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Associated Press - October 15, 2006

Drop in commodities may hurt emerging markets - By Ellen Simon


NEW YORK Commodities had a miserable third quarter and many on Wall Street say they have further to fall. That theory was bolstered last week as oil prices sunk to their lowest level for the year.

If commodities prices do sink further, it will be bad news for emerging markets and the investors who have poured billions of dollars into them over the past three years.

Commodities prices tend to have a domino effect lower oil prices often drag down gold prices, for instance. And lower commodities prices tend to push down stocks in emerging markets such as Russia and Brazil, countries with a rich supply of oil and metals, respectively.

While many emerging markets continue to be on a tear, if the commodity bears are right, there may be plenty of pain to spread around.

While investors pulled $263 million out of gold and natural resources funds for the week that ended Oct. 4, they still have $26.9 billion in the funds, according to Bank of America Corp. Fund flows into emerging markets slowed during the same period, but investors still have $96.6 billion riding on emerging market funds, according to Bank of America.

Stephen S. Roach, Morgan Stanley's chief economist, wrote in September that the tidal wave of money that has flowed into commodities over the last three years has transformed commodities markets "from one of the best real-time gauges of economic activity" to a financial asset like any other that is, one that's susceptible to hysteria and bubbles.

"Just as return-hungry investors chased these markets on the upside, they could well run like lemmings to get out on the downside," Roach wrote.

Merrill Lynch & Co.'s chief investment strategist, Richard Bernstein, agrees, saying that cheap money and heavy borrowing inflated prices in commodities. Those prices are now 60 percent above what could be explained by fundamental supply and demand, he wrote earlier this month.

"These data suggest that September's downfall in commodities might only be the beginning of a protracted bear market," he wrote.

Other factors that pushed commodity prices higher, such as the U.S. housing boom and powerful growth in the Chinese economy, also could drive prices lower. A slowdown in the housing market is well under way, and economists expect slower growth from China as well.

The decline in home construction already has hit the lumber market, where prices recently dropped to 5-year lows. Metals used in homebuilding, such as copper, also are facing price pressure.

Roach argues that a downturn for U.S. consumers could slow business for Chinese producers. U.S. consumers continue to gobble goods made in China, which is why the U.S. trade deficit with China was a record $22 billion in August. But if American consumers were to start cutting up their charge cards, the effects would be felt in Chinese factories almost immediately.

Less use in the U.S. auto industry should affect steel, aluminum, glass and rubber demand, wrote Tobias Levkovich, Citigroup Inc.'s chief U.S. strategist.

While the argument for continued high prices for commodities is that demand will continue to grow, Levkovich points out that there's some room for supply to grow, too, with a possible increase in Saudi oil production and a recent Chevron Corp. find in the Gulf of Mexico.

If the strategists are right, investors who have seen impressive run-ups in markets such as South Africa, where stocks are up more than 25 percent for the year to date, might consider taking some money off the table and away from all the other dominos.

The Times - October 17, 2006

Metal prices hit new highs - By David Robertson


LEAD, nickel and tin prices hit record highs at the London Metal Exchange yesterday, with all the key metals now achieving records in 2006.

Tin was the last of the metals to reach a record price this year when three-month delivery contracts reached $11,000 per tonne yesterday. This was up 12 per cent on the opening price and up 20 per cent over the past three trading sessions.

Traders blamed supply problems in Indonesia for the rise. Indonesian police have moved to shut down smelters operating in the country without permits.

The number of tin suppliers is relatively small compared with other metals, so small disruptions can cause exaggerated price movements.

Stephen Briggs, an analyst at SociGale, said: This has be to be delayed reaction to what is happening in Indonesia. Clearly, tin has been in the background for months, but this fundamental news has shot it into the limelight and investors are getting their teeth into it.

Lead also hit a new high yesterday, reaching $1,542 per tonne before falling back to $1,530 later in trading. Nickel prices rose to $31,300 per tonne.

Soaring demand from China and limited new discoveries of many key metals has forced prices up significantly during 2006.

Other metal prices also rose yesterday, with aluminium up 1.5 per cent to $2,675 and copper up 3.6 per cent to $7,730.

Zinc closed up 3.4 per cent at $3,930, just $40 short of its record high set on May 11.

FT.com - October 17 2006

Profit taking hits base metals - By Chris Flood


Zinc and nickel hit new records on Tuesday but profit taking later in the session dragged base metals lower after strong gains in recent days.

Zinc fell 2.4 per cent to $3,865 a tonne after it hit a record $4,020 a tonne earlier in the session. Physical availability is seen as extremely tight, encouraging interest from hedge funds and other momentum players.

Nickel rose to a record $32,050 a tonne but was unable to hold on to its gains and retreated 1.4 per cent to $31,400 a tonne. Global stocks remain critically low and sentiment is being supported by Eramets decision to declare force majeure (a form of legal protection) on nickel deliveries to Asian customers after disruptions to supplies to the worlds largest ferronickel plant in New Caledonia.

