Workers heave great hunks of iron and steel up vast construction cables… great machine-age pulleys send building parts up storey after storey… ever closer to the sweltering sun.

Passers by gawp at the great feats of engineering that tower above… the men high up in the giant structural shafts look down from up high see them as tiny blips… one of thousands of dots in the ever expanding City.

From the edge of Brooklyn to shore of Wall Street the trend is repeated for hundreds of miles… as far as the eye can see.

But the focus is on Manhattan…

The new financial centre of the world is riding high with the race to build the earth’s tallest building.

On one side is Walter P. Chrysler, founder of the eponymous motor company and his architect, William Van Alen. On the other is Alen’s old partner, H. Craig Severance, hard at work on the 70 storey Bank of Manhattan Trust Building on Wall Street…

Construction of the Chrysler Building began on September 19 and the contest between Alen and Severance is intensely fierce.

For over a year the two buildings are neck-and-neck.

Then at the last stretch – a mere two feet in it – Severance pips Alen to the finish line to claim the title.

But Alen has an ace up his sleeve…

Unbeknownst to anyone, he secretly constructs a 185 foot long spire inside the frame of the building.

On October 23rd, 1929, to the pride of the workmen… the gasps of the awe-struck on-lookers, businessmen and journalists… the spire is hoisted onto the top of the Chrysler Building’s dome and lowered into the 66th floor of the building.

The battle is won.

Fast forward to today: The stark reality of the 21st Century

The Chrysler Building was the first man-made structure to rise above 1,000 feet.

Its grand opening epitomised America’s financial might.

Of course, in boom-time New York, that title didn’t last for very long. It was trumped by the Empire State Building the next year.

Now I’ve always found the Chrysler Building the far sexier of the two – a genuine masterpiece of Art Deco architecture.

But yesterday, something happened that brings home a stark reality of the 21st Century… a century where America is no longer the financial King of all nations.

The New York Post broke the news that this American icon – one the great symbols of the West’s financial might – is likely to be sold to cash-rich Gulf investors…

The Arabs move in

The Abu Dhabi Investment Council – the Gulf Emirate’s smaller Sovereign Wealth Fund – is ready to pay $800 million for a 90% stake in the landmark building.

It’s a tiny amount for such a striking building. But it’s what this news represents that is huge.

The Arabs are moving in.

Only two weeks ago the Kuwait Investment Authority and the Qatar Investment Authority plunked-down $3.95 billion on four prize properties in New York – including the old GM Building.

Record oil prices gut America

Chrysler moved out of their iconic building years ago.

The company itself is an absolute mess…

The gas-guzzlers it specialised in fell out of favour in the mid-70s as oil prices skyrocketed… America’s motor industry declined.

And the Japanese with their smaller, fuel-efficient cars seized the initiative. By 1979, the Chrysler Corporation had to petition the United States government for $1.5 billion in loan guarantees to avoid bankruptcy…

Chrysler sold itself to the German auto giant Daimler in 1998 – officially a “merger of equals”.

Grafting Chrysler’s sub-prime onto their high-end brand was probably the dumbest move the Germans ever made. In 2007 they off-loaded it onto US private equity firm, Cerberus Capital Management, for $7.4 billion.

Good luck to them. Personally, I think the Arab’s purchase of the Chrysler Building is going to prove a far smarter investment than Chrysler itself.

I see surging oil prices wreaking havoc on what’s left of America’s manufacturing economy, just as they did in the 1970’s.

The latest figures from the US Commerce Department show the America’s trade deficit continues to soar. That’s almost entirely down to imports of crude oil and petroleum products. In April, crude-oil imports rose by $4.2 billion to $29.3 billion – a new record.

There’s plenty more to come. Because even those scary figures are only the result of oil at an average price of $96.81 a barrel.

That’s a long, long way below the close to $140 levels we’ve seen this month.

One way to get your cut of this phenomenal shift of wealth

All of this brings home an important point we at Profit Hunter use as our fundamental strategy towards our investments…

The balance of financial power is inexorably shifting eastwards… to the oil-exporters… and to Asian manufacturers.

America is being bled dry by higher oil prices. And the masters of this new petrodollar-dominated financial universe are picking the choicest bits of its carcass.

But we don’t lament this fact. Instead, we line up to get our cut.

Our Gulf merchant bank investment has a long track record of snapping-up undervalued U.S. icons. And right now they’re as undervalued as ever!

