News reel: Economic Meltdown p3 – Commodities

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Gold Little Changed in Asia as Dollar Steady Before ECB Meeting – Bloomberg LP - Jan 15, 2009

Jan. 15 (Bloomberg) -- Gold traded little changed in Asia as the dollar steadied before a European Central Bank meeting where interest rates are widely expected to be cut by at least half a percentage point. Platinum declined.


Resources downturn trips up contractors – The Australian – Jan 16, 2009

MINING companies slashing costs and cutting production as they struggle to cope with the global financial crisis is driving down revenue in Australia's engineering, contracting and services sectors.

Although analysts believe that the diminished income and the prospect of further contract cancellations are already being incorporated into share prices, they said the full impact had not yet been incorporated.


Metal meltdown rocks global miner Rio Tinto – The Australian – Jan 16, 2009

RIO Tinto continues to be battered by the global slowdown, with fourth-quarter iron ore sales falling 31 per cent.

Slumping metal prices are set to wipe more than $US500 million ($758 million) from the miner's bottom line and more aluminium production cuts have been flagged.


Under new management, miner ready to tackle debt – The Australian – Jan 16, 2009

RIO Tinto's board has shown it is serious about its turnaround by dumping chairman Paul Skinner 11 months ahead of plan. And yesterday's 18 per cent fall in iron ore production underlined the magnitude of the cutbacks ahead.

Rio's fourth-quarter production report is, of course, just a warm-up to the real event on February 12, when its half-year profits are released.


Oil Falls Below $34 After OPEC Reduces 2009 Demand Forecast – Bloomberg – Jan 15, 2009

Jan. 15 (Bloomberg) -- Crude oil fell below $34 a barrel after OPEC said that demand for its crude will decline 4.2 percent this year as the recession in the U.S., Europe and Japan curbs fuel use.


Natural Gas Falls After U.S. Supplies Drop Less Than Forecast – Bloomberg – Jan 15, 2009

Jan. 15 (Bloomberg) -- Natural gas fell to the lowest in more than two years in New York as government reports today on gas stockpiles, producer prices and manufacturing pointed to slower demand as the U.S. recession deepens.

Stockpiles declined 94 billion cubic feet last week, less than the 102 billion analysts expected, an Energy Department report showed. Prices paid to producers in the U.S. dropped for the fifth straight month and manufacturing in the New York and Philadelphia areas shrank. Slowing demand from factories and power plants has helped send gas down 15 percent this month.


Copper Prices Drop for Second Day in N.Y. as Stockpiles Rise – Bloomberg – Jan 15, 2009

Jan. 15 (Bloomberg) -- Copper futures fell for a second straight day as climbing inventories signaled global output of the metal is exceeding demand.

Stockpiles monitored by the London Metal Exchange climbed 1.4 percent to 387,325 metric tons today and have jumped 14 percent this month after surging 72 percent last year. Before today, copper prices plunged 65 percent from a record in May as slumping global growth slashed demand for the metal used in pipes and wires.


Soybeans Prices Jump on Adverse Weather in Argentina, Brazil – Bloomberg – Jan 15, 2009

Jan. 15 (Bloomberg) -- Soybeans prices jumped on signs that demand for U.S. supplies will increase as adverse weather damages crops in Argentina, the world’s biggest exporter of vegetable oil and animal feed made from the oilseed.


Australia Expects ‘Significant’ Drop in Coal, Iron Ore Prices – Bloomberg – Jan 15, 2009

Jan. 15 (Bloomberg) -- Export prices for coal and iron ore from Australia, the world’s biggest shipper of the raw materials, may drop significantly this year as slowing industrial growth curbs demand, the nation’s central bank said.

China goes shopping for commodities

If you have kept up to date as I try to do with China's oversea investments in the commodity and energy sectors you're probably aware of the fact China has been shopping for commodities in emerging markets.

Africa and to a lesser extent South America where the main benefactors of China's spending spree from 2000-2008. The two continents are home to abundant supplies of natural resources China needs to sustain economic growth. The two continents are also home to various countries that are hungry for foreign direct investment in their commodity sectors which until recent had been the main fuel behind their respective economics booms.


China also had a edge up on their western counterparts in many of these countries. Some countries in Africa and South America intimidate traditional western investors due to political instability. Others have such a horrendous human rights record that many western firms are morally inclined not work in them.

With the global slow down in full swing, cash rich Chinese companies and investment groups now find themselves in a different position. Frozen credit markets, plummeting commodity prices, depressed stock market prices and a cloudy horizon in the future have led many mining companies from developed countries to search for long-term investors with the capital to keep their operations running until the global economy improves.

