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- The latest Editorial from Peter Hollands, Paul Dewison and Christopher Welch:
- July 11th 2008 - To BME, that is where the market has changed most profoundly. In the old days, intelligent speculators helped price discovery by making the market more anticipatory. More recently, intelligent investors have begun doing the same, albeit more clumsily initially, when indices were rigid and where investment went into some commodities with poorer fundamentals than others. Some markets got to the high prices needed to limit consumption without
going through the normal phase of stock crisis (e.g. crude oil, copper and aluminium); others did go through the normal stock crisis (nickel, zinc and lead). High prices and revised fundamentals (forced substitution) happened quickly in metals in the index funds, but only slowly in metals excluded, like iron ore. Far from having no effect, index funds have got a necessary job done. Steel makers would have been much better off, if iron ore had been in the indices and got higher prices - and the necessary supply response - much sooner.
Where does that leave us in copper? Premiums are poor. LME stocks are adequate, by the standards of the last few years. Yet prices have hit record levels. What does this tell us? In BME’s opinion, those anticipatory speculators and intelligent investors suspect that copper supply will be inadequate to meet demand even during a global recession, and they are betting a lot of money on that view. They may well prove right. - Mine Supply and Stocks
- The National Union of Mineworkers in Peru started a national strike on June 30th to protest for a law to be passed to remove caps on the amount of profit that can be shared with mine workers as well as better pension benefits. However, the strike was short-lived as unions from some of the larger mines soon broke rank and the strike had essentially ended by July 4th. Peru produced 1.19 Mt of copper in 2007 and its copper production is expected to rise by 7% per year for the next four years, according to the Ministry of Mines & Energy.
- Consumption News and Trends
- LS Cables saw a 10% rise in orders from the Middle East and expects that orders will jump a further 80% during this year, to approximately $450 million. Strong growth from the Middle East and China led to the company’s first half profit increasing by 50% year-on-year. LS Cables, which is based in South Korea, has recently purchased USA based Superior Essex for $900 million, to make it the world’s third largest cable and wire manufacturer.
Also recognising the rising demand from the area, Dubai Cables (Ducab) has officially opened it 110 ktpy wirerod and cable plant in Abu Dhabi. The plant will produce 8 mm rod and will provide for all of Ducab’s rod requirements and also has extra capacity to supply the local market. - Price Trends
- Copper prices broke from a ranging market into an upward trending market in mid June, peaking in early July at new record highs. Price support was widely attributed to news of a Peruvian national mining strike, soaring oil costs and a weakening dollar, though BME finds these “reasons” less than fully convincing. Prices fell soon after the new highs were reached, due to
resistance from a cooling global economy.
On July 8th the price of copper dropped significantly, exacerbated by technical selling when stop losses were breached. Resistance to higher prices has been attributed to gains in the strength of the dollar against the Euro in the last few days, and an increase in the unemployment figure for USA. - Macroeconomic News
- Crude oil prices reached $146/bbl on July 3rd, up 52% from the start of the year, worsening inflation and also bringing political questioning of the impact, on prices, of speculation and commodity investments. The high oil price is most severely affecting the
developing countries that subsidise fuel prices to stimulate their economies. For example, Indonesia, which subsidises fuel costs, expects to pay an extra $32 billion in subsidies next year after raising its oil price estimate for next year from $90-105/bbl to $140/bbl.
In the developed countries, Central Banks are faced with the need to hold or raise interest rates to prevent longer term depressions caused by hyperinflation, and in doing so have lost their main weapon for dealing with cyclically slowing growth. The high oil price appears to have also caused a rift between Germany and France as the latter wished to cap VAT on fuel, to revitalise the economy, while Germany wishes to prevent this, and allow the economy to adjust to the higher prices. - Subscription Prices
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