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November 22, 2010 Dear Friend,
We reviewed in great detail the
monthly reports of the World Bureau of
Metals Statistics, World Steel Association,
International Aluminum Institute and Fibre Box
Assn. We did not get
to the World Gold Council third-quarter demand
update, which we will review next week.
Chinese
State Reserve Board public sales of 212,770 tonnes
aluminum and 50,000 tonnes of zinc, a Shanghai
copper stock buildup of nearly 40,000 tonnes over 7
weeks and general listless nonferrous metals
exchange offtakes make us wonder why the Chinese are
not buying. Our Thesis #1 is simply that they sell
into their local markets at these high prices as
their markets demand more than is readily
available. Our Thesis #2 is that the Chinese
anticipate slower 2011 demand growth as the 2011-15
five year plan emphasizes energy conservation, lower
CO2 emissions, efficiency and pollution controls.
We wonder about the profile of the
pending 2011-2015 Chinese five year plan as it
relates to energy use, CO2 emissions and pollution
constraints to industrial production, steel output,
pig nickel output or aluminum output. China may
ignore its CO2 emissions target promises, curtail
output growth or target "high efficiency." One
report cited a goal of 1/3 more steel scrap use to a
20% blend of iron input units. It is possible China
could greatly shrink its own low grade or unsafe
iron ore, thermal coal, lead or zinc industries, for
example, and rely on Western high grade iron ore,
Western higher grade bauxite and alumina, wind or
sun rather than its own dirty coal for electricity,
or imported scrap or finished metals in place of its
least efficient inputs. China's efforts to abandon
its "loss leader" inefficient sectors will benefit
or harm the companies we follow, but we are hopeful.
Germany
and the Rest of Europe have continued robust
nonferrous metals consumptions generally up over 20%
in September from 2009 levels. Steel and aluminum
outputs outside of China continue to rise, and
aluminum output in October outside of China
registered another record. Steel output outside of
China in October was the third strongest month of
2010.
We
lowered our investment rating for General Moly to
Neutral from Overweight because its shares have
nearly doubled since our July 7th upgrade in our
investment rating at $3.18 per share. Little has
changed, but investors seem to accept the likelihood
of environmental permitting and project financing
today a little more than they had a few months ago.
Faithfully,
John C. Tumazos,
CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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