In the 1980’s it bought luxury retailers like Tiffany and Saks Fifth Avenue. It continues to build a top-drawer portfolio of American properties.

It bought the high-end 280 Park Avenue office complex last November, just a short walk away from the Chrysler Building itself.

You can bet that as America’s economy reels under the credit crunch and falling property prices; continues to haemorrhage dollars into the Gulf to pay for the oil it desperately needs… this one company is going to find plenty of new opportunities to add to its holdings.

If you’d like to review our higher tier “special situations” investing service, go here for more details, and I’ll send you details of our entire open positions immediately.

Regards,

Manraaj Singh
Editor
Profit Hunter

Source: Cash Rich Arabs Takeover New York

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

My feet hit the floor at almost the same instant alarms starting clanging in the famed Mogambo Bunker Of Iron And Steel (MBOIAS), which is a stupid name, I know, but it sounds so manly: “iron and steel”!

Think of Tennessee Ernie Ford singing, “One fist of iron and the other of steel, if the right one don’t get you, then the left one will. I loaded sixteen tons, and what do you get? Another day older and deeper in debt”, which seems so, so apropos to the workaholic, debt-crippled, debt-addled, debt-besotted idiocy of America, thanks to the loathsome entity called the Federal Reserve, which is directly responsible for the roaring inflation and the crippling debt, because the Fed created all the money that made it possible!

And at interest rates so low that they were less than the rate of inflation, which made the attraction of debt to finance mindless consumption so overwhelming that people could not stop themselves! Hahahaha!

I smile that famous Mogambo Enigmatic Smile (MES) that bespeaks volumes, mostly signaling an upset stomach, diarrhea or a resigned acceptance of, “We’re freaking doomed!”; and we are, truly, doomed because we are idiots who believed the stupidity that crushing ourselves under a mountain of debt to finance gluttonous final consumption and a welfare state produces national and personal wealth! Hahahaha!

But without looking at the alarm system, I knew what was causing the problem; Total Fed Credit shot up again, which is the source of all that excess money and credit. Inflation in prices is higher than it has been for decades, thanks to unremitting creation of money and credit by the Federal Reserve, and here they are making it worse!

Stumbling to turn off the damned blaring alarms that were painfully reminding me that I had a killer hangover, I looked at TFC and saw, with horror, that I was right; it was up $6.8 billion last week, which is made clearly alarming when you realize that in the last 12 months, TFC was only up $24 billion. In a year! And now, suddenly, it is up $6.8 billion last week! Up by more than a quarter! Almost a third! Yow!

But that was not the only thing that was causing mayhem with the Mogambo Economic Alarm System (MEAS), as the Federal Reserve itself sold off another $11 billion of its government debt last week! Yikes! And foreign central banks bought up a whopping $16 billion of government and agency debt through their accounts at the Fed!

Before I could get off another comment like, “What in the hell is going on in this brain-damaged country?”, I was stunned to note that non-borrowed reserves in the banks are still a negative $111 billion, while total reserves are still only $42 billion, which is so bizarre a concept that I cannot even begin to comprehend it, as it sounds like money goes backward to anti-money in an inter-dimensional time-warp or something.

Anyway, I get dizzy when I try to think it through, and then I fall off the bar stool and the bartender says, “That’s enough for you, you Drunken Mogambo Bastard (DMB)!” and I tell him, “No, I am not that drunk yet! I just get dizzy from trying to understand how $42 billion in reserves in the banks is possible with non-borrowed reserves being a negative $111 billion! What does it mean?”

He says, snatching my glass away, “It means you’ve had enough, you weirdo!”

Well, you can imagine that my mood was suddenly soured, not made any better by noting that there seems to be a lot of this “mood souring” going around, as MarketWatch.com reports that “U.S. consumer sentiment dropped in May to the lowest level in 28 years as worries about inflation grew, according to the University of Michigan/Reuters consumer sentiment index. The UMich index fell to 59.8 in May from 62.6 in April, the lowest since June 1980.”

And what happened in 1980? Hahaha! Volcker had to jack interest rates to 15%, and more, to eliminate the raging 14% inflation in prices, like we are having right now, that was caused by massive government spending, like we are having right now, which brings us to the point that the Treasury reported that the federal deficit (spending higher than income) hit a new high of $311 billion for the first half of the government’s fiscal year! Yikes!

