Why We Are in Secular Bull Market in Commodities

Commodities in middle of rare ‘'super-cycle’'\r\n\r\nFriday 30th March 2007: 08:00\r\nBy Scott Sinclair\r\n\r\nCommodities should be on every investor’s wish lists as the sector is in the middle of a ‘super cycle’ that occurs only once every 50 years, according to BlackRock Merrill Lynch.\r\n\r\nThe firm says the cycles are driven by huge structural changes in the global economy – such as the European industrial revolution – and that strong growth and industrialisation in countries such as India and China has signaled the start of another.\r\n\r\nBlackRock says the sector is flourishing as a result because of strong commodity demand and muted supply growth.\r\n\r\nIn addition, the company says merger and acquisition activity has the potential to further enhance performance.\r\n\r\nThe firm says stockpiles of many metals are at their lowest levels for a decade, while price/earnings ratios of many major equities are lower than they have been for years and company management is returning record levels of surplus capital to shareholders.\r\n\r\nSimilar fundamentals exist in the gold sector, it claims, with resurgent jewelry demand, an increase in investor appetite, falling goldmine production, and the potential for Middle East and Asian Central Banks to increase their gold exposure in order to diversify from their $US holdings.\r\n\r\nEvy Hambro, manager of BlackRock’s MLIIF World Mining fund and World Gold fund, says: “The long term case for investment in the natural resources sector is strong and recent short-term moves have made valuations even more attractive.\r\n\r\n“Easy access to finance, rapid escalation in new project costs, strong balance sheets and a shortage of organic growth opportunities are common place have resulted in an environment where M&A activity may thrive.\r\n\r\n“Last year was a record year for mining merger and acquisitions and we would anticipate many of these trends to continue through 2007.”
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Super-Cycle?\r\n\r\nBubble or boom? That is the question.\r\n\r\nIs the recent run-up in commodities prices an investment-led bubble? Or is Jim Rogers right: are we really on the leading edge of a decade-plus supercycle?\r\nThe bulls argue that the same forces that led to surging prices remain in place: namely, limited supply matched against voracious demand from emerging economies like China and India.\r\n\r\nAnd yet, prices have eased recently. Copper, steel and aluminum have all pulled back, and the always volatile price of crude oil has fallen nearly 25 percent from earlier highs around $75 a barrel.\r\n\r\nThe pullback has investors from Wall Street to Main Street asking each other: Is the recent pullback the "pause that refreshes," or is it the first sign of the air coming out of a commodities bubble?\r\n\r\nIt may be the most important question in the hard assets space right now. And like all important questions, this one has strong champions on both sides of the aisle, and each of them is 100 percent convinced that they are right.\r\n\r\nBubble-istas\r\n\r\nMorgan Stanley''s predictably bearish Stephen Roach leads the charge for the bubble-istas, predicting sharp falls in commodity prices as the U.S. housing market crumbles and the global economy cools. Roach thinks that slowing growth in China will also dent the demand for industrial materials.\r\n\r\nAccording to Roach, all the excitement about commodities has created a bubble atmosphere, and as more institutional (and even retail) investors get into the commodities game, price movements become exaggerated.\r\n\r\n"Play the commodity bubble of 2006 at your own peril," he wrote last May (although he''s singing the same tune today). "In the midst of a slightly sub-par upturn in global growth, a low-inflation world is experiencing the sharpest run-up in commodity prices in modern history. If that''s not a bubble, I don''t know what one is."\r\n\r\nRoach notes that China has recently tightened its monetary policy, and that it aims to impose buying limits on construction goods to cool the economy. As it tries to find the delicate balance between fast growth and sustainability, Roach says that the country''s massive appetite for raw materials will shrink.\r\n\r\nSuper-Cycle\r\n\r\nRoach has his adherents, but the case isn''t closed.\r\n\r\nFighting out of the bull corner, famed hedge-fund-investor-turned-commodities-cheerleader Jim Rogers argues that we''re in the midst of a "commodity super-cycle," which could (and should and probably will) last another decade.\r\n\r\nRogers'' says that any long-term study of the commodities market will show that it experiences 15-20 year rolling cycles betweens bull and bear markets. The reason, according to Rogers, is that bringing new capacity online in the commodities space takes a long-time. No one invests in opening new mines or building new lead smelters when prices are low. When prices finally do rise, it takes years for new supplies to come to market. In the interim, we see prices surge.\r\n\r\nThe 1980s and 1990s were bear markets for commodities, according to Rogers, and that led predictably to a big reduction in capacity and under-investment in new infrastructure. Now, with the developing world … developing … we simply can''t keep pace.