News wires are reporting that the winning bidder for Hussey Copper was Libertas Copper Ltd.; for a reported bid price $107M with adjustments i.e. copper, etc. today’s price of $78M.
Libertas Copper is a division of Patriarch Partners, a private equity firm. See Chris Prentice’ article in AMM. See www.amm.com
October- The Month in Review.
**Global Interest
**European News
**News from China
**US Commentary
Comex Spot Copper opened the month of October 2011 at $3.14/lb. The month of October was incredibly volatile for this commodity as copper $0.35/lb in 4 days only to ‘rocket’ up $0.65/lb. more than 21%. Wow! A brief recap seems in order as we look back.
LME warehouse inventories opened the month of October with 473,700 tonnes of copper. At the end of October, copper inventories had dropped 9.4% to 429,375 tonnes.
Global Interest-
Japan’s Zinc smelters are boosting output as demand shows signs of a strong recovery, especially in the automotive sector known for its consumption of brass. Indonesian tin smelters met to discuss their self imposed shipping stoppage. This stoppage, which began on Oct 1, is seen as an effort to provide $25,000 per tonne pricing support. Early talk coming out of this meeting indicates an effort to slash shipments by 40%. Thus, pricing pressure in the plating market will likely continue, with surcharges increasing.
The mining sector is facing continued difficulties arising from labor disputes. A Peruvian union pulled out of negotiations with Freeport-McMoran after a 16 day walkout. The tensions appear to deepening as 12 workers began a hunger strike in a bid to force governmental intervention. Additionally, Freeport’s Indonesian Grasburg stopped metals output completely due to security concerns. Freeport declared force majeure at its Grasburg mine. As the month concluded it appears Freeport Grasburg mine might resume shipments as negotiations showed some progress. Finally, 250 workers at Chile’s Collahuasi mine refused to begin their morning shift in protest over bonus payments. In spite of cries of slowing global demand Freeport-McMoran is anticipating copper demand to outstrip production in the near future, no doubt labor disruptions will continue to adversely impact this commodity.
Euro Zone News-
The global news outlets were fixated on news out of the Euro Zone. Grecian debt concerns ranked as the number 1 concern, with Italy closing following. Prime Minister Berlusconi’s governmental coalition is fractured on needed austerity measures.
The Franco- Belgian bank Dexia saw its rating downgraded by Moody’s reflecting the fear of bank exposure to Grecian-Italian default. The financial ratings firm Moody’s continued to make news as it released a statement saying France’s tripe A rating was at risk. French President Sarkozy and German Chancellor Merkel issued an unusually cohesive but calming joint statement that their governments would do “everything necessary’ to ensure banks had adequate capital. Germany’s Finance Minister shared his view that an upcoming EU summit may not produce a ‘definitive solution’ to the Euro Zone debt crisis. Such counterproductive comments coming from the Germany government did little to calm investor fears. By month’s end it appeared that investors would take a 50% ‘haircut’ on their holdings of Greek debt.
News out of China-
As focus on the banking sector has risen in Europe there is renewed concern regarding the state of Chinese banks and the billions of dollars of underperforming loans that they are carrying. Shares in the Chinese banking sector have slumped in recent months.
The Financial Times expects Chinese Copper demand to increase by 5% in 2012. The Financial Times ran an interesting story saying that for the first time China revealed the estimated size of its copper inventories. The inventories were significantly higher than analysts’ estimates prior to this release of data. This data is most interesting against a backdrop of soft Chinese trade numbers.
Exporters gathered in China at the Canton Fair. The Canton Fair is a major procurement event for the world’s buyers of Chinese products and serves as a barometer of Chinese trade sentiment. Currently there are signs that soaring blue collar wages related to labor shortages and rising material costs are discouraging demand. Attendees expressed concern regarding world demand as the debt crisis in Europe deepens. Worthy of note, Cathay Pacific Airways, the world’s largest air cargo, reported its sixth drop in cargo traffic demand. Conversely, Chinese inflation data points to progress by the Chinese to curb inflation and seemed to spark belief that Chinese demand will continue to steady and strong.
What About the US?
US jobless claims remained stationary. US nonferrous scrap exports surged to a three year high is August. US data figures for September show that retail sales grew at its fastest clip since February up 1.1% from 0.3% in August. Vehicle sales provided the larger share of this bump, with auto sales exceeding 13M annualized sales in Sept. Also, positive was news from the production sector, which showed September’s national production increased by 0.2% with durable goods orders exclusive of transportation increased 1.7%; indicating the US economy is chugging along, albeit slowly.
Sadly, sales of existing homes dropped 3% in September according the National Association of Realtors. Furthermore, the Metals Bulletin is reporting that Mueller Industries said its outlook for the housing sector remains bleak so long as unemployment remains high. All of the foregoing would seem to indicate the hoped for housing recovery is not in the foreseeable future.