Tin fell 9.1 per cent to $10,000 a tonne after it hit a record $11,000 on Monday.

Disruptions to supplies in Indonesia and Bolivia (which account for about 35 per cent of global tin mine output) could push the market into deficit. The Indonesian government has closed more than 20 small smelters that were operating without proper permits.

The threat by Evo Morales, Bolivias president, to nationalise the countrys mining industry may not be as severe as it first appeared. Bolivias vice-president ruled out expropriations and the governments plans involve gaining control of new developments only. However, after tin gained 20 per cent in the previous three sessions, a pause was not unexpected and traders said consolidating above $9,800 would provide a new support level.

Lead fell 2.4 per cent to $1,497.5 after it hit a record $1,545 in the previous session.

Copper hit $7,872.5 a tonne but retreated 1.6 per cent to $7,640 in spite of news that the Gresik smelter in Indonesia will halt production until mid-December.

Crude prices were choppy as the market awaited clarification about plans to cut production by 1m barrels a day by the Organisation of the Petroleum Exporting Countries. The cartel is due to hold a meeting in Qatar later this week to finalise its plans.

ICE December Brent fell 86 cents to $60.80 a barrel while Nymex November West Texas Intermediate lost $1.09 at $58.85 a barrel.

Oil had rallied in morning trade in London, supported by an Opec statement on Monday which noted that uncertainties about global economic prospects, particularly in the USA, slowing demand growth, rebounding non-Opec supply and high stock levels have triggered a strong bearish sentiment in the market.

Edward Meir of Man Financial said This strong statement may have led the market to conclude that the cartel was looking beyond this weeks cut and possibly towards a second one, perhaps imposed in December.

The cartel will hold an emergency meeting later this week in Qatar but still it remains unclear if the cut will be made from the current quota level of 28m barrels a day or actual output running closer to 27.5m barels a day.

Wheat prices in Chicago hit a fresh 10-year high at $5.56 a bushel before retreating 4⅓ cents to $5.37 a bushel amid ongoing concerns about low levels of global stocks and the impact of drought in Australia on supplies.

Gold fell 0.8 per cent to $587.90 a troy ounce in spite of rising geopolitical tensions over North Koreas nuclear plans.

Oct. 17 (Bloomberg)

Tin Prices Plunge 10% on Sales by Producers; Zinc, Copper Drop - By Chanyaporn Chanjaroen


Tin in London plunged a record 10 percent as producers locked in sales to take advantage of prices at the highest in at least 17 years. Zinc fell after reaching the highest ever, and copper declined.

Lower tin production expected this year at PT Timah, the world's largest producer, and clashes among miners in Bolivia sent prices soaring 13 percent yesterday to the highest since 1989 yesterday. The countries account for about 35 percent of global production, UBS AG said today in report.

``Producers are selling forward their production as prices are at a very high level,'' said Charles Swindon, managing director of RJH Trading Ltd. in London. Funds are also selling to realize gains after prices rose yesterday, he said.

Tin for delivery in three months plunged $1,100, or 10 percent, to $9,900 a metric ton at 5:01 p.m. on the London Metal Exchange. A close at that price would mark the largest percentage decline ever. Prices yesterday reached $11,000, the highest since at least 1989.

Demand for tin, used mostly in soldering electronic components, will lag behind production by around 5,000 tons this year, London-based GFMS Metals Consulting Ltd said. Expanding use in China, the world's largest consumer of the metal, will help boost global consumption 7 percent to 390,000 tons in 2006, GFMS data showed.

Tin prices swing widely because trading volumes are the lowest among the six industrial metals traded on the LME, said Nick Moore, a London-based analyst at ABN Amro Holding NV. Supplies will remain ``tight,'' he said.



Supplies `a Concern'

PT Timah will cut output this year by 8 percent to 38,407 tons, Thobrani Alwi, the company's president director, said yesterday. Mines in Bolivia, which account for about 5 percent of world supply, were damaged after fatal clashes between miners, the newspaper El Diario reported last week.

``Supplies remain a concern,'' said RJH Trading's Swindon, who bought the metal today after prices fell.

Zinc for delivery in three months dropped $95, or 2.4 percent, to $3,865 a ton after reaching a record $4,020 earlier. Prices of the dark gray metal, mostly used to galvanize steel, have more than doubled in the past year.

Inventories tracked by the LME dropped 1,325 tons, or 1 percent, to 127,400 tons today. Stockpiles have declined for 15 months to the equivalent of less than five days of global consumption. Demand will exceed production by 420,000 tons this year, Societe Generale said last week in a report.



Copper

Copper prices declined $123, or 1.6 percent, to $7,645 a ton in London. On the Comex division of the New York Mercantile Exchange, futures for December delivery fell 9 cents, or 2.5 percent, to $3.491 a pound.

