By 1306 GMT, the pan-European FTSEurofirst 300 <.FTEU3> index of top shares was down 0.4 percent at 884.79 points after trading between 879.97 and 888.23 points.

“Morgan Stanley’s operating loss per share looks on the high side, compared to others in the sector. I think Morgan Stanley’s paying back public aid has distorted results; it is not known if this has been incorporated into analysts’ expectations of the results,” said Heino Ruland, strategist at Ruland Research.

Bank shares took the most off the index after Morgan Stanley reported its third consecutive quarterly loss and Wells Fargo reported rising credit losses.

“The continuing decline in asset quality is a worry, and whilst they are making money in other areas it just goes to show that conditions in the consumer segment are still evidencing headwinds,” said Paul Chesterton, senior sales trader at CMC Markets.

Barclays , BNP Paribas , UBS and Lloyds Banking Group were down 1.5-3.8 percent.

Miners were also heading lower. BHP Billiton fell 2.8 percent after the world’s largest miner reported a 10 percent fall in iron ore output to 27.048 million tonnes after its operations were hit by mining fatalities and flooding in Australia.

Energy stocks were down as crude slipped 1.5 percent. BP , Royal Dutch Shell , Premier Oil and Total were 0.8-2.8 percent weaker.

On the upside, drug makers added most points to the index. GlaxoSmithKline gained 0.3 percent after it beat expectations with its second-quarter earnings and said momentum in the second half would pick up on the back of flu vaccine sales.

Across Europe, the FTSE 100 <.FTSE> index was down 0.3 percent, Germany’s DAX <.GDAXI> was down 0.4 percent, and France’s CAC 40 <.FCHI> was down 0.8 percent.

July 22 (Reuters)

And I don’t know the answer more than anyone else.

However, It stands to reason that one of the best indicators that might give us an early tip on recovery is iron ore shipments.

Iron ore is the basic component of steel, which is used in bridges, buildings, ships, pipes, cars and trucks. Even concrete highways and bridges have steel rebar embedded in them for added strength. It’s perhaps the largest ingredient in the infrastructure of the industrialized world.

World production of raw iron ore averages about 1 billion tons per year, with China alone producing nearly half the total. Australia and Brazil produce nearly 20% apiece, and roughly 54 other countries make up the rest of the production.

One of the largest producers of raw ore is mining giant BHP Billiton (NYSE:BHP), based in Australia. Engaged in the mining of metallurgical and energy forms of coal, oil, gas, diamonds and other base metals, Billiton also operates some of the largest iron ore mines in the world.

The company has 41,000 employees working over 100 mining and extraction operations in 25 countries around the world. Last year, the company generated revenues of nearly $60 billion, and roughly 25% of that was profit.

Rising Shipments: A Positive Sign

One of the best places to gauge iron ore shipments is Port Hedland, in western Australia. The Port Hedland Port Authority keeps track of iron ore shipped from its docks, and May’s total was 13.39 million tons, up 18% from April’s 11.33 million tons. BHP’s portion of May’s total was 11.12 million tons.

To put this in perspective, last June – at the height of the China driven boom – BHP shipped 12.26 million tons out of Port Hedland.

BHP recently put together a joint production venture with rival Rio Tinto, PLC (NYSE:RTP) that is expected to save the two companies $10 billion annually.

Both miners are trading roughly midway between their 52-week highs and lows, and are two of the best ways to gauge economic recovery from the ground up (pun intended).

Source: BHP Billiton (NYSE: BHP): Stock of the Day

The bid was also partially kneecapped by antitrust concerns raised by the European Commission, which mandated BHP unload assets for approval.

And Rio’s net debt of $39 billion was yet another concern for BHP.

“Recent global events and associated falls in commodity prices have… altered risk dimensions. BHP Billiton is very focused on balance sheet strength. Accordingly, the greater debt exposure of the combination plus the difficulty of divesting assets have increased the risks to shareholder value to an unacceptable level,” Marius Kloppers, BHP Billiton’s CEO, said in a statement.

BHP, the world’s largest mining company, announced the hostile bid last November. Its first offer allotted three BHP shares for each share of Rio, valuing the company at about $127 billion.

Rio Tinto Chief Executive Officer Tom Albanese rejected it, calling it “several ballparks away” from Rio’s value. BHP returned in February with a sweetened offer of 3.4 shares for each share of Rio. That offer, worth about $147 billion, was also rejected.

Since then, sinking stock markets and commodities prices have dragged down the companies’ stock value, making the value of BHP’s bid was about $66 billion Tuesday afternoon, Reuters reported.

The dropped bid clipped as much as 40% from Rio’s New York-listed American Depository Receipts (ADR) Tuesday, while BHP’s New York-list ADRs moved up a healthy 13% by the end of trading.

