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"The best place to be is in commodities"

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I think I can agree with Red here , we've had the pullback , although I don't believe the lull is quite over yet . I think tin is semaphoring stage II , I also heard a rumour that there's a contract out there in Asia for rations and field packs production .

The barney with RIO / BHP and the Chinese steelmakers doesn't look to be driven by the Collective , it looks more like wage inflation and production costs , eating into already tight margins . Haven't kept up with the stoush , been flat out on other obligations and a good bout of home handy wrecking .......... :D
 
Commodity Bull Market Alive and Well

Strong fundamentals to drive prices higher.

Sally Limantour / www.minyanville.com / Mar 26, 2008


As most of you know, commodities went through an overdue correction last week. This shouldn’t have been a big deal.

Here’s the problem. As a result of that correction, some folks are making assumptions that don’t make sense. In fact, some of these assumptions are downright dangerous.

For example, the media and others are giving Federal Reserve Chairman Bernanke credit for “putting an end to commodity inflation” with his brilliant strategies. On March 21st, Bloomberg stated that “the biggest commodity collapse in at least five decades may signal Federal reserve Chairman Ben Bernanke has revived confidence in financial firms.”

Or how about this: Ron Goodis, a trader with the Equidex Brokerage group, tells us “Bernanke took care of the commodity bubble.”

This is faulty thinking. To imagine that Bernanke deserves credit as the commodity dragon slayer, even as he lowers interest rates and continues to stoke inflation, is mind-boggling.

Sources of the Sell-off

So what exactly caused the vicious sell-off in commodities? When all was said and done, by last Thursday’s close, gold had its biggest weekly loss since August 1990. Oil had plunged almost $10 over three days. The corn market was off by 9%.

There were a number of things that contributed to the sell-off. First, the commodity markets had gotten ahead of themselves, and were in a classic “overbought” situation.

Second, derivative trading losses and shrinking credit lines forced hedge funds to liquidate their winning trades -- many of those trades in commodities -- in order to free up capital.

There was also fear the Commodity Futures Trading Commission, or CFTC, was on the verge of raising margin requirements for commodity positions. This happened at the end of the last big commodity bull market, when the Hunt brothers were forced to liquidate their silver positions. (I was on the trading floor at the time - it wasn’t pretty.)

Furthermore, the dollar was oversold and ready for a bounce. All these factors combined to create a swift break, which has now taken many commodities back to more attractive buying levels.

Facing the Facts

To say the commodity bull market is over is just, well, a bunch of bull. Let’s take a look at the facts.

Energy prices, precious metals, agriculture prices, and other commodities have been in a bull market trend since 2000. The UBS Bloomberg Constant Maturity Commodity Index has gained 20 percent every year since 2001. For 2008 the index is already up over 10%.

The big picture has not changed. We still have central banks pumping money like mad into the global financial system. This is long-term inflationary. Helicopter Ben is not going away. Nor is his one-trick strategy to save the world - running a printing press. This is long-term bullish for gold and silver.

In regard to agricultural commodities, the 2008 crops are not even in the ground. Demand issues are pressing and widespread. There are still record high rice prices in Asia. Egypt is in the midst of a serious “bread crisis” from lack of grain. An outbreak of “sharp eyespot disease,” or SED, now threatens 4.83 million hectares of wheat in major producing areas throughout China. Water is increasingly scarce.

In regard to energy, no major new finds have been tapped in recent memory, North American natural gas demand is set to out-pace supply over time, and the global supply-demand situation is still supportive of high oil prices. (That said, crude oil’s parabolic move from $85 has been enormous, and a trading range may be in order for crude.)

Three Billion Strong

In the macro picture, we still have the incredible growth stories of China, India, Brazil and Russia under way, not to mention many other fast-growing countries that get less attention in the headlines.

While there is talk of “recoupling” -- the tongue in cheek opposite of decoupling -- it's hard to argue with the fact that 5.6 billion people currently consume just one third of the world’s raw materials. That 5.6 billion grows more successful, and more hungry, every day.

As my good friend Clyde Harrison said,“the industrial revolution involved 300 million people. The emerging nation revolution involves 3 billion.”

