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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/12/2006 : 16:20:57
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| From what I read on some post (can't recall where) the Chinese expect their economy to have enough internal demand to keep itself going by 2011-2012. With the almost non-stop growth in Asia I wouldn't be supprised to see Asia out perform the US and Europe in a decade or less. |
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/12/2006 : 20:12:30
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Commodity prices could collapse in twelve months
Independent forecaster and industry analyst BIS Shrapnel believes price falls for most commodities will be gradual from here on with a likely collapse seen in the final quarter of 2007 as changing market dynamics for 2008 and 2009 will become apparent.
Nickel, copper and zinc are forecast to experience the largest price falls between now and then.
BIS Shrapnel also forecasts the Australian mining investment boom has at least one to two more years to run, in a cycle that has seen mining investment more than triple over the past five years.
The forecaster believes the enormous amount of work in the pipeline and with several more projects still to commence total investment by the mining sector should still rise by circa 11% over the next two years. BIS Shrapnel foresees a peak in investments during 2007/08.
The forecast comes with higher levels of exploration expenditure for the coming two years with mining output seen as set for a phase of strong growth as capacity finally comes onstream.
Senior economist Richard Robinson cautions, however, the mining boom is being held back by shortages of skilled labour and materials, which are causing cost blowouts and delays. "These higher construction costs, combined with lower commodity prices expected later this decade, will challenge the economics of the next round of projects," says Robinson.
BIS Shrapnel forecasts high commodity prices will be sustained into 2007, though some easing is expected over the next year following the record levels reached during 2006. The same Robinson again: "As mining projects are completed, supply comes onstream and inventories are re-stocked, commodity prices will begin falling, particularly after speculative activity drops-off."
The forecaster believes price prospects for 2008 and 2009 could be materially different as a slowing world economy and a significant increase in global production are likely to result in an oversupply for some commodities. This could lead to "dramatic price falls".
BIS Shrapnel believes the largest declines in commodities in US dollar prices will be nickel (forecast price fall 60%), copper (minus 59%) and zinc (minus 46%) over the next three to four years. Price declines in other commodities over the same period are expected to be in the order of 20 to 40%.
The independent forecaster highlights that even after the predicted declines, prices for individual commodities in the next trough later this decade will still be 50 to 100% above the levels of the previous trough of the early 2000s, with the exception of aluminium. BIS Shrapnel believes the aluminium price won't fall back to those low levels due to continued buoyant Chinese demand and because the cost of operating a mine has increased considerably over the past few years.
Some of the US dollar declines are expected to be partially offset by a projected depreciation in the Australian dollar from US$0.75 in 2006 to US$0.61 in 2009. The Australian dollar is expected to particularly decline in value from late 2007 as commodity prices are seen collapsing while the current interest rate cycle will be peaking.
The main risk to this scenario comes from China where a potential serious downturn would cause a bigger correction in prices, investment, exploration and production, the forecaster believes.
BIS Shrapnel is forecasting a sharp downturn in investment between 2008/09 and 2010/11 in Australia.
The other main issue which will affect the mining sector over the long-term is greenhouse gases, says BIS Shrapnel. With technologies such as coal sequestration and 'clean coal' at least a decade away, coal investment is expected to drop from current unsustainably high levels, and could remain subdued for a number of years. In the meantime, LNG and gas-related investment will remain buoyant, as the global energy mix increasingly switches toward gas and nuclear.
One opinion among many. He may be right, he may be wrong, We will see.
(Is it just me, or is the name Shrapnel a little out of the ordinary? It is a company's name, but still, it is odd.)
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LME nickel dips on stocks increase
Traders will keep a close eye on LME stock levels after nickel prices fell Tuesday on profit-taking driven by a large increase in stocks, said analysts.
Meanwhile, the markets await the Federal Reserve's interest rate decision, due at 1915 GMT, and comments for further clues over the U.S. economy's health, analysts added.
Nickel was on the defense Tuesday as a large increase in stocks and canceled warrants gave an excuse for the longs to take profits, said Robin Bhar of UBS. Tin and copper also fell on a bit of profit-taking, Bhar said, adding the markets were otherwise quiet and thin.
LME nickel rose to a high of $33,999 a metric ton before retreating to a PM kerb of $32,800/ton. Stocks rose 414 metric tons to 6,408 tons, according to the LME.
The Fed is expected to maintain rates at 5.25%, but analysts have said they will be watching for comments on whether it will continue to target inflation as its main concern over a possible sharp downturn in the economy. This may give the dollar a near-term boost.
Elsewhere in the LME, tin prices have come off their recent record highs on profit-taking but remain above $10,000/ton driven by ongoing supply concerns over Indonesia's tin production after a clampdown on independent smelters.
The metal fell over 2% from Tuesday's high of $11,100/ton to a PM kerb of $10,825/ton.
Zinc prices rose modestly due to the possibility of strike action from Dec. 19 at Peruvian zinc miner Volcan Compania Minera SAA.
Despite a drawdown in copper stocks and ongoing supply concerns, copper prices fell from Tuesday's high of $6,955/ton to a PM kerb of $6,845/ton.
Labor contract negotiations continue at Xstrata's Altonorte copper smelter in Chile after labor leaders await a new contract offer from company management.
3 months metal (prices in dollars a ton)
Bid – Ask, Change from Monday PM kerb
Copper 6845.0-6850.0 Dn 75
Lead 1727.0-1730.0 Dn 33
Zinc 4375.0-4380.0 Up 25
Aluminium 2805.0-2807.0 Up 9
Nickel 32800.0-32805.0 Dn 1125
Tin 10825.0-10850.0 Dn 225
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Edited by - pencilvanian on 12/12/2006 20:30:45 |
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Ardent Listener
Administrator
USA
4841 Posts |
 Posted - 12/12/2006 : 21:24:08
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But what will fall faster and futher, the dollar or the metals? I'm thinking it will be the dollar.
________________________
If you can conceive it and believe it, you can achieve it. -Napoleon Hill |
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/13/2006 : 20:02:45
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Which will fall worst, US dollar or metals? Well, metals have a stored value and worth.......
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Nickel Rises, Snapping 2 Days of Losses, as Demand Beats Output
By Chanyapr0n Chanjaroen
Dec. 13 (Bloomberg) -- Nickel gained in London, snapping two straight days of losses, as consumers bought the metal used in stainless steel amid forecasts of a production shortfall.
Use will exceed output by 57,000 metric tons this year and in 2007, BHP Billiton Ltd., the world's largest mining company, said Dec. 11. Supply has dropped after Eramet SA, operator of the world's largest ferronickel smelter, cut output in September due to a strike on the Pacific island of New Caledonia.
Nickel for delivery in three months on the London Metal Exchange gained $500, or 1.5 percent, to $33,300 a ton as of 12:12 p.m. local time. The metal dropped 3.5 percent to $32,800 yesterday, its biggest one-day decline in more than four weeks.
``Demand for nickel remains quite strong and consumers were buying at prices below $33,000,'' David Thurtell, a London-based analyst at BNP Paribas in London, said by phone.
The metal has more than doubled this year and traded at a record $34,501 on Dec. 5 amid supply disruptions. Paris-based Eramet has lost 50 tons of metal a day since miners in New Caledonia started their protest on Sept. 25 to demand more benefits. The situation hasn't improved, Eramet spokesman Phillippe Joly said yesterday by phone from Paris.
Supplies will be reduced further when Melbourne-based BHP Billiton shuts its Kwinana nickel refinery in Australia for 21 days in the first quarter of 2007. The plant's output will drop to around 60,000 tons in 2007, from 62,000 tons this year, the company said yesterday.
`Tight Market'
``The market is very tight and the tightness will be larger next year,'' said William van't Wout, the founder of Fondel International BV, a Rotterdam-based metals trading company.
Fondel is the European sales agent for Cubaniquel, the Cuban state-owned nickel producer. Cubaniquel may cut supply to Europe by at least 50 percent next year, Van't Wout said today in an interview from Rotterdam. Fondel will receive about 18,000 tons of the metal from Cubaniquel this year, he said.
Copper dropped on the LME as stockpiles of the metal used in wires and pipes continued to climb. Inventory tracked by the LME gained 2.8 percent to 171,300 tons, the exchange said today. That's the highest since April 2004.
``Further stock increases are expected given seasonally slack conditions,'' Robin Bhar, a London-based metals analyst at UBS Ltd., said in a report.
Copper fell $99, or 1.5 percent, to $6,751 a ton, the lowest intraday price since Nov. 17.
Among other LME-traded metals, aluminum gained $7 to $2,814 lead lost $50 to $1,680, and tin advanced $75 to $10,900. Zinc declined $30 to $4,350.
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/13/2006 : 20:07:46
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DJ Comex Copper Review: Slides To Nearly One-Month Low
DOW JONES NEWSWIRES
Copper futures fell to their lowest level in nearly a month Wednesday after a large build was reported in London Metal Exchange inventories, yet prices held
above support levels to avoid even heavier selling, analysts and traders said.
The most-active March copper contract fell 6.15 cents to settle at $3.0330 per pound on the Comex division of the New York Mercantile Exchange.
LME authorities reported a build of 4,600 metric tons in warehouse stocks, leaving them at 171,300 metric tons.
"The continued increase in visible stocks is putting pressure on the market.
There is no doubt about that," said one trader.
The futures have been trending sideways to lower for some time, related Darin Newsom, senior analyst with DTN.
The supply/demand fundamentals no longer appear as bullish as earlier in the year when copper prices hit all-time highs, he related. This is indicative by the fact that the nearby months no longer have the big premium over the deferred that they enjoyed earlier in the year, he explained.
"The speculative side is remaining short. They are still bearish this
market," said Newsom.
In fact, the most recent Commitments of Traders data showed the large non-commercials - essentially the funds - were net short in copper by 17,082
lots as of Dec. 5.
"Copper continues to slowly grind a little bit lower - not to the point where it breaks through key support and attracts all types of renewed investment selling or those looking short the market," said Newsom. "But it also has been able to post any type of (sustained) rally for some time now."
He put support for nearby December right around $3 a pound and support for most-active March around the $3.0150 area. During Wednesday's pit session, the March futures fell as far as $3.0260, their lowest level since $3.0130 on Nov.
17.
Newsom put farther-away support for March at $2.7770, the low from mid-June that has not been retested since.
The futures left an open-outcry chart gap between Tuesday's low of $3.09 and the session high so far of $3.0650. After gapping lower, however, the market was largely sideways for the rest of the session in quiet trading conditions, said one trader.
In copper news, the World Bureau of Metals Statistics reported that the global copper surplus during the first 10 months of 2006 was 306,000 metric tons, up one-third on the forecast during the previous month.
The market is monitoring a couple of labor situations in the key producing nation of Chile. Workers and management at Xstrata's Altonorte copper smelter have begun talks aimed at avoiding a strike next week. They are in a five-day
goodwill mediation period, which pushed back the possible strike date to Dec. 18. Also, Codelco and three large unions representing workers in its Norte division are in talks ahead of an end-of-the-year contract expiry.
The most recent Comex stocks data, released late Tuesday afternoon, were steady at 32,651 short tons.