\r\n\r\nRogers boldly predicts that oil will breeze past $150 a barrel as reserves thin, and sees boom times for other commodities as well. Roger''s custom-designed commodities index (the RICI, or Rogers International Commodities Index) is up over 250 percent since he created it in 1998, and he expects that growth to continue (with fits and starts) going forward.\r\n\r\nRogers''s faith in rising commodities prices is supplemented by his belief that we are seeing a long-term shift of global wealth from West to East. Rogers'' believes that the 21st century is China''s to seize, and that China''s growing economy will feed demand for millions more refrigerators, washing machines and other goods, all of which will require commodities.\r\n\r\nYes, corrections are round the bend, Rogers says. When "China sneezes, the rest of the world will reach for aspirin," he says in his book, Hot Commodities: How Anyone Can Invest Profitably in the World''s Best Market.\r\n\r\nBut for the next half-generation, at least, such bumps will represent opportunities to the clever investor.\r\n\r\nRogers also thinks that commodities function as a safe harbor from inflation; ultimately, a better hedge than stocks, bonds or Treasuries. That was "obvious" to observers in the last commodity bull market in the 1970s, he says: "If inflation were a marching band, higher commodity prices would be the majorettes leading the musicians down the street. And by investing in commodities you can beat the band."\r\n\r\n(Interestingly, Rogers is joined in his "super-cycle" theory by one of Stephen Roach''s key colleagues - Wiktor Biekshi - who believes that the recent pullback in commodity prices is merely the market pausing for breath.)\r\n\r\n\r\nNeither/Nor\r\n\r\nBut what of a middle ground somewhere between a bearish Roach and the ebullient Rogers?\r\n\r\nThese middle-road believers think that certain commodities will enjoy a sustained plateau, but others will likely stay weak. Oil at $100 a barrel is not unlikely, but prices for copper, steel, and aluminum have topped out. The fastest growth is behind us.\r\n\r\nChina''s growth is unrelenting, but a significant greater share of its oil and industrial metals are invested in goods manufactured for export, not domestic consumption. China''s economy will remain a key global factor, but it will decelerate. Most Chinese will remain impoverished, with little purchasing power.\r\n\r\nOne thing is for certain: More investors are coming into the market. The retail-end of the commodities industry has boomed, and even institutional investors are upping their exposure to the space. CalPERS recently made its first investment in the commodities space, and it expects to build that into a full position in the coming months.\r\n\r\nBubble or super-cycle, investors are deciding that they want to be there to see.\r\n\r\nhttp://hardassetsinvestor.com/index.php?option=com_content&view=article&id=38://super-cycle&Itemid=6
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Interview With Jim Rogers:\r\n''The Best Place To Be Is In Commodities''\r\nPosted on Apr 10th, 2007\r\n\r\nJim Rogers is widely known as one of the most insightful – and irreverent – commodities bulls in the market today. Rogers, who made his (first) fortune as George Soros’ partner in the Quantum Fund, has been championing commodities to investors since at least 2004, when his book “Hot Commodities” laid out the case for a long-term bull market in hard assets.\r\n\r\nRogers, who runs his own index to capture the growth in commodities, argues that the commodities market runs in what might be called “supercycles”; 10-20 year stretches when pent-up demand meets the long lead times required to bring on new supply, sending prices steadily higher. With China and India growing fast, he thinks the current commodities bull market has plenty of room to go..\r\n\r\nThe editor’s of Hard Assets Investor recently spoke by phone with Rogers, to get his view of the current situation in the commodities market.\r\n\r\nHardAssetsInvestor : With recent fluctuations in the commodities market, are you sticking with your “supercycle” theory? Where are we in the cycle?\r\n\r\n\r\nJim Rogers (Rogers): Supercycle is your term, not mine, so I won’t say that. But I will say that we are in a bull market for commodities.\r\n\r\nWe are in a bull market for commodities because supply and demand got terribly out of whack years ago, and they are still out of whack.\r\n\r\nI also wouldn’t call it a theory. Nobody has discovered a gigantic oil field for thirty years. That’s not a theory; that’s a basic fact. In the meantime, demand for oil has been going up for many years. That’s not a theory, either; that’s a simple fact. Likewise, there has been one lead mine open in the world for the past twenty years, and the last lead smelter was built in the U.S. in 1979. I could continue: the number of acres devoted to wheat farming has been declining for 20 years.\r\n\r\nThose are simple facts that lead me—and, I think, any rational person—to conclude that we’re in a bull market for commodities that has a ways to go.\r\n\r\nHAI: What about the recent pullback?