Rio Tinto compra Alcan y estimula la ola de consolidación en los recursos naturales

Rio Tinto PLC acordó la compra del gigante canadiense de aluminio Alcan Inc. por US$ 38.100 millones, o US$ 101 la acción, en lo que constituye el ejemplo más reciente de consolidación en el sector de los recursos naturales.

Algunos analistas creen que el acuerdo de Rio Tinto podría instar a la australiana BHP Billiton Ltd. a lanzar una oferta por Alcan o Alcoa. La brasileña Compahia Vale do Rio Doce (CVRD), la minera de mineral de hierro más grande del mundo, declaró que, aunque no está negociando la compra de Alcan, no descarta cortejar a la compañía más adelante.

De concretarse, la compra de Alcan diversificará la fuente de ganancias de Rio Tinto, que depende mucho de sus divisiones de mineral de hierro y cobre, fuente del 76% de sus ganancias en 2006.

Rio Tinto ha dicho que cuando complete la adquisición de Alcan, espera que un 25% de sus ganancias provenga del aluminio, un 30% del cobre y un 23% del mineral de hierro. Combinadas, Rio Tinto y Alcan habrían reportado ingresos en torno a los US$ 49.000 millones y un flujo de caja cercano a los US$ 16.500 millones en 2006. Actualmente, Rio Tinto tiene capacidad para producir sólo 800.000 toneladas de aluminio al año. Con Alcan, conseguirá 4,2 millones de toneladas de aluminio anuales.

Durante la mayor parte del auge de las materias primas, Rio Tinto ha sido uno de los pocos gigantes de la minería, pero eso ha ido cambiando a medida que otras empresas se consolidan y crecen. CVRD adquirió el año pasado a la minera de níquel canadiense Inco Ltd. por más de US$ 17.000 millones, en lo que fue la compra más grande de una empresa extranjera por parte de una brasileña en la historia. Sin embargo, algunos analistas se preguntan si CVRD está lista para otra adquisición importante, no sólo porque la junta de Alcan ya aprobó la oferta de Rio Tinto sino porque CVRD aún está integrando a Inco, dijo Catarina Pedrosa, analista de Banif Investment Banking, en San Pablo.

Xstrata PLC es otra minera importante que ha estado expandiéndose en forma agresiva mediante adquisiciones, lo que ha ejercido presión sobre BHP y Rio Tinto.

El presidente ejecutivo de Alcan, Dick Evans, dice que la oferta de Rio Tinto representa un mejor valor para los accionistas y encaja mejor estratégicamente.

Algunos analistas estiman que quedan pocas adquisiciones razonables en el sector y los postores podrían terminar pagando más por Alcan o Alcoa. "Está gente se engaña acerca del valor de estas empresas", afirma Stewart Spector, analista que publica el boletín Spector Report. "Si alguien ofrece US$ 90 por Alcan, no sé como van a recuperar el costo del capital", subrayando los magros retornos de Alcan.

Alarma europea ante la carestía y escasez de las materias primas

Son sólo 28 minerales, considerados por los expertos como imprescindibles para el funcionamiento de la economía mundial. Algunos, tan familiares como el cobre o el estaño. Otros, de nombre casi voluptuoso como niobio o berilio, han ganado importancia gracias al desarrollo de nuevas tecnologías. Y todos, por desgracia para Europa, parecen hallarse fuera de las fronteras comunitarias.

Hasta ahora, los países desarrollados disfrutaban de un acceso casi exclusivo y barato a esos recursos. Pero la emergencia de economías como China, India o Brasil ha convertido esas materias primas en un bien preciado y escaso. Y el riesgo de un schock comparable al que provocó en los años 70 la escalada de la cotización del petróleo ha disparado las alarmas en Bruselas, Washington o Tokio.

El grupo de Alto nivel que asesora a la Comisión Europea en materia de competitividad tiene previsto presentar hoy mismo sus recomendaciones para una política comunitaria que garantice el acceso de la industria europea a unos recursos insustituibles.

El G-8 también aprobó la semana pasada la convocatoria de una cumbre mundial para velar por la transparencia de los mercado de metales. Los líderes de las ocho naciones más industrializadas del planeta pidieron a los países productores 'que se abstengan de restringir el comercio o de distorsionar la competencia en contra de las normas de la Organización Mundial de Comercio'.

Pero las razones para inquietarse no son igual de graves entre todos los países desarrollados. EE UU, por ejemplo, es el segundo productor mundial de molibdeno (utilizado para aumentar la resistencia del acero) o de renio (útil en aleaciones a alta temperatura).

Por el contrario, la UE cuenta con pocos yacimientos rentables. Sólo es líder mundial en mercurio, un material que se quiere abandonar por razones medioambientales. Y su producción de cobre, níquel o zinc, en cambio, no supera el 5% de la extracción mundial de esos minerales.

El departamento comunitario de Industria, que dirige el comisario Gunter Verheugen, teme las consecuencias geopolíticas de esa dependencia. 'Europa está cada vez más expuesta a la agenda política de sus proveedores', alerta ese departamento en un informe aprobado la semana pasada.

Bruselas advierte, además, que los países productores pueden comenzar a explotar su control de unos recursos esenciales. La experiencia del cartel del petróleo (en torno a la OPEP) y el riesgo de uno similar en el gas puede trasladarse a otros productos. Y la tendencia de Rusia a utilizar sus recursos naturales como arma de política exterior puede sentar un peligroso ejemplo para otros productores.

La tentación puede ser difícil de resistir porque el 40% de las reservas de 22 de los 28 minerales más importantes para la economía se encuentran en países donde la renta per cápita no pasa de seis euros y medio al día.

Pero incluso sin la regulación de la oferta por parte de los productores, la sed de recursos puede colocar en dificultades a los países europeos. Bruselas calcula que, si se mantiene el ritmo actual, el consumo mundial de materias primas minerales se multiplicará por cuatro en sólo 20 años. El previsible aumento del precio puede disparar el déficit comercial de la UE en este terreno, que supera los 11.000 millones de euros anuales.

Cuando la ecología se adelanta a la excavadora

La escasez de metales en la UE no ha impedido la existencia de una importante sector minero que factura, según datos de la Comisión Europea, unos 40.000 millones de euros anuales y genera más de 250.000 puestos de trabajo. Y en algunos minerales industriales como, feldespato, caolín, magnesita o sal, la UE figura entre los tres mayores productores del mundo.

La competitividad del sector, sin embargo, se enfrenta a serias amenazas. Entre ellas, según la información recabada por la CE entre las empresas, la existencia de un marco regulador horizontal (sobre todo, en materia de medio ambiente) que no se concibió tomando en cuenta las circunstancias de la industria minera.

El 12% del territorio comunitario se encuentra protegido por el programa de conservación medioambiental conocido como Natura 2000 (en España, el porcentaje se eleva al 22,6%). Aunque esa legislación no excluye per se la actividad minera, algunas compañías consultadas por Bruselas aseguran que se les ha revocado el permiso de extracción o han tenido que demostrar la 'inocencia' de su actividad.

Respecto a España, algunas compañías mineras aseguran que la designación de zona protegida se hizo en algunos casos con el único objetivo de impedir la extracción de minerales aunque el lugar no tuviera un especial valor medioambiental. Las empresas también se quejan de las diferencias de criterio que existen entre las comunidades autónomas.

World Silver Survey forecasts double-digit silver prices will continue

The World Silver Survey 2007, released today by the Silver Institute, forecasts that the current fundamental/supply demand picture for silver is "at least supportive of prices well into double-digits," in the absence of a major externally-driven setback to industrial demand.

The authors of the survey - London-based metals consultant GFMS - suggested that "for silver to break out to the upside or downside would therefore seem to require intervention from investors." A downside could occur if a slide in global GDP growth prompted investors to liquidate their positions.

Nevertheless, GFMS's research revealed that, "at the present time, investors still look set to expand their investment in commodities."

The average silver price averaged US$11.55 in 2006, an increase of 58%, and a 26-year high, according to the survey. "Equally remarkable is that the price has been sustained at such high levels since the ETF-driven peak of close to $15 was reached in May 2006."

GFMS noted that the year-on-year rise in silver prices was also strong compared to gold, which rose 36% and platinum, which increased 27%. Investment was the prime driver behind the overall gains with the launch of the silver ETF on April 28, 2006.

"The relatively illiquid nature of silver no doubt contributed to its gains being greater than gold's," the survey asserted, "but the yellow metal's differing response to a bull market ...must also have been significant."

Silver's price volatility almost doubled to 45% in 2006. The trading range also jumped to 53%. Price volatility was greater in the second quarter of last year at 69% whereas the least volatile quarter was the fourth-which was believed to have seen stronger buying in the physical markets--at just under 28%, according to the survey.

"Besides its own appeal, silver has also benefited from commodities in general being in vogue and, in particular, its traditional strong relationship with gold, which of course has also enjoyed a powerful investor-led rally."