Competitors Cheer

Had Rio accepted BHP’s offer, it would have created a resource group capable of holding sway over a considerable portion of the world’s resources, including supplies of copper, aluminum, coal and iron ore.

BHP-Rio Tinto would control 14% of the world’s thermal coal and 13% of the worldwide copper supply. The company would also supply one-third of the world’s traded iron ore and 38% of the world’s seaborne iron ore trade.

Such a tight grip would have forced competitors to slash prices to compete.

“Steel makers around the world will be rejoicing today,” Ian Rogers, director of industry trade group U.K. Steel, told MarketWatch.

Source: BHP Abandons Hostile Bid for Rio

It does seem unusual for one of the biggest mining companies to sponsor the Beijing Games.

But as it turns out, this massive marketing campaign wasn’t targeted at Joe Sixpack watching the Olympics.

It was payback to Beijing, says Irwin Greenstein, writing for Contrarian Profits.

BHP’s TV play was a not-too-subtle way for the company to get China’s approval for its long-running takeover bid of rival Rio Tinto, according to a Wall Street Journal article today.

Suddenly, you realize that BHP is in the propaganda business.

Well, what’s the difference between advertising and propaganda?

Advertising attempts to elicit a response. Propaganda aims to change your belief system.

As the Wall Street Journal reports, BHP’s ads were a way to build goodwill with the Chinese government and the country’s large steelmakers.

You would think that good, old-fashioned bribery, nepotism and womanizing would be enough. But BHP’s ads bring sugar-coated cronyism directly into our living rooms.

This is not the kind of propaganda you would expect from one of the big oil companies. At least they try to paint a happy face on their own companies with eco-friendly messages.

BHP Billiton is something else entirely. Its propaganda campaign is on behalf of its largest customer, the Chinese government.

Karen Wood, BHP’s chief people officer, told the Wall Street Journal that BHP decided to sponsor the Beijing Games mainly because “we thought that it was very important for us to demonstrate our commitment to China.”

BHP now receives about 20% of its revenue from China, up from 2% in 2000. China’s insatiable demand for raw materials is a reason BHP this week reported record annual earnings for the seventh straight year, with net profit surging 15% to $15.39 billion. Revenue soared 25% to $59.47 billion.

The stakes are certainly high for BHP’s relationship with Beijing, and the company’s proposed hostile takeover of Rio Tinto tacitly needs China’s support.

The Financial Times reported in June that Chinese millers agreed to pay Rio Tinto up to 96.5% for their ore supplies this year, the largest ever annual increase and well above the 9.5% increase paid last year.

Given these dramatic price hikes in steel, China is concerned that a combined Rio Tinto- BHP would further force up prices of commodities. In fact, the merger would give BHP control of nearly half the Asian supply of iron ore, the main ingredient in steel.

But China’s consumption of crude steel in 2008 is expected to rise about 11% — an increase of some 44 to 50 million tons, according to the China Iron and Steel Association. Consumption of crude steel in 2007 was 434.36 million tons, up 11.87%.

China has also emerging as a major steel producer.

The International Iron & Steel Institute said that crude steel output reached 1,343 million metric tons in 2007, up 7.5% from the year before. It was the highest level of crude steel output in history and the fifth consecutive year of growth above 7%.

China’s steel production rose 18.8% to 489 million metric tons in 2007 — 36% of total output. Without China, world crude steel production would have grown only 3.3%.

As the Chinese rapidly move to dominate the 21st century economy, you can expect that propaganda campaigns will start to appear from other critical suppliers. While BHP’s complicity makes for good business, it does not make for a good corporate citizenship.

Zinc declined the whole day, barely coming off its lows to end at $0.8363/lb., down 2½ cents. Aluminum was modestly lower, shedding a bit more than a third of a cent, to $1.3145/lb., while lead’s freefall shows no sign of ending as it dropped another penny and two-thirds, to $0.823/lb.

Copper was weak in the wake of the rising dollar.

“The stronger dollar is impacting prices for copper today,” said Patrick Chidley, an analyst at Barnard Jacobs Mellet in Stamford, Connecticut. “Copper looks set to continue to fall.”

Traders are taking note of all the talk about the possibility of increased interest rates in order to support the dollar and fight inflation.

“The Fed should be much more willing to act to keep the economy going and prevent it from entering a recession,” Chidley said. “If they go ahead and start raising rates, that’s not going to happen. They run the risk of putting the U.S. into a recession, and that’s going to affect copper very negatively.”

But nickel rose to a three-week high after BHP Billiton, the world’s third-largest producer of the metal, said it will shut down an Australian smelter and refinery that produces about 2% of world supply.

