Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
How to Trade Binance Vanilla Options for the First Time on Bitcoin Crypto's - 2nd Aug 21
From vaccine inequality to economic apartheid - 2nd Aug 21
Stock Market Intermediate Top Reached - 2nd Aug 21
Gold at a Crossroads of Hawkish Fed and High Inflation - 2nd Aug 21
Bitcoin, Crypto Market Black Swans from Google to Obsolescence - 1st Aug 21
Gold Stocks Autumn Rally - 1st Aug 21
Earn Upto 6% Interest Rate on USD Cash Deposits with Binance Crypto Exchange USDC amd BUSD - 1st Aug 21
Vuze XR VR 3D Camera Takes Near 2 Minutes to Turn On, Buggy Firmware - 1st Aug 21
Sun EXPLODES! Goes SuperNova! Will Any planets Survive? Jupiter? Pluto? - 1st Aug 21
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Metals Snap Back Rally

Commodities / Metals & Mining Aug 06, 2009 - 01:48 AM GMT

By: HRA_Advisory

Commodities

Best Financial Markets Analysis ArticleThe continued enthusiasm for metals can be tied to a combination of devaluation of the Greenback and hopes that western recessions are bottoming.  The deteriorating US Dollar is an element that will have to be weighed against the demand picture for the next decade.  However, western demand hasn’t been fundamental to pricing metal, or oil, for over a decade.  Current enthusiasm, especially in light summer trading, should be treated gingerly.


It is that hope of a broader bottoming that is causing the US$ to break below its established range.  As fear leaves the market, the capital that had gone to the Dollar because of its liquidity seeks higher returns. These include commodities that are, for the moment, being treated as “early cycle participants of the global (read: western) recovery”. 

In 1997 the Asian Tigers crashed as their Dollar pegs broke against a flood of cheap Chinese goods.  The resource sector smacked down as metals hit new floor prices well below actual costs despite continued boom times for the western economies.  We have now moved to the inverse of that 1997 market as capital moves away from the greenback and its flood of cheap (so far) debt.  That has just taken over from internal fundamentals as the push on higher mineral commodity pricing.        

We have been taking advantage of commodities that were oversold during the Crunch against sustainable demand in Asia, and in China most specifically.  That will hold into the medium term since there is insufficient capacity in metals to create a supply bubble.  However, the anti-Dollar move we are in can create overbought price spikes, and the nascent bottoming of the western downturn wouldn’t support them. We now want to be clear that spikes are two edged, and this summer rally could in end in the fall.  

The copper price did consolidate back to its near-term base at US $2.14 ($4720/t) on July 8th.   It then turned around and has recently been making new 2009 highs with this latest burst of enthusiasm.  This is despite a steady, though not yet large, rise in LME copper stockpiles. Shanghai stockpiles have held steady, but the exchange indicates orders have fallen off with the recent price gains.  We doubt much of the excess stocking in China will get sold back into the market, but it does still need to be used up.

Some idled mine capacity may come back on-line, but caution will still reign during a price spike.  It is time to sort out where you want to realize some gains from our earlier quick move into the oversold copper producers after the Crunch.  However, the point has been made that Asia, and China in particular, is the price maker for this market. 

The post Crunch price recovery for copper will generate a selective reentry of capital into the junior space.  Good copper stories with expanding deposits can begin to bear fruit as they have for us in the gold space.  But, they too will consolidate on the downside of a spike, so do treat them as the speculations they are.

Gold continued to be range bound, with a push from the weakening $ countered by the pull of private stocks being sold down.  The Indian market has continued to be the important source of “scrap” sales.  However, with a break down of the greenback below 2008-09 support levels we expect those sellers to back off and wait for gains.  For how long probably will have as much to do with other Mumbai markets as anything else.

Strong gains by several of our junior gold picks in July have validated our view that there is capital willing to take risk for higher gains in the yellow metal’s space.  Lifting a couple of junior valuations by $100 million isn’t large in the broader scheme; it was in fact tougher for them to find volume when they were trading at $20 million market caps.  The new found liquidity will of itself help to sustain the new price levels, but on-going results will also have add to that support.          