"Looking ahead, GFMS expect that the future of the yellow metal will remain of paramount importance to the silver price, particularly as such an exogenous shock that would boost silver more than gold, such as the launch of the first silver ETF, is unlikely to appear in the near future."

INDUSTRIAL DEMAND

At the same time, industrial demand for silver resulted in a fifth consecutive year of growth. Last year represented a record for the United States with respect to total industrial silver use, posting a 6% increase to 106.8 million ounces, "illustrating how this area of demand has little short-term price sensitivity and is driven instead by external factors such as technology and the level of industrial production."

Total industrial demand exceeded 50% of total fabrication demand for the first time in 2006. "Looking ahead, demand is likely to remain relatively untroubled by prices with a $11-$14 range," GFMS predicted. However, GFMS also warned that with the hefty percentage of industrial silver use comprising overall fabrication demand, "silver is vulnerable to any major setback in global industrial production."

"In 2007, jewelry and silverware demand ought to remain fairly robust unless prices reach new highs," according to the survey. "Photographic demand will fall further in 2007, but the drop in volume, as opposed to in percentage terms, should moderate."

GFMS found that silver jewelry is winning the youth vote as younger consumers view yellow gold as dated or flashy. Silver jewelry sales are also drifting toward well known brands.

Jewelry fabrication demand posted a 5% fall to 165.8 million ounces in 2006, largely due to higher prices which generated a 28% slump in India. However, China and Indonesia reported respective fabrication gains of 16% and 18%.

Lower fabrication in prices sensitive countries and structural taste shifts account for the 7.5 million ounce dip (11%) in global silverware demand to 59.1 million ounces in 2006. About 60% of the silverware decline was due to India. However, Russia has bucked the global trend as the demand for silverware has increased dramatically in recent years, according to the survey.

Meanwhile, global silver coin fabrication sank to below 40 million ounces for the first time in three years.

The largest segment of industrial demand, electrical and electronics fabrication, benefited from higher sales into consumer electronics, the automobile sector, and the photo voltaic industry, which achieved notably higher growth. "It will be industrial applications that will ensure the sector continues to grow in the future when metal prices retreat, and investors move away to other market opportunities," GFMS declared.

MINE PRODUCTION

Global silver mine production reached 646.1 million ounces in 2006 with notable gains in Peru, Mexico and China. However, a 28% drop in Australian output took its toll, as production declined 21.7 million ounces chiefly due to events at BHP Billiton's Cannington mine in Queensland, formerly the world's largest silver operation.

The decline of the ore grade at the Eskay Creek gold mine in Canada, which is planned for closure nest year, accounted for a significant portion of Canada's overall silver production losses.

More than 70% of silver output is as a by-product of other metal mining. Silver generated at primary mines declined 10% to 161.4 million ounces, representing 25% of global silver production. Cash costs at primary silver mines decline by 16% to average $2.74/oz.

Pan American's Morococha mine in Peru took the title of the lowest cost silver mine with full year cash costs reported at a negative $3.71/oz (after byproduct credits were taken into account), a $6/oz year-on-year reduction.

The top five silver producing nations in 2006, respectively, were Peru, Mexico, China, Australia, and Chile. The top five silver producing companies were Mexico's Industrias Peñoles at 46.9 million ounces, Poland's KGHM Polska Miedź (a copper company) at 39.9 million ounces, Australia's BHP Billiton, 37 million ounces, Kazakhstan's Kazakhmys, 21.5 million and Russia's Polymetal, 17.3 million ounces.

GFMS forecasts an uninterrupted global mine supply increase through 2008, with a 3% rise in 2007. The survey predicts that Australian silver production will recover, while fresh mine supply in South America and Mexico will come on line.

Interestingly, GFMS expressed its confidence that both Apex Silver's San Cristobal project and Coeur d'Alene's San Bartolome will receive final approvals from the Bolivian government.

FINANCIALS

Silver from above-ground stocks on a net basis dropped by 4% in 2006 to 194.4 million ounces as a result of a shift of net producer hedging to the demand side. GFMS estimated that mine production account for 77% of total supply over 2006. "It is finally interesting to note that, although in respect to confidentiality GFMS cannot disclose a breakdown between allocated and unallocated stocks, there was a clear shift from the latter and into the former over the course of the year"

Net government sales increased by 18% to 77.7 million ounces in 2006 as a result of marked increases in Russian sales, coupled with ongoing sales from Indian government silver stocks. "The lift in government sales was more than offset by producers collectively abstaining from hedging, in spite of the very high forward prices available at times last year." Government stocks of silver are estimated to have fallen by nearly 77.7 million ounces last year to reach 137.2 million ounces by year-end, according to GFMS.

The delta-adjusted silver hedge book at year-end 2006 was reported at 82 million ounces, an 8% decline from the year-end 2005 position. "At first glance, it was perhaps surprising that the 58% rise in the average spot price did not do more to stimulate fresh hedging," GFMS noted. "Part of the explanation was a continued shift in hedging practices, which has seen a number of producers lock in silver prices using silver purchase agreements rather than the forward market."

Noteworthy fresh hedges in 2006 included the conclusion of Bema Gold's project related hedge at Kupol in Russia; an increase in the volume of purchased puts at KGHM Polska Miedź; and Boliden's extension of its hedge program connected with the expansion at Aitik, one of Europe's largest copper mines.

Implied net investment was down 17% to 64.5 million ounces last year.

Due to a lack of publicly-available data on activity in silver OTC products, GFMS was unable to provide a meaningful estimate of the impact of OTC activity on the physical market.

To obtain a copy of "World Silver Survey 2007," go to the Silver Institute's website at http://www.silverinstitute.org/

Zinc's Turn to Shine?

In December, we responded to readers’ questions about why the consistent drop in LME Zinc inventories had paused. Other than a one-day spike in June 2005, LME Zinc inventories had dropped nearly 90% in a very consistent pattern since April 2004, from 785,000 tonnes to a low of 84,825 tonnes, but that pattern appeared to have changed late last year.

From December through late March, a shallow uptrend developed, and media skeptics came out of the woodwork suggesting that the trend change in zinc LME inventories indicated a permanent shift in the supply/demand situation, as China became a “net exporter” of zinc. The truth was that a couple of short-term factors, delayed shipments from the world’s biggest zinc mine and a change in Chinese export tax law, had helped to create a short-term surge in refined zinc supply, causing a temporary pause in the downtrend.

Despite the media claims, China remained a huge net importer of zinc, as they imported more and more zinc in the form of zinc concentrate, which they then processed in their smelters to create refined zinc. Because they had dramatically increased their refining capacity via rampant smelter construction, China had decreased their refined zinc imports relative to their zinc concentrate imports, using their low-cost advantages to process the zinc raw materials from other countries to the extent that they were exporting more refined zinc than they imported. However, the huge consumption of zinc in China’s growing economy, far exceeding the capacity of their own mines, compelled them to remain huge net importers of zinc overall, importing enormous amounts of zinc concentrate from overseas mines. Conveniently, the media zinc skeptics never mentioned the fact that China was relying on other countries for much of the zinc concentrate they used to produce refined zinc, instead focusing only on the “net exporter” status for the refined zinc finished product.




We said in December that “We expect the zinc crisis to become very evident after the effects of the Red Dog shipment spike have dissipated by the end of Q1.” After the peak in LME Zinc inventories in late Q1, they have steadily declined to hit a new low, at 83,725 tonnes, below the December low of 84,825 tonnes, so we can see that the pause in the downtrend was only temporary. Since the current level represents only about 2 ½ days of inventory, there’s not a lot of room to move lower. There’s a “frictional level” of LME inventories required to maintain an orderly market. It will be interesting to see how the zinc price responds to lower levels of inventories, as at some point the price will have to move high enough to curtail the demand so that the LME inventories don’t get completely depleted.

In addition to the previously mentioned factors for the earlier surge in zinc supply, another factor may decrease future world zinc supply. China has taken actions to decrease their zinc production capacity, requiring new zinc mines to have at least an annual capacity of more than 30,000 tons and an operation life of 15 years, capping the country’s refined zinc production capacity, and reportedly removing the 5% tax rebate on exports of refined zinc. With the enforcement of these new regulations, China will likely need to rely even more on foreign sources of zinc concentrate, and other countries will need to step up their production of refined zinc to make up for China’s supply reduction.

Moving forward, we really like the fundamentals for the zinc market, as we explained in December: “After the short term surge in supply from these 2 temporary events is absorbed by the market, we expect zinc to remain very strong because of the dearth of sizable projects in the pipeline for the next few years combined with growing demand and depletion of reserves at existing mines. We believe the fears in the market that the recent short-term trend change in zinc LME inventories could indicate a permanent shift in the supply/demand situation are misguided, and we expect that to become apparent in coming months. If the downtrend resumes as we expect, we believe the only way the LME Zinc inventories will avoid complete depletion is with zinc prices increasing enough to curtail demand.”

