Nickel fell until mid-morning, before rallying back a little bit to close at $4.2018/lb., down better than 26 1/3 cents. Zinc had a pleasantly good day, rising fairly steadily to finish at $0.5101/lb., up more than 3½ cents. Aluminum also pushed higher, adding more than a penny and three-quarters, to $0.8918/lb., while lead moved up modestly, tacking on less than a penny, to $0.558/lb.

Once again copper failed to gain much traction, although it came well off its lows for the day (and a fresh 3-year low), as fear continues to dominate. The metal is now down 58% since July.

Even producers are getting pessimistic. Copper’s swift and savage fall has ushered in “the end of the supercycle” for the metal, says Jose Pablo Arellano, the executive president of Chile’s Codelco, the world’s biggest copper miner. Arellano expects that the market will remain depressed until the international economic situation begins to show signs of improvement.

Not that the selloff isn’t general. The Reuters/Jefferies CRB Index of 19 commodities yesterday hit its lowest level since February 2004, and the Bloomberg World Mining Index of 162 companies has shed $493 billion in value since the bankruptcy of Lehman Brothers in September.

“As long as we have uncertainty about the overall financial system, this is probably not yet the bottom for base metals,” said Christoph Eibl, of Tiberius Asset Management in Zug, Switzerland. “People just don’t want to own any commodities that have a high correlation to overall economic developments.”

On the supply side, copper inventories monitored by the LME continued to advance, adding 1,500 metric tons to 209,250 tons, while aluminum stockpiles jumped 3,475 tons to 1.5 million tons, their highest level since February 1995

In company news, Canadian miner Teck Cominco (NYSE:TCK) reported that net profit fell a worse-than-expected 13% in the third quarter, primarily because of the price declines in commodities. However, Teck also raised its outlook for 2008 capital spending by 26%, to about C$1.1 billion.

Source: Base Metals Mostly Stabilize

The old adage “the time to buy is when blood is running in the streets” remains true, however.

Russell says the stock shakeout provides a great opportunity for savvy investors. He recommends buying up quality resource stocks now and holding them for long-term profits.

This from Russell:

Currency debasement has been this year’s major theme. The bailouts are at historic levels. Banks are failing and will continue to do so. Debt is beyond imagination. The dollar based financial system is more fragile by the day. How has this played out?

- The dollar has risen more than ten percent.

- Commodities have fallen across the board.

- Resource stocks have been decimated.

They are no longer just giving away resource stocks they are throwing them away in a complete panic. You’d think the world will never again need gold, silver, platinum, oil, natural gas, uranium, copper, lead or zinc. Let’s look at the mindless carnage:

As you can see, the PHLX Gold and Silver Index (XAU) has been trashed. The smaller companies have received a much bigger beating.

The shares are supposed to show leverage to the respective commodities. Even with the recent decline in the price of gold, gold stocks are trading at the lowest level in relationship to the price of gold over the last 25 years! All resource stocks have been punished. Why has this happened?

First of all, we don’t have honest markets. They are manipulated on an ongoing basis, especially during election seasons. Sad but true. Numerous experts believe the dollar rebound and the commodity take down were artificially induced. Sadly, this possibility has every appearance of being the present American Orwellian nightmare.

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The current global financial and economic chaos is causing extreme stress to many players. Some hedge funds are failing and others are unwinding all of their leveraged positions. Even the hapless dollar has been the temporary beneficiary. “Hot money” is on the run. There is a mass exodus from all things resource. There is no appetite for speculation.

You have likely just witnessed a classic washout bottom. Stocks were down 10-20 percent on a given day. Some were down 50 percent last week. Are the gold, silver, oil, natural gas and uranium plays over? Were they just another bubble as presently described? I don’t believe it for one second. These are real markets with continuing favorable supply and demand fundamentals. Only a widespread global depression is likely to end the bull. Gold, silver and commodities in general are historic safe havens during times of monetary abuse.Let’s look at three possible scenarios as to how resource stocks should perform from this point forward:

- This has just been an especially nasty and forced correction during a typically weak summer. Seasonal changes will bring forth the usual turn around.

