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December 1, 2008 Dear Friend, We near the combined ends of the year-end tax selling, hedge fund shutdown and hedge fund redemption seasons. Some hopes for rebounds after January exist as scrap steel prices traditionally rise as the ground freezes, stainless steel distributors restock on the first hint of nickel price rebounds, Norilsk's nickel deliveries cease as seas freeze and Spring brings better auto, housing and capital goods activities. Indications of a 2% gain in U.S. Holiday retail sales are a plus that some purchasing power remains after months of restraint. However, ArcelorMittal's 15% layoffs announced for January represent preparations for a long, hard 2009. April 1 will bring formally lower iron ore and metallurgical coal prices, already widely anticipated in roughly steel price declines since July. The upward creep to 2.37 mmt of aluminum, 323,210 tonnes of copper, 63,264 tonnes of nickel and 259,167 tonnes of zinc inventories weigh on nonferrous prices and risks exist that they may keep rising. Dollar weakness, interest rate cuts across the globe, diverse infrastructure or other stimulus programs and the benefits of $54 crude and $1.63 per gallon gasoline offer some other hopes. However, these variables reflect the dire degrees of economic weaknesses that forced rate cuts, devaluations, stimulus programs and low crude oil. We have faith in long-term economic growth, and believe current common stock, bond and commodities price levels offer opportunities for more than doubles in most instruments. Some nonferrous prices may boom to new highs in the 2011 time frames owing to closures and project cancellations today. Our "most favorites" include BHP Billiton, Allegheny Technologies, FNX Mining, Antofagasta PLC and Thompson Creek Metals owing either to "diversity" or net cash positions. Our "least favorites" reflect oversupplied steel, aluminum or wood markets in U.S. Steel, Severstal, Nucor, Alcoa and Weyerhaeuser. Faithfully, John C. Tumazos |
Copyright © 2008 John Tumazos Very Independent Research,
LLC
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