Robust copper price prompts switch to aluminum

In New York trade on Wednesday copper rallied after much stronger than anticipated US GDP figures, reaching a high of $3.2625.

Defying market expectations, the copper price dug itself out of a near four-year low struck mid-March of $2.92 a pound and has gained more than 7% since early June. The metal is now down only 4% in 2014.

The copper price is highly correlated with economic growth thanks to the widespread use of the metal in the construction, transport and power industries, and the robustness of the red metal is prompting industry to switch to much cheaper aluminum for some applications.

Primarily recovered from bauxite ore, aluminum was trading on par with copper in 2002, but while copper has quadrupled since then, the aluminum price has gone nowhere.

FT.com reports "demand for aluminium cable, especially in the power industry, is already rising at the expense of copper":

Even though aluminium cables require a thicker core of metal – and thus more insulation – the weak LME price means that the overall cost is still around 40 per cent lower than for copper cables, according to the French company Nexans, a leading cable producer.

It's a trend already established in China and Gulf states where only 25% of insulated and overhead cables use copper versus 60% in developed economies.

US growth, inflation numbers drop gold price through $1,300

The gold price fell below the psychologically important $1,300 an ounce level on Wednesday after strong economic data outweighed safe haven buying on geopolitical concerns.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery in early morning trade exchanged hands for $1,294.60 an ounce, down $5.60 from Tuesday's trading session.

US gross domestic product grew at a 4% annual pace in the second quarter, according to government data released Wednesday. First quarter number were also adjusted, showing a smaller contraction.

The much better than expected numbers – led by robust consumer spending and a pickup in construction and business investment – boosted the dollar which usually move in the opposite direction of the gold price.

The data also strengthens the case for an accelerated winding down of the US Federal Reserve's economic stimulus program and a sooner than anticipated rise in US interest rates.

Higher rates increases the opportunity costs of holding gold because the metal is not income producing.

Clouding the picture further was a 2% annualized rise in US inflation at its strongest rate in three years, which could also prompt a hike in rates.

Though off its highs for the year gold is still up some 9% in 2014.

The key US employment report on Friday will give further direction for US monetary policy and the gold price.

"Gold Could Go To Infinity" - Ron Paul

“I Still Believe In Gold” - Ron Paul
Dr Ron Paul, the popular Presidential candidate and America and the world's most popular libertarian voice, told CNBC yesterday that he “still believes in gold” and that “gold could go to infinity.”

Former U.S. Representative Dr Ron Paul told CNBC's Jackie DeAngelis and the Futures Now Traders that the long-term case for gold remains firmly intact.

Dr Ron Paul:

“Timing is the only thing. I remember watching gold when it was 35 dollars an ounce and we thought if it ever hit a hundred dollars, the world would come to an end. And then a thousand dollars, so; no, it's good as long as we continues to do this <print money> , you know, it could go to infinity because when people just leave the dollar, who knows what …”

“But that won't happen if we finally wake up and do something.  But if we can keep this together, if the money managers can keep it together and it doesn't collapse, yes, gold is gonna keep creeping up, but, you know, as weak as gold looks right now, it's up a hundred dollars for this year so…”

Jackie DeAngelis:

“It's roughly I think up 8% year-to-date. It's not a horrible move for gold but I think a lot of people were expecting to see a little bit more, especially with the instability that we're seeing in terms of the geopolitical situation. A lot of conflict around the world -- you'd expect gold to be higher right now.”

Ron Paul:

“Yeah, but if you understand the subjective theory of value, you don't get too concerned about that because, yes, increasing the money supply weakens the dollar and a weaker dollar raises the price of gold and it's a long term measurement. But you can't measure, you can't say that the money supply went up a certain amount, and gold is going to go up, so there's a subjective element in that.”

“But long term...and economic law says, if you keep printing a lot of paper money, the value of that dollar and currency will go down, and things and most prices will go up and indeed gold always goes up against that currency.”

