Commodities tipped to collapse

[BSD]

Not having posted for a bit, excuse me while I make a few rambling and random points

_____________________________________________________________

http://www.kitco.com/ind/charnock/nov242006.html

This guy reiterates a couple of points made in the last month on this board:

"China has apparently been supplying copper to the LME to cool prices..."

"This is a new market force however they cannot keep this price management up for long, there is a real economic pressure from their demand pull inflation so they try to “manage” the situation as best they can under difficult circumstances. "

Prices even at this current level are very profitable for many companies which will continue to earn huge profits and bolster balance sheets. This will cause continuation of the rally, a bumpy ride with wonderful investment potential for experienced traders who thrive in times of volatility.

Interesting is the mention of increased use of scrap copper - a one off opportunity and another sign of the scope of the movement of the supply curve for copper.
____________________________________________________

I trade equities, my bull case is for equities alone.

I do not need/expect prices to continue upward vertically - I dont even need them to go up. Sustained prices would be marvellous.

My argument is premised on base metals and energy continuing to beat the bearish analysts forecasts for prices in the next three years.

The existing valuations for the majors and many of the mids and emerging players are premised on the 'collapse' of prices.

Cu $2.50 next year and $1.20 long term
Zn $1.60 next year and $1.10 long term
Al $1.10 next year and $0.85 long term
etc, etc, etc

If you will, I am a "relative metals bull" and will be the happiest bull in town if copper sustains a price above $2.50 for the next three-five years.

_________________________________________________________

Duc

You will need to do better to convince me of the overvaluation and lack of quality in the balance sheets and operational performance of the majors.

You note that BHP and RIO carry $9bn and $4bn of debt respectively.

You should also note that forecast free cashflow from BHP for this year (after investing in new projects) is well in excess of $9bn.

A value punter like yourself should get excited at the ROEs and ROAs at multiples of any other companies trading at 9 times next year earnings wth no debt.

Note that these numbers are predicated on earnings based on already bearish metals prices

Copper could fall as you expect and you could still be holding BHP and making heaps

I ask again - what are your calander average 07, 08 and long term Copper price estimates?

We can leave the other metals for now

You cannot value BHP, RIO or Phelps Dodge without having formulated these.

I use $2.90 07, $2.50 08 and $1.40 long term and feel very conservative in doing so - despite the upside in valuations of copper players such numbers offer
________________________________________________________

I would say that there is a gen...Copper Iron Ore Oil Nickel Shorts: USD

 

[rederob]

Dr Doom
I am only a small part player in your "consensus" view on the role of the US, unless the US were to have a hard landing.
I would have similar concerns if either Japan or Europe were to fall sharply.
And if the pace of growth were to substantially decline in China, I would liquidate my positions very quickly - much more quickly than my concerns over the US.

BSD
I believe your long term valuations of copper are off the mark (low) principally because the cost of production has now increased to such a level that there is no "margin" in $1.40 and producers would be mostly going backwards.
Those that do not follow the fundamentals are generally unaware that "head grades" (that is the percentage of payable metal in a given quantity) have declined substantially, on average, in recent years. In other words, most of the "best" copper mines have been mined out, and high quality new finds are few and far between.

 

[BSD]

I believe your long term valuations of copper are off the mark (low) principally because the cost of production has now increased to such a level that there is no "margin" in $1.40 and producers would be mostly going backwards.

Those that do not follow the fundamentals are generally unaware that "head grades" (that is the percentage of payable metal in a given quantity) have declined substantially, on average, in recent years.

In other words, most of the "best" copper mines have been mined out, and high quality new finds are few and far between.

I totally agree.

But 90% of investment banks are still using a long term Cu number below mine.

It has taken 2 years for them to get to $1.20 long term.

