Commodities tipped to collapse

wayneL said:

Yes,

That was a big move, about 2 x ATR, and wouldn't expect much more today. If it does its a bonus. Prolly should have taken some off at 690ish.

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gawd
POG doing a jelly-rubber bounce
bring on the bears
the New York bears
c'mon
(as me mate Layton has me doin')

Nice charts.

Have you got one for Oil Wayne.
Whats Gold and Oil worth a pip?
Obviously dont trade futures.

tech/a said:

Nice charts.

Have you got one for Oil Wayne.
Whats Gold and Oil worth a pip?
Obviously dont trade futures.

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Tech

Gold
ZG & GC = $10 per tick ... 1 tick = 10c
i.e. $100 per $1 move per contract

There is a mini contract but I don't trade it.

Crude Oil

CL = $10 per tick ... 1 tick = 1c
i.e. $1000 per $1 move per contract

The mini, which I do trade is half size i.e $500 per $1 move
QM = $12.50 per tick ... 1 tick = 2.5c

The colored zones on the 15 min chart are yesterdays range (hi, lo, closing price etc) which I use for swing trading.

Just having a look at http://www.nymex.com/cop_fut_csf.aspx (expanded session overview).

It seems the big fall is in the active front months - say July06. In actual fact they are simply coming into line with (less actively traded) long dated contracts such as Dec06.

So you would have to be nuts to value your OXR and BHP on the short term July contract when Dec was always showing a fall.

So the impact on OXR and BHP is possibly being overstated (or more accurately the earlier run up was overstated).

Is this a reasonable argument?

markrmau said:

Just having a look at http://www.nymex.com/cop_fut_csf.aspx (expanded session overview).

It seems the big fall is in the active front months - say July06. In actual fact they are simply coming into line with (less actively traded) long dated contracts such as Dec06.

So you would have to be nuts to value your OXR and BHP on the short term July contract when Dec was always showing a fall.

So the impact on OXR and BHP is possibly being overstated (or more accurately the earlier run up was overstated).

Is this a reasonable argument?

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No
The contango typically rules commodities.
Nearby supply tightness will give you a backwardation and this can increase quickly and sharply when visible metal supply constraints are known, eg events that give rise to force majeur to be declared at a mine or production facility.
But lets's prove the point.
There are two ways.
One is to look at the December contract prices now, and compare them to spot prices at December.
Another is to go back to last October/November and review contracts 6 months out, and compare those to spot delivery.
You will not find any forward contracts that ever contemplated copper at $8000/tonne, yet the likes of BHP and OXR are likely to have some small amount of sales into the market at or above that price: These sales are real and will appear on the company's balance statements.
So the question of what OXR or BHP are really worth should be addressed by actual sales rather than futures contracts.
The futures contracts can be rolled over, and rolled over, and rolled over. But unhedged producers will sell at the prevailing spot price and this is the chart which should guide your forward view.
My present view is a reclamation of the recent copper highs in the medium term, and a probably high nearer $10,000 based on the fact that just is not enough metal for consumers to run their businesses on.

Thanks rederob. If you look at nymex copper, it doesn't say PANIC to me. Close was down, but close to the highs. Gold didn't look so good though.

Can you do a gold one for us Mark?

Mark can put the daily one up... but here's an hourly @ 12:10 AM NY time

Looks like people are happy to buy at $680.

Perhaps it's found a base. Too early to tell I suppose.

Any technical indicators showing its next level of support backward?

Looks like people are happy to buy at $680.

Perhaps it's found a base. Too early to tell I suppose.

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I doubt it.
Covering shorts if anything.

jog on
d998

http://www.futuresource.com/charts/charts.jsp?s=GCM06&o=&a=D&z=610x300&d=LOW&b=bar&st=

(June 06 contract).

Kennas, you might be correct about a base at 680, but I think the little kick at the end of the day is from daytraders covering shorts so as not to have a position overnight.

wayneL said:

Also Oil pleasingly tanking, which gave me a nice short setup on thursday.

Corrections all round.

However, I am overall bullish on these.

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Bailed from my short oil pozzie, was always just a swing trade. At a few ticks under $3.00, not bad for short countertrend swinger.

Still holding gold short...this position has caused me mucho anxiety at times.
Digitalis anyone

The cracks are appearing..........


http://www.theage.com.au/news/busin...ore-price-soars/2006/05/21/1148150124509.html

China baulks as iron ore price soars
By Barry Fitzgerald
May 22, 2006

CHINA is crying poor that its steel industry cannot afford the bumper 19 per cent price increase secured by Australian and Brazilian iron ore producers for shipments of the key steel-making raw material in 2006-07.

The Government-owned China Daily said the US dollar price rise ”” it follows on from last year's 71.5 per cent increase ”” could bust the current boom.

China has fast become the biggest market for Australian iron ore with an annual value of about $4 billion, making the health of the steel-making industry there a key consideration for the leading exporters, the Pilbara operators BHP Billiton and Rio Tinto.

"When over-capacity is looming in China's steel industry, rising ore cost that further bites in to domestic steel makers' profits could turn the current boom in to a bust and no one will benefit," according to an editorial in the China Daily.

