"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Wednesday, March 16, 2011

Copper, Moly, Oil & Gold Rebound



"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." Winston Churchill


Wōdnesdæg
Morning Miners!

It is 5:56 AM. Have a hot cup of hump day bounce. Old Miner Woden is cheering our metallic warriors on after a tough battle with pessimism yesterday. He's been hollering all morning, "There's more than gold in them thar hills!"

Copper, Moly, Oil & Gold Rebound

Whether it is a relief rally or a change in outlook, our favorite metals moved higher this morning after yesterday's dramatic sell-off. The terse morning headline from the London Metal Exchange says it well, "Base metals higher, seen benefiting once Japan rebuilds."

This morning COMEX copper is trading up $0.1055 at $4.2425/lb and the LME molybdenum futures bounced to $17.24/lb from $16.90/lb on the 3-month seller contract and $17.55/lb from $17.45/lb the 15-month seller contract.

Oil prices are lifting on thoughts that replacing some of Japan's electricity from nuclear sources with oil-based generation would be supportive of demand. Yesterday the Japanese tragedy brought demand destruction fears to the forefront. Presently, Japan is highly dependent on nuclear power for electricity. NYMEX oil is closing on $100/bbl again trading at $98.38/bbl (see daily oil watch below).

The Wall Street Journal reported this morning:

Analysts at JBC Energy said "up to 500,000 barrels a day" of additional oil demand could result from a shortfall of nuclear-power availability. Some 40% of the country's nuclear capacity could be out of commission "at least for months," the consultancy said. (WSJ, 3/16/2011)

Oil supply disruption fears were also fanned by growing violence in Bahrain. Saudi Arabian troops were dispatched there to crush anti-government demonstrations and shore up the ruling Al Khalifa family.

For metals, there is a growing sentiment that Japanese reconstruction may benefit metals demand. Seth Foreman, Investor Relations Director for General Moly, told the Report yesterday that, "There seems to be some optimism that the rebuilding of Japan will be a net positive for the global economy and the steel market particularly. Any short-term negative impact to global moly demand from Japan will likely be small and surpassed by long-run strength as infrastructure in Japan is re-built stronger, newer, and with better steels."

Bloomberg news tells a similar story this morning for base metals, "Copper climbed for the first time in six days on expectation that reconstruction needs after Japan’s largest quake on record will boost demand in three to six months. All six metals on the London Metal Exchange rose." Here's their complete report on the red metal:

Copper Advances for First Time in Six Days on Demand for Japan Rebuilding (Bloomberg News - Mar 16, 2011 1:13 AM PT)

Gold has also rallied back to $1400/oz country maintaining its tight correlation with oil price movements. Presently, COMEX gold is up $8.8 at $1401.6/oz Another good sign for gold is a partial recovery in value with respect to both copper and oil. Here are some interesting relative value comparisons for 2011:

Gold:Copper

Low 292.8 lbs/oz 2/7
High 341.5 lbs/oz 3/14
Today 330.4 lbs/oz

Gold:Oil

Low 13.6 bbl/oz 3/8
High 16.2 bbl/oz 2/16
Today 14.3 bbl/oz

Put simply - although off its highs, you can buy more oil and copper with an ounce of glitter. That's a good thing, pardner.

Daily Oil Watch

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa. The most active front month contract remains above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in this volatile region.

Here are the key front month contracts as of this morning:

NYMEX light sweet crude $98.38
ICE North Sea Brent crude $110.45
Spread (ICE- NYMEX) = $12.07 (yesterday $11.20)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $99.83
ICE North Sea Brent crude $110.30
Spread (ICE- NYMEX) = $10.47 (yesterday $9.74)

Although prices are off their crisis highs, we still have $100+ Brent in June favoring higher prices for the summer if supply disruption outweighs demand destruction fears in the oil markets. The Colonel's December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 297.53, up from yesterday's 262.02 and well below the 1-month moving average of 452.61. The EMI continues to be down from the high set on January 4th and a trend reversal in the short term is questionable.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Eureka Outlook Dashboard

4-WD is ON - The miners are in a real rough patch; The VIX or "fear index" is just below 25; bellwether Freeport-McMoRan (FCX) is between its 100-day and 150-day moving average again and above its 200-day average of $44.85 (our new warning level, 03/04 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

The ORANGE light is turned on our Fuel Gauge with oil above $90

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, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $1.20 in early trading at $98.38 (April contract, most active); Gold is up $8.8 to $1401.6 (April contract, most active); Silver is up $0.548 to $34.665 (May contract, most active); Copper is up $0.1055 to $4.2425 (May contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.60; LME moly 3-month seller's contract is $17.24, LME cash seller is $17.03

Stock Market Morning Update

The DOW is down 69.26 points to 11,786.16; the S&P 500 is down 5.07 at 1276.80

Miners are mixed:

Barrick (ABX) $49.33 up 0.20%
Newmont (NEM) $51.96 down 0.27%
US Gold (UXG) $7.08 down 0.28%
General Moly (Eureka Moly, LLC) (GMO) $4.92 down 0.81%
Thompson Creek (TC) $12.32 up 2.33%
Freeport-McMoRan (FCX) $51.45 up 0.04% (a bellwether mining stock spanning copper, gold & molybdenum)

The Steels are mixed (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $33.88 down 1.22% - global steel producer
POSCO (PKX) $107.05 up 0.59% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.12% at $1,736,425.13 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

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