\r\n\r\nRogers: There have been consolidations along the way; there always will be. In the stock bull during the 1980s and 1990s, there were huge corrections that scared the pants off some people. But the people who really knew what was going on, they bought more stock during those consolidations, and they did well. It was the same during the gold bull market in the 1970s. There was a stretch when gold went down every month for two years, and eventually ended down 50-plus percent. Everyone was scared. But then gold turned around and went straight back to $820/ounce, a new high.\r\n\r\nThat’s how markets work. There will be awesome corrections in the commodities markets during this period of time, and I hope that I’m smart enough to recognize them for what they are.\r\n\r\nHAI: The market panicked when China’s stock market fell in February. Was that a blip, or signs of a bubble beginning to burst?\r\n\r\nRogers: Anybody who sold stock in the West or in Japan because China had a 9 percent drop in one day is a little bit nuts. The Chinese market has almost zero percent impact on the rest of the world. Foreigners can’t invest in China, and the Chinese can’t invest here. The idea that what goes on in China’s market matters to us is nuts.\r\n\r\nI’m sure that people worry about China’s growth. That’s understandable. The Chinese government is trying to slow down growth. But let’s say that they succeed, and that China’s growth slows from 10 percent GDP growth to 3 percent GDP. That’s still growth. People still need to buy more tires and more eggs.\r\n\r\nHAI: The commodities markets have been in deep contango recently. Is that situation permanent, and is it harming the thesis to invest in commodities? Are investors better off in physicals?\r\n\r\nRogers: Some sectors of the market have been in contango, and some have not. I’m not sure I agree with your assertion.\r\n\r\nHAI: I was referring specifically to energy.\r\n\r\nRogers: Well, energy is just three or four commodities out of fifty…\r\n\r\nOil and energy have been in contango recently for a variety of reasons, and partly because of the index funds. I’ve seen contango come and go for decades. Usually, when the market gets out of whack, the people who need to buy the oil come along and take advantage of it. If people come along and there’s contango, people will make money off it . Likewise, when there’s backwardation. People who need oil will find the best price and the best place to buy oil, and they will do so. They take advantage of the discrepancies and then the discrepancies disappear.\r\n\r\nHAI: What are the most pressing issues that commodity investors should understand?\r\n\r\nRogers: They should understand that until somebody brings on a lot of supply, commodities will do well. If people start seeing windmills on every roof and solar panels on every house, then maybe this is coming to an end. If somebody discovers a gigantic gas field in Berlin, maybe this will start to change. Investors need to watch and see when and if new sources of supply develop.\r\n\r\nBur really, short of worldwide economic collapse, the best place to be is in commodities. There is no shortage of stocks. The world is cranking out new stocks every day. No one is cranking out new lead mines every day. People need to get a basic understanding of supply and demand, and then they’ll figure out what the big picture is, and they will make money.\r\n \r\nHAI: Are agricultural commodities a different animal from metals and energy, in that their supply is more elastic. Does that change the analysis there?\r\n\r\nRogers: They are not much more elastic. It takes five years for a coffee tree to mature. If you decide to go into the coffee business today, it might take five or seven years before you come to market. It takes ten years to bring on a new coal mine, but many plantations take a long time, too.\r\n\r\nIn theory, we can increase our acreage devoted to corn, as America did recently . But farmers did that at the expense of soybeans and cotton and everything else. It’s not as if the world has created a lot more land. Even when farmers do bring on more acreage, it takes a few years and it costs money and time. \r\n\r\nMoreover, when you have acreage lying fallow, it’s always the marginal acreage. When farmers take acreage out of production, they keep the good acreage in production. Doubling the number of acres devoted to corn will not double production. Yes, in theory, you can bring on more corn quickly. But it is at the expense of other things.\r\n\r\nHAI: Does active management have a role in the commodities space?\r\n\r\nRogers: The world has demonstrated repeatedly that index investors outperform 80 percent of active managers year after year after year. If you can find a good active manager who can beat the market consistently, invest with her, and introduce me to her, too. But my index fund has been running since August 1998, and it has done 500 percent better than the average CTA over that time.\r\n\r\nHAI: Last year, we saw the London Metals Exchange intervene in the nickel markets. With supplies tight for many commodities, will we see that happen again? Will it become more frequent?\r\n\r\nRogers: I suspect it will happen less. The more it happens, the more credibility the exchange loses. With the internet and electronic trading, it’s very easy for a new market to develop. And any exchange where that happens frequently will lose its market.