“But you don't, I don't get in the business of saying in a year or two or three it's going to be two or three or four thousand dollars because it really challenges the basic fundamental beliefs of the Austrian school, to make these kinds of predictions.”

The interview about gold can be watched here

In another interview with CNBC, Dr Paul reaffirmed his view that the nation's monetary and fiscal policies would result in massive inflation. He warned of a stock market crash and of the risk that currency debasement will lead to the continuing devaluation of the dollar.

Ron Paul has long said America should "end the Fed," and he made that case once again on Tuesday.
 

** Record Low Gold Bar (1 oz) Premiums **

"One thing you have to do is get rid of the Fed, because of the Fed “spin” that leads to volatility in markets. Referring to the statements and spin by Federal Reserve governors, now Janet Yellen, he said that in fact  it is a “very inefficient way to operate a market, to have one individual make one statement, and put so much weight on it.”

“In short term, it's very, very real, because people are going to make it or break it, you know, on this interpretation. But that has nothing to do with the free market, nothing to do with building capitalism, and savings, and the things necessary to have a growing economy."

Aluminum Set for Longest Gain in a Decade as Demand Rises

Aluminum was poised for a sixth monthly advance, the longest rally in a decade, on speculation of growing demand from improving economies in China and the U.S., the two biggest consumers of industrial metals.

The contract for delivery in three months on the London Metal Exchange slid 0.3 percent to $2,016 a metric ton at 11:10 a.m. in Tokyo. The metal rose 2 percent yesterday, the most since July 2. Prices are up 6.6 percent this month, the biggest gain since November 2012.

The U.S. economy rebounded more than analysts estimated in the second quarter, growing by an annualized 4 percent. An official gauge of China’s factory output due tomorrow is forecast to show the highest reading this year at 51.4, up from 51 in June. A separate measure from HSBC Holdings Plc and Markit Economics is expected to come in at 52. Numbers above 50 indicate expansion.

“There’s no doubt that sentiment in the metals space is improving,” said Gavin Wendt, founder and senior resource analyst at Sydney-based Mine Life Pty. “The only issue is ensuring that markets don’t get too carried away in the near-term, which means that we will see short-term corrections in price.”

Aluminum, used in everything from aircraft to beer cans, entered a bull market last week. Global demand will exceed supply by 579,000 tons this year, swinging into a deficit after sevens years of surplus, Goldman Sachs Group Inc. said in a report on July 23.

Copper in London fell 0.2 percent to $7,113.50 a ton. The metal is up 1.4 percent this month, a third monthly increase. In New York, futures for September dropped 0.3 percent to $3.2335 a pound, while copper for the same month on the Shanghai Futures Exchange climbed 0.5 percent to 50,560 yuan ($8,190) a ton.

On the LME, zinc fell, while lead, nickel and tin were little changed.

50 Years Old Point Henry Aluminium Smelter to Shutdown Tomorrow

The Point Henry Smelter will close its operation tomorrow after functioning for more than 50 years as an aluminium smelter. The smelter is located near Geelong, Victoria, in the suburb of Moolap.

It is a joint venture between Alcoa World Alumina and Chemicals Australia.

Alcoa has already announced the decision to close the smelter and two rolling mills at Geelong and Yennora due to the pressure caused by the increased Chinese aluminium production and the high value for Australian dollar. As they found it to be economically unviable, Alcoa decided to take the decision of plant closure.

The smelter closure will cause job loss to about 500 employees and 480 employees in the rolling mills. Geelong region is now facing some economies hard times. Ford’s car making center of Geelong will also close down its operations in 2016. The aluminium plant is powered by Anglesea coal mine and power station. 

How to succeed in your new business ventures? Always remember to have rich mentality .

Freeport’s Deal to Resume Indonesian Exports: What Investors Can Learn

Last Friday, Freeport-McMoRan (NYSE:FCX) saw the light at the end of the tunnel for its Indonesian copper woes. Following a six-month export halt due to strict rules implemented in January, the company struck a deal with the Indonesian government to resume shipments of copper concentrate.

