Commodity Trading v4
-
Upload
melissa-law -
Category
Documents
-
view
224 -
download
0
Transcript of Commodity Trading v4
-
8/2/2019 Commodity Trading v4
1/56
-
8/2/2019 Commodity Trading v4
2/56
Who is Jim Rogers?
James Beeland Rogers, Jr.
Renowned American Investor
Living in Singapore since 2009
Chairman of Rogers Holdings and
Beeland Interests
Co-founder of Quantum Fund with
George Soros
Creator of Rogers International
Commodities Index (RICI)
-
8/2/2019 Commodity Trading v4
3/56
A commodity is a good for which there is a demand,
but is supplied without qualitative differentiationacross a market.
-
8/2/2019 Commodity Trading v4
4/56
Commodities
LEAD
SUGAR
GOLD
NATURAL GAS
COFFEE
OIL
-
8/2/2019 Commodity Trading v4
5/56
WhyCommodities?
Central issue is the law of supply and demand
An increase in demand results in price increase
Supply shortage takes long time to fill up
Long bull runs
Stocks are more volatile than commodities
Average commodities return comparable to S&P 500
Price of commodities can never fall to zero
-
8/2/2019 Commodity Trading v4
6/56
How are Commodities Traded?
Individual Account
Managed Account
Trading futures options
Commodity pool
Mutual funds
Index investing (Recommended)
-
8/2/2019 Commodity Trading v4
7/56
Oil
-
8/2/2019 Commodity Trading v4
8/56
Background of Oil
Unique features of Oil Industry
Organisation of Petroleum ExportingCountries (OPEC) influencesupply and prices through member nation quota system
Subject to supply disruptions due to political instabilities
Prices affected by either real or perceived possibility of disruptions
Oil transactions settled in USD
Uses of oil
-
8/2/2019 Commodity Trading v4
9/56
Top 5 Oil Consumers
Country Consumption
(Thousand
barrels per
day)
Percentage of
Global Oil
Consumption
United States 18,810
China 8,324
Japan 4,443
India 3,110
Russia 2,740
Source: US Energy Information Administration, 2009
-
8/2/2019 Commodity Trading v4
10/56
Top 5 Oil Producers
Country Production
(Thousand
barrels per
day)
Percentage of
Global Oil
Production
Russia 9,934
Saudi Arabia 9,760
United States 9,141
Iran 4,177
Ch
ina 3,996
Source: US Energy Information Administration, 2009
-
8/2/2019 Commodity Trading v4
11/56
Rogers View
Supply will decrease
No new major oilfield found for 35 years
OPEC suspected of inflating oil reserves
Hubberts Peak may be reaching soon, or has already been reached
Efforts to find alternative sources of oil has been relatively
unsuccessful
Demand will increase Emerging Asia is expected to double its oil demand
-
8/2/2019 Commodity Trading v4
12/56
Time Series Analysis of Oil
0
10
20
30
40
50
60
70
80
90
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Demand
/Supply(Millionbarrels/day)
Year
Demand
Supply
Value (USD)
-
8/2/2019 Commodity Trading v4
13/56
Critique
External factors: political reasons play a huge role on the prices of
oil WHY?