And the reason? Falling corporate profits and the tax revenues, as “Taxes on corporate income decreased $36.9 billion in the first quarter, compared with a decrease of $15.0 billion in the fourth”, which is to be expected when “Profits before tax decreased $133.3 billion in the first quarter, in contrast to an increase of $0.2 billion in the fourth.” Wow!

This brings up the other point that makes me Grind My Teeth In Anguish (GMTIA), which is that the federal government is borrowing and spending us to an early grave, as the increase in the Gross Public Debt (the national debt) in the last 12 months is reported as $571 billion, taking the government’s total official indebtedness to $9.39 trillion, which is $93,900 per non-government worker in the country, and at 4% interest, is $3,756 per non-government worker per year just to pay the interest!

And now we are looking at $622 billion more debt this year? Gaaaahhh! We’re freaking doomed!

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Source: Sounding the Government Debt Alarm

Here’s a snapshot:

• Revenues increased 52.0% to US$6.7 billion
• Operating income increased 92.59% to US$1.4 billion
• Net income increased 51.4% to US$913.1 million

Now, a massive breakout is imminent. MTL could rise as high as $70.52 in the next four weeks. That’s a 30% gain for this Russian steel company!

If you decide to play MTL, pay close attention to the $51.79 level. That’s your tripwire. If MTL drops below that level, cut and run!

Until then, that 30% climb could be just the beginning…

S.R. Nunnally

Editor, Taipan Trader

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Source: Russian Steel Company to Rise 30%!

Right now some metals are poised to reach new all-time highs because of production deficits (aka lack of supply), while other metals still remain hostage to an onslaught of new supplies – so their prices are dropping.

Silver falls in that “too much supply” camp. More than any other precious metal this year, silver’s prices will be put to the test. We’re all waiting to see if silver’s price can hold up under the growing bombardment of new production.

Over the last five years, silver prices have surged more than 250% to just under US$17 an ounce at the moment. On May 20th, my Commodity Trend Alert (CTA) service, turned “neutral” on silver, after my CTA subscribers earned big profits on several existing open silver positions since 2003.

But the tides have turned. And now rising supplies are forecasting a sizable silver correction.

Meanwhile, gold is still soaring. Gold production peaked in 2001 and continues to decline this year, which is VERY bullish for gold prices. But that’s certainly not the case for silver and to a lesser extent, palladium.

Could Silver Break Away from Gold?

Gold and silver generally track each other in a bull or bear market. When gold goes up, silver goes up and vice versa. But in this case, a divergence might be possible, if only temporarily.

In the base metals arena, a similar price divergence has already happened after seven years of generally spectacular gains for the complex. These include namely copper, lead, tin, nickel, iron-ore (steel), aluminum and zinc. Over the last 18 months, nickel and zinc prices have crashed while tin, lead and copper prices have posted gains. It’s not impossible for metals to break away from the primary uptrend if supplies begin to saturate individual fundamentals.

Over the last 12 months, gold prices have risen 37% while silver has gained 31%. Both metals continue to track each other on a total return basis.

But thus far in 2008, gold prices have risen just 8% while silver has rallied 15%. The fundamentals, however, don’t support silver’s higher returns this year.

Will Investor Demand Support Silver?

Gold is rapidly approaching its first year of net supply deficit while silver is increasingly becoming a net surplus commodity. And according to textbook economics, rising supplies eventually dilute a rising price trend and drag prices back down.

Considering the demand for both silver jewelry and silver industrial supplies is waning, the bulk of global demand for silver will have to come from investors going forward. This will come mainly from exchange traded funds like SLV or the iShares Silver Trust in the United States and other silver ETFs traded in London and Zurich.

I have serious doubts investor demand will continue to support silver at these levels without suffering a major correction first.

The iShares Silver Trust has already seen a massive increase of silver accumulation since 2006 – over 180 million ounces. Silver supply has surged since 2001, according to GFMS, a precious metals consultancy firm, rising to 670.6 million ounces. Unless investor demand consumes this rising supply – and more is projected in 2008, then prices will decline. That’s because industrial demand has probably peaked.

Last year, industrial demand for silver increased 7.2% to a record 455.3 million ounces, according to the 2008 World Silver Survey. That offset the long-term decline in demand for traditional usage, mainly in photography, jewelry and silverware.

But another survey by Barclays Capital points to alarm bells for the silver market. The survey shows new supplies just hit the market this year. Barclays believes mine production will grow by 6.5% in 2008 and faster than last year’s increase of 3.6%. That could create possibly the largest surplus of silver in over 20 years.