They are playing catch-up and just being a little ahead of them is still offering massive upside

 

[wayneL]

Just a frivolous interlude in this very good discussion to post this cartoon... I just had to post it somewhere

 

[Dr Doom]

BSD - "You will find many economists who do not care anymore about CADs. Too many have hung their hat on an assumption that did not prove true for three decades and many have given up worrying."

Amazing how 3 decades coincides with the demise of that barbarous relic, the gold standard. Who's to say that what we have been living with since 1971 is one enormous capitalist experiment that nobody knows for sure how it will end and continues to defy accepted economic theories. For example, is it ok to add liquidity to a financial system in excess of that needed to expand through proportionate advances in productivity?. Is it ok to allow that liquidity to go into areas that do not contribute to the productive capacity of a country, rather than into creating speculative bubbles?. Is it ok to live beyond your means, that is, to spend more than you earn?. Is it ok to buy more from other countries than you sell to other countries?.

If you answer yes to all of the above then there is a high probability that sometime soon that one of those so called economic theories will be proven right in a big way, that is someone or some country is going to ask you to start living within your means, paying back your debts or going bankrupt.

Applying these questions at a national level, how does the US stack up?. If the US was a company would you invest in it?

Who's to say that the 36 year experiment in central banking irresponsibility won't come home to roost in a big way a la depression.

BSD - "People losing their shirts on residential property in a few states in the US is noise. It is not something to worry the long term trend."

This is concerning if this is what you think of the US housing market. The facts are out there, all pointing to a sizable downturn in this market, and all of the flow-on domino effects down the line. The downturn that was once thought to have been confined to the residential market is now showing up in other sectors of construction. This is not noise, it is a secular contraction in the latest bubble financed with excess US dollars.

How this plays out will have the biggest impact on commodities, maybe even breaking some of the commodity cycle theories that dictate the lifespan of commodity cycles in decades. On the one hand saying economic theories have been thrown out the door while saying that in the past commodity cycles usually run for many years.

The bottom line - the world is flooded with various currencies and derivative products. Together they make what seems to be unlimited continuance of our current lifestyles & bullmarket bubbles. The bursting of the US housing bubble may just be the X factor that brings rationality to the exuberance.

 

[Sean K]

BSD - "You will find many economists who do not care anymore about CADs. Too many have hung their hat on an assumption that did not prove true for three decades and many have given up worrying."

Amazing how 3 decades coincides with the demise of that barbarous relic, the gold standard. Who's to say that what we have been living with since 1971 is one enormous capitalist experiment that nobody knows for sure how it will end and continues to defy accepted economic theories. For example, is it ok to add liquidity to a financial system in excess of that needed to expand through proportionate advances in productivity?. Is it ok to allow that liquidity to go into areas that do not contribute to the productive capacity of a country, rather than into creating speculative bubbles?. Is it ok to live beyond your means, that is, to spend more than you earn?. Is it ok to buy more from other countries than you sell to other countries?.

If you answer yes to all of the above then there is a high probability that sometime soon that one of those so called economic theories will be proven right in a big way, that is someone or some country is going to ask you to start living within your means, paying back your debts or going bankrupt.

Applying these questions at a national level, how does the US stack up?. If the US was a company would you invest in it?

Who's to say that the 36 year experiment in central banking irresponsibility won't come home to roost in a big way a la depression.

BSD - "People losing their shirts on residential property in a few states in the US is noise. It is not something to worry the long term trend."

This is concerning if this is what you think of the US housing market. The facts are out there, all pointing to a sizable downturn in this market, and all of the flow-on domino effects down the line. The downturn that was once thought to have been confined to the residential market is now showing up in other sectors of construction. This is not noise, it is a secular contraction in the latest bubble financed with excess US dollars.

How this plays out will have the biggest impact on commodities, maybe even breaking some of the commodity cycle theories that dictate the lifespan of commodity cycles in decades. On the one hand saying economic theories have been thrown out the door while saying that in the past commodity cycles usually run for many years.

