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David Hargreaves on Metals and Minerals, week 2 2012

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David Hargreaves

David Hargreaves

Metals and Minerals

Exchange Traded Metals

It is a proven fact that traded metals do not hold strong religious beliefs. So they exited Christmas and New Year in the same mood that they entered. They mirrored the mood of the economy. It there is to be a recovery – not just this one, any one – the basic steel industry metals kick start it, for roads and building work. Then come the non-ferrous for manufacturing cars and consumer goods, followed by the minors for the clever, high technology end. Last but not least we have the pure indulgences, like diamonds. So it was. Both coal (3%) and iron ore (1%) nudged up last week, the exchanged traded metals hardly moved and the minors were down to neutral. So no runaway recovery posted yet. LME warehouse stocks were indicative. We are conditioning ourselves to aluminium, nickel and zinc being in structural surplus and copper being tight. The stocks concurred. Copper’s fall of almost 4% contrasted with aluminium’s rise of over 3%.

Both were overshadowed by zinc, which rose a full 8%, to over 820,000 tonnes, or 25 days’ world consumption. That is still only a half of the hapless aluminium at 46 days. Tin could be of interest. Stocks at 11,360t are only 11 days’ supply.

The price is level across the 15-month contract spread and could move into a backwardation. It has been a long time since the metals offered these opportunities. Copper could tighten further, although the knowledgeable Simon Hunt, of SH Strategic Services, warns that much of its surplus can be laid at the doorstep of speculators and investors (spot the difference?). On the physical front, Peru, world No 3 miner (8% of total), is still grappling with environmentalists. Then to Indonesia. There Freeport McMoran has settled (or so it thought) a long running violent dispute at its giant Grasberg Mine only to be told the workers are demanding payment for the three months they were on strike. Interesting people, workers. Met one once.

Aluminium’s woes continue. Alcoa, the world’s No 2 refiner with 12% global output, is to cut its smelting capacity by 12% because of low prices. About 25% of all world production runs at a loss below $2500/t. It is presently just over $2000. Will the others, UC Rusal (10%), Rio Tinto (9%) and Chalco (8%) follow suit?

Metal stocks in LME warehouses - 7 Jan 2012

Bulk minerals

Bulk minerals

Precious Metals

So a leading analyst tells us silver hit an all time high in 2011. Can’t fault that, but so did gold and platinum. Then which did best and why and will the same factors drive 2013?

Precious metals 7 Jan 2012

Well there are as many forecasts as there are analysts but the gold $5000/oz, silver $200/oz and platinum-in-orbit boys are back behind the barricades. We incline to the downside view of floors around $1400-1450, $20-25 and 1250-1300.

Why? this is much about the Euro and the world will not come to an end whatever the outcome of that sad saga. If the world economy DOES turn down, then silver and platinum will follow it as industrial metals. If it turns up, so will inflation and interest rates. The attractions of gold will diminish. An increasingly ventilated idea is that China will spend some of its $3.2 x 10¹² FOREX reserves buying gold ready for the People’s Republic taking over from the USA. We pointed out some time ago that it is not really do-able. It would buy them about 62,000 tonnes at $1600/oz but would curtail their financial raping and pillaging of Africa. They would need to buy at least 8000 tonnes to overtake what Fort Knox has, then think what it would do to the price. We prefer Plan B, which is allowing their citizens to buy it as a safe haven and take it off them when the need arises. If it worked for the US and Germany, why not China? Annual gold output is c.2600 tonnes, so where would it all come from?

Our friend Adrian Day of Day Asset Management is bullish for gold with caveats. He notes wealth is shifting from West to East (where they have a different take on hoarding and with good reason) and that investors are waiting for a floor. Like a boxer who has gone on too long? He also looks as we do for shares to outperform the metal on the upside. But there has to be an upside. Any more on the down and the shares will fall further.

The Banks Get Coy on gold. Two of Britain’s biggest banks, HSBC and Barclays, have backed off mega upside projections for 2012. HSBC rests at $1825. Barclays comes in at $1875. But J P Morgan Chase, with Morgan Stanley and Société Generale, are for it to be ‘well above’ $2000. Ever thought of taking up darts? It would be uncharitable to suggest the big boys are talking up their own books now, wouldn’t it?

