Monday, June 21, 2010
Happy Summer Solstice - The Colonel is on the Road Again
It is 5:32AM and it has been summer for 64 minutes. Don't you feel better already? Here, have some delicious Kaldi French roast to start your week. Last week, General Moly's consultant, Elaine Barkdull-Spencer, roasted up a batch for the break room and my good friend Johnny Brown ground the beans in a coffee grinder used by his grandfather. As his story goes, granddad used to grind up chicken feed in the same contraption. Johnny likes old things, so does the Colonel - checkout out one of his many old timer trucks in Mariana's headline photo. Good folks in these parts, thanks Elaine and Johnny!
The ole Colonel will be on the road again soon and the Report will be back on the air bright and early Thursday.
Where do we think the markets will go this week? If you asked me last night, I would have simply told you "up". The weekend buzz was that China would take steps to increase the flexibility of its currency starting today. This morning, People's Bank of China Monday set the dollar-yuan parity rate at 6.8275, the same level as Friday. Never bet on what you think the Chinese are going to do, pardner.
Why would a move in the yuan change things for metals and miners? The U.S.A. has been complaining about the unfairness of a Chinese currency pegged to our dollar for a long-long time. As the argument goes, an undervalued yuan gives an unfair trade advantage to the Chinese; great for exporters of Chinese goods, tougher for foreigners to sell into China's domestic markets. It does appear there will be some loosening coming soon. A stronger yuan compared to the dollar could provide a real shot in the arm for metals and other dollarized commodities. Instead of continuing to unwind last year's stockpiles, Chinese buyers may jump back into the market with a stronger yuan to buy metals like copper. Even with this morning's disappointment, spot copper managed to rise and stay above the key $3/lb level:
NYMEX oil is also taking a flyer at $80/bbl this morning at $79.74 (most active, August contract) so I'm willing to say commodity reflation is alive and well again after nearly a month and a half of running around in the European Sovereign Debt House of Horrors. There are a few signs that Europe is on the mend, checkout this headline in this morning's Steel Business Briefing (SBB):
"UBS maintains a cautious view on EU steel prices and margins, but has upgraded the European sector to neutral from underweight. 'We believe risks are now more balanced and we now recommend a Neutral stance', the bank comments in its European steel sector update obtained by Steel Business Briefing.
According to the report, the steel price should not fall much further because: the price has already fallen quite sharply; steel demand has improved significantly since its 2008-2009 lows and still appears to be rising; steel buyers’ inventories are fairly low in absolute terms; and deliberate capacity closures or plans to idle capacity for more than a month or two can be positive leading indicators to bring the steel market's supply and demand back in balance." (SBB, 6/21/2010)
As steel goes, so goes molybdenum prices which have been slowly inching up again in the spot and futures markets (see moly summary below).
OK, the broader markets are now open and it looks like we're on a tear with the exception of the large gold miners. POSCO (PKX) & Thompson Creek (TC) have popped nearly 8%, Freeport (FCX) is up 5.5% and General Moly (GMO) is up 4%. Fear is leaving the marketplace with the VIX (what's this?) falling below the key 25 level:
I think I'm leaving you in good shape buckaroos, checkout the move in the Eureka Miner's Index below! See you Thursday.
Molybdenum Weekly Summary
Molybdenum prices appear to be on the mend with Western moly oxide now lagging the European and LME futures markets. Look for a catchup move in the western price:
Western Moly Oxide (FeMo65) remains at $14.00/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)
Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) moves up to 15.50/lb (the price reported in the Metals Bulletin)
LME Futures Contracts
LME cash seller moves up to $16.19
3-Month (Buyer) $34,000/metric ton $15.42/lb
3-Month (Seller) $36,000/metric ton $16.33/lb
15-Month (Buyer) $34,000/metric ton $15.42/lb
15-Month (Seller)$36,000/metric ton $16.33/lb
Here is a chart of the LME 3-month contract (seller) from the February launch to the present:
Enough talk, let's walk the walk:
Our newly minted Eureka Miner's Index (EMI - what's this?) jumps to 122.45 this morning, continuing its rise from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners.
4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners remain on shaky timber with benchmark FCX trading in the upper-$60s well still below its 200-day average of $76 (our new warning level), 10-year Treasurys are safely below 4% preserving a low-interest rate environment
The GREEN light is turned on for Commodity Reflation with copper trading above $3/lb
The GREEN light is turned on for Stable Markets the VIX staying below the 30 level (what's this?)
The GREEN light is turned back on for Investor Confidence
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 $1.48 in early trading to $79.74 (August contract, most active); Gold is up $0.8 to $1259.1 (August contract, most active); Silver is up $0.096 to $19.280 (July contract); Copper is up $0.1295 to $3.0135 (July contract)
Western Molybdenum Oxide remains at $14.00; European Molybdenum Oxide moves up to $15.50; LME moly 3-month seller's contract is $16.33, LME cash seller is $16.19
The DOW is up 98.70 points to 10,549.34; the S&P 500 is up 8.98 to 1126.49. The miners are up nicely except ABX & NEM:
Barrick (ABX) $46.03 down 0.75%
Newmont (NEM) $60.81 down 0.72%
US Gold (UXG) $4.88 up 1.24%
General Moly (Eureka Moly, LLC) (GMO) $3.67 up 3.96%
Thompson Creek (TC) $10.72 up 7.58%
Freeport-McMoRan (FCX) $69.50 up 5.46% (a bellwether mining stock spanning copper, gold & molybdenum)
The Steels are on fire, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $32.07 up 5.32% - global steel producer
POSCO (PKX) $104.93 up 7.90% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 2.73% to $1,449,868.89 (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