Settlements (ranges include overnight and day sessions):
Dec (HGZ06) $3.0245; down 6.00c; Range $3.0250-$3.0825
Mar (HGH07) $3.0330; down 6.15c; Range $3.0260-$3.1065
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/13/2006 : 20:23:46
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Excerpts
World Bureau of Metal Statistics reports that the nickel market recorded a 95,000 metric tons deficit during the first ten months of 2006
Zinc, nickel price forecasts boosted
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Two brokerage firms have hiked their zinc and nickel price forecasts substantially, in the face of robust metal demand, supply constraints and continued strength in metal prices. The changes promoted a round of profit-estimate and price-target revisions for a number of mining stocks.
RBC Dominion Securities Inc. boosted its zinc price forecast for 2007 to $2 (U.S.) a pound from $1.50 and to $1.85 from $1.40 for 2008. It adjusted forecasts for zinc in 2009 and 2010 to $1.75 from $1.30 and to $1.90 from $1.30, respectively.
RBC Dominion also increased its nickel price forecasts, going to $12.50 a pound from $10 for 2007 and to $12.50 from $6 for 2008.
While the RBC team led by Fraser Phillips said their analysis suggests that spot commodity prices, with the exception of uranium, have peaked, metal prices seem set to continue at historically high levels because of strong demand and supply constraints. “Despite our forecast of a modest slowdown in global economic growth in 2007 and some signs of softness in certain end-use markets, metal demand continues at very high levels,” the team said in a market comment this morning.
“At the same time, supply remains constrained by years of under-investment and production disruptions are exacerbating the problem,” they said. Furthermore, they added “inventories for all the metals are currently well below critical levels and are forecast to remain there throughout our forecast period.”
The upbeat report suggests that there will be opportunities for investors to outperform the overall market by investing in mining shares next year, though the analysts warn that investors will need to be more selective in 2007 than they were this year.
Analysts John Redstone and John Hughes of Desjardins Securities Inc. also picked up on the strong metal price theme and boosted their forecasts for zinc and nickel. They expect inventories of both metals “to be completely depleted by the end of 2007.” They said in a report that the metal market is relying on China becoming a net exporter of zinc and zinc alloy in order to reduce the gap between supply and demand next year. However, China has remained a net importer through the first 10 months of this year, they noted. They boosted their 2007 price projection for zinc to $1.80 a pound from $1.40.
As for nickel, they noted that world stainless steel production is expected to rise by more than four per cent next year, following a 14-per-cent-plus increase this year. Stainless steel production accounts for roughly 70 per cent of nickel end use. They accordingly raised their 2007 forecast for nickel to $13 a pound from $10.
RBC Dominion also made changes in its copper price forecast -- increasing the 2007 forecast, for example, to $3 a pound from $2.50. The team, which also raised its long-term price assumptions for copper, zinc and nickel, ranks zinc first in order of preference among the base metals, followed by nickel, copper and aluminum, in that order.
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India to Overtake China's Growth, Credit Suisse Says (Update2)
By Cherian Thomas
Dec. 13 (Bloomberg) -- India will overtake China next year as the world's fastest-growing major economy on rising consumer and government spending, Credit Suisse's chief Asia economist Dong Tao said.
Credit Suisse raised its 2007 growth forecast for India's $775 billion economy, Asia's fourth biggest, to 10 percent from 8.5 percent, Tao said. China's $2.2 trillion economy is expected to grow 9.9 percent next year from 10.4 percent in 2006, he said.
Surpassing China's expansion rate for the first time at least two decades may help lure the overseas investment India needs to replace dilapidated port and roads and create manufacturing jobs. Prime Minister Manmohan Singh needs rapid growth to lift 350 million people out of poverty in the world's second-most populous nation.
``India's growth story will only get stronger,'' said D. H. Pai Panandiker, president at RPG Foundation, an economic policy group in New Delhi. ``There is a lot of money available to spend in India.''
.........
Per-capita income in India has doubled in the last nine years and the number of households earning an annual income of at least $10,000 is rising more than 20 percent a year, according to McKinsey & Co. Commercial banks' outstanding loans have doubled in the past three years and has risen more than 30 percent since April 1.
Rising Incomes
India had the highest average salary increase in the Asia- pacific region in 2006 gaining 13.8 percent in 2006 compared with 14.1 percent gain in 2005, according to human-resources consulting firm Hewitt Associates Inc. Salaries in India may rise by 12.3 percent to 15 percent in 2007.
``The private consumption story in India is growing,'' Credit Suisse's Tao said in a phone interview from Hong Kong today. ``At this moment, India surpassing China as the world's fastest growing major economy is a possibility. India is more resilient toward a global slowdown compared to China.''
................(Higher growth means more demand for metals)
The Paris-based Organization for Economic Cooperation and Development said last month growth among its 30 members will cool to 2.5 percent in 2007 from 3.2 percent estimated for this year, the weakest since 2003 and dragged down by a U.S. slowdown. The 2007 forecast was below the 2.9 percent anticipated in May.
Global Trade
China, which accounts for 5 percent of global trade, has become the fourth-largest U.S. export market, from the 15th before it joined the World Trade Organization in 2001. It has run up record trade surpluses with the U.S., including a $202 billion trade gap last year that was the largest imbalance between any two countries in history.
China's economy has grown at an annual 10.1 percent pace on average in the three years ended 2005, prompting the central bank to take steps to prevent the economy from overheating.
The central bank on Dec. 11 sold 120 billion yuan ($15.3 billion) of one-year bills, the biggest sale this year, to drain cash from the banking system and prevent growth in credit and investment from rebounding. The bank has also forced lenders to set aside more money as reserves and raised interest rates.
India's economy, which has expanded at an average 8.2 percent in the past three years, is being driven by local demand as the country's exports make up only a 12th of gross domestic product and 0.8 percent of global trade.
`Policy Risks'
``The issue is not whether India grows faster than China. The issue is whether India's growth is sustainable,'' said Rajeev Malik, senior economist at JPMorgan Chase & Co. in Singapore. ``India has been accelerating and policy risks are greater in India. India is also an opportunity because so much can be done on infrastructure.''
Prime Minister Singh today begins a four-day visit to Japan to sell the India growth story and seek help in funding his government's five-year $320 billion plan to improve the country's roads, ports and other infrastructure.
......................(More bridges, electric lines, rail lines, more metal demand)
India now wants to draw investments from Japan and narrow the gap in overseas funding with China, which began unshackling its economy in 1978, 13 years before India. India's northern neighbor got $60 billion of foreign direct investment in 2005 compared with India's $7.5 billion.
General Motors Corp., Royal Dutch Shell Plc. and other companies have invested in about 3,000 new factories and expansion projects worth $21 billion in India since May 2004 to cater to growing demand, according to the finance ministry.
Government Spending
``Capacity additions in the steel, auto, metals and consumer goods sector seem to be gathering pace in response to strong consumer spending and a pick-up in public investment spending in the power, roads and highway sectors,'' Tao said.
Industries such as steel and cement are also benefiting from Prime Minister Singh's decision to increase spending on roads, ports and other infrastructure by a quarter to 992 billion rupees ($22 billion) in the year that started April 1 in a bid to attract overseas manufacturing companies and spur growth to 10 percent over a decade.
``We do anticipate the government's infrastructure spending to go through,'' Tao said.
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BHP Says Kwinana Nickel Refinery to Shut for 21 Days (Update3)
Excerpt
Dec. 12 (Bloomberg) -- BHP Billiton Ltd., the world's biggest mining company, will shut its Kwinana nickel refinery in Australia for maintenance checks in the March quarter, reducing supplies of the metal used to make stainless steel.
The refinery will be shut for 21 days, said Emma Meade, a spokeswoman for the Melbourne-based company. Its output in 2007 will likely match the 60,000 tons in 2004, down from 66,000 tons in 2005, and 62,000 tons in 2006, the company said.
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/13/2006 : 21:17:10
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Here is another reason base metals have such a huge demand.
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Commodities and Islam, the start of something big
KUALA LUMPUR (Reuters) - Global trade in commodities is booming, and not just because China is hungry for resources. Pious Muslims, too, are keeping commodity markets busy.
Islamic investors, whose religion forbids them from investing in many conventional financial securities, have discovered a growing appetite for metals, crude oil and, soon, vegetable oils.
"Daily turnover? I reckon it would run into hundreds of millions of dollars or maybe billions," said Mohamed Iqbal, a senior treasurer at Kuwait Finance House, when asked to estimate the value of commodities trade carried out in the name of Islam.
Islamic investors are not newcomers to commodities, but they have unique reasons for trading them.
For decades, they have quietly used trade in metals, such as copper, aluminium and platinum, to underpin all kinds of financial deals that would otherwise fall foul of Islamic or sharia law.
From cash deposits to a new breed of Islamic derivatives, commodities have been used to ensure investments abide by a central tenet of Islamic finance: that returns must be derived from a genuine business activity, such as trading goods.
For example, a trade in copper can be structured to give a return equal to that of bank interest, which is banned by sharia.
Instead of, say, paying $10,000 (5,000 pounds) interest on a term deposit, the bank sells an investor some copper for $10,000 below the market rate. The investor quickly sells the metal for a $10,000 gain. Under sharia law, this is a trading profit, not interest.
"It's not something new. It's been used quite widely in the (Middle East) Gulf," Iqbal said.
"We would go for copper, platinum and crude oil and now we are looking at palm oil," he added, listing the kind of commodities Kuwait Finance House employed in Islamic finance.
CURRENCIES, COPPER & THE KORAN
In October, Islamic investment bankers at Citigroup designed a currency swap it said was a first for Islamic finance.
It created the swap for Dubai Investment Group so it could hedge the currency risk on its 828 million ringgit (119 million pound) equity investment in Malaysia's oldest Islamic lender, Bank Islam Malaysia, a unit of BIMB Holdings.
Under the swap, if the ringgit falls against the dollar, the bank makes a payment to Dubai Investment Group to offset the drop in the dollar value of the group's investment. The bank does this by selling the group some metal at a discount to market value.
The group then sells the metal and treats the gain as profit.
It does not matter whether trades use copper or another metal under the five-year cross-currency swap, said Rafe Haneef, Citigroup Asia's head of Islamic banking.
"Most of the time, they will give us whatever is available. It doesn't have to be copper or aluminium as such. It's 100 dollars of metal, whatever metal they have," Rafe said.
Trades are often carried out through the London Metal Exchange, the world's largest non-ferrous metals market which boasts annual turnover of more than $4.5 trillion.
The LME could not give an estimate of the value of global commodities trade carried out to support Islamic finance.
"As a policy, we don't tend to comment on who uses the market," LME spokesman Adam Robinson said.
But London-based investment house Dawnay Day Group, which arranges commodities-based Islamic deals, said such trades ranged in value between $5 million and $100 million and sometimes more.
"Obviously it's significant," said Stella Cox, managing director of Dawnay Day Global Investment.
Among some of the other banks working on developing Islamic finance derivatives are HSBC, ABN Amro, Deutsche Bank, UBS and Standard Chartered.
STEEL, YES. GOLD, NO THANKS
Not all metals can support Islamic finance: gold is out because Islam treats it as a form of money, just as it was 15 centuries ago in the time of the Prophet Mohammad. Under sharia law, money per se is not an asset that can be traded.
Even food is being explored as support for Islamic finance, including palm oil in Malaysia, the largest producer of the edible oil and home to the world's biggest Islamic bond market.
Though liquidity is crucial -- trades must be done in minutes to achieve a predictable return -- Islamic bankers also use metals that are not exchange-traded, such as steel.
Suddenly, thanks to Islamic finance, steel makers can enhance returns, generating fee income on sale and repurchase agreements for stocks that would otherwise be gathering dust in a warehouse or on a waterfront or rocking gently at sea, bankers said.