- This market is DOA for a continued period of time. Much like the late 1990’s after the Bre-X scandal.

- Commodities are no longer needed.

Possibility three is absurd on its face. Remember, junior explorers are the lifeblood of the resource sector. The present sell off in commodity related stocks is also nonsensical. That leaves us with the first two options.

Will we quickly turn back upwards? Smart money is gleefully now back in the sector buying with both hands. You can pick up selective stocks cheaper than company cash positions. Positions were being sold because they had to be sold per liquidity demands, not because someone actually wanted to sell them. That’s the way of many funds. Markets are made up of fearful sellers and happy buyers.

I would be shocked if this market returns to former highs immediately. Too much damage has been brought forth. A blend between our first two options is more realistic. That’s not all bad.

Markets can be totally irrational at times. They can be irrational for extended periods of time. Patient positioning for the long run can lead to extraordinary profits. Crisis can bring about opportunity. There was no appetite for resource speculation after the 1997 Bre-X gold scandal. That was the market’s decision, though it made little sense to me at the time.

I bought and I bought and I bought for a couple of years there. Few others were interested and I accumulated a lot of quality shares that no one else wanted. These positions were the absolute foundation for my investing success in the early 2000’s. Yes, you can get your hat handed to you in this niche, but you can also make exceptional profits over time. Documented gains fell in the 20X, 50X and even one 100X category. The worst-case scenario, it looks like another similar opportunity is being presented.

The time to buy is when blood is running in the streets.

What am I saying? The market rules in the end. Manipulations always fail, sometimes spectacularly. Those of us heavily involved in resources have been handed a lot of lemons as of late. That’s the bad news and that is the good news. I am holding my resource positions. The very highest quality companies with the most staying power will come out of this shake out period looking like gold.

Source: Now They’re Throwing Away Resource Stocks

Chris Mayer says the next “megatrend” will be a $41 trillion global infrastructure boom. Urbanization on a massive scale in China and India requires huge construction projects. And this will create huge demand for building materials (like cement and steel) and basic commodities (iron ore, copper and nickel).

Chris says power-grid builder ABB (NYSE:ABB) and road-building equipment maker Astec Industries (NASDAQ:ASTE) are stocks to watch…

This from Whiskey and Gunpowder:

Investors are always on the lookout for the next big thing. You know the sort, a big-picture idea so powerful and long-lasting that you can confidently ride your investments through the ups and downs that market life presents. Frank Holmes, CEO of U.S. Global Investors, calls these “global megatrends” – “sustainable and substantial growth in capital expenditures in any country or sector.”

Holmes offered a couple of past examples. There was the massive growth of infrastructure in the ‘50s and ‘60s, which included the postwar rebuilding of Europe and the massive highway system build-out in the U.S. There was the 1990s megatrend, which led to massive growth in information technology and data communications. And there is the present megatrend: “Unprecedented change in global growth driven by globalization, urbanization and wealth creation, [which] leads to a global infrastructure boom on a massive, intractable scale.”

That’s quite a mouthful, but I believe Holmes is right. Holmes also cites numerous studies – one by Booz Allen Hamilton, as well as ones by World Energy Outlook, the U.S. Department of Transportation, the OECD and a host of other official-sounding places. But the total bill, give or take a few trillion, is about $41 trillion out to 2030 – for water, power, roads and bridges, as well as marine and seaports.

This is your next megatrend. Don’t miss it. We have some ideas at work here, but before we get too ahead of ourselves, let’s look again at some of the key points of the thesis.

First, some mega population shifts. By the end of 2008, half of the world’s people will live in urban areas. Leading the way are some 500 million Chinese and another 540 million Indians. The world’s cities are getting a lot bigger. Beijing alone grew from 12 million to 16 million in the past decade. Plus, there are a lot more souls on the orb than ever — 6 billion of us. Next year, the world’s total urban population alone will exceed the total world population in 1965.

