Russia To Accelerate $3bn Of Ukraine Debt

Just 13 short months ago - two months before then President Yanukovich was ousted - Russia lent Ukraine $3 billion (by buying their Eurobonds). As Reuters reports, the terms of that loan included a condition that Ukraine's total state debt should not exceed 60% of its GDP. As of last month, based on Moody's estimates, Ukraine has violated that condition with a debt-to-GDP of 72% (and will likely rise to 85% of GDP in 2015).. and so, according to Russian finance minister Anton Siluanov, "Russia has the right to demand early return of this loan." With European aid 'contingent on major reforms' and possibly taking up to 1 year, this leaves the good old IMF (i.e. the US and European taxpayer) to bridge Ukraine's 'gap' and ironically bailout Russia.

As Reuters reports, Russia can demand early repayment of the $3 billion loan at any time...

Ukraine has violated the terms of a $3 billion Russian loan but Moscow has not yet decided whether to demand early repayment, Russian Finance Minister Anton Siluanov was quoted on Saturday as saying.

Russia lent the money in December 2013 by buying Ukrainian Eurobonds, two months before Ukraine's then-president, the pro-Moscow Viktor Yanukovich, fled the country amid mass protests against his rule.

The terms of the loan deal included a condition that Ukraine's total state debt should not exceed 60 percent of its annual gross domestic product (GDP).

Last month, rating agency Moody's estimated that Ukraine's debt amounted to 72 percent of GDP in 2014 and would rise to 83 percent in 2015. It also said "the risk of default is rising".

"Ukraine has definitely violated the terms of the loan, and in particular (the condition) not to increase its state debt above 60 percent of GDP," Russia's Siluanov said, according to Interfax news agency.

"So Russia definitely has the right to demand early return of this loan. At the same time, at present this decision has not yet been taken."

But, as Bloomberg notes, the European Union "support" could take a while and it is entirely contingent upon tough reforms for Ukraine...

The European Union is considering a further 1.8 billion euros ($2.1 billion) in aid to Ukraine to help the former Soviet republic overhaul its economy, which has been ravaged by a separatist conflict in its easternmost regions.

The European Commission, the EU executive, said the fresh loans, on top of $17 billion already pledged in the International Monetary Fund-led rescue of the troubled country, werecontingent on the Ukrainian government pushing through economic reform measures and fighting corruption.

The EU has provided “unprecedented financial support and today’s proposal proves that we are ready to continue providing that support,” Commission President Jean-Claude Juncker said today in a statement. “Solidarity goes hand in hand with commitment to reform, which is urgently needed in Ukraine.”

...

Disbursement of the aid, which must still be approved by the European Parliament and the EU’s 28 governments, will depend on Ukraine’s adherence to the conditions of the IMF program, which include fiscal consolidation, changes in the energy and banking industries, and other measures, the commission said.

This would be the EU’s third package of loans to Ukraine, following two totaling 1.6 billion euros approved last year. A final portion of 250 million euros from the earlier aid is due to be given within the first months of this year, according to the commission.

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So - while Russia 'suffers' under the thumb of plunging oil prices and a tumbling currency crisis, a simple decision to push Ukraine into early repayment could leave Europe - having paid out their entire Ukraine bailout to Russia - asking for moar help from the IMF (i.e. The US Taxpayer) to keep the 'crucial' nation state of Ukraine from default.

Copper price touches 63-month low

In early New York trade on Friday copper for delivery in March fell to an intra-day low of $2.738 per pound, touching levels last seen end-September 2009, after inflation data out of China renewed fears of a worsening economic outlook for the world's top consumer of the metal.

China consumes almost half the world's annual copper output and a worse than expected 3.3% drop in factory gate prices in December was interpreted as further evidence of inactivity in the country's real economy. While consumer prices showed a small uptick, producer prices in China have now fallen for 34 months in a row.

Given its widespread use in transportation, manufacturing and construction the copper price is sensitive to any economic slowdown.  China's GDP growth is expected to slow to 7% in 2015, which would be the slowest pace since 1990.

The Chinese government wants local industry to turn to exports if domestic offtake is not enough to sop up local metal

The bad PPI numbers were blamed on excess manufacturing capacity, particularly in China's heavy industries, a major factor in the 18% slide in the price of copper over the past year and the nearly 50% drop in iron ore.

The copper price has also come under pressure this week after Chinese authorities approved an export tax rebate of 9% for copper bars, rods and profiles, while increasing the rebate for foils to 17% from 13% to stimulate exports.

In a research note, Edward Meir, analyst at INTL FC Stone, says it points to uncertainty about domestic Chinese demand:

"Reuters cites Antaike as saying that the new rebate could push up exports of these products to a rather significant 100,000 tons a year. More importantly, it tells us that the government wants local industry to turn to exports if domestic offtake is not enough to sop up local metal."

The supply side picture isn't helping either. Forecast mine output growth through the year of 6% or 1 million tonnes and another 800kt in 2016 is a lot to absorb for the market and is the reason why most forecasts for the price in 2015 is below today's levels.

Falling oil, the top input costs for all miners bar those lucky enough to sit on copper oxide, could also have the perverse effect of keeping high-cost mines in the game for longer, further depressing prices.

That said, unlike iron ore where predicted oversupply this year is estimated as high as 175 million tonnes in a 1.3 billion tonne market, the copper industry is much more prone to disruptions.