Commodities usually do not have to physically move between seller and buyer to support Islamic finance, as long as the paperwork shows a change in legal ownership, bankers added.
But many sharia scholars frowned on trades where commodities never actually moved out of a warehouse and took a sceptical view of Islamic derivatives in general, they admitted.
"That's a very, very sensitive subject to just trade in assets that don't move," said Dawnay Day's Cox. "Physical delivery has to be an absolute possibility. Everyone needs to understand that if someone chooses delivery, that's the risk."
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/14/2006 : 18:38:22
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Nickel market records deficit of 95,000 tons in January-October
The global nickel market recorded a deficit of 95,000 metric tons during the first ten months of 2006, with reported stocks some 32,000 tons lower, the World Bureau of Metal Statistics said Wednesday.
Mine production was at 1.146 million tons, up 4.5% on the same period last year, the WBMS said. Refined production was fractionally below the comparable total for 2005 due mainly to reduced output in Oceania.
World demand was 58,000 tons higher than in the first ten months of last year, the WBMS said.
In October, world production stood at 103,700 tons while demand totaled 114,800 tons.
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/15/2006 : 17:49:44
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Zinc news, or, why hoarding Zinc cents makes sense
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Zinc supplies are quietly running out
Spot prices for high-grade zinc have more than tripled on the London Metal Exchange in the last two years
– and the price rally won't likely end soon with demand for the industrial metal far outpacing supplies, analysts said.
After many years of languishing at low levels caused by abundant supplies, spot prices for high-grade zinc climbed to over $4,400 per metric ton as of Wednesday on the LME – up almost 270% from 2004's levels.
That's quite a change for the metal that's mostly used to coat steel and to act as a rust inhibitor.
"Zinc has been perhaps the worst investment in major metals during the past several decades, which has resulted in significant underinvestment in exploration," said Dr. Harlan Meade, president and chief executive officer of both Pacifica Resources Ltd. and Yukon Zinc Corp.
"The addition of several large mines in the mid 1990s simply flooded the market with zinc," he said.
New zinc output, in part, was made possible because of byproduct credits such as copper and silver that sometimes provided enough added revenue to offset zinc prices that really weren't high enough to encourage exploration or development, he said.
Now the zinc market faces a supply deficit,
"caused by the depletion of many of our large mines," Meade said.
Exacerbating the problem, China,
"who dumped zinc on the market during the 1980s and 1990s,
became a net importer of the metal in 2003 as the country's consumption took off," he said.
China's influence
Indeed, China's zinc demand has been "rising at an amazing rate," said Eric Coffin, co-editor of HardRockAnalyst.com, which offers publications focused on resource stocks.
He blamed "extremely high capital investment growth," much of which is centered on construction, for the increase in Chinese consumption, which climbed 35% between 2003 and 2005.
"Zinc is a pretty basic industrial material," said Lawrence Roulston, editor of Resource Opportunities. "Most consumers would not even be aware that they come in contact with it many times a day," he said, pointing out
that a typical car
uses about
22 pounds
of zinc.
"Car makers will pay whatever they need to pay to get enough zinc to keep making cars," he said, and
"an extra dollar on the zinc price will not reduce demand for cars."
Similarly, demand won't slow even if "couple of tens of bucks" is added to the cost of a new house because of the zinc used in galvanized steel for construction, he said.
The recent run in the zinc price has
"demonstrated ... the critical shortage of metals supply coming from the mining industry," said Roulston.
"There are many small new mines constantly being developed, but no big mines."
Meanwhile,
"mines are constantly being shut down as the ore bodies are depleted, [so] the net result is that production has been flat at a time of rising demand," he said.
Overall, the zinc industry will "have a hard time at any price bringing on enough new supply to balance supply and demand in 2010 and thereafter," Meade said.
Eating up supply
Against that backdrop, warehouse stocks of zinc have been depleted.
On the LME, supplies were down to around 85,750 metric tons as of early December
– down from 450,000 a year ago and close to their lowest level since March 1991, according to Martin Hayes, a senior correspondent at London-based BaseMetals.com.
And inventories are "set to keep on falling," he said.
The supply deficit this year will likely be close to 300,000 metric tons, he said, with supply of 6.8 million metric tons not enough to satisfy 7.1 million metric tons of consumption.
In fact, at the current rate of supply declines, Coffin expects the LME warehouse to "be bare in about 3 months."
"There is very little potential supply enhancement that we know of," said David Coffin, Eric's brother and co-editor of HardRockAnalyst.com.
"At a practical level, what will happen is that the high zinc price will bring metals out of unknown stores and mining companies will push as much as they can into the market," he said.
So "while we do expect the decline to continue, that does not mean we actually expect to see a '0' stocking," he said.
Even so, zinc will likely follow the same pattern as other metals with stocks declining "to the point where there is only a fraction of a day's usage in warehouses," he said.
Hayes expects the shortfall in zinc supplies to ease in 2007 to closer to 40,000 metric tons, from 300,000 in 2006 as "the supply-side response to record prices kicks in."
"Nevertheless, there is still upside potential for prices in the medium term, as inventory draw downs will continue, with a major reversal unlikely until much later in 2007," he said.
Roulston argued for a longer-term inventory deficit. "The projected pace of new mine development shows a big supply gap extending for years into the future as demand grows and some of the big, old mines are shut down," he said.
Taking advantage
So what's the best way for a metals trader to invest in zinc?
"There is a futures market for zinc," said Roulston. But "you are not really 'investing'."
"The commodities markets are highly speculative and the realm of professional traders," he explained. "Neophytes in the commodities markets typically get eaten alive."
On the other hand, the higher zinc price is already factored into the share prices of producers, he said.
The "best way to invest in zinc, or any of the metals, is to look at the fundamental driver, which is the shortage of supply," he said.
And "the exploration and development companies that are advancing metals deposits offer exceptional investment potential, as their values will increase as the deposits are advanced toward production."
It's certainly timely that, on Tuesday, Australia's Zinifex and Belgium's Umicore agreed to combine their zinc smelting and alloys business, a deal that will create the world's largest zinc producer.
For now, most of the large producers such as Teck Cominco produce many commodities, and are "therefore not pure plays," said Meade.
"Even the mid-tier, best zinc-leverage companies such as Lundin Mining and Kagara Zinc have significant byproduct credits that make them less than a pure play," he said.
So "investors should look at the mid-tier producers that have abundant zinc production and are low-cost producers due to significant byproduct credits due to silver, lead, copper and gold credits," he said. Meade owns large positions in Pacific Resources and Yukon Zinc.
At the moment, these are already "highly valued," he warned. Take a close look at these to "see who has new production going on that is not factored into current valuation to get the extra zinc leverage."
Eric Coffin said he follows Lundin Mining as well as Teck Cominco. "I can't call [Teck Cominco stock] cheap, but its very well run, well diversified and has, arguably, the best zinc mine in the world – Red Dog in Alaska," he said.
And for those traders who want a "more speculative type of situation," Coffin said he follows, and owns a position in, Selkirk Metals.
The company is exploring a number of projects in British Columbia, reporting high-grade zinc from drilling in Ruddock Creek, he said. Coffin said he thinks there's probably "10 million tonnes and possibly a lot more" there.
"That would be a good play on next year's drilling programs, which will be extensive," he said.
........I recall an episode of the TV show "Barney Miller" where one of the detectives was interviewing a man who claimed to be from the future. "The really valuable metal will be zinc" the man told the detective.
Who knew that art would imitate life? |
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/15/2006 : 18:04:31
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I realize that this topic section deals with base metals exclusively, but what I found here applies to nickel, copper and zinc mines as well as gold.
As the mining industry faces shortages, the world will face metals shortages. Mines need to show a profit or close, leaving a smaller number of mines to supply the world's need for metals.
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Miners Concerned with Labor, Facilities, Supplies Costs
Most of the precious and base metal mining world has been focused on stocks, capital, and reserves.
However, if you can’t physically mine and deliver the ore, the business is stopped cold.
Labor costs are skyrocketing and all kinds of new and replacement equipment and parts are harder to find.
Utility costs are very expensive and becoming more so.”-Traderrog
We had the pleasure of listening to top gold mining executives at a fund manager- analyst conference this week in New York.
Miners are struggling to find more experienced talent, equipment, replacement parts and utilities.
Fully funded projects are moving slower
or are out-right stalled
as mandatory components of mining operations become difficult to obtain or are simply not available for now.
Global gold production for 2007 has been forecast as smaller than in 2006 as miners chew through reserves. They are diligently working to complete new mine developments or add additional phasing on existing ones.
However, while new ore reserve needs are a constant on-going battle we noticed other problems have recently surfaced. Gold conference executives explained what they are facing today.
Five Ton Tires in Woefully Short Supply
Those monster tires on open pit mining trucks are under-supplied throughout the world as production capacity is way behind field demand.
Remember, we are in the early stages of a longer term mining bull market for both base and precious metals.
Mines operate with both underground and open pit production.
Open pit is usually less costly and if possible is the preferred method of ore extraction. Open pit operations do, however, require several large off-road monster trucks capable of hauling 400 tons of material in one load.
The mining industry is enjoying a veritable boom world-wide and manufacturers of heavy mining equipment are backlogged with orders.
Critical machinery or vehicle parts are in tighter supply.
Everything is more expensive and those huge tires are most scarce of all.
Larger open pit operations use 400 ton trucks with tires weighing 10,000 pounds apiece. They cost $35,000 each and the really bad news is they wear out in six months.
Considering production schedules and quotas, miners run the trucks 24/7 except for maintenance down-time.
Used tires are being refurbished to continue operations and tires are being moved from one truck to another more than ever in efforts to keep them running.
Since tire suppliers are building product at full capacity,
and supplies are way behind needs,
mine operators use every creative idea possible to extend tire wear. They regularly smooth truck roads to increase tire life and mine repair departments are sharing tires among active mining operations. Some of these trucks drive themselves with computers having no drivers in the cabs. The entire purpose is to keep trucks moving and productive.
Tire manufacturers are building all they can but must make do with facilities designed years ago when demand was considerably lower.
A new tire factory is being built in Brazil but supply managers are expecting a tire shortage for at least another two years.
Operators are pillaging tires from unsold, stored equipment in dealer yards
and some new mining trucks are being delivered with no tires provided.
Expectations call for installing new or used tires when they become available.
Also, miners immediately remove tires from trucks in for maintenance re-installing them on other trucks to continue non-stop production. The whole process reminds us of formula race cars making pit stops for fuel and new tires.
Rubber prices are up 17% this year in Japan.
New mining truck prices are up 25% this year and orders demand payment in the front. Deliveries are now quoted 18 months from date of order.
Skilled Trades and Certain Executives Difficult to Find
We heard this week mining welders in Nevada earn $60 per hour and demand 60 hours of work per week.
Further, the quality of their work is slipping.
Most all geologists are working, but shortages are difficult and newly minted graduates move up the promotion ladder faster than normal.
The previous 20 year dry period in the mining industry eliminated one entire generation of trained geologists.
Now the most experienced are in their late 50’s or older and are nearing retirement. Similar problems exist for field engineers and other highly skilled mine workers.
Experienced technical field people are in sharp demand and certain oil sands projects, fully funded are being shelved due to labor shortages. Alberta oil field workers are coming into the region from all over the world. Surprising to us, one executive presenter at the conference mentioned they are using qualified gold mining workers from Peru in Nevada and Africa on their various projects. It seems Peruvians are hard working efficient mining employees.