In conclusion, a global recession is unlikely while recession is Europe is possible. The US economy though shows some signs of life and reason for hope. As you watch the commodity price ticker watch for the continuing relationship of the US Dollar to Comex copper pricing as incredibly clear in the month of October; as a weakened dollar was mostly followed by a rise in copper on the Comex.
September- The Month in Review.
We began the month of Sept 2011 with Comex Spot Copper @$4.1425/lb and closed Sept @$3.145/lb. This fall of almost $1 was precipitous and caught many holders of copper unprepared. LME stocks remained stable in September as we saw copper inventories remain at the 466,000+ tones level.
Let’s review some highlights from this month in volatile Copper market.
The European debit crisis consumed much of the financial market headlines as Greece default concerns mounted and fears of the debt contagion spread. Italy struggled to successfully pass austerity measures that are real and sustainable. It has been 16 months that Greece and the EU have been working to stabilize that country financial position with little success. While in the background discord mounts within the ranks of the ECB, arguably one of the most respected European institutions; i.e. the sudden resignation of a top ECB official troubled by ECB policy. Default fears were heightened when the ECB threatened to withhold a loan payment to Greece. As the month came to a close; hope for a solution seemed ever so elusive.
Freeport-McMoran’s Grasburg mine in Indonesia experienced production interruptions as workers threatened to strike and then began a month long strike. Strikes in Freeport’s Cerro Verde mine are threatened. Copper markets seemed oblivious to concerns regarding supply as focus remained on Europe and the global economic picture.
Financial commentators share the view that the US economy is in a ‘soft patch.’ US Industrial production rose in Aug. signaling that US manufacturing still has a heartbeat. While Jobless claims fell 37,000 to 391,000 at the end of September, a small but pleasant surprise. Job creation should continue to be the focus here. Sadly, US mortgage application figures came in below expectations. Housing market continues to disappoint. Metal commodities seemed to be especially vulnerable to the market’s obsession with a global slowdown, even bringing China into the mix.
The correlation between the US Dollar and commodity prices continues to manifest itself as a strengthening as the flight to a safe haven pushed the dollar pushed up and drove copper down.
Copper and Brass Servicenter Association report issued in September indicated that the majority of copper fabricators and servicenters do not expect order levels to improve before November.
Sept 1st Aurubis’ Todd Huesner announced VP of Marketing and Sales of Rolled Products announced the successful acquisition of Luvata Rolled Products by Aurubis AG.
Once again ABC Metals’ Copper Blog can be found. After an extended summer break, it seems appropriate to resume our commentary.
Copper Zinc
Friday 7/8/11 $4.4025/lb $1.075/lb
Monday 7/11/11 $4.3585/lb $1.041/lb
Tuesday 7/12/11 $4.3815/lb $1.0442/lb
Wednesday 7/13/11 $4.3945/lb $1.0639/lb
Thursday 7/14/11 $4.372/lb $1.061/lb
Friday 7/15/11 $4.405/lb $1.0523/lb
Comex Spot Copper finished the week range bound up an insignificant quarter of a cent. While Zinc finished the week down 2% for the week.
Headlines from the Week:
Euro Debt Contagion Spreads and Worsens.
China Real Estate Bubble Looming?
Bernanke’s Comments Unsettling.
US Debt Ceiling Talks Stuck Partisan ‘Mud!’
Copper Mine Workers Return to Work.
Euro Debt Contagion Spreads and Worsens.
We started out the week with the ‘Greek Debt’ good feelings still present. The resulting buying frenzy has turned out to be premature as the crisis has worsened and now Italy has the debt ‘bug.’ The cost of insuring Italian debt will be high as the top 91 European banks have more than 100 billion Euros worth of exposure; far more than what they are owed by Greece. Keep in mind, the Grecian crisis has already taxed the Euro Zone; Italy’s problems are particularly unwelcome in size and timing. By week’s end, Fitch had downgraded Grecian debt into ‘junk’ territory.
European Bank stress test results were released this week and the reported results were better than expected. However, the markets are viewing the results with a critical eye. Analysts report, a more realistic stress test could reveal a banking weakness of 20 billion Euros, with talk of 10 institutions likely to fail this year.
The Irish government was annoyed when Moody’s further downgraded their debt this week; warning of another bailout requirement. Ireland shouldn’t feel too slighted as their debt rating is one notch better than Portugal and six above Greece. Still their borrowing costs will increase.
China Real Estate Bubble Looming?
China reported higher than expected inflation readings and a drop in overall June imports. After five interest rate increases since October 2010 and other tightening measures the Chinese economy is still growing. Retail Sales expanded 17.7% from a year ago and housing transactions are up 31% from May! It seems Chinese investors are ignoring the lessons learned from the US Real Estate meltdown and continue to pile into real estate at every opportunity. Analysts note that Chinese investors perceive real estate as a hedge against inflation and preferable to savings. It appears the ‘seeds’ are being sown for a Chinese Real Estate Bust as current prices outpace incomes at an unsustainable rate.
