Against the Grain

Talk of Germany bearing gifts to the Greeks boosted market confidence in Tues pm trading but left Asia little moved. Very little other news so keep your eye on the US$ it will drive the direction of metals. We view the price decline as a much needed correction from an overbought situation rather than a change in the fundamental outlook. So would be wary of looking for further big falls, as someone said to us if cu was trading on its fundamentals it should be under US$ 3000 / tonne (a problem with this view is its what everyone else thinks). The world’s largest cu mine Escondida produced 1.103 million tonnes down 12%, concentrate output fell 22% to 775 kt while cathode output rose 27% to 327 kt. The cash cost averaged US$ 83.8 c/lb (US$ 1843) from 77.1 in ’08. The LME stocks saw a small rise in cu and the rest fell led by al (UK & US). Again the pre market dominated by the US$. The Chinese prosecutor handed down indictments against the Rio 4 and said the trial would be held in Shanghai. In zn, Teck waits to see if it gets a permit next week allowing the expansion of its Red Dog zn mine in Alaska to keep it running beyond next year. The largest zn mine in the world produces 500 kt of zn concentrate. Any delay would further exacerbate an already tight concentrate outlook. Dec North American shipments of replacement automotive batteries rose 6.6%, yoy -2%.

The Chinese Jan exports rose 21% yoy as expected while imports jumped 85.6% yoy from Jan ’09 when they were at the lowest level since 2005 and iron ore and coal were big drivers. Imports of unwrought and semi finished cu declined 21% to 292 kt (Dec +27%). Cannot quite work it out y/day we saw startling Jan Japanese machine tool orders rising 192% yoy and today Dec machine orders rose 20.1% (Nov -11.3% yoy -1.5% (-20.5%). Australian Feb Westpac consumer confidence index slipped to 117.0 (120.1). Malaysian Dec industrial production rose 8.9% yoy (Nov -0.8%) and South Korean Jan unemployment rose to 4.8% a 10 year high (3.5%).

Mixed European Dec European industrial production, France fell 0.1% (revised to +0.6% from +1.1%) yoy -2.3% (-3.8%); Italy off 0.7%, yoy -5.6% (-7.9%) and UK up 0.5% (+0.4%) yoy -3.6% (-6.0%) and manufacturing production rose 0.9% (0%) yoy -1.9% (-5.4%). To throw some light onto the problems besetting Greece and the EU read the article in the FT 10/02 edition by Martin Wolf “Europe’s stragglers need German consumers” (http://www.ft.com/cms/s/0/3d744b46-15b7-11df-ad7e-00144feab49a.html?nclick_check=1). Amazing to read that even countries fabricate statistics it gave to others!

Overnight the weekly US ABC consumer sentiment survey improved to -48 (-49). The weekly MBA mortgage applications off 1.2%% (+21%) the purchase sector fell 7% and refinancing rose 1.4%. Then the Dec US trade deficit was US$ 40.2 billion (-36.4) worse than anticipated on oil imports. The afternoon saw Bernanke hint at raising the Fed discount rate “before long” this trumped all other news the US$ quickly regathered the loss of the past 24 hours sending equities & commodities lower. The discount rate is the interest charged to commercial banks and other depository institutions to borrow from the Fed.