China’s 470 million ton demand for steel is considerably lower than the country’s annual production capacity of 660 million tons, and to that effect, China announced a three-year ban on new mills The New York Times reported.

“Disorderly competition” has pushed up iron ore prices, caused a glut of production capacity and resulted in “serious losses,” said China’s Information Minister Li Yizhong. “My ministry will not approve any expansion-related projects in the iron and steel industry. I would like to call on the whole industry, all iron and steel producers, not to construct any new projects within three years.”

China is using its clout as the world’s largest steel producer to negotiate lower iron ore prices with some of the larger ore producers, but six weeks after the last agreements expired at the end of June talks are still deadlocked.

Beijing is showing it can and will shop around for the best prices it can find, inking an iron ore deal Monday with Fortescue Metals Group Ltd. that gives the Red Dragon prices 3% below a benchmark set by Rio Tinto with Japanese, Korean and Taiwanese steelmakers.

Still, the Fortescue contract covers only 18 million metric tons of ore, compared to the tens of millions of metric tons Rio Tinto and BHP Billiton Ltd. (NYSE ADR: BHP) have earmarked for the second half of this year.

“The price Fortescue is getting should not be taken as indicative of what Rio and BHP will get,” H3 Global Advisors Director of Commodities Funds Manager Mathew Kaleel told Reuters. “In terms of volume there’s no comparison”

Rio Tinto agreed with Japanese and South Korean steel mills to cut prices by 33%, but negotiations with China stalled when the China Iron & Steel Association demanded a deeper price cut. China is still receiving iron ore on long-term contracts with provisional pricing terms based on the 33% cut, Rio Tinto Chief Executive Officer Tom Albanese said yesterday in a conference call.

It may be difficult for Rio Tinto to bend too far on pricing, as the company saw its profit drop to $2.5 billion in the first half. Operating income at Rio’s iron ore division, its biggest profit generator, fell to $1.9 billion in the first six months of the year.

Chinese iron ore imports rose to their highest level ever as prices swooned in July.

Source: China Turning the Screws on Rio Tinto in Iron Ore Negotiations

China imported 378,943 metric tons of refined copper last month, a 12% increase from May and the fifth straight record, customs office data showed yesterday.

“Demand should ease after builders filled orders for the summer construction peak and the margin between China and London prices narrowed,” said Pang Ying, an analyst at Shenzhen Rongtuo Trading Co.

“July imports should definitely come off from these record levels as the arbitrage window has closed and we move into the slow consumption season. Demand in June was definitely weaker than in May, but comparable to June 2008 levels,” Pang added.

In company specific news, the world’s sixth-largest steelmaker, Tata Steel Ltd, raised $500 million in a sale of global depositary receipts to fund domestic expansion [in India] and mining ventures overseas.

Tata sold 65.4 million shares at $7.644 each, according to a statement sent to the Bombay Stock Exchange, the second-biggest overseas stock sale by an Indian company this year. The shares, sold at a 6% discount to yesterday’s close in Luxembourg, will be listed in London, the statement said.

Finally, in the on-going saga of the “ (NYSE:RTP) Rio Tinto Four,” China’s Vice Foreign Minister He Yafei announced yesterday he told Australia Foreign Minister Stephen Smith at a recent meeting China has sufficient evidence Rio Tinto staff got state secrets through illegal means.

“I’ve introduced the information about the case to him and stressed we have sufficient evidence to show that people involved in the case have obtained our state secrets through illegal means,” He said.

“The case has entered the legal process…I told him we aim to get an outcome from the case as soon as possible but of course we need to fully complete the legal process first,” He added.

