OK, front and center this morning, the currencies tried to rally almost all day yesterday, only to find themselves weaker on the day at day’s end, due to the drop in stocks (risk assets) I said a month or so ago that I hoped the currencies would break their tie with stocks, which wasn’t the normal way these two asset classes are priced. I said that, because I was convinced that stocks were simply going through the motions of a bear market rally, and would turn south at some time… Of course, the time could be now, as U.S. Corporations begin announcing earnings for the 1st QTR 2009… If the first Corporation to announce is any indication of the earnings season we’re about to venture through, then you had better run for the hills! Alcoa reported a 59-cent per share loss, which was worse than projected at 56-cents…

So… For now, currencies are lock-step in tune with stocks, which as I said isn’t the norm… But, it what’s happening now…

Yesterday, I told you that the Reserve Bank of Australia (RBA) had cut rates 25 BPS, and the A$ was recovering from the blow of a rate cut, but one that wasn’t as big as traders thought… Well, there was more news from the RBA, and their Gov. Mr. Stevens, who said that “the recession in Australia is much milder than those in Europe and the U.S.” Hmmm, I think he was preparing to leave the rate cut table, don’t you? To me, that’s Central Bank parlance for “This is it, no more rate cuts!” Which, if it’s the case, the A$ should begin to see some real activity…

And… The news from China continues to point to their stimulus working and that economy pulling out of the doldrums faster than the rest of the world. (see what happens when you deal from a position of strength?) Of course that remains to be seen… But like I said, I read at least one story a day about how China’s economic activity is stirring… So… Let’s just play along with those thoughts for a minute… What does that mean for Australia? It would mean that happy days are here again, The skies above are clear again. So let’s sing a song of cheer again. Happy days are here again. Or least something like that… Why you may ask? It all has to do with the need that China has for raw materials, which in the past they received the majority of those needed from Australia… So, now, you can see the tie-in, eh?

Oh… But… If currencies don’t break this trading pattern with stocks, we won’t have any Happy Days in Australia or any other country for that matter, except Japan, which is a counter trade these days…

OK… And now for Mr. Mayo… Yesterday, I told you all about this bank analyst from Caylon Securities, and how he threw a cat among the pigeons with his call that bank losses will exceed those in the depression… The Risk takers headed for the hills, and the safe haven flows into Treasuries were once again the trade du jour… Well… Ty Keough was the first to tell me yesterday that Jim Cramer was pointing out all of Mr. Mayo’s past errors… That’s good, I’ll leave all that to Jim Cramer, because… I’m not here to bash Mr. Mayo… What I’m here to question is why the markets were so moved by the statements of one man? Oh well… I carry on, despite the markets’ indiscretions!

I watched two videos yesterday of interviews with currency analysts, of which both said they believed the dollar’s rally was just about to reach an end… Hmmm… They didn’t say why they thought that, but they said it…

Japan posted a very interesting number last night… Japan’s Current Account Surplus shrunk 56% in Feb. In January of this year, Japan posted their first deficit in 13 years… Interesting, eh? Exports have plunged… But, with the weakness in the Japanese domestic economy, I would suspect that imports too will plunge soon, thus leveling this out…

Yesterday I talked about Ireland and their problems briefly… Well, this morning there’s a story regarding Ireland and what they are attempting to do to cut this problem off at the pass. Finance Minister, Lenihan is mirroring the tactics Sweden took in the 1990’s when their financial system teetered on the cliff of disaster. That’s a good thing in my book… I talked about the “Nordic way to deal with financial disaster” months ago… I’ve never cared for the way we are going about dealing with this here in the U.S. and preferred the Nordic way of dealing with “bad banks”…

If you would allow me to go off on a tangent here… (if not skip to the next paragraph!) But, why did Paulson, and now Geithner, along with Bernanke believe that throwing Billions / Trillions of dollars at this problem was the correct thing to do? I mean, we got into this mess because there was too much money in the system and it wasn’t regulated… So… The answer is to throw even more money at this problem? I just don’t get it, folks! I have a cartoon that I cut out of the paper a month ago, that just cracks me up… It has a character watching TV… And from the TV you see this quote… “And as President, I can assure you… That the ERA of tax cuts and wasteful spending is over”… And in the next box/ quote… “Get ready for the ERA of NO Tax Cuts, and REALLY Wasteful Spending”… That just about tells it all, eh?