A disappointing initial public offering (IPO) in London is another bearish signal for silver bulls.

Mexican silver company, Fresnillo PLC, went public in London earlier this month and declined 7.5% on its debut – that’s a bad sign. Despite stronger silver prices this year, the IPO was not received well in the markets.

Gold and Platinum: Precious Metal Kings

Though I’m not predicting a long-term silver decline, I think it’s time to reduce your exposure during current price strength. The big picture for sister metals, gold and platinum, however, remains incredibly bullish because supplies continue to tighten.

BHP has booked 17 “Capesize” bulk ore carriers to carry its ore from the Pilbara to China next month. Normally, BHP books about 9 bulk carriers per month. But in April, BHP booked 13 and Rio Tinto 16. The armada of iron ore is relentless.

But BHP’s latest big booking may be exploiting a weakness in Rio Tinto’s flank, according to today’s Australian. Remember that last week reports circulated that the semi-official China Iron and Steel Association was calling for a boycott of Rio Tinto by Chinese steel makers. The Association pointed out that Rio was only fulfilling 82.2% of its contract obligations to Chinese mills.

That would matter for a simple reason. Last year’s contract price for ore is between US$60 and US$70. Meanwhile—because China imported a record 42 million tonnes of ore in April—ore in the spot market is going for closer to US$200. Rio said last year it would sell more ore in the spot market to take advantage of the big spread. The move was widely seen as a way of pressuring Chinese steelmakers to accept a much higher contract price for 2008 AND the so-called “freight premium.”

Hmm. If China is punishing Rio, is it rewarding BHP? Or is this a divide and conquer strategy? Either way, we have six weeks to go before a new contract must be signed. The strategies are clear: BHP and Rio want more for ore, China wants to pay less. But the tactics are sure getting interesting.

Either way, shipping rates are going through the roof. There was some anxiety about this in late January of this year, when the average daily rate for booking a Capesize freighter from Brazil to China fell to a paltry $84,000. In a Diggers and Drillers story at the time, we pointed out that this was no cause for alarm.

In our story, “A False Signal in the BDI and Boom Times Ahead for Coal and Iron Ore,” we pointed out that the slump in shipping rates, as expressed in the Baltic Dry Index (BDI), wasn’t an “abandon ship” signal for the resource bull. A harsh winter in China halted exports of coal. The power crisis in South Africa halted South African coal exports. And ships were queued up in Newcastle as infrastructure bottlenecks and flooding in Queensland dropped production volumes at Aussie coal mines.

Those three factors led to the dip in the BDI. But it’s back with a vengeance now. Daily rates are nearing $300k from Brazil, according to the Australian. In 2003, before this resource love affair between Australia and China began, rates were closer to $17k per day. Jeez, that’s barely 340 shares of BHP at today’s price.

“The dry bulk market is officially in riot mode,” says an analyst Norwegian-based Imarex. “Nearly 17 per cent of the 750-strong global fleet of Capesizes were delayed at ports over the weekend, according to the Global Port Congestion Index, which tracks ship delays,” again from today’s Australia. “Of the 129 bulk carriers at anchor, 52 are off Australia, with another 51 at ports in Brazil. Of the ships waiting off Australia, 38 are off Newcastle waiting for coal.”

Want coal, iron ore, or some other dry bulk commodity? Take a number.

Not everyone has their party hats on, though. A new report from Lehman Brothers says the commodity boom will become a commodity collapse at the turn of the year. “Once uncertainty about the physical state of the supply-demand balance clears, in terms of both inventories and spare production capacity, markets may face a sharp correction,” says Lehman analyst Edward Moore.

When predicting the demise of a bull market, it is important to distinguish between real demand and financial demand. If commodity prices were high merely because of financial speculation or foreign money bidding up Australian resource stocks, you bet we’d be concerned. And there is certainly a gathering momentum in the resource market that has just the whiff of a mania to it.

But it’s just a whiff right now. The term “perfect storm” is so overused that we refuse to use it any longer. So instead, you can think of the commodities bull as a positive feedback loop. That’s a situation where the causes of a given phenomenon accumulate and amplify the phenomenon. Boom begets boom.

Higher prices in commodities beget higher prices because they attract both investment demand (hot hedge fund and futures money) and eventually, hoarding. The great unknowns in the market are how much demand is real economic demand and how quickly supply can grow. Many oil skeptics, for example, believe there is plenty of oil in the world and that prices have taken on a fictitious life all their own.

