i wish it would start again now!!!

Gold Prices Plunge in Asia as Investors Expect Higher Rates, Rising Dollar

June 14 (Bloomberg) -- Gold in Asia plunged to its lowest in three months on concern the U.S. Federal Reserve may keep raising rates to contain inflation, reducing the precious metal's appeal as an investment. Silver also declined.

Gold for immediate delivery posted its steepest one-day decline in 23 years yesterday as a report showed U.S. producer prices rose the most in three months in May. The rising cost of gasoline propelled U.S. consumer prices higher last month, economists expect a report today to show.

``We can see funds coming out of gold in a hurry,'' said Ramaswamy Iyer, chief executive officer at Mumbai-based Brics Commodities Pvt. ``Gold will likely continue falling until people are reassured there are no more rate hikes.''

Gold for immediate delivery fell as much as $19.60 an ounce, or 3.5 percent, to $542.45 an ounce. The metal traded at $552.25 at 3:26 p.m. Sydney time.

Spot gold fell 7 percent yesterday, the steepest one-day percentage decline since February 28, 1983. Gold futures in New York fell 7.3 percent, the most in 15 years.

The Labor Department's consumer price index probably climbed 0.4 percent in May due to higher gasoline prices, according to a survey. U.S. interest-rate futures show traders are pricing in about an 86 percent chance the Fed will push its key rate to 5.25 percent at its next meeting on June 28-29, up from 72 percent on May 31.

``People are increasingly pessimistic about the interest rate outlook,'' said Darren Heathcote, head of trading at N.M. Rothschild and Sons (Australia) Ltd., in Sydney.

Higher rates boost the dollar's appeal and the return on assets such as bonds, and increase costs for investors borrowing funds to buy gold.

Silver, Zinc, Copper

Spot gold has fallen 25 percent since touching a 26-year high of $730.40 on May 12. Other metals including silver, zinc, and copper have also dropped in the past month on concern higher interest rates will slow global economic growth and hurt demand for raw materials.

Silver for immediate delivery fell as much as 11 cents, or 1.2 percent, to $9.48 an ounce today. The metal traded at $9.59 at 3:25 p.m. Sydney time.

Gold for August delivery fell as much as $20.40, or 3.6 percent, to $546.40 an ounce in after-hours trade on the Comex division of the New York Mercantile Exchange. The contract traded at $556.50 at 3:26 p.m. Sydney time.

``It's hard to predict, for now, when and where prices of gold will find a near-term floor,'' Tsuyoshi Furukawa, a commodity strategist at Taiheiyo Bussan Co., said in Tokyo. ``In just one month, gold dived below $600 from prices in the $700s in May.''

In India, the world's biggest gold consumer, gold prices for August delivery fell 161 rupees, or 1.9 percent, to 8,407 rupees per 10 grams, or 26,145 rupees ($569) per ounce, at 10:42 a.m. on the Multi Commodity Exchange of India Ltd. in Mumbai.

China's import of copper falls 23 percent
Last Updated(Beijing Time):2006-06-14 10:16

China's import of copper and copper related products came to 821,465 tons in the first five months of this year, down 23 percent from the same period a year earlier.

This was attributed to the country's macro-control policy on the sector, which came into effect late last year, Shanghai Securities News said Tuesday.

Copper prices, which were higher on the international market than the domestic market, also dampened the enthusiasm of importers and speculators, the paper quoted Hu Bin, an analyst of Zhejiang Yong'an Futures Company as saying.

Hu said copper importers were losing 5,000-6,000 yuan (625-750 U.S. dollars) per ton due to the price gap.

Spurred by surging copper prices and high profit, Chinese copper enterprises have been expanding smelting capacity since 2003.

The expansion has resulted in excessive production capacity, experts said, warning that the rapid growth of copper smelting could leave domestic raw materials in short supply.

In the late 2005, five ministries, including the National Development and Reform Commission and the Ministry of Finance, jointly published a circular restricting investment in copper smelting.

It is expected that China's copper output will grow over 8 percent to around 2.8 million tons in 2006. In the first four months this year, China's refined copper output grew 26.7 percent to 937,000 tons.

Do your own research but metals are about to bounce upwards. A really good value stock right now is Central African Mining (CFM). Excellent value with a ton of upside.

DJ Comex Copper Review: Bounces On Short Covering

DOW JONES NEWSWIRES


Short covering enabled copper futures to post a bounce Wednesday following a
heavy sell-off in this and other metals on Tuesday, traders reported. Much of
the activity was said to be in the spreads.

The most-active July copper contract rose 4.55 cents to settle at $3.0560 per
pound on the Comex division of the New York Mercantile Exchange. On Tuesday,
the contract had lost 21.80 cents.

September copper added 2.30 cents to $2.9800.

"We got some short covering after the rout that we've seen as of late," said
Scott Meyers, senior trading analyst with Pioneer Futures.

This was encouraged when the July futures held right around the $3 area both
Tuesday and Wednesday, forming a double bottom at least for now.

"That's a psychological support level," Meyers said. "But if they take out
$3, there could be another 10 to 15 cents on the downside. So it's a critical
level."