The bottom line - the world is flooded with various currencies and derivative products. Together they make what seems to be unlimited continuance of our current lifestyles & bullmarket bubbles. The bursting of the US housing bubble may just be the X factor that brings rationality to the exuberance.

Doom, what's your take on gold with the possibility of recession/depression triggered by US housing collapse? I'm a gold bull but only because of theories, research and knowledge that someone like yourself has articulated. The reports I have read leading from your premise all point to very bullish cases for gold. However, you are calling it a relic? Or, are you talking about something else there? Cheers.

 

[wayneL]

For interest and FWIW, since backwardation was mentioned in this thread, here is a post regarding the same from another forum.

For consumption commodities people are willing to pay more to consume today than consume sometime in the future, that's pretty natural unless there's an abundance and big inventories etc. Especially if the commodity is non-storable (power), or there's a shortage of storage (natgas in the uk), people will pay up since they need to consume it now. If you're not tight on supply this will change though. If you for example in the summer get a lot of rain and melting water in a country with a lot of hydro power you can get more power than you need (assume you can't export to other regions), so close month power is dirt cheap, but there's no reason for next winter to have these conditions so you'll switch to contango in the front of the curve, but most likely remain in backwardation behind the range of impact of the current conditions.

Another example could be a shiping firm that needs fuel oil for operating its ships. If they have obligations to send a ship from Rotterdam to Singapore next week it's not a great idea to sell fuel oil inventory and buy futures delivering next month. Even though you may make good money it's not going to get your ship to asia, and you'll have to pay damages and will lose customers if doing it repetedly.

Another factor at play here is transportation - the harder it is to transport the more you appreciate actually having it available in your warehouse.

Expectations about future prices are definitly part of the picture as well. Going back to power as an example the curve will definitly react if someone comes and says he's building a new 3000MW nuke that goes online in 3y. That's a lot of supply coming to the market so the curve out after 3y will most likely move down (but not the front). Another example would be if someone came and said they had a gigantic gas storage facility that will be finished in 2y - that would definitly smooth out the seasonality in the gas forward curve.

 

[noirua]

Doom, what's your take on gold with the possibility of recession/depression triggered by US housing collapse? I'm a gold bull but only because of theories, research and knowledge that someone like yourself has articulated. The reports I have read leading from your premise all point to very bullish cases for gold. However, you are calling it a relic? Or, are you talking about something else there? Cheers.

The US property market is in recession but the falling value of the greenback will benefit the US as imports become more expensive and exports cheaper. I expect a fairly quick reversal of the property and associated markets.

 

[Sean K]

The US property market is in recession but the falling value of the greenback will benefit the US as imports become more expensive and exports cheaper. I expect a fairly quick reversal of the property and associated markets.

So, you're in the soft landing camp Noirua?

 

[wayneL]

The US property market is in recession but the falling value of the greenback will benefit the US as imports become more expensive and exports cheaper. I expect a fairly quick reversal of the property and associated markets.

Noirua,

I'm interested in your connection here with the USD and the RE market.

It seems a tenuous connection when the reasons for the RE tankage are not currency related, but rather value/debt related. Can you expand on your reasoning?

Thanks

 

[chops_a_must]

So, you're in the soft landing camp Noirua?

Aren't commercial developments on the rise?

How much of the negative figures are the result of massive population losses from areas like Detroit and Pittsburgh?

 

[GreatPig]

Worth having a read of John Mauldin's latest newsletter : The Recession of 2007. You may need to register an email address to access the article.

A couple of quotes:

And while the economic data is not a total disaster, it has not been good this week. Yet the response of investors everywhere is defiance, or at the very least serious nonchalance.

Recession possibilities? "What recession? I spit on your talk of recession." They continue to assume that things will turn out much better than merely OK. All manner of investments are priced for perfection, perfection being defined as growth slowing enough to take out inflation risk yet not enough to hurt the ever upward rise of corporate profits. Goldilocks is the name of the game.