But in the mania state of a bull market, prices become increasingly unstable and volatile as they go higher and higher, more and more removed from real supply and demand. We are clearly nowhere near that stage yet for bulk commodities or, we would argue, for oil. The boom is not yet a bubble.

If the boom goes bust, it will be because demand falls apart in China, or because the housing-related economic woes in America have a much worse second half than anyone is planning for. But right now, the new Silk Road isn’t a land route in Asia. It’s a line of Capesize haulers that stretch from Australia to China and back again.

We’ll have more specifics on oil Thursday and Friday. We’re taking a planned trip back to North America for two weeks and have decided to publish our analysis of the oil market in a two-part essay later this week. Until tomorrow…

Dan Denning
The Daily Reckoning Australia

P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Source: Dry Bulk Market in Riot Mode

So it follows that as worldwide demand for electricity skyrockets – as it will – the shares of companies that provide these two key fuels also will take flight.

And they make for almost-perfect partners.

That’s because coal represents the world’s short-term solution to the problem of a rapidly climbing global demand for power. It’s plentiful, it’s cheaper than other available alternatives, and a big percentage of the world’s power plants are set up to burn this fossil fuel.

Uranium, on the other hand, represents the long-term solution to potential fuel shortages – and it offers a solution to global warming, to boot. Uranium-powered commercial nuclear plants are cheap to operate, can run a long time, and when operated correctly cause little pollution.

The New ‘Black Gold’

India, a growing economic and industrial power, relies on coal for nearly 70% of its total energy supply. And the World Coal Institute expects India’s energy consumption to rise by as much as 8% to 10% annually through 2020.

Coal also is used to satisfy the Red Dragon’s energy appetite, providing 78% of China’s total power needs. Coal demand in China jumped nearly 9% last year – meaning the Eastern power now accounts for a full quarter of the world’s annual coal consumption, The Wall Street Journal reported.

Five years ago, China exported 83 million metric tons more coal than it imported. But last year, the nation’s surplus dropped to a meager 2 million metric tons. That means more than 80 million metric tons of coal (about 12% of the internationally traded market) has been taken out of global circulation.

Vic Svec, a senior executive at Peabody Energy Corp. (BTU), the world’s largest private-sector coal producer, referred to China’s ability to influence the price of commodities as a “butterfly effect.” In other words, Svec told The Journal, “demand from Beijing can ripple back to Queensland, Australia, or Gillette, Wyoming.”

Svec’s right. China’s recent development is part of the reason the highly desirable low-sulfur coal from the coal-laden Powder River Basin in Wyoming and Montana has climbed from less than $10 a ton last year, to nearly $15 a ton – a price gain of 50%.

Central Appalachian coal, the benchmark grade widely used by power plants, jumped from $40 a ton in early 2007, to nearly $90 a ton now, according to a recent report by the Associated Press. That’s price increase of 125% in just a single year.

Meanwhile, the weekly index for power station coal prices at Australia’s Newcastle port, a benchmark for the Asian market, averaged $126.45 per metric ton in the month of April, up nearly 40% from January. The port’s weekly price index rose to $133.63 per metric ton for the week ended May 9 – an 11-week high according to the globalCOAL NEWC Index. The index is up approximately 49% this year.

According to the Energy Information Administration, world coal consumption could expand by 74% from 2004 to 2030. And that will only drive prices higher.

While demand for coal is at an all-time high, the same can’t be said for coal supplies. Harsh weather conditions and infrastructure constraints in coal-producing regions have severely crimped supplies.

In South Africa, power shortages and flooding have closed down several key mines. With such setbacks, the price of coal coming out of South Africa’s Richards Bay Coal Terminal, the world’s largest, jumped nearly 90% last year.

Xstrata PLC, the world’s biggest exporter of power-station coal, said that first-quarter coal output fell 3.6% after floods and rain delays diminished supplies from Australian mines. Monsoon rains throughout the region also impacted archrivals Rio Tinto PLC (RTP), and BHP Billiton Ltd. (BHP).

Meanwhile, China, a leading producer and consumer, was devastated just a few months ago by the worst blizzard of the past half-century. Three weeks of snowfall killed at least 60 people and cost the country approximately $7.5 billion.