Data on political effects of Iraq Wars, Middle East crisis, Japan
-
8/2/2019 Commodity Trading v4
14/56
Possible Uncertainties
Growing environmental concerns
World is looking towards renewable and sustainable sources of energy
Greater research on alternative sources of energy
If successful, demand of oil will be vastly affected
Political complexities
Japanese nuclear situation might fuel greater need for fossil fuels in the
long run Middle Eastern political unrest might continue damaging oil reserves
-
8/2/2019 Commodity Trading v4
15/56
Natural Gas
-
8/2/2019 Commodity Trading v4
16/56
Gold
-
8/2/2019 Commodity Trading v4
17/56
Background of Gold
Increasing stockpile
Does not get consumed/destroyed
Convert to bullion with minimal loss in value
Ancients valued gold for
Rarity
Durability
Ornamental appeal
-
8/2/2019 Commodity Trading v4
18/56
Rogers View
Price driven up by Goldbugs
Pessimistic investors that believe gold will have value at the end of
days
Motivated by fear of inflation, weakening Dollar and political instability
Not motivated by supply and demand
Easily oversupplied
No gold is consumed/destroyed
Almost half of existing metal exploration is for gold
-
8/2/2019 Commodity Trading v4
19/56
Rogers View
Net decreasing demand
New technology to replace gold in dentistry
New use in electronic industry
Decreasing usage of gold in jewelry
Other metals more profitable
Supply allowed to dwindle
-
8/2/2019 Commodity Trading v4
20/56
-
8/2/2019 Commodity Trading v4
21/56
Demand of Gold
0
200
400
600
800
1000
1200
1400
-400
100
600
1100
1600
2100
2600
3100
3600
4100
4600
2004 2005 2006 2007 2008 2009 2010
USdollarperounce
Tons
OTC Market
Industry
ETF & other similar
Bar&Coin
Jewelry
Gold Price $/oz
-
8/2/2019 Commodity Trading v4
22/56
-
8/2/2019 Commodity Trading v4
23/56
Critique
Goldbug Demand
Gold has -0.65 correlation with Dollar
Uncertainty in market causes value of Dollar to drop and results in
increase demand for Gold
Gold has 0.08 correlation with Inflation
Low correlation can be used to protect against inflation
Global financial instability
Default of sovereign debts
Middle East unrest
-
8/2/2019 Commodity Trading v4
24/56
Critique
Goldbug infiltrate central banks
Net buyer of gold for first time in 21 years (since 1989)
Growth of Asian Wealth
Indias gold jewelry demand increased 69%
Chinas gold jewelry demand increased 13% and
investment demand increased 70%
Result: Demand > supply Record level price of $1432.57
Gold performance far exceeded Jim Rogers expectation
Goldbugs might be here to stay due to the global
instability
-
8/2/2019 Commodity Trading v4
25/56
Possible Uncertainties
Future state ofUSA economy
Largest debt the world has ever seen
If not handled properly will lead to long term damage to the economy
Shifting of financial power to Asia
Possibility of keeping reserves in Yuan
-
8/2/2019 Commodity Trading v4
26/56
Limitations ofCritique
-
8/2/2019 Commodity Trading v4
27/56
Coffee
-
8/2/2019 Commodity Trading v4
28/56
Background ofCoffee
Ethopia said to first discover coffee and its energizing effects
First evidence of it being used for drinking in Yemen
First roasted and brewed in Arabia
First kopitiam: 1645, Venice, Italy
Second most traded commodity after oil
-
8/2/2019 Commodity Trading v4
29/56
International Coffee Agreement
-
8/2/2019 Commodity Trading v4
30/56
Rogers View
Decrease in supply
Bad weather
Increase in demand
Long cultivation period
-
8/2/2019 Commodity Trading v4
31/56
Data/Charts
0
20000
40000
60000
80000
100000
120000
140000
160000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Production ('000 bags)
Consumption
-
8/2/2019 Commodity Trading v4
32/56
Data/Charts
0
20
40
60
80
100
120
140
160
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Prices (cents per ounce)
Prices (cents per ounce)
-
8/2/2019 Commodity Trading v4
33/56
Critique
Less coffee growers
Unfavorable conditions
Global warming
Increased consumption
-
8/2/2019 Commodity Trading v4