The timing for strength in zinc mining companies is excellent. A year ago, one of the sharpest and most respected institutional commentators, Don Coxe, explained on a conference call that “there are 3 major movements in this metals bull market, and we're nearing the end of the first one. The second one will be a slowdown, where I expect the prices of commodities to correct after the initial big runup. The third one will be a dramatic move that lasts at least 5-7 years.” He specified that “the next 12 months would be 'great fun' but a very different game, and would provide the ‘last great opportunity’ for the next 5-7 years. The next economic cycle after that will be a giant.”

Over the past year, we’ve seen the second movement play out, with sharp corrections in the prices of commodities. Most zinc junior miners remain well off their highs of a year ago, and are poised to bounce back during the strong third movement. In his latest conference call, Coxe reiterated that he feels “as strongly as ever that the best is yet to come.” He also emphasized that although “because of compliance problems and the kinds of clients that we serve, we have to comment on the big cap stocks, that more money is made in any boom like this by buying small caps,” meaning “you’re better off if you can find small cap mining companies who have got reserves in the ground than you are buying big caps – the leverage is terrific, and you can also assume that they’re going to get taken out, if the stock market obstinately refused to bid them high enough.”

After the recent rallies in uranium, nickel, molybdenum, and copper mining stocks, we believe that it is now the zinc miners’ turn to shine. With arguably the best supply/demand fundamentals for at least the next few years, zinc is the only base metal whose price is still down on the year. We believe that laggard status will soon change as the zinc crisis becomes more evident, drowning out the media skeptics’ misguided claims. Quality small cap zinc miners may be the next group to shine in this bull market.

La demanda de China tensiona de nuevo los mercados de metales

El precio del cobre, que volvió a cotizar la pasada semana por encima de los 8.300 dólares por tonelada, sigue aupado por la fuerte demanda china y la apuesta de los fondos. Ese primer factor continuará presionando los mercados de materias metálicas primas al alza a medio plazo, según una parte de los analistas del sector. Los 8.300 dólares suponen una revalorización del 35% en lo que va de 2007 y una significativa subida respecto a los 5.270 dólares la tonelada a los que el cobre cotizó en febrero.

En la misma línea, el níquel, que se utiliza para la producción de acero inoxidable, cerró el viernes con un máximo histórico de 51.600 dólares la tonelada. Además de la presión de la demanda y de los algunos problemas de suministro, otros datos que han impulsado la cotización de los metales son los referidos a los stocks, que marcan caídas para el cobre, las aleaciones de aluminio y zinc.

Hay varios datos que apoyan el argumento de que los grandes países de Asia están detrás de esos rallies, pero las cifras sobre importación de cobre refinado aportadas por la Administración china hablan por sí mismas. En el primer trimestre del año las compras de ese metal en el exterior por parte del gigante asiático se elevaron a 483.485 toneladas, lo que supuso un aumento del 135% respecto al mismo periodo de 2006.

Pero las estadísticas que han tenido más impacto en la evolución de las materias primas metálicas, no sólo del cobre, son las del crecimiento de la economía china conocidas el pasado 19 de abril, que muestran un aumento del PIB del 11,1% en el primer trimestre de 2007. Esa subida ha tenido dos lecturas Por un lado, la que considera que los metales que China consume seguirán disfrutando de una fuerte demanda. Aunque, por otro lado, algunos expertos creen que se vuelve abrir la puerta a posibles medidas para enfriar la economía de se país. En esa línea, algunos analistas comienzan a hablar de un posible pinchazo de la burbuja

No obstante, se mantienen recomendaciones positivas para las compañías mineras. John Mackinnon, de Deutsche Bank, señala que permanecen sobreponderados en el sector. 'Nosotros esperamos todavía una tendencia al alza en 2007 y 2008, conducida por la fuerte demanda de los países emergentes, especialmente de China e India, y una mejora más sustancial de la economía japonesa'.

Supplies may trigger metals meltdown

Copper, nickel and lead, the best performing commodities in the past four months, may be the worst by year-end.

On Wall Street, the chorus is getting louder that rising metal supplies are outpacing demand. From Goldman Sachs Group to JPMorgan Chase to Societe Generale, there are warnings of a mania that is showing all the signs of a climax.

“This is a real bubble,’’ says metals trader David Threlkeld, who first got the world’s attention in 1996 when he showed that Sumitomo Corp’s copper hoarding would lead to a market collapse. Once again, “we have an enormous amount of unsold copper,’’ says Threlkeld, president of Resolved Inc. in Scottsdale, Arizona.

The metals bears are convinced that consumption may drop partly because China, the biggest user, is attempting to reduce investment through interest-rate increases and lending curbs after the economy expanded 11.1 per cent in the first quarter.

Demand is also weakening because of a slowing US economy and a consumer-driven pursuit of alternatives to historically expensive copper and nickel, according to Stephen Roach, chief economist at Morgan Stanley, the second largest securities firm by market value.

Copper will decline 30 per cent to an average of $5,650 a metric tonne in the fourth quarter from more than $8,000 today, according to the median of 12 analysts’ forecasts compiled by Bloomberg. Nickel and lead will drop about 50 per cent from record prices reached on May 4 to $24,450 a tonne for nickel and$1,000 for lead, the data shows.

The anticipated slump would depress exports from Australia, Canada and Chile, wipe out more than $22 billion on the London Metal Exchange and squeeze the profits at mining companies from BHP Billiton, the largest in the world, to OAO GMK Norilsk Nickel, the biggest metals producer in Russia.

Bears miss rally

To be sure, many of the bears were wrong so far this year. An investor who acted on the advice of JPMorgan, the third largest US bank, missed gains of 67 per cent for nickel, 30 per cent for copper and 41 per cent for lead, the best-performing commodities in the 26-member UBS Bloomberg CMCI Index. That compares with a 6.2 per cent increase for the Standard & Poor’s 500 Index and 2 per cent for US Treasuries, according to Merrill Lynch & Co. indexes.

“We’re sticking to our guns’’ because “prices are unsustainable,’’ said London-based Jon Bergtheil, head of global metals strategy at the bank, on May 2. Nickel may average $35,328 a tonne in 2007, down from $51,600, because stainless steel makers might buy less in the second half, he said. Bergtheil in February said that nickel would decline 25 per cent in 2007. The metal, used to make stainless steel, has since gained 40 per cent.

Finding alternatives

Nickel may plunge to $30,000 a tonne by the end of 2008, because the current level is “overdone,’’ Goldman Sachs analysts led by James Gutman in London said in an April 2 report. “There is a risk of longer-term demand destruction.’’

Stainless-steel producers are cancelling orders, he said. His colleague in London, Jeffrey Currie, head of global commodities research, was less bearish last week, saying he expects metals prices to be “trading sideways’’ this year.

The record copper price of $8,800 a tonne reached last May was the peak, said ABN’s London-based analyst Nick Moore. He recommended selling copper in December because global supplies were growing.

He declined further comment in a May 3 e-mail, saying he couldn’t discuss changes to price estimates before they were published. Copper for three-month delivery ended at $8,320 a tonne in London on Friday.

Rising output

World supplies of copper outpaced demand by about 50,000 tonnes in the first quarter, Stockholm-based copper producer Boliden AB said on May 3. Global output rose 8 per cent in the period, twice as much as demand, the company said.

Chile, the world’s biggest supplier of the metal, said production jumped 13 per cent in March as high prices encouraged miners to increase supply. Output rose to 502,106 tonnes from 442,410 tonnes a year earlier, the Santiago-based National Statistics Institute said on April 26.

Nickel stockpiles tracked by the London Metal Exchange (LME), the world’s largest metals bourse, rose almost 60 per cent since dropping on February 6 to 2,982 tonnes, their lowest since July 1991 and barely enough to supply the world for a day.

Lead inventories are also rising, gaining by 42 per cent since March 13 on the LME, to 43,825 tonnes. A surplus of 25,000 tonnes of lead may exist next year, from a deficit of 35,000 tonnes forecast this year, Natixis Commodity Markets said in a quarterly report on May 1.

The metal’s record price is likely to trigger more exports from China, said Natixis, one of the 11 companies trading on the floor of the LME. Lead for three-month delivery ended at $2,115 a tonne in London last week.

Consumption cut

Some of the world’s biggest users of metal are finding ways to reduce consumption. Pohang, South Korea-based Posco, the world’s fourth-largest steelmaker, said on April 25 it will increase output of nickel-free stainless-steel five-fold next year. Nickel helps to make steel corrosion-resistant. Morgan Stanley’s Roach, who will soon become the bank’s chairman in Asia, says commodities are poised to crash in the same way they did in May 2006, when a 5.4 per cent weekly decline in the Reuters-Jefferies CRB Index was the biggest tumble since December 1980. “Watch out below for yet another reversal of commodity froth,’’ Roach said on April 26. “It’s deja vu spring of 2006.’’ He correctly predicted the slump in commodities 12 months ago.

China’s rates

Roach anticipates a drop in commodities because China will increase interest rates to slow the economy and inflation, while a slowdown in US housing will rein in consumer spending. China ordered banks on April 29 to set aside more money as reserves for the seventh time in 11 months to try to prevent the world’s fastest-growing major economy from overheating.

