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September 17, 2008 Dear Friend, The unwinding of physical metals speculative excess continues unabated. September 16th 56,915 tonne and September 17th 92,955 total LME aluminum warehouse deliveries total a record two day 149,970 tonne amount equal to one-third of 1% of 48 mmt global use. Combined commodity warehouse inventories of 1.83 mmt now exceed all historical amounts other than the May 1993 to November 1994 period surrounding the June 1994 2.7 mmt peak as the former Soviet Union privatized and adjusted. Aluminum, copper and nickel inventories appear exaggerated as hedge funds, traders and distributors wind down, lose credit or close. Speculators had exaggerated consumption growth in 2004-07, and the speculative inventory windups amplify current softness. Recession evidence surfaces daily, such as a 16.8% drop in August daily U.S. steel service center shipments reported today versus one year ago. The World Bureau of Metals Statistics reports global demand declines for nickel, copper and lead through July, and gold, platinum and palladium have seen drops too. Today's dollar softness and $70 gold price hike illustrates the intrinsic value of "hard asset" companies, particularly in relation to financial or technology companies dependent upon subjective accounting, fleeting confidence or comparative edge. We expect a future generation of investors to gravitate to mundane tangible companies they can see and understand such as we study. Enclosed are reports on Overweight-rated Allegheny Technologies, Antofagasta PLC and FNX Mining. We particularly applaud Allegheny Tech's $1 billion planned capital outlay to leapfrog competitors to create a global comparative advantage in specialty metals. FNX Mining defined a conservative, tiny tonnage of high value ore and Antofagasta's cost escalation limited the amount we raised our price target. Faithfully, John C. Tumazos |
Copyright © 2008 John Tumazos Very Independent Research,
LLC
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