34/56
Possible Uncertainties
Weather
Demand
Exchange rates
Technology
-
8/2/2019 Commodity Trading v4
35/56
Limitations ofCritique
-
8/2/2019 Commodity Trading v4
36/56
Sugar
-
8/2/2019 Commodity Trading v4
37/56
Rogers View
Price of sugar will increase
Demand > Supply Sugar can be converted to ethanol, which is used to mix gasoline
High oil prices will divert more sugar to produce ethanol and hence
decrease the supply of raw sugar
Chinas recent move to import sugar instead of remaining self-
sufficient
-
8/2/2019 Commodity Trading v4
38/56
Background of Sugar
Sugar
Sugarcane
75%
Localconsumption
75-80%%
Free market
20-25%
Sugar Beets
25%
-
8/2/2019 Commodity Trading v4
39/56
Price of Sugar
0.00
5.00
10.00
15.00
20.00
25.00
30.00
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
cents/pound
-
8/2/2019 Commodity Trading v4
40/56
Sugar Producers
Producers Amount of sugar (in millions of tons)
Brazil 30
European Union 22
India 20
China 10
United States 7
Mexico 6
South African Development
Community
5.7
Australia 5.4
Thailand 5
Russia 2.7
-
8/2/2019 Commodity Trading v4
41/56
Critique
World sugar production for 2010/11 is forecast at 164 million (up
12 million)
Consumption is forecast at a record 158 million
-
8/2/2019 Commodity Trading v4
42/56
Demand Side Factors
Using simple demand and supply analysis, we can predict that the
high prices of sugar will cause the demand of sugar to fall
Demand for sugar is also dependent on oil prices
-
8/2/2019 Commodity Trading v4
43/56
Supply Side Factors
Farmers try to take advantage of the previously high sugar prices
China, Brazil, Thailand and Russia farmers might be able to close thegap between demand and supply
Real problem for the sugar market the lack of real investment
-
8/2/2019 Commodity Trading v4
44/56
Limitations ofCritique
Assumption that weather conditions are normal for agriculture of
sugarcane and sugar beets
-
8/2/2019 Commodity Trading v4
45/56
Lead
-
8/2/2019 Commodity Trading v4
46/56
Background of Lead
Malleable, dense and corrosion-resistant
Poisonous
-
8/2/2019 Commodity Trading v4
47/56
Usage of Lead
Mainly in electrical cable covers and solders
Starting-lighting-ignition (SLI) lead-acid storage batteries (88% of
the worlds lead)
Lead additives were put into gasoline for better engine
performance
Special electrical power systems for hospitals that are not subject
interruption
Prevent the emission ofharmful radiation from television
-
8/2/2019 Commodity Trading v4
48/56
Rogers View
0
500
1000
1500
2000
2500
3000
3500
4000
-
8/2/2019 Commodity Trading v4
49/56
Critique Supply Side Factors
The production in the US has been down for 8 years
Lead production from mines worldwide was down as well
In summary, lead supplies are down worldwide.
-
8/2/2019 Commodity Trading v4
50/56
Lead Supply
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
2000 2001 2002 2003 2004 2005 2006 2007 2008
Australia
Canada
China
Mexico
Peru
US
-
8/2/2019 Commodity Trading v4
51/56
Critique Demand Side Factors
Increasing demand for cars
China is a dominant factor
TV and computer monitors
Lead is used to block radiation
In summary, there is an increasing demand for lead
-
8/2/2019 Commodity Trading v4
52/56
Production ofCars
50000000
55000000
60000000
65000000
70000000
75000000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Car Production
-
8/2/2019 Commodity Trading v4
53/56
Possible Uncertainties
China
Giant consumer for metals Major player in supplier
Closure of inefficient factories
Research in potential substitutes
-
8/2/2019 Commodity Trading v4
54/56
Limitations ofCritique
-
8/2/2019 Commodity Trading v4
55/56
THE END.
-
8/2/2019 Commodity Trading v4
56/56
References
http://gulfnews.com/mobile/business/oil-gas/libyan-unrest-likely-to-
leave-deep-scars-on-oil-sector-1.766369
http://www.eco-action.org/dt/oilfut.html
http://www.
h
ubbertpeak.com/h
ubbert/wwf1976/
World Oil Demand and its Effect on Oil Prices, CRS Report for Congress
(2005)