The stock market did close down somewhat today, yet as trading came to the end of the session, it rose over 100 points from its low of the previous few hours. All you can do is just marvel at the amazing capacity of investors to embrace risk in the face of this week's economic data, which we will look at in some detail today.

But if I am right, the stock market is going to be under considerable pressure next year. The average drop of the markets is about 40% before and in a recession. There are reasons to think it will not drop that much this time, but it is hard to imagine it not dropping by some significant amount. Dow 9,000 is a real possibility, if not probability. Yet the market is unconcerned, with volatility as measured by the VIX at close to all-time lows.

Cheers,
GP

 

[Dr Doom]

Doom, what's your take on gold with the possibility of recession/depression triggered by US housing collapse? I'm a gold bull but only because of theories, research and knowledge that someone like yourself has articulated. The reports I have read leading from your premise all point to very bullish cases for gold. However, you are calling it a relic? Or, are you talking about something else there? Cheers.

kennas,
From my research the term 'barbarous relic' was used to describe 'the gold standard' as it was known from the early part of the 20th century, not gold itself.
In my view the only real reason why gold should be 'valuable' is as a reference to everything else that is 'perceived' to be of 'value', nothing more. Gold should be basically nothing more than a commodity and with a responsibly administered 'fiat ' monetary system should never have a currency value.

The trouble is that very few central banks are responsible enough to stick to the rules and start to make new ones (like fractional-reserve banking), leading to a devaluation of current currency.

Gold therefore becomes, by default, the one item of exchangeable value that cannot be created out thin air so to speak, and so becomes a form of international exchange - a currency. And because the gold market is so small when compared to other stores of value then it's not hard to see how future values for gold are predicted to have 4 digits.

For me gold is just a means to an end - to preserve wealth. For each year governments & central banks increase the money supply (to keep voters happy and accustomed to the lifestyle they have been living), gold just goes along and appreciates accordingly, although there is a perceived lag at the moment for a fair value price, of which some have calculated to be around $850 to $900. Should there be a perceived threat to the current default world currency, the $US, there will be a flight to other currencies and assets, of which gold will be one. It doesn't take much to move the gold market, and as can be seen from the last spurt to $720 all it takes is for the hedge funds to get on board and it's of to the moon for the gold price. Then mom & pop investors get on board and you then have a bubble.
If the US can get itself out of this one then 'Helicopter Ben Bernanke' should be president - deficets DO matter in the end. Even Paul Volcker (who wasn't afraid to induce the odd recession in order to contain irrational spending) gives the US 12 months before crunch time ie best case a recession, worst case depression. Don't say it can't happen, it just means you're not old enough to have lived through a real economic downturn. So, commodities to collapse within 12 months I reckon.

 

[rederob]

So, commodities to collapse within 12 months I reckon.

I remain uneasy about 2007 from April onwards, markets-wise.
However, Fed reserve Governors have more rabbits up their sleeve than is comfortable for a myxomatosis pandemic, so the "soft landing" scenario must be contemplated.
I also see China's US dollar holdings as a double-edged sword. I do not believe China will draw this sword unless the US first sabre-rattle: China has a sword of Damocles precariously perched over Bush's head and has the capacity to release it if the US try to play hard ball with its currency. By maintaining an artificially low value on the yuan, Western nations will continue to buy its abundantly cheap products.
Little by little, however, China can raise the value of the yuan to symbolically show its willingness to play the game (without really ever getting wholly into it).
Having been an exceptional bear several years ago, I am now a cautious bear, looking more closely for the first signs of winter than ever before. I have certainly learned that early snows are not necessarily indicative of winter, and global warming is moving the seasons beyond our reasonable limits.