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''Super-cycles'' point to further gains for commodities By Malcolm Scott, Bloomberg News Published: May 3, 2007 SYDNEY: The Russian economist Nikolai Kondratiev argued in the 1920s that commodities move in 50- to 60-year cycles. His analysis suggested prices would rise early this century. They did. Now the investors Shane Oliver and Marc Faber are using his theory to back their bets that the five-and-a-half-year-old rally in commodity-related stocks is only just the beginning. "The norm in financial markets is to look at very short-term cycles," said Oliver at AMP Capital Investors in Sydney. "I think that''s wrong. Kondratiev allows you to view these things in a broader context." BHP Billiton, the world''s biggest mining company, and Rio Tinto Group, the third largest, are among AMP''s top 10 holdings. Shares of companies that produce raw materials have leaped 173 percent and energy stocks have jumped 118 percent since October 2001, when commodity prices began rising. The two groups have had the biggest gains in Morgan Stanley Capital International''s World index since then. Shares of BHP, based in Melbourne, have almost quadrupled, while those of Rio Tinto, of London, have almost tripled. Oliver and Faber are among a new generation of "super cycle" proponents that also includes strategists at Citigroup, Deutsche Bank and Goldman Sachs. They say that supply shortages and growing economies in China and India will send prices higher for years to come. Their intellectual ancestor, Kondratiev, founded the Institute of Conjuncture in Moscow in 1920. He argued in books and papers like "The Major Economic Cycles," published in 1925, that long waves in economies and prices are inherent in the capitalist system. Upswings are caused by increased capital investment, and downswings arise as those investments lose value. New markets and new technologies also push prices up during the expansionary phase. He observed three upswings: 1789 to 1814, spanning the French Revolution and Napoleonic wars; 1849 to 1873, an era of European industrialization; and 1896 to 1920, when the United States emerged as the world''s largest economy. Each was followed by a commodities decline of between 23 and 35 years. The average decline lasted 29 years, the average upswing 24 years. Using Kondratiev''s analysis to project forward, a 29-year slump was due from 1920 to 1949 - a span that includes the Great Depression and World War II. A full 53-year up-and-down cycle followed, making another upswing due in 2002. "I agree that commodity prices move in long cycles," said Faber, whose money-management firm, Marc Faber, is based in Hong Kong. "The up wave of the Kondratiev cycle is likely to last for at least another 15 to 20 years." Faber owns mining stocks, which he declined to name, as well as gold, rare metals and agricultural land. He is reluctant to hold bonds, which he said do not perform well in a rising Kondratiev wave. The best-performing commodity-related stocks since the rally started include Freeport-McMoRan Copper & Gold of Phoenix, up 505 percent; Valero Energy of San Antonio, up 647 percent; Korea Zinc, of Seoul, up 988 percent; the German steel maker Salzgitter, up 1,247 percent; and the Indonesian coal exporter PT Bumi Resources, up 2,100 percent. The MSCI World index is up 67 percent in the same period. The Reuters/Jefferies CRB index of 19 commodities has surged 139 percent since October 2001, but it has slipped 10 percent from its May 2006 high. But proponents of super cycles say the pullback is just a blip in a longer rally. The Australian central bank shares their optimism. "The rapid growth in world demand for metals and other resources appears to be showing little sign of abating," the Reserve Bank of Australia wrote in its monthly bulletin published April 19. "There are good reasons to believe that strong demand, from emerging economies in particular, may continue for several decades." Kondratiev himself did not profit from his analysis. He was convicted for championing private farm ownership in the 1930s and executed at the age of 46 during Josef Stalin''s great purge in 1938.