Lenders must put aside 11 per cent of deposits starting May 15, up from 10.5 per cent. The increase will draw 170 billion yuan ($22 billion) from the financial system.

China raised borrowing costs three times since April last year, and will increase rates twice more this year, according to a Bloomberg survey of economists.

In the US, the world’s biggest economy, growth slowed to a 1.3 per cent annual pace in the first quarter from 2.5 per cent in the fourth. An index of pending sales of existing homes fell 4.9 per cent to the lowest level in four years in March, the National Association of Realtors said.

‘Boom in Demand’

Bullish metals investors expect China will fail to curb growth, according to Tony Dolphin, director of strategy and economics at Henderson Global Investors in London, which oversees about $125 billion. “The speculative element in commodities hasn’t been affected by the slowdown in the U.S. economy,’’ Dolphin said. “The expansion we’re seeing in China and India has kept the speculators in.’’

Even the largest US pension fund, the California Public Employees Retirement System known as Calpers, is chasing commodity returns after years of holding stocks and bonds. The fund in March invested $450 million in the Goldman Sachs Commodity Index. “Strength in commodity markets will be something we should see generally over the next 10 to 20 years,’’ said Russell Read, the chief investment officer.

‘Crash’ possible

Any further gains will be fleeting, according to Societe Generale’s head of commodities research, Frederic Lasserre. He expects commodities to extend their rally and rise close to near-record levels in the third quarter of this year, before falling back. The gains in metals are “100 per cent-driven by funds,’’ said Resolved’s Threlkeld. “At some point the funds are going to want to take a profit. And when that happens there could be an almighty crash.’’

Charlie Munger, mano derecha de Buffet, no es un fan del ethanol

Esto es lo que dijo en el encuentro anual de Berkshire Hathaway:

“I think running automobiles on corn is one of the dumbest ideas,” said Mr. Munger, a native of Omaha, in response to a question from a shareholder about the costs and benefits of ethanol. He said it doesn’t make sense to drive up the price of food to grow corn for ethanol use. “I love Nebraska to my core, but it’s not my home state’s finest moment,” he said.

Silver - Probably the Most Undervalued Asset Class

[...] significant risks such as record debt levels in the western world, the huge and unprecedented US trade, budget and current account deficits and the massive fiscal profligacy of the Bush administration are not subsiding. These factors have ramifications for the predominant global reserve currency of recent times - the US dollar.

Thus the monetary metals and safe haven assets of gold and silver are likely to continue to outperform other asset classes. Also they are likely to outperform other commodities such as the base metals, oil and uranium. These commodities would be likely to experience a fall in price were there to be a significant slowdown in the global economy which would create demand destruction.

Because of their historic and continuing role as monetary or currency metals and as safe haven assets gold and especially silver are likely to outperform. This is because they are not simply commodities but also currencies which cannot be debased like our modern fiat paper and electronic currencies. Debase means to degrade, dilute or devalue.

The Declining Supply of Silver
Before looking at the demand side of the silver equation it is important to consider the supply side.

In 1900 there were 12 billion oz of silver in the world. By 1990, the internationally respected commodities-research firm CPM Group say that figure had been reduced to around 2.2 billion ounces of silver. Today, that figure has fallen to about 300 million ounces in above ground refined silver. It is estimated that 95% of the silver ever mined has been consumed by the global photography, technology, medical, defence and electronic industries. This silver is gone forever.

CBS Marketwatch published an article in March 2007 entitled 'Silver may shine brightest among metals', in which Kevin Kerr wrote that "Due to current supply/demand trends, the amount of silver above ground is projected to shrink to a critically low level in 2010. As supply shrinks, prices will keep rising steadily to new highs. Many in the investment world are unaware of this part of silver's story. Industrial demand has been outstripping mining supply for the past 15 years, driving above ground supply to historically low levels."

Silver production was flat this year and is expected to be flat again next year. Incredibly, the amount of mined silver has been less than its demand every single year for the last 15 years. This hasn't resulted in significantly higher prices yet because the world has been able to fill the gap from inventories and official government stockpiles.

However, today the U.S. government's stockpile is all but gone, and sales from other official sources, such as China, Russia and India, are declining, too. The decline in refined silver stocks, from around 2.2 billion ounces in 1990 to around 300 million ounces today means that silver stocks are near an all time low.

The supply of silver is inelastic. Silver production will not ramp up significantly if the silver price goes up. Supply didn't increase in the 1970's when silver rose 35 fold in price - from $1.40/oz in 1971 to a high of nearly $50/oz in 1980. Importantly, silver is a byproduct metal and some 80% of mined silver is a byproduct of base metals. Higher prices for silver will not cause copper, nickel, zinc, lead or other base metal miners to increase their production. In the event of a global deflationary slowdown demand for base metals would likely fall thus further decreasing the supply of silver.

There are only a handful of pure silver mines remaining. This inflexible supply means that we cannot expect significant mine supply to depress the price after silver rises in price. It is extremely rare to find a good, service, investment or commodity that is price inelastic in both supply and demand. This is another powerfully bullish aspect unique to silver.

Significant and Increasing Industrial Demand
Another important factor as to why silver is likely to outperform other asset classes and commodities besides the declining silver supply is increasing industrial demand.

Why is this indispensable metal in such demand? The reasons are simple. Silver has a number of unique properties including its strength, excellent malleability and ductility, its unparalleled electrical and thermal conductivity, its sensitivity to and high reflectance of light and the ability to endure extreme temperature ranges.

Silver has the highest electrical conductivity of all metals, even higher than copper. It was used in the electromagnets used for enriching uranium during World War II (mainly because of the wartime shortage of copper). Silver has the highest thermal conductivity and optical reflectivity of all metals. Silver's unique properties restrict its substitution in most applications.

Non investment demand for silver is based primarily on industrial demand including electrical, medical and photography and also in jewellery and silverware. Together, these categories represent more than 95 percent of annual silver consumption. In 2005, 409.3 million ounces of silver were used for industrial applications, while over 164.8 million ounces of silver were committed to the photographic sector, and 249.6 million ounces were consumed in the jewellery and silverware ('don't sell the family silver') markets. Jewellery and silverware are traditionally made from sterling silver. Sterling silver is 92.5 % silver, alloyed usually with copper.

Industrial applications for silver have always been significant but have increased significantly in recent years. Industrial applications for silver have increased since 2001 to a record in 2005, according to London-based researcher GFMS Ltd. In their most recent report, they predict a 6% growth rate in industrial applications of silver in 2007. Silver is used in film, mirrors, batteries, medical devices, electrical appliances such as fridges, toasters, washing machines and uses have expanded to include cell phones, flat-screen televisions and many other modern high tech devices.

Increasing industrial demand for silver is forecast due to strong economic growth in China, India, Vietnam, Russia, Brazil and other emerging economies in Eastern Europe, Asia and the world. Growing middle classes are now demanding the quality of life and standard of living enjoyed by many in the West and thus the demand for silver will increase.

Silver is known as the healthy metal and has many and increasing medical applications. While silver's importance as a bactericide has been documented only since the late 1800s, its use in purification has been known throughout the ages.

Today silver is used in many health-care products. Specifically, the 'silver bullet' is used by nearly every hospital in the world to prevent bacterial infections in burn victims and allow the body to restore naturally the burnt tissue. Increasingly, wound dressings and other wound care products incorporate a layer of fabric containing silver for prevention of secondary infections. Surgical gowns and draperies also include silver to prevent microbial transmission. Other medical products containing silver are catheters and stethoscope diaphragms.

In a world that is showing increasing concern about the spread of diseases and pandemics such as bird flu, silver is being increasingly tapped for its biocidal properties. Research is ongoing on the use of silver and its compounds for therapeutic uses and on its potential use as a disinfectant in hospitals and other medical facilities.

Silver has many unique properties which make it ideal and indeed essential in global industry - especially in the global photography, technology, medical, defence and electronic industries. Yet, silver is a finite resource and the supply of silver is increasing only very incrementally.

Significant and Increasing Investment Demand
According to the CPM Group, there are some 300 million ounces of refined silver in the world. That means that with silver priced at $14/oz., there is about $4.2 billion (300 million oz x $14) dollars worth of silver in the world. This means that the total silver market capitalisation is a very small $4.2 billion.

The increasing demand caused by investment demand is very compelling. Especially due to a number of key investment factors - the introduction of the iShares Silver ETF, the huge short position, the global liquidity bubble, the significant growth in the global money supply, the proliferation of millionaires, ultra high net worth individuals and billionaires, the proliferation of hedge funds and the exponential growth in derivatives.

ETFs
Investment demand for silver has also been rising rapidly the past few years with investors hedging themselves against rising inflation, possible currency devaluations and geopolitical and macroeconomic risk.