 

[Sean K]

I remain uneasy about 2007 from April onwards, markets-wise.
However, Fed reserve Governors have more rabbits up their sleeve than is comfortable for a myxomatosis pandemic, so the "soft landing" scenario must be contemplated.
I also see China's US dollar holdings as a double-edged sword. I do not believe China will draw this sword unless the US first sabre-rattle: China has a sword of Damocles precariously perched over Bush's head and has the capacity to release it if the US try to play hard ball with its currency. By maintaining an artificially low value on the yuan, Western nations will continue to buy its abundantly cheap products.
Little by little, however, China can raise the value of the yuan to symbolically show its willingness to play the game (without really ever getting wholly into it).
Having been an exceptional bear several years ago, I am now a cautious bear, looking more closely for the first signs of winter than ever before. I have certainly learned that early snows are not necessarily indicative of winter, and global warming is moving the seasons beyond our reasonable limits.

And in regard to this and Dooms post, what if the Chinese middle class reach a proportional state whereby they are the consumers replacing the US middle class losing their houses? If there can be an easy transition between these two events, then maybe global economic soft landing? I hope this is the case. China seems to be moving at such a pace to support this scenario, without even taking into consideration India, Brazil, Russia and Japan's re emergence? It is going to be a fine balance and relies on the US surviving for a couple more years perhaps.

 

[ducati916]

BSD

I trade equities, my bull case is for equities alone.

Noted.

*I do not need/expect prices to continue upward vertically - I dont even need them to go up. Sustained prices would be marvellous.
*My argument is premised on base metals and energy continuing to beat the bearish analysts forecasts for prices in the next three years.
*The existing valuations for the majors and many of the mids and emerging players are premised on the 'collapse' of prices.

My comments on this thread have mostly been in regard to the prices of the commodities in of themselves. I am however quite happy to address prices of Equities based on the commodity prices.

Staying with BHP, as we have predominantly dealt with this equity;

Duc
You will need to do better to convince me of the overvaluation and lack of quality in the balance sheets and operational performance of the majors.

Very well, I shall try to do so;

Originally Posted by BSD
Simply not true.
BHP and RIO are set to be free of all debt in coming years
They are buying back billions of dollars worth of shares.
Mining company balance sheets have not been stronger

This from the following post is simply not the case.
The debt however, let me emphasise is not a problem per se.

BHP according to their Balance Sheet 09/25/06
Carry $7.648 billion in LT Debt
Notes Payable, $1.368 billion

Rio Tinto; 06/30/06
$1.686 billion LT Debt
$2.305 billion Notes Payable

So according to their filings, they are carrying debt.

Moving forward;

You note that BHP and RIO carry $9bn and $4bn of debt respectively.

You should also note that forecast free cashflow from BHP for this year (after investing in new projects) is well in excess of $9bn.

A value punter like yourself should get excited at the ROEs and ROAs at multiples of any other companies trading at 9 times next year earnings wth no debt.

Free cash-flow estimated at $9 billion is an impressive figure.
I have never argued that BHP is not self-funding, based on free cash-flow.
The figures from the last five years substantiate this; @ $1.9 billion.

There however is a gap [sizeable] between $1.9 billion & $9.0 billion.
The accurate way to evaluate the gulf twixt the two would be an analysis of unit production.........I personally don't currently have [nor have I looked at figures] for unit production.

I have calculated however a rough & ready estimate of where they may lie.
Revenues = 15.1% compounded growth [5yrs]
Net Profits = 50.9% compounded growth [5yrs]
Leverage = 6.2% thus the leverage apparent is not due to Capital Structure.
Profit Margins have increased from 22.6% to 31.5%

Thus we can infer that the increase in Net Profits is generated not via increasing unit sales, but via increased PRICES. Therefore, as prices fall, [if they fall] we have two impacts upon BHP earnings.

*Unit volume remains the same + price falls.
Revenue falls, Net Profit falls, but, Net Profit falls further & faster than Revenues, in the same way that it also increased faster. [Price leverage]

*Unit volume falls + price falls
The worst case scenario.
Falling unit sales * falling price accelerates and magnifies the fall in Net Profit.