A floor trader reported that much of the activity was in the July-September
spread as traders begin the rollover, although there has also been some
July-August.

"Other than that, the ring was a little long early," he said. "They rallied
it up. Then there was short covering afterward with continued fund-type buying.
Other than that, it's been quiet."

Still another trader said Comex copper was underpinned after metal found
"good scaled-down buying" in activity on the London Metal Exchange.

Inventories of copper in London Metal Exchange warehouses fell 950 metric
tons Wednesday, leaving them at 104,550 metric tons. The most recent Comex
stocks data, released late Tuesday afternoon, were unchanged at 8,842 short
tons.

Copper Rebounds on Speculation Drop Was Exaggerated (Correct)

(Corrects industrial production in second paragraph.)

June 14 (Bloomberg) -- Copper rose for the first day in five in London, leading other metals such as aluminum and zinc higher on speculation an earlier decline was exaggerated.

China, the largest consumer of metals including copper and aluminum, said today its industrial production rose 17.9 percent in May, the biggest gain in two years. Metals fell yesterday on concern that rising global interest rates may curb economic growth and the demand for industrial raw materials.

``Nothing goes in a straight line,'' said Jeremy Goldwyn, global head of industrial commodities at Sucden U.K. Plc in London. ``We would expect pockets of corrections and support.''

Copper for delivery in three months on the LME rose as much as $155, or 2.4 percent, to $6,725 a metric ton, after earlier falling as much as 2.4 percent. The metal traded at $6,685 as of 8:58 a.m. London time.

Zinc rose $40, or 1.4 percent, to $3,000 a ton, nickel gained $325 to $17,850 and aluminum added $11 to $2,466. Tin was unchanged at $7,700 and lead dropped $10 to $985.

Metals - Copper gains as inflationary concerns offset by strong fundamentals

LONDON, Jun 17, 2006 (XFN-ASIA via COMTEX) -- Copper turned higher, after trading lower earlier in the session, as concerns over inflation were offset by China's move to hike banks' deposit reserve ratio requirements in a bid to curb liquidity-fuelled lending and surging investments.

At 4.04 pm in London, LME copper for 3-month delivery touched 7,035 usd a tonne -- up 40 usd from yesterday's close -- while 3-month LME zinc was up 15 usd at 3,090 usd and 3-month nickel was up 150 usd at 19,050 usd.

In a widely anticipated move, the People's Bank of China (PBoC) said today it will raise the required deposit reserve ratio of commercial banks by half a percentage point from July 5.

The move marked the latest in a series of measures designed to stem a rising tide of liquidity-fuelled bank lending, which has seen investments surging.

Barclays Capital analyst Kevin Norrish said the move "represents a degree of credit tightening" on the part of the PBoC and that although it was widely anticipated, traders were surprised by how quickly it happened.

He said commodities gained on the news because it essentially showed that what Chinese policy makers were responding to was "stronger-than-expected growth".

"To our mind this is positive for commodities in the sense that it means commodity demand is stronger than expected (so) its not a reason to go short but rather a sign of fundamental strength of the sector," he said.

Other analysts pointed out that even if the move serves to cool China's appetite for commodities near term, it could act as a brake on global inflation in the process.

"If anything, I would emphasis the positive ... It might keep global inflation tame," said Julian Jessop, an economist at Capital Economics in London.

Most global commodities have suffered heavy losses over the past month, prompted by fears that central banks may hike interest rates to combat rising inflation, thereby crimping growth and demand.

"We anticipate current nervous conditions and volatile price action to persist in the near term as market participants focus on inflationary fears, monetary policy tightening and risks to growth," said Norrish.

He added, however, that with "workers at Chile's Esconida copper mine voting on a package of contract demands on Sunday, this remains a market that few will want to be short in." maytaal.angel@afxnews.com ma/jsa

Daily Telegraph. By Malcolm Moore in Rome (Filed: 17/06/2006)


Record copper prices power China's blackmarket demand for hot metal


The recent record price of copper has led to a spate of robberies in Italy and Western Europe, as gangs of thieves seek to sell the metal to China on the black market.

In the past six months at least 10 major copper robberies have been foiled by Italian investigators. The latest was on Tuesday, when Naples police uncovered a criminal ring that had stolen 175 tonnes of copper wiring, worth as much as 1m (682,000), and were about to ship it to China.

Five men were arrested, and a further 17 are under investigation. Police added that the network of copper smugglers included companies at the port in Salerno, as well as shipping and container businesses.

Although the price of copper has fallen in the past few weeks, the commodity has spiked over the past two-and-a-half years thanks to an incessant thirst for copper wiring from Chinese manufacturers.

The global stockpile of copper has been depleted to only three days of current production, and since January 2004 the price of the metal has risen from just over $2,000 (1,080) a tonne to a recent peak of almost $9,000. On the black market, a tonne of copper now sells for as much as $5,000.

Police in Naples found thieves were stealing copper wiring from the construction site of a high-speed rail link between Rome and Naples. Since much of Italy's rail network is electrified, thieves have persistently targeted railway stations.