This helps drive economic growth. Asia as a whole, for example, is building five times more homes than the U.S. Incredibly, China alone is constructing 80 percent of them. This, in turn, drives consumption of many commodities, including things you may not think of immediately – like cement. Asia, excluding Japan, uses about 14 times as much cement as the U.S. Asia ex-Japan has also overtaken the U.S. in steel production by a country mile. Asian steel production is more than six times the U.S.’ Electricity consumption is 32 percent more than the U.S.’

I could go on like this for pages…the stats are simply amazing. But I think you get the idea. The industrialization of Asia’s enormous populations has unleashed a torrent of demand for the basics.

There was a lot of discussion at the conference in Vancouver about just how much of Asia’s economic growth begins with U.S. consumers. The answer isn’t clear, as you might expect. But it is clear that trade routes in Asia are flourishing. I’ve talked about the New Silk Road before. It’s one of my favorite themes – the opening of old trade routes that stretch across the Middle East through India and into China. Holmes had a chart that showed that the Asian stretch of that old road is still healthy – despite an economic slowdown in the U.S.

Asian trade is ticking up, even as U.S. exports take a dip. It’s not the only data point, either. Asian retail sales are also trending higher as U.S. retail sales head lower. I think it’s a bit arrogant on the part of some analysts to say that China exists to satisfy our needs for rubber toys and cheap underwear. In their view, a U.S. slowdown dooms most of Asia’s export-driven economies. Plenty of evidence shows that’s not the case, at least not yet.

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In fact, Asian demand is on the rise for a whole host of goods. In 2008, vehicle sales in Asia ex-Japan are set to exceed those in the U.S. First time that’s ever happened. Sometime in 2008, also for the first time ever, there will be more Internet subscribers in China than in the U.S. I suspect that’s one top spot that the U.S. will never claim again. There are also four times the number of mobile subscribers in Asia than in the U.S.

All of these points come from Holmes presentation, which I think painted an amazing panorama of the truly historic shifts in the global economy.

As fast as the Asian economies are growing, their demand for power is growing faster. You can also expect to see increasing use of aluminum, copper, iron ore, coal and nickel – all basic infrastructure materials.

Holmes offered that to satisfy the global demand for copper, the world would need to mine as much in the next 25 years as it has up to this point in history. These predictions may prove wildly inaccurate. But even if they are only directionally correct, it points to a long bull market in the basics.

I have recommended stocks that are deeply involved in the megatrend of infrastructure. Companies like ABB Ltd. (ABB:NYSE), the world’s largest builder of power grids, and Astec Industries (ASTE:NASDAQ), a leading manufacture of road-building equipment. Plus, I have also recommended companies that own the basic commodities the world will need – copper, oil, natural gas and more.

As we come to learn early in our investing careers, the market seldom moves in a straight line. Years can separate cause and effect. One of the great megatrends in the market today is this idea of infrastructure and all that it entails. So don’t let the recent volatility in the stock market blind you to long-term investment opportunities.

These are the moments to enter the fray, not to run from it.

Source: Where to Invest After the Collapse

More from Rude Awakening:

The old-timers of commodity investing like to say the best time to buy commodity companies is when the industry is losing money. The old-timers have scar tissue to prove it. The idea is that miners will start to cut back on production, which gradually leads to a recovery in prices, profits and, ultimately, stock prices.

Such times come around every so often, as when the cost to produce nickel rises above the price at which you can sell nickel. Even the slow wits of the business see that you can’t make that up in volume. To keep digging under such prices is like digging your own financial grave.

So they shake their heads, lick the ends of their pencils and recheck the math. Then they order the mining to stop.

And so we see that nickel prices are down 30% this year and down 60% from mid-2007 highs. All the while, mining costs are rising. So Xstrata says it will shut down its 30,000-metric-ton nickel operation in the Dominican Republic. Russia’s Industrial Metallurgical Holding shuts down 30% of its nickel capacity. BHP Billiton (NYSE:BHP)’s  big Ravensthorpe mine, once a potential big moneymaker, looks as if it might never make any money. The industry shelves expansion projects. And new mines that looked promising suddenly look less so.