*Prices in equilibrium + Unit sales increase.
The Bulls will profit from BHP revaluation upwards.
Unfortunately, very unlikely, due to the Law of Diminishing Returns.

*Prices rise + Unit sales increase.
The rising price will offset to a degree, the Law of Diminishing Returns.
However, the question becomes......rising prices + rising production how likely is this? Lets examine the Capacity Utilization of US Industry.

There is not a great deal of slack in the system currently, suggesting therefore at least from the US perspective, currently very little available manufacturing capability to utilize any further production of the raw materials, thus limiting the demand going into the near term future [1yr to 3yrs] Thus with steady, or falling demand from the US, it is my opinion that commodity prices are set to decline, until demand again picks up.

Therefore, if the wash-out results in highly leveraged falls in Net Profits, what do you think the market reaction will be? A rising share price? I don't think so, the share price will crumble, and short-term traders etc will sell out, and added to that will be the shorts.

Somewhere in that scenario, BHP will again become a buy. It will offer substantial safety at a low price, but very little at current valuations.

What is also becoming more apparent is the disconnect between playing commodities via equity exposure, and playing commodities via say Futures.This disconnect is apparent also in this thread.

jog on
d998

 

[ducati916]

BSD Part II;

If China floats the RMB - a big piece of inflation is going to be exported into the consumer countries and we should be careful what we wish for.

Agreed.
But that exported inflation will come at a price to China, via falling exports.
Thus, reduced demand for raw materials [commodities]

Perhaps the slow change advocated by the Chinese makes sense in this regard. Better to have a potentially massive inflation effect leaked into the market than jammed in one day on a new trading floor.

Best for who?
Certainly it is a positive for China, not sure that other economies would agree, as it creates unequal competition, thus penalizes their domestic economies.

The accumulated USD position in China gives plenty of dough for bailing-out the dodgy financial system.

Which dodgy financial system are you referring to?

Never forget that the Trillon USD held by the government is essentially held by Chinese enterprise - the two remain closely linked. Hence the use of government money and jawboning to manipulate the copper and iron ore markets.

Incorrect.
The US$ reserve is held as foregin reserve accounts by the Chinese government.

Steel in oversupply? Then why are prices staying so strong and rising?

Chinese steel production runs at a loss, and is subsidised via price floors by the government. There has been strong demand up until about now. Now, as [if] the US growth slows, especially via the automobile industry, we shall see the excesses of the system leak out. There has also been tremendous consolidation within the steel industry itself.

On a speculative front, a Steel ETF has also been created, thus driving demand for steel equities in the short timeframes [last 6mths]

Demand for steel is rumoured to be strong due to planned, but not yet passed budgets for huge infrastructure spending in the US.

I do agree that a lot of Chinese business practice is silly and many bad debts will have been accumulated.

In my view however, the Chinese have the biggest pile of USD and the biggest demographic shift the world has ever seen pushing behind them and these effects will right many of the wrongs.

The US$ stockpile cannot be used for domestic purposes, as, the US$ would have to be utilized to buy Yuan, which would revalue the Yuan upwards, thus triggering the dollar devaluation that would;
*damage asset values held as dollars
*revalue the Yuan upwards, damaging Chinese exports.

As previously detailed the demographic shift is not as it seems.
The birthrate is non-replacement, thus the population will halve in 40yrs
The age of the Chinese population is higher than the US
The wealth per capita is significantly lower.
Thus the demographic that you describe is far weaker than many realise.
Japan in the 80's had a seemingly indestructable economy, the very problems that brought the Japanese economy to its knees currently exist in China.

jog on
d998

 

[ducati916]

And hot off the presses for the bulls out there..................