Source: Copper Takes a Step Back

Source: Investment News Briefs Friday, July 10, 2009

• World Bank President Robert Zoellick warned in a letter to the Group of Eight nations that the global economy is not out of the woods yet and they should be cautious about pulling back on stimulus programs.  Dated July 1, the letter was addressed to G8 host Italian Prime Minister Silvio Berlusconi and said interventions by central banks and governments appeared to have “broken the fall in the global economy” by stabilizing financial markets and boosting demand. “Yet 2009 remains a dangerous year. Recent gains could be reversed easily, and the pace of recovery in 2010 is far from certain,” Zoellick wrote in the letter obtained byReuters on Monday.  The G8 heads of government are expected to issue a statement on the situation of the world economy during their meeting in the central Italian city of L’Aquila.

• The Institute for Supply Management’s index of U.S. service industries contracted last month at the slowest pace in nine months, as measures of new orders and employment improved.  The survey of non-manufacturing firms, which make up almost 90% of the economy, rose to 47 — higher than forecast — from 44 in May, according to data from the Tempe, Ariz.-based group. Readings of less than 50 signal contraction.  The index’s third straight monthly improvement reflects signs of stabilization in housing and consumer spending. That combined with leaner inventories means companies may start expanding output again in coming months, Bloomberg News reported.

• Anglo-Australian mining company Rio Tinto PLC (ADR NYSE: RTP) has agreed to sell its U.S. packaging business to Wisconsin-basedBemis Co. Inc. (NYSE: BMS) for $1.2 billion in cash and stock.   Bemis, a food-and-beverage packager, will acquire 23 operations spread across the U.S., Canada, Mexico, South America and New Zealand that package and wrap such things as meats, cheese, bagged lettuce and snack foods, the Wall Street Journalreported.  The deal should push its sales from $3.8 billion to $5.3 billion annually and significantly boosts Bemis’s role in many foods and beverages purchased in U.S. grocery stores.

• Economic worries pushed crude oil prices below $65 a barrel Monday for the first time since May 27 as investor doubts over a potential rebound in the global economy increased, Reutersreported.  Prices fell more than 3% to $64 a barrel, after touching a five-week low of $63.40 in overnight trading.  London Brent crude fell $1.29 from Friday’s close to trade at $64.32 a barrel.  Crude has fallen more than 13% after reaching nearly $74 a barrel on June 11 on optimism that an economic recovery could bolster demand.  But recent weak economic data — including a poor U.S. jobs report last week — has weighed on markets.

• Writeoffs for Bank of America Corp. (NYSE: BAC) may rise as much as 10% to $7.6 billion when it reports its second quarter results on July 17, according to a Credit Suisse Group AG (NYSE ADR: CS) report obtained by Bloomberg News. Among the bad debts was $1.9 billion related to home equities, and 10.4% of credit card loans. Stress tests conducted by the U.S. government in May estimated the lender may face $136 billion in loan losses through next year.

• Moody’s Investors Service put Brazil’s credit ratings on review for an increase to investment grade, citing the country’s “demonstrated resilience to shocks” in the global economy, Bloomberg News reported. “Confronted with a wide array of adverse conditions, the Brazilian authorities’ policy response has been effective in containing the impact of the global crisis, thus providing evidence of increased resilience to shocks, a characteristic integral to an investment-grade credit profile,” Moody’s said.

• Justice Department officials have begun an initial review of the largest telecom companies such as Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T) are anti-competitive,The Wall Street Journal reports. While no company is being singled out at this point, the investigation could explore whether wireless carriers hurt smaller competitors by signing exclusivity deals with phone handset makers, such as AT&T’s deal with Apple Inc. (Nasdaq: AAPL) that makes it the sole carrier of Apple’s popular iPhone. Together, Verizon and AT&T control 60% of the 270 million wireless subscribers.

• Marc Andreessen, co-author of the first web browser, has started a venture capital fund with longtime business associate Ben Horowitz for new companies with new technology ideas, The New York Times reported. The duo’s company, called Andreessen Horowitz, has raised $300 million for tech-related investments, and will risk as little as $50,000 on new ideas. Any successful ideas will get up to $50 million for the companies to grow globally. Five-year returns in the venture capital industry were just 6% last year, a far cry from 2000’s 48% at the dot-com bubble’s peak. Andreessen is a director at Facebook Inc., which started with just $500,000 but has since raised $600 million.

