Zinc fell off pre-dawn then went flat, ending at $0.4894/lb., down a penny and three-quarters. Aluminum was a steady decliner to $0.5863/lb., down two cents, while lead was weak as well, shedding a penny and three-quarters, to $0.4965/lb.

Copper led the industrial metals lower, cratering the most in three months as the dismal economic numbers continue to roll in.

“Prices were softer across the metals complex as concerns over global growth prospects were exacerbated,” wrote analysts at Barclays Capital in London, climbing stockpiles are “offering little change in the market-surplus dynamic.”

Indeed, stockpile growth has barely paused for breath over recent months, and yesterday was no exception as copper inventories monitored by the LME advanced by 3,100 metric tons, to 526,425 tons, a fresh high since October of 2003. Stocks are now up 55% just so far this year.

Looking near term, Gijsbert Groenewegen, of Gold Arrow Capital Management in New York, said that, “Copper has further downside to go. All the exporting countries are being hit, and manufacturing is coming down. That’s going to bring copper down. The two main usages for copper, housing and autos, are also struggling.”

And with GM (NYSE:GM) and Chrysler (carrying hats in hand to Washington this week, “Upcoming decisions with respect to the automakers will likely be the most dominant price influence for copper over the short-term,” said (NYSE:MF) MF Global’s  Ed Meir.

In company news, Teck Cominco (NYSE:TCK) released Q4 numbers that were mixed. Although the diversified miner saw revenues rise by 13% year-over-year, lower prices and carrying charges dragged the net into the red to the tune of C$600 million.

And in Mongolia, bidding on the prized $2 billion Tavan Tolgoi coal mine promises to be spirited, with all the big names reportedly in on it, including Vale (NYSE:RIO), Xstrata, Rio Tinto (NYSE:RTP), BHP Billiton (NYSE:BHP) and China’s Shenhua Energy. Tavan Tolgoi, which has a coal reserve of 6.5 billion metric tons, is also drawing bids from consortiums of Japanese, Russian and Korean firms, sources say.

Source: Base Metals See Red

Nickel followed a very similar path to copper, closing at $5.0689/lb., down 16½ cents. Zinc was modestly lower, ending at $0.4914/lb., down more than a half-cent. Aluminum rallied late to escape the red, finishing at $0.6026/lb., up less than a quarter-cent, while lead had a decent day, adding a penny and a quarter, to $0.5172/lb.

Copper slipped again, as traders were forced to confront stockpiles that seem to be spiraling out of control.

It was the same old, same old, as copper inventories monitored by the LME skyrocketed by 22,750 metric tons yesterday, to 477,675 tons, marking their highest level since November of 2003.

It was also the “biggest one-day increase in London Metal Exchange copper warehouse stock levels since August 2004,” noted analyst Edward Meir of MF Global (NYSE:MF), one of the 12 companies that trades on the floor of the LME.

“We expect metal producers to scale back production for most of this year, as in addition to the credit issues, the cost pressures they face are enormous,” Meir wrote. “Deteriorating demand is still outpacing the rate at which production is being slashed.”

The day was filled with company news. First, Vale Inco said it has stopped shipping nickel concentrate from the giant Voisey’s Bay mine in Eastern Canada until it reaches agreement with the provinces over a proposed nickel processing plant.

Then Xstrata, the world’s #2 miner, announced a rights issue, intended to raise $5.9 billion, that will cause massive dilution as it runs shares in issue from 978 million to 2.9 billion. Xstrata is also suspending its dividend.

And Reuters reported that, “Mexico’s biggest copper miner Grupo Mexico will probably post a sharp decline in fourth-quarter revenue,” with sales dropping “40 percent to $932 million in the October-December period, from $1.56 billion in the same period of 2007, according to the average forecasts of four analysts consulted by Reuters.”

Source: Base Metals Were Mixed

In November 2006, Tinkler, a 32-year old former electrician, bought the rights to a relatively unknown coal deposit in Northwestern Australia (Queensland). He paid $1 million for it.

Last year, Australian producer Macarthur Coal bought a majority stake for $270 million. Tinkler celebrated by spending $19 million on 56 racehorses at the Magic Millions horse auction on the Gold Coast. Turning coal into horsepower… what a trade, eh?

The story doesn’t end there. Tinkler just got a $400 million payout when ArcelorMittal, the world’s biggest steelmaker, spent $632 million on a 14.9% stake in Macarthur last week.

The move surprised at least two other predators in the Aussie coal sector. Global mining giants Xstrata and China’s CITIC Resources have also been trying to acquire stakes in Macarthur Coal.

You see, steelmakers need huge amounts of coal to fire their furnaces. And these firms have the same basic strategy: secure access to Australian commodities by buying the companies that own them. You could call it “mining in the stock market.”

For Chinese companies, this is part of a larger “Grand Strategy” to source raw material needs from Australian companies. The strategy for the rest of us is simple… Buy resource shares before China does.