When discussing the general supply-demand imbalance for commodities, I am referring to a very, very big trend. In fact, we now have two “megatrends” colliding. Thirty years of restrained and neglected natural resource supply are coming face-to-face with three billion people intent on discovering capitalism. Irresistible force meets immovable object? We haven’t seen anything yet.

Reversing the Reversal

Monday’s trading action in commodities saw a “reversal of the reversal,” with solid moves higher in many different areas. Today we are seeing follow through on the upside. Soybeans have tacked on $1.00 per bushel since the Thursday’s lows and are limit up today. Wheat is up over 10% and corn has rallied 8%. The metals are recovering as well with gold, silver and copper all gaining between 3-5%.

The commodity bull market is alive and well. Last week’s correction let some much needed air out of the balloon, that’s all.

It would be healthy at this point to see some consolidation, but we might not get it. Already it looks like commodities could be off to the races once again.
 
Interesting article from JP Morgan in the Australian today...

"The bank's Australian analysts told clients on Wednesday that investors should be underweight in mining stocks and that the sector's perceived safe-haven status, particularly for commodities and commodity equities, looked shaky.

The resources sector had powered the bourse during the record bull run, which lasted almost five years and provided outstanding returns for investors, chiefly because of insatiable demand for Australian minerals by the emerging market economies of China and India.

The entry of speculators in commodities markets and the falling $US recently led to new highs for many commodities, including gold.

However, JPMorgan now argues that the strength of the resources sector has "pushed valuations to the limit".

Full article here.

Cheers
 
reece55 said:
Interesting article from JP Morgan in the Australian today...

"The bank's Australian analysts told clients on Wednesday that investors should be underweight in mining stocks and that the sector's perceived safe-haven status, particularly for commodities and commodity equities, looked shaky.

The resources sector had powered the bourse during the record bull run, which lasted almost five years and provided outstanding returns for investors, chiefly because of insatiable demand for Australian minerals by the emerging market economies of China and India.

The entry of speculators in commodities markets and the falling $US recently led to new highs for many commodities, including gold.

However, JPMorgan now argues that the strength of the resources sector has "pushed valuations to the limit".

Full article here.

Cheers
Click to expand...
It's a very interesting analysis!
Overweight into energy.... ie oil, gas, coal etc - commodities.
While it's true the stronger AUD will take some gloss off profits, the other reality is that commodity (esp. base metal) prices are relatively firm; several having already suffered the greater share of their setbacks (eg zinc and nickel).
The weakness of the analysis is that it ignores the fact that many mining equities were already trading to low pe multiples, so while these companies remain "profitable", their further downside risk is mitigated.
The only fly in the bull's eye is if global industrial production declines significantly more than it has. This will only occur if the US recession resembles more of a depression, going forward.
I believe we will know by October if the commodity bull needs putting to pasture. For the time being its rutting nicely.
 
Interesting to read back through this thread.

Nethertheless, without seeking advice does anyone have soft commodities in their portfolio. If so, it it through managed fund or buying shares in affiliated companies i.e. suppliers of potash. How do you buy corn wheat? Any good books to read on the subject?
 
communique said:
Interesting to read back through this thread.

Nethertheless, without seeking advice does anyone have soft commodities in their portfolio. If so, it it through managed fund or buying shares in affiliated companies i.e. suppliers of potash. How do you buy corn wheat? Any good books to read on the subject?
Click to expand...

I am looking to add them to my portfolio.

You can buy either the futures or through Exchanged Traded Funds (ETF) or Commodites (ETC, same thing).

www.etfsecurities.com are one, but beware of credit risks. Read other threads for more info.

www.seekingalpha.com have more information on ETFs.
 
January 05, 2009

Commodities Outlook For 2009: The Developing World Is Still In Growth Mode, Just

By Rob Davies
www.minesite.com

If we learnt one thing from 2008 it was that making forecasts is a mug’s game. Even the most bearish bears did not predict the mayhem that infected the financial markets in 2008 and clobbered the base metals in the process. On the basis that what catches you out is the thing you didn’t expect there are grounds for optimism in that no one is predicting a bull market in any asset class in 2009. It seems insolvency lawyers and pawnbrokers are the only people looking forward to a good year.
Yet this prevailing and all-pervading atmosphere of gloom, largely pedalled by the press who are among the hardest hit, is not entirely in accord with all the data. It is true that the OECD is forecasting that the economies of its member nations will collectively shrink by 0.4 per cent in 2009. But this economic cycle has never really been about growth in the developed world. It is the developing world that was the major story and, although now under stress, it still is. French bank Société Générale, in its year-end commodities review lays out its view of the economic environment, and still expects these emerging economies to grow in 2009.

