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September 2, 2008 Dear Friend, In this report we have tracked the seasonal changes in commodity exchange inventories of aluminum, copper, nickel, lead and zinc since 2001 to compare the Summer 2008 buildup to prior periods. We found little evidence of any "seasonality," and reason that the emergences of China, India, the Mideast and Brazil has reduced the impacts of July, August and December monthly slowdowns as newly dominant nations celebrate different holidays. Cyclical trends have been more visible during this decade than seasonal ones. Metals inventories rose throughout 2001, 2002, 2007 and thus far in 2008 for most of the metals at once, and conversely fell across the board in 2004. Further, specific oversupply is evident in aluminum where commodity exchange inventories rose throughout this decade, more than tripling. The magnitude of Summer 2008 inventory buildups, typically 0.3% of annual demand, or cumulative 2007-08 buildups ranging from nil to 1.9% of annual demand, are not large. A small acceleration in the world economy could tighten metals markets dramatically. It is possible that the investment community, via dishoarding in the current credit crunch, accounts for the entire inventory buildup. We calculate that a $1 billion outlay could buy the 0.2% of the current year's nonferrous metals outputs including scrap recoveries. World Gold Council data shows 973 tonnes of gold bullion ETF holdings at June 30, 2008 equivalent to $25 billion at $800 gold. We believe investment capital plays a part in the 2007-08 nonferrous inventory buildup. Maybe an element in the better performance of steel markets in 2008 has been the non-existence of any traded steel futures, which prevents "disinvestment" in ferrous markets until the creation of such. WE HAVE REATTACHED our five recent reports on BHP Billiton, Rio Tinto, Value and comparisons of the diversified mines as you may have overlooked their distribution in late-August. Faithfully yours, John C. Tumazos |
Copyright © 2008 John Tumazos Very Independent Research,
LLC
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