MF Global collapse hits Australia commodities futures - FT.com

MF Global collapse hits Australia commodities futures

ASX, the Australian exchange operator, has shut down the country's agricultural commodities market after the collapse of MF Global, highlighting the impact that the bankruptcy of the US-based broker is having on futures markets.

The exchange said it took the decision on Tuesday to close the grain and wool markets "until further notice" given the large amount of outstanding contracts held by the US broker.

The indefinite shutdown in Australia goes far beyond the measures taken on Monday by other leading commodities exchanges, including the CME Group, IntercontinentalExchange and the London Metal Exchange, which only suspended the broker while the rest of trading continued unaffected.

MF Global has an outsize market share in Australian commodities markets. The company said on its website that its customers accounted for "over" 80 per cent of the turnover in the country's wool contracts, suggesting the market could be heading for a long shutdown. MF Global was "fortunate to count among its clients the majority of the leading traders, exporters and processors in the wool industry," according to its website.

Australia is the world's largest wool exporter and the country's wool futures are one of the most important global benchmarks for the fibre industry.  

"Given the significant percentage of open interest held by [MF Global], in order to maintain a fair, orderly and transparent market, the agricultural markets for grain and wool have been suspended until further notice," the exchange said on a notice to its members.

MF Global has been a key force behind the development of futures contracts for Australia wheat after the liberalisation of the country's grain market in 2008.

In the absence of MF Global, the exchange would need to find additional participants to ensure sufficient turnover in the contracts once trading reopened, said a Sydney-based broker.

"They [MF Global] were quite happy to make markets. You remove them from the market then the market now has to look for another liquidity provider. I think that will happen but we'll really need to give it a bit of time," said Jonathan Barratt, head of Australia's Commodity Broking Services.

ASX did not answer calls seeking comment.

Additional reporting by Sarah Mishkin in Hong Kong

http://www.ft.com/intl/cms/s/0/6abd1840-0461-11e1-ac2a-00144feabdc0.html#axzz1cTIdbBAG

How to Be a Great Commodities Investor

good piece by Steve Sjuggerud on the latest buying opportunity in the commodities sector

How to Be a Great Commodities Investor

By Dr. Steve Sjuggerud
Tuesday, November 1, 2011

"THIS is what a market bottom in copper feels like," I told Brett Eversole on October 20.

Brett has worked right next to me for over a year... And he's never heard me say that before.

The last time I said anything like that was in late 2008, and I made a triple-digit return...

The last time I bought a handful of commodities companies was in late 2008 – because that was the last time it felt like a bottom to me in commodities. I sold all those commodity companies in January 2010, for a double or more.

I haven't owned commodities companies since... until 11 days ago, when I bought a handful of small-cap commodities companies on October 21.

Could I make triple-digit profits this time? It sure is possible... The setup conditions are similar to what they were in late 2008.

"What makes you say this feels like a bottom in copper?" Brett asked me.

It felt like a bottom because "investor sentiment" about copper had reached its lowest level since late 2008... Also, large speculators in copper were "net short" – meaning they were betting against the price of copper – for the first time in years... And on October 20, the price of copper fell 6.6% in Shanghai, with no good explanation...

It felt like copper had hit the "puke point" that day.

Beyond all that, after nearly two decades in this business, it "felt" like a bottom. When the market bounced back the next day, I bought. Copper is up about 18% since then – and many commodity stocks are up much more.

How can you get to this point? How can you become a confident commodities investor?

First, a bit of reading will take you a long way... In the last three weeks, I've read a handful of great books, including a few great ones on commodities.

Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks by Adrian Day is an excellent book to get started investing in commodities. Adrian explains investing in everything from gold to copper to oil, in easy-to-read, plain English. I highly recommend this book.

Jim Rogers' older book, Hot Commodities, is also an easy-to-read book on commodity investing.

Another excellent (though much more dense) new book is The Quest: Energy, Security, and the Remaking of the World by Daniel Yergin. Yergin wrote the definitive book on the oil industry, The Prize. This new book doesn't give specific investment advice, but it does bring you up to speed.

Second, I personally like to follow what the best investors in natural resources are up to – guys like Rick Rule, Eric Sprott, and Jim Rogers. These guys know these markets well, they're very smart... And they're easy to learn from. I just look for interviews online from the masters. (You can find many of them on The Daily Crux.)

I'm no expert in commodities. I don't want to be. Instead, when I believe the time might be right, I seek out guys like these, who have consistently made big money in that field and figure out what they're doing now.