Freeport-McMoRan Copper & Gold Inc. said today third-quarter output dropped 11 percent from a year earlier. BHP Billiton Ltd. owns Escondida, the world's largest copper mine. Freeport's Grasberg mine in Indonesia is the second-largest.

Mitsubishi Materials Corp. suspended operations at its smelting unit in Indonesia until the middle of December. It will lose 52,000 tons of output. The unit can produce 250,000 tons a year.

Oct. 17 (Bloomberg)

Gold Futures Fall in New York After Oil Prices Erase Gains - By Pham-Duy Nguyen


Gold in New York fell for the first time in five sessions after a drop in oil prices reduced the metal's appeal as a hedge against inflation.

The price of gold has followed oil this year. The metal has fallen 19 percent from a 26-year high partly as oil shed 25 percent from a record in July. Oil today traded above $60 a barrel before erasing gains. Gold is still up 14 percent this year.

``If oil is going to let up, that's going to help bring down the price of gold,'' said Mike Sander, a commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California.

Gold futures for December delivery fell $5 or 0.8 percent, to $593.50 an ounce on the Comex division of the New York Mercantile Exchange. Prices had gained 3.9 percent in the previous four sessions.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

Some investors buy gold when energy expenses climb. Gold futures reached a record $873 an ounce in January 1980 when oil costs doubled in a year, sparking a surge in the inflation rate.

Losses accelerated today after gold climbed above $600 and failed to make further gains, analysts said. Investors have placed orders to sell the metal around $600, said Marty McNeill, a gold trader at R.F. Lafferty Inc. in New York.



`Resistance' at $600

``Gold is backing off from $600,'' McNeill said. ``You have a lot of resistance at that level.''

Gold hasn't closed above $600 an ounce since Oct. 2.

``Gold came up to $600 and tested it but couldn't hold,'' Altavest's Sander said. ``That's a bearish sign for gold.''

Lower oil and gold prices are a buying opportunity, Marc Faber, founder and managing director of the investment firm Marc Faber Ltd. in Hong Kong, said at a conference in London.

``Gold and oil are in a buying range,'' said Faber, who told investors to bail out of U.S. stocks a week before the 1987 so-called Black Monday crash. ``I would buy gold at these levels. It's a good opportunity.''

Gold may also gain should tensions escalate with North Korea and investors buy the metal as a haven. South Korea said its northern neighbor may be preparing to test another nuclear bomb, after detonating one on Oct. 9.

``North Korea could become a big deal,'' said Frank McGhee, head metals trader at Integrated Borkerage Services Inc. in Chicago.

Silver for December delivery fell 13 cents, or 1.1 percent, to $11.78 an ounce. Palladium for December delivery dropped $4.95 or 1.5 percent, to $319.60 an ounce. Platinum for January delivery declined $8.30, or 0.8 percent, to $1,083 an ounce.

Oct. 18 (Bloomberg)

Copper in Shanghai Drops After U.S. Data Signals Slower Demand - By Xiaowei Li


Copper futures in Shanghai declined, paring yesterday's gain, after weaker-than-expected U.S. industrial production data signaled that demand for the metal used to make pipes and wires may fall.

The nation's industrial production fell 0.6 percent in September, the most in a year, the U.S. Federal Reserve said yesterday. The measure had been expected to fall 0.1 percent, according to the median estimate in a Bloomberg News survey of 61 economists. It was the first time in more than three years that production had fallen in consecutive months.

``The worse-than-expected US figures aside, we expected copper in Shanghai to correct downward from yesterday's highs,'' Li Xun, a trader at Shanghai Continent Futures Co., said today. ``We believe the falls so far are reasonable.''

Copper for December delivery dropped as much as 990 yuan, or 1.4 percent, to 71,280 yuan ($9,015) a metric ton on the Shanghai Futures Exchange.

Oct. 18 (Bloomberg)

Commodity Strategists: Iron Ore to Fall on China, Bank Says - By Helen Yuan


Iron ore prices may fall next year because of increasing output of the steelmaking raw material in China, according to China International Capital Corp., the nation's biggest investment bank.

Benchmark ore prices may fall as much as 5 percent in the year starting April 1, Luo Wei, senior associate at research department at China International in Shanghai, said in an interview. UBS AG said Sept. 25 prices will fall the same amount.

Contract prices for iron ore have risen for four straight years and gained 19 percent to a record this year as China almost doubled output of steel. The nation's increasing ore production may curb demand for imports and cut prices, Luo said.

``Global ore prices may fall marginally though Chinese demand remains strong,'' Luo said Oct. 13. ``Small producers will turn to domestic supplies if global prices continue to rise.''