Most of the world’s largest mining machines are built in Illinois or Wisconsin with several parts suppliers working in the same regions. The other manufacturing location is in Europe. New mining equipment sales exceeded $3 Billion for 2005 and are likely to increase by a substantial amount in 2006-2008.
Several analysts indicate the peak for mining industry suppliers is not visible as yet.
China has been buying everything they can find both new and used.
Their coal industry alone accounts for large equipment orders.
Some super-sized pit shovel orders have been delayed as they cannot get tires for the new pit trucks hauling cut material.
One Illinois equipment manufacturer has 550 pieces of very heavy equipment on one major dam project which has been in construction for several years.
While current operating mines are unlikely to close due to these shortages, it does mean new projects are slowed down prior to start-up and those new very large projects requiring exceedingly large capital outlays prior to any returns sit on the shelf for now.
Nickel miners and their analysts see no balance between supply and demand for another four years.
Nickel has been $35,000 a ton recently and slightly less than that in December, 2006.
Mineweb reported, “The study by the Minerals Industry National Skills Shortage Strategy (NSSS) Working Party, Staffing the Supercycle: Labour Force Outlook in the Mineral Sector, 2005-2015, predicts that Australia’s mining industry will have to find an extra 70,000 workers to meet labor demands.” (Emphasis Editor).
Midwestern Workers Hired for Western USA and Canada Projects
In my state of Michigan which been severely wracked by auto industry lay-offs along with their suppliers, mining recruiters have visited multiple times for mass hiring seminars. In their first visit, oil companies hired over 750 skilled trades Michigan workers at $28 per hour to start. This worked successfully and they returned a second time for another 700-800 people. A spokesperson for the companies mentioned they are returning for another hiring wave next spring. Most of these folks are moving to gas and oil projects in Wyoming. One worker remarked he was on his new job and working one week after being hired in Michigan.
We have noticed more women working as geologists for all kinds of mining companies. This makes sense as they are found in more dominant numbers in those colleges and universities teaching in these fields. In our view, high schools have been doing a less effective job in preparing youngsters for higher education. Companies in America are complaining they must teach new hires things they should have learned long ago in either high school or college. As new worker demands rise for the mining industry recruiters are looking everywhere. They are finding good people in Asia, Eastern Europe, and South America as well as from Canada and the United States.
Mining companies are accustomed to great adversity in a very tough business. One of the presenters at the New York Gold Conference mentioned his job is an on-going dilemma of solving one major problem after another. In other corporate arenas, problems crop-up too, but not with the seeming regularity and difficulty seen in mining.
All Costs per Ton Rising Quickly
Collectively,
all of these labor,
facilities
and supplier shocks are creating a higher cost per ton
to mine gold and silver as well as other strategic market materials.
The lowest price per ton we’ve seen in a large operating gold mine was $80-$85 per ton. For the most part, gold miners are now paying in the vicinity of $185 to $285 per ton with a few paying even more. With gold sales prices rising over $600 an ounce and staying in a prolonged bullish mode, costs are still not a great impediment. However, we have seen these higher expenses hit profitability to a higher degree in 2005-2006 than in 2004. In 2004 and earlier in the gold and silver bull those cost strains had not arrived. Today, these things are serious questions and mining companies must address them or fall behind competitively.
We did see one very bright star presenter at the conference running their mine with a negative gold mining cost per ton as by-product material sales were paying all the bills plus some extra. This is a very unusual and happy event for any mining operator.
Energy costs are serious with rising crude oil, diesel, gasoline, propane and natural gas increases.
One big miner is building a brand new $250,000,000 electricity plant to power its mines in Nevada.
This new power plant is expected to reduce operations expenses by $25 per ton of material mined.
That is impressive cost savings. We think they might be able to offset more of this cost by selling extra power to nearby mining competitors. The same company has shut down or curtailed an African gold mine as drought created low river water levels impeding hydro electricity production. Meanwhile, they must add very expensive power from diesel generators costing five times as much for needed electricity. Nobody ever said mining is an easy business.
A simple mining operation like one we know of in Mexico has almost everything needed to run production right on the property. This silver mine has electric grid lines and roads to the mine site and plenty of water available on their land. Probably best of all, they have little or no overburden to remove and are running this new and very profitable business like a smallish landscaping contractor. There are minimal crews and machines on-site. Material is scooped up, loaded on trucks, and hauled to a nearby crusher. They then truck concentrate to a nearby smelter. This is admittedly about as simple and as good as it gets requiring much less in capital costs to begin and sustain operations. Most of these businesses are not nearly so fortunate. High ore values play a large part in this success story.
We saw a southern Nevada gold mine previously operated in a similar fashion. This one even had rail lines running through their property. For awhile this little mine had been obtaining 50,000 ounces of gold per year with a crew of five using three machines. These little companies will never make the large stock market hit parade but they can show some intriguing numbers on a small scale.
In Summary
We forecast mining expenses will increase almost exponentially due to labor, fuel and inflation driven costs in supplies, machinery and parts.
More than ever prospective gold and silver shareholders should pay close attention to those production costs per ton shown in quarterly and annual reports. These higher operating expenses can hit the bottom line very hard. Examine the company forecasts for cost increases in future years shown by mining budgets. These factors are more important during the next three years versus the last five years.
Higher mining expenses will not close most current mining operations but unless reserve ore quality reasonably matches proposed higher operations budgets, some mines could produce at lower production levels or be closed as being net losers.
An example is the gas wells damaged or destroyed by the Katrina Hurricane in the Gulf of Mexico.
Those smaller lower producing gas wells were permanently closed as being cost ineffective.
Repairs and new money to re-open were not justified to make a decent profit.
That storm closed 25% of all wells in the region.
They will never re-open unless gas prices move to some incredibly high price in the future.
In our view, gold and silver have a long way to travel both in price and in time.
Rising inflation will tighten pro-formas and exploration budgets demanding precious metals miners watch those higher costs like a hawk.
Gold and silver traders should pay attention to these increasing operations costs as they directly affect profits and share results. Meanwhile gold and silver mining becomes more expensive creating higher per ounce sales values with these premium and rare commodities. -Traderrog
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/15/2006 : 18:27:22
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The author of this piece is a commodities trader, so his viewpoint will be colored to see commodities as always great and low risk. I prefer to obtain the physical metals and leave the commodity trading to those who can afford the losses.
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Why commodities are not as risky as you think
Excerpt
Won't new technology lower commodities demand?
Whenever I mention commodities in public, someone always points out that we now live in a high-tech world where natural resources will never be as valuable as they were when we had a smokestack economy.
But if you read your history you’ll discover that technological advances are as old as history itself:
The introduction of the sleek and beautiful Yankee clipper ship dazzled the world in the mid-nineteenth century, loaded with cargo, sailing down the trade winds at 20 knots and more, averaging more than 400 miles in 24 hours and able to make it from US ports around Cape Horn to Hong Kong in 80 days;
within a decade, the clippers had been replaced by the steamship, no faster but not dependent on wind power;
and before long the next big thing in transport had taken over, the railroad, which, of course, was the original Internet - and prices in commodities still went up.
In the twentieth century came electricity, the telephone, and radio (three more Internets) and then television (a fourth Internet). There was also the automobile, the airplane, the semiconductor - and in the midst of all of these truly revolutionary technological breakthroughs came periodic, multiyear commodity bull markets.
Even a revolutionary technological breakthrough in a particular commodity-related industry will not necessarily lower prices. For decades, drilling below 5,000 feet or offshore was virtually impossible. Then in the 1960s the Hughes diamond drill bit was invented and an explosion of technological advances in oil drilling and exploration followed. Drilling efficiency - and oil deposits - were available that had been unthinkable before this technological breakthrough. Soon there were wells 25,000 feet deep and offshore oilrigs multiplied around the world. Yet oil prices went up more than 1,000 percent in the 15-year period between 1965 and 1980.
When the supply and demand in raw materials is seriously out of whack, the emergence of new technology will not necessarily restore the balance quickly. To be sure, changes in technology, for example, have made the economy less dependent on oil. But we still use plenty of it, and whenever there isn’t enough prices will rise. Computers or robots may do amazing things, but they cannot find oil or copper where there is none or make sugar, cotton, coffee, or livestock grow faster than nature allows. We can put in orders all day long on our computers for lead, but all that Internet technology will be in vain if there are no new lead mines. Technology can neither feed us nor keep us warm, and the demand for commodities will never disappear.
Aren't prices being inflated by speculation and the lower dollar?
Certainly, speculators who jump in and out of commodities can push up prices. And the dollar has been a pale remnant of itself - down against the euro almost 40 percent from the beginning of 2002 until the start of 2004 and at a three-year low against the Japanese yen.
Since commodities are traded in dollars, a weak dollar will make prices appear higher. Crude oil rose 64 percent in dollars over that two-year period, but only 16 percent in euros.
But the dollar strengthened in the spring of 2004, and a funny thing happened: Commodity prices kept going up. The global recovery, particularly in Asia, was for real.
We are now watching a fundamental structural shift in commodities markets, and it is called “supply” - and “China,” a nation that will be consuming extraordinary supplies of all kinds of commodities for years to come.
I will explain why in more detail in a later chapter. For now, however, here’s the story:
dwindling supplies and increasing demand.
And the dollar has nothing to do with either. Let me also re-mind you of the 1970s, when inflation in the US was about 10 percent a year, the dollar wasn’t buying anywhere near what it used to, and the economy was in a major recession
- and commodity prices kept rising.
We’re talking another long-term bull market in commodities, and neither speculators nor a weak dollar can make that happen. Speculators can have a short-term effect only. For example, if they drive up the price of oil artificially, oil producers with excess supplies will gleefully dump their oil on the market driving the price back down. Both the dollar and speculation can have a marginal effect, but the market itself is bigger than they are.
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Ardent Listener
Administrator
USA
4841 Posts |
 Posted - 12/15/2006 : 19:51:03
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By Myra P. Saefong, MarketWatch
Last Update: 7:49 AM ET Dec 15, 2006
SAN FRANCISCO (MarketWatch) -- It's zinc's turn to shine.
Spot prices for high-grade zinc have more than tripled on the London Metal Exchange in the last two years -- and the price rally won't likely end soon with demand for the industrial metal far outpacing supplies, analysts said.
After many years of languishing at low levels caused by abundant supplies, spot prices for high-grade zinc climbed to over $4,400 per metric ton as of Wednesday on the LME -- up almost 270% from 2004's levels.
That's quite a change for the metal that's mostly used to coat steel and to act as a rust inhibitor.
"Zinc has been perhaps the worst investment in major metals during the past several decades, which has resulted in significant underinvestment in exploration," said Dr. Harlan Meade, president and chief executive officer of both Pacifica Resources Ltd. (CA:PAX: news, chart, profile) and Yukon Zinc Corp. (CA:YZC: news, chart, profile) .
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"The addition of several large mines in the mid 1990s simply flooded the market with zinc," he said.
New zinc output, in part, was made possible because of byproduct credits such as copper and silver that sometimes provided enough added revenue to offset zinc prices that really weren't high enough to encourage exploration or development, he said.
Now the zinc market faces a supply deficit, "caused by the depletion of many of our large mines," Meade said.
Exacerbating the problem, China, "who dumped zinc on the market during the 1980s and 1990s, became a net importer of the metal in 2003 as the country's consumption took off," he said.
