Friday, February 12, 2010
Moly Jumps, Metals Dip, Barrick & POSCO Expand
The NYSE will close for President's Day. The Report will return bright and early Tuesday, February 15
It is 6:04 AM pardner. Scott brought over some of his new Triple-X TGIF coffee last night, grab a cup and let's see if we can brace for an interesting mix of news. First let's settle some bets. On the 3rd of this month, I predicted molybdenum price would be above $15 before Chinese Lunar New Year. Pardner, the new moon is Sunday and today's moly price is $16, that's a beer for the Colonel! Now before you go digging in your pockets for change, I blew our second bet that oil would see $80 before $70 by April Fool's day. Yup, that's a beer for you. The NYMEX March contract (most active) dropped to $69.50 before rebounding above $70 on the 5th, one of those black Friday's when traders fretted about Europe and China and Armageddon.
On the 26th of January the Report likened the recent news coming from Europe and China as a grand theater playing out on the global stage (Chinese Theater, Gold & Silver). The drama continues today doing damage to this weeks metal and miner's rally. In the Chinese Theater:
"U.S. stocks opened lower Friday, led by the materials sector as an increase in China's deposit-reserve ratio reignited concerns about how demand for commodities might be impacted by tightening in China...The stock declines came after the People's Bank of China announced it will raise the ratio of reserves banks must set aside by 0.5 percentage points, marking the second such action this year. The central bank has been tightening monetary policy in an attempt to restrain bank lending." (WSJ, 2/12/2010)
And on the European stage:
"The euro sank to near a nine-month low against the dollar during overnight trading, on the back of poor economic data and renewed worries over sovereign debt problems. The euro's broad-based slide prompted the Swiss National Bank to intervene for a third time this year, according to traders, to stem the sharp appreciation of the Swiss franc." (WSJ, 2/12/2010)
Predictably the dollar is stronger on this news as metals and miners head back to the mineshaft. Is everything as bad as it seems, is there lasting substance to all this drama? Pessimists point to rising base metal inventories at the London Metal Exchange (LME). With the exception of aluminum most inventory builds look like copper:
The rise in LME stocks, they say, indicates weak demand outside of China and if China demand falters...yikes! Maybe so but copper did make it above $3 yesterday and, although down some today, is still north of this important benchmark. Is a 0.5% wiggle in Chinese monetary policy really going to cause demand destruction in a country that is expected to see reduced GDP growth but still do better than 8%? Will slower than expected growth in Europe and the fuzzy fiscal fate of Greece, Portugal, Spain and Italy destroy the voracious commodity appetite of the emerging world? Maybe, this ole Colonel thinks not.
Let's see what two big boys are doing behind the theater curtains. Barrick is in the news today, as reported by Mining Technology:
"Chilean environmental authorities have approved Barrick Gold's $38m proposal to expand the production capacity of its Zaldivar copper mine in the northern Antofagasta region." (Mining Technology, 2/12/2010)
Now you may say a $38 million expansion is not even a speck of sand in their gold pan but I will ask why does gold miner even have a copper mine? Would Barrick be digging in Chile at all if they didn't think copper prices will rise and offer a promising diversification to their massive gold interests?
Here's a second bit of news from South Korean steelmaker POSCO (who owns a 20% share in our Mt. Hope). As reported by Steel Business Briefing today:
"POSCO plans new galvanising line for Gwangyang works - POSCO is planning to add a new hot-dip galvanizing line at its Gwangyang works west of Busan. The new line, the No.7 continuous galvanizing line (CGL), will have a capacity of 500,000 tonnes/year and will mostly target the automotive sheet market...Behind POSCO’s strategy seems to be a keenness to create a new outlet for upstream products such as hot rolled coil." (Steel Business Briefing, 2/12/2010)
Who cares? Maybe Eurekans should. If POSCO expects an imminent collapse in Chinese demand why are they building new plants? I think they, like Barrick, see a clearer and more promising picture of the future buckaroos. Remember that billionaire investor Warren Buffet likes POSCO and is willing to buy their stock at relatively elevated levels. The Colonel doesn't believe this decision is the onset of early stage Alzeimers (Buffet Wants More POSCO, Both Want Lithium, 1/19/2010).
We may have another rough Friday for metals and miners but I'm holding on to my General Moly, POSCO and Barrick stocks with both hands.
Enough tough talk, let's walk the walk:
4-WD is ON - the VIX or "fear index" remains above 25, rougher markets are expected to continue (what is this?)
Yellow light is ON with concerns about commodity reflation given a stronger dollar and falling prices (U.S. Dollar Index DXY remains above 80).
Yellow light is ON for diminished investor confidence in the metal and mining sectors.
Yellow light is ON for possible adverse regulation/legislation: Cortez Hills & mercury emissions
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
Oil is down $1.37 in early trading to $73.91 (March contract, most active); Gold is down $7.1 to $1078.3 (April contract, most active); Silver is down $0.205 to $15.385 (March contract); Copper is down $0.0715 to $3.0620 (March contract); Molybdenum jumps to $16.00
The DOW is down 124.78 points to 10019.41; the S&P 500 is down 11.58 points to 1066.89. The miners are grumpy today:
Barrick (ABX) $36.29 down 2.10%
Newmont (NEM) $45.88 down 1.88%
US Gold UXG) $2.44 down 0.2%
General Moly (Eureka Moly, LLC) (GMO) $2.35 down 2.49%
Thompson Creek (TC) $12.43 down 2.74%
Freeport-McMoRan (FCX) $71.77 down 3.24% (a bellwether mining stock spanning gold, copper & molybdenum)
The Steels are grumpy too, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $36.54 down 2.56% - global steel producer
POSCO (PKX) $113.51 down 3.55% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is down 2.05% to $1,196,731.66 (what is this?).