Initial talks between Chinese steelmakers led by Baosteel Group Corp. and the world's largest iron ore producers including Cia. Vale do Rio Doce, BHP Billiton Ltd. and Rio Tinto Group start next month.

Luo, 33, has been tracking the steel industry for five years after covering the building material sector for four years. China International underwrote the sale of shares in Baosteel Group's publicly traded unit in 2000 and 2005.



Goldman Forecast

Luo's forecast contradicts Goldman Sachs JBWere Pty and Credit Suisse Group, who both said Chinese ore production is expensive and predicted a gain in prices. Goldman Sachs on Sept. 26 forecast a 10 percent rise and Credit Suisse in July predicted a 5 percent gain.

China's iron ore production rose 43 percent to 345 million metric tons in the first eight months, Bloomberg data showed. The ore imports increased 24 percent to 219 million tons during the period.

Roger Downey and Ivan Fadel with Credit Suisse said in a Sept. 27 note that domestic iron ore is sold at as high as $80 to $85 a metric ton, while benchmark annual ore sold from Australia costs $47 a ton before the costs of freight.

Iron ore imports held up at 23 Chinese ports were 42 million tons last week, up 39 percent from a year earlier, according to Mysteel.com. China accounted for 53 percent of iron ore sales for BHP in the year ended June 30, and 47 percent of Rio Tinto's sales for calendar 2005.

``The share of ore imports on the Chinese market is unlikely to increase,'' said Luo.

Chinese ore typically contains about 33 percent of iron, compared with 65 percent in Australian ore. China's efforts to mine more of the raw material may result in declining ore content, analysts have said.

Some 10 percent of the domestic production contains a little higher than 10 percent of iron, according to Zou Jian, chairman of the Metallurgical and Mining Association.

October 20, 2006 - ASSOCIATED PRESS

Commodities may sink even further - By Ellen Simon


Commodities had a miserable third quarter and many on Wall Street say they have further to fall. That theory was bolstered when oil prices recently sank to their lowest levels for the year.

If commodities prices do sink further, it will be bad news for emerging markets and the investors who have poured billions of dollars into them over the past three years.

Commodities prices tend to have a domino effect -- lower oil prices often drag down gold prices, for instance. And lower commodities prices tend to push down stocks in emerging markets such as Russia and Brazil, which have a rich supply of oil and metals, respectively.

While many emerging markets continue to be on a roll, if the commodity bears are right, there may be plenty of pain to spread around.

While investors pulled $263 million out of gold and natural resources funds for the week that ended Oct. 4, they still have $26.9 billion in the funds.

Stephen S. Roach, Morgan Stanley's chief economist, wrote that the tidal wave of money that has flowed in recently has transformed commodities markets from good economic indicators to an asset like any other -- susceptible to hysteria and bubbles.

"Just as return-hungry investors chased these markets on the upside, they could well run like lemmings to get out on the downside," Mr. Roach wrote.

Merrill Lynch & Co.'s chief investment strategist, Richard Bernstein, agreed, saying that cheap money and heavy borrowing inflated prices in commodities. Those prices are now 60 percent above what could be explained by fundamental supply and demand, he wrote earlier this month.

Other factors that pushed prices higher, such as the U.S. housing boom and the Chinese economy, could also drive prices lower.

The decline in home construction has already hit the lumber market, where prices recently dropped to five-year lows. Metals used in home building, such as copper, are also facing price pressure.

Mr. Roach argued that a downturn for U.S. consumers could slow business for Chinese producers.

Less use in the auto industry should affect steel, aluminum, glass and rubber demand, wrote Tobias Levkovich, Citigroup's chief U.S. strategist.

If the strategists are right, investors who have seen impressive run-ups in markets such as South Africa, up more than 25 percent year to date, might consider taking some money off the table -- and away from all the other dominoes.

Dow Jones Newswires - Friday, October 20, 2006

Signs High Nickel Prices Hurting Demand


Record nickel prices expected to remain supported for some time as LME stocks languish below 5,000-ton level; however, signs high prices beginning to hurt consumer demand, says Standard Bank. Reports China domestic nickel prices easing as smaller price-sensitive stainless steel plants cut orders; China consumes 15% of world's nickel "but this figure will likely come under pressure should prices continue to remain at their current levels." LME 3-month last at $31,750/ton, unchanged vs London PM kerb, within reach of this week's $32,050 all-time high.

Dow Jones Newswires - Friday, October 20, 2006

Gold At Risk Of Further Shakeout - Analyst


Gold at risk of another bout of liquidation as market struggles to find sufficient upside traction, says Bullion Desk's James Moore; spot last at $588.90/oz, down just 30 cents vs NY close as players await more oil cues from upcoming OPEC meeting. However, Moore says further shakeout of stale bulls necessary to draw fresh investor strength. Pegs tough resistance at $600-$608, support $585 then $576.