Investment News Briefs Tuesday, July 7, 2009

Nickel had a pair of jagged ups and downs to mid-morning, but blazed higher from there, closing just off its intraday highs at $7.4382/lb., up 13 cents. Zinc was also choppy, ending little changed at $0.6994/lb., down a half-cent. Aluminum was weak, dropping more than a penny, to $0.7267/lb., while lead also sagged, shedding more than a penny and three-quarters, to $0.7626/lb.

Copper led all the industrial metals but nickel downward yesterday, as traders heeded the strengthening dollar and were spooked by bad economic data from both the U.S. and Europe that served notice a global economic recovery could be a long time in coming.

“When you have these continued weak employment reports, yes, they show maybe we are bottoming out, but there is no turn in any of the data,” said Bill O’Neill, partner of LOGIC Advisors in Upper Saddle River, New Jersey.

In addition to the grim unemployment numbers domestically and in the eurozone, the market also reacted to comments from the ECB about the length of the recession. However, the better-than-expected orders for manufactured goods helped keep a cap on the metals’ losses.

O’Neill added that, “If you take China out of the buying side of the market, you wouldn’t have a lot there. It’s going to be difficult for the market to break out of the current trading range in the third quarter because of the fact that we don’t really see the kind of demand outside of china that the market needs to extend these levels.”

In company news, Rio Tinto (NYSE:RTP) did a massive re-financing. The world’s third-largest mining company sold about 97% of the London-listed shares (508.6 million) on offer in a $15.2 billion sale to reduce debt.

Rio rejected a $19.5 billion investment proposal from its biggest shareholder, Aluminum Corp. of China, last month, and went with the share sale and an iron ore joint venture with BHP Billiton (NYSE:BHP).

Source: Base Metals Mostly Lower

“China also bought 590,000 tonnes of aluminium, 159,000 tonnes of zinc, 30 tonnes of indium and 5,000 tonnes of titanium, said Yu, who works in the National Development and Reform Commission’s industry department.” Now that metals prices have rebounded, though, will the stockpiling continue, even at high prices? Or was it a case of bargain shopping at everyday low prices?

There are several components of demand. There’s real economic demand (you need the stuff to make other stuff). There is investment demand (you’re buying it in order to make a profit from what you think the price trend is. There is also pure speculation, and it’s possible that some middle-men were flat-out speculating by buying alongside China’s State Reserve Bureau (sort of like the banks and brokers in the U.S. buying Treasuries ahead of the Fed late last year to improve Q4 earnings).

But if you’re trying to figure out the ultimate direction of certain base metals prices (or commodity prices in general) you have to also consider the currency in which they’re priced. Or, as my colleague Dan Amoss writes, “You also want to consider what Ben Bernanke and Tim Geithner will do to debase the dollar in the coming years. If you’re a foreign creditor facing with this constant portfolio decision, which has higher marginal utility? Is it 1.) US$2.32 or, 2.) one pound of copper?”

Dan is referring to a pretty handy economic concept. Marginal utility is the economist’s attempt to quantify how much satisfaction or benefit you get out of each additional good or service you buy. You have probably heard the term “diminishing marginal utility” more often.

An easy way to understand this is that while one cheeseburger may satisfy your appetite (and your craving for animal fat), four cheeseburgers gobbled down in a row are neither useful nor terribly good for you. They might even be bad (although as an American, we are reluctant to concede this point).

In Dan’s scenario, U.S. dollar holders will ask themselves if each additional dollar owned is more useful. Given the fact that the U.S. monetary authorities are making so many dollars, it’s pretty clear that each additional dollar added to supply makes each existing dollar less useful. It is not very satisfying to see a methodical reduction in the purchasing power of your savings.

If Dan is right, then stockpiling real assets (even during a relatively weak economy) makes more sense that stockpiling U.S. liabilities. Or, as Dan says, “The Chinese will probably go with #2, especially because copper (and oil, and iron ore) can be stored and used in infrastructure projects to keep the population somewhat placated with infrastructure jobs,” says Dan.