Two men were recently arrested in the southern city of Catanzaro for stripping wire from a railway station. In the Piedmont and the Aosta Valley, police have arrested 11 people in the past month. The value of the copper they had stolen was about 3m. In March, police in Brescia recovered a similar amount of copper in nine anti-fraud operations.

"The phenomenon was restricted to a few places, but with the rise in price, it is much more widespread," said Claudio Di Cani, head of the Italian Association of Non-Ferrous Metal Producers and Smelters.

Copper gangs are also at work in Germany, France, Sweden and Ireland. In France, repair work on the TGV rail lines is now under police guard. In Scotland last week, 40,000 of copper was stolen from a building site at Edinburgh University.

Church roofs have been targeted, and in Kansas, the Apostolic Church of Jesus had the copper stolen from its air-conditioning system.

Copper Rises for 3rd Day on Speculation Metal Demand Won't Slow

June 16 (Bloomberg) -- Copper rose for the third straight day on speculation that a decline in prices this month, the biggest since May 1999, was exaggerated because economic growth may sustain metals demand.

Copper in New York has plunged more than 12 percent this month, leading a drop in industrial metals as central banks raised interest rates to rein in inflation. Federal Reserve Chairman Ben S. Bernanke, who on June 5 pledged to fight U.S. inflation, said yesterday that the world's biggest economy can withstand rising energy costs.

``What Bernanke said helped the mood'' of copper traders by signaling the Fed's inflation fighting won't kill economic growth, said Edward Meir, a commodity analyst at Man Financial Ltd. in Darien, Connecticut. ``His whole tone was a little bit more muted.''

Copper for September delivery rose 5.35 cents, or 1.7 percent, to $3.185 a pound at 12:36 p.m. on the Comex division of the New York Mercantile Exchange. A close at that price would leave copper down 2.5 percent for the week. The metal reached a record $4.04 on May 11. A futures contract is an obligation to sell or to buy a commodity at a fixed price for a specific delivery date.

On the London Metal Exchange, copper for delivery in three months rose $25, or 0.4 percent, to $7,020 a metric ton, after rising as much as 1.9 percent. Prices have more than doubled in the past year.

Reduced Inventories

Inventory in Comex-monitored warehouses fell 8.3 percent to 7,929 short tons yesterday, the biggest decline since April 3. The New York Mercantile Exchange said yesterday it will reduce the limit of outstanding copper contracts traders can hold in the spot month by 30 percent to 175 contracts as warehouse inventory fell to almost a five-month low.

The change, beginning with the June 2006 contract, will be effective at the close of business today. Stockpiles in LME warehouses have fallen 85 percent in the past three years.

``The fundamentals remain very, very strong,'' said James Koppel, managing director at SG Commodities Group, a New York- based trading unit of France's Societe Generale SA. ``You take a look at the LME stock and they are still very, very low.''

Consumer confidence in the U.S., the world's second-largest copper user after China, unexpectedly rose for the first time in three months in June. The University of Michigan's preliminary index of consumer sentiment rose to 82.4 this month from the final May reading of 79.1.

The measure has averaged 88.1 since monthly data were first compiled in 1978. Economists expected the Michigan gauge to fall to 79, based on the median of 60 forecasts in a Bloomberg survey.

Copper, aluminum hold value on world market

Jun 18, 2006 (The Paducah Sun - Knight Ridder/Tribune Business News via COMTEX)

While they aren't "precious" by Wall Street standards, industrial metals such as copper and aluminum have exploded in cost over the past year for similar reasons as gold, silver and platinum.

Yet prices have dropped in the last month because of fears that higher interest rates will slow world economic growth and hurt demand for raw materials. Copper declined more last week than it had in a decade, reminding investors just how volatile the commodities market can be.

Previously, copper prices had almost tripled since early 2005 with demand for many metals shooting up worldwide, especially in rapidly expanding nations like China.

Because scrap copper is totally recyclable, greed fostered enough thievery that the Kentucky Public Service Commission warned May 31 that stealing copper electrical wire can have lethal consequences.

PSC Chairman David Guess said there had been at least three electrocution deaths since March associated with the theft or removal of electric wire. He was backed by representatives of the Kentucky Association of Electric Cooperatives and five power companies including Kentucky Utilities, which has customers in western Kentucky.

"Certainly the amount of money one can gain from copper theft does not compare to the value of his or her life," said Bob Shurtlett, safety and health manager for American Electric/Kentucky Power.

Thieves in Metropolis, Ill., either didn't hear or heed the warning. Sheriff's deputies say copper wire stolen earlier this month from utility poles of the Southern Illinois Electric Co-op may be the work of people driving sport utility vehicles with "Pole Inspector" printed on the sides. Co-op officials say the SUVs aren't theirs.

News reports around the country echo the increased thefts of industrial metals. Aluminum products have been targeted for months as they moved toward an 18-year high.

In December, two Gilbertsville men were jailed on charges of stealing items including aluminum stripped from a pontoon boat on Kentucky Lake. Sheriff's deputies said the men admitted taking the aluminum to a recycling facility.

Peddler trade at recycling firm Tri-State Industrial Services on Moody Road off Cairo Road has increased by about 50 percent in the last six months with escalating metal prices. About 40 percent of Tri-State's business is from people who collect and drop off materials, and 60 percent is commercial.