Dow Jones Newswires - Friday, October 20, 2006

Copper prices to fall below $7000/t


Analysts at JP Morgan expect copper prices to fall below the $7000/t mark going ahead.

In a research note published this morning, the analysts mention that the weakening US auto, housing and IP data could exert pressure on copper prices. The LME inventory statistics for copper may be misleading, since fund investors are clearing out excess inventories, the analysts add. JP Morgan expects the supply of copper to rise by 7.1% in 2007.

Oct. 20 (Bloomberg)

Copper May Fall Next Week on Signs China, U.S. Demand Slowing - By Chanyaporn Chanjaroen


Copper may drop next week on signs that demand for the metal is slowing in China and the U.S., the world's largest consumers of the metal.

Consumption of copper in China declined in the eight months to August, the Ware, England-based World Bureau of Metals Statistics said Oct. 18. U.S. industrial production fell 0.6 percent in September, the most in a year, the U.S. Federal Reserve said Oct. 17. Demand for base metals including copper moves in line with industrial activity.

Seven of 13 analysts, investors and traders surveyed by Bloomberg yesterday and Oct. 18 forecast copper will decline next week. Five expected a gain and one little change.

``We are becoming increasingly concerned with what we see as a manufacturing slowdown,'' said Mark Lewon, vice president for operations at Utah Metal Works Inc. in Salt Lake City. ``I look for lower copper prices soon.''

Copper for delivery in three months on the LME rose $39, or 0.5 percent, to $7,699 a metric ton as of 6:27 a.m. local time. It has risen 3.2 percent this week.

On the Comex division of the New York Mercantile Exchange, copper for December delivery rose 50 cents, or 0.1 percent, to $3.5145 a pound in after-hours electronic trading. Copper for December delivery on the Shanghai Futures Exchange increased 0.2 percent to 71,720 yuan ($9,075) a ton. Chinese prices include 17 percent tax and 2 percent duty.

The decline in U.S. industrial output was larger than the expected drop of 0.1 percent, the median estimate in a Bloomberg survey of 61 economists. It was the first time in more than three years that production had fallen in consecutive months.



Global Oversupply

``Some industrial metals could still correct,'' Marc Faber, founder and managing director of investment company Marc Faber Ltd. in Hong Kong, said Oct. 17. Copper has dropped almost 13 percent from a record $8,800 on May 11.

The decline in China's demand for copper triggered a global oversupply of 88,000 tons from January through August, the WBMS said. European demand jumped 17 percent.

A decline in copper prices may be partially mitigated by lower production. Freeport-McMoRan Copper & Gold Inc. said Oct. 17 that third-quarter output dropped 11 percent from a year earlier. Freeport's Grasberg mine in Indonesia is the world's second-largest copper mine.

Mitsubishi Materials Corp. suspended operations at its smelting unit in Indonesia until the middle of December. It will lose 52,000 tons of output, about a fifth of annual production.

Oct. 20 (Bloomberg)

Shanghai Copper Stockpiles Rise for Second Week on Tax Changes - By Xiao Yu


Copper stockpiles in Shanghai rose for a second week as demand for the metal declined after China ended export-tariff rebates on refined copper and some products.

Deliverable stockpiles of the metal gained 570 tons to 36,665 tons this week, based on a survey of six warehouses in Shanghai, the exchange said today. Stockpiles have risen 9 percent in the past two weeks, according to Bloomberg data.

``Copper demand was hurt after China removed tax rebates on exports of refined copper and some copper products,'' said Li Ling, a Shanghai-based trader at Star Futures Co. The changes had eroded processors' profit margins, Li said.

China, the world's biggest copper user, ended export-tariff rebates on refined copper and some products, and cut the rebate to 5 percent from 13 percent for copper tubes, five ministries said Sept. 15. It also reduced rebates on some other metals, steel and textiles. Copper is used to make pipes and wires.

``Rising stockpiles imply slowing demand for the metals, which is reasonable as the low season is coming,'' Wu Bowen, a trader of Shanghai Jinpeng Futures Co., said today.

Aluminum stockpiles rose 1,047 tons to 38,121 tons, based on a survey of 11 warehouses in Shanghai, Guangdong and Wuxi, the exchange said in a statement on its Web site.

Dai Oldenrich - Good articles from good sources, just thought I'd say thanks for a very good thread. I read it even if others don't.

Oct. 21 - (Bloomberg)

Gold Falls From Two-Week High on Speculation Rally Was Overdone - By Pham-Duy Nguyen


Gold fell in New York for the third day this week as some investors bet the rally to $600 an ounce yesterday was overdone.

Gold closed above $600 yesterday for the first time since Oct. 2. Speculative long positions, or bets that prices will rise, are at the lowest this year. The metal is down 18 percent from a 26-year high of $732 in mid-May.

``The speculative interest at $600 is rather cautious,'' said Stephen Platt, a commodity analyst at Archer Financial Services Inc. in Chicago. ``You've seen the fund business migrate to other markets and away from the metals.''

