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09th
January 2010
Commodities
Max Johannes
Rare
Earth Metals:
It seems that after 15 years China is now the
word’s dominant supplier of an obscure
group of minerals called rare earth metals With
90% of the world’s rare earth metals now
under China ’s control it could soon be
impossible to produce a wind turbine or electric
vehicle without Beijing ’s blessing, which
could lead to a dramatic shift from oversupply
to demand shortages. With no significant mining
capacity left outside China , some experts fear
the country will engineer a supply crunch to
suit its own industries. With global demand
for rare earths growing at 10% per year, there
is an urgent need to find deposits outside China
, says Hard Asset Investors’ Tom Vulcan.
Published reports confirm that China has only
allocated 38,000 tons of rare earths for export
this year, yet demand from Japan alone s expected
to be 40,000 tons this year. It looks as though
rare earth metals could join oil as an emerging-market
economic weapon creating a marvelous investment
opportunity, particularly in the African continent.
Diamonds:
De Beers, the world’s biggest dealer in
diamonds has publicly stated that in 2009 De
Beers anticipates a reduction in the prices
of diamonds from 57% to 65%. The world’s
biggest diamond miner is plan-ning for halving
its turnover this year. “De Beers is facing
its first crisis without power to control supply,”
said Des Kilaea, diamond analyst at RBC Capital
Markets, and the strain is showing.
“De Beers, which dropped its last attempts
to control world diamond supplies about a decade
ago, finds itself entering ‘the worst
diamond market in living memory’, one
analysts says. The company is responding much
as it would have in previous decades: by aggressively
cutting production. To help support prices,
De Beers will cut production as much as necessary
– by 40% for now – and save $1.5bn
in operating costs this year. ‘We believe
diamond and prices will only gradually recover
after 2009 and will not get back to 2007 levels
until at least 2012,’ said Christopher
LaFemina, a Barclays Capital Analyst. De Beers
now finds itself in an unprecedented position
of enduring an industry crisis it can do little
to change.
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Copper:
Copper prices surged to a five month high of
$4,459 a tonne, up 43% this year. The re-bound
in prices may prove short-lived, however, should
they again begin attracting flows of scrap,
traders say. The fear of fresh scrap flows was
behind the gloomy chatter even if executives
said that the current price above $4,000 was
surprising but most welcome, considering the
world is facing its worst recession since the
1930s.
Scrap accounted last year for up to 8m tones
and executives believe that at least 1m tonnes
of scrap are missing now. When copper prices
were riding high, scrappers smashed everything
from electrical wires to toy cars. With copper
surging to a record high of $8,940 a tonne last
year, even robbery was rampant as thieves were
lured by quick returns reselling copper as scrap.
But as prices fell to a four-year low of $2,827
a tonne late last year, copper recycling have
slowed considerably.
Now that there is less scrap around, Beijing
has been forced to buy more refined copper than
usual from world markets, helping to push prices
higher. Stockpiling by the Chinese government’s
secretive State Resources Bureau (SRB) has been
the other key factor driving prices higher so
far this year. Adam Rowley, metals analyst at
Macquarie, says that China was importing an
average of 460,000 tonnes of scrap a month last
year, but that has slumped to less than half,
or about 200,000 tonnes, at the start of this
year.
If Mr. Rowley’s forecast proves right,
prices could drop soon. Hussein Allidina, head
of commodi-ties research at Morgan Stanley,
is betting prices would drop 18%. ‘Real
end-demand conditions have not improved,’
he says. Jeremy Goldwyn of Sucden, a brokerage,
adds: ‘I don’t think the current
strength of the market is sustainable or justifiable
on the true fundamentals.’ He sees prices
moving ‘sharply lower in the coming weeks
and months’
Discuss
Story
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