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March 4, 2011 Dear Friend,
Herein we have reviewed the February 19th
WBMS data, the February 21st IAI semiannual global smelter capacity survey,
the February 21st smelter output data, the February 28th Chinese aluminum
smelter output data, the February 28th producer aluminum output data, the
February 21st World Steen Assn. January global output data, 2010 full year
scrap containerboard recycling data, January 2010 containerboard demand
data, and other statistics issued since February 11th prior to our trip to
Argentina February 16 to 26.
We did not incorporate the February 17th
World Gold Council annual demand-supply data, which will be a topic of
future reports. We will not publish a "spot markets" report this weekend,
as we depart Sunday morning for the Toronto Prospectors and Developers Assn.
Convention (PDAC), and will update these data again on March 13th.
We estimate that the "cash-in" of gold,
silver, aluminum, copper, lead and zinc" in recent months has risen almost
to $9 billion (see table on page 1), and we updated our graphs of combined
LME, Comex and Shanghai aluminum, copper, nickel, lead, zinc and tin
inventories in Figures 1 to 3 herein. The totals have made new records
near 7.4 mmt for three straight weeks. We note that prior physical
commodities shortages and price booms coincided with 1 to 2 mmt combined
total nonferrous inventory levels, not 7.4 mmt.
We estimate global aluminum apparent
consumption fell 3.4% in the current March 2011 quarter, down from 1.4%
prior to the February 28th IAI 80,000 tonne producer inventory increase
report, exchange inventory increases in the past month and minor 1.6%
smelter output gains globally in January. We wonder if steel or other base
metals also see unexpected soft demand in 2011 after 2009 or 2010
over-stocking.
We call the "credibility index" the
differential between Nynex hot-rolled sheet steel spot futures and the LME
spot billet future, which rose on March 3rd to $255.00 or $870 per short ton
on Nynex less $559 per metric or $615 per short ton for the LME steel billet
future, up from a $25 per tonne Nynex DISCOUNT in November. We estimate
that the Nynex hot-rolled sheet product should sell for about $125 more than
a billet, or that the Nynex contract is overvalued in geographic arbitrage
by $130 per ton currently after having been undervalued by up to $150 in
November. These data suggest U.S. finished steel and scrap price quotations
in the trade press are overvalued today, and subject to declines. The Nynex
future is backwardized by $150 per ton over the next three months as well,
reconfirming as such. We view commodity steel stocks with caution and
alarm.
We want to stress that two past failed
efforts to launch a New York aluminum future to compete with the LME over
the past generation, and that the new LME molybdenum, cobalt and steel
billet contracts each launched just over a year ago have reasonable prices
that correspond to other trade sources. Further, the LME steel billet
contract has 51,155 tonnes held in inventory in LME warehouses. The Nynex
does not publish inventory data for its contract, accept delivery or offer a
physical withdrawal option. While Worthington Industries described the use
of the Nynex hot-rolled sheet steel future as a hedging device on a recent
conference call, Worthington characterized Nynex as a "paper market" with no
physical relevance to WOR's purchases that we estimate at 15% to 20% of U.S.
hot-rolled sheet demand or 3 to 4 m.t..
Scrap containerboard collections in 2010 were a remarkable
80.6% of U.S. output, or 89.5% of domestic use excluding exports. This is a
truly remarkable statistic considering OCC "gets very mushy" if outdoors or
exposed to humidity, and probably cannot be sustained again in 2011 or
2012. It could be viewed as a limiting supply factor possibly driving up
prices, and a consideration forcing Rock-Tenn's purchase of Smurfit-Stone.
OCC
collections of 27.153 m.t. in 2010 in the U.S. were 89.5% of U.S.
containerboard use, taking the 33.71 m.t. output less 3.38 m.t. exports, or
80.55% of containerboard output. OCC exports were 8.07 m.t. in 2010, or
just under one-third of the collections, and the OCC supplied 56.61% of U.S.
containerboard output with virgin fiber at 43.39%.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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