Gold futures for December delivery fell $5.80, or 1 percent, to $596.70 an ounce at 10:46 a.m. on the Comex division of the New York Mercantile Exchange. Prices are still up 0.7 percent for the week and 15 percent for the year.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

Hedge-fund managers and other large speculators decreased their net-long position in Comex gold futures in the week ended Oct. 10, according to Commodity Futures Trading Commission data.

Speculative long positions outnumbered short positions by 62,449 contracts on the Comex, down 10 percent from a week earlier, the Washington-based commission said Oct. 13.

``There's a minor amount of profit taking,'' said Frank McGhee, head metals trader at Integrated Borkerage Services Inc. in Chicago. ``You've got some investors selling after yesterday's $10 run.''



Lower Energy Costs

Gold's losses accelerated after oil fell, erasing earlier gains. The price of gold has followed oil this year, gaining as much as 39 percent as oil climbed to a record in July. Oil fell below $59 a barrel on skepticism that members of the Organization of Petroleum Exporting Countries will cut production by 1.2 million barrels a day.

OPEC members announced the cuts yesterday to stem a 25 percent decline in prices over the past three months.

``Oil remains a factor in the gold market,'' said Platt of Archer. ``The OPEC reaction is a little disappointing. The market seems nonplused by the move by OPEC.''

Some investors buy gold when energy expenses climb. Gold futures reached a record $873 an ounce in January 1980 when oil costs doubled in a year, sparking a surge in the inflation rate.

Oct. 21 - (Bloomberg)

Copper Falls on Signs U.S. Demand May Slow, Chile Labor Talks - By Dale Crofts


Copper prices fell on speculation that slower economic growth will force manufacturers and builders to buy less metal.

Caterpillar Inc., the world's largest maker of earthmoving machines, said sales of equipment such as bulldozers won't meet expectations as a housing slump triggers slower economic growth. The average U.S. home contains about 400 pounds of copper, which has dropped 14 percent from a record high in May.

``The Caterpillar earnings were further affirmation of the housing slowdown and that is weighing on copper,'' said Michael Pento, a senior market strategist at Delta Global Advisors Inc. in Huntington Beach, California. ``People think we are going into this beautiful soft landing, but I'm not convinced.''

Copper for delivery in December fell 4.75 cents, or 1.4 percent, to $3.462 a pound on the Comex division of the New York Mercantile Exchange. Prices rose 1.4 percent for the week, the second straight gain, and are up 93 percent from a year ago.

Copper for delivery in three months on the London Metal Exchange dropped $100, or 1.3 percent, to $7,560 a metric ton, leaving copper up 1.4 percent for the week, the first weekly gain in four.

Caterpillar, which gets more than half its sales in the U.S., forecast revenue growth of 13 percent in 2006, instead of a previous goal of 12 percent to 15 percent. Profit will be $5.05 to $5.30 a share, down from its earlier estimate of $5.25 to $5.50.



Chile Labor Talks

Prices also fell on speculation Codelco, the world's biggest copper producer, may avoid a strike at Chuquicamata, its largest mine.

Codelco probably will present labor leaders at Chuquicamata with a wage offer at a meeting Oct. 23, a union director said. Union leaders will meet for the first time with management to discuss wage negotiations, Hector Roco, a director on the mine's largest union, said today by telephone.

Codelco's success in renewing labor contracts at the Northern division and Andina ``will remove quite a big bullish factor from the market,'' Robin Bhar, an analyst at UBS Ltd. In London, said today by phone.

The Sunday Times - October 22, 2006

Peruvian to join London's band of mining tycoons - Grant Ringshaw


A SOUTH American mining tycoon is to become the latest foreign businessman to cash in on the natural-resources boom by listing his company on the London Stock Exchange.

Eduardo Hochschild, executive chairman and controlling shareholder in the Peruvian gold and silver miner Hochschild Mining, will see his personal fortune valued at $1.6 billion (850m) by next months London debut.

Hochschild, the worlds fourth-largest producer of silver, is planning to raise $500m from the float, valuing the firm at about $2 billion. The business is 80% owned by Eduardo Hochschild. Alberto Beeck, another executive director, has a 17.6% stake.

Roberto Danino, a former prime minister of Peru and general counsel for the World Bank, is also an executive director with a 1.5% stake.

After the float, Eduardo Hochschilds stake is expected to fall to about 60%. His decision to list the companys shares on the London Stock Exchange (LSE) will be seen as another victory for London over its arch-rival New York.

The LSE and the New York Stock Exchange have been engaged in a bitter battle to attract the flotations of foreign companies.

However, New York has suffered because of the onerous requirements of the Sarbanes-Oxley Act and the risk from class-action lawsuits in America.