Aside from foreign demand, particularly in Asia, domestic demand for industrial metal also has increased with a manufacturing surge, Tri-State Controller David Crowell said. "Everything metal-related is pretty hot, and the market looks good."

Even with the recent plunges, both copper and aluminum prices are historically high. Tri-State was paying $2.15 a pound Friday for top-quality copper.

"The normal price for copper has been 80 cents to $1 a pound during the 15 years I've been here," Crowell said.

He said aluminum, which typically sells for 35 to 45 cents a pound, recently has brought 55 cents.

Despite rising prices, theft hasn't been a problem at Tri-State.

However, Crowell recalls a visit earlier this year to an old, 10-acre munitions plant in Jeffersonville, Ind., where a man was electrocuted when he inadvertently grabbed a hot line while trying to steal copper wire.

Copper Drops in London as Investors Sell Metal on Interest Rate Concerns

June 19 (Bloomberg) -- Copper dropped in London as investors sold the metal on speculation the U.S. Federal Reserve will raise interest rates, slowing economic growth and crimping demand for metals. Nickel, aluminum and zinc also fell.

Fed Bank of Atlanta President Jack Guynn will speak today on the U.S. economic outlook after Fed Governor Donald Kohn on June 16 said accelerating inflation may fuel inflation expectations. That prompted investors to increase bets the Fed will increase rates on June 29, slowing economic growth and demand for copper, used to make cables and wires.

Copper for delivery in three months on the London Metal Exchange slid $183, or 2.6 percent, to $6,797 a metric ton as of 12:04 p.m. local time. The metal has dropped 21 percent from a May 11 record of $8,800.

It's ``a reaction to a range of economic news that's causing people some concern about the demand growth outlook,'' said Adam Rowley, an analyst in London at Macquarie Bank Ltd.

The dollar today rose to an eight-week high against the yen, and climbed against the euro, on speculation stronger growth will prompt the Fed to raise interest rates twice more this year.

Central banks in Europe, India and South Korea 11 days ago raised rates to curb inflation.

Among other LME metals, nickel dropped $390, or 2 percent, to $18,800 a ton, aluminum declined $73, or 2.9 percent, to $2,492 and zinc fell $95, or 3.1 percent, to $2,980.

The declines contributed to a drop in commodity indexes that track a selection of metals and other commodities. The Goldman Sachs Commodity Index fell 1.3 percent to 463.37.

Commodity Indexes

Funds that use commodity indexes as a benchmark buy and sell the underlying commodities. The money managed by those funds will rise 38 percent this year to $110 billion, according to Barclays Capital.

The metals ``tend to be moving together,'' said Jon Bergtheil, head of global metals strategy at JPMorgan Chase & Co. in London. ``The lack of performance that oil is generating'' also contributed to declines in metals as investors cut commodity holdings, Bergtheil said.

Oil fell below $70 a barrel in New York on concern the U.S. will raise interest rates. Crude for July delivery fell as much as 74 cents, or 1.1 percent, to $69.21 a barrel in after-hours trading on the New York Mercantile Exchange.

Copper also fell on speculation that China's demand for the metal may fall after the government ordered banks to increase capital reserves to help curb an investment boom. The country is the world's biggest copper user.

Cooling Growth

The People's Bank of China raised the required reserve ratio for commercial lenders by 0.5 percentage point on June 16.

``This measure may have some impact on consumption, as metal buyers find it harder to secure loans,'' said Yuan Fang, a metals trader at Shanghai Dongya Futures Co. The Chinese central bank said today it will curb loans and investment.

Hedge-fund managers and other large speculators decreased their net-short position in New York copper futures, or bets prices will drop, in the week ended Jun. 13, according to U.S. Commodity Futures Trading Commission data.

Speculative short positions, or bets prices will fall, outnumbered long positions by 5,656 contracts on the Comex division of the New York Mercantile Exchange, the Washington- based commission said in its Commitments of Traders report. Net- short positions fell by 1,646 contracts, or 23 percent, from a week earlier.

Metals - Copper sharply lower on strong dollar, Chinese moves to slow economy

LONDON, Jun 20, 2006 (XFN-ASIA via COMTEX) -- Copper prices were sharply lower, under pressure from a strong US dollar and moves by top consumer China to slow its booming economy by raising bank reserve requirements.

At 4.42 pm, LME copper for 3-month delivery down 255 usd at 6975 usd a tonne, while 3-month LME zinc was up 50 usd at 3,020 usd and 3-month nickel was up 250 usd at 18,850 usd.

"While supply and fundamentals remain intact, the decision by China's central bank (has) exerted some downward pressure on prices," said Barclays Capital analyst Kevin Norrish.

The People's Bank of China decided on Friday to raise the required deposit reserve ratio of commercial banks by half a percentage point, in a bid to stem liquidity-fuelled lending and surging investments.

Jeremy Goldwyn, global head of industrial base metals at Sucden, said traders were concerned the move will impact domestic demand for industrial metals in China.

He added that China aside, base metals were also being pressured by lower oil prices and by a stronger US dollar.