China had already closed a multitude of coalmines in 2007, after they were deemed unsafe. The subsequent weather problems only exacerbated that situation, forcing the closure of a great many more mines and prompting China to restrict exports. Major roads and railways also were shut down, creating traffic congestion during the thickly traveled Chinese New Year – and making deliveries highly problematic for drivers.

As the cold of winter gave way to the higher temperatures of spring and summer, yet another weather-related challenge emerged. This time around, the double-whammy of higher-than-expected temperatures coupled with sparse rainfall are straining thermal power plants: The warm weather is boosting the use of energy-intensive air conditioning even as those same higher temperatures have dropped the water level of the rivers that spin the huge power-producing turbines at hydroelectric dams.

If you’re looking to play surging coal prices, Money Morning Investment Director Keith Fitz-Gerald suggests taking a look at Yanzhou Coal Mining Co. (YZC). The China-based Yanzhou is nicely diversified in several ways:

• First, it not only operates underground coalmines, Yanzhou also operates a railway transportation network for shipping coal.
• Second, Yanzhou’s focus on low-sulfur coal products means it finds demand from large-scale power plants and from metal-producing companies all around the world. The reason: Low-sulfur coal can be combined with coking coal in a metal-production process known as “pulverized coal injection,” or PCI. That combination gives Yanzhou a nice extra bit of industrial diversification.
• Third, investors can add geographic diversification to the profit mix as they analyze sector plays.

Provided with these positives, it should be no surprise to investors that Yanzhou’s first-quarter profit more than doubled, climbing more than 112% on surging demand for the fuel and on the higher trading prices seen in the markets around the world.

It affects all energy projects, plus all other capital-creation efforts. It’s a long-term theme in my view of things. It means that capital creation will become much more difficult, in an era when it is of utmost importance. Central Planning, anyone? Maybe we all ought to re-read Vladimir Putin’s PhD Thesis — much of which he plagiarized — on the subject of central planning.

The vertically integrated steel companies will survive, and likely prosper. Heck, a good steel millll will become a national asset, like Yellowstone Park or Gracieland. The “tier” metals-players, who bought into the niche theory, will struggle to find suppliers — let alone just-in-time suppliers
(Ha!!!) — and to pass through costs to the customers hemorrhaging from sticker shock.

Close to home, in the 1990s all the investment bankers told US Steel to sell off those “non-performing assets” like the coal reserves and iron ore facilities. Former CEO Tom Usher took unholy hell from the alleged “financial” community for his stubborn refusal to dismember the firm that Andrew Carnegie built. After all, we all know how smart those Wall Street guys are, right?? Now in hindsight, Usher is a genius of the proportions of Albert Einstein, or at least of Leslie Groves who weaponized Einstein’s bright idea. (And I knew Tom Usher when he used to eat a humble club sandwich on Pullman Bread for lunch at the Duquesne Club.) Coal? Iron ore?
Dolomite? “Non-performing assets” my ass. It all depends on your time frame. Usher was thinking of the future, and avoided selling good natural resources for bad US dollars. US Steel will be around for another century unless some idiot comes along to screw it all up.

The article mentioned below makes good reference to the Dept of Energy’s Hirsch Report (2005). As a nation, we are just plain blowing our time window for advance mitigation. There are endless tasks just to begin, let alone to accomplish. One of the big efforts in the advance period has to be to educate the people about the severity of the crap-train that is coming down the tracks. On that, the US media gets an “F-” grade.

Instead, we have the sordid scene of GW Bush flying the Big Blue Jet to Saudi, hat-in-hand like Oliver Twist, asking for “more please.” And the Saudis don’t even offer sympathy. The first answer is “No.” The second answer is, “Oh by the way, we increased output by 300,000 barrels back on May 10, in response to requests from our customers.” So take that, Mr. President of the US of A. And so much for the 75-year special relationship. (Indeed. Beware such insult, King Abdullah. Heavy is the head that wears the crown.)

Still, how unseemly this is. Not only is the US losing time, we are losing face. I don’t know what is worse.

By comparison, it takes a 7.9 magnitude earthquake, with 50,000+ dead before China even begins to think of allowing “foreigners” into the country with body-sniffing dogs just as a token of humanitarian aid. And the US sends its president to beg from those Arabian devils when gasoline costs $3.75 per gallon. Boo-hoo. This is a nation of whiners.