BHP announced that it will rebuild of the Kalgoorlie smelter furnace, reducing nickel sales by 28,000 metric tons.

“It’s a positive driver for the market,” said Adam Rowley, an analyst at Macquarie Group in London. “With the disruption in Australia, nickel is moving to a balance from a surplus.”

The Kalgoorlie closure followed word from Minara Resources, Australia’s second-largest nickel producer, that it was cutting its output forecast by as much as 23%.

Supply may be an ongoing concern, as nickel inventories monitored by the LME have fallen 8.2%, to 47,220 tons, since April 30.

Source: Strong Dollar Hits Most Base Metals - But Nickel Rallies on Smelter Closure

You can see why… it’s the fastest growing nation in the world. Its building rate is mind blowing. And it’s set to continue – at ALL costs.

Over the next few years it plans to build the equivalent of ten New York Cities!

And since the recent earthquake the Chinese government has promised to rebuild all the damaged cities in Sichuan and the surrounding areas. This will accelerate demand for these products even further.

But China has a problem… and it’s a big fat expensive one.

You see, to make steel you need iron – and China doesn’t have enough high-grade iron ore within its borders…

It means they are at the mercy of the world’s big exporters – BHP Billiton, Rio Tinto and Vale.

These miners charge what rates they like to ship the stuff over… and the cost is phenomenal. China has NO CHOICE but cough up.

But one firm newly placed just outside its borders could be about to save their bacon… and it kicks off as early as next month!

An iron ore miner with an edge over all its competitors – including the Big Boys!

At first glance there’s nothing unique about this company. It’s a miner… it gigs for iron ore… its reserves are sound.

But they have one thing that gives their business the edge over all their competitors: Its location.

Consider this… the current freight rate from Australia (BHP and Rio’s ore) to China is around $50 per tonne. Rates from Brazil (Vale’s ore) to China standing at around $100 per tonne.

This means transport costs to China are many times of the cost of mining the ore.

Wouldn’t it be better for Chinese steel mills if they could get their iron sourced more locally so transport costs were slashed?

Of course it would. If you could offer the mills iron ore or pig iron on these terms the Chinese would snap your hand off…

Well this company is scheduled to produce its first ore for sale THIS MONTH.

I will be recommending this company in the next issue of Smart Commodities UK, which drops on Saturday 22 June. To get all the exclusive details on this as soon as they’re published click here.

You have no obligation to continue subscribing. You have three whole months to see if it’s for you. And even if you decide it isn’t, everything you get is yours to keep no matter what.

Why one broker thinks these shares are 100% undervalued

By 2012, the company plans to produce up to 10.7m tonnes of iron ore concentrate. From that up to 5 million tonnes of pig iron will be produced.

It also recently announced the acquisition of two mining licenses that could DOUBLE the iron resources of the company.

Broker Cannacord Adams recently reviewed all of the company’s projects and came up with a net asset per share valuation that is double the current share price.

With the outlook for ore prices, I reckon this valuation looks pretty conservative, because iron ore prices remain on the up.

Iron ore prices will continue rise China’s voracious demand has caused iron prices to rise significantly. Recently, Rio Tinto managed to secure a hike of 95% for supplies of iron ore to a few small Chinese firms after intense negotiations.

Renaissance Capital estimated that there was a 30m-tonne gap in expected iron ore shipments and actual deliveries in 2007. There have been problems with weather as well, with many mines flooding in Northern Australia and in Vale’s operations Brazil.

Citigroup is also bullish on the iron ore price. In a note to clients last week, the broker said: “The iron ore market remains under-supplied and only a sharp deceleration in Chinese steel production will change this. We expect iron ore to rise by 30% in 2009… but this may be conservative.”

I am very excited about the prospect for this share. I like the location of its mines, the quality of its management and the pricing outlook for its main source of revenues.

The valuation is attractive and the fact production is set to start imminently should secure good news flow in the months to come – but you’ll have to wait a couple of weeks to find out exactly which company it is as I complete my research.

So sign up here to be sure you’re ready!

Regards,

Garry White
Editor
Smart Commodities UK

Please note: Forecasts are not a reliable indicator of future results.

Source: New Iron Ore Discovery to Save China’s Multibillion Pound Building Spree

Nickel plunged from the pre-dawn hours straight through the morning, only coming off its lows late to close at $9.939/lb., down more than 32 cents. Zinc was up and down all day with a slight upside bias, ending at $0.8818/lb., up three-quarters of a cent. Aluminum also pushed higher, adding a penny and two-thirds, to $1.3166/lb., up a penny and a quarter, while lead inched higher, adding a bit less than a penny, to $0.8769/lb.

It was a surprisingly good day for the industrial metals, modestly up though it may have been, considering that the economic numbers point definitively to recession and the decrease in demand that that will bring with it.