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UNPRECEDENTED FUND FLOW $200bn commodities "super cycle" intact Investors to pour a further $15 to $25bn into commodities, metals & related indices, during 2007. Author: Barry Sergeant Posted: Monday , 21 May 2007 JOHANNESBURG - For years bulls and bears have fought over the notion of a "super cycle" in commodity and metal prices. Bears are now poised again to end this year with bloody noses. According to an analysis by Daniel Raab, MD of AIG Financial Products Corp., investors have this year already placed $8bn into commodities, metals and related indexes. He estimates that the figure for the full year could come in at about $15bn, aided by the launch of more exchange-traded funds (ETFs), and other passive investment strategies for commodities and metals. The unprecedented flow of funds into commodities, metals and related indices is consistent with the theme developed over the past few years by the likes of Alan Heap at Citigroup in Sydney, Melbourne-based Peter Richardson, London- based Michael Lewis of Deutsche Bank, and Goldman Sachs'' Jeff Currie in London. Citigroup has defined a super cycle as a prolonged (decades) trend rise in real commodity prices, driven by the urbanization and industrialization of a major economy. The commodity and metals story continues to gain new dimensions, in line with increasing fund flows. With more than five years of an apparent super cycle in the bag, investment bank Lehman Brothers this year anticipates growth of about $25bn in the broader field of commodity investment. Analysts have put the cumulative figure-to-date at between $150bn and $200bn. The current cycle has seen a significant growth in commodity indexes such as Dow Jones-AIG, Reuters-Jefferies, and S&P Goldman Sachs Commodity Index (GSCI). The rationale behind the latter index (as an example) was creation of an easily traded instrument providing investors with a reliable and publicly available benchmark for investment performance in the commodity markets, comparable to the S&P 500 or FT equity indices. The S&P GSCI represents an unleveraged, long-only investment in commodity futures, broadly diversified across the spectrum of commodities. Specialised investors can go further, into related instruments, such as the S&P GSCI futures contract (traded on the Chicago Mercantile Exchange), or over-the-counter derivatives, or the direct purchase of the underlying futures contracts. ETFs are also playing an increasingly important role, having attracted around $2bn in the first three months of this year alone. ETFs are open-ended securities that can be bought and sold by investors on a regulated exchange, in the same way as stocks and bonds. ETFs give investors exposure to commodities without the need to set up futures trading accounts or taking physical delivery of a commodity or metal. The growing respectability of investing in commodities and metals - raw materials in the broad sense - has been fuelled by investors seeking a hedge out of stocks, bonds, and even cash. There is also the diversifier factor: if the price of crude oil declines, it could potentially be supportive to the equities side of a portfolio, if it reduces inflationary pressure, supporting, in turn and in time, lower interest rates. It has been noted that the US''s Calpers, a giant pension fund with assets of more than $230bn, invested $450m into the S&P GSCI in March, just ahead of another rally in crude oil prices. On the fundamental side, there is no question that serious investor interest in commodities and metals is now increasingly attracted by the merits of the "super cycle" story. According to Heap, there have been two super cycles in the past 150 years: late 1800s-early 1900s, driven by economic growth in the USA, and 1945-1975, prompted by post-war reconstruction in Europe and by Japan''s later, massive economic expansion. Deep research by Citigroup shows that in 1800, the Chinese and Indian economies were by far the largest in the world, dominating global gross domestic product (GDP), with Germany and Japan playing distant second fiddles. During the next few decades, the US economy really started moving, and took over as No 1 economy soon after 1900. According to the Bank Credit Analyst, the odds are good that the commodities and metals bull market that began in 2001 has not yet run its full course. Chinese industrialization and "rapid trend growth in the entire developing world will act as key forces to sustain structural demand for commodities". Heap''s team has long stated that the key driver of the super cycle is without doubt materials-intensive economic growth in China. Few prices go up in a straight line, and speculators inevitably contribute to the story. In January last year, the Citigroup global metal and mining team put it riotously: "A flood of investment funds is driving base metal prices much higher than can be supported by fundamental analysis of supply and demand. It''s a bubble which could grow a lot bigger before bursting". There have been some bouts of savage profit taking in commodities and metals, but the fundamental story remains intact for the meantime. http://www.mineweb.net/mineweb/view/mineweb/en/page67?oid=21224&sn=Detail
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"Crazy" to ignore commodities plays:JPMorgan fund Tue May 22, 2007 9:11AM EDT Reporter''s Notebook Global Mining and Steel Alcoa CFO calls bid for Alcan fair Australia''s Oxiana eyes growth paths Barrick in no rush for takeovers Thai Banpu plans $469 mln investment to spur grow More Global Mining and Steel… Email This Article | Print This Article | Reprints Text By Dominic Lau LONDON (Reuters) - Investors who think it is too late to get into commodities-related stock because the market has risen so much are "crazy" as prices will only go higher due to tight supply and growing demand, JPMorgan Asset Management said. Ian Henderson, fund manager of the UK-registered JPMorgan Natural Resources Fund, told Reuters in an interview that China''s latest move to rein in its booming economy would dampen speculative activity but metal inventories remained low. "I think people are crazy not to be in it (commodities). I just can''t imagine anybody being so naive as to imagine this is not a revolution like the way people have never seen before in their lifetimes," Henderson said late Monday. "It''s absurd to imagine that with the enormous amount