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Alan Green discusses DDD Group (DDD) plus recent trades in BARC, BLT & RDSB on the ADVFN podcast
Alan Green discusses the latest developments at DDD Group (DDD) with Justin Waite on the ADVFN podcast. He also discusses recent trades in Barclays (BARC), BHP Billiton (BLT) & Shell (RDSB). He also briefly touches on Plant Impact (PIM) after the recent podcast. Click here to listen. The interview is 21 minutes in.
Why The Panic ? Ask Ye Not.
This year copper has fallen a further 17%. Last week it traded at $2.30 per lb. having fallen 5% in just two weeks. Poor German manufacturing data led to a fall of 3.1% in one day alone
.But things are changing. Chinas manufacturing index has risen off its August lows. This year supply and demand for copper are expected to be back in balance whilst in 2016 there is expected to be a deficit of 130,000 tonnes, growing over the next 12 years to an expected annual shortage of 10m. tonnes.
Gold fell by 6% in five days, back below the magic $1100 per oz, after Janet Yellen said there was a distinct possibility that US interest rates would rise in December. The dollar has already risen 11.3% this year. Obviously Yellen has not a clue about the damage which vague statements and talk of possibilities can do when they are issued by the Fed.
The result is that hedge funds are now ready to sell 430 tonnes of gold and the share of Goldcorp, the worlds largest gold miner have fallen to $11.65, the lowest since 2004.
Steel prices in China dropped to near record lows, down 7.6% in a month. China forges 46% of the worlds steel and consumes more than 75% of the worlds sea borne iron ore trade. Except for a tiny, tiny fall so far this year, which is expected to have righted itself by the end of the year, Chinese iron ore consumption has risen six fold since 2000. It has not fallen once in any year since 2000.
So why the panic ?
The three big Australian ore miners are doing enormous damage – but only to themselves, although they are too thick to realise it. They raised output and cut prices in the middle of a so called slump and and also cut costs, hoping they would bankrupt the competition but the cost cutting was not enough to make up for the price cuts and to make matters worse the competition joined them with increased output and lower prices.
Why the panic ? Ask Vale, Rio Tinto, BHP Billiton and Janet Yellen – they seem to be experts at creating it.
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Mayhem Amongs The Miners (2)
Question – does it make sense for the worlds giant mining companies to be ramping up production when metal prices are in freefall. The answer must surely be – of course not – so why are they doing it ?
In iron ore Rio Tinto and BHP Billiton have increased production so much that they have created a glut and caused a slump in prices. On the 8th July iron ore hit an all time low of $44 per tonne. The following day it rocketed by 9% and a further 3% on the day after that and now stands at over $50 per tonne. These are huge unexplained movements in the price of one of the worlds major commodities.
But these prices have to be seen in perspective. Iron ore halved in price in 2014 and has fallen a further 30% this year but for 25 years until 2004 the price had remained comparatively steady at never less than $10 and never more 14 per tonne. And then the great super cycle started. In 2005 the price rose by 71%, in 2008 it rose by 68% and in 2009 it reached the magic $100 per tonne. On the 16th February 2011 it peaked at a massive $191 per tonne and wasn’t the world a happy place in those halcyon days when the worlds bankers had just woken up to their new role as masters of governments and rulers of countries. Economic power had arrived.
In May South African production of platinum was increased by 88% over the previous May’s figure and the price of platinum fell to 2008 levels. Surprise, surprise.
In the first half of 2015 diamond prices fell by 3.4%, despite the fact that they don’t create diamonds any more. Every diamond dug up is one less for the future.
Gold is still collapsing and last week hit a 5 year low at $1080 per oz. Gold mining shares had a blood bath after an alleged bear raid by the Chinese. But despite that, gold is still worth nearly 3 times more than it was in 2004 when it stood at $400 per oz. before the start of the supercycle.
In the financial world, nothing goes up for ever, be it shares, commodity prices or whatever. A share which has a massive spike, always collapses even if the fundamentals for that share have not changed. The law of gravity always takes over in the end.The spike in gold and other metals was huge. All that has changed is that China is not growing as fast as it was. But believe the media and you would conclude that in a couple of years time, the Chinese will all be back working in the paddy field. How many times does one read that a fall in this and a fall in that is caused by slower growth in China. How can slower growth lead to a fall in anything. It can’t, it can only lead to a further rise. But from molehills come great mountains and thus can trends be accelerated and magnified until the next expert comes along and decides to try and reverse the trend.
So, why do those miners keep ramping up production – perhaps it is something very simple, like misguided fairly cluless management, trying to plan things too far in advance.
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Mayhem Amongst The Miners As Iron & Steel Prices collapse
Steel prices on the Shanghai futures index fell 5% in a single session yesterday, leading to a further 3.9% fall in iron ore prices. A knock on effect was felt on the worlds stock markets as mining shares followed suit and billions were knocked off the value of the four big majors, with more still to come. Vale was down by 4.5%, BHP by 4% and Rio Tinto by 2.2%. Australia’s Fortescue Metals was worst hit with a fall of 5.8%, making a total drop for the year so far of 40%.
As ever the Chinese are to blame, as their economy refuses to allow itself to be kick started.
Sign of the times perhaps that these are markets where US consumption appears to have become irrelevant.
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