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Base metals rose strongly as the US$ weakened. Commodity market participants were encouraged by the first rate hike by a industrialised G20 country (Australia) since the world financial crisis. Economic data did not offer much in the way of market direction. Of concern was the news that workers at the Andina unit, of the world’s no.1 copper producer Codelco, voted to reject a preliminary wage offer from the company.

Additionally, an ongoing spectre haunts the Copper Market. Renewed rumors that the greenback will be dropped from energy contract settlements sent currency markets into a negative spin, helping copper futures regain lost ground. Much remains to be seen before a dramatic shift such as this takes hold. Stay tuned.

Uncertainty remains ever present in the Manufacturing Sector near term. Recent communication within in the distribution market indicates that while automotive is busy near term; the housing sector is subdued. Although a bounce has been seen in the past 60 days by some housing participants; it seems confined to after market products. Mill producers are reticent to reduce the currently extended lead times, when doing so would require increased fixed costs near term. If the current build in demand continues into the 1st Qtr, confidence should begin to return to the material production sector, with the resultant reduction in mill lead times.   

Sorry, for my extended absence. After returning from vacation, our blog was attacked by especially aggressive spammers. We had to put into place sufficient protection to ensure the viewing safety of our friends who visit the Blog.

I am pleased to restart my Blog. More information to follow. Thank you for your patience.

Today’s (June 26, 2009) Wall Street Journal reported that Lear Corp is preparing to file for bankruptcy protection as early as next week. This action would make Lear the eighth major auto parts supplier to file for Chapter 11, since Delphi filed in ‘05. A temporary production shutdown for Lear has ramifications well beyond their doors.  As the world’s second largest auto seat supplier, a Lear shutdown could cause a variety of auto assembly plants to shutdown. An unsettling prospect to an already fragile US Auto Industry.

I found interesting that the Journal noted that Lear’s filing seemed more about aggressive restructuring than a cash crunch. In this past March, it was noted that Lear was sitting on approx. $1 billion in cash.

My worries surround the Tier 3 and Tier 4 suppliers to all of these major auto parts manufacturers. These smaller cash strapped companies have been absolutely hammered by the filings of these large suppliers. Additionally lenders seem increasingly focused on divesting their position in the automotive industry; causing additional pain.  It is obvious from my perspective, more cash strapped participants in the auto supply chain will simply ’slip under the surface’ as this flood of bankruptcies continues.

Nonetheless, as bad as this sounds, it has been needed; a ‘culling of the herd.’ The remaining participants should have the needed strength to service and grow with their automotive customers. The reinvention of the US Auto Industry requires a strong supply base, without it, survival is not possible.

http://online.wsj.com/article/SB124595993731955785.html

History is full of stories detailing the failed predictions of esteemed experts in a particular field of study or endeavor.  

On October 20th, 1929, the noted Yale University economist Irving Fisher declared that “stock prices have reached what looks like a permanently high plateau.” Nine days later (October 29th, 1929) “Black Tuesday” arrived; the stock market crashed and America and the world were plunged into the worst recession in history.

I found this story today to be amusing and a gentle reminder that my personal views regarding markets and trends are my best guess. Tomorrow’s reality is frequently different than today’s predictions.

Visit anecdotage.com for additional interesting anecdotes.

Guardian Metal Sales closed their doors a few months ago; moving into liquidation.  The liquidation process is complete as machinery and other incidental assets were sold to another Chicagoland based Servicenter.  As the items are moved, the end of a once proud and respected metal servicenter is complete. Our best wishes to the Bohnen Family.

Copper rose again yesterday, reaching gains of over 6% for the week. Zinc rose too.  The Metals Complex moved up on positive May data regarding the following: Durable Goods up 1.8% vs an expected small dip.   Demand for non-defense capital goods up 4.8%, machinery demand was up 7.7% and PC’s and related products rose 9.4%.

We saw the dollar begin to rally late in the day yesterday but that rally seems to have fizzled near term today. Commentators are unsure that the rally in the dollar is over, leading some to speculate that pressure on  commodities is more downward than up.  No major US Economic numbers are due for release today except for weekly jobless claims. We will watch the dollar’s activity and keep you posted.