of infrastructure going on, whether that be railroads or roads or power stations or subways or airports, this is other than a revolution in terms of demand going on." The fund, which invests mostly in stock and is 1.18 billion pounds ($2.33 billion) in size, has handed investors more than 22 percent in returns this year as of the end of April. Its portfolio consists of: base metal and diversified 37 percent; gold and precious metals 27.5 percent; energy 25 percent; diamonds/other 8.2 percent, with the rest in cash. Henderson, with 35 years of investing experience, also said there was no risk in investing commodities. "For mineral producers the current situation with the arrival of China, India and other emerging markets as major commodity consumers sitting down to the table, can be likened to a hostess having prepared a dinner for eight having a further eight guests arrive for whom no food has been bought or prepared," he said. The fund manager said that the emerging economies accounted for 29 percent of the world''s gross domestic product, bigger than the United States, and were growing by 5 to 10 percent a year, supporting the demand for raw materials. "The basic outlook is that most people imagine that mining companies will be able to bring new projects into production on time and on budget," he said. "The honest truth is that at least in the past five years people''s expectations for production growth had been almost twice as great as the actuality." Energy supply would also remain tight as companies were finding it difficult and expensive to accelerate their exploration programs, said Henderson, who has run the fund since 1992. As for stock picks, the fund manager said he liked "small and micro cap" companies, where half of his fund is allocated, but he declined to give any names. But, he added, there was good value in the larger companies. "Among the big companies, I would buy almost all of them today. All the major companies are undervalued quite a lot. And if I have to rank them in this very minute, I would be buying Norilsk (GMKN.MM: Quote, Profile, Research, CVRD (VALE5.SA: Quote, Profile, Research (RIO.N: Quote, Profile, Research," he said. "Their commodity mixes are quite favorable. The markets are not valuing them using sensible forward earnings estimate. In addition, in the case of Norlisk there will be an $8 billion return of equity by way of a distribution of their energy subsidiary next year."
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Behind The Big Nickel Bidding War Australasian Investment Review Sydney, May 25, 2007 (ACN Newswire) - No wonder Norilsk Nickel and Xstrata are fighting over LionOre Mining International; according to the international investment bank, Credit Suisse, world nickel prices could continue to rally and even reach $US65,000 a tonne this year. World nickel prices have jumped 155 per cent over the past 12 months as stocks have fallen 75 per cent to equal around two days of global consumption. There are 11 nickel mining projects being built around the world but only three including BHP Billiton''s late and over budget Ravensthorpe project in Western Australia, will start production before 2010. The world price, which is essentially the LME price, closed Thursday at $US46,800 a tonne for three months metal, while the cash price ended at $US50,300, with stocks of the metal down to perhaps two days supply and not much more. Nickel for immediate delivery rose to a record $US54,050 a metric ton in London on May 15. That makes the price drop around 8 to 9 per cent on fears of de-stocking by stainless steel producers. But that''s not deterring the rival bidders for LionOre. Norilsk Nickel raised its bid for LionOre Wednesday night to $C27.50 ($A30.76) per share, valuing the Canadian miner at around $C6.8 billion ($A7.6 billion). The Russian company''s revised bid is 10 per cent above a revised second offer from Xstrata, which last week made a bid of $C25.00 per share, valuing LionOre at $C6.2 billion. According to reports Jeremy Gray, head ofmining researchat Credit Suisse in London, believes the recent sharp downturn in the price of the metal (from more than $US50,000 a tonne for three months metal on Monday of this week to Wednesday''s close) was an over reaction. He believes the market seems to anticipating a severe correction in the nickel price, because of fears that stainless steel producers will cut the amount of nickel used in their steel products and sell surplus stocks to take advantage of the near record prices. Gray believes the bigger problem is the lack of new investment in downstream smelting capacity, which could cause a bottleneck for the industry and push prices higher. Demand this year is likely to grow around 5 per cent and production of nickel metal by just over 4.5 per cent. He said there seems to be a lack of enough new capacity to meet continuing strong demand from the stainless steel industry over the next two years. China is increasing output of low grade Ferro-nickel, but that won''t be enough to meet demand for high grade material. A surplus in nickelis likely by 2010 but between then and now the supply/demand equation is going to be very tight. And while the stainless steel industry cuts its consumption of nickel for the moment, they will have to rebuild stocks later this year, which will put upward pressure on prices. Meanwhile LionOre told the market yesterday it would examine the higher offer from Norilsk and its agreement with Xstrata and report back to shareholders as soon as possible.It told the market this morning the new offer was ‘'superior’' to Xstrata which would be informed. Xstrata''s bid is due to close later today and will have to be extended if it wants to stay in the bidding war. A complication is that the Xstrata offer of May 15 includes a C$305 million break fee - which would be paid to Xstrata should LionOre accept a rival bid. Norilsk says its new offer has been discounted to take into account the additional costs arising from the excessive C$305 million break fee payable to Xstrata. That means it price would have been closer to C$8 billion. LionOre says it expects to produce 40,000 tonnes of nickel this year and double that by 2012. Xstrata''s original offer for LionOre was valued at C$4.6 billion in late March, and then countered earlier this month by a C$5.3 billion counter bid from Norilsk. LionOre shares closed up $1.01 in Australia yesterday at $31.51.
