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Commodities

Some commodity prices undercut break-even points

TOKYO -- Plunging prices for crude, metals and other commodities are discouraging producers to the degree that some resource development projects could be in jeopardy.

     Futures contracts for West Texas Intermediate crude are trading at about $80 a barrel on the New York Mercantile Exchange, the lowest level in about three years, due to sluggish global demand combined with increased output in the U.S. and elsewhere.

     The cost of producing oil from U.S. shale formations is estimated at $50-100, according to the International Energy Agency. In Brazil's deep-sea oil fields, the cost is estimated at $70-90. The current crude price could undercut production costs in some cases.

     Copper prices have also fallen due to slowing demand in China. At the London Metal Exchange, copper futures are trading for about $6,600 a ton, while production costs in Australia are estimated at nearly $7,000 a ton.

     Gold prices are also under downward pressure as investors shift money away from the metal in light of the stronger U.S. dollar, with prices below production costs. The same holds true for corn, the prices for which are being weighed down by abundant U.S. harvests.

     When profitability drops, producers generally opt to cut output. "If the crude price falls below $80 and stays there, some shale oil producers will reduce output," said Takayuki Nogami, senior economist at Japan Oil, Gas and Metals National Corp.

     Many aluminum refineries in the U.S. and Europe have shut down. And U.S. farmers are considering reducing corn sales, says Manual Sanchez at the U.S. Grains Council.

     Mine and oil field development will likely be impacted. With low-cost copper mines growing increasingly scarce, supplies from new operations will be limited starting in 2018 unless prices rise to around $8,600 a ton, according to an official at Pan Pacific Copper.

(Nikkei)

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