The silver market is currently in a transitional period where investment demand is starting to have a real impact on silver prices. Much of the new demand comes from iShares Silver ETF launched in April 2006. The fund has so far attracted 120 million ounces of silver investment. It is up nearly 30 million ounces since the start of 2007. It's important to remember that the silver market is very small - only some 300 million ounces.

That means the ETF alone now accounts for more than one-third of the global silver market, and growing investment into the iShares ETF should drive prices much higher. If even a small amount of money flows into the silver market from investors, ultra high net worth individuals (ultra-HNWIs), hedge funds, pension funds and institutions around the world, silver will almost certainly reach the nominal non inflation adjusted high it reached in 1980 of nearly $50 per ounce.

Huge Short Position
Perhaps the foremost analyst of the silver market today is Mr Theodore Butler. He believes that gold and particularly silver are the laggards in the commodity complex due to price manipulation. At over 300 million ounces, the largest 8 traders on the COMEX are short more silver bullion than exists in total known world inventories, including total SLV holdings and total COMEX inventories.

Butler sums it up succinctly, "If there is one thing that separates silver from any other asset class, or any other item in any asset class, it is the presence of an unprecedented concentrated short position in COMEX silver futures. It is the existence of this concentrated short position that will, at some point, launch the silver price to the heavens. This short position has grown so large, and is held by so few entities, that it no longer matters how it will be resolved. It must be resolved and, whether that resolution involves default or buying by short covering, it will have the same bullish impact on price. You don't have to look any further than the concentrated COMEX short position as to why silver has not outperformed every other commodity. Just as it explains price under performance, it is telling you why there must be overperformance in the future. At some point, the price of silver must accelerate upward to price levels that are truly shocking."

Money Supply
There is some $50 trillion worth of bonds and $40 trillion worth of paper money in the world.

Money supply is increasing at extremely high levels globally. The annualised growth of some national broad money supplies are United States M3 up 10%, Eurozone M3 up 9.0%, UK M4 up 13%, China M2 up 15.9%, South Korea up 10.6%, Australia M3 up 13%, Russia M2 up a staggering 48%.

This has given rise to increasing inflationary pressures, a huge liquidity bubble and to ripe valuations in many stock and property markets.

Huge Increase in Billionaires, Multi Millionaires and High Net Worth Individuals
There has been an unprecedented increase in wealth amongst a tiny segment of the population in recent years. The number of millionaires in the world is multiplying very rapidly and there are now approximately 9 million millionaires in the world. There are approximately 70,000 ultra-HNWIs who have a net worth of more than $30 million.

Forbes recently estimated that there are now a record 946 billionaires in the world. In 2006, there were 178 new billionaires. These included 19 Russians, 14 Indians, 13 Chinese and 10 Spaniards, as well as the first billionaires from Cyprus, Oman, Romania and Serbia.

Bill Gates and Warren Buffet are worth some $51 billion and $40 billion respectively. One man's net worth increased in one year by multiples of the total value of all silver in the world. Carlos Slim Helo, is a Mexican of Lebanese origin whose net worth increased from $20 billion in 2006 to almost $50 billion in 2007 or by some $30 billion.

All the billionaires' combined net worth increased by $900 billion to reach $3.5 trillion. There are a total of 8.7 million millionaires around the world, representing a total wealth of a mind boggling $33.3 trillion. A trillion is an extremely large number and difficult for most to comprehend. It is one million million or 10 to the power of 12. It is an absolutely huge number and it is important to remain conscious of the sheer size of this number.

Conversely, the total value of all above ground stock of silver is a very small $4.2 billion.

If only a tiny fraction of these millionaires, ultra-HNWIs and billionaires decided to diversify out of their extensive property and stock portfolios and invest even a very small amount of their portfolios in silver it would result in the silver price increasing in price exponentially. Given the extremely strong investment fundamentals of silver this seems likely.

Hedge Funds
Globally, hedge fund's speculative capital have doubled to more than $2 trillion (or two thousand billion) in the last three years. Some hedge funds have started moving into the silver market. Charles Supapodok of Artemis Capital Management is seeking to raise a $300 million hedge fund to invest mainly in silver. Artemis Silver Fund, advised by Artemis Capital Management, will put 80 percent of the fund's holdings in silver.

Again due to the incredibly small size of the global silver market if even only a percentage of the roughly 9,000 to 10,000 hedge funds in the world decide to take positions in the silver market the price will increase in value by multiples.

Derivatives
The Bank for International Settlements has estimated that the total value of derivatives contracts was $450 trillion at the end of 2006 (up from $260 trillion in June 2006) and is increasing exponentially.

There is still a debate as to whether derivatives are a good or a bad thing. Ben Bernanke and most in the financial industry believes they are good as they create liquidity and help spread risk throughout the system. Greenspan was a little more sceptical and warned that they could create 'moral hazard' as they did when LTCM collapsed in 1998 sending shockwaves through the financial system. He also warned that they could lead to "cascading cross defaults."

Warren Buffett is similarly not as sanguine: "Charlie [Munger] and I believe, however, that the macro picture is dangerous and getting more so. Large amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers, who in addition trade extensively with one other. The troubles of one could quickly infect the others. . . . Linkage, when it suddenly surfaces, can trigger serious systemic problems."

"The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Knowledge of how dangerous they are has already permeated the electricity and gas businesses, in which the eruption of major troubles caused the use of derivatives to diminish dramatically. Elsewhere, however, the derivatives business continues to expand unchecked. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts."

For this reason Buffett has called derivatives "financial weapons of mass destruction."

The systemic risk posed by the near infinite creation of hundreds of trillions of dollars of derivatives means that the finite currencies and safe haven assets of gold and silver are likely to be diversified into increasingly.

If only a tiny fraction of the humongous derivatives market was to reallocated into the silver market, silver would increase in value exponentially.

Silver's Underperformance and Price History
Silver remains historically undervalued. Despite the incredibly bullish fundamentals outlined silver has so far underperformed nearly all the other commodities. Silver has gone from below $5 to some $14 and is up some 190% in the last 7 years.

This seems like a lot but when compared to other commodities and metals it is very little:
Oil is up from $10 to $63 or 600% and more than 6 fold.
Zinc from $.35 to a high of $2.00,. now $1.50/lb or nearly 5 fold.
Copper, from $.75 to a high of $4.00, now $3.58/lb or nearly 5 fold.
Lead from $.20 to $.90/lb or nearly 5 fold.
Nickel from $3 to $22/lb or more than 7 fold.
Indium, Molybdenum, Selenium, Cobalt are all up 1000% or 10 fold and more.
Uranium is up a phenomenal 1300% or 13 fold.

Many commodities are up between 5 and 13 fold. Silver is not even up 3 fold. If silver were to catch up with these other less rare and less precious metals, it would have to increase in value by some 500%. From the bottom at some $5/oz in 2001, that would result in silver being valued $25.

Silver reached $50 briefly in 1980 when just one billionaire Bunker Hunt (one of a handful of billionaires in the 1970's) attempted to corner the silver market causing the price to surge (in conjunction with many investors seeking to hedge themselves from the stagflationary 1970's). A lot of technical orientated analysts, investors and hedge funds are looking at this figure and as nearly all the other asset classes and commodities are all at near all time records there is every reason that silver will do likewise in the coming years.

Silver is priced at some $14/oz today. The average price of silver in 1979 and 1980 was $21.80/oz and $16.39/oz respectively. In today's dollars and adjusted for inflation that would equate to an inflation adjusted average price of some $60 and $44. It is for this reason that we believe silver will be valued at over $50 in the next 3 to 5 years.

Conclusion
Finally, it is important to put today's total value of all above ground refined silver in the world - $4.2 billion - in context.

$4 billion worth of Boeing planes was bought by Ryanair in 2005. $4 billion was the cost of stamp duty tax on Irish property in 2006. €8 billion worth of overseas commercial property was bought by Irish investors in 2006. Scottish Ministers are in charge of £2 billion (some $4 billion) of tax revenues. Macquarie, the Australian bank, recently acquired the O2 Airwave police radio business for £2 billion. The 2006 Sunday Times Rich List UK estimated that there were 20 people with a minimum wealth of £2 billion (some $4 billion) residing in the UK.

Further context is provided in the fact that the actor Will Smith has had a worldwide career box office of $4.4 billion. Microsoft is growing revenues at over $4 billion a year. In March and April of 2007, just two months, one man's wealth increased by $4 billion. Since Forbes calculated its 2007 wealth rankings, they recalculated that in two months the Mexican tycoon Carlos Slim's fortune rose $4 billion to $53.1 billion.

Rarely are there 'no brainers' in life and very rarely are there 'no brainer' investment opportunities. Invariably, 'too good to be true' investments turn out to be just that. However, this is not the case with silver. It remains the investment opportunity of a life time.

Silver is unique in terms of being both a monetary and an industrial metal and having the highest optical reflectivity and the highest thermal and electrical conductivity amongst all metals. Silver industrial and investment demand is increasing very significantly and meanwhile supply is falling. The fact that the huge majority of the investment public and financial services industry remains ignorant of the fundamentals in silver means that the bull market in silver remains in it's early stages. Silver remains probably the most undervalued asset class.