Meanwhile, we in the US won’t drill offshore. We won’t drill in Alaska. Forget about drilling ANWR. And the Dept of Interior just issued a “10 year moratorium” on new leasing adjacent to the National Petroleum Reserve near the North Slope. And it declared polar bears to be an “endangered species.” (In China, they eat bears.) Thanks, guys. We sure dodged the bullet on
that one, eh? For some weird reason (CO2, they say) we won’t do coal-to-oil — not even a pilot plant to see if the technology works. We have nothing resembling a national passenger rail system, while the airline system flies towards its own version of Silent Spring. (Hey, if the jets
leave the skies, how will all the cocaine get from South America to the streets of West Hollywood and Greenwich Village?)

Back on the home front we have the Great Senator Gasbag from Oz, Chuckie Shumer, threatening to block arms sales to Saudi if they don’t sell us more oil (which we in the US cannot refine with the limited refining capacity we have.) As if the Russians or Western Euros would not leap at the chance to sell guns to the Wahhabis? Really, kids.

And waiting in the wings we have………. Sen. Fall-Guy from Arizona. His job is to go out in the ring and make it look like a good fight, but take the dive in the 9th round. (And if he doesn’t take the dive, the referees will look the other way when he gets the rabbit-punch.) The media and
deep-backgrounders have already identified the next POTUS, a true Man-of-the-People (with his prep school preparation, Columbia undergrad and Harvard Law School pedigree), the next-great-thing, the guy offering Hope who is a mind-bending mix of paper-thin resume and blind ambition in a hurry. Oh, and don’t worry about all his radical friends and that Euro-Marxist crap that he utters in his unguarded moments. If he does not understand the concept of capital gains, well, it’s a small price to pay for such a Great Leap Forward.

Bill Bonner has it right. Buy a ranch. Go up into the Andes. Get so far away that even Google Earth can’t find you. Grow cows Then eat them. Wait it out for a couple of generations. Can it get any worse? Well, probably yes.

** Here is the article that I’m referring to…

Best, BWK

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: High Steel Prices and ‘Peak Everything’

In the U.S., gold majors like Newmont and AngloGold are widely held and fully valued. Australian mining giant BHP Billiton is now a regular holding of big mutual funds. Most people can look at their electric bill and realize the prices of coal and natural gas have soared in recent years. Share prices of the big coal and natural gas producers have climbed in response.

In other words, after years of commodities climbing in price, everyone wants to own them. That’s what makes the story of the Pilbara so amazing…

The Pilbara region of western Australia looks a lot like stretches of Utah… burnt oranges and reds highlighted by spinifex, a bushy grass unique to Australia. But the special thing about this place from an investor’s perspective is this: The Pilbara is home to the world’s single largest deposit of high-grade iron ore… more than 34,000 million tonnes of it. It’s enough to supply the entire world, at current rates of demand, for the next 300 years… and it’s enough to turn the Pilbara into ground zero in the world’s commodity boom.

For years, big mining companies like BHP and Rio Tinto had a lock on the Pilbara’s richest deposits. But not all of them.

The slightly lower-grade ores elsewhere in the Pilbara, or the ones that were simply too far away from BHP’s and Rio’s existing rail and port networks, were left untouched. Now, though, with contract iron ore prices up 320% since 2003 (by comparison, gold is up “just” 147%), it’s a whole different story in the Pilbara.

These days we focus a lot on the importance of energy to our comfortable way of life. But the industrial skeleton on which the infrastructure of a modern economy rests is made of iron and steel. Nations that have it become great. Nations that don’t have it will do just about anything to get it.

Right now, China is doing anything to get it.

China has gone from being a net importer of steel to a net exporter in the last six years. According to the China Iron and Steel Association, China produced 151 million tonnes of steel in 2001. This year, China is on track to produce nearly 540 million tonnes of steel, a 205% increase in six years. China is now the world’s largest steel producer… with an output over three times larger than No. 2, Japan.

To produce steel, you need iron ore. Australia is home to 16% of the world’s iron ore reserves.

China imported 115 million tonnes of Australian iron ore in 2002, 148 million in 2003, and 208 million in 2004. It imported more than 240 million tonnes in 2005, 326 million in 2006, 384 million in 2007, and is on pace to import nearly 453 million tonnes this year. Those imports amount to more than 42% of global iron ore exports.

China needs all that ore to make all that steel because its economy is still rocketing along at 11% growth, according to the latest figures. You can never quite trust government figures, of course. It could be more. It could be less. But either way, it’s a lot… and it’s making Australian miners a fortune right now.