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The Second Asia Shock\r\nFirst came the workers, now the shoppers. Is the world ready?\r\n\r\nNewsweek International\r\n\r\nMay 28, 2007 issue - The growth stories of China and India have always been different—China is well known for being the world''s factory, while India''s new wealth has been built on services. But the result is the same—a consumer boom that will reshape global markets. Over the next twenty years, 213 million Chinese households and 123 million Indian ones will begin to have discretionary income. That means 1.2 billion people hitting the world''s consumer markets—a shopping spree of historic proportions.\r\n\r\nIf both countries continue on roughly their current growth paths, we will witness the creation of massive new consumer markets, as well as unprecedented reductions in poverty. The speed of the change will rival Japan''s economic miracle of the 1950s to 1970s, as well as South Korea''s more recent rise—but will be magnified over populations 10 and 30 times as large.\r\n\r\nIn China, rising incomes have the potential to lift over a hundred million people out of poverty. In 1985, 99 percent of the urban Chinese population lived in households earning less than $3 per person per day; by 2005, the number had dropped to 57 percent. We project that over the next 20 years, incomes will grow eight-fold, cutting China''s poverty rate to just 16 percent. India''s numbers are no less impressive. In 1985, 93 percent of the population lived on less than $1 per day; by 2005, it was 54 percent. The number is projected to decline to 22 percent by 2025. If current trends continue over the next two decades, India and China will have 1.8 billion fewer poor people than before economic reform. Both countries will also develop massive new middle classes, with China becoming the third largest consumer market in the world (behind Japan and the U.S.), and India taking fifth place.\r\n\r\nInternational companies seeking to capitalize on this shift will face a number of challenges. Chief among them will be the fact that while 100,000 renminbi or 500,000 rupees buys a nice middle-class lifestyle in China or India (about $50,000 to $60,000 if adjusted for "purchasing-power parity" or "PPP&quotsmile, when exchanged at actual exchange rates, the amounts look less attractive, around $11,000 to $12,000. As one executive put it, "You can''t put PPP dollars in the bank, only real dollars." Multinationals thus face the dual challenge of adapting to local budgets as well as tastes. One example: Carrefour, the French retail giant, now has some of the highest-volume stores in China. Its trademark wide, brightly lit aisles display tanks of live eels, bullfrogs and turtles at prices that compete with China''s "wet markets."\r\n\r\nFurther challenges include geography and distribution. In China, companies must choose which of its 177 cities with populations larger than one million to target. In India, there is no cold chain for food distribution, and a maze of internal tariffs and inspection points mean it can take days to ship short distances. Finally, foreign firms will face increasing pressure from local players.\r\n\r\nDevelopment of these markets is not a sure thing—keeping up past growth rates will require both countries to face up to common problems. First, despite rising wealth, public services remain weak. Households have high savings rates because they don''t trust their governments to provide health care, education and pensions. Better government services would free up that savings for consumption, leading to more growth. Second, both financial systems are unmodernized and subject to significant political interference. The result is that capital is both mispriced and misallocated. Work by MGI shows that financial-system reform could add as much as 17 percent to Chinese GDP annually, and 7 percent to India''s.\r\n\r\nThere are big unknowns. Will India''s crumbling infrastructure put the brakes on growth? Will China''s environmental issues slow its manufacturing juggernaut? Will the growing backlash against globalization and inequity harm both countries? But assuming they can rise to such challenges, increasing wealth and consumption are a matter of when rather than if. Part I of the China and India story, the rise of the worker, has already fundamentally changed the world order. Now part II, the rise of the consumer, is about to start. Is the world ready?\r\n\r\n© 2007 Newsweek, Inc.\r\n\r\nhttp://www.msnbc.msn.com/id/18753951/site/newsweek/
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Copper mulai lagi. Long FCX.