Slightly less bearish than the OECD about the developed world, with its forecast of a 0.3 per cent contraction, Soc Gen nevertheless expects the world economy in total to grow by 2.4 per cent. That difference of 2.7 per cent is accounted for by China and other usual suspects like India, although the bank’s forecast of a 10 per cent growth rate for China may be a little optimistic if the reports of 75 million tonnes of iron sitting on Chinese docksides are correct. But a world economy growing at a couple of percent actually isn’t that bad. More importantly for the metals business that growth, with it bias towards developing markets, will be more metal intensive than any activity in the west. Bridge builders use a lot more metal that marketing executives.

Another encouraging number from the Société Générale forecasts is low interest rates everywhere. The range for central bank rates runs from 0.28 per cent in Japan to the highest at 1.63 per cent in the Euro Zone. Ten year bond yields go from 1.48 per cent in Japan to 3.7 per cent in the UK. So finance will be cheap, if you can get it, and that ought to favour large scale, long-term infrastructure projects that will need a lot of raw materials. Finally, the bank expects oil prices to be somewhat curtailed at the relatively modest level of US$57 a barrel, a price, which in the context of last year’s run on oil will help constrain operating costs.

But while there a few rays of optimism around there is no doubt the macro environment has turned down very quickly, and that’s what’s damaging the demand side of the metals business. Indeed, things may get worse before they get better. However, on the other side of the equation was the supply side’s failure to deliver the additional new metal on time that played a large part in sustaining the boom. While some metals, like nickel, have reversed the supply-demand balance very quickly, other metals, like copper, are still suffering from tightness on the supply side. Add in the speed at which miners have cut back on production and the threat of massive oversupply does not appear to be quite such a problem. Each metal is different of course, and a quick gallop through each one, guided by forecasts from Société Générale and Royal Bank of Scotland, sets the scene for what to expect in 2009.

Kicking off with aluminium, the biggest base metal by volume, and the industry should be congratulated for taking rapid action in reducing capacity so quickly. According to the French bank 3.7 million tonnes of capacity has been taken off-line already, of which 2.5 million tonnes is in China. This country has made the largest addition to capacity in recent years, fuelled by cheap power costs. Whether that will continue is crucial to the price outlook for the metal. What is known, though, is that this massive increase in supply was needed to cope with a huge increase in demand. Société Générale quotes metals market specialists CRU as saying that Chinese demand for aluminium rose a staggering 38 per cent in 2007. Growth of nine per cent in 2008 and a forecast of three per cent in 2009 look pretty mundane by comparison. RBS expects demand to grow by seven per cent to 42.65 million tonnes this year. That perhaps explains its forecast average price for the year of US$2,325 a tonne, against that of US$1,625 from Soc Gen.

The story in copper is very different in that there have been virtually no voluntary cuts in production. That’s because the industry has been so poor at actually delivering what it is supposed to, bedevilled as it is by labour disputes, lower grades and technical problems that mean it produces around a million tonnes less than nameplate capacity. As a consequence Soc Gen estimates the oversupply in metal in 2008 was 170,000 tonnes. With its massive reliance on the construction sector it is little surprise that the French bank estimates demand will fall by 1.2 per cent in 2009 and that this will lead to the oversupply doubling to 350,000 tonnes. Some may regard those figures as optimistic, although not RBS, which forecasts a 250,000 tonne surplus. Its forecast average price for 2009 of US$5,500 looks high compared to Soc Gen’s estimate of US$3,600 a tonne, but both could be on the high side if production keeps growing.