A host of foreign mining and metal companies are planning to come to London. These include Severstal, the giant Russian steelmaker, and Chelyabinsk Zinc, Russias largest zinc producer.

The Peruvian group is the worlds fourth-largest producer of silver and has significant interests in gold mining. Last year, Hochschild produced 10.5m ounces of silver and 233,000 ounces of gold. The groups profits are split evenly between production of these two precious metals.

Hochschild owns three mines in Peru. It also has two advanced projects in Peru and Argentina. A further two projects in Mexico are in their early stages. It has about 25 long-term development projects in Latin America in total.

Hochschild is a specialist in deep-vein underground mines, as opposed to many gold and silver mining rivals that operate open-cast mines. Deep-vein mines are typically more profitable, with Hochschilds margins running at about 50%.

The Peruvian mining giant is aiming to use the funds raised from the flotation to develop its existing projects. The group has set itself a target of doubling its combined gold and silver production by 2011 through organic growth.

However, Hochschild is also understood to be looking at a series of joint ventures and acquisitions worth between $150m and $250m each.

Hochschild was set up by Mauricio Hochschild, a German immigrant, in Chile in 1911 as a base-metals company.

After the second world war the group expanded into Bolivia and Peru. By the 1960s it had become one of the worlds largest mining groups, similar in size to Rio Tinto. However, in 1984, the South American operations were sold to Anglo American.

In the same year, Hochschild bought Anglos Peruvian interests, creating the foundations of the present group.

Hochschild is managed by an executive committee, led by Eduardo Hochschild. But the group is expected to appoint a chief executive after the flotation. The board also includes Sir Malcolm Field, a former chief executive of WH Smith, the high-street retailer.

Hochschild executives are due to meet potential investors this week.

The float is being handled by the investment banks JP Morgan Cazenove and Goldman Sachs.

MUMBAI - Oct 23 - (Reuters) -

India to let private firms run coal mines-report


India will allow private mining firms, including foreign ones, to enter the coal mining sector next month to help increase energy supplies in the country, the Economic Times newspaper reported on Monday.

Only power, steel and cement firms are currently allowed to own coal mines, which they operate jointly with mining firms. The new rules will allow mining firms to own and run mines, the paper said, citing unnamed sources in the coal and law ministries.

The newspaper said mining companies, including BHP Billiton, Rio Tinto and Sesa Goa, would soon be able to gain rights to mine and operate coal mines in India, boosting production.

"We are now in the final stages of drafting guidelines for allowing captive coal block allocation to private-sector mining companies too. This is expected to be notified by the month-end or in early November," the report quoted a government source as saying.

The government will invite bids from mining companies after the new policy is announced, the report said.

Oct. 23 (Bloomberg)

Copper Declines in Shanghai on Signs of Slowing Demand in China - By Xiaowei Li


Copper futures in Shanghai fell on concern demand for the metal used in pipes and wires is slowing in China, the world's largest consumer.

Consumption of copper in China declined in the eight months to August, the Ware, England-based World Bureau of Metals Statistics said Oct. 18. There is little sign demand for the metal is picking up in recent months, Wang Zheng, an analyst at Shanghai Continent Futures Co. said.

``Current demand for the metal, as shown by orders from users, is weaker than we expected,'' Wang said today.

Copper for delivery in December fell as much as 850 yuan, or 1.2 percent, to 70,820 yuan ($8,966) a metric ton on the Shanghai Futures Exchange, and traded at 71,160 yuan at the market's midday break.



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TAIPEI - Oct 23 - (Reuters)

Shanghai copper down in quiet trade; LME ticks up - By Richard Dobson


Shanghai copper futures softened on Monday despite firmer London prices, as quiet turnover and relatively high prices kept speculators and investors at the sidelines.

Copper on the Shanghai Futures Exchange moved lower on Monday, with the most active December contract closed the morning session down 340 yuan, or 0.5 percent, at 71,160 yuan a tonne from Friday's close of 71,500 yuan.

"Speculators abandoned the Shanghai copper market due to small-scale movement, while hedgers quit the market because of mounting prices. Thus the trading volume is very light," said Li Rong, analyst at Great Wall Futures in Shanghai.

Oct. 23 - (Bloomberg)

Housing in U.S. Poised to Worsen, Derivatives Show - By Darrell Hassler and Hamish Risk


The slumping U.S. housing market is about to get a lot worse, according to traders of mortgage-backed securities and the so-called derivatives on which they are based.

The ABX index, which measures the risk of owning bonds backed by home-loans to people with poor credit, rose 30 percent since Aug. 9 to the highest since January. There are more than $500 billion of such notes outstanding.

The increase in the index shows traders expect mortgage delinquencies and foreclosures to increase at a time when the number of homes for sale as measured by the National Association of Realtors is at a 13-year high. The percentage of home-loan payments more than 60 days delinquent rose to 7.23 percent in July from 5.9 percent a year earlier, the fastest rate of increase since 1998, Moody's Investors Service said Oct. 17.