Minor Metals

Minor metals 8 Jan 2012

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About David Hargreaves

David Hargreaves is a mining engineer with over forty years of senior experience in the industry. After qualifying in coal mining he worked in the iron ore mines of Quebec and Northwest Ontario before diversifying into other bulk minerals including bauxite. He was Head of Research for stockbrokers James Capel in London from 1974 to 1977 and voted Mining Analyst of the year on three successive occasions.

Since forming his own metals broking and research company in 1977, he has successfully promoted and been a director of several public companies. He currently writes “The Week in Mining”, an incisive review of world mining events, for stockbrokers WH Ireland. David’s research pays particular attention to steel via the iron ore and coal supply industries. He is a Chartered Mining Engineer, Fellow of the Geological Society and the Institute of Mining, Minerals and Materials, and a Member of the Royal Institution. His textbook, “The World Index of Resources and Population” accurately predicted the exponential rise in demand for steel industry products.

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Priset på sojabönor nästan oförändrat

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Traktor på åker

Sojabönsterminer på Chicago Board of Trade avslutade en kort, hackig handelssession i mitten av förra veckan, efter att Argentina meddelade att de skulle återupprätta en förmånlig valutaväxling för sojabönsexport fram till slutet av året.

Argentina, som stimulerade enorm sojaexport i september med den så kallade ”sojadollarkursen”, har kommit överens om ett ”golv” på cirka 3 miljarder dollar i export med spannmålsföretag, sade en källa till ekonomiministeriet på fredagen. Det amerikanska jordbruksdepartementet rapporterade en veckovis nettoförsäljning av sojabönor i USA på 690 100 ton för 2022/2023 under veckan som slutade den 17 november och 10 000 ton för 2023/2024.

Analytiker förväntade sig 500 000 till 1,7 miljoner ton för 2022/2023 och högst 150 000 ton för 2023/2024.

Samtidigt sjönk priset på veteterminer på Chicago Board of Trade kraftigt på en kort och hackig handelsdag under fredagen, med decemberkontraktet som nådde sin lägsta nivå sedan den 22 augusti, eftersom den senaste tidens svaghet i ryska vetepriser fortsatte att tynga marknaden, sa handlare.

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Guldet stiger när dollarn faller efter duvaktigt agerande från Fed

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Guldet gick upp på fredagen, understött av dollarns reträtt på ett uppfattat duvaktigt agerande i den amerikanska centralbankens räntehöjningsstrategi. En ”betydlig majoritet” av Fed-politikerna var överens om att det ”sannolikt snart skulle vara lämpligt” att bromsa takten i räntehöjningarna, visade protokollet från mötet den 1-2 november på onsdagen. Detta satte dollarn på kurs mot en veckovis nedgång, vilket gjorde guld billigare för utländska köpare.

Men mötet i Federal Open Market Committee i december kommer att bli en ”black box”-händelse med tanke på variationen i prognoser före och efter den senaste tidens svalare än förväntade amerikanska inflationsdata, vilket gör guld känsligt för kommande data när köpare letar efter en ”större övertygelse om att nuvarande räntehöjning förväntningarna är väl förankrade”.

En majoritet av valutahandlare förväntar sig en räntehöjning på 50 punkter vid Feds decembermöte, medan chanserna för en höjning på 75 bps var fastställda till cirka 34,5 procent. Höga räntor har fungerat som tak för guldets traditionella status som en säkring mot hög inflation och andra osäkerheter i år, eftersom de leder till högre alternativkostnad för att behålla den icke-avkastande tillgången.

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WTI-oljan är bara 2 USD från att staten börjar köpa

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Fat med olja

Flera stora städer i Kina stänger åter ner och låser in medborgarna. Den senaste tiden har det uppstått protestkravaller på stora fabriker och de senaste dagarna har det uppstått protester på gatorna. Kinas hantering av covid gör att ekonomin i landet nu ännu en gång saktar in. Det har fått oljepriset att falla ytterligare.

WTI-oljan handlas nu till 74 USD per fat, vilket bara är 2 USD från prisnivån då den amerikanska staten börjar köpa olja för att åter fylla på de strategiska reserverna (SPR, Strategic Petroleum Reserve). Enligt planen ska olja köpas när priset är vid 67-72 USD eller lägre.

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