It’s not just the nickel industry that suddenly bleeds red ink. Zinc prices are also down more than 60% from their highs. OZ Minerals, one of the largest suppliers of zinc, reported a first-half loss last week in its zinc business.

In fact, it’s been a brutally tough summer all around in commodity land. Through June, commodities were sitting pretty. The first six months of 2008 were the best in 35 years, according to The Economist . In July, it was giveback time, and commodities posted their worst month in 10 years. The carnage has continued into August and September.

Commodity stock prices have fallen even further, as investors in the sector know too well. Many stocks have not merely stumbled, they’ve collapsed altogether.

But if you can’t buy commodity stocks now, you may never be able to pull the trigger.

The long-term thesis behind the names seems firmly in place. It has a lot to do with China and India and the rest of the emerging market crowd — but especially China.

For example, China represents almost all of the new growth in copper demand. Across the commodity spectrum, what happens in China makes big waves across the globe.

So far, industry has met that demand, which is why prices have been dropping. But challenges remain on the supply side — declines in the quality of mining seams, shortages of equipment and skilled people, power shortages and bottlenecks in distribution.

The conclusion of all this is not particularly novel, but sometimes forgotten. The fate of the commodity investors hinges largely on those rapidly growing emerging markets. China is the lead pony, though, and the main one to watch.

Stocks in the commodity sector might continue sliding for a while longer, but even so, long-term investors might want to consider dipping a non-essential digit into the water.

Source: Did You Notice – Buy When There’s Blood in the Mine 

Nickel dipped slightly in early trading, but staged an impressive rally starting in the pre-dawn hours to close at $8.3461/lb., up 21 ¼ cents. Zinc traded up and down all day, but ultimately ended up ¾ cents, at $0.8413/lb. Aluminum was down for most of the day, but rode a late rally to finish at $1.3279/lb., up ½ cents. Lead’s trading on the day was marked by large up and down swings. The metal ultimately closed just above its intraday low, down 2 ¼ cents at $0.9937/lb.

The base metals were all aided by sharply rising oil prices on the day, which persuaded traders to buy the metals as a hedge against inflation.

Copper was further helped by concerns that supplies from Mexico are unlikely to recover in the near future.

These concerns were spurred by an announcement from Group Mexico CEO Daniel Muniz that there is no date set to resume production at its Cananea Mine in Mexico. The mine, which averaged 130,000 tons of copper annually, has been closed for the past year because of labor problems.

“At this point we are unable to provide revised copper production guidance for the remainder of 2008 and we do not have a clear date when operations will resume at Cananea,” stated Muniz.

However, Kevin Norrish of Barclays Capital wrote that because the mine has already been closed for some time, “it’s not a fresh loss of production.” As a result, it seems unlikely that the situation will continue to negatively affect copper prices because the supply declines have already been built into current prices.

Source: Base Metals Rally, Still No Timetable for Reopening Group Mexico’s Cananea Mine

Nickel also rallied off its pre-dawn lows, but it wasn’t enough to get it back into the black as it closed at $12.724/lb., down 4½ cents. Zinc inched higher, ending at $0.9824/lb., up three-quarters of a cent. Aluminum had a strong day, adding 2 2/3 cents to $1.2998/lb., while lead logged a modest gain to $1.1595/lb., up a penny and a quarter.

After the bloodletting on Thursday, most traders were clearly in a bargain-hunting mood yesterday.

“In the likes of copper where the fundamentals are tight and, if anything, tightening, this sell-off may well be snapped up as a buying opportunity,” said Basemetals.com analyst William Adams.

“This is especially so when you consider that the equity and dollar rally is unfolding on the back of high hopes that the interest rate cuts and other measures the U.S. Federal Reserve has taken will bolster the U.S. economy, which in turn should be good for metal demand,” Adams added.

Also factoring in were supply worries. Inventories monitored by the LME dropped by 450 metric tons yesterday, to 109,625 tons.