China's Iron & Steel Association said that its steel makers and the iron ore producers that supply them, including BHP and Rio, "still differ" on price and that their price talks would continue.

An emergency meeting of 16 Chinese steel makers in Beijing on Friday was held in an effort to ensure a united front in China's opposition to the price increase ”” one now accepted by the rest of the global steel-making industry as the new benchmark. This was underlined by the announcement from Rio Tinto's Hamersley Iron subsidiary on the weekend that it had reached agreement with South Korea's POSCO for a 19 per cent price increase for shipments of its Pilbara lump ore.

The chief executive of Rio's iron ore operations, Sam Walsh, said the agreement with POSCO ”” the world's fourth biggest steel maker ”” confirmed the "tightness of the iron ore market and the very strong demand for Australian iron ore".

China's hopes of securing a price increase of no more than 10 per cent were dashed last week when the world's biggest producer, CVRD, effectively set the new benchmark in a 19 per cent price-increase settlement with Germany's ThyssenKrupp.

The Chinese have argued ever since that the CVRD settlement was not a global benchmark.

The Federal Government's chief commodity forecaster, the Australian Bureau of Agricultural and Resource Economics, predicts that world seaborne trade in ore ore could rise by 7.6 per cent to 706 million tonnes this year, with China's booming economy to account for about 44 per cent of the total ”” up from 28 per cent in 2003.

Expansions by BHP and Rio are expected to underpin a 17 per cent surge in Australian exports this year to 282 million tonnes worth about $14 billion.

Meanwhile, the Australian producers' case for China to pay up for iron ore has been strengthened by moves in India to curb its iron ore exports.

India's Steel Ministry has called on the Ministry of Commerce to curb exports to protect the interests of the domestic steel industry.

Exports from the country are not big but their removal from the global market, to feed the booming domestic industry, would add to the global tightness in iron ore supplies.

Reinvigorating this thread: The collapse is correcting.
Maybe it was only ever a correction to begin with.
Base metals will collapse when fundamentals collapse.
BHP hasn't collapsed because the Chinese have not yet signed the iron ore price hike that is in front of them: Does anyone think the Chinese can afford not to buy iron ore from BHP?
Had the fundamentals for metals been weaker, the "correction" would be written in blood-red ink cut deep into chart paper.
We know that the correction is not a collapse because in the midst of it RIO and others got their price hikes for iron, oil has hovered around $70 and nickel prices have been holding near or above $20,000/tonne throughout.
The fact that global equity markets got ahead of themselves and speculative money poured into the so called "new dot com" of commodities was as evident a recipe for disaster as one could ever hope for.
We now are seeing some traders trying to milk the swings in an insanely volatile market; and once they lose interest (or their shirts – or both) volatility will decline and a semblance of sanity will return.
Anyone who thought six months of excessive exuberance could be dissipated in a few days or the odd week should now know better: The market is telling you and you should be heeding the lesson.
I admit to buying a little too early, but having mostly added to existing long term positions, my strategy was mostly of accumulation on the dips.
My current thinking is along the lines of reviewing more deeply where we are placed some time around September – into our reporting season. There should be enough to glean by then to determine if commodity positions should be lessened into 2007 or ridden fearlessly. My suspicion is that oil prices around that time will play a key role in markets generally.
In the meantime, enjoy the rollercoaster ride for some weeks to come.

My own view is: that countries generally will slow their growth in favour of maintaining low inflation, and this is certainly the case in the USA, Canada and the UK. Europe ( excluding the UK ) has very low interest rates in the Eurozone and it is thought they will follow others and slowly increase interest rates.

Worldwide growth will drop and so will the need for all commodites and minerals, including gold and oil. My guesses are that gold will drop below US$500 per oz, oil below US$50 per barrel, and all within the next 12 months. Coal has already dropped in price and iron ore will struggle, as non-China users reduce requirements. It will take a while before producers, like BHP Billiton, reduce supplies.

Fortunately its only me forecasting, so, you can take a deep breath, afterall, " What do I know? ".

Minerals sector to soar higher

"THE minerals boom is set to get even bigger. Australia's official commodity forecaster yesterday lifted its forecast of mineral and energy export earnings in the coming year by almost $10 billion, and predicted record levels of capital investment and exploration.

In a bullish quarterly update to its forecasts, the Australian Bureau of Agricultural and Resource Economics (ABARE) predicted that minerals and energy sector export earnings will jump another 20 per cent in 2006-07, on top of rises of 30 and 33 per cent in the past two years.

ABARE says minerals and energy exports in 2006-07 will now be more than double the levels of three years earlier, rising from $53 billion in 2003-04 to $110 billion. That is $18 billion more than the $92 billion they have earned in 2005-06."

out of The Age this am.

Just as new mines are opening up all over the place (read increased supply)

China Slowdown Affects Commodities (read reduced demand lol)

http://uk.biz.yahoo.com/25072006/244/china-slowdown-affects-commodities.html

China is a developing economy that definitely punches above its weight class. It's a huge trading economy and voracious consumer of industrial commodities. And nowhere is the struggle by the Chinese government to wrestle down its high-flying economy being watched more closely than in the worldwide basic metals markets.