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POST-PEAK PRICES\r\n$1,000 a Barrel Oil / $20,000 a Pound Uranium\r\nby Saif Lalani\r\nOctober 28, 2007\r\n\r\nAlmost a year ago I predicted that oil was bottoming and was going to make new highs by year end.\r\nhttp://www.financialsense.com/fsu/editorials/lalani/2007/0124.html\r\n\r\nAt the time is was hard to get anyone to listen. What a difference 9 months can make. Oil is racing ahead and destroying all in its path who are trying to short this “overbought” commodity. So where does oil go next? Lets look at the supply and demand picture that got us here.\r\n\r\nSupply:\r\nThe recent OPEC meeting turned out to be a non-event for markets with crude oil closing higher the same day in spite of OPEC promising an additional 500,000 barrels per day. With EIA and IEA both screaming for a 1,000,000 plus and their own statistics showing a required increase of more than 2,000,000 barrels per day from OPEC, the jump in prices was purely on fundamentals. The 500,000 barrels per day increase was the equivalent of OPEC wishing us “Good Night and Good Luck”. And oh yes, wishes for an extremely warm winter were issued as well. However in spite of this wake up call, the dream lives on for both the IEA and EIA. The dream that is for low oil prices. Their long term outlooks remain unchanged. CERA continues to blame geopolitics for high oil prices to the extent one would think that Israel and Palestine were hurling oil barrels at each other.\r\n\r\nOutside of OPEC the treadmill looks to be accelerating. Staying Flat is no longer possible. The cornuco pians only need to look at the production reports of Exxon, Chevron, and ConocoPhillips. Not one of those was able to keep oil production flat year on year. The positive news about Norway, UK and Mexico is that things cannot get any worse as far as year on year declines are concerned. 2008 promises to be a good year as far as news projects coming online. However the optimists said the same about 2007 but the declines in the existing oil wells wiped out all new project increases. Apparently being wrong for so long does not interfere with their ability to make even more stupid predictions for the future. Michael Lynch and Steve Forbes, please continue to humor us with your sub $40 a barrel predictions.\r\n\r\nDemand:\r\nThe simplest thing that can be said about demand is that it cannot continue to grow. That''s it. Demand now equals supply. Drawing down inventory can work for a few months maybe even a year but ultimately demand equals supply. This is a concept that, even those retarded economists who were predicting that standing with a large enough check in front of an oil well will magically refill it, can understand. Now here I would like to address those numb skulls who keep talking about the “global growth story”. There isn''t one. Without energy to fuel it, global growth is going to come to a screeching halt just like a dog chasing the mailman suddenly snapping back when its chain is fully stretched.\r\n\r\nPrice:\r\nAs I had predicted in my earlier article, OPEC is now blaming speculators for high prices. Regardless what OPEC is saying now or will in the future, it will not derail in the oil bull market. Oil will eventually reach over a $1000 a barrel. No that is not a typo. In the next 10-15 years the export market will contract by over 70%. Assuming essential services required to keep society functioning at whatever level feasible are still around, that would mean that the average person in the US would have to cut his consumption by 90%. I think it will take prices at least 4 fold higher from here to achieve that. That multiplied with the Fed''s aim to use the US dollar to put “Charmin” out of business will result in at least $1000 a barrel. But the road will a long and jagged one. Prices will spike and dip at every turn. Rumors of alternate energies being developed will cause “limit down” down days and threats on oil infrastructure will have the opposite effect. Through it all Joe Kernen and his his band of illiterate merry men on CNBC will keep trying to tell you that speculators are destroying your life. Sharron Epperson will keep telling you that oil is going down on a particular day because 2 and half weeks of world oil consumption were discovered somewhere. Although production should start after 5-8 years will make little difference to her astute explanations. (Those who saw her reaction after Devon''s Jack discovery know exactly what I am talking about).\r\n\r\nFinally I would like to add that in spite of the long term outlook for oil prices being incredibly bullish it is possible that a pullback to $70 -$80 could happen at anytime. This does not negate the long term fundamentals. I have stated my case above for why oil could go up 10 fold or more over the next 10 years. The fundamentals for uranium are even better than that for oil. Although uranium is used exclusively for electricity whereas oil is hardly used for that purpose, in an energy starved, global warming aware world it is also highly likely that Uranium will eventually trade at about BTU parity with oil. That means uranium at over $20,000 a pound. Seems a bargain at $80 a pound.
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