Remember what I told you on Monday about what Richard Russell had to say when he was asked what he would do now… He simply stated… “nothing”… “I would let the bear markets run their course”

I saw this in the WSJ this morning… “The Treasury Department plans to extend the Troubled Asset Relief Program to certain eligible life insurers. Several life insurers have been burdened lately by capital constraints amid ailing markets.”

Oh great! The Treasury Dept. is bound and determined to spend all the TARP money even if it goes toward things / companies that it wasn’t created for! Records show that there is about $130 Billion left to spend… Come on Mr. Treasury Sec. this isn’t a re-run of the movie Brewster’s Millions! (you might recall that movie, as Richard Pryor inherited a million dollars, but had to spend it all to receive it, or something like that….)

Gold held onto those gains I talked about yesterday morning, and has added another $5.25 this morning… The shiny metal is back to $887… A reader asked me yesterday about Gold dipping below $900… Hmmm… It’s my feeling that buying Gold on the dips is a good practice… But then, who’s to say that Gold doesn’t fall even further before turning around? I don’t think anyone would bet against that happening… My point is, if you can buy it cheaper today than you could yesterday or last week it’s a bargain! If it falls further… It’s an even better bargain!

The euro has been gaining ground since I turned on the screens this morning, rising from 1.32 to 1.3255 as I type my fat fingers to the bone! You know… Eventually, the chickens will come home to roost on all the debt and money supply and treasury issuance and failed corporations and the depression in the U.S. and when they do… One would have to think that the dollar will get punished severely… And I mean severely! But all that remains to be seen… The best thing to do though is to give your investment portfolio a hedge… And make certain that you don’t have all “dollar denominated” asset classes / investments! A diversification that does NOT require a 100% move out of the dollar! Currencies and metals are asset classes just like stocks, bonds, mutual funds… Add them to your portfolio and reduce the overall risk of that portfolio!

Not much in the data cupboard today… The FOMC meeting minutes from March 17-18, when the Fed announced that they were buying Treasuries, thus monetizing the debt… It will be interesting to see what led to that decision, or who came up with that idea… The Treasury has another auction to get through the system today, this time of 3-year notes. The yield on those notes will probably be around 1.25%… Ooooohhhhh, where do I sign up? NOT!

Currencies today 4/8/09: A$ .71, kiwi .5760, C$ .81, euro 1.3255, sterling 1.4710, Swiss .8725, rand 9.20, krone 6.72, SEK 8.22, forint 223.80, zloty 3.3850, koruna 20.06, yen 100, sing 1.5150, HKD 7.75, INR 50.19, China 6.8470, pesos 13.52, BRL 2.2150, dollar index 85.30, Oil $47.78, Silver $12.29, and Gold… $885

Source:  Needing To Break The Pattern

While we have been getting roughed up to the tune of almost a 50% drop in the stock indices, corporate bonds have been as solid as stone, with a few exceptions.

Right now, you can earn as much as 15-17% per year on investment grade corporate bonds with very short maturities. So why are we taking risks in the stock market and getting killed?

Simple, most people know less about bonds than any other investment. Too many moving parts, too many new terms to understand, so they stay within their comfort zone.

Yield to maturity, current yield, yield to call, mandatory calls, sinking funds, coupon, treasury spreads, accrued interest, it’s enough to drive anyone mad. Just when you thought you had stocks mastered.

Here is an idea that will help get you out of the line of fire of the stock market and into a safer, saner investment that will beat the stock market’s long-term return. I can’t explain it any simpler.