Utilizado en Éramos pocos y parió hasta la tatarabuela

Van a sacar futuros sobre uranio

El precio del uranio ha subido un 1000% en los últimos 5 años, y ahora van a sacar futuros sobre el uranio. Claro que habrá un problemilla con la entrega física a vencimiento...

Las materias primas recobran fuerza y ganan la partida a las acciones y a los bonos

Las materias primas han logrado adelantar en rentabilidad a los bonos y las acciones por primera vez en nueve meses, y el rebote que han vivido durante el primer trimestre del año es probable que continúe gracias al apetito de China. Los analistas esperan que el gigante asiático incremente sus importaciones de productos.

Las importaciones chinas de cobre se desataron un 12% en febrero respecto al mes anterior y al menos el triple que en el mismo periodo del año 2006, de acuerdo con los datos de la Adiministración de Beijing. Las compras de petróleo, por su parte, subieron un 8%.

El cobre se revalorizó un 8,4% en el primer trimestre del año hasta alcanzar los 6,860 dólares por tonelada en el mercado de Londres, mientras que el petróleo se apreció un 7,9%, hasta los 65,87 dólares por barril, en Nueva York.

"Vemos para todas las commodities, un creciento fenomenal", ha declarado hoy Charlie Sartain, consejero delegado de Xstrata, el cuarto productor mundial de cobre y níquel, en una entrevista en Manila. La demanda China de cobre podría crecer entre un 8% y un 10% este año, apuntó.

Biobutanol, better than ethanol

Biobutanol, the plant based fuel similar to ethanol, promises more power and less transport headaches. But can it be done cheaply enough?

By Steve Hargreaves, CNNMoney.com staff writer

April 3 2007: 10:37 AM EDT

NEW YORK (CNNMoney.com) -- All of a sudden, everybody hates ethanol.

Among the criticisms: Ethanol takes more energy to produce than it yields ... it can't be easily shipped ... it's driving up the price of food ... it's perverse to put food in fuel tanks while people starve.

Now a partnership between two corporate heavy weights - BP (Charts) and DuPont (Charts) - aims to commercialize Biobutanol, a fuel similar to ethanol but with a few important advantages. The question is: Can they make it cheap enough?

Biobutanol's first advantage: it packs more power. Conventional corn-based ethanol - the kind most widely produced in the United States - is only about 70 percent as efficient as gasoline. This means consumers have to use more of it to drive the same amount of miles.

Biobutanol, on the other hand, is nearly as efficient as gasoline, according to Reese Tisdale, a project consultant at the Cambridge, Massachusetts-based Emerging Energy Research.

Second, biobutanol doesn't absorb water like ethanol does.

So instead of having to be shipped separately and blended with gasoline closer to the filling station, biobutanol could be added to gasoline right at the refiner and shipped via the same pipeline, and share other infrastructure with petroleum-based fuels.

"[Biobutanol] answers a lot of the questions ethanol can't," said Tisdale. "In my mind, it makes more sense."

The production of biobutanol is nearly identical to ethanol. They both ferment a food crop to yield a fuel. The only difference is the enzyme. And like cellulosic ethanol, which can be made using any plant matter, not just food crops - finding the right enzyme at the right price is the trick.

In a recent interview with the magazine Technology Review, BP's biofuels head Philip New said a pilot program to produce biobutanol economically should be running soon - some have speculated this year - with a wider rollout by the end of the decade.

But New was vague about whether a major technological breakthrough was still needed for the fuel to be commercially viable, saying only "Both BP and DuPont are very positive, committed, and optimistic about the prospects of delivering butanol."

A BP spokeswoman, reached by CNNMoney.com, clarified New's comments, saying "BP doesn't believe there will be one major breakthrough, but a number of breakthroughs that can build upon each other and progress the technology."

A spokeswoman for Valero (Charts), the nation's largest independent refiner and a blender of gasoline, said the company had heard of biobutanol but didn't feel it was economical.

Scientists at the government's National Renewable Energy Laboratory are cautiously optimistic, suggesting a breakthrough with the enzyme is still needed.

"It has potential," said Andy Aden, a senior research engineer at NREL. "But it's hard to say what the timeline might be."

Aden said he supported the development of biobutanol simply to diversify the nation's fuel choice as it seeks to use less gasoline, although he said NREL is still counting on cellulosic ethanol to become the main gasoline substitute.

He did say that it's not like ethanol and biobutanol are really competing, as they both use the same feedstock, can be made it the same factory and can be blended together.

While biobutanol may solve the transportation and efficiency problems with ethanol, it still relies on a food crop for its feed stock.

Using corn to make ethanol has caused corn prices to surge, which in turn can push up the prices of other foods that rely on corn - like meat fed with corn meal or soda made with corn syrup.

If a cheap enzyme can be found to make cellulosic ethanol, then it's hoped a similar enzyme can be found to make biobutanol out of wood chips or switch grass as well.

But until then, "It faces the same food-for-fuel questions," said Tisdale, "and that's definitely a big thing."

Chesapeake Energy vs. Sasol: Sasol

It has been a triumphant run for Team Sasol (NYSE: SSL), to be sure, but it wasn't an easy one. Team Captain Bill Mann led Global Gains pick Sasol through the first two rounds over formidable challengers ExxonMobil (NYSE: XOM) and Cisco Systems (Nasdaq: CSCO). I then took the hand-off from Bill and led crushing routs over Income Investor pick Diageo (NYSE: DEO) and Stock Advisor selection Marvel (NYSE: MVL) (Note: you can still visit Team Sasol's entries from rounds 1, 2, 3, and 4).

Your gas to my jet fuel
It is only fitting that the voters chose another energy company and newsletter pick, Inside Value's Chesapeake Energy (NYSE: CHK), to rumble with Sasol in the Championship. The two are quite similar in terms of market capitalization, the correlation between their profitability and energy prices, and the fact that each has been pitched by a great Foolish investor (Bill Mann with Sasol, and Philip Durell with Chesapeake for Inside Value).

So how do the two stack up? Let's compare a few basic metrics.

Company	Forward P/E	Dividend Yield	3-Year Average Return on Assets	3-Year Average Return on Invested Capital
Chesapeake	10.9	0.8%	9.9%	13.2%
Sasol	9	3%	12.7%	17.8%

Data provided by Capital IQ, a division of Standard and Poor's. Forward P/E is based on 2007 estimates.

Both companies are priced cheap by conventional valuation metrics and provide strong returns on assets and invested capital. Heck, they're even rated five-stars apiece in Motley Fool CAPS. Popular buggers, they are.

All that jazz aside, there are a couple of subtle differences between the two in the above metrics. Sasol has consistently provided higher returns on investment than has Chesapeake. Further, while each pays a dividend, Sasol's stands a hearty 2.2% higher than Chesapeake's, something dividend reinvestors and those with more of a conservative bent can appreciate.

Perhaps the greatest threat to Chesapeake shareholders, aside from escalating extraction costs or a pronounced decrease in the price of natural gas, comes from Chesapeake's interest in funding growth through the sale of equity.

Dilution, thy name is Chesapeake
Chesapeake has drawn heat because of its repeated and likely expected continued use of issuing equity to fund its growth. Issuing stock to fund growth is not so bad if you think your shares are overpriced, but issuing shares when you believe your company is undervalued is, at a minimum, an aggressive move. Regarding the dilution, Philip Durell said, "I wouldn't mind share issuance if they were overvalued, but issuing undervalued shares is the equivalent of buying back overvalued shares -- neither of which I like!"

Now, look. I really don't want to hammer on Chesapeake like I have the other competitors I've run up against. I like this company, and I believe that energy prices, including natural gas, will stay volatile while trending upwards in the years to come. That said, it's hard to ignore the risks behind the firm's dilutive strategy. Shareholders should keep an especially close eye on the company's balance sheet and capital structure.

Chesapeake's rising cost of extraction
Another potential chink in the Chesapeake armor is its rising extraction costs, or operating costs per unit of production per mcfe. Despite its deserved reputation as a low-cost producer of natural gas, the company's extraction costs have followed a steady upward trend over the past few years, a trend that management doesn't expect to abate in the foreseeable future.

	2004	2005	2006	2007 (Estimate)
Production Cost per mcfe	$0.94	$1.23	$1.35	$1.61
Change in Cost Over Last Period	5.6%	30.9%	9.8%	19.3%

Historical data gathered from Chesapeake 10-K statements. 2007 estimate represents the center of management's guidance.

Let me put this plainly: Assuming the status quo, the smaller the margin between the price of natural gas and Chesapeake's production costs, the lower their profits and returns on investment. Chesapeake's rising production costs are a trend well worth watching.

Now, again, keep in mind that I'm trying to convince you to vote for Sasol in Stock Madness, not to sell your shares in Chesapeake. In fact, if I had a bit more personal liquidity, I would probably own shares in the company. But then, all is fair in love and Stock Madness.