The dollar, which hit an 8-week high against the yen in Asian trade, is being boosted by expectations the Federal Reserve will raise interest rates again at its June 29 meeting, in a bid to curb inflation.

Tuesday June 20, 06:56 AM

FTSE 100 set to fall

LONDON (Reuters) - Blue chip stocks are expected to fall 20-25 points in early Tuesday trade, financial bookmakers predict, erasing most of Monday's rise when the index closed at 5,626.1 points.

Weaker equity markets in the U.S. and Asia could weigh on investor sentiment in Europe, dealers say, with only British Energy (LSE: BGY.L - news) among FTSE 100 (news) companies delivering results.

"With relatively little on the economic or corporate calendars, it's difficult to see where any real upside may come from," said Matthew Buckland, a trader at CMC Markets.

Lower commodity prices could dent the market, with stocks such as miner Rio Tinto (LSE: RIO.L - news) falling in Australian trade as fears about economic growth in the U.S. and China hurt copper prices and a stronger dollar knocks the cost of gold.

"With little economic data this week the market is likely to yo-yo along as its mood changes daily," said Oliver Stevens, a trader at IG Index.

20 June 2006
Copper slightly down after erratic session: LME

Source: Dow Jones

London Metal Exchange copper ended slightly lower Tuesday after an erratic trading session with limited trading interest.

Three-month prices drifted lower on bearish technical indicators in the pre-market session after touching an intraday high of $6,870 a metric ton.

Analysts forecast a fall to the next major support level at $6,200/ton but trade buying helped prevent further falls until the afternoon, when prices reversed down in illiquid trade in response to a stronger dollar against the euro.

Source: FN Arena News 21 June 2006

Putting the bull/bear base metal argument into perspective


Uncertainty is the mother of volatility and recent volatility in base metal markets (and subsequently in resources stocks) only goes to prove there is little consensus of opinion on the "where to from here?" question. Even if opinions are held one way or another, they are clearly on stand-by to be reversed at a moment's notice.

Merrill Lynch analysts have sought to tackle this debate by at least offering up some scenarios and ascribing their own levels of perceived probability to each. As to whether this will comfort befuddled investors is another matter. It comes down to whether or not you like the odds.

Firstly, let's look at the bull side of things the positive indicators of upside in metal prices.

Has the supply/demand situation really changed at all? From about two years ago, resources analysts were entertaining the idea of a super cycle but continuing to warn of a reversion in prices at least towards a longer term average. Debate then ensued as to whether we had made a secular jump such that a new average price would be established, higher than the previous long term average, or whether markets would revert to the mean just as they always have.

Driving the demand side, of course, was China certainly a new player on the block. But ever since every resource analyst had been in short pants, or pigtails, metals markets had moved in cycles. What goes up must come down. The cyclical basis is that mining and smelting are time-consuming and costly ventures that cannot be approached flippantly. If you're going to invest a lot of time and money into production, you'd want to be confident prices are attainable to economically justify your venture.

Before China took off, prices were low too low. For years they were too low, so for years metal production and associated infrastructure investment was neglected. When China did take off, there was a rapid realisation that the supply side was inadequate, and that things had better happen fast.

The usual, historical response to rising metal prices is subsequent investment in the supply-side, which leads to supply eventually catching up to demand after a lag. During the lag, prices keep rising until balance is reached, and then they fall back again as supply outweighs demand. After a lap of the board we have come back to "Go".

Slowly but surely, analysts came to realise two important aspects of the China story.
(1) Demand was astronomical far greater than initially forecast. (2) Supply was going to take a helluva lot longer to catch up than would normally be the case. Not only were there not enough mines and smelters, there weren't enough ports, ships, trains, trucks, railway lines and even qualified people to restore a demand/supply balance in a hurry. The super cycle theory was cemented, and the time frame was stretched out to distant years. Analysts were forced to acknowledge a new world.

In 2005-06 a new problem emerged on the supply side hold ups. If you drive things to hard too fast they tend to break down and need to be fixed. If you become all optimistic about the production capabilities of your new mine chances are you're in for disappointment. And if you make too much money from mining, it won't be long until your lowly workers start exercising collective power in order to participate in the spoils as well.

Shut-downs and strikes have beset the metals markets, and while shutdowns are hard to predict, strikes are sure to continue as large mines across the world hit predetermined wage negotiation points over the next year or more. The supply side will continue to be restrained.

Metal inventories are still at 10-year lows. Restocking has been occurring lately, which takes metal out of the consumable market and into a hoarding phase. This phase is, however, expected to end soon after what Merrill Lynch describes as "an aggressive six months".

Now consider the demand side. It is a logical assumption that prices cannot go up ad infinitum, and that eventually demand will drop when the marginal benefit of acquiring a commodity is less than the price required to be paid. Analysts have been predicting a slowing of Chinese demand for a while now, but signs of a slowdown have been few. It's not that hard to consider why this is the case. As China's economic development continues, that which the Western world takes for granted becomes affordable to more and more of China's masses. Phones, computers, fridges, cars, houses.