Alcoa has a bond that is really cheap right now. All bonds are offered at $1000 each, or there about, and all mature at $1000, but you can buy them on the secondary market cheaper if the business has a slow down, as Alcoa has.

You can buy this particular bond for about $830, which means you get a capital gain at maturity of $170 in addition to the interest it pays which is 6.5%.

The bond matures in June 1, 2011, that’s a holding time of 27 months. That’s considered an ultra short maturity. On June 1, 2011, you will receive your last interest payment of $32.50 and $1000 at maturity, even though you only paid $830 for the bond.

Here’s how to figure your annual return. Most people really have trouble with this part of bonds.

You will receive interest payments on or about June 1, 2009 and 2010, and on January 1, 2009, 2010, and 2011. That’s five interest payments of $32.50 (half of 6.5% annually or $65.00/2).

You get $162.50 in interest and capital gains of $170 at maturity, for a total of $332.50 for an $830 investment.

You have something called accrued interest, which deducts about $10 from your total. Don’t ask, it’s one of those bond things that I don’t have time to explain, which leaves you with $322.50.

You divide your total of $322.50 by your purchase price of $830. Your total return for a 27-month hold is 38.85%.

To get your annual return divide your total return, 38.85% by 27, the number of months you held it, for .014, and multiply that by 12, because there are twelve months in a year, or 17.2% per year.

Alcoa is an investment grade bond, not a junk bond. Investment grade bonds, according to Moody’s records, have a 99% success ratio for an 80-year period. That means they pay off 99% of the time.

Many investment grade bonds will pay you this much per year and more. The question you should be asking yourself is, “why am I getting killed in the stock market when I could be doing this?”

A return of 15% per year and a 99% success ratio for an 80-year period. Think about it and take a look at the Bond Trader. We do this every week.

Source: A Safe 15% Per Year, No Sweat

U.S. stocks tumbled on Monday as signs of further deterioration in the economy around the world punctured last week’s market enthusiasm, with financial services companies and retailers among Wall Street’s biggest drags.

Major industrial companies also contributed to losses on signs global demand is faltering, leading investors to pare back risk in favor of safe-haven government debt.

With the holiday shopping season under way, investors feared that retailers may turn in their bleakest sales in many years. The S&P retail index declined 4.4 percent.

Department store Macy’s Inc tumbled 9.6 percent.

Consumers made repeat trips to stores and spent more on bargains this weekend, but analysts said the rush is unlikely to translate into a much-needed boost in profit.

“Things are looking quite bleak. Everyone acknowledges that,” said Brian Gendreau, investment strategist at ING Investment Management in New York. “The question is to what extent is that already priced into the markets. Apparently, not entirely.”

The Dow Jones industrial average slid 383.26 points, or 4.34 percent, to 8,445.78. The Standard & Poor’s 500 Index shed 45.94 points, or 5.13 percent, to 850.30. The Nasdaq Composite Index plunged 82.09 points, or 5.35 percent, to 1,453.48.

In the United States, factory activity fell in November to its weakest since 1982, according to the Institute for Supply Management. The data jolted investors who earlier got news of weaker Chinese and European manufacturing activity.

Top drags included financials, with Citigroup down nearly 9 percent, after an influential analyst forecast more losses for the major U.S. bank. A slide in commodity prices pinned resource stocks in the red, with aluminum producer Alcoa tumbling almost 9 percent.

Among big manufacturers, Caterpillar Inc plunged 8.6 percent, as General Electric slid more than 7 percent.

The market’s slide extended a global equity rout that hurt stocks in Asia and sent European indexes sliding 4 percent or more.

A lower close on Monday would snap a 5-day streak of gains for the S&P 500 stock index. Yields on benchmark 10-year Treasury notes sagged to five-decade lows and prices rose as investors sought the safety of government debt.

