|
|
|
|
October 31, 2011 Dear Friend, · Unlike Fall 2008, there is no evidence that global metals volumes have collapsed. Total exchange nonferrous metals inventories fell 214,434 tonnes since the end of August 2011, where they rose 489,697 tonnes in the same nine weeks of 2008. This year al, cu, ni, zn and tin stocks fell while lead rose. World aluminum output set records in September both inside and outside of China. World steel output upticked in September as the operating rate rose 1.8% from August. U.S. auto sales rose to a 13.1 mm unit rate in September. Yes, the Mediterranean nations are in recession, U.S. aluminum orders fell 0.2% from September 2010 and the U.S. steel operating rate has fallen 5% since the end of August, but those are small.· China re-entered to buy in the past 90 days at HIGHER price levels than it withdrew in October 2009. It supported copper at $3.20-$4.00, aluminum near $0.95-$1.05, nickel $8-$9, and lead and zinc at $0.80-$1.00 per lb since August 2011, while it bought from March to October 2009 from $1.75-$2.75 for copper, $5-$8.50 for nickel, and $0.50-$0.85 for aluminum, lead and zinc. It bought more aggressively in 2011 because it needed it with robust demand, low inventories and higher worldwide costs. Total Shanghai exchange inventories have halved by 0.5 mmt, where only zinc stocks are large. · The expectation of slower growth, stagnation or recession caused commodity prices to fall, while “resource” currencies have appreciated and crude oil rebounded from lows ahead of some metals prices. For example, the A$ fell from $1.09 to $0.96, but rebounded to $1.06. Thus, Alumina Ltd. or Alcoa suffer as the LME aluminum spot price peaked at $1.257 on April 28th, averaged $1.18 in 2Q and closed October 28th at $1.00 per lb. The final $0.05 per lb of LME price decline coincided with an $0.08 A$ rebound and a 10% crude oil rebound, where AWC and AA “lost on both sides.” · Multinational nonferrous companies are likely to earn ¼ to ½ less in 4Q than 2Q or 3Q peaks in many sectors, including AA, AWC, BHP, VALE, Fortescue, BHP, RIO, XSRAF, AAUKY, TCK, ABX, NEM, AU, TC or FCX. We are wary of the companies whose product price rebounded least while currency cost drivers rose most, such as VALE, Fortescue, AA or AWC. I will travel in Boston Monday, Texas Tuesday, the FCX Arizona field trip on Tuesday evening and Wednesday, Texas Rare Earth Resources in Texas and Galway Resources in New Mexico on Friday. You may ring my cell phone or email me, and my team will be on hand to respond to our office line 732 444 1083. Remember, there is 22 years of combined analytical experience among Joe, Mickey, Skip, Matt and Charles among our team where we have more "fire power" than some big firms. Faithfully,
John C. Tumazos, CFA
|
Copyright © 2008 John Tumazos Very Independent Research,
LLC
|
