Against the Grain

More evidence of the speed and brutality of the economic downturn appeared today with Japan reporting Q4 ’08 GDP falling at 3.3% (Q3 -0.6%) generating a horrific 12.7% yoy drop (-2.3%), this is the worst slump in 35 years when exports disintegrated during the first oil crisis. This time the damage has been compounded by a strong yen that has stifled any chance the export sector had. Anecdotal evidence over the weekend seemed to confirm our growing view of strengthening Chinese domestic demand as exports business remains hard pressed. The Jan Chinese foreign direct investment data saw it decline 32.6% yoy to US$ 7.54 billion (Dec -5.7% yoy). Chinese benchmark spot coal prices fell to a two month low as port stocks riose and Jan power generation fell 13% yoy.

Interestingly the G7 finance ministers meeting this weekend passed almost unnoticed, highlighting their impotency in the present circumstances. The base metals eased overnight led by cu after the Japanese data. The LME stocks dominated by rises in most metals however following on from our comments Fri about Asia cu and zn warrant buying, cancelled cu warrants rose over 4 k (mostly Busan) and zn 5 k (Sing & Johore). In Australia another mining company looks set to fall into Chinese hands as Minmetals bid for the distressed OZ Minerals cu and zn group, the deal needs shareholder and government approval (this follows the minnow Perilya and the giant Rio Tinto). In these times of trouble for miners, China is using its cash to secure raw material supply. (Back in the 90’s Minmetals bid for Noranda however its cautious due diligence process ran for so long the recovery in metals prices ended the deal). Meanwhile Norilsk suspended operations at Black Swan and Lake Johnston ni mines in Western Australia. Kazakhstan reported Jan refined cu output rose 2.5% yoy to 30 kt, zn 1% to 31 kt and alumina +3.6% at 146 kt. The Jan Russian industrial production fell 19.9% (Dec +3.8%) and yoy fell 16%, the biggest falls occurred in steel, cement and automobiles.

The ILZSG reported zn in a 195 kt surplus in ’08 (47 kt surplus ’07) with pb showing a 19 kt surplus (67 kt deficit ’07). In Peru, Dec economic growth was 4.9% bringing ’08 growth to 9.84% (9% ’07). The US and Canada are out on holiday resulting in low volumes on the day.