Tuesday, May 25, 2010
The Deer Don't Care about a Global Sell Off
It is 5:43 AM and two deer just passed my window on my way to the break room. The deer don't care about a global sell off in the markets today. They appear more interested in the tall grass by the gate. Last May, I made a similar observation under similar circumstances - The Deer Don't Care if Oil is $59. Back then we were happy that copper had finally busted 2-bucks but shocked that oil was spiking to $59/bbl on speculation that the global recovery was gathering steam. Well it did - the metals & miners recovered; oil flirted with $90 and copper sailed past $3.50 just a short while ago.
That was then, this is now. Markets are selling off worldwide this morning fueled by more European bank concerns and building fears about conflict as South Korea imposes trade restrictions on its northern neighbor over the alleged sinking of a South Korean warship. You can checkout the bottom of this blog for a summary of world markets and see for yourself how things are faring today. It ain't pretty, pardner.
Yesterday, we mentioned a softening in the steel industry as global prices for hot rolled coil and rebar have reversed after a long climb up. Steel business briefing (SBB) adds more clarity this morning:
"The rate of growth in world steel production so far this year is greater than the forecast rate of growth in apparent steel use for 2010, European distributors’ association Eurometal highlights in a report sent to Steel Business Briefing.
If production continues to increase and demand from end-use sectors remains ‘far from bullish’, there is a clear risk that supply could outstrip demand during 2010, disturbing steel trade flows and pricing as a consequence, the association warns." (SBB, 5/25/2010)
The health of the steel industry is important to Eureka because molybdenum is a key alloying agent for many steel products. South Korean steel producer POSCO (PKX) and 20% investor in our Mt. Hope Project is being hit on two fronts this morning; weakening industry forecasts and proximity to North Korea. Our domestic markets have opened now and PKX is down 4% in early trading at $89.31; General Moly (GMO) is down 5.2% at $3.30. Here's a 6-month chart of PKX and you can see that we are far below the 200-day average of $114:
Here is a similar chart for ArcelorMittal (MT), the world's largest steel producer:
And our benchmark moly producer, Thompson Creek (TC), is not doing any better dealing with the global issues and new issues with their British Colombia project:
Petition Filed Relating to the Endako Expansion Project
Oh well, the deer are gone but they'll be back. There's more grass around than good news this morning - take heart buckaroos!
Enough talk, let's walk the walk:
4-WD is ON - rough roads in the marketplace; The VIX or "fear index" is in the 40s well above our 25 level threshold; metals & miners remain on shaky timber with benchmark FCX trading in the low 60s well below its 200-day average of $75 (our new warning level), 10-year Treasurys are safely below 4% preserving a low-interest rate environment
The GREEN light has returned for Commodity Reflation with copper trading just above $3/lb
The YELLOW light returns for Stable Markets with the VIX above the 30 level (what's this?)
The YELLOW light returns for Investor Confidence with the possibility of a greater than 10% correction in the broader markets possible
The GREEN light remains turned on our Fuel Gauge with oil below $80
A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions &
General Moly Mt. Hope Water Rights
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
NYMEX/COMEX: Oil is down $2.61 in early trading to $67.60 (July contract, most active); Gold is up $2.0 to $1196.0 (June contract, most active); Silver is down $0.345 to $17.655 (July contract); Copper is down $0.1180 to $3.0295 (July contract)
Western Molybdenum Oxide is at $17.00, LME moly 3-month seller's contract sits at $17.46
The DOW is down 201.33 points to 9865.24; the S&P 500 is down 21.98 to 1051.67. The miners are mostly down:
Barrick (ABX) $41.19 up 0.17%
Newmont (NEM) $51.86 up 0.93%
US Gold (UXG) $3.63 up 0.28%
General Moly (Eureka Moly, LLC) (GMO) $3.30 down 5.17%
Thompson Creek (TC) $8.58 down 5.82%
Freeport-McMoRan (FCX) $63.60 down 2.99% (a bellwether mining stock spanning copper, gols & molybdenum)
The Steels are down, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $27.75 down 4.40% - global steel producer
POSCO (PKX) $89.31 up 3.76% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is down 2.54% to $1,247,481.74 (what's this?).
Write Colonel Possum at email@example.com for answers to your questions or to request e-mail updates on the market
Headline photograph by Mariana Titus