Commodities Are Mixed, Crude Oil Is Stable in the Early Hours
Crude oil prices were as low as 5% on Thursday amid weaker market sentiment. Prices started to recover and were stable in the early hours on Friday.
Crude oil prices closed almost flat on Wednesday due to mixed sentiment. Crude oil prices are volatile in the early hours on May 25.
China’s lower credit ratings weighed on gold (GLD) and silver (SLW) in the early hours. The gold market is looking forward to the FOMC’s policy minutes.
Along with shipments and profits, the market is also interested in mining companies’ cash flows and leverage positions.
For commodity companies like BHP Billiton (BHP) and Glencore (GLNCY), the EV-to-EBITDA multiple is the preferred valuation metric.
For companies in the commodity space, EBITDA (earnings before interest, tax, depreciation, and amortization) is the most common metric.
Copper miners that are holding onto their assets or expanding operations in today’s depressed pricing environment could be in better positions to reward shareholders.
BHP Billiton’s (BHP) Escondida, the world’s largest copper mine, faced labor complications in 1Q17, as did Freeport-McMoRan and Southern Copper.
Copper prices showed strength in 1Q17, as markets started to factor in a deficit in 2017.
Miners don’t have pricing power due to the commoditized nature of the business—changes in shipments determine how a company’s revenue changes.
The earnings season for copper miners was largely lackluster, with both Freeport and Teck Resources missing their 1Q17 earnings estimates.
After gaining for two consecutive trading weeks, crude oil prices continued to strengthen and traded higher in the early hours on May 22.
Freeport-McMoRan (FCX) closed at $11.43 on May 17, 2.9% lower than its closing the previous day.
Analysts see copper prices as a reflection of the health of the global economy.
Gold (GLD) is stable, while silver (SLW) is weaker in the early hours. Gold is supported by political concerns in the US.
Teck Resources isn’t the only miner working to repair its balance sheet. Almost every company in the metals and mining space is making efforts to cut its debt levels.
May has generally not been a positive month for equity investors (IWM) (RUT-INDEX). This phenomenon is infamously known as “sell in May and go away.”
Freeport-McMoRan’s (FCX) 2017 price action has largely disappointed the markets. The stock fell 2.5% last week, taking its year-to-date (or YTD) losses to 12.7%.
During its 4Q15 earnings call, Freeport-McMoRan (FCX) announced that the company planned to generate $5 billion–$10 billion to shore up its balance sheet.
After dismal manufacturing PMI (purchasing managers’ index) data, lower Chinese copper imports dented copper market sentiments last week.