Citigroup shares fell to $7.49 on the New York Stock Exchange, while Bank of America slid 8.7 percent to $14.82. The S&P financial index plunged 7.1 percent.

Shares of Caterpillar, a maker of bulldozers and excavators, dropped to $37.33.

Among retailers, shares of department store operator Macy’s Inc tumbled 9.6 percent to $6.71, as those of Wal-Mart Stores , the world’s biggest retailer, shed 3.3 percent to $54.04.

One analyst expected the U.S. credit-card industry to cut $2 trillion in credit lines over 18 months, which would be a severe blow to spending for cash-strapped consumers.

Shares of Alcoa fell to $9.78. Shares of energy companies were another drag as oil prices fell on concerns that the economic slump will hurt energy demand. U.S. front-month crude fell about 8 percent to $49 a barrel.

On Nasdaq, chipmaker Qualcomm Inc was the top drag, falling 6.3 percent to $31.44.

Ellis Mnyandu
NEW YORK, Dec 1 (Reuters)

Meantime, oil feels even more bullish… like everything is conspiring to drive this commodity higher. May futures for West Texan Crude are up another two dollars as I write to $108 and change – and the momentum seems to be building.

I’ll have more on that in a moment, as Garry White explains just why this market is on fire… and how you could profit.

Beat the stampede: tune in at 10am tomorrow for your chance to join Time Trader…

But first, I’ve got some important news for anyone looking to start shadowing the most talked about trader on our books. If you missed last month’s sign-up opportunity, get ready for another chance.

Keep an eye out after 10am tomorrow. As I mentioned in Friday’s Profit Watch, the doors are about to open up again for our Time Trader service. Based on the rush we saw last month, I’m expecting quite a stampede as ambitious traders look to get into the next trade.

I’ll tell you more tomorrow, but here’s a little “heads-up” about what this entails. I want to make sure you are one of the first to read about this opportunity when I send it tomorrow.

First up, this is not the kind of trading where you need to chain your self to your computer. All you need is a mobile phone and to meet some selection criteria to make sure you’re the right kind of investor… and you’re ready to roll.

How just one trade a month made this guy half a million pounds in six months…

You see, Robin Tracey, the mastermind behind Time Trader, makes just one trade per month. That’s all he needs. He’s been utilising this “one trade a month” work ethic for the last ten years and it has helped him become a millionaire. In fact, when we were working with Robin to launch this service, he made half a million pounds in just six months – purely from the trades he made following this strategy.

Adrenalin seekers who want the thrill of trading in and out of the market on a weekly, daily or even hourly basis, this might not be what you’re after – although you could certainly add it to your weaponry (and when you see how it works, you might just give up the manic trader lifestyle and opt for this less stressful one!)

If you’re the kind of trader who’s looking for a less stressful strategy, but with great profit potential, then tune in tomorrow… I’m pretty sure this could be what you’re after.

Profit Watch readers are top of the list – you’re the right calibre

As usual, Profit Watch readers will be among the first to see this opportunity. Robin Tracey is looking for a certain calibre of trader to join him for his next trade and I think you’re more qualified than most. I’ve got you to the top of the list – so take a look tomorrow and see if you’d like to test out this fascinating strategy for playing the markets. There’s nothing else like it that I’ve seen.

I’m quite sure you’re busy – too busy to be watching your inbox, waiting for my message tomorrow. So to make it easy, I’ll make sure I send details at 10am tomorrow – you should have it by 10.30am. Take a look and see what you think – if you like the sound of Time Trader, grab that place while it’s there. The next trade is coming very soon.

$100/barrel: a new base for oil – here’s why it could go higher…

Despite concerns about a rocky global economy, the oil price has found a floor at $100,” says Garry White of Smart Commodities. “WTI futures have hit $106.7 this morning, boosted by a small refining fire at an Exxon operation in Los Angles on Friday, continuing concerns about the dollar and the first fall in Opec output since August last year.

$106.7? That’s old news, Garry – as I write, the price is a few cents shy on $109 for May delivery.