Nickel is a tricky metal to forecast, because its end use in stainless steel is so volatile. In fact the spread between the US$13,775 a tonne forecast by RBS and the US$11,300 predicted by Soc Gen is relatively narrow. A key factor for nickel is whether stainless steel mills will reverse the changes they made to the production of ferritic steels. Having made the changes to deal with this it is easy to see why mills would stick with the changes made and, consequently, use less nickel. Add in the collapse in demand in end markets, and the forecast 2.2 per cent contraction in demand for 2009 by Soc Gen could be a rosy estimate. Miners, though, have wasted little time in reacting to this brutal price environment and have taken out 160,000 tonnes of production with a bias to higher cost ferronickel miners.

Zinc has been in a bear market longer than the other metals and has reached the stage where the current price is well below the marginal cost of production. Despite the pressure on producers the French bank is predicting a 3.3 per cent increase in demand in 2009 to generate an average price of US$1,150 a tonne. In contrast RBS predicts an average price of US$1,550 a tonne even though it has a similar demand growth forecast.

Lead ought to be the metal that comes out best from this financial crisis. A dramatic fall in new car sales will increase the average age of the car fleet and that ought to boost demand for replacement batteries. Supply will be tightened too as cars are run for longer and scrapping is delayed. As that source already provides 68 per cent of western refined consumption even a small change in scrapping activity could impact supply dramatically. Soc Gen expects demand to rise 2.9 per cent in 2009 while RBS is more bullish at 3.5 per cent. That probably explains its forecast of US$1,675 a tonne against that of US$1,075 a tonne from Soc Gen.

There is little doubt that 2009 will be a challenging year for many industries. On the basis of these predictions mining may actually be among the better sectors on a relative scale. Whether the forecasts here given will be any more accurate than the ones made a year ago is for others to judge, and for time to tell.
 
chops_a_must said:
Another very strong rally in commodities tonight.
Click to expand...

I heard tonight that the parent company of Ssangyong Motor Company in S Korea just got a cash injection today from its Shanghai based parent. Basically I think North Asian Economies are happy to keep tightening loosened nuts and bolts to keep their respective car industries running. Funny that US Treasuries and commodities are both rising at the same time. :confused:
 
Byron Wien Announces Ten Surprises for 2009

Posted on : 2009-01-05 | Author : CT-PEQUOT-CAPITAL

WESTPORT, Conn. - (Business Wire) Byron R. Wien, Chief Investment Strategist of Pequot Capital Management, Inc., today issued his list of Ten Surprises for 2009. Mr. Wien has issued his economic, financial market and political surprises annually since 1986. The 2009 list follows:

1. The Standard and Poor’s 500 rises to 1200. In anticipation of a second-half recovery in the U.S. economy, the market improves from a base of investor despondency and hedge fund and mutual fund withdrawals. The mantra changes from “fortunes have been lost” to “fortunes can still be made.” Higher quality corporate bonds, leveraged loans and mortgages lead the way.

2. Gold rises to $1,200 per ounce. Heavy buying by Middle Eastern investors and a worldwide disenchantment with paper currencies drive the price of precious metals higher. In a time of uncertainty, investors want something they can count on as real.

3. The price of oil returns to $80 per barrel. Production disappointments and rising Asian demand create an unfavorable supply/demand balance. Other commodities also rise, some doubling from their 2008 lows. Natural gas goes to $9 per mcf.

4. Low Treasury interest rates coupled with huge borrowing by the Treasury send the dollar into a serious downward slide. Overseas investors become concerned that the currency printing presses will never stop. The yen goes to 75 and the euro to 1.65.

5. The ten-year U.S. Treasury yield climbs to 4%. Later in the year, as the economy shows signs of recovery, economists and investors shift their mood from concern about deflation to worries about inflation. A weak dollar, rapid growth in money supply and record-setting deficits (over $1 trillion) are behind the change.

6. China’s growth exceeds 7% and its stock market revives. World leaders credit China’s authoritarian government for its thoughtful stimulus policies and effective execution during a challenging period. The Chinese consumer begins to spend more and save less and this shift is behind the unexpected strength in the economy.

7. Falling tax revenues from the financial sector cause New York State to threaten bankruptcy and other states and municipalities follow. The Federal government is forced to step in and provide substantial assistance. The New York Post screams “When will the bailouts stop?”