China's influence
Indeed, China's zinc demand has been "rising at an amazing rate," said Eric Coffin, co-editor of HardRockAnalyst.com, which offers publications focused on resource stocks.
He blamed "extremely high capital investment growth," much of which is centered on construction, for the increase in Chinese consumption, which climbed 35% between 2003 and 2005.
"Zinc is a pretty basic industrial material," said Lawrence Roulston, editor of Resource Opportunities. "Most consumers would not even be aware that they come in contact with it many times a day," he said, pointing out that a typical car uses about 22 pounds of zinc.
"Car makers will pay whatever they need to pay to get enough zinc to keep making cars," he said, and "an extra dollar on the zinc price will not reduce demand for cars."
Similarly, demand won't slow even if "couple of tens of bucks" is added to the cost of a new house because of the zinc used in galvanized steel for construction, he said.
The recent run in the zinc price has "demonstrated ... the critical shortage of metals supply coming from the mining industry," said Roulston. "There are many small new mines constantly being developed, but no big mines."
Meanwhile, "mines are constantly being shut down as the ore bodies are depleted, [so] the net result is that production has been flat at a time of rising demand," he said.
Overall, the zinc industry will "have a hard time at any price bringing on enough new supply to balance supply and demand in 2010 and thereafter," Meade said.
Eating up supply
Against that backdrop, warehouse stocks of zinc have been depleted.
On the LME, supplies were down to around 85,750 metric tons as of early December -- down from 450,000 a year ago and close to their lowest level since March 1991, according to Martin Hayes, a senior correspondent at London-based BaseMetals.com.
And inventories are "set to keep on falling," he said.
The supply deficit this year will likely be close to 300,000 metric tons, he said, with supply of 6.8 million metric tons not enough to satisfy 7.1 million metric tons of consumption
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If you can conceive it and believe it, you can achieve it. -Napoleon Hill |
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/16/2006 : 18:54:47
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Will peaking nickel prices affect stainless steel makers?
Nickel prices have touched their highest level since 1987 on dwindling supply. MC Mathur, Director – Corp Affairs, Jindal Stainless, Bhavin Chedda of Pinc Research and B Ramesh Kumar, CMD of NMDC, explain how this will impact stainless steel makers going forward.
As far as matured markets like Europe and North America are concerned, MC Mathur says that there is a nickel and other ferroalloy surcharge. "There is surcharge on base price and so they pass on to their customer whatever is the average price of their raw material on a particular quarter."
"It is only in Asia, China, and India that we have spot price and so we have to keep on changing our price as per the nickel moment and that sometimes is good and sometime is bad," he adds.
Bhavin Chedda says that they are positive on Indian steel companies like Jindal Steel. "The nickel shortages and the rise in prices of nickel is hugely beneficial to Indian companies."
"For Jindal Stainless' product mix, nearly 70-75% is the chrome-manganese 200 series where the nickel content is less than 4% and so when the nickel prices rises, it leads to higher stainless steel prices and realization. So the company is a beneficiary due to higher realization and higher margins," he explains
B Ramesh Kumar says all along, Japan and Europe were steel leaders, but in the current scenario, China is becoming a benchmark followed by Germany and South Korean steel maker Posco.
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/18/2006 : 18:56:53
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18 December 2006
Nickel a goldmine but lustre will fade
Nickel prices have now gone beyond any producer's dreams.
That is no journalistic hyperbole: that judgment comes from Sydney-based analysts Stock Resources.
They add that the high prices cannot last – but there are no clues to when the big falls will take place.
When spot prices kicked off the year at $US13,505/tonne on January 3, no one foresaw anything like the present phenomenon where spot prices soared above $US35,500/tonne last week and even three-month prices were marching on $US35,000.
If there are people who believe prices will slide badly in the next year or two, they should tell traders buying nickel 27 months out on London Metal Exchange forward contracts.
Last week they were signing up for prices north of $US25,750/tonne, at which level nickel producers would still be making massive profits.
They might also tell Xstrata. The new chief of Xstrata Nickel, the arm that holds the assets of the recently acquired Falconbridge, was reported last week in the Canadian business press as saying that he was planning to double output by 2012 and would consider buying any nickel asset up for grabs.
Citigroup expects global nickel demand to have been 6 per cent up for this year, even with prices being at a 20-year high. The price is being driven by the soaring demand for stainless steel, which uses about two-thirds of all nickel produced.
However, Citigroup does think demand will be weaker next year.
(But, it must be added, there were similar predictions last year about 2006.)
It sees medium-term supply being dependent on new second-string hopefuls – CVRD's Onca Puma in Brazil coming on in 2009; Anglo America's Barro Alto mine also in that country and also to produce by 2009; and the recently resurrected Ambatovy project in Madagascar now owned by Canada's Dynatec.
The fragility of the nickel supply situation
– the LME holds about only two days' global supply of the metal –
was demonstrated last month when the nickel price shot up overnight after BHP Billiton's announcement that its new Ravensthorpe laterite nickel mine would be delayed.
Stock Resource says there is still a question whether the new projects in the pipeline are going to deliver on time.
Both the world's biggest laterite nickel projects have seen delays and cost blow-outs.
Goro in New Caledonia, now controlled by Brazil's CVRD after its takeover of Inco, was to have produced 60,000 tonnes of nickel a year from 2004.
The latest start-up is now 2008,
with capital costs blowing out from $US1.45billion to $US3billion.
"Given the Goro experience, the market is likely to consider that Ravensthorpe is susceptible to further delays and capital overruns," Stock Resource said in its weekly client letter.
Furthermore, the firm thinks Xstrata
is being optimistic
with its plans to get its 60,000 tonnes a year Koniambo nickel project into production by 2010.
This is a throwback to the 1990s. It was the problems with the several big laterite projects in Australia which were at the root of present shortage problems – many explorers mothballed sulphide nickel projects after claims were made that these laterite schemes would be low-cost and meet demand.
They proved neither. None of those companies had any premonition about the problems of extracting nickel from laterite ore and how much more complicated it would be than treating the sulphide ore which had been the mainstay of nickel production. Laterites were beguiling as they were available in such large, untapped deposits.
All these years later, the Murrin Murrin processing plant in Western Australia is finally ramping up after almost destroying Anaconda Nickel. Centaur Mining & Exploration and Preston Resources did not scrape through after being floored by the Cawse and Bulong projects respectively. Highland Pacific's Ramu, in Papua New Guinea, is only now being developed thanks to the Chinese being prepared to throw about $1 billion at it.
As Stock Resource puts it, the big laterite projects were meant to evolve into the 21st century's main nickel suppliers. This kept down the nickel price in the 1990s, another dampener on exploration enthusiasm.
We are living with the consequences.
At best, a new surge of supply will occur from 2008 through to 2010, according to Stock Resource.
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Tightness in metal market eases on US economic slowdown: Calyon
Tightness in the U.S. metal market is easing because of a slowdown in the country's economy, a report published by corporate and investment bank Calyon said Friday.
However, the report also said that despite the slowdown in the U.S. economy and concerns over the weak housing market,
implications for the price of nickel and copper aren't as serious as expected.
"Although the nickel market remains tight, with stock levels close to record lows, producers and consumers point out that there are no acute shortages in metal," Calyon said.
"In our view, most of the upward pressure on nickel prices emanated from uncertainty over future supply, with problems reported at two (BHP Billiton Ltd's Ravensthorpe and Inco Ltd's Goro) out of three nickel base case mine projects," the report said.
Copper remained the underperformer, with indicators such as lower physical premiums highlighting market tightness is easing.
"Even if Chinese demand, which has underperformed for most of the year, seems to be picking up, with imports and apparent consumption rising by 0.5% year on year and 9.7% year on year respectively in October, this does not change our assessment that the copper market will be in surplus in 2007," the report said.
The gold market remained stable despite the decline in the dollar.
"Although gold broke above resistance at $640 (a troy) ounce, it was surprising that prices did not rise any further in November, given the magnitude of the dollar depreciation," the report said.
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LME copper closes firmer on strike news
London Metals Exchange prices closed on a steady note Monday following news of workers at Xstrata's Altonorte smelter going on strike and continued supply worries for the nickel and tin markets, traders said.
After LME copper prices broke key levels of support Friday to sag to a six-month low, participants feared a further retracement on year-end liquidation and short selling.
Prices initally moved up to an intra-day high of $6,735 a metric ton basis three-month on the news of Altonorte workers going on strike, but a company statement that output won't be affected resulted in prices drifting back below the $6,700/ton mark.
However, given that contract negotiations at Coldelco's largest Norte division are still ongoing – with news of two union factions rejecting one company offer – copper prices should find some support, a broker said.
"Unions seem to be price-sensitive. They have seen that prices have come off a good $2,000/ton from the highs and that the outlook is easing on the demand side. They are under pressure to get the deal through before prices drop further," the broker said.
LME copper will likely stabilize until the labor issues are resolved, analyst Edward Meir at Man Financial said, also noting the market was "relatively oversold."
LME nickel held up well to gain on the day, given a raft of supply problems and project delays.
These include delays at BHP Billiton Ltd.'s Ravensthorpe mine in Australia and CVRD's Goro mine in Indonesia, as well as the likelihood of reduced output at PT International Nickel Indonesia's nickel mine due to energy problems, are underpinning an already tight market.
LME nickel stocks remain at very low levels, preventing participants from going short, with stocks at only 7,182 tons of which 2,010 tons are cancelled warrants, meaning the metal will leave the warehouse soon.
LME tin continues to draw support from the mine shutdowns in Indonesia, where the government has cracked down on small-scale miners lacking permits.
Some of these illegal miners allegedly feed the country's second-largest PT Koba smelter, which is under police investigation. Malaysia Smelting Corporation Bhd. (5916.KU) owns 75% of PT Koba.
The crackdown in October has sent tin prices to record highs and is likely to keep prices high due to lost production.
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/19/2006 : 17:37:10
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LME nickel falls on profit taking
Profit taking ahead of the year-end and stock increases weighed on lead and nickel Tuesday, while analysts expect year-end positioning to remain a key feature in the base metals market going forward.
"It's been a pretty quiet trading day, to be honest, typical of pre-holiday trading," said a base metals trader. "Not much turnover and it generally looks to be staying this way with traders keen to square positions."
LME lead fell over 2% due to year-end profit taking, an increase in LME stocks Tuesday morning, and poor technicals, said William Adams of BaseMetals earlier. "The metal is looking vulnerable on the charts," he added.
Lead should be well supported around the $1,580/ton area with trend-line support around $1,550/ton, while the metal would need to get above $1,700/ton to resume its previous uptrend, Adams said.
Meanwhile, nickel prices fell due to year-end profit-taking and a rise in nickel stocks, said Michael Widmer of Calyon. According to LME data, nickel stocks rose 60 metric tons to 7,242 tons Tuesday morning.
Elsewhere, LME copper prices fell modestly despite ongoing supply concerns.
"Copper prices really shouldn't have fallen because of the ongoing strike concerns at Altonorte," said Widmer. However, the U.S. economic data released earlier just wasn't good enough to push prices higher, Widmer added.
According to the U.S. Commerce Department, home construction climbed during November yet rebounded only partially from a sharp drop the month before, while permits for future building fell a 10th consecutive month.
Housing starts increased by 6.7% to a seasonally adjusted 1.588 million annual rate, the U.S. government said.