Bloomberg reports: “Crude oil jumped more than $2 a barrel and gasoline rose to a record as investors looking for an inflation hedge and higher returns flocked to commodity markets.

Fine, so oil’s going up – that’s nothing new for regular readers of Profit Watch. We’ve been riding this trend since we launched in 2003. What we really want to know is how long can it last… and what does it mean to us as investors? How can we make money from it?

Garry White has the answer. That’s his thing – he writes about oil, gas, gold, in fact all commodities for his group of resource investors. He’s clear about oil:

Despite the threat of a global recession the oil price has remained above $100. This is not just speculation because, if it was, the oil price would have retracted with the gold price. It has outperformed gold over the last two weeks.

First-quarter earnings season kicks off in the US later day with Alcoa. When the oil companies start posting their corporate earnings I believe they will be significantly above consensus, prompting a re-rating of the sector as a whole.

What “Peak Power” means for oil…

I believe this will continue for the next few quarterly earnings reports – and possibly well into next year if “Peak Power” bites the Middle Eastern oil producers hard.

All this means great news for certain suppliers of other energies. With the oil price remaining above $100 and with subsidised fuel set to become a thing of the past… cheaper, but equally efficient, forms of energy will see a massive surge in demand.

One company I’m tipping is already doing exceptionally well and is set to go from strength to strength as “Peak Power” and reduced subsidies continue to drive up the price of oil.

So Garry’s advice to his readers right now is clear: Buy commodities – and oil in particular. If you’re looking for his specific profit plays – ones you can make easily through your own stock broker with easily traded shares – then just get on board his Smart Commodities letter. You’ll learn all about “Peak Power” and what it means for oil investors.

To find out why oil is one of Garry’s Power Trends – 5 trends that could see smart investors make an absolute killing in the months ahead – click here

Past performance is not a reliable indicator of future results. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary.

Chinese shares have fallen so much this year that its markets now offer bargains galore. Just about everywhere you look, some of the world’s most exciting companies are going for a song. China’s “great spring sale” has kicked off. And we’re going bargain hunting.

Take the Guangshen Railway Co., for example. It operates trains in China’s richest province, Guangdong. Analysts expect that its net earning will grow by 41 per cent over the next two years. Contrast that with America’s second biggest railway company Burlington Northern Santa Fe. Burlington is expected to grow earnings by 31 per cent over the same period.

At the end of last week, Guangshen was trading at a price-to-earnings ratio of 17.3. Burlington was trading at a P/E of 20.8. So, right now you can pick-up the faster growing Chinese company at a 17 per cent discount to Burlington.

Why am I focusing on Burlington? Because investment legend Warren Buffet sees it as one of the best investments available in the U.S. He has bought about 20 per cent of the company already and is keen on adding to his holding.

Guangshen isn’t a one-off case either. Look at Aluminium Corp. of China Ltd. (Chalco). It is offering investors twice the profit growth of America’s Alcoa Inc – the world’s biggest aluminium company. Chalco’s Hong Kong listed shares now trade at a P/E of 14.5. That puts them at an 11 per cent discount to Alcoa.

So many bargains… so little time…

China’s CSI 300 Index, which tracks the leading companies on both of China’s stock markets, has fallen by 32 per from its October peak. That’s the biggest decline among the world’s 20 biggest equity markets. Hard luck if you were already invested in it, but excellent news if you’re looking to get in.

The slump has narrowed the CSI 200’s price-earnings gap with the Standard & Poor’s 500 Index to just 13 per cent at the end of last week. It was 139 per cent at its October peak. Companies in the CSI 300 now trade at an average price-earnings ratio of 26.4, down from a record of 52.8 in October. So, right now, they’re just slightly above the 23.4 ratio for the S&P 500. And China’s higher growth rates justify that.