However, the upside for the metals is that the plunging dollar makes them cheaper for holders of other currencies, and that provoked a bit of buying in the markets.

On the supply side, copper inventories monitored by the LME were depleted for a change, dropping by 950 metric tons, to 122,550 tons, on Friday That came after they had risen by about 10% since the start of May.

Copper inventories monitored by the Shanghai Futures Exchange were also down, falling 13% to 38,829 metric tons in the week ended Thursday.

From a technical viewpoint, chartists say that copper holding at the key support level of $3.50 is a good sign, and they expect a test of the next level of resistance, $3.75.

And in the latest of a spate of labor problems, BHP Billiton reported that operations at its smallest copper mine in Chile, Cerro Colorado, had been hit by a truckers’ strike. Its larger mines have been unaffected as yet, Billiton said.

Source: Base Metals Mostly Higher

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

Nickel followed suit, sinking below the $10 mark, but recovered slightly to edge back over it and close at $10.0115/lb., down 22 cents. Zinc was pounded, barely coming off its intraday low to end at $0.8951/lb., down 5¼ cents. Aluminum wasn’t spared, shedding 3¼ cents to $1.2899/lb., while lead cratered as well, giving up nearly 4½ cents, to $0.8629/lb.

The base metals took an absolute hammering on Thursday, as traders cast an eye on the relationship between rising stockpiles and potentially diminishing demand, and came away with a lot of negative thoughts.

The stock increases are seemingly happening across the board.

Copper inventories monitored by the LME were up 600 metric tons (0.5%) yesterday, to 126,400 tons. It’s the highest level since March 13, and the metal has gained 14% just this month. Analysts are also expecting Shanghai to report an increase of some 7,000 tons this Friday.

Among the other metals, lead inventories showed an increase of 1,550 metric tons yesterday, while zinc was up a hefty 7,850 tons.

Lead is also “weaker at present in part because demand is seasonally soft,” said Lehman Brothers analyst Michael Widmer.

Factor in currency as well. “The stronger dollar is of course undermining [copper],” said Ron Goodis, of Equidex Brokerage Group in Closter, New Jersey. “The bond market is heading down, which means interest rates are going up.”

And Ed Meir, of MF Global, cited “the sluggish pace of recent imports” into China.

In company news, Rio Tinto remained on the offensive against BHP Billiton’s takeover bid. Rio CEO Tom Albanese predicted seven years of near-double-digit annual production growth as he argued that BHP’s bid is too low.

Rio can expect compound annual output growth of 8.6% through to 2015, and the company is well placed to take advantage of an expected doubling of world demand for metals and minerals by 2022, Albanese said.

Source: Base Metals Beaten Senseless – Rising Stockpiles Blamed

Nickel finally found some buyers as it dipped below $10.25 and it pushed back over the $11 mark and held there, barely, at $11.0011/lb., up 42 cents. Zinc had a rollercoaster chart but with an up bias to close at $0.977/lb., up nearly 2¾ cents. Aluminum was higher for most of the day to end at $1.3458/lb., up a penny and a half, while lead fell below 90 cents on several occasions before scratching back to $0.9027/lb., down more than a penny.

Copper advanced on renewed optimism about the demand profile, long-term supply concerns, and a sinking dollar that makes it cheaper for holders of other currencies.

“The market tried to make new lows, but it seems like we are getting some profit-taking and some modest support at the bottom,” said Steve Platt, futures analyst with Archer Financial Services in Chicago. “We could be due for a little bit of a bounce after absorbing some of the negative news over the past week.”

“Copper has to be a buy here,” Ron Goodis, of Equidex Brokerage Group in Closter, New Jersey, stated firmly.

Aluminum was strong, even after worries raised by rising inventories, up more than 10% this month.

But analysts reasoned that prices should be supported by escalating energy costs, since electricity accounts for one-third of the cost of smelting aluminum. And an increasingly strained power grid in China was seen as capping future growth in aluminum output in the world’s biggest producer and consumer.

And in company news, the Sydney Morning Herald reported that, “BHP Billiton does not foresee any ‘insurmountable’ operating constraints as it works to ramp up its new $US2.2 billion (A$2.3 billion) Ravensthorpe nickel laterite mine to full production by the first half of 2010.

“After the official opening of the West Australian mine [on Thursday], BHP’s stainless steel materials president, Jimmy Wilson, told media it was running at about 35 per cent of its full production capacity of 50,000 tonnes a year.

“The technically challenging project – expected to cost $US1.05 billion when it was approved in 2004 – had been emblematic of the cost blow-outs and delays the resources industry has suffered during boom times.”
Source: Nickel Finally has an Up Day – But Production will Increase as Ravensthorpe Comes on Line