Take cars as an example. There are presently 14 million cars in China. That figure is expected to double in four years. Add trucks, buses et al, and there should be 55 million cars on the road by 2010. How much metal goes into a car? (Let's not worry about oil or pollution at this point). How much copper goes into wiring a fridge, a building, or a telecommunications system? It is hard to contemplate there being anything other than ongoing demand coming out of China, and its cohorts, India, Russia, Brazil.

Such are the demand and supply "fundamentals". Now, turning to the bear argument, consider the negative indicators.

The world is concerned about inflation. Metals prices have gone up, so the price of anything made from metal has gone up. The oil price has gone up, and this is the most fundamental factor behind inflation fear. Higher oil/energy prices simply mean higher prices for everything, from petrol to plastics to food transported across countries or oceans.

Inflation has been slow to appear. Everyone has been expecting a sudden jump in inflation, but to date there has been an offsetting factor. As China has become the production centre of the world, low wages and high productivity have meant the price of many household goods, from clothes to computers to cars, have fallen.

While inflation appeared to be under control, central banks were not in a hurry to raise interest rates and jeopardise economic growth. From the US to Europe to Japan. This meant capital was cheap, and this allowed investment in assets producing a healthy return such as metals. The US was the first major economic power out of the blocks to raise rates, and just when everyone thought the tightening phase was over, Ben Bernanke came along to scare everyone into believing it wasn't.

Supporting Bernanke's strategy were US inflation data, particularly the CPI that set the whole market correction ball rolling.

Now central banks across the world are raising rates. Europe is into the swing of it, Japan has rediscovered the need for it, and even China has succumbed to the inevitable. What do higher global rates mean?

Firstly, a credit scare if easy money is no longer easy then speculative investments like metals are no longer as attractive. Time to get out. Secondly, a slowdown in global economic growth, including growth in the world's largest economy (US) and fastest growing (China). If investment capital costs more, investments will not be entered into at the same pace. Business confidence falls (as it has already) and demand falls as a result. If demand falls, prices fall.

China has been publicly discussing the need to slow its economy. The hard part is slowing it without killing it off. But China's commodity consumption is out of control, and the growth of its industry is so frenetic that it can only end in tears. There just cannot be so many steelmakers, for example, before there's just too much steel.

China is trying to avoid a "hard landing", but either way, some slowing is required. This works against further astronomic surges in commodity prices.

Weighing up the bull and bear arguments, Merrill Lynch has come up with three scenarios.

(1) The "Peak Bull Case". We overcome the present correction/slowdown in about six month's time. Global growth then rebounds in 2007 and we're back on track, with demand continuing to run above supply and supply being constrained by ongoing interruptions. Metal prices surge to new highs.

(2) The "Bull Trend Case". We overcome the present correction/slowdown in about six month's time and growth returns in 2007, albeit at a more subdued pace, some 1.00-1.25% below levels experienced in 2006. G7 economies are softer and although inventories are tight, destocking keeps a rein on things.

(3) The "Bear Case". We've had our fun and now it's all over. We won't see such highs in metal prices again. Demand will begin to disappoint and supply will begin to catch up. Prices will start heading back to those aforementioned long term averages.

Which do you see transpiring? Merrills ascribes a 10% probability to the Peak Bull Case, a 60% probability to the Bull Trend Case, and a 30% probability to the Bear Case. If this seems like an each-way bet to some extent then think about it this way: it's highly unlikely we'll see the same level of upside pandemonium again, but a healthy bull trend is twice as likely as a depressing bear trend.

Merrills believes in 2-3 more months of pain. By pain we're talking volatility, and the only way for volatility to be shaken out of the market is for prices to fall further to levels where benched investors begin to feel comfortable about returning back to the game. Within 6-12 months the bull trend will have re-emerged, provided China can slow its economy gently. If not, the bear case will increase in likelihood.

From the resources stock perspective, Merrills is tipping another 10-20% downside, driven by further falls in metal prices towards "reasonable" levels. Diversified resources stocks will suffer less, pure-plays will suffer more.

For Australian pin-up stocks this means further falls of around 10% for the giants BHP Billiton (BHP) and Rio Tinto (RIO) moving out to 12% for the likes of Alumina Ltd (AWC), and 20-30% for the Zinifexes (ZFX) of this world.

Merrills advice is if you're long pure-play stocks (and they're not major takeover targets), be prepared to wear 20% downside or get out now. If you're long diversifieds, best to hang on, and perhaps build at lower levels. If you're underweight resources altogether, wait. You will have a better buying opportunity soon.

If you want something to buy now, Merrills suggests the bulk commodities, steel and uranium. As BHP and Rio are the big bulks, and they're set for a fall, iron ore fans may need to look elsewhere. Coal-wise, Merrills likes Excel (EXL) and suggests the outlook for thermal coal remains robust for three years. ERA (ERA) looks cheap in the uranium stakes

Commodities rebound as risk appetite returns

By Kevin Morrison

Published: June 22 2006 18:21

Commodity markets started briskly with strong gains across the board in a sign that investors had regained their risk appetite.

However, towards the end of Thursday, most of the gains had turned into declines or pared gains in the case of oil.

In London, IPE Brent futures for August delivery gained 41 cents to $69.58 a barrel in late afternoon trade, off its intra-day peak of $70.01.