But take a look at the Hang Seng China Enterprises Index. It measures the performance of 42 major Chinese companies that trade in Hong Kong. It has been cheaper than the S&P 500 since March and is now valued at 18.1 times profit. That puts it on a 12 per cent discount to the U.S. markets.

China is over-sold

That brings me back to a point that I have been making here in this newsletter – The Asian markets have been massively oversold. A correction was in order, but the current sell-off has gone beyond what can be justified by the fundamentals.

The CSI 300 surged by 478 per cent over the last two years as China’s economy continued to race ahead and the government increased the supply of state-owned shares. But valuations clearly got well ahead of themselves. The rally fizzled this year on fears that prices had outstripped earnings prospects, that new share sales would overwhelm demand and that the highest interest rates in nine years will slow profit growth.

But those fears have been overblown. Chinese companies’ earnings actually grew by 5.5 per cent in the first three months of this year. Things haven’t gone so well in America. U.S. companies profits have dropped by 16 percent in the first quarter. China is clearly the better bet right now. Even after this years’ declines, the CSI 300 is still 322% higher than it was three years ago.

A good time to buy in.

So, the correction in China provides a good opportunity to get in. A lot of the best companies are now trading on very attractive valuations. Even if we make allowance for overly optimistic growth forecasts for some of them, they still offer much better value than you are getting in the West right now.

How do we best play this? I like the country’s transport sector. The Chinese economy is still booming; and so is most of Asia…

I am tremendously bullish on Asian shipping companies at the moment. Right now, I see fantastic value in this sector, and nowhere better than in China.

Regular Profit Hunter readers will be receiving my brand new Chinese shipping recommendation very shortly. Get in on this service now so as not to miss out on our latest tips, reports and much, much more…

Regards

Manraaj Singh

Profit Hunter
Editor

Source: Chinese Share Panic Gives Us Once in a Lifetime Opportunity

The $140bn BHP Billiton move on Rio Tinto first appeared on the boards back in February. “Await documents” has been flashing ever since. There is absolutely no hope of BHP’s offer for Rio even reaching official posting stage for months.

Like any frustrated traveller, investors need some idea of what is happening. Actually there is more hope here than with BAA. At last there has been one decisive step. Being loudly broadcast is the fact that a vital regulatory stage has been reached. Permission is being applied to remove a major block from the wheels.

BHP Billiton, the world’s biggest mining group, has at last formally filed with the European Commission for clearance to take over rival Rio Tinto. This showed up in a Commission list of M&A cases last Friday.

The Commission, the European Union’s executive arm and also its antitrust regulator, set a deadline of July 4 for consideration of the deal. By that date the Commission must either approve the deal on competition grounds, open an in-depth investigation, or permit a short extension.

All sorts of points could give the Commission problems. Combining a number of BHP and Rio’s businesses would bring market dominance. So, Competition Commissioner Neelie Kroes is expected to be brought in.

Rio Tinto spurned BHP’s all-share offer very shortly after BHP announced it. The Rio line has consistently been that the bid is “ballparks” away from a fair offer.

The two companies have sparred over who had the better growth rate. Rio maintained that it expected to grow at a compound annual growth rate of 8.6% for the next seven years. BHP countered that it did not believe those numbers. In its view Rio would growth by 6% a year for the next five years. BHP, on the other hand, says it will grow at 6.9%.

Lots of people are unhappy – mainly customers

This, for sure, is no friendly takeover – the atmosphere is strongly hostile. And not just from Rio. All sorts of interested parties are doing their best to block the bid, too.

Major objectors are customers. The fear is that without competition, BHP will be able to charge whatever prices it likes. It would become a super mining major with sway over the global supply of a large number of minerals and metals.

The Chinese have taken their concern as far as buying a chunk of Rio to protect it. Earlier this year Chinalco and the US aluminium giant Alcoa bought 9 per cent of Rio in a $14bn raid. This is the largest single shareholding.

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Things had gone quiet for weeks before the EU story broke. Having started the bid with some pretty public rows, both companies went behind the scenes for the various talks that have been going on non-stop.

