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August 30, 2008 Dear Friend, We compared rates of growth of nonferrous metals commodity exchange inventories over the past four monthn seasonally slower period. Aluminum stocks rose by 0.5% of global demand, copper, zinc and lead each rose by about 0.3% of annual demand and nickel and tin fell. This is not too terrible in view of the slowing global economy, and benefits from poor output performances especially in copper and nickel. We further calculated that a 0.2% of global demand stockpile of virtually all nonferrous metals equates to a $1 billion notional capital exposure. The global credit crisis, which profoundly impacts lenders to hedge funds and commodities traders, may easily have caused dishoarding among investment funds. We caution against any tendency to assume that visible inventory buildups equate to poor consumption, as investment demand enters the mix as well. Please note our discussion of the crazy spread between #1 busheling cleaner steel scrap in Chicago at $850 while #1 heavy melting composite rests at $426.67. Also, Xstrata contracted its met coal sales at $362 per tonne while no one else achieved $300 and U.S. Appalachian prices are nearer $150 per English ton The cost-push foundation supporting steel prices appears vague, and oligopolistic cooperation appears to be the true price support. We want to call your attention to our FIVE reports in the past ten days on the semiannual results of BHP Billiton, Rio Tinto, Vale, a comparative review of the six large diversifieds profit drivers and a review of BHP/Rio Tinto arbitrage spreads and merger outlook. Our reports on the very largest companies involve more complex work, which you may easily miss during well-deserved holidays. Faithfully, John C. Tumazos |
Copyright © 2008 John Tumazos Very Independent Research,
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