He adds that you should look for the Chinese to stockpile resources on the dips in commodity prices, while selling/divesting of U.S. Treasuries into the rallies that come with ’safe-haven’ buying. That sounds right to us. But the only catch to the plan is if Treasuries fail to rally on safe haven buying.

On that score, the Treasury market seemed to survive last week’s big auction without a huge spike in yields. If the economic news remains neither bullish nor exceptionally bearish, then we reckon Treasuries could rally (prices up, yields down), providing a discrete exit opportunity for certain large investors.

Incidentally, we still haven’t seen much in the Australian press about the long-term consequences of government deficits. That’s probably because most people are accepting the government’s case that Australia’s borrowing (and its deficits) will be temporary. We’re not as sure. And besides, there are some serious questions about how structural deficits affect a country’s currency, its credit markets, and its interest rates.

Those are just some of the questions we hope to take up at our upcoming debt symposium/summit, which will precede the first Australian screening of I.O.U.S.A. We’ve even picked a date, booked a venue, and secured a cracking panel of experts to train their eye on Australia’s very own addiction to debt. Stay tuned for your official invitation!

Meanwhile, did you see that China has astonishingly and rather conveniently discovered some 3 billion metric tonnes of hematite and magnetite iron ore? It’s apparently true, and probably comes in pretty handy during the current stagnated annual price contract discussions with Aussie iron ore producers BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RTP).

As you know, China is the world’s largest steel maker and thus the largest importer of iron ore. Chinese geologists claim they have found Asia’s largest iron ore deposit ever in Benxi city, which is in the northwest province of Liaoning. The good news is that the deposit is said to be about 2.5 miles long and 1.8 miles wide and could, officials say, have a mine life of 50 years-if a mine is built.

The bad news is that the resource (not a reserve because it’s not know if it can be produced economically) is buried around a mile underground. That’s a long way down, or a long way to lift iron up, if you prefer, and if you’re strong (which China is).

Contrast that with the Pilbara, where the stuff seems to lying around waiting to be found in the hundreds of millions of tonnes by any Tom, Dick, or Kerry. That’s right. Iron Ore Holdings, owned by Kerry Stokes, told the ASX yesterday it was increasing by 50% its estimate of its mineral resource at Iron Valley in Western Australia.

This deposit is only 97 metres below ground. It’s surrounded by big projects by BHP, Rio, and Fortescue (ASX:FMG). And the company says it reckons its sitting on a 132 million tonne resource-which is up from the 88 million tonnes it believed it had just three months ago.

Proving up a resource into a reserve-and seeing your share price benefit because of it-is the name of the game for the iron ore juniors. Despite the big Chinese find, we reckon the Iron Valley story is where the Big Picture meets the Little Juniors (or where the rubber meets the road, if you prefer).

At the right prices, stockpiling commodities makes sense to people who will need them later anyway and already have too many U.S. dollars. And if prices aren’t right…if..in fact…commodity prices decline (either because of slow economic growth or a halt in stockpiling) then commodity stocks probably fall a bit too…which makes those very stocks-especially the smaller ones that need capital and JV partners-the next logical candidates for acquisition or accumulation.

Dan Denning
Source: China Has Stopped Stockpiling Metals

Staying in Ontario but moving over to the Timmins area, Golden Chalice cut 2.75 per cent nickel over 24.4 metres and 3.14 per cent nickel over 10.6 metres at its Langmuir project. Golden ended the session up C$0.005 at C$0.105.

Eurasian Minerals got a modest boost after announcing that its Sisorta joint venture project in Turkey hosts 91,000 indicated and 212,000 inferred gold ounces. Eurasian ended the day up C$0.02 at C$1.40.

On the down side, shares of Golden Arrow got slammed following disappointing results from four drill holes completed on its Poncha gold project in Argentina. Golden Arrow ended the day down C$0.25 at C$0.33.