Informal talks have been held with regulators, and these had begun to leak out. The EU, for instance, is said to believe that the market strength of the combined company would inevitably lead to price hikes. This would slow economic growth even further. The Wall Street Journal put the cat among the pigeons by saying that the EU was really unhappy.

Both companies have also been going the round of shareholders, putting their cases directly. Some shareholders had been thinking the offer would be increased before now. No sign of any hike yet, however.

A case for asset upgrades here?

The battle moved back into the open last week. Rio held a marathon seminar in London. The aim was to show BHP’s bid as far, far too cheap. Rio wants the market to revalue its assets too, in the light of a forecast that world demand for its metals will double by 2022. Chinese growth is major factor in its new predictions.

Managing director Tom Albanese said that with each passing year “people have been taking what we believe is a more realistic view of the total China story”.

“In that environment, greenfield projects are becoming more valuable. And I think they will continue to be more valuable in the future,” he said.

Rio has been trading at a discount to the bid

His comments come as Rio’s share price traded at a discount of over 8% discount to the implied value of BHP’s offer. Mr Albanese blamed this on uncertainty about when the bid would proceed. But he stopped well short of saying that BHP’s 3.4-for-1 offer was nearing the ballpark in terms of value.

“We’ve said in the past that the board has reviewed the BHP Billiton pre-conditional takeover offer,” he said. “We took it seriously. We rejected it. We rejected it on the basis of value. Rio Tinto as a stand-alone company is worth much, much more than anything that we’ve seen presented to us.”

But he did not succeed last week in propelling the Rio share price to above the bid level.

BHP will probably wait until the regulatory processes are all finished before adding any sweeteners. Anyway, the current view is, it won’t put up its offer until posting formal offer document.

Timing? Probably late 2008 at best!

Keep mining.

Erin and Isabel

Source: Rio Investors Should Continue Waiting in the Hall

In fact, rumors that BHP may increase its bid have brought about even more speculation that China’s largest steelmakers will further enter the fray.

Rio Tinto Group, the world’s third-largest mining company, rose in London trading yesterday (Tuesday) on speculation BHP Billiton Ltd. will increase its $179 billion hostile bid for the company.

“The rumor doing the rounds is that BHP will increase its bid to 3.8 shares for each Rio share,” Manoj Ladwa, a derivatives broker at TradIndex in London, told Bloomberg News.

Rio Chief Executive Officer Tom Albanese rejected BHP’s initial $127 billion offer saying it “significantly undervalued Rio Tinto and its prospects.” Albanese also said the bid, which offered three shares of BHP for every one share of Rio, was not just out of the ballpark, but “several ballparks away” from being an accurate appraisal. A second offer of 3.4 BHP shares per share of Rio Tinto was also rejected.

BHP has refused to comment on the rumors, but it’s not too great a stretch to imagine another bid might be on its way. That’s because the one thing the world’s second and third largest mining companies can agree on is that Asian markets should be paying more for their iron ore.

Both Rio and rival BHP Billiton are believed to be pushing for an 85% increase in 2008-2009 benchmark iron ore prices, despite the 65% to 71% rise agreed to by Brazilian mining rival Vale (RIO).

The two Aussie juggernauts believe their proximity to Asian markets gives them greater leverage to charge higher prices.

“Rio Tinto will continue to negotiate to obtain a freight premium, to reflect its proximity to Asia and its major customers,” Sam Walsh, Rio’s chief executive of iron ore projects said in February.

Freight accounts for 30% of the landed cost of Australian iron ore in China, but close to 50% of Brazilin iron ore. China, the world’s largest steel producer and consumer, imported 383 million metric tons of iron ore in 2007, up 56.8 million tons, or 17.4%, from the previous year, the China Iron and Steel Association reported.

