Wednesday, July 29, 2009
A Bad Day for China, A Rough Road for Steelmakers?
It is 5:50 AM, I'm on my second cup and there is a flood of international news pouring in the mineshaft. For starters, the Shanghai Composite Index plunged as much as 7.7% before ending down 5.0%, the biggest percentage drop at market close since the dark days of last November.
Ouch. China has been doing the heavy lifting on global recovery with their timely and efficient stimulus plan, driving commodities and especially metal prices in the last several months. The decline in Wednesday's market is attributed to concerns that Chinese banks may start to tighten credit after they lent a record 7.4 trillion yuan ($1.08 trillion) in the first half of this year. Why is everything on the world stage "trillions" lately? A trillion is 12 zeroes buckaroos. This might be a China market blip or something more serious. I'll keep an eye on these fortune cookies.
Let's drill down to the next level. The global downturn has hit demand for steel, an industry seen as a broad gauge of an economy's strength. The world's top two steelmakers, global leader ArcelorMittal and second-ranked Nippon Steel Corp, just reported quarterly losses and warned the climb back to growth from the bottom of the economic slump would be gradual, with China setting the pace of recovery.
ArcelorMittal Chief Financial Officer Aditya Mittal told a conference call, "We are expecting the first half [of this year] will be the bottom of the cycle. In the second half we should be see gradual demand growth and price increases -- clearly from very low levels though."
Chief Executive Lakshmi Mittal (hey, it is a family company!) added:
"Provided there are no further unexpected economic deteriorations, we should see continued gradual improvement throughout the second half of the year, with full recovery remaining slow and progressive."
AecelorMittal is a key investor in General Moly. POSCO, the South Korean steel producer with a 20% share in our Mt. Hope, reported their quarterly results earlier this month. They raised their 2009 production target, signaling the worst of the global slump in demand may be over after second-quarter profit plunged 71 percent.
So what does all this mean? If China continues to perform, steelmakers should recover which is good for other economies and good for General Moly. This view has been supported by the recent rise in share price for the steels and GMO together with
gains in the price of molybdenum ($8 to $15 since April). If China slows there could be a considerable damper to all the recent optimism. Stay tuned, the Colonel has got you covered.
Enough hand wringing, let's walk the walk:
Oil is down $1.98 to $65.25 in early trading (September contract); Gold is down $8.9 to $930.2 (August contract); Silver is down 0.270 to $13.470 (September contract); Copper is down $0.0535 to $2.4670 (September contract); Molybdenum remains at $15.
The DOW is down 27.66 points to 9069.06; the S&P 500, down 5.34 points to 974.28. The miners are pooting the blues today:
Barrick (ABX) $33.06 down 1.31%
Newmont (NEM) $39.34 down 2.48%
General Moly (Eureka Moly, LLC) (GMO) $2.56 down 1.92%
Freeport McMoran (FCX) $55.94 down 4.49% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are lousy (a "tell" for General Moly):
Nucor (NUE) $43.91 down 3.07% - domestic steel manufacturing
ArcelorMittal (MT) $34.29 down 6.26% - global steel producer
POSCO (PKX) $93.25 down 3.31%- South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is down a punishing 2.72% to $1,043.194.05