Bernanke’s Comments- Unsettling.
US June Fed minutes released recently indicate that some governors are advocating QE3 should the economy continue to struggle. It’s difficult to surmise what tools are left in the Fed’s ‘toolbox’ to push the economy forward. Bernanke’s initial comments on this subject were not reassuring. In front of the US Congress he reportedly said that he does not know where the US economy is going to go. Wow! If he doesn’t know, perhaps he should consider whether such candor is beneficial; it certainly did not calm market observers. The dollar fell following his comments and just a day later Mr Bernanke was endeavoring to ‘clarify’ his prior statements. Mmm.
US Debt Ceiling Talks Stuck Partisan ‘Mud!’
Moody’s stated Thursday that it would place US debt under review for a downgrade in the US Congress does not raise the debt limit. The two sides seem very far apart, especially in the light of a reported ‘tiff’ between President Obama and Rep. Eric Cantor, leading the President to walk out of negotiations for the day. S&P said it believes there was a one in two chance that it would cut the AAA US credit rating in 90 days if an agreement is not reached. It immediately placed the US on ‘CreditWatch with negative implications. We believe markets will continue to be focused on US debt discussions.
Copper Mine Workers Return to Work.
Workers at Codelco’s El Teniente, began and ended their 24 hour strike, while workers at Freeport Indonesia’s Grasburg mine ended their week long strike. The Grasburg deal is yet to be closed and could fall apart if remaining issues fail to be addressed. These temporary market ‘props’ will drop away as the situations resolve themselves. LME Copper inventories rose slightly in the past week; no apparent shortages here.
Concluding Comments-
A slowdown in the US recovery will certainly take pressure off commodity prices. The likelihood of a currency induced retrenchment is increasing. We think prices will eventually buckle as reality sets in. Zinc is likely near a top, with the markets reporting a significant Zinc surplus. Copper seems range bound with resistance solidifying at $4.48-$4.50/lb. Watch for Housing permits and starts info to be released tomorrow.(570,000 & 609,000 expected respectively).
Copper Zinc
Friday 7/1/11 $4.292/lb $1.0612/lb
Monday - US Holiday
Tuesday 7/5/11 $4.339/lb $1.0718/lb
Weds 7/6/11 $4.3265/lb $1.0682/lb
Thurs 7/7/11 $4.432/lb $1.0691/lb
Friday 7/8/11 $4.4025/lb $1.075/lb
Comex Spot Copper continued its upward trend climbing $0.1105/lb for the week. While Zinc hovered in the $1.06- $.07/lb band. Copper’s climb this week seems to be related to supply concerns out of Chile.
LME Copper stocks are down less than 2% from a month ago, and talk of a market surplus for March surfaced this week. While Thousands of union workers in Chile’s Codelco mine plan to hold a 24-hour strike Monday July 11th, as disagreements with management continue. It seems pressure on copper is related to a weaker dollar and supply interruptions due to labor unrest, especially in Chile.
This commentary will be shortened like the US work week following the US Independence Holiday.
The markets opened to commentary regarding the confusing cross-currents in play. On the positive side US and Japan have been getting a little better in the last few weeks, while data coming out of Europe and China reflects a worsening. Such as a report that 80 of China’s large to medium sized steelmakers saw their profits decline to 2.91% due to surging ore prices. Or Moody’s cut Portugal’s credit rating to ‘junk’ status and warned that it too would need a bailout before returning to the capital markets.
Continuing with news out of China, Moody’s reports that China’s local government debt may be $540 billion larger than reported, potentially putting banks on the hook for deeper losses. If China fails to create a ‘clear master plan’ to clean up this mess, the credit outlook for Chinese Banks could turn negative. A rather ironic economic twist from this writer’s perspective. Wednesday, China’s central bank said it would raise lending and deposit rates by 0.25%. This move represents this third such move this year.
Costs related to the insuring of Greek debt continue to rise in spite of last week’s passage of severe economic reform by the Grecian Parliament. S & P intervened by stating that it viewed a French plan for a rollover of privately held Greek debt as a default. European banks continue talks regarding their next move.
Markets seem to have been favorably impressed by the strong ADP report Thursday that some 157, ooo jobs were added in June. But this happiness, soured the next day with the US Government reported that only 18,000 jobs were added to nonfarm payrolls. Additionally, the prior two months were revised down by a total of 44,000 jobs. Thus, unemployment increased for the third straight month at 9.2% for June.
It cannot be overstated that in the absence of market fundamentals, rising energy costs, and rising interest rates are factors that would not support further commodity gains.