8. Housing starts reach bottom ahead of schedule in the fall, and house prices stabilize after dropping 15% from year-end 2008 levels. The Obama stimulus program proves effective and a slow growth recovery begins before year-end. Third and fourth quarter real gross domestic product numbers are positive.

9. The savings rate in the United States fails to improve beyond 3%, as most economists expect. The concept of thrift seems to have vanished from American culture. Peak job insecurity and negative growth drive increased savings early in the year, but spending resumes as the economic growth turns positive in the second half, making Christmas 2009 the best ever.

10. Citing concerns about Iraq’s fragile democratically elected government and the danger of a Taliban-controlled Afghanistan, Barack Obama slows his plan for troop withdrawal in the former and meaningfully increases U.S. military presence in the latter. In a hawkish speech he states that the threat of terrorism forces the United States to maintain a strong military force in this strategic area.

Mr. Wien believes these surprises, which the consensus would assign only a one-in-three chance of happening, have at least a 50% probability of occurring at some point during the year. In previous years, more than half of the elements of the list have proven correct.

Pequot Capital Management(USA) is a private investment firm.
 
January a happier month for commods
Reuters
30 Jan 2009

[www.miningmx.com] -- Commodity markets steadied on Friday, heading for their strongest performance since mid-2008 despite month-on-month falls in several markets, in the first signs of possible consolidation after last year's hefty losses.

London copper futures, up 4.4 percent so far in January, are heading for their first monthly rise since June 2008, while the Reuters/Jefferies CRB index, down 4.1 percent this month, is on course for its smallest fall since June.

Oil has fallen almost 7 percent in January, its most positive showing since August, while gold has scored around a 3 percent gain after rising 8 percent in December.

"The second half of last year saw some very weak performances across commodities. Prices came down so far and fast that it doesn't take a strong reason for market participants to look for a period of consolidation," Barclays Capital analyst Yingxi Yu said.


Click Here to subscribe to our daily newsletter"The duration of this consolidation period will vary from commodity to commodity. Precious metals and agricultural products will outperform base metals and energy in the first half," she said.

But Yu said that if the global economy bottomed out in the second half, industrial raw materials will follow it higher.

Investors are preoccupied with macro-economic data, more specifically, the release of advance U.S. fourth-quarter gross domestic product data due later in the day.

Thursday's dismal figures -- record U.S. jobless rates, an all-time low for sales of new U.S. single-family homes and a fifth monthly decline in durable manufactured goods orders all weighed on markets.

Ballooning inventories continue to worry investors.

Shrinking demand for fuel has contributed to the biggest four-month build-up in U.S. crude stockpiles since 1990, while stocks at London Metal Exchange copper jumped 22,750 tonnes, the biggest single-day rise since August 2004, to 477,675 tonnes.

By 0710 GMT, U.S. crude rose 15 cents a barrel at $41.59, off an intraday low of $41.31.

"The risk is still clearly on the downside. The economic data is going to confirm that things are still slowing down," said Mark Pervan, senior commodity strategist at ANZ Bank in Melbourne.

"Oil's big Achilles heel is the U.S. market, and that's going to continue to weigh on prices."

LME copper for delivery in three months dropped $19 or 0.6 percent to $3,221 a tonne.

Worries about shrinking demand from China, the world's largest consumer of industrial metals, also weighed on prices.

The world's third-largest economy is expected to grow between 7 and 8 percent this year, the World Bank's chief economist said on Wednesday, compared with the 9 percent pace for 2008 which was the slowest in seven years.

Gold edged down as speculators booked profits after prices rallied more than 2 percent the previous day, but buying interest from investors remained strong, with ETF holdings hitting another record.

Spot bullion traded lower at $904.60 an ounce, down $2.15 from New York's notional close on Thursday. Gold is within sight of a three-month high of $915.30 hit on Monday.

The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said it held arecord 843.59 tonnes of gold as of Jan. 29, up 10.71 tonnes fromJan. 27, reflecting flight-to-quality buying amid chaos in the financial sector.

"The next target is of course $1,000," said Yukuji Sonoda, analyst at Daiichi Commodities, referring to a level last seen in March, when gold struck a record $1,030.80 on fund buying driven by fears of rising energy costs and uncertainties in the dollar's outlook.
 

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