``Delinquency trends and home prices'' show a weakening real estate market, said Scott Eichel, head of credit trading for New York-based Bear Stearns & Co., the biggest underwriter of bonds backed by mortgages. ``A lot of investors that have concerns about the housing market'' are using the ABX index to speculate on a continued drop, he said.

Sales of new and existing homes probably will drop 9.4 percent to 6.76 million in 2006 from a record last year, McLean, Virginia-based mortgage buyer Freddie Mac said Oct. 10. Home sales have risen the past five years.



ABX Index

The ABX index, created by London-based Markit Group Ltd., measures the cost, or spread, of credit-default swaps based on the $565 billion of bonds secured by so-called subprime mortgages and home-equity loans. Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on the ability of borrowers to repay debt. An increase in the spread indicates deterioration in the perception of credit quality; a decline suggests improvement.

The index tracks 20 asset-backed securities that contain loans rated BBB-, the lowest level of investment grade debt. Based on the index, it costs an investor $267,000 to protect $10 million of bonds against default for five years, up from $205,000 in August. The investor would get face value for the bonds in exchange for the securities should a borrower fail to adhere to the debt agreements.



`Unequivocally Bad'

``The unequivocally bad housing data we've seen'' is prompting investors to seek to profit from potential declines in mortgage-backed securities, said Greg Lippmann, the head of asset-backed trading at Deutsche Bank AG in New York who helped create the ABX indexes in January.

Contracts covering $5 billion of home-loan debt change hands daily, he said. Derivatives are contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or the weather.

The housing boom spawned new types of mortgages that allowed consumers to buy homes they may not have been able to afford otherwise.

About 18 percent of all mortgages issued in the first half of the year were to borrowers considered most likely to default, such as those with high credit-card balances, up from 2.4 percent in 1998, based on data from the Mortgage Bankers Association. The Washington-based trade group's 2,700 members represent 70 percent of the home-loan business.

The amount of bonds backed by subprime loans more than doubled since 2001, according to the Bond Market Association, a New York-based trade group of more than 200 securities firms.



Worst Month

A Merrill Lynch & Co. index of debt securities derived from home-equity loans rated AA to BBB is having its worst month this year, falling 0.01 percent. They have returned 4.54 percent since the end of December. Banks and lenders such as Countrywide Financial Corp. in Calabasas, California, and Washington Mutual Inc. of Seattle typically take mortgages and package them into bonds for sale to investors. The bonds are then divided into pieces of varying risk.

All asset-backed securities, which also includes loans packaged from credit-card and student debt, have returned 4.27 percent this year on average.

More borrowers are finding it harder to meet interest payments following 17 interest-rate increases by the Federal Reserve since mid-2004.

The default rate for subprime loans rose to 7.35 percent in July from 5.51 percent a year earlier, according to investment bank Friedman Billings Ramsey Group Inc. in Arlington Virginia.

Nine percent of all subprime loans made in 2006 may default within five years, the worst performance since at least 1998, Glenn Schultz, head of asset-backed securities at Charlotte, North Carolina-based Wachovia Corp., said in an Oct. 17 report.



`More Visibility'

``People have a little more visibility on the slowdown than they did two or three months ago,'' said Andrew Chow, who manages $5.5 billion of asset-backed securities and credit-default swaps at Seneca Capital Management in San Francisco.

Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, forecasts the housing slump will cause the economy to slow and force the Fed to lower interest rates to 4.5 percent next year. The central bank's target for overnight loans between banks is 5.25 percent. Pimco is a unit of Munich-based Allianz SE.

The National Association of Home Builders/Wells Fargo said on Oct. 17 that its index of builder confidence this month rose to 31 from 30 in September, the first increase in a year.

Housing starts in September rose to an annual rate of 1.772 million from a 1.674 million pace in August, the Commerce Department in Washington said Oct. 18. The median estimate of 61 economists surveyed by Bloomberg News was for a decline to an annual rate of 1.64 million.



Falling Prices

Even with the gains, the National Association of Realtors this month predicted prices of new homes may fall for the first time in 15 years. The trade group on Oct. 11 estimates that the median price of a new U.S. home probably will drop 0.2 percent to $240,500. The inventory of homes on the market rose to a record 3.92 million, the group said Sept. 25.

Most credit-default swap trading is in securities rated BBB or BBB- because they are the most volatile and have the greatest chance to be profitable, said Jack McCleary, head of asset-backed trading for UBS AG in New York.

Subprime mortgages with those credit ratings historically have had losses of about 5 percent of the loan value, McCleary said. Some investors are betting that losses may increase to 12 to 14 percent in the next three years, which could exponentially increase value of credit-default swaps, he said.

``In effect, it's a lottery ticket,'' he said.