The agreement is big news for Freeport and the copper market, and there are several key takeaways for resource investors.

The deal

Reuters reported last Thursday that Indonesia had put out an offer to reduce taxes on concentrate exports in a bid to end a six-month halt of concentrate exports. In line with expectations, Freeport was the first to sign the deal, and with its export permit in place, the company plans to resume operations immediately.

In January, Indonesia set a new 25-percent tax on copper concentrate exports; the percentage was to rise to 60 by 2017 as part of a plan to ban concentrate exports that year and pressure miners to refine concentrate domestically. That tax has now been reduced to just 7.5 percent for Freeport, and will drop further as the company invests in a domestic smelter — the more Freeport spends, the more the tax will be reduced, hitting zero once Freeport invests 30 percent of the smelter cost.

The company will also pay higher royalties for its copper and gold , but Reuters states that Freeport’s deal with the Indonesian government has certainly paved the way for other miners to follow suit.

Freeport Indonesia CEO Rozik Soetjipto told Reuters, “[i]n terms of permitting, everything is OK. We still have to load the ship, and this may take a few days.” Freeport will export 756,000 tonnes of copper concentrate in the second half of 2014.

The company’s shares jumped 1.79 percent on the news on Friday.

The market

It is always wise for investors to keep an eye on what larger miners are up to in commodities spaces. In this case, the news that Freeport is now planning to export roughly three-quarters of a million tonnes of copper concentrate in the second half of 2014 is bound to have some effect on the red metal.

Copper prices have gained in recent weeks, but according to Reuters Africa, prices opened steady on Monday following news of Freeport’s deal with Indonesia.

Prior to Friday’s deal, a North America-based concentrate trader told the news outlet that a restart of exports from Indonesia wouldn’t cause a dramatic increase in global supply. However, he also stated that the news would renew fears of a surplus as “[a] lot of people expected the market to be over-supplied.”

Politics

Also important for investors to note is the fact that the resolution roughly correlates with elections in Indonesia this month. The Associated Press reported last Tuesday that Jakarta Governor Joko Widodo will replace the current president, Susilo Bambang Yudhoyono, in October.

In a Wall Street Journal article from June 5, Ignace Proot, an analyst with Sanford C. Bernstein & Co., notes how important it is for investors to keep track of political changes. 

Commenting on Newmont Mining’s (NYSE:NEM) decision to declare force majeure last month, the analyst stated that the company’s timing made sense as “[there would] be a new president in the fall” who might be more mining friendly.

Furthermore, the Indonesian export story represents the importance of paying attention to resource nationalism. The Journal stated on Friday that Freeport’s deal “represents a victory for Indonesia, which has tried to gain greater control of its vast natural resources and milk more in taxes and royalty payments from foreign miners and investors.” As Copper Investing News has previously explored, there are always multiple stakeholders involved, and it is important for investors to keep track of how government interests might affect mining projects.

Honey vs. vinegar

In terms of important factors to look for when investing in a company, management is always a key sticking point. Freeport-McMoRan and Newmont Mining have taken differing approaches to the Indonesian export ban, and their strategies are interesting for investors to note.

Writing for The Motley Fool earlier this month, Rich Duprey referenced the saying that one can “attract more flies with honey than with vinegar” to explain how Freeport and Newmont have approached the issue. While at that point Freeport had managed to reach a memorandum of understanding with the government, Newmont had filed an international arbitration case and was facing an “escalating war of words” with the government.
Duprey favors Freeport’s approach. However, he also said that “there are reasons why the two miners have likely chosen different courses of action.”A mere 6 percent of Newmont’s annual production comes from Indonesia, while Freeport depends on the island nation for 20 percent — a much more substantial consideration.

In any case, the Indonesian export ban story certainly illustrates the importance of gaining an understanding of multiple stakeholder interests when investing in the resource sector.

At close of day on Friday, Freeport’s stock was slightly up, having gained 1.23 percent to trade at $37.99.

By Teresa Matich+ - Exclusive to Copper Investing News