range of importers that. all purchase reasonably small volumes.
This suggests that buyers of U.S. coal could probably find. alternative providers for the small volumes involved, but U.S. exporters may have a hard time to discover brand-new markets must a bulk of. its existing purchasers impose retaliatory tariffs.
In general, the photo that emerges is one of significant. vulnerability for U.S. energy exporters if we do see another. trade war, provided how countries might respond to the tariffs. presently being proposed by the previous president's camp.
Naturally, Trump still has to overcome most likely Democratic. prospect and existing vice president, Kamala Harris, in the. November election, and after that in fact follow through on what is. likely to be a widely-criticised trade policy.
However the risk stays significant. In 2022, Russia's invasion. of Ukraine showed us what can occur when a political occasion. roils energy markets.
If Trump is elected and does start a trade war, the. disruption may not be quite on that scale. However product flows -. and hence a large part of the global economy - might be affected. if the marketplace has to adjust to an unpredictable political dynamic. when again.
The opinions revealed here are those of the author, a columnist. .
(source: Reuters)