China’s Chess Game

China is perhaps most affected by the increase in iron ore prices. The country produces about a third of the world’s steel and the vast majority of that output is being used to build the foundation of what will one day become the world’s premier economic power. A boom in commodities prices that has caused the spot price of iron ore to triple in the past five years threatens to derail the country’s fast track development.

However, the only thing that scares Beijing more than soaring ore prices is the prospect that BHP and Rio will team up to ensure that high metal prices are supported well into the future, and perhaps through the duration of China’s economic and industrial expansion.

So far, Xiao Yaqing, chief executive of Aluminum Corp. of China (ACH), otherwise known as Chalco, has given the strongest indication that the state-backed Chinese company is uneasy about the prospect of BHP and Rio forming an ironclad alliance.

“A firm that owns too many resources is not good for the world,” he said in an interview with Hong Kong’s South China Morning Post. “People do not want to see a company dominate the market in any industry.”

Earlier this year, Chalco and Alcoa Inc. (AA), the U.S. aluminum company, bought a 9% stake in Rio Tinto Group for $14 billion. The move turned the duo into Rio’s single largest shareholder, ensuring BHP would have to obtain a 50.1% stake in the company to complete its takeover.

Last month, Sinosteel Corp., China’s second-largest iron ore trader, won over Midwest Corp. by raising its takeover bid to $1.3 billion. Sinosteel has also acquired a 2.4% stake in Murchison Metals Ltd., a rival iron ore producer to Midwest.

Few believe that Chinese companies will stop there, however. The Australian newspaper reported Monday that China’s three largest steel firms – Sinosteel, Chinalco and Baosteel Group Corp.- were looking at a 16% stake in Fortescue Metals Group Ltd., that Harbinger Capital Partners is considering selling. Fortescue is Australia’s third largest iron ore producer behind BHP and Rio Tinto.

“Harbinger chief executive Philip Falcone has been regularly contacted by many Chinese and European companies, particularly in recent weeks,” the paper said. “But because of federal Government concerns about the level of foreign investment, any sale to the Chinese will probably be for only about half of the Harbinger stake.”

Even Marius Kloppers, chief executive of embattled BHP Billiton, thinks a stake in his company will soon fall into Chinese hands.

“Various parts of China that have got surplus funds, capital to deploy, are deploying that across a wide range of things in the world,” he said at an investor briefing. “I have no doubt that one day we will see them show up on our register.”

Source: Iron Ore Proves to be the Most Coveted Commodity in the Pacific 

Copper continues to meet serious resistance at $4, as it fell short of that mark again yesterday, primarily on nervousness about the economy.

The unease wasn’t helped any by some disappointing quarterly results. Goldman Sachs analysts noted that first-quarter U.S. earnings reports got off to an “awful” start last week, with GE stunning investors as it posted a decline in profit, and Alcoa reporting that earnings plunged by 54%.

“Poor equity-market performance” is behind copper’s listlessness, wrote Michael Jansen, a London-based analyst at JPMorgan Securities. “Demand continues to remain weak, especially in the U.S.”

With the exception of nickel, the sector was off yesterday, leading Michael Widmer, metals analyst at Lehman Brothers, to say that, “Base metals are pretty weak, though they recovered some since this morning. Macroeconomic data that wasn’t as bad as many had thought may have contributed to that.” Widmer cited data showing industrial output in the eurozone increased more than expected in February.

And Ralph Preston, of Heritage West Financial in San Diego, California, said that, “The recovery from the overnight spike to $3.8155 is very bullish for the metal … As long as the copper stays above $3.85, the bulls are still in control.”

In company news, Teck Cominco made a complex move, reporting that it will pay $425 million to acquire Global Copper, in order to gain control of the Relincho copper/molybdenum mine in northern Chile.

Global’s copper assets in Argentina, however, will be spun out as a new TSX-listed mining play, to be called Lumina Copper, which will also hold a royalty in the Chilean mine. Global Copper has agreed not to solicit rival bids and there’s a $12.5-million break fee due to Teck if a better offer is received.