August West Texas Intermediate added 22 cents to $70.55 a barrel in late morning trade on the New York Mercantile Exchange. Oil prices have been boosted by the weekly US inventory report, that showed that petrol stockpiles had not risen by as much as expected. This in turn fuelled concern over tight supplies this summer when US petrol demand peaks.

However, gold prices dropped from their intra-day high of $594.80 a troy ounce to $584.40/$585.40 in late London trade, down almost $5 on the day. The market ignored positive comments from a Chinese central bank official, who said China should convert some of its foreign exchange reserves, the worlds largest, into gold to hedge against the dollars weakness.

Converting part of foreign exchange reserves into gold reserves would help protect and increase the value of reserve assets, said the article written by Luo Bin, an official with the central banks accounting and finance department, and Zhao Qingming, an economist at the banks institute of finance and banking.

The authors, writing in the May edition of the Chinamoney magazine, said buying more gold with foreign exchange reserves, at a record $875.1bn at the end of March, would help ease upward pressure on the renminbi.

Copper prices rose by more than 5 per cent at one stage to more than $7,000 a tonne yesterday, before succumbing to a bout of profit-taking that dragged prices down by more than $130 to $6,677 a tonne on the London Metal Exchange. Copper in LME registered warehouses extended their fall to critically low levels.

Robin Bhar, base metals strategist at UBS, said copper stocks held in the warehouses of other metal exchanges were similarly very low. The combined copper stocks of the three exchanges, LME, Comex and Shanghai Futures Exchange currently total 168,000 tonnes compared with about 800,000 at the end of 2003.

Mr Bhar said the current total equates to just under four days of global copper consumption and although there are stocks held by producers, merchants and consumers, exchange stocks are reported on a daily basis and are highly visible to the market.

It comes of little surprise then why copper prices continue to remain very high - there is little or no buffer against unexpected supply problems, of which there has been many this year, with consumers scrambling to restock amid strong demand, he said.

Market report: Thursday close
Mickey Clark, Evening Standard
22 June 2006

A COMMODITIES-fuelled rally and a strong performance by Wall Street overnight led share prices in London to high ground today.

Mining shares and oil companies were to the fore again as the FTSE 100 index climbed back above 5700, sporting a lead of 19.1 points at 5684.1. The price of crude oil on the world market rose back above $70 a barrel, reflecting growing tension over Iran and North Korea.

The price of raw materials such as copper and gold was also up sharply, with copper supplies threatened by a proposed strike in Chile.

22 June 2006. Source: Dow Jones

Chile Escondida receives union demands for pay increase


Chilean mining company Minera Escondida Ltda. Thursday said it has received the draft of a collective bargaining agreement from its workers.

The BHP Billiton (BHP) mine "has received a draft collective agreement, prepared by Labor Union No. 1 as part of the normal renegotiation process," it said in a press release.

"We will review the draft agreement and are committed to reaching an agreement which is of mutual benefit to both our employees and our business," it added.

The sole union at Chilean copper mine Escondida seeks a 13% pay increase and a $29,299-per-person bonus, the union said Wednesday.

The 2,055 miners that make up the union and represent 97% of union- eligible workers at the mine argue that the city of Antofagasta is the second most expensive in the country and that their wages must be adjusted accordingly.

The bonus sought as the sum of a copper-price bonus and the end-of-conflict bonus miners usually receive after successfully completing negotiations represents 5.4% of Escondida's first-quarter profits, the union said in a statement.

The company has 15 days to respond, according to local labor laws. Contracts expire Aug. 2.

In their previous contract negotiations in 2003, when copper prices averaged $0.66 a pound, Escondida workers obtained a 1.5% wage increase.

Copper prices have soared since mid-2003, with periodic labor disputes contributing to price spikes. Traders in London said the union's tough talk contributed to price gains in copper in Thursday trading early. LME copper ended at $3.19 per pound, according to data published by Chile's government copper commission.

While an Escondida strike would be about two months away, the union doesn't rule out striking sooner if the company disregards their petition.

According to Chilean labor laws, a strike could only start after the contracts expire. The law also allows for two five-day mediation periods after the contract expiration date to avert a possible strike.

Escondida is the world's largest privately owned copper mine. It produced 1,271,472 metric tons of copper last year, as well as 182,472 ounces of gold.

BHP Billiton owns 57.5% of the mine, with 30% owned by Anglo-Australian company Rio Tinto PLC (RTP), 10% owned by a Mitsubishi-led Japanese consortium, and 2.5% owned by the International Finance Corp.

Fri Jun 23, 2006 - By Martin Hayes

Nickel set for further strength as LME stocks fall


LONDON, June 23 (Reuters) - Nickel prices are near May's record highs and look set to remain strong through to next year in a tightly supplied market.

On the London Metal Exchange (LME), three months prices were around $19,500 a tonne on Friday, steady from Thursday levels and against a peak of $23,000 a month ago.

The market is tight, with LME warehouse stocks at their lowest since September 2005 and the cash/threes benchmark backwardation at $880/930, near 13-month peaks of $1,000 a tonne.


Although this acute tightness is set to ease in the coming months, the market is still heading for a significant supply/demand deficit this year, analysts said.