This is not yet a broad move into the junior gold space, but more issues are at least seeing their share prices going green.  Until a few more large wins are confirmed by take-over this will continue to be a stock pickers market.  Some interesting new deals are beginning to show up again, and we expect to outline a few of these going forward.

There has also been a significant lift in the nickel price.  Impressive gains for auto sales in China, and in Germany have offset declines elsewhere.  Government subsidy accounts for a part of the gain in China, and essentially all of it in the form of a “€ for clunkers” program in Germany.  The rapid run through and expansion of the 1 billion $ for clunker program in the US should help as well.  However, it is work stoppages in almost all of Canada’s nickel mining regions the market is truly counting on now.

Over capacity continues to plague the nickel sector.  While some further gains are possible near term it will take a less fragile growth picture to sustain nickel pricing as the Canadian output comes back up to speed.

The Trail zinc smelter is getting enough business to be brought back to full capacity, despite continued gains for zinc stockpiles on the LME.  Import of zinc concentrates into China had increased this year due to an unwillingness by China’s smelters to buy some “dirty” domestic concentrates.  We are not yet ready to focus on zinc, but do continue to watch for closure of near depleted deposits as a future buy signal.    

Iron ore has without question become the most interesting of the bulk minerals this year.  The system of annualized price setting based on negotiation between sellers and primarily Japanese users continues to look broken.  It took three months after the usual March 31st price setting date for some large Chinese buyers accept a contract rate 33% below last year’s highest ever pricing for Australian ore. The national steel producers group is still arguing.   This is the same cut Japanese and South Koreans had accepted, but less than the 40% cut Chinese firms had been looking for.

Recent news indicates that, the 2009 markdown not withstanding, this largest of metal markets still belongs to the sellers.  According to Platts the price of Chinese spot importers of iron ore rose by over 21% in July over June, which is still a y/y 50% decline in average prices that had spiked a year ago. 

Bloomberg has reported that spot pricing to China is now above $100/tonne, a 7% increase over the July average, which means the spot price is sitting about 20% above the annual price negotiated with the Japanese and Korean mills. The near term gains are attributed to poor spot availability in Australia, and shipping bottlenecks out of India.  Cheaper prices earlier in the year also led to shutdowns in China itself which has a large number of small inefficient miners producing substandard product.

Teck Corp (TCK) has also indicated that its metallurgical coal operations have moved back to full capacity due to higher Chinese demand than had been expected at the start of the year.  In the rest of the world steel makers are seeing a gradual up-tick in orders and still limited profitability.  There is however an up-tick in both Japanese and German industrial output that may signal the worst is in fact over for at least these two cashed up members of the industrialized world.

In gauging future supply of iron ore it is important to note that infrastructure is at least as important as holding a deposit.  Rail and port facilities must be in place to sell iron ore.  That is why our review this month is a company moving to production in an iron ore region that was left behind by the shift of steel production to Asia 30 years ago.  They have the pieces in place to get started.  We expect to have more to say on this region over the next while and perhaps on other iron ore developers when they look ready.

Ω

David Coffin and Eric Coffin produce the Hard Rock Analyst publications, newsletters that focus on metals explorers, developers and producers as well as metals and equity markets in general. If you would like to be learn more about HRA publications, please visit us HERE to view our track record, see sample publications and other articles of interest. You can also add yourself to the HRA FREE MAILING LIST to get notifications about articles like this and other free analyses and reports.

By David Coffin and Eric Coffin
http://www.hraadvisory.com

    David Coffin and Eric Coffin are the editors of the HRA Journal, HRA Dispatch and HRA Special Delivery; a family of publications that are focused on metals exploration, development and production companies. Combined mining industry and market experience of over 50 years has made them among the most trusted independent analysts in the sector since they began publication of The Hard Rock Analyst in 1995. They were among the first to draw attention to the current commodities super cycle and the disastrous effects of massive forward gold hedging backed up by low grade mining in the 1990's. They have generated one of the best track records in the business thanks to decades of experience and contacts throughout the industry that help them get the story to their readers first. Please visit their website at www.hraadvisory.com for more information.

    © 2009 Copyright HRA Advisory - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

    HRA Advisory Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in