The last-minute full court press!
Below are a few last-minute points on Sasol that will serve as a refresher for seasoned Stock Madness readers, as well as provide a bit more color for those who just strolled in.

• In 2006, Sasol pulled in roughly $2 billion in net income from continuing operations on roughly $10 billion in revenues.
• The company, which operates in 30 countries and recently opened offices in China and India, sees its patented gas-to-liquid (GTL) and coal-to-liquid (CTL) technologies as a potentially huge driver of long term growth.
• The CTL technology, in particular, could catch on in the U.S. given our vast coal deposits, growing desire for energy independence, and sustained high energy prices.
• Sasol has been in talks with at least two U.S. governors of coal-rich states who have expressed an interest in Sasol's patented CTL technologies. Should the technology gain traction in the U.S., Sasol's shareholders would likely be richly rewarded.

That's a wrap
I hope all you folks enjoyed the 2007 Stock Madness Tournament. It was a joy to participate... and I look forward winning again next year as well. Vote Sasol!

Does this stock deserve to move on to the next round? If you think so, simply follow this link and rate the stock "outperform" in Motley Fool CAPS. If not, rate it "underperform." Later this week, we'll tally your votes to determine which stocks will advance one step closer to the title.

Read our opposing article on Chesapeake, or see all of the other entries in this tournament.

Producción de cobre en Brasil más que se duplicará al 2010

La producción de cobre en Brasil crecerá esta año a 213.000 toneladas, en comparación con las 163.000 toneladas del 2006, por la entrada en operación de una mina de la canadiense Yamana que aportará 48.0000 toneladas.

Según los números de Haenel, al 2010 el mayor incremento provendrá del gigante brasileño del mineral de hierro CVRD, que en el 2004 comenzó la explotación del yacimiento Sossego en el norte de Brasil a mediados del 2004.

El presidente ejecutivo de la compañía, Roger Agnelli, ha dicho que CVRD espera apurar el proyecto Salobo, que produciría 200.000 toneladas anuales de cobre durante 30 años.

Mi comentario: Pues con este incremento, se acaba el chollo del cobre caro... para mí, que las mineras se cargan la gallina de los huevos de oro!!

¿Qué hay detrás del alza del gas argelino?

El Centro Nacional de Inteligencia (CNI) informó a La Moncloa, a finales del pasado mes de enero, de que las autoridades argelinas pensaban utilizar el arma del gas para presionar a España, dentro de una estrategia de gran calado que abarca desde el malestar argelino por las cada vez más estrechas relaciones con Marruecos hasta la iniciativa rusa de formar un cártel con los principales países productores de gas.

El ministro argelino de Energía y Minas, Chakib Khelil, justifica la subida de un dólar por cada 4.000 termias de gas que Sonatrach suministra a Gas Natural por la necesidad de "poner los precios del gas en un nivel razonable". Argelia se embolsará 150 millones de dólares adicionales (115 millones de euros) que saldrán de los bolsillos de los consumidores españoles. Gas Natural ha reconocido que Sonatrach le ha pedido revisar los contratos de suministro.

El precio del gas argelino ronda los siete dólares por millón de BTU (siglas en inglés de unidades térmicas británicas). La subida de un dólar equivaldría a un encarecimiento del 15 por ciento de la factura energética española, según los cálculos de Khelil.

La decisión argelina no sería ajena a la estrategia energética que el presidente ruso, Vladimir Putin, quiere llevar adelante para influir en el siempre crítico abastecimiento energético de la Unión Europea. Ya a finales de noviembre, la OTAN advirtió a los países aliados de que Rusia intentaba crear un cártel del gas para aumentar su influencia.

Corn-based ethanol's a flawed concept

El etanol sacado del maíz no es la panacea... al fin y al cabo, ¡También se necesita petróleo para hacer crecer el maíz, transportarlo y refinarlo!!


There have been numerous studies completed regarding the energy efficiency of ethanol vs. its production," said John Eichberger, vice president of government relations for the National Association of Convenience Stores.

"These range from a positive net energy return in excess of 30% to a negative net energy return of more than 30%," he said. "Researchers on both sides of the issue argue that the other research is significantly flawed."

Even so, policymakers insist that ethanol is a "positive replacement product for crude-oil based fuels and have proceeded down a path to subsidize and mandate its use," said Eichberger, whose trade organization represents the convenience and petroleum-retailing industry.

Invest energy to get energy

"Some of the warts associated with ethanol production are [real] -- it does use a lot of water, electricity and natural gas," said Newsom.

So "the problem with corn-based ethanol is that, at best, you don't get more energy out of it than it costs to grow and make it," said Sean Brodrick, a contributing editor at MoneyandMarkets.com.

"At worst, you lose energy."

It's eating at corn

But ethanol's impact on the corn market has been "dramatic," said DTN's Newsom.

"If ethanol demand increases to projected levels, corn supplies will be incredibly low at the end of the 2006-2007 marketing year in August 2007," he said.

The U.S. produced an estimated 4.9 billion gallons of ethanol last year and used more than 5.5 billion, according to the Renewable Fuel Association's Hartwig. Ethanol is blended in more than 46% of the nation's gasoline, he said.

"It would seem that the corn market is poised for a long-term rally in price," said Newsom. He predicts that the high of $5.54 a bushel from 1996 seems like a "reasonable price target."

Meanwhile, limitation in the corn market itself should be considered.

"Corn-based ethanol will be of limited supply," said Charles Perry, chairman of energy-consulting firm Perry Management. The U.S has a limited amount of productive land so we "can spare only a limited amount of our corn crop for ethanol."

At the same time, this corn use for ethanol has been "hampering feeding, with some talk in the livestock industry of herd reduction due to higher feed costs," said Newsom.

"Our food prices will go through the roof -- $4-$5 corn makes for very expensive beef, pork and chicken," said Bernie Feshbach, president of investment firm Feshbach & Sons.

Also, "the use of corn makes ethanol a regional (Midwest) issue as the U.S. lacks the infrastructure to move the product around to meet demand," said Newsom.

China's central bank to raise deposit reserve ratio

The required reserve ratio for financial institutions engaging in deposit business will be raised by 0.5 percentage points from Feb. 25 to 10 percent, the second hike in two straight months, sources with China's central bank said here on Friday.

This moderate increase shows that the People's Bank of China (PBC) had shied away from using drastic moves to absorb liquidity as the country's consumer price index, the measure for inflation, grew by only 2.2 percent in January, down 0.6 percentage points from the previous month, observers said.

The reserve ratio hike, the fifth of its kind since last July, was made to deal with "dynamic currency liquidity changes and to consolidate macro-economic controls", said the central bank in its latest statement.

The statement said that imbalanced international payment generated by mounting trade surplus had resulted increasing currency liquidity and made another reserve ratio hike necessary.

China's central bank lifted deposit reserve ratio by the same margin of 0.5 percentage points on Jan. 15, which was estimated to take 150 billion yuan (18.8 billion U.S. dollars) out of the banking pool.

However, some economists argued that an interest rate hike was inevitable, as reserve ratio adjustments and open market operations had proved ineffective in curbing excess liquidity.

Official data revealed that the newly-added renminbi-denominated loans amounted to 567.6 billion yuan (about 74.7 billion U.S. dollars) in January, basically equivalent to last January but twice as much as last year's monthly average.

"This won't be the last reserve ratio hike of the year. Meanwhile, interest rate rises are far from the best tool to absorb liquidity, " he said.

The central bank reiterated in its Friday statement that it would "adopt a prudent monetary policy, tighten the management of bank liquidity and facilitate the rational growth in monetary credit."

Jim Rogers Says Oil Will Rise to $100 After `Correction'

an. 18 (Bloomberg) -- Oil will resume its march toward $100 a barrel after a ``correction,'' said Jim Rogers, who predicted the start of the commodities rally in 1999.

``I'm just not smart enough to know how far down it will go and how long it will stay, but I do know that within the context of the bull market, oil will go over $100,'' Rogers said in a Tokyo interview. ``It will go over $150. Whether that is in 2009 or 2013, I don't have a clue, but I know it's going to happen.''

Crude oil in New York has fallen 34 percent to a 19-month low since it peaked at a record $78.40 a barrel in July. Rogers, author of ``Hot Commodities,'' has said oil will keep rising because there hasn't been a major discovery for 30 years and economic growth in China and across Asia is driving up demand.

Rogers, 64, who created a series of commodities indexes and foresees a long-term bull market in oil, metals and grains, said he hadn't changed his positive view. The Rogers International Commodity Index, which more than doubled in the past five years, has dropped 13 percent in six months on a total return basis.

``When you have big bull markets, 50 percent corrections, or retractions, are normal,'' he said in an interview yesterday. ``It has often happened throughout history in a bull market.''

Oil for February delivery fell 16 cents, or 0.3 percent, to $52.08 a barrel in New York today as of 11:06 a.m. London time. It earlier rose as much as 41 cents to $52.65.