"We went from a situation last year when the market was in surplus, as stainless-steel producers cut production, to where we will see a large deficit as demand is strong," Adam Rowley of Macquarie Bank said.

"We are going to see a large deficit of around 16,000 tonnes this year," he said.

Annual production and consumption is in the region of 1.2-1.3 million tonnes.

Nickel's main end-use is in the manufacture of stainless steel -- some two-thirds of annual consumption -- and this sector has been bright recently, traders said.

"There has been a lot of physical business over the last few weeks, a lot has been booked out to the Far East," a trader said.

The market was also enboldened by bullish comments on Thursday by Canada's Inco Ltd. (N.TO: Quote, Profile, Research). Peter Goudie, Inco's vice-president of marketing, said he expected the market to be very tight for several years as demand outstripped limited supply growth.

LME warehouse stocks have been spiralling lower from February's six-year highs of 36,822 tonnes and now stand at just 12,588 tonnes, the lowest since September 2005.

When cancelled warrants are taken out of the equation -- metal that is earmarked for removal -- just 8,712 tonnes are freely available.

This has meant nearby tightness, with the key daily premium for TOM/next (tomorrow/next day) -- belated business against the previous day's cash -- hitting $50 as large long positions are in place.

Latest LME data show one long accounts for between 30 and 40 percent of physical warrants and cash and another for 50-80 percent, meaning backwardation-limit restrictions have come into play.

"That (tightness) is probably going to ease off now. The cancelled warrants will come out, but we are expecting more stock in the next two or three weeks," the trader said.

More metal will be shipped by Russia's Norilsk Nickel (GMKN.RTS: Quote, Profile, Research) as it has begun loading the first cargo ships at its main export outlet, the Arctic port of Dudinka, which has reopened after a seasonal halt, traders noted.

Norilsk interrupts loadings of nickel, copper and cobalt bound for export markets and concentrate for its refineries on the northwestern Kola peninsula at the end of May, when ice breaks up on the Yenisey river where Dudinka is located.

Source: MarketWatch. - 23 June 2006

Gold closes higher; gains 1.1% on the week


Gold futures closed higher Friday and gained 1.1% on the week, as traders shrugged off dollar strength to focus on the yellow metal's longer-term outlook as a hedge against inflation and global political instability

After declining for most of the day, gold for August delivery reversed course shortly before the close to finish up $2.60 at $588.0 an ounce on the New York Mercantile Exchange. The contract ended at $581.70 a week ago.

Gold had dropped as low as $574.5 on Friday under pressure from the rallying dollar, which surged to two-month peaks against the euro and yen on Friday. The U.S. currency gained strength from market expectations the Federal Reserve will raise rates again next week.

Other metals prices were mixed. July silver added 7.50 cents to $10.285 an ounce and July copper was up 10.50 cents at $3.2405. July platinum dropped $9.20 at $1,166.9 an ounce and September palladium was down $4.10 at $309.80 an ounce.

After suffering considerable short to intermediate technical damage, gold is most likely going to have a broad trading range of $525-$625 through the summer doldrums," said Peter Grandich, editor of the Grandich Letter. "The long-term secular bull market remains intact and a new yearly high above $736 before year-end is still in the cards."

Deutsche Bank also recommended building long gold exposure, although it's bearish on gold and silver in the short term.

"The latest U.S. capital flow data reveal a further improvement in the country's modified basic balance," said analyst Michael Lewis in a note to investors Friday. "This offers a summer of U.S. dollar strength and with it further downside in the gold price. Even so we remain long-term gold bulls."

The metal is still an attractive hedge against "U.S. weakness, inflation shocks and skittish equity market conditions over the coming year," Lewis said.

Supply-demand fundamentals and investment influences are the factors affecting the gold market and both are supportive of gold, said Alan Heap, a Citigroup analyst based in Sydney.

"Mine production is constrained," Heap said. "It is expected to increase by only 2% this year. Demand has been affected by the high prices but will likely recover, as jewelry manufacturers stocks are depleted, even if prices remain high." The economic environment, particularly the inflation risks and global political tensions, also favor gold, Heap said.

At its meeting next week, the Federal Open Market Committee is expected to increase U.S. interest rates to 5.25% in its 17th consecutive rate hike.

"It [the expected Fed rate hike] is discounted into financial markets, but that does not mean there will not be a response on the day," Heap said.

James Moore of TheBullionDesk.com said that gold's performance in the next few days will be closely related to the movement of the dollar ahead of the FOMC decision on interest rates.

"For the moment $550-600 should offer a broad trading parameter although developments in the U.S./Iran and U.S./North Korea nuclear argument still have the potential to trigger a break out," Moore said.

Earlier in the week, North Korea was reported to be preparing to test launch a missile and Iran said it will only reply to a U.N. incentives package to dissuade it from enriching uranium only by mid-August, disregarding U.S. calls for a quicker response.

On the supply side, gold inventories were unchanged at 8.03 million troy ounces as of late Thursday, according to Nymex data. Silver supplies rose by 22,815 troy ounces to 104.6 million.

Copper fell by 64 short tons to 7,417.