Bill O’Neill, of LOGIC Advisors in Upper Saddle River, New Jersey, remains bullish, saying that, “The market has a very solid underlying base as far as low free stocks are concerned. We have the Codelco strike situation continuing, so I think there is some pretty good underlying fundamentals within the market … Long term, this copper bull market is still in play.”

The Codelco situation remained unchanged yesterday, with the Andino and Salvador mines staying shut, and no end to the strike in sight.

And a Macquarie Bank report said Chinese copper demand for the first quarter was up by only 1% year-on-year, as consumers re-built stocks. However, “Aluminium was up by 9.5% year-on-year, affected by supply disruptions following weather/power problems and lower exports of aluminium fabricated products,” the report noted.

Most analysts believe that the industrial metals will be driven in the near future by the dollar, as traders try to divine whether a real rally is underway, or whether the buck is merely making a dead cat bounce. Monday will have little to tell, as the LME is closed for holiday.

Take bananas a few years ago. One day you could walk into a store and buy them cheap. A few cyclones in Queensland later, and banana prices were through the roof. For most share investors, this wasn’t an opportunity. It just made bananas and banana bread more expensive.

But in other markets – especially resource and energy markets – a sudden change in the availability of basic resources can change everything. A commodity can go from abundant to scarce relatively quickly. Its price can go from cheap to expensive quickly as well. Naturally, the share prices of companies that produce volatile commodities can change quickly too. We’re counting on that this month.

The Leading Edge of the Energy Storm

The high cost of energy – especially coal and oil – is directly impacting resource production in two countries: South Africa and China. As energy prices grind higher – or even hold where they are – this will force the production of certain base metals to lower-cost countries. It will also change the supply-demand dynamic for these base metals, creating new investment opportunities in the process. A good example is South Africa.

You have no doubt read about the power crisis in South Africa. South Africa has a booming resource economy like Australia’s. It’s driven by gold, palladium, platinum, coal, diamonds and other resources.

The trouble is, South Africa’s economy is growing faster than its electrical industry. Contrary to all the gloomy reports, we found the place pretty positive when we visited in late February (mostly Johannesburg). Like any fast growing country starting from widespread poverty, you’re going to have a lot of chaos, crime and uncertainty.

But one of the few things you want to be able to count on is the power. You flick a light switch, the lights go on. That’s so basic that you and I take it for granted. Not so in South Africa. The folks who run South Africa’s only large power company told the government years ago that it would have to invest more in power to keep up with the economy’s growth. The government didn’t listen.

The result is what you have today: rolling blackouts and “load shedding” by the power provider. Demand for power has grown much faster than the available supply. This is not make-believe land. When demand exceeds supply something has to give, and in South Africa, that means power must be cut to someone.

Energy-Intensive Industrial Users on the Chopping Block

The government’s first response to the power crisis was to cut supply to the places that used the most of it, namely the suburban business parks where most of Johannesburg’s business community has relocated in the last yen years. That makes sense. You can only cut power to people who are using it. But cutting power during the middle of the business day unexpectedly is not exactly good for business, or for people’s state of mind.

The government decided to look at industrial users of power. And once it did that, it wasn’t going to be long before South Africa realised – like China is now realising – that there is one particular industrial process that uses much more energy than any other: aluminium.

You make aluminium in several steps. First, you have to refine bauxite ore into alumina. Then, you turn alumina into aluminium by adding generous amounts of electricity in an established process. I won’t go into the details. But the basic ingredients are what we want to focus on: bauxite and energy.

Bauxite is plentiful. You can find it all over the world. Australia happens to have plenty of the stuff. But it is not alone.

Australia is the Saudi Arabia of Bauxite

–Take the Mexican stand off between BHP and Rio Tinto. BHP feels its exposure to coking coal, oil, and gas gives it an earnings advantage over Rio. Not so!, says Rio. Rio says its exposure to iron ore, copper, and aluminium means it will grow is earnings more and sooner than BHP.