Gold managed to post a modest gain and that helped the more junior exploration companies avoid a major bout of selling. We shall see what Wednesday trading has in store.

Source: Resource Stock Roundup:Thursday, June 18th, 2009

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

A sleeper exploration play could be developing in the Dorion and McTavish Townships near Thunder Bay, Ontario. An Aussie-listed company, Magma Metals has pulled some impressive drill results from the area including 61.7 metres running 5.61 grams combined platainum-palladium, plus 0.66 per cent copper and 0.38 per cent nickel. Despite the nice results, the play has received little attention in Canada but apparently Kennecott Canada, a wholly own subsidiary of Rio Tinto (NYSE:RTP) has taken notice. Kennecott inked a deal to earn a 60 per cent interest in Benton Resources adjoining ground by spending C$1.5 million and paying Benton C$100,000 cash on or before the end of 2013. Another area player to try and ride the potentially emerging story is RJK Explorations (CVE:RJX.A). Benton ended the day flat at C$0.50, while RJK closed up C$0.015 at C$0.105.

Staying in Ontario but moving over to the Timmins area, Golden Chalice cut 2.75 per cent nickel over 24.4 metres and 3.14 per cent nickel over 10.6 metres at its Langmuir project. Golden ended the session up C$0.005 at C$0.105.

Eurasian Minerals got a modest boost after announcing that its Sisorta joint venture project in Turkey hosts 91,000 indicated and 212,000 inferred gold ounces. Eurasian ended the day up C$0.02 at C$1.40.

On the down side, shares of Golden Arrow got slammed following disappointing results from four drill holes completed on its Poncha gold project in Argentina. Golden Arrow ended the day down C$0.25 at C$0.33.

Gold managed to post a modest gain and that helped the more junior exploration companies avoid a major bout of selling. We shall see what Wednesday trading has in store.

Source: Resource Stock Roundup:Wednesday, June 17th, 2009

Nickel followed a similar path but didn’t sell off as much, and held in positive territory at $6.7094/lb., up nearly 8½ cents. Zinc had a succession of very sharp ups and downs, resulting in a close at $0.6904/lb., down 2/3 of a cent. Aluminum also negated its strong early gains, ending at $0.7062/lb., down the better part of a penny, while lead was modestly lower at $0.7418/lb., down less than a half-cent.

Copper failed to hold onto its early gains and led most of the industrial metals in a modest retreat yesterday, as traders flip-flopped and turned suddenly negative in the middle of the session.

“Copper is following the stocks and the general outlook” for the economy, said Frank McGhee, of Integrated Brokerage Services LLC in Chicago, and that was certainly true with regard to the broader markets, which began moving into the red around mid-morning.

However, McGhee added that the day’s housing data should give copper prices a “short-term” boost and that, while it might seem obvious given the need for copper in new houses, failed to come to pass.

The weakening dollar also should have been somewhat supportive, and wasn’t, perhaps because the buck was able to pare its losses over the course of the day.

On the positive side, London stockpiles continued to decline, with copper inventories monitored by the LME slipping a smallish 1,925 metric tons yesterday, to 285,050 tons, the lowest level since last November 24. Inventories are off almost 50% since this year’s high, notched on February 25.

In company news, we noted yesterday that BHP Billiton (NYSE:BHP) and (NYSE:RTP) Rio Tinto’s proposal for a joint Australian iron ore venture could run afoul of Chinese anti-monopoly law. To expand on that, Yao Jian, spokesman for China’s Ministry of Commerce, said that the law requires a company to get government approval before consolidation if its global revenue exceeds Yuan 10 billion ($1.47 billion) and its revenue in China exceeds Yuan 2 billion.

In the year ended June 30, 2008, BHP’s revenue in China was $11.7 billion, Rio’s $10.8 billion, but Yao says the ministry has not received an application from either firm, and no one knows what actions China might take if the companies were determined to be acting contrary to the law.

Source: Base Metals Mostly Lower