In Chile, striking workers at Xstrata PLC's (XTA.LN) Altonorte copper smelter rejected a sweetened offer by the company Monday evening, the union said.
The smelter employed 500 workers and produced 297,567 metric tons of copper anodes in 2005.
Also in the news, aluminium stocks increased by a net 17,525 metric tons to 683,850 tons, according to the LME, and was thought to be partly the result of Chinese exports to Busan and Singapore.
Nevertheless, aluminium prices stayed within a tight range between $2,777 and $2,817/ton all day. The trader said he wasn't surprised by the stock increase as "a lot of metal moves in and out of stocks at the end of the year." Another trade source said the market failed to respond because it was largely anticipated.
3 months metal (prices in dollars a ton)
Bid – Ask, Change from Monday PM kerb
Copper 6644.0-6645.0 Dn 21
Lead 1633.0-1635.0 Dn 41.5
Zinc 4310.0-4311.0 Dn 30
Aluminium 2803.0-2805.0 Up 16
Nickel 33600.0-33700.0 Dn 425
Tin 11125.0-11175.0 Up 15
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/21/2006 : 17:32:21
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Base metals are down, precious metals are down, I hope the trend changes in 2007.
At least we obtained our base metals in coin form for face value, every bit above face is profits for us, now and in years to come.
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Copper slides on rising stocks, receding strike fears
Copper continued its slide lower amid indications there are ample stocks of the metal and as fears of strikes at key producer Codelco receded into the background.
At 2.31 pm, LME copper for three-month delivery was down 155 usd at 6,380 usd/tonne.
Analysts pointed out the threat of strikes in Chile has been largely defused.
"The last holdout was the biggest union at Codelco, which, late last night, voted to overwhelmingly accept the terms on the table, thus joining two other unions who ratified the contract earlier in the week," said Edward Meir at Man Financial.
This led to fresh selling today and some spill-over effect on other industrial metals.
With the labour dispute now pretty much out of the equation, investors are once again focusing on the fundamental picture.
"Stocks are rising on the LME, growth in the US seems to be slowing, and while Chinese copper import demand has picked up slightly last month, it has yet to make a dent in local stockpiles or lead to higher prices," Meir added.
Robin Bhar at UBS noted shorter dated contracts are bearing the brunt of copper's falls.
"The front-end has come under pressure from a variety of factors: a deterioration in the macro-environment, rising stocks and a perception that supplies are catching up closing the market's deficit," he said.
Long-dated copper, on the other hand, has continued to out-perform on buying support from hedge funds and investors, he said.
There is a growing belief that the longer term outlook is rosy, based on robust consumption growth from the developing world and supply constraints, Bhar said.
Elsewhere, LME three-month aluminium was off 12.50 usd at 2,757 usd.
In other metals, LME nickel for three-month delivery was down 975 usd at 32,000, zinc was down 62.50 usd at 4,177 usd, and lead fell 20 usd to 1,590 usd. Tin was flat at 11,000 usd.
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103 Posts |
Posted - 12/21/2006 : 20:47:49
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China's Demand for Base Metals to Remain Robust
By Jon A. Nones
19 Dec 2006 at 07:24 PM EST
St. LOUIS (ResourceInvestor.com) -- As analysts continue to debate what effect a potential U.S. economic slowdown would have on China’s demand for commodities, especially base metals, Moody’s Investors Service indeed predicted a fall in base metal prices next year, but not at all due to a reduction in demand from China.
In a report entitled, “Base Metals Industry Outlook 2007,” Moody’s said base metals prices will moderate in 2007, but any weakening in U.S. demand will be offset by continued strong demand from China.
“China will again be a key factor in the performance of the base metals industry, with the Chinese manufacturing, construction and power sectors continuing to advance and underpin the demand for copper, nickel and zinc, in particular,” the agency said.
Supply will continue to be constrained by the lack of meaningful new capacity, especially in copper, nickel and zinc, and prices will continue to derive support from ongoing challenges in rising production costs and labour disputes at mines.
According to Moody’s, prices will still “remain at favourable levels, allowing most producers to continue to generate excess cash flow.”
However, Moody’s said the biggest threat to price is falling investment demand, which has “contributed significantly to the increasing volatility witnessed this year, particularly in copper.”
“A significant withdrawal of funds from any or all of the metals could result in a significant drop in price from current levels,” warned Moody’s.
Base metal prices are trading double or higher than levels hit 18 months ago with copper now at $6,600 per tonne, aluminium at $2,785/t, nickel at $35,100/t and zinc at $4,451/t.
William Adams, metals analyst for BaseMetals.com, said last week that prices are likely to drift until fundamentals shore up.
“Although the market has got used to these high prices levels, it is important to remember that these are exceptionally strong prices for the metals, and therefore, they need ongoing strong fundamental developments to support these prices,” he said.
In today’s report, Moody’s breaks down the fundamentals for copper, aluminium, nickel and zinc as we move into 2007.
Copper
Since the price spike in May, slowing U.S. demand, increased mine production and recently moderated import volume from China have all added to inventory stocks.
Metal stocks in LME warehouses are at about 173,000 tonnes, up nearly sevenfold from a low of 25,525 in July 2005, although still “considerably lower than historic averages,” according to Moody’s.
According to statistics released by the General Administration of Customs today, China’s copper imports were down 35% from last year at 585,190 tonnes in the first 11 months. At the same time, copper exports surged 132.5% to 243,291 tonnes.
“The moderation in import volume from China is most likely a matter of timing and internal inventory drawdown,” said Moody’s, adding that it “does not anticipate a significant near-term reduction in Chinese demand.”
In fact, Adams implied today that the metal could be headed back to China after its multi-month destock.
“Perhaps with prices now $1,000/t to $2,000/t below the levels seen between May and October, the price is attractive enough to restock,” he said.
In addition, Adams said that some Chinese smelters have “bitten the bullet” and are starting to accept treatment terms at about $60/t despite previously saying they would not accept anything less than $100/t.
“This suggests a growing need for feed in China having run down stocks in recent months,” he added.
Although global copper production increased in 2006, mine production was lower than expected due to supply disruptions with strikes at La Caridad, Cananea and Escondida, and geotechinal issues at Grasburg and Chuqicamata.
Copper prices hit highs of 6,715/t last night with reports that workers at the Xstrata’s Altonorte copper smelter in Chile went on strike after rejecting a revised contract offer.
Moody’s said price volatility would continue as events like these unfold, but the fundamentals of the long-term copper market would remain stable. However, the agency warned that investors should anticipate prices drifting lower in the coming months towards a more sustainable level.
“With growing signs of a weakening U.S. housing market, moderating demand growth from China, increased substitution effect due to high prices and new mine production coming on line, we anticipate copper prices to settle below today’s levels, but remain well above historic averages,” Moody’s said.
But in the near term, Adam’s said, “there are a number of pointers that suggest copper may not yet be ready to head south and indeed we feel copper may still have an upside leg in it.”
Aluminum
China continues to be a major factor in the aluminium market, with primary production up roughly 18%, to 7.7 million metric tonnes for the first 10 months of 2006. But while consumption has also grown strongly, the country continues to be a net exporter, although in a lesser amount than seen in 2005.
However, the lack of adequate power in China, the existence of older inefficient smelters and recent government initiatives to increase export taxes from 5% to 15% on primary aluminium are expected to slow the level of exports, according to Moody’s.
Continued demand from the automotive industry, and further strengthening in aerospace, commercial construction and industrial use were key drivers in 2006.
In 2007, Moody’s expects aluminium prices are likely to track within 2006 levels, given current metal exchange inventory levels and still acceptable demand fundamentals.
But while supply and demand in 2006 have remained relatively balanced, 2007 could show a modest surplus position as new capacity comes on stream. Therefore, Moody’s expects that overall cost pressures could continue.
Nickel
Nickel prices have been on a year long rise as stainless steel demand remains strong, inventories have dwindled to just over one days supply, supply disruptions have continued and new mine supply has been delayed.
The International Iron and Steel Institute Steel previously forecast China’s steel consumption this year would likely be between 320 million and 330 million tonnes, up from 300 million tonnes in 2005 and 272 million in 2004.
China already makes up about 30% of total world steel demand. Steel consumes approximately two-thirds of nickel produced.
“Substitution to lower grades of nickel in stainless steel production, and scrap supply have been past deterrents to nickel prices, but their impact this year has been clearly minimal, perhaps as these elements are reaching their limits,” said Moody’s.
In addition to the strong demand from the stainless steel sector, the metal is also benefiting from resurgence in the aerospace sector, according to Moody’s.
Prices will also be supported by project delays, with BHP’s Ravensthorpe now not expected to begin production until early 2008 and CVRD’s Goro not expected until mid-2008.
“It is now accepted that this year’s expected deficit could occur again in 2007,” said Moody’s.
Moody’s said it expects a price correction from current levels, “which could be significant,” but believes that the price will remain high next year.
Zinc
Like the other metals, the zinc price has been on an upward trajectory as demand, again from China, has remained high and inventories have declined significantly.
Strong demand from China, as a net importer, “is likely to continue as it expands its galvanizing capacity” in construction, automotive, aerospace and pharmaceuticals, said Moody’s.
According to the report, supply has remained tight, with no significant developments taking place in the last several years and with no significant new development currently planned.
There will be some re-starting of formerly concluded production with prices at these levels, but such opportunistic undertakings “will not increase supply sufficiently to negatively impact the market,” according to Moody’s.
Similar to nickel, the greatest risk to zinc is reduction in demand for galvanized steel, but this is a sector that is forecast to perform well again in 2007.
“As with copper and nickel, Moody’s believes the zinc price is likely to correct, but nevertheless remain at attractive levels for producers,” said Moody’s.
Conclusion
Moody’s 2007 outlook for the global base metals industry continues to be favourable, despite a potential fall back from current prices.
As far as in the nearer term, Adams believes base metals may be watching copper’s next move.
“Although the other metals are in a different boat to copper in that many of them are much closer to their record highs than copper is they do still seem to be watching copper with interest and it in turn is acting like a dragging anchor on them,” he said.
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The above post is intended for entertainment purposes only and in no way reflect the opinions of the flesh and blood person writing the text. All writings under the screen name "copperhead" are merely a characterization of the personna created. |
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/22/2006 : 23:24:55
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LME nickel ends 4% higher, copper down
London Metal Exchange nickel took the spotlight ahead of the long weekend to jump nearly 4% driven by bargain-hunting and year-end positioning Friday, with analysts expecting "holiday-thin" trading next week.
Three-month nickel held onto morning gains to rise nearly 4% on the previous PM kerb to a Friday PM kerb of $33,400/ton.
Nickel's strength Friday is driven by bargain-hunting and year-end buying, said Michael Skinner of Standard Bank, with quiet pre-holiday trading exacerbating the gains.
Ongoing labor problems at projects in New Caledonia and delays to BHP Billiton's Ravensthorpe project as well as a decrease in nickel stocks Friday morning have helped to support the market. According to the LME, nickel stocks fell 258 metric tons to 7,092 tons.
One trader said it is unlikely that nickel will trade below $30,000/ton in the near term as the 100-day moving average is now at $30,030/ton.
Elsewhere, three-month lead prices rallied over 2% on bargain-hunting and as LME warehouse stocks fell by 150 tons to 41,525 tons.
Meanwhile, three-month copper traded to a high of $6,430/ton before retreating to a PM kerb of $6,325/ton.