Aside from the more typical disruptions associated with adverse weather, technical problems, power shortages or labour activity, copper miners are also dealing with generally higher costs due to falling grades requiring higher tonnage and rising impurity levels. The depressed price will also force companies to make tough decisions on any expansion or greenfield projects.

Image supplied by Glencore show Anibal Contreras clearing slag at the company's Altonorte metallurgical facility, northern Chile.

China's New Export Rebates for Copper Semis to Encourage Development of High-end Products

China has introduced a 9% export rebate for some copper semis and raised export rebate for copper foil, effective on January 1, 2015, a statement issued by the Ministry of Finance shows.

The statement indicates a new 9% export rebate for copper bar, rod and profile, and export rebate rise for copper foil from 13% to 17%.

“China reported net imports of copper semis in recent years despite its huge copper processing capacity and production, as most processors are unable to produce high-end products.

Scotibank's Mohr brightens zinc forecast

 A number of zinc mines in the world are being shut down, which will in turn lead to consecutive closures. In addition, the Scotibank had forecasted that, there will be an increase in the demand for the metal, as the demand for galvanized steel for automobiles are increasing in China.

The metal, which was being sold at 2 dollars per pound in the year 2007, has dropped lower to 0.50 dollars per pound in the year 2009. Since the year 2009, the price of the metal has rebounded. In the year 2014, the price of the metal reached 0.96 dollars per pound. Mohr is predicting that the price of  the price of the commodity will rise and reach to 1.61 dollars per pound in the year 2016, and then will again hike to 1.70 dollars in the year 2017.

Mohr stated that, there is a possibility that, the market of zinc concentrate, will shift into deficit by the year 2016.he also added that, both the commodity funds and the institutional investors have noticed that  this possibility, and they have already started taking positions in zinc.

The increase in zinc price might be helpful to offset the pummeling companies like, Teck Resources. The company has already taken down metallurgical coal off their business line.

The company operates a zinc and lead smelter, which is located in Trail B.C, and it has also recently initiated Pend Oreille zinc-lead mine, which is located in the Washington State. The company completed its first shipment of zinc oxide in the month of December 2014.

This could be the explanation for the question which is now asked by several investors, why the stock of Teck, a company which had lost about 51 percent of its value between the month of July and mid December, hiked back again to the game with an increase of 21 percent in the month of December 2014.  Zinc has also been helpful in hiking up Myra Falls Mine, which is located on the Vancouver Island. The main product of the mine is zinc, but the company also focuses on producing gold , copper, silver.

How Higher Rents at LME Warehouses Affect Aluminum Market?

News reported that LME-registered warehouses will raise average rental rates for aluminum by 3.6 percent in 2015. 

How higher rent rates will affect aluminum market? 

“The higher charges will accelerate the outflow of aluminum stocks from LME-registered warehouses, evidenced by sharp increases in cancelled warrants in recent weeks,” an analyst from Minmetals Futures told SMM in a most-recent interview.  

Such outflows will also make it more difficult to track aluminum stocks, as most of goods are expected to go to non-LME registered warehouses, rather than consumers, the analyst added.  

Another analyst from Guosen Futures expects the impact from higher rents to be mainly felt by backwardation or contango.  

"There Is Moar Blood" WTI Crude Plunges Into The $40s

WTI crude oil prices are now down almost 55% from the June highs, the impossible just happened... WTI Crude broke into the $40s... the 6-month plunge is the largest since the pre-Lehman plunge and 2nd biggest plunge in 28 years.

WTI back under $50...

Ugly...

Unequivocally not good...

Energy stocks have ropundtripped to pre-Fed levels...

This is exactly what Jeff Gundlach feared.

Jeff Gundlach: "If Oil Drops To $40 The Geopolitical Consequences Could Be Terrifying"

In a recent interview with FuW, DoubleLine's Jeff Gundlach explained his concerns about the oil market not being "unequivocally good" for everyone...

Question: The crash in the oil market is already causing jitters in the financial markets around the globe. What is your take on that?

Gundlach: Oil is incredibly important right now. If oil falls to around $40 a barrel then I think the yield on ten year treasury note is going to 1%. I hope it does not go to $40 because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be – to put it bluntly – terrifying.

What would that mean for stocks?

Gundlach is right historically...

Large and rapid rises and falls in the price of crude oil have correlated oddly strongly with major geopolitical and economic crisis across the globe. Whether driven by problems for oil exporters or oil importers, the 'difference this time' is that, thanks to central bank largesse, money flows faster than ever and everything is more tightly coupled with that flow.

So is the 45% YoY drop in oil prices about to 'cause' contagion risk concerns for the world?

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Of course Gundlach is not alone in this rational concern...

"In its November 14, 2014 Daily Observations ("The Implications of $75 Oil for the US Economy"), the highly respected hedge fund Bridgewater Associates, LP confirmed that lower oil prices will have a negative impact on the economy.

After an initial transitory positive impact on GDP, Bridgewater explains that lower oil investment and production will lead to a drag on real growth of 0.5% of GDP.

The firm noted that over the past few years, oil production and investment have been adding about 0.5% to nominal GDP growth but that if oil

levels out at $75 per barrel, this would shift to something like -0.7% over the next year,creating a material hit to income growth of 1-1.5%."

-- Mike Lewitt, The Credit Strategist

Source: Bloomberg