China has shifted its attention away from Africa, instead focusing on possible investment opportunities in Canada, Australia and South America. Keith Spence, president of Global Mining Corp, a China-focused resource investment company was quoted in a great piece published in the Financial Times yesterday.

"The Chinese realize there are massive opportunities in the market. A year ago, they were going to Africa to acquire early-stage development assets. But now they are looking for larger tonnage, longer life, later-stage assets. There is less of an emphasis on emerging markets, because now there is choice."

Last month China's largest zinc producer, Zhongjin purchased 50.1% of Australian zinc miner Perilya for $32 million usd. Chinalco, a Chinese aluminum company has suggested it may increase its stake in Rio Tinto to nearly 15%.

(click here to access the full article on this topic from the Financial Times)

I must say it is interesting to see that although China finds itself in a more lucrative buying position that it has not shunned South America. Evidence to suggest the Chinese may perceive South America as more than simply another commodity rich area in which to extract untapped resources.

Rather it may be that South America has come to represent a region that has well developed assets, worthy of purchasing for the long-term. China is forging much closer ties with fellow APEC members Chile and Peru. China is quickly working with Peru to finalize a Free Trade Agreement and already has one with Chile. China is increasing its investment in agricultural commodities in Brazil and Argentina and hopes to continue easing visa restrictions for many of its citizens on travel to the region.

Below I've included a chart of Chinese investments / cooperation with Latin American countries. I assembled this chart about 6 months ago for my independent study / thesis. If you know of any other instances of Sino-Latin America interaction please by all means let me know and I'll update this chart.

China and South America in focus: China considers boycott of Australian BHP Billiton... could help Brazil's Vale

The Chinese are considering a boycott of BHP Billiton (BHP), the world's largest miner, according to a report by London-based investment bank Fairfax (article from BNAmericas).

Rio Tinto and China's Baosteel, recently announced a joint venture deal, which China now argues exports iron ore, (one of Brazil's major exports to China) at a fair market price while Australia's BHP Billiton does not...

Interesting being that it cost $45/t more to ship Iron Ore from Brazil to China than it does from Australia to China. Despite the distance, the recent 100% increase imposed by the company (BHP) on Australian iron ore, makes iron ore from the Australian mining giant with more expensive ore than China can obtain 1000's of miles away from its Brazilian counterpart.

Dangerous move for BHP, but in the end it might work out considering that BHP and RIO combined export about 80% of the world's iron ore, even if RIO can hold out for a while and BHP feels the pain from the Chinese boycott, the global macro economic conditions of the commodity market, combined with the market share BHP currently retains may force RIO to raise its prices as well.

Pedro Galdi, an analyst at SLW Corretora brokerage firm in Brazil, stated the following:

"In reality, Vale- Rio Tinto (RIO) and BHP account for 80% of global [iron ore] mining needs. Demand is higher than supply and it's hard to imagine one of these players leaving this market, or selling iron ore at spot prices, which could be bad for everyone," said Pedro Galdi.

"I do believe this is going to become a duel of giants but it's still too early to say that BHP is going to be selling at spot prices during this year, especially with its acquisition attempt of Rio Tinto. We have to wait until June 30 to see what is going to happen," Galdi said.

Once again, if you would like to read the full article please visit BNAmericas or click here for a direct link to the publication.

Bloomberg LP - Mining giant Rio says rising commodity prices won't be enough to convince China to stop buying... high prices are here to stay

Rio Says China Inflation Won't Undermine Commodities (Update1)

By Jesse Riseborough

June 16 (Bloomberg) -- Rio Tinto Group, the world's third- largest mining company, said recent gains in inflation in China driven by rising food and energy costs won't undermine strong demand for commodities.

``A leveling out in food and energy prices will lead to falling 'headline' inflation without a dramatic impact on economic growth,'' Tom Albanese, chief executive officer of London-based Rio, said in a slides presentation sent today to the Australian stock exchange. ``Any sustained inflation is likely to support aluminum and iron ore prices.''

Inflation in China, the world's fastest growing economy and biggest consumer of commodities, slowed to 7.7 percent in May, from 8.5 percent in April, still exceeding the government's annual target of 4.8 percent, according to the statistics bureau. Demand from China has spurred six straight years of commodity gains, including record prices for iron ore and copper.

Prices for Rio's products ``are supported by economic fundamentals, not financial bubbles,'' Albanese said, citing dwindling supplies of metals including copper. ``Current prices of key Rio Tinto products are justified by the economic fundamentals of sustained demand growth and tight supply; together these factors will support long-run prices.''

Rio, battling a $164 billion takeover offer from the world's largest mining company BHP Billiton Ltd., rose A$4.62, or 3.6 percent, to A$134.50 on June 13 on the Australian exchange.

To contact the reporters on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net;

Last Updated: June 15, 2008 19:39 EDT