–Energy earnings versus metals earnings. It kind of reminds you of the Priority Dispute between Newton and Leibniz over who invented the calculus, doesn’t it? Chicken, egg. Egg, chicken. Cluck.

–Aluminium is an energy-intensive metal, and therefore more price sensitive in an energy-scarce world. This is to Rio’s advantage, the company reckons. “The price for aluminium now has a new base,” Rio’s chief economist Vivek Tulpule told investors in Melbourne this week.

–”Margins for existing aluminium producers who have cheap energy, their own bauxite, and who aren’t exposed to the Chinese currency, go up. This is a phenomenon that people have only started to clue on to very recently.”

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–Tulpule also said that, “Though Chinese aluminium supply had traditionally risen in tandem with demand, keeping a lid on prices, soaring energy costs in China and rising bauxite costs had made Chinese producers the most expensive in the world.”

–In gold, the mantle of lowest-cost producer has always been coveted. In resource, the mantle of lowest-energy-intensity may be the key to figuring out which resources will go up the fastest. Energy-sensitive resources will see producers get hit hard by rising costs. This will cause some to close up shop, reducing production and supply. Prices will rise.

–”An energy shortage in Chile may do for copper what cuts in electricity supplies did for platinum in South Africa — spark a record-setting rally in prices,” according to Heather Walsh at Bloomberg. “Chile may be forced to limit power use for the first time since 1999 because a drought has reduced water levels at hydroelectric reservoirs.”

–Proximity and possession of energy may even better than access to cheap capital in coming years. Energy is a kind of capital, isn’t it? If that’s the case, Australia has a huge capital base, with its reserves of coal, natural gas, and uranium.

–Thermal coal prices are set to double from US$55 to US$125. That’s based on the agreement between Japan’s Chubu electric power and Xstrata which should be come the benchmark for 2000-09 contract prices. Spot prices for thermal coal have tripled in the last year. Spot coking coal (steel marking) prices have quadrupled in the last 12 months, and in the last two months they’ve doubled. Notice a pattern?

–”The value of announced cross-border acquisitions by China so far this calendar year is now US$24.5 billion from 56 deals according to Thomson Financial-already almost equaling the record of $US29.8 billion for all of 2007,” according to Colleen Ryan in the Financial Review. As usual in the financial world, the easiest way to find where asset prices are headed is to follow the money.

–”China’s acquisitions of foreign targets reached US$15 billion in the mining sector-the most active sector, largely comprising companies engaged in metals, mining, and chemicals-rising from just US$243 million in the same period last year,” Ryan writes. Are you listening BHP?

–While the great strategic game for control over Australia’s tangible resource wealth plays out here, a tawdry game of “hide the garbage assets” continues to play out in New York. “One look at the Goldman Sachs’ numbers Wednesday should tell you the credit crunch is far from over,” reports Liz Moyer at Forbes.

–”Despite the Federal Reserve’s dramatic efforts to shake loose the financial system, banks still can’t come up with accurate prices for hundreds of billions of dollars’ worth of mortgage securities, corporate loans and other assets.”

– These assets that can’t be traded and which no one wants to buy are called Level Three assets, named for the part of the balance sheet on which they reside. The banks have stuck them there the way some people might stick a crazy Aunt in the attic to avoid being embarrassed in front of the neighbours. Shut up Aunt Tilda!

–There are a lot of Aunts in the attic. “Level 3 assets now make up 13% of the $771 billion of assets Goldman holds at fair value, according to regulatory filings. Of the $96 billion, Goldman is on the hook itself for $82 billion, and that ‘economic exposure’ is up 50% from the fourth quarter.” And it’s not just Goldman.

–”The increases from the fourth quarter in Level 3 exposures weren’t as stark at Morgan Stanley or at Lehman Brothers. Morgan Stanley had $78 billion of Level 3 assets, or 17% of its assets held at fair value, up 6% from last November. Lehman had $42.5 billion in Level 3 assets, 14% of assets held at fair value, up 1% from November. The three investment banks are the first of a series of banks to file their quarterly reports detailing Level 3 exposures. The total is only expected to rise.”