So what does this all mean? Lear is not the only Parts Manufacturer in danger and vulnerable. Cooper-Standard is in danger of filing. While Dura Automotive and American Axle are experiencing threats of supply interruption from their vendor base, too. Dura CEO comments that they have suppliers demanding checks for $500,000 or more or they won’t ship. He comments further saying that there just isn’t any cash.

Neil Dekoker-President of the Original Equipment Suppliers Association was quoted in FreeP.com June 21st,  ”There is a pending crisis. I just worry that we could end up shutting down GM, Ford, Chrysler, Toyota and everybody else.”

Automotive suppliers have been alerting us for years that the squeeze of profits has weakened the entire parts supply base. By capitulating to price demands from the automakers, making poor business decisions, and debt acquisition; auto suppliers found themselves ill prepared for the current economic storm.  As some suppliers have dipped deeply into their cash reserves, they have been left with broken loan agreements and banks unwilling to continue to lend them money.  The absence of DIP financing leaves companies with little choice but bankruptcy or liquidation.  Tough times indeed!

We will continue to monitor Lear, cheering for their success; all the while realizing this is the 1st half of a very long game.

The quick sale outlook for Delphi hit a speed bump when Bankruptcy Judge Robert Drain ordered Delphi to conduct an ‘open auction’ for its assets.  This action has distressed-debt investors circling as they have been crying foul regarding the Obama Administration’s handling of the sale. You see as DIP financiers, these investers generally have the right to take control of the company if they can’t be paid in full. GM and the gov’t have been entrenched in their view that Platinum was the only acceptable buyer. Not everyone believes this to be true

Certainly, Judge Robert Drain wasn’t when he commented, “I don’t know what makes Platinum acceptable to GM and why Platinum is unique.  Unless I hear more, there’s something going on that doesn’t to me make sense.” He also commented, “As far as I am concerned, they’re (Platinum) just guys in suits. Why can’t other guys in suits pay more?” 

It should be noted that as DIP Financier for the GM and Chrysler Bankruptcies the Gov’t said it had wide latitude to determine the companies’ future.  But when it comes to Delphi’s private lenders, it has taken a very different position. Judge Drain deserves an applause for putting the brakes on this decision.

In the meantime, media outlets have reported that well-known investor Carl Icahn is considering making another run at Delphi Corp. Perhaps complimenting his auto parts company Federal Mogul Corp.  Suitors now have until July 10th to make competing offers for Delphi.

Copper prices have recently climbed by approx 10% in two weeks. Why? Many comments are available and many are viable so I will share my perspective and let you the reader decide whether or not my comments today are valuable.

We have seen a general trend downward in the US Dollar as it has fallen recently again several major currencies specifically the EURO. A result of the US Fed pumping billions of $$ into the system. Additionally, we have seen a shift in copper demand in China. China has been stockpiling copper in increasing amounts making one wonder if they see commodities as a better investment than US ‘T’ bills.

However, in spite of the above comments speaking to reasons for a rise in copper. factors remain pressuring future copper prices down. The Exchange Warehouse inventories though having declined, current levels remain comfortable and are not seen as worrisome with the LME at 303,200 tons and COMEX up to 56,814 short tons. When one considers the massive stockpiling by China and continued bad (as opposed to bad, BAD!) economic data coming out; it hardly seems likely that there is a near term shortage of copper. So why the climb?  Could it be investor driven?

ABC Metals continues to maintain a secure supply base, maintaining a multi-faceted channel for the purchase and supply of copper and copper alloy products to our Supply Chain partners. Our strategies shield our customers from much of the downside risk associated with a volatile commodity market. You can be confident that we will maintain your supply of metal during the gyrations of our current economic storm. Give us a call and ‘Uncoil the Power’ of ABC Metals.

A funny anecdote I found seems an appropriate reminder today.

Famed financier J. P. Morgan was once approached by a man on Wall Street and asked for a tip on what the market would to do. When asked whether the market was headed up or down. Morgan’s reply? “Yes!”

Yep a sure thing!