Copper Zinc
Friday 6/24/11 $4.0985/lb $1.0092/lb
Monday 6/27/11 $4.0515/lb $1.0111/lb
Tuesday 6/28/11 $4.092/lb $1.0138/lb
Weds 6/29/11 $4.2095/lb $1.0253/lb
Thurs 6/30/11 $4.272/lb $1.0501/lb
Friday 7/1/11 $4.292/lb $1.0612/lb
Comex Spot Copper rose substantially by $0.1935/lb for the week. Zinc remained above the psychologically important floor of $1.00/lb and closed up 5% for the week.
As copper dipped on Monday in quiet trading, the markets held its breath awaiting for Greece’s parliament to vote on its austerity package. Surprisingly, after Greece voted in favor of this new package of austerity measures, Copper hit it highest levels in two months. It seems to this writer that the rise in metals this week was more of a ‘feel-good’ notion that anything rooted in market fundamentals. The near term crisis in Greece has been averted, but Greece needs to grow out of its problems …and this seems highly unlikely. Spain, Portugal, and Italy still loom large but hidden from daily news commentary. The dollar weakened in the process and could dip even lower if the European Central Bank approves another rate hike.
As the Greek crisis fades for the moment, attention will turn once again to Washington and debt ceiling talks. Many commentators found President Obama’s comments Wednesday to be rather ‘testy,’ an indication of how the talks are currently progressing. The S& P and Moody’s both have promised to slash US debt ratings if the debt ceiling is not raised. The S& P came out the strongest; promising a ‘D’ rating if an agreement if not achieved.
In the US, May personal spending figures came out flat, break a 10 month wave of gains. Additionally, the American Truckers Association ‘For Hire Tonnage Index’ fell 2.3% in May, its third consecutive monthly decline. ATA Chief Economist Bob Costello told Reuters, We don’t think the drop in the last few months indicates a recession, but we’ve definitely hit a soft patch this spring.”
So at week’s end we continue to be baffled by the surge in commodity prices. We can only assume that the weaker dollar and ‘supposed’ resolution of the Greek crisis has lead to a boost in the metals complex. Analysts’ remain cautious going ‘long’ at current levels as many think the complex is quite overextended.
Copper Zinc
Friday 6/17/11 $4.103/lb $0.9979/lb
Monday 6/20/11 $4.075/lb $0.9748/lb
Tuesday 6/21/11 $4.0895/lb $0.9922/lb
Weds 6/22/11 $4.09/lb $0.9961/lb
Thurs 6/23/11 $4.041/lb $1.007/lb
Friday 6/24/11 $4.0985/lb $1.0092/lb
Comex Spot Copper down $0.0045/lb for the week as Zinc rose above the psychologically important floor of $1.00/lb
Metal prices weakened Monday as investors watched developments in Greece. The markets seem to be digesting the likely acceptance of an austerity package. The Euro rose this week as clarity regarding Greece seems to continue. Interestingly the WSJ pointed out that despite all of the current austerity measures in place, not one Greek official has been laid off, with the brunt of the service cutbacks and tax increases being felt in the private sector. By week’s end Greece had a deal with the EU and IMF. Conversely, US debt ceiling talks are floundering badly; locked in partisan paralysis. It seems the lessons in Greece are missed entirely by Washington, as wake up calls go largely unanswered.
US Fed comments this week have taken on a more pessimistic tone, with the Fed saying that while the recovery is continuing at a moderate pace, growth is slower than expected. Any headwinds the Fed states should be short-lived. It seems like there is a lot of wishful thinking in their expectations for a stronger 2nd half in this year. Energy price increases will weaken the Fed’s high hopes, as the global economy desperately needs relief from high energy prices.
China’s import data for May has been released and shows that Copper imports are off 47% from a year ago, a stunning decline. China’s factory activity in May expanded at its slowest pace in 11 months. Interestingly, HSBC reported the purchasing managers’ index for May at 50.1, just barely past contraction territory of 50. The International Energy Agency said that high energy prices may derail growth in China and India. “China and India are the two most important economies which helped us get out of the economic crisis,” IEA’s Chief Economist Fatih Birol shared with Reuters.
Copper product giant, Aurubis said, “Energy scarcity has become a significant risk factor. ..If there are any large scale shortages in the electricity supply in a copper producing country, it is likely that copper production will suffer.”
Thursday, investors were blindsided by the surprising announcement from the IEA that 60 million barrels would be released from reserves over the next 30 days, with the US providing half. This announcement was followed by $6-$8/bbl drops in crude. Oil prices will likely be depressed during this period of intervention.
News out of South America was comforting in that Codelco’s key mines were not affected by a strong quake on Monday.
Lastly a study by Barclay’s Capital shows that commodities are now perceived by institutional investors as the least attractive asset class, this according to a survey of 863 investors.