Lasting Correction

Rogers, in Tokyo to speak about commodities at an event organized by commodity futures trader Yutaka Shoji Co., said some corrections could last as long as two years, as happened to gold after a run-up in prices in the 1970s.

``Corrections go down long enough to scare everybody out and make sure they give up, and then they turn around,'' he said. ``We are in a secular bull market for commodities which has another decade or two to go.''

Crude oil will certainly rise above $100 a barrel before the bull market reaches an end, Rogers, who is chairman of Beeland Interests Inc., said in July after prices reached a record during fighting between Israel and Hezbollah in Lebanon.

He said corn, wheat and nickel had performed strongly even as the weighting given to oil dragged down the overall Rogers International Commodity Index.

The Rising Liquidity Wave

STOCKS - Going forwards, I expect the liquidity environment to remain supportive of asset prices resulting in another good year. If my assessment is correct, emerging-market equities and commodities should (once again) be the biggest beneficiaries in 2007. Even the US stock-market may surprise to the upside.

Figure 1: Dow Jones rallies after mid-term election year

Source: Chart of the Day

This is a pre-election year (US elections are scheduled for November 2008) and history has shown that during pre-election years, American stocks have done well. Moreover, each mid-term election year in the US since 1950 has provided investors with an opportunity to profit from a significant rally (Figure 1). The current rally began in June 2006 (prior to the mid-term elections) and if historical patterns remain intact, the Dow Jones should advance strongly over the coming year.

The US economy is currently undergoing a mid-cycle slowdown and the chances of a full-blown recession are slim. Over the coming months, I expect US housing to deteriorate further but a crash is highly unlikely. In other words, I anticipate a soft-landing in the US economy. For sure, the world's largest economy has severe problems (record-high indebtedness and sky-high deficits), however other nations want to sell their merchandise to the US and are willing to finance its deficits. As long as this continues, the US economy should be able to live on borrowed time.

I am of the opinion that despite a slowing US economy, growth in other parts of the world may remain unharmed. Asia is advancing at a blistering pace, Latin America has turned around and Eastern Europe is developing rapidly. In fact, the "developing" world is expected to outperform the industrialised nations in the future (Figure 2). Accordingly, our managed-accounts are invested in the fastest-growing regions of the world. At present, my preferred stock-markets are Brazil, China, Mexico and Russia. Furthermore, I may add that assets in the US will continue to disappoint for as far as the eye can see.

Figure 2: World economic-growth trends

Source: Morgan Stanley

COMMODITIES - Over the coming year, I expect commodities to resume their bull-market and make headlines all over the world. Despite all the negative news surrounding natural resources, the fundamental factors have not changed. In fact, the recent consolidation has made commodities even more attractive. Global demand for "things" is rising, supplies are tight and monetary-inflation continues worldwide.

As China and India continue to urbanise, it is estimated that more than 150 million surplus workers from rural areas will move to cities by 2020. It is interesting to note that roughly 60% of China's population and 70% of Indians still live in rural areas. These numbers are shockingly high when compared to a more developed Asian nation such as Korea, where over 80% of the population live in cities!

Back in 1980, over 80% of the China's population resided in rural areas (versus 60% today) and this number is expected to decline further to 40% by 2030. India is lagging in this department as its rural population has not fallen much over the past 30 years, but the downtrend is expected to accelerate in the years ahead.

I am sure you will agree that people in cities generally earn more money when compared to rural areas. For example, the per-capita income of rural households in China is US$510 whilst it is US$1,400 in the case of urban households.

Once the millions of Asians move to urban centres and become wealthier over the coming years, they will demand a better quality of life and all the "creature-comforts" you can possibly imagine. These people will want bigger homes, washing machines, televisions, refrigerators, motorcycles, cars and so forth. Now, unless you are a central banker and have the ability to create something out of thin air, it is safe to assume that the demand for all these goods will require an immense quantity of raw materials such as cement, steel, copper, rubber, zinc and energy.

Now that we have established the case for a sustainable rise in the demand for natural resources, let us examine the supply dynamics. Throughout the 1980's and 1990's, prices of commodities were caught in a vicious bear-market. The devastation was so severe that the majority of the commodity-producers did not invest in spare capacity. After all, there was no incentive to spend more money and increase supply when prices were falling sharply! So, when the demand for commodities suddenly began to rise 4-5 years ago, nobody was prepared for it. Even today, despite the surge in the prices of raw materials, spare capacity and stock-piles are extremely low.

Figure 4 shows the price and inventory levels (shaded area on the chart) for both copper and zinc. Since December 2002, both these base-metals have risen sharply to all-time highs, yet their inventory levels are close to or at record-lows.

Figure 4: Base-metal inventories extremely depleted!

Source: Raymond James

These days there is a lot of noise about the copper "bubble". It is my observation that asset-bubbles are usually accompanied by an over-supply of the item in question and build-up of its inventories. Yet, if you take note of the copper inventories on the London Metals Exchange (Figure 4), you will quickly realise that the "bubble-talk" is totally absurd! On the contrary, supply-shocks in the near future may cause inventories to diminish further as Bolivia plans to "industrialise" a river that supplies water to Chile's Atacama Desert, thereby threatening the world's largest copper-mining district.

I suspect copper (like many other commodities) is simply consolidating within its ongoing bull-market and its price in real (inflation-adjusted) terms is still way below its all-time high recorded in the 1970's. Over the coming days, copper may decline somewhat more but once the correction is over, I anticipate copper to resume its uptrend in the latter part of 2007. Utilise any weakness in the near-future as an opportunity and consider investing in copper-mining companies that have huge reserves and cash-flows.

Furthermore, it seems to me that the multi-month consolidation in precious metals is now almost complete and we are likely to see upward moves over the coming weeks. Both gold and silver have built a huge base and they have recently shown strength in the face of a strong US dollar - impressive action. It is my belief that this maybe the final opportunity for investors to buy precious metals and quality mining stocks at these depressed levels - it always pays to buy when the sentiment is negative.

Finally, as the central banks continue to debase their currencies through monetary inflation, precious metals and other tangible assets should appreciate significantly over the coming years.

La economía china crece al 10,7%, el mayor ritmo en once años

China sigue creciendo por encima de los dos dígitos y se afianza como la cuarta economía del mundo. Según los datos hechos públicos ayer por la Oficina Nacional de Estadística, el producto interior bruto chino creció un 10,7% en 2006, lo que representa el mayor incremento de los últimos once años.

Con estas cifra, China encadena el cuarto ejercicio consecutivo creciendo por encima del 10% y mejora las expectativas de los analistas, que habían previsto que cerraría este ejercicio con un alza del 10,5%. El crecimiento, según la Oficina Nacional de Estadística, se ha basado en la fortaleza de la inversión y de las exportaciones, a pesar de las medidas correctoras impulsadas desde el gobierno chino para frenar el superávit comercial, que alcanzó los 177.500 millones de dólares en el pasado ejercicio.

La batería de medidas, en caminadas a desacelerar el crecimiento y evitar el recalentamiento de ciertos sectores económicos como el de la construcción, no ha conseguido evitar que el PIB creciera dos dígitos y cerrará 2006 con un resultado de 20,94 billones de yuanes (2,07 billones de euros).

No obstante, el gobierno ha recibido un pequeño respiro con las cifras del cuarto trimestre, ya que el incremento del 10,4% supone una ligera ralentización con respecto a los meses anteriores, síntoma de que, aunque poco a poco, las medidas van haciendo efecto.

China elevó dos veces los tipos de interés desde abril de 2006 y aumentó en cuatro ocasiones el coeficiente de caja de los bancos para recortar la liquidez y frenar la inversión en activos fijos, que creció un 24%, dos puntos menos que en 2005.
Renta per cápita

• A pesar de que las diferencias se mantienen, la renta per cápita de los ciudadanos chinos creció en las ciudades un 12,1% hasta alcanzar los 1.157 euros al año, mientras que la de los rurales aumentó en un 10,2 %, hasta los 355 euros

El gigante no se enfría, se calienta: la economía de China creció un 10,7% en 2006

La economía de China creció un 10,7% en 2006 con respecto al año anterior, y un 10,4% en el cuarto trimestre, según informó el jueves la Oficina Nacional de Estadística.

Los economistas esperaban un crecimiento del 10,5% del Producto Interior Bruto (PIB) anual y un 10,1% en el período octubre-diciembre del 2006. La economía creció un 10,4% en el primer trimestre del año con respecto al mismo período del 2005, un 11,5% en el segundo y un 10,6% en el tercero.

La oficina también informó que la actividad industrial del país creció un 16,6% en 2006 frente al año anterior. El crecimiento trimestral del PIB se mantuvo pese a las medidas administrativas y monetarias de restricción impuestas en 2006 para mantener la estabilidad de la cuarta economía mundial.

"Para el 2007, los factores favorables serán propicios para el desarrollo económico pese a que existen dudas sobre la actividad económica mundial y algunos problemas con la economía doméstica", dijo la oficina en un comunicado.*.