The July 21 move by the People's Bank of China to raise its reserve requirements by 50 basis points, to 8.5% on mainland lenders, marks the second such rate hike in two months. And it's causing turmoil in global copper, zinc, and nickel prices.

The worry: that Beijing will have to throw even more ice water on its overheating China economy, which clocked 11.3% growth in the second quarter of 2006, well above consensus forecasts [see BusinessWeek.com, 7/21/06, "Is China Growing Too Fast for Comfort?"].

FEELING DIZZY.

Asia stocks fell broadly on July 24 to factor in the risk of an economic slowdown on the mainland. Especially hard hit were mining companies such as Australia's BHP Billiton, and Korean and Japanese steelmakers with heavy sales exposure to China. Copper futures contracts for delivery in October fell 3.2% in trading at the Shanghai Futures Exchange.

Over the long haul, China's growth prospects still look dazzling, of course. It's the short-term that could cause commodity traders a bit of vertigo. "We are maintaining our positive outlook for Chinese commodity demand over the one-year horizon," Jonathan Anderson, Asia chief economist for UBS Securities in Hong Kong said in a note to clients on July 24. "However, we should warn that for the next couple of months, we are probably in for a rougher time than expected."........

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By Jon Nones
25 Jul 2006 at 01:29 PM

Chile's Codelco, the world's largest copper producer, said that a July 23 rock slide at the Chuquicamata mine will likely reduce copper output by 1,000 metric tonnes a day. Also in Chile, the union at the Escondida copper mine, which produces 8.5% of the world's copper, said it will vote for a strike in a meeting on July 28 if BHP didn't agree to its wage demands



By Shapi Shacinda

LUSAKA (Reuters) - Zambia's Chinese-run Chambishi copper mine has stopped production after riots on Tuesday in which six workers were shot following a dispute over delayed wages which unions say are the lowest in the industry.

It remained unclear who fired the shots amid conflicting reports from the restive Copperbelt region in Zambia which has been the scene of labour violence in the past. A senior official said the mine planned to resume work on Thursday.

STEELMAKERS in China, the world's largest consumer of iron ore, look set to fail in their second attempt to cut annual prices of the raw material as global demand outpaces production.

Credit Suisse Group and Beijing Antaike Information Co are forecasting prices to rise in 2007 for a third straight record.

Soaring demand in China and limited mine expansion has driven spot prices as much as a fifth higher than the benchmark – $US47 a tonne – as Baosteel Group Corp, China's biggest steelmaker, prepares to lead Asian mills in initial contract talks in October with suppliers including BHP Billiton, Rio Tinto and Brazil's Companhia Vale do Rio Doce.

"There is a struggle to bring on capacity, and miners have bottlenecks at the ports, rail and mines," said Rob Clifford, an analyst at ABN Amro. "Next year is going to be at least as tight as this year."



http://www.couriermail.news.com.au/story/0,20797,19919636-3122,00.html

High commodity prices have solid basis: IMF


John Garnaut Economics Correspondent
September 7, 2006

THE world's leading body for economic research has punctured claims that speculators are inflating a commodity price "bubble".

In findings that have multibillion dollar implications for Australia's miners and bear heavily on the inflation outlook, the International Monetary Fund says "there is little evidence that speculative investments have been a significant driver of non-fuel commodity price movements".

Its econometric analysis shows higher fundamental prices have created demand from investors, rather than the other way around.

"For example, in the crude oil market there has been no persistent pickup in net long non-commercial positions in recent years when oil prices have had a strong upward trend," says the IMF's World Economic Outlook.

"More strikingly, in the copper market, net positions have actually fallen steadily over the past year, during which prices have reached record highs, suggesting that contrary to common perceptions, speculation may not have played a major role in the recent price run-up."

The findings suggest commodity prices will not "burst" - an event that could throw the Australian economy into recession.

Nevertheless, the IMF modelling show non-fuel commodity prices should steadily decline through to 2010 - while remaining well above 1990s levels.

It predicts aluminium and copper consumption will grow rapidly, by 5.6 and 4.8 per cent a year respectively, but rising that demand will be met by new supply at falling prices.

It expects aluminium and copper prices to slip by 37 and 57 per cent by the end of the decade - broadly in line with pricing on the futures market.

The oil price, however, may remain lodged around present levels due to an inefficient, OPEC-dominated market and finite reserves.

"In contrast to hydrocarbons, overall reserves of base metals are practically unlimited," it says.

Commodity price predictions hinge on understandings of China's transformation from a peasant-based economy to an industrial one.

It says China's consumption patterns have roughly tracked Japan and Korea at the equivalent development stage, with real incomes at roughly $US6400 (adjusted for purchasing power parity).

But its heavy concentration of industry makes it a "somewhat special case" with higher consumption of some metals.

In 2002-05, the IMF says China accounted for almost all of the increase in world consumption of nickel and tin and exceeded global consumption growth for lead and zinc.

China accounted for about half of global consumption growth for aluminium, copper and steel.

Chinese people are also consuming more meat at lower incomes than other countries.

But farmers may not reap the benefits.