Copper prices look poor on the charts and are likely to head toward the $6,200/ton price level, where the metal should find some support, said Skinner.
In news, Zambia's second leading copper and cobalt producer, Mopani Copper Mines, has suspended operations at two of its main shafts at its mine in Kitwe, Zambia's copper belt, following flooding early this week, an industry official told Friday.
According to an official with Zambia's ministry of mines and minerals development, MCM told the government that underground water pipes burst last week, flooding two mine shafts at the copper mine, which forced the company to suspend operations.
Next week, Skinner expects more of the same last-minute book-squaring in "holiday-thin" trading.
In looking ahead, Goldman Sachs in a recent report said expectations for a global economic slowdown in 2007 will likely moderate base metals demand in the coming year and lead to supply surpluses. Moreover, fewer supply disruptions are likely to add to supply surpluses next year, according to Goldman Sachs.
While base metals returns are likely to remain muted over 2007, with a forecast for 5% returns, supportive longer-term drivers will keep prices above historical average levels, the U.S.-based investment bank said. And, an expected global economic recovery in 2008 will likely tighten fundamentals once again, diminishing expected surpluses, and generating positive upside momentum, the report noted.
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/25/2006 : 12:09:12
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Philippines: Largest nickel mine in Asia on brink of collapse
The Philnico Industrial Corp. on Thursday said it is looking for new players as the $1 billion deal to revive one of Asia's largest nickel mines is facing collapse.
Chinese investors and their Philippine counterparts encountered major disagreements over valuation and share ownership.
Philnico said the Chinese investors are seeking more time to review their offer for the revival of the mothballed nickel refinery and mining operations in Nonoc Island off Surigao City in the Philippines.
Philnico president Evaristo Narbaes Jr., said, "We are open to other options and we have received several offers from Japanese companies.
He said other companies from Russia and China have shown significant interest for the project.
Narvaez adds, "Our main concern is to protect the interests of our stakeholders, which is not only the stockholders of the company but also the interests of the country, the government, and the local community."
One sticky point is a disagreement over how much Philnico's $300-million obligation to the government would be worth once these are converted into shares in the rehabilitated firm.
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Chinese firms acquire managerial control of large N. Korean copper mine: sources
Chinese firms have bought a controlling stake in one of the largest copper mines in North Korea, industry sources said Sunday.
Sources familiar with business cooperation between North Korea and China said Hebei-based Luanhe Industrial Group and another privately owned company signed a deal that gives the firms control over Hyesan Youth Cooper Mine in Yanggang Province.
The contract for the mine located near the North Korean-Chinese border was signed on Nov. 27 in Pyongyang with Luanhe and its partner receiving a 51 percent stake, giving them managerial control of the mine. No details on the financial terms of the transaction were released.
Hyesan mine lies about 65 kilometerts south of Mount Paekdu and near Changbai, China. It is estimated to have 420,000 tons of copper, with 250,000 tons that are buried 600 meters from the surface already being mined.
Roughly 2,000 tons of copper ore are excavated daily.
Luanhe, a trading company engaged in development of various resources, real estate and cement businesses, ranks 75th among China's privately owned companies.
The reported takeover of the mine comes as North Korea has taken steps to sell the rights to various mineral mines to Chinese companies.
This has raised concerns in South Korea that Pyongyang is selling its natural resources to overcome its economic woes.
.......With all the surpluses that China has, it makes sense for it to buy up mines and oil/gas fields. |
Edited by - pencilvanian on 12/25/2006 12:14:27 |
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/26/2006 : 17:08:20
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Some say base metals will go down, some say base metals will go up.
Nobody knows the future until the future becomes now.
Up, down or sideways, Buckle up for a long bumpy ride
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Scotiabank: Commodity price '07 outlook: Metals & minerals expected to outperform for third year running
Toronto, Dec. 21 – Scotiabank's Commodity Price Index, which measures price trends in 32 of Canada's major exports, posted a strong rebound in November, up 7.7 per cent month-over-month, after slipping in September and October. The All Items Index is currently 4.3 per cent higher than a year earlier and is still hovering near the May 2006 record high.
Nickel was the top performing commodity in 2006, climbing an extraordinary 159 per cent over the past year.
Recent news that Australia's Ravensthorpe mine will not come on stream until 2008, instead of second half 2007, and that Inco/CVRD's Goro mine will be delayed until late 2008, has raised concern over supplies, in an environment of strong global demand growth.
World stainless steel production advanced by 12 per cent in 2006, boosted by robust demand for oil drilling equipment, electric power expansion and booming aircraft orders.
A 'super-cycle' is expected in nickel, with prices staying strong through 2008.
"Uranium and zinc are our top 'picks' for investors in 2007, with precious metals, especially silver, also expected to benefit from further weakness in the U.S. dollar," says Patricia Mohr, Vice-President and commodity market specialist, Scotia Economics. "Potash fertilizer should yield good gains for investors. Wheat, barley and canola should also perform quite well relative to past experience, linked to new demand for ethanol additives in gasoline and biodiesel, although metals & minerals are expected to retain their leadership position."
Uranium was the third-best performing commodity in 2006 and will likely be the top performer in 2007. Spot uranium prices are expected to average US$80 in 2007, ending the year close to US$90, up from US$48.10 in 2006 and a secular low of only US$7.10 in late 2000. The current upswing in uranium prices represents a 'secular', transformational change in global energy markets, related partly to a shift by utilities from high-priced fossil fuels, rather than a 'cyclical' upswing. Nuclear power generation emits virtually no greenhouse gases, another factor attracting interest in countries such as China. Spot uranium prices have jumped from US$56.00 per pound in mid-October, prior to the flooding of the Cigar Lake mine in Saskatchewan, to US$63.00 by late November and US$72.00 in mid-December. That is 99 per cent above a year earlier.
London Metal Exchange (LME) nickel prices also surged to a new record high of US$16.08 per pound on December 15. China's enormous growth in stainless steel production, 38 per cent per annum from 2004 to 2006, is likely to continue in 2007, up a projected 35 per cent. Stainless steel distributors in G7 countries have not been able to rebuild their inventories in 2006, likely adding to demand in the first half of next year. While there has been some shift away from high-nickel containing stainless steels (300 series) to the low-nickel containing steels, this shift has been limited. Most of the business investment driving global demand for stainless steel is of the variety requiring high specification steel.
The Agricultural Index strengthened in November, as canola and barley prices gained significant ground and wheat prices maintained their recent strength, more than offsetting slightly lower cattle and hog prices. Cash canola at Vancouver jumped from US$290 per tonne in October to US$324 in November and US$333 so far in December, 54 per cent above a year earlier. Drought in Australia has reduced its canola/rapeseed crop to 400,000-500,000 tonnes from normal levels of just under 1.5 million tonnes, tightening market conditions in Japan, which is a major buyer.
"European use of domestically grown rapeseed to produce biodiesel, for blending with petroleum-based diesel fuel, has cut its rapeseed exports and lifted its imports of canola oil," says Patricia Mohr. "Canada should garner a large share of stepped-up European imports of canola oil in coming years. Increased use of corn for ethanol manufacture in the United States, a gasoline additive, has also lifted both U.S. corn prices and Canadian barley prices. Incremental demand for world biofuel production should bolster both grain and oilseed prices in 2007, spelling a 'new day' for Western Canadian farmers", says Mohr.
West Texas Intermediate (WTI) oil prices are expected to hold at fairly lucrative levels averaging US$60 in 2007 compared with US$66 in 2006 and US$56.56 in 2005. Global oil consumption should expand at a slightly stronger pace in 2007 (up 1.7 per cent), boosted by somewhat lower prices, with China (up 6 per cent) and the Middle East (up 5.4 per cent) remaining 'growth' markets for petroleum. Non-OPEC supplies are widely expected to increase by a more substantial 1.7 million barrels per day in 2007, centred in Alberta, the Caspian Sea, Russia's Sakhalin Island, Angola & Sudan and offshore Brazil, up from a modest 650,000 barrels per day in 2006. However, this estimate could easily prove too optimistic. International oil companies face major challenges (both 'technical' and 'political' including the renegotiation of production-sharing agreements) in bringing on new fields and in maintaining existing ones (especially in Russia and Venezuela). An uncertain legal framework and a general trend towards greater state control of Russian oil & gas production may substantially slow further development in Russia.
Scotiabank is one of North America's premier financial institutions and Canada's most international bank. With close to 57,000 employees, the Scotiabank Group and its affiliates serve approximately 12 million customers in some 50 countries around the world. Scotiabank offers a diverse range of products and services including personal, commercial, corporate and investment banking. With $379 billion in assets (as at October 31, 2006), Scotiabank trades on the Toronto (BNS) and New York Exchanges (BNS).
..........(For the grains, I would consider ConAgra or ADM or one of the other 800 pound gorillas in the field of food. I'm not saying go buy them, just do your own research and find what you think is the best grain grower and place your bet on the stock.
Remember, it's a bet/speculation, not an investment, don't let Wall Street tell you different.) |
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/27/2006 : 19:00:23
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Rising world interest rates the real enemy of the mining boom
A rise in world interest rates,
rather than the long-awaited development of new mining capacity,
might be the catalyst that brings the mining boom to its eventual end.
However, there is no telling when that might be. Although short-term interest rates have been rising in many parts of the world, long-term rates remain historically low.
The tremors which ran through commodity and equity markets in May following a small lift in long-term bond yields provided a foretaste of the market's reaction to a sustained increase.
Conventional wisdom holds that supplies coming on stream will turn the chronic shortages in minerals markets over the past three years into surpluses.
"At some point, prices will retreat substantially and possibly rapidly, closer to longer-term trend levels as metals supply increases from expansions and investments that are already under way, and as the rate of metals demand growth abates," the World Bank concluded in a recent review of world metals markets.
This is the view reflected both in futures markets and in the consensus analyses of commodity forecasts.
Futures markets suggest that in five years, metals prices will almost halve,
retaining only half the gains made since 2002.
Futures markets expect aluminium to fare better, losing about a third of its value, than copper which will halve.
The futures market is not simply following a naive return to trend. The futures price for oil, for example, shows almost no drop in value over the next five years, with the market expected to stay chronically short of supply.
Futures markets are no more accurate in forecasting commodity markets than they are in picking interest or exchange rates, so too much cannot be read into their pricing.
However, an Access Economics survey of 20 global commodities forecasters forecast price declines over the next 12 months for all major minerals except iron ore, steaming coal and gold. Over three years all would fall. Iron ore would fare best, dipping by only 1.6 per cent, while nickel would plummet by 55.5 per cent.
One of the puzzles over the past two years has been the lack of any obvious response by supply, either in Australia or in other major exporting nations, to the extraordinary level of prices.
It is just a matter of time, according to Treasury chief economist David Gruen. He says that over the course of the mining boom which ran from the late 1970s to the early 80s, it took about six years before the burst of fresh investment started generating new export growth.
"The experience of the previous boom does suggest that we should anticipate strong growth in non-rural commodity export volumes over the next few years."
Treasury expects a substantial increase in Australia's export volumes of all mineral commodities both this year and next. The problem with the supply growth story is that demand, fuelled principally by China, is still growing rapidly.
This is best seen in the steel industry. Over the past two years alone, China's steel production has increased by 137 million tonnes, which compares with total US production of 133 million tonnes. The latest monthly figures show production still rising by around 20 per cent a year.
China is now the world's largest consumer of all major metals, taking more than twice as much as the next largest user for most of them.