As we enter 2008, Australia is exporting iron ore, coal, gold, and other commodities to the tune of A$117 billion in earnings, according to the Australian Bureau of Agriculture and Resource Economics (ABARE). ABARE projects export earnings of A$20.2 billion for iron ore producers alone.

Just how big those earnings will actually be depends on the new contract price for iron ore in 2008. Right now, there isn’t a new contract price between Aussie ore companies and Chinese steel makers. In late February, China’s biggest producer, Baosteel, agreed to a 71% increase with Brazilian ore giant Vale.

But Chinese steel producers are stubbornly holding out against the even bigger increase Aussie producers are asking for. The Australians want at least an 85% increase and want to include a “freight premium” that reflects the lower cost of shipping Aussie ore to China.

The clock is ticking… An 85% increase over last year’s contract price of $83.40 a tonne would put the 2008 price at $154.29, about 14% higher than the $132.20 Baosteel agreed to pay Vale. If no agreement is reached by the end of June, Aussie firms are free to sell iron ore in the spot market, where Indian ore has traded between $120 and $150 over the last six months.

This is great news for the Pilbara and its junior iron ore stocks. In fact, the anticipation of higher iron ore prices and Chinese demand has already pushed some iron ore juniors up on the year. The third major player in the Pilbara, Fortescue Metals, is up 60% year-to-date and is a prime buyout target for Chinese investors. Midwest Corporation is up 30% and may soon become the first Australian company to fall to a hostile Chinese takeover.

It’s not just big miners like BHP Billiton and Rio Tinto that stand to profit from the bull market in steel. With or without a new contract price by June 30, a whole new gang of junior ore stocks will benefit from a market that just keeps getting bigger… and for investors, better.

Good investing,

Dan Denning

P.S. You don’t get many chances in life to participate in a full-blown mining boom… where the gains regularly reach hundreds of percent. It’s especially rare to participate in one that’s totally unknown by the majority of American investors. Right now, one is taking place in Australia. Click here to learn more about the best way to participate.

Source: The Last Secret Left in the Mining Industry 

Crude oil, for example, is up 102% since January 2006 – impressive, but nothing compared to some of the other commodities…

The price of steel is up 139% over the same period, and corn has soared 192%. Nearly every natural resource on the planet has climbed to multi-decade highs.

But a few commodities are being left behind…

The price of hogs has barely inched its way higher in the last two years. In fact, it’s risen by a measly 17% since the beginning of 2006. When you adjust for inflation, hogs are only up 9.9%.

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So the prices of all commodities – and corn in particular – have soared, but hogs remain as cheap as ever.

Take a look at this chart…

The Price of Hogs Is Unchanged Despite Soaring Feed Costs

This chart compares the S&P Goldman Sachs Commodity Index (GSCI) live-hog index to the S&P GSCI corn spot index.

As I wrote in March, corn makes an attractive investment right now (along with all agriculture). However, what we should really be on the lookout for is an uptrend in hog prices.

Hogs, like most commodities, went nowhere for 30 years. In 1977, hogs sold for about 55.5 cents per pound. Today hogs sell for only about 79 cents per pound. That’s a rise of 42% in 31 years, or an annualized return of 1.1%… well below the inflation rate.

Why are hogs so cheap? One reason may be that an overabundance of cheap corn for decades led to an oversupply of hogs. According to the Iowa Farm Outlook produced by Iowa State University, corn accounts for about 80% of hog feed.

But now, the brutal combination of pricey corn, increased energy costs (for processing and shipping), and cheap hogs is wreaking havoc on hog farmers worldwide.

This trend cannot continue. Hog farmers are not running charities. When the input costs for hog producers soar, the price of hogs must also rise. By buying hogs, we are piggybacking (excuse the pun) on the uptrend in agriculture and crude oil.

So when the uptrend finally begins, how should we play it?

Well, as my colleague Tom Dyson pointed out in this essay, we have a few choices… You could go into hog farming, for example. Or if you have a futures trading account, you could buy hog futures directly.

An easier option is to buy one of the large hog producers like Tyson, Hormel, or Smithfield Foods. But as Tom pointed out, these aren’t pure plays on the price of hogs.

Another choice is COW, a fund that tracks AIG’s livestock index, which is 59.3% cattle and 40.7% hogs. Cows eat boatloads of corn, too, and like hog prices, cattle prices haven’t nearly matched corn’s gain.

Good investing,

Ian