Basic Materials Beat
Along with other commodities, the basic materials have taken something of a beating recently. The durable goods report suggest that it could be more than just a technical move as shipments, orders and backlog for primary metals all slowed while inventory growth accelerated. It is worth noting that the fundamentals aren’t bad, they are just not quite as good as they were a month ago. Most industries wish they had 15% growth in orders and 25% growth in shipments, and with both growing at a faster rate than inventories it is hard to argue there is a glut. Still, it will be interesting to watch whether the deterioration continues.
Fabricated metal products, which were never as strong as the primary metals to begin with, also show a slowing trend. Here, the fact that inventory growth was faster than order growth and nearly as fast as shipments suggests a higher degree of caution is warranted. Further, with these firms building inventory they are likely to need less of the primary inputs in future months.
Larry Kudlow sees falling commodity prices and bond yields as cause to worry about deflation.
Copper
According to a Bloomberg article, Chinese copper demand is slowing as well.
Copper demand growth in China, the world’s biggest consumer of the metal, may slow to 5.6 percent this year, as record prices prompt makers of cables, wires and air conditioners to switch to cheaper substitutes.
Consumption may be 3.8 million metric tons, Yang Changhua, senior analyst at Beijing Antaike Information Development Co., which advises the government on industry policies, said today at a conference in Nanjing in eastern China. The estimate is lower than his March prediction of consumption of 3.86 million tons and last year’s growth of 9 percent.
Meanwhile, Zambia keeps digging up more of the stuff:
Chamber of Mines of Zambia general manager Fred Bantubonse has said Zambia’s copper production for this year was likely to be at around 600,000 metric tonnes.
In an interview, Bantubonse said this year’s copper production was higher than last year’s which was pegged at 466,000 metric tonnes. “Future prospects of copper production for the year 2009 are likely to about 800,000 metric tonnes all things being equal,” he added.
Nickel
Inco has the right idea: produce less metal but earn more income.
Gold
South African gold production plummeted by 6.1 percent over the three months ended July from the previous three months, according to Statistics SA.
Newmont Sees Lower Gold Production Until 2008
Russia’s gold production down 0.4% in 8 mthsRumors of massive central bank gold selling are still just rumors.
Chemicals
In their latest Investment Survey, Value Line noted significant improvement in ranking for specialty chemicals makers such as Watch List member Sasol (SSL).
The Specialty Chemical Industry is currently ranked 32 out of 97 for year-ahead performance. This is, as noted, in the top half of all industries covered by The Value Line Investment Survey, and a considerable improvement compared with our June report.
Most companies in the specialty chemical sector reported strong bottom-line advances during the June quarter. The earnings outlook for the sector remains relatively favorable for the second half of 2006, as well. Moreover, much of the strength will probably continue into the first half of 2007. This is a disparate group, however, and prospects vary considerably by the product line and market position of each participant. We urge investors to carefully review each stock before making specific investment decisions.
Disclosure: Author is long the Streettracks Gold ETF (GLD)
Disclosure: Author is long STREETTRACKS GOLD (GLD) at time of publication.
The durable goods data confirms strength in the primary metals. Inventories are rising, but not nearly as fast as shipments or orders. It is likely some additional inventory is needed so product can be delivered on time.