The International Monetary Fund says consumption of metals in developing nations typically grows together with income until the latter reaches the equivalent of $US15,000 to $US20,000 ($19,100-$25,500) a year.
At that point, economic growth becomes more focused upon services. China, with an average income of $US6400, still has a long way to go. The IMF notes that metals consumption growth has exceeded income growth in China because so much of the world's manufacturing industry is shifting its base there.
After growth in China starts to taper, India, which will soon overtake it in population, might still be growing strongly. However, the IMF notes that India's growth is already more service-oriented, while metal-intensive manufacturing is a much smaller component of its economy.
More immediately, analysts ranging from the IMF to the Reserve Bank of Australia have argued that the downturn in the US housing sector, considered the darkest cloud gathering over the world economy in 2007, will have no more than a minor effect on China's economic growth.
Advocates of the commodity "super-cycle" argue that growth in demand will continue to outstrip growth in supply for many years to come.
An IMF study of commodity booms and busts going back to the 1950s shows that no two are alike.
There is no typical "shape" to a commodity boom or bust.
For most commodities, the probability of a boom coming to an end is independent of the time its price has been rising.
The fact that prices have been booming now for five years does not mean that a bust is any more probable next year than it was last.
However, some regular relationships can be observed, and the nexus between commodity prices and interest rates is one of them.
The commodity booms of both 1972-75 and 1977-82 were brought undone, not by increases in supply, but by world economic slowdowns caused by rising rates.
A new study by Harvard economist Jeffrey Frankel shows that a strong inverse relationship between interest rates and commodity prices has held since 1950. A 1 per cent increase in rates generates a 6 per cent fall in commodity prices.
High interest rates reduce the preparedness of companies to hold commodity stocks, encourage speculators to shift out of commodity contracts and into Treasury bills, and give miners added incentive to mine for today rather than leaving reserves in the ground for tomorrow.
"When the real interest rate is high, as in the 1980s, money flows out of commodities, just as it flows out of foreign currencies, emerging markets and other securities," Frankel says.
When real rates are low, as over the past five years, money flows in the opposite direction.
Perhaps more important than the preparedness to hold inventories is the effect that rising real interest rates have on economic activity at large.
China's growth can withstand a downturn in US housing, but not in the world economy.
Long-term interest rates, as measured by US 10-year Treasury bonds, are ending the year at only 4.5 per cent, almost a full percentage point below the peak reached in the middle of this year, and well below the cash rate of 5.25 per cent. The Economist magazine recently described bond markets as "over-valued and complacent".
In the meantime, cheap debt is creating a field day for hedge funds, private equity, and commodity investors.
There is now widespread acceptance of US Federal Reserve chairman Ben Bernanke's explanation for the persistence of such low long term rates: the excessive rates of saving in Asia which are being channelled into US bond markets. No one can forecast with any confidence when this will finally end.
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Commodities boom to stay for now, says Accenture
With the demand for almost all commodities on a continuous rise and showing no signs of slowing down, global management consulting, technology services and outsourcing company Accenture says it is optimistic that its mining business will continue to benefit from the commodities boom.
Speaking to Mining Weekly during his recent visit to South Africa, Accenture global MD for growth and strategy in the resources operating group Omar Abbosh said, “The strong demand that we are seeing across all commodities is mainly driven by China and India and the demand will continue to have a positive impact on the company’s mining and resources businesses for at least another three years.
“The mining business is looking very attractive and it should remain so for a few more years.”
He cited mining companies with ‘more mature portfolios’ as typically having the most growth potential for Accenture.
“Mature mining companies are likely to use our services rather than the services at the small ones with ‘immature portfolios’, whose main focus is largely centred on trading capabilities and government relationship building.”
Although South Africa’s mining industry is on a continuous upswing and is extremely attractive, Abbosh made the point that issues such as the strong rand, increased transparency requirements and industry consolidation pose serious challenges to the industry.
The strong rand is the main consideration because it makes it more difficult for mining companies to export its product.
“The current levels of the rand, trading at more than R7 to the dollar compared to R13 to the dollar a few years ago are having a negative impact on South Africa’s exporters,” said Abbosh, who added that transparency, required through governance, safety and environmental issues, is a huge issue today and it creates extra costs for the client.
Abbosh believes that industry consolidation poses another challenge.
“The recent acquisition of Falcon-bridge is an example of industry consolidation,” said Abbosh, who, as a result of mergers and acquisitions, already sees only three or four mining majors emerging in the future.
“But consolidation of a global company by a local company, for instance, means that the local business, mainly run by people with strong engineering and mining back-grounds, has to come up to speed with the global markets and it also means that people have to adopt new accounting rules (International Financial Reporting Standards) and safety procedures, for instance, which is not always easy.” But there are solutions.
Abbosh believes that if companies focus on enhancing strong management practices, sometimes with external extra expertise and increased management and financial transparency, then new issues arising from cross-border consolidation would be overcome.
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/28/2006 : 16:33:41
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Bolivia Threatens Chile's Copper Output With Water Dispute
By Matthew Craze
Dec. 27 (Bloomberg) -- Bolivia plans to ``industrialize'' a river that supplies water to Chile's Atacama Desert, threatening the world's largest copper mining district.
Bolivia placed a 20-man military post on the banks of the river, about 4 kilometers away from Chile's border, as a first step to tapping the water resource, Bolivia's government state information agency ABI said today.
The Silala River flows from 4,000 meters above sea level in the Andes cordillera to Chile's Antofagasta region, which produces most of the nation's copper. Mining companies need water to extract metal from bare rock.
Bolivia President Evo Morales urged plans to industrialize the water resource which is now being ``diverted illegally into Chile,'' ABI reported. Morales, who formerly campaigned for coca- leaf growers, plans to bottle the water and sell it with the slogan, ``Drink Silala water for sovereignty,'' ABI said.
Morales, who became Bolivia's first indigenous leader last year, attended an Army parade with at the outcrop today wearing military uniform.
Chile's state-run Codelco, the world's largest mining company, uses Silala water to turn ore from its Chuquicamata and Radomiro Tomic mines into copper concentrate, an intermediary product which is refined into metal. BHP Billiton, the world's largest mining company, also operates its Escondida mine in Chile's Antofagasta region. Escondida is the world's largest copper mine, while Chuquicamata is the third-largest.
Bolivia lost the Antofagasta region in a four-year war with Chile and Peru in the late 19th century. The two countries have severed diplomatic ties and Bolivia has petitioned the United Nations to grant it access to the Pacific Ocean.
Bolivia is South America's poorest nation.
Copper prices have quadrupled since 2002 on the London Metal Exchange because of a global shortage caused by surging demand from China.
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/28/2006 : 17:25:42
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Manufacturers not likely to get relief from metals prices next year
One thing that most manufacturers would be happy to leave behind in 2006 is the higher cost of commodities prices, with metals near the top of the list.
Despite some weakness of late, it's probably not going to happen.
"There is a reasonably strong prognosis for seasonal recovery in many of the metals markets," said John Tumazos, senior metals & mining analyst at Prudential Equity Group.
"First and foremost, most segments of the world economy appear to be booming, other than U.S. consumer-led housing, appliances, autos, etc.
China, the Mideast, Germany and a number of regional economies are brisk."
Tumazos also questions how many segments within the metals sector can produce 5 percent additional supply if 2007 is another year of surging demand.
(He's confident aluminium and steel could, but no so for others.)
Meanwhile, he notes that several players in the molybdenum market (Thompson Creek, Rio Tinto, and Codelco among them) have already warned customers to expect output declines next year of up to 5 percent of global mine output.
"It is possible that demand rises at least 3-5 percent in sympathy with aerospace, oilfield exploration, refinery repair, desalination, steel plate and other deep capital goods without any supply rise," he said.
While copper prices pulled back last week, he thinks inventory gains and price erosion should lessen, or completely reverse, in the upcoming seasonally strong time of year.
On the steel front, Tumazos estimates deliveries into the U.S. reached a record 137.3 million tons this year, up from 120.8 million tons in 2005. Of that record amount, he believes true usage was closer to 125 million tons, with 10 percent going to inventory.
Remarkably, he notes that 2006 appears to have been a record 9.8-million-ton export year.
"It seems unexpected that domestic steelmakers would export more when they cannot supply the U.S. market," he said.
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China in short supply of copper concentrate
Insiders predict that the short supply of copper concentrate is likely to restrain China's copper production in 2007, China Nonferrous Metals News reports.
China is the world's biggest copper producer, but its copper production accounts for less than one third of its consumption, leading to the country's position as one of the biggest buyers of copper concentrate.
China is expected to produce 2.95 million to three million tons of copper in 2007, only 0.2 million tons more than that in 2006.
Jiangxi Copper Corp., the biggest copper producer in China, plans to raise its smelting and refining capacity by 0.3 million tons by the middle of 2007.
Jinchuan Group Ltd. will increase its smelting and refining capacity to 0.4 million tons next year, however this doesn't mean the company will enjoy an equal production level with that in 2006, because output is decided by material supply such as copper concentrate.
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LME tin up; Markets pare gains
Base metals had pared their earlier gains by the end of Thursday London Metal Exchange trade, although brokers said the markets should be prepared to face some year-end positioning Friday.
There was little trade across the board although the early advancer was tin, which established a fresh contract high as fund and trade buyers were attracted by supply-side woes.
Declining LME inventories have combined with production problems and concerns over futures supplies to create what a broker described as a "classic and fundamentally driven bull run."
Strike action in Bolivia, a clampdown by Indonesia's government on illegal mining and smelting, as well as limits on future exports from the Asian country have boosted the market and led to an 83% hike in prices this year, culminating earlier Thursday at a peak of $11,800 a metric ton.
Brokers also pointed to a booming electronics sector and new European laws requiring the use of tin solder are also supportive to the market.
Although LME tin had erased some of its earlier gains in the afternoon session, brokers said their near-term money is on the upside with $12,000/ton in the market's sights.
But they also warned that prices could be vulnerable to a profit-taking sell-off by the speculators, estimated to be sitting on around 25% of net long positions.
The rest of the markets were quiet in comparison and generally held recent ranges. Failing to react on the upside to the release of relatively bullish U.S. economic data, the markets drifted sideways and pared early gains.
Although many players are absent for the holiday period, brokers said they plan to "tread carefully" as participants square positions and take profits ahead of the start of the new trading year.
3 months metal (prices in dollars a ton)
Bid – Ask, Change from Wednesday PM kerb
Copper 6379.0-6380.0 Up 4
Lead 1665.0-1667.0 Up 35
Zinc 4245.0-4250.0 Up 40
Aluminium 2830.0-2832.0 Up 10
Nickel 33250.0-33255.0 Dn 250
Tin 11575.0-11600.0 Up 75
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/28/2006 : 17:48:43
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Notable quote - Robin Bhar, metals strategist at UBS - "The fact that growth in the developing world will offset the decline in demand from the U.S. represents a turning point for commodity markets, which have been historically tied to the expansion and contraction in the U.S. economy."
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 12/28/2006 : 18:00:40
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More on yesterday's report that China is imposing tarriff's on certain items to discourage exports. It appears from early reports in China media,
that nickel will be in the 11-15% range.
According to reports issued by the General Customs Administration earlier this week, nickel exports from China have surged 39.9% in the first 11 months of this year, compared to last.
Exports in November alone were 54.3% higher than November last year.
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Base Metals Ongoing News
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