A 5% rise in steel ore prices? The world's major steel makers and iron-ore producers are now starting to talk about ore prices for next year. The industry consensus is that prices will rise between 5% and 10% and that the nearly 20% increase of this year won't be repeated, The Wall Street Journal reports today. Chinese steel makers, who failed in their attempt to resist iron-ore producers' demands this year, are intent on leading the talks and setting an industry pattern. Brazil's Companhia Vale do Rio Doce (RIO, news, msgs), the world's largest iron-ore miner, and Shanghai Baosteel Group, one of the largest steel makers in China, have been in early talks about the contracts, according to people familiar with the matter.

Just in time means just too much. Just-in-time inventories are turning into just-too-much at companies around the world, Bloomberg News says. From Dodge Ram pickups to Sanyo mobile telephones, unsold goods are piling up around the world. That may become a drag on global economic growth as companies idle workers and production lines to clear out the excess. Factory inventories worldwide rose faster than sales last quarter for the first time since 2001, according to economists at UBS in London. Behind the buildup: an unexpected slowdown in demand, especially in the U.S., brought on by the midyear surge in energy prices and a housing slump.

jog on
d998

 

[legs]

Read what Owen Hegarty thinks of the resource boom collapsing.. In a presentation:
http://www.oxiana.com.au/_data/docs/presentations/2006/essington lewis memorial lecture_1.pdf

 

[BSD]

Doom

If you really want to see a depression, return to the gold standard and get rid of fractional banking and derivatives.

What interest rates do you think people would pay on a home mortgage? 15%?

I don't disagree with your view on the USD soon to cease being the world currency. I just don't see gold as taking the role.

Gold is a pretty rock, that is it - it has limited industrial use and generates no income. A fiat currency will remain the worlds standard of exchange, it is just that the most valued and secure one could cease to be the USD and may become the Euro or Yuan.

That said - I think gold will push through $1,000 USD in coming years.

Being a store of 'real value' could easily apply to copper, nickel or oil too.

I do agree also with your view that from time to time economies may need a recession to cool down and that reducing Fed rates to 1% to avoid such a fate is populist nonsense at best.


Duc

On BHP
You must be an accountant. I have never seen someone so interested in the past.

Prices are half of the riddle for BHP - volume growth has been and continues to be strong. See slides 18 and 25 of the recent BHP AGM Presentation for examples.

AS for debt I will quote directly from Macquarie Equities BHP note dated 25/10/2006 because you wont believe me:

"BHP will generate US$35billion of free cashflow to the end of the decade and will be net debt free by the end of FY2008"

As I said, these companies will be free of debt in the next few years. This cash flow number is AFTER spending on current growth projects.

Your unit price analysis is completely useless and a waste of time:

"personally don't currently have [nor have I looked at figures] for unit production."

Get some broker research mate. They have teams of sharp guys focussing solely on the analysis of one business.

I am still in the dark as to your Copper price forecasts.

Stop using accounting 101 to value a business, you will continue to only invest in businesses that were good.


The disconnect in playing equities and futures??

If copper falls 10% per annum for the next five years in a row - long futures punters will lose but BHP will beat every analyst in the world and will make investors bucket loads

On China
Point by Point

An appreciating RMB wont kill China. The Yen has strengthed four-fold against the USD and take a look at their CAD

If the RMB were to revalue instantly, inflation would go to the moon and so would interest rates. I dont think any consumer nation is wanting this to happen

The banking system and the bad debt situation is the dodgy system I talk of. The trillion is in the Government coffers - but who do you think bails out banking systems when they implode?

The Chinese will do what they wish with their trillion. What other government manipulates the metals markets for the benefit of their industry?

As for demographics - forget the birthrate etc. Keep contemplating the effect of 400million people adding to their per capita production/spending at a multiple of 10.

Stop worrying about historic numbers

Other Matters
Anybody notice that the copper forward curve is in contango out to May next year?

I was talking of the backwardation reducing recently - the view of the future for metals investors has now improved to the point of forward prices are exceeding spot.

Up we go!