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Here’s what former Goldman Sachs VP Kenneth Courtis told the Australian Financial Review just a few weeks ago:

China wants everything you’ve got, everything. And we still can’t fathom the demand that China is going to generate in the years to come… Imagine another 250 million people urbanising China over the next 20 years. What do you think that does to copper prices, iron ore prices, even given the levels they are at today?

Over the next two, three, four years, Australia could become really hot. You could see your stock market move a little bit like the Japanese market did in the 1980s or like the tech market did in the 1990s.

The first-ever hostile bid by a Chinese company for an Australian miner is nearing the finish line… Steelmaker Sinosteel recently raised its bid for iron ore junior MidWest from A$5.60 to A$6.38 per share.

But for months now, the big story in the Aussie market has been China Inc.’s stealth invasion of Australia through the stock market…

The Australian newspaper reported “Chinese interests” are considering a bid for 9% of BHP Billiton, Australia’s largest resource company. The direct strategy would be to knock on the front door and ask for a chunk of stock.

That’s not exactly subtle, and not likely to be well received. (You might recall the backlash when the Chinese National Offshore Oil Corporation tried to buy U.S.-based Unocal. The U.S. government blocked the bid.)

But it looks like China is taking the indirect approach, partnering with an Australian fund and a large foreign company (probably American) in the deal. If only one of the three parties to the bid is Chinese, then it looks less hostile, and it’s more likely to get the approval of Aussie regulators.

If you look carefully at this statement from China’s National Development Reform Commission (NDRC), the “Grand Strategy” comes into focus: “With iron ore prices rising explosively, many domestic firms are very enthusiastic about investing in overseas mines, which needs strengthened macro guidance from the country.”

In other words, commodity prices are soaring. China desperately needs them. And the state government will support nearly all Chinese attempts to buy assets. That includes backing takeovers in Australia.

We’ll see how far the Australian government will allow China to “infiltrate” its commodity sector… but it’s clear both countries need each other. As long as the China boom continues, the Aussie resource boom will continue.

The right move for the rest of us is to get acquainted with Australia’s resource shares. They are the object of a large global bidding war – one that could shoot this stock market into mania mode.

It’s the kind of crossfire you want to be caught in… And the next four or five years may be the best time you’ll ever see to make money in resource stocks.

Good investing,

Dan Denning

P.S. I’ve just completed a full report on the best opportunities in Australian mining stocks. I guarantee you won’t find in-depth research on these companies in the U.S., which makes them an outstanding, undiscovered way to make money in the resource bull market. Click here to read more about this report.Source: Why Australia Could Become the Next Stock Mania

The chart is below, click on it to see it full size.

Click on the image for a larger version

Queensland’s coal industry has never had it better. Yet one of the ironies of the recent rise in contract thermal and metallurgical coal prices is that coal producers may not be able to take advantage of them this year.

If you missed the news, thermal coal prices for 2008 more than doubled from $50 to $130. Meanwhile, the 2008 contract price for coking coal used by steel makers tripled, going from $80 to $300.

Unlike more widely traded commodities such as oil and copper, the prices for coal (both thermal and metallurgical) and iron ore are set in annual negotiations between major producers and consumers. The major producers are the large mining companies. Those include BHP Billiton, Rio Tinto, Xstrata (in coal), and Value (in iron ore).

The major consumers for thermal coal, used to heat boilers for steam-generated turbines and electric power, are Japanese Korean and electric companies. The relationship between these companies and Aussie firms go back all the way to the 1960s, when Japan and Korea began their post-war industrial growth spurts. For steel, the major consumers of Australian metallurgical coal and iron ore are Japanese, Korean, and, of course, Chinese steel makers. China is the world’s largest steel-producer (and consumer).

The price rises should be good news for Aussie producers. The trouble, at least in the coal business, is that bad weather and infrastructure bottlenecks are making it harder for Aussie firms to increase production volumes this year. You can’t sell what you can’t get to market.

So while export earnings for Aussie resource producers will be up this year because of the rising coal price, actual production volumes will not increase. As evidence, consider the first quarter production figures from Rio Tinto earlier this month. Rio’s coal operations are in the Bowen Basin of Queensland. That area was subject to heavy flooding in the first quarter. Coal production fell by 27%.

So who will benefit from the rising contract prices? The short answer is that coal mining service companies probably will. For the coal producers to expand production, they will to invest in mine expansion and infrastructure. In Queensland, where many of the mines are underground, that means work for the specialist firms that help build underground mines. Stocks to watch in the sector include:

1. Walter Diversified Services (ASX:WDS). According to the company, “Walter Diversified Services Limited (WDS) is principally engaged in the provision of specialist services to the underground coal mining industry, and to the infrastructure oil, gas and water pipeline construction and maintenance sectors in Australia.”
2. Whitehaven Coal Limited (ASX:WHC). Whitehaven actually operates several open-cut coal mines in New South Wales. But the company, which is really a group of companies, also mines and sells metallurgical and high grade thermal coals
3. Cockatoo Coal (ASX:COK) Cockatoo isn’t producing any coal yet. But it’s involved in four projects in Queensland, the Wonbindi project, the Dingo Coal Project, Guluguba and Mintovale. Cockatoo’s are in Queensland’s Surat coal basin, with slightly lower quality than the Bowen Basin coal. But as they are unmined, when production commences the company will be able to take full advantage of higher contract prices.