Lastly, in case I'm wrong, I always have an exit plan... And I always cut my losses early. To improve my odds, I prefer to wait until the sentiment gets terrible as it did a few weeks ago... and then wait for an uptrend. THEN I get in.

This time around, I am trading it the same way I suggested trading Germany... with 15% downside risk and 100%-plus upside potential. I like those risk-and-reward characteristics. If my investments fall below their recent lows, I got the trade wrong. I'll exit then.

In sum, before you invest in commodities...

• Get the background... Read those books.
• When you're ready to buy, figure out what the best in the business are doing and mimic them.
• Have an exit strategy. Know when to cut your losses if you're wrong.

Two weeks ago, it felt like a bottom in commodities, so I bought. So far, so good.

Want to try that yourself? You can. Just follow those three simple steps.

Good investing,

Steve

How to Be a Great Commodities Investor

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-- The MasterFeeds

Asia faces rocky road in securing energy needs | Reuters

Asia faces rocky road in securing energy needs | Reuters

By Florence Tan and Francis Kan

SINGAPORE | Mon Oct 31, 2011 7:27am EDT

(Reuters) - Governments in emerging Asian economies will struggle to secure their rising energy needs as rapidly swelling demand in leading consumers China and India outpaces growth in supplies, which is likely to keep oil prices over $100 a barrel.

High fuel costs for importers are threatening their economies as they grapple with rising subsidy bills and inflation.

The fuel burden, with oil imports costing around 5 percent of gross domestic product, is weighing on economic growth, said Richard Jones, deputy executive director of the International Energy Agency.

"It's particularly sensitive in emerging markets, India is a country that has got a particularly high oil burden, they import a lot," Jones said.

The rise in prices has been partly blamed on the growing energy appetite of Asian nations. China, the world's second-biggest economy, has driven oil demand growth for a good part of the past decade. India is also competing to secure scarce energy resources for its billion-plus people.

The global economy needs to see lower prices, Nobuo Tanaka, former head of the International Energy Agency, said.

"If $100 oil continues, it will be as bad as 2008," Tanaka told the Singapore International Energy Week (SIEW) conference.

Brent prices have averaged over $111 a barrel so far this year, sharply up from an average of around $80 in 2010. The front-month contract hit a high of $147.50 in July 2008, just ahead of the global financial crisis of that year.

Brent at over $100 would cut global oil demand by around 1 million barrels per day (bpd) from what fuel consumption would be at a price of $70 to $80 per barrel, Tanaka said. That would slice more than 1 percent from total world fuel consumption.

Brent will average $106.80 per barrel next year and $108.60 in 2013, a recent Reuters poll of 35 analysts showed, as demand for fuel from China and other emerging economies keeps the global oil market tight.

The burden of high energy costs on growth contributed to the sharp slowdown in the global economy in the wake of the 2008 financial crisis. High prices led to such a sharp slowdown in fuel demand that oil producer group OPEC was forced to make record output cuts.

The oil minister for the United Arab Emirates did say producers can tolerate a further fall in oil prices to $80-$100 a barrel, the first indication of a preferred price range from a Gulf Arab producer since OPEC talks collapsed in June.

High oil prices would help guarantee future supplies, UAE oil minister Mohammed bin Dhaen al-Hamli said, by encouraging more investment in crude production capacity, which would mean less volatile prices.

"We need a reasonable price to continue building capacity," Hamli told the conference.

"The higher the capacity, the less fluctuation in prices."

The UAE, one of three Gulf OPEC producers with spare capacity, is pumping at 2.5 million barrels per day (bpd) from capacity of 2.7 million bpd, Hamli said, having upped output to help meet a supply shortfall from Libya.

The Arab Spring and the disruption to Libya's oil output have added to the difficulty policy makers face as they search for secure oil supplies.

"The recent spate of unrest in the Middle East and North Africa has generated doubt over the reliability of energy supplies from the region," said S Iswaran, minister in the Singapore Prime Minister's office.

"These events have caused increased volatility in energy markets and prices, heightening the policy challenge of governments to secure reliable and affordable energy supplies to sustain growth."

(Additional reporting by Simon Webb, Jessica Jaganathan, Luke Pachymuthu, Randy Fabi; Writing by Manash Goswami; Editing by Michael Urquhart and Clarence Fernandez)

Asia faces rocky road in securing energy needs | Reuters

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-- The MasterFeeds