Another development to watch for? Coal-to-liquids (CTL) production of diesel fuel becomes economic with high crude oil prices, especially in areas where “stranded coal seams” are not large enough to mine economically as conventional coal. Those stranded seams now have to new routes to energy viability.

We covered one Aussie company engaged in the CTL business late last year in the Australian Small Cap Investigator. We suspect that there may more like it soon, if current events are any indicator.

Al Robinson
for The Daily Reckoning Australia

I live in Pittsburgh, and grew up here as well. Both figuratively and literally, Pittsburgh is built on coal. Coal is the remains of ancient plant life, buried within the rock record.

For example, one of the most extensive and valuable mineral resources in the U.S. is called the Pittsburgh Coal Seam. The Pittsburgh Coal Seam shows up in outcrops all over town, if you know where to look and what you are seeing. But there is a lot more to this hunk of rock.

The Pittsburgh Seam extends underground all over western Pennsylvania. The Pittsburgh Seam is high-grade coal and can be as much as 6-8 feet thick. That’s a lot of energy stored up in one place.

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A century or more ago, coal from the Pittsburgh Seam was abundant and cheap. People heated their houses with coal, cooked with coal, powered simple engines with coal. And all over western Pennsylvania, people like Henry Frick and Andrew Carnegie pulled a heck of a lot of money out of that Pittsburgh Seam.

They built mines, powered mills and created immense industries based on burning coal. More fundamentally — if not philosophically — they profited from harnessing and releasing the stored-up energy from ancient sunshine.

Energy and Capital

Let’s think about that for a moment. It was not that capital was cheap back in the last century. Gold was gold. Money was money. When they borrowed funds, Frick and Carnegie paid the same interest rates as anyone else anywhere else. But they succeeded, and did so in great fashion. What was their advantage?

Well, it gets back to that Pittsburgh Coal Seam. In the last century, western Pennsylvania had rich seams of coal located near the surface. Pittsburgh had proximity to some of the best energy reserves in North America. So coal became the foundation of industry. Energy powered industry, and industry created wealth.

The rivers of western Pennsylvania made it easy to transport that coal. That is, using barges to float things down the rivers required relatively less energy per ton-mile to move the coal to Pittsburgh’s mills. And using the rivers meant that it required less energy per ton-mile to move the value-added products out to the interior of the country, and to the world. (For example, the steel locks on the Panama Canal were built at Pittsburgh and floated down the Ohio and Mississippi rivers, across the Gulf of Mexico and to Panama.) Yes, it took capital to gain access to the energy sources. But the energy sources also leveraged the capital.

In its own way, energy is a form of capital, isn’t it? And it is a major competitive advantage to control a source of low-cost energy.

In fact, control over reliable sources of low-cost energy may be even better than access to cheap capital, especially in years to come. There are so many dollars in this world that almost any darn fool can borrow them, or how else to explain what has been happening on Wall Street lately? But ample and low-cost energy can certainly multiply the effectiveness of capital. Ask Frick or Carnegie.

The Price and Consequences of Using Coal

Have you seen the price of coal lately? In 2008, thermal coal prices are set to double, from about $55 to $125 per ton. That’s based on a recent agreement between Japan’s Chubu Electric Power and the giant mining firm Xstrata, and it should become the benchmark for 2000-09 contract prices worldwide.

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Spot prices for thermal coal have tripled in the past 12 months. And spot prices for coking coal (used to make steel) have quadrupled in the last 12 months. Just in the last two months, those prices have doubled. Do you notice any patterns?

Let’s boil it down to a few key points. The cost of the world’s “traditional” energy source — coal — is skyrocketing. And about 40 percent of the world’s electricity is currently generated using coal. Many other industries use even more coal, from steel makers to cement kilns.

So if coal prices are going up, what will that mean for electricity prices, or steel, or cement or whatever? They are headed up, as well. I would say grab your oxygen mask. But that’s a bad joke, because of the carbon dioxide (CO2 ) issues that people blame on coal.

The Time for Geothermal Arrived

So where can we in North America get significant amounts of “clean” electricity with minimal CO2 emissions? Not from coal. How about windmills? Yes, when the wind blows. How about solar? Yes, when the sun shines. And how about geothermal? Yes, all the time. 24/7/365.

Really, the stars of economics and politics are aligning on this one. The time for geothermal has arrived. Welcome aboard.

Until we meet again…
Byron W. King

P.S.: As long as we’re talking about energy, did you happen to see oil prices yesterday? Somehow oil almost touched $120 and things are still looking grim. As OPEC continues to squabble and Peak Oil reaches the front pages, could $150 or even $200 oil be that far off? Click here to decide for yourself…