Archive for June, 2012

Chart Updates

Below is an update of some of the charts I have highlighted in the past.

Sterling/ Dollar has bounced off its major support. I remain convinced that Sterling will collapse once its true financial picture (see previous blogs UK economy) becomes apparent to the markets. If so, $1.08 all time low could be tested.

AP Moeller-Maersk, the largest shipping company in the world, has come in for attention on many occasions and I still believe the 16 year head and shoulders is in play. With ship yards offering huge discounts on new ships and freight rates falling once again, the gloom continues.

 

BHP. With Iron Ore prices falling, it is only a matter of time before the head and shoulder neck line is broken with little technical support for a long way down.

US Steel and Arcelor-Mittal. As with BHP above, see Are Steel Producers a Buy? in which I asked exactly that question. My conclusion is that the support lines would not hold. Since then they have all fallen. BHP 15% US Steel 25% and Arcelor 10%

 

 

Europe. It is interesting to look at the wide array of economic statistics (released today) from many European countries. It all makes for very disappointing reading. Except that is, for Iceland, who had Q1 GDP growth of 2.4% and 4.5% year on year growth. Well done! Maybe defaulting on your debt is not the end of the world. ARE YOU LISTENING GREECE!

 

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Friday, June 8th, 2012 GBP, Shipping, UK, USD No Comments

US Economic update

BNSF Weekly rail shipments.

Regular readers will know that I have relied on this data to give a view of the economy. Transportation is the most important bellweather for economic activity. New readers might want to view an earlier blog The Perfect Storm for an overview. The updated chart (click to enlarge) does not really add much to last update in early May. Motor vehicles continue the trend but  metals growth is weaken as imported vehicles improve market share. Lumber confirms the stronger demand from the housing sector. Total freight shows no sighs of altering its lacklustre, low growth position. The significant year on year decline in coal movement is coming to an end as this was driven by both lower gas prices and warm winter weather. The rest of the year should stabilise at lower levels but not adversely affect Total Freight as in Q1 and 2. I have talked about my Jim Thorpe concerns for the coal industry and its suppliers on several occasions so it was interesting to see Caterpillar mention (this week) the slowdown in demand from that segment of their business. Sadly things will get far worse. If you look at the inventory build up in the worlds biggest coal user (China) you will understand why I am so negative. It is not only coal that is piling up, the products that need huge energy imput to produce are also building. Steel production will have to be cut drastically in the Q3 if a price implosion is to be avoided. This may support steel prices but the knock on affects to Coal, Iron Ore and many other commodities (not to mention Shipping) will be significant. Interestingly, new car inventory at Chinese dealerships is building rapidly. Sales data are registered when delivered to the dealer, so, with inventory as high as 60 days sales on the forecourt, the only response will be heavy discounting. Going forward this will weaken demand.

Shipping is never far from my blogs so I will not disappoint. Europe/Asia container route pricing by the World Container Index has fallen for each of the last five weeks and is eroding the rate increases forced through by the big carriers. The weakening Baltic Index is confirming the growing level of inventory of dry bulk commodities. I hope to have an update on the regular Suez Canal data next week, that is if I can get a good Internet signal in Tenerife. Happy days!

 

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Friday, June 8th, 2012 BNSF, China, GDP, Predictions, Shipping, Steel, US Economy No Comments

Chinese Aluminium Production

Chimese Aluminium  producers to cut production from June

Last month saw another salvo in the battle that is being fought by countries to regain control of their natural resources. Argentina (YPF) may have been the catalyst for more change.

Following Indonesia`s decision to implement a 20% export tax on minerals, Chiana`s main Alumina player CHALCO has announced a 10-15% cut in production from June. The primary mineral required in the production of Alumina, the raw material of Aluminium, is Bauxite. Since China`s vast Bauxite deposits are (monohydrate diaspore ores) not that economically viable, they have relied on Indonesia for a large cheap supply. In 2011 Indonesia supplied China with 35.8 million tonnes of Bauxite which in turn produced 11.93 million tonnes of Alumina (representing 6.2 t of Aluminium). Indonesia has added that it intends to stop the export of minerals by 2014. I guess its intention is to raise its profile along the production process and become an exporter of the finished product. Forgive my naivety if that is incorrect.

CHALCO intends to cut production of Alumina by 1.7 million tonnes per annum. In keeping with my theme on transportation from previous blogs it is important to establish the volumes of materials which are involved. So, cutting Alumina production by 1.7 million tonnes means that they will require 4.75 million tonnes less Bauxite. More importantly, the 900,000 tonnes of Aluminium which will not be produced, will result in far less coal demand. The production of Aluminium is very energy intense, with each ton requiring around 17.4 megawatts of power. As China has a high reliance on coal fired electricity production, it relates to a drop in coal usage of 110,000,000 tonnes. Domestic Thermal Coal has fallen in price for the past 6 weeks. Weak demand and high inventory (record 88 mil ton) has lead to a reluctance by banks to issue Letters of Credit for new imports. Whilst these are large quantities of resources, they only amount to a small proportion of the bigger picture that the transportation network caries, nevertheless, they are just another negative overture for the shipping industry.

 

 

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Wednesday, June 6th, 2012 China, Predictions, Shipping No Comments

The Elephant in the Room.

This is not a blog in my usual style. I have been very busy of late and unable to devote the time needed. Hence this is just a thought provoking rant with a bit of catch up.

Germany has used the Euro zone as a vehicle to conquer the world. IT SHOULD BE EXPELLED or Gerpelled!! (sorry but if you can have Grexit)

I cant help but feel that we have all been duped. German re-unification was always going to be tuff. But once accomplished, a behemoth of productive capacity was born. The trouble is, such an animal would suffer the fate of an ever accretive currency due to its success. How about hitching a ride with the lame ducks of Europe where the great German production machine can hide like an overgrown parasite. In the early days of the Euro, interest rates were held low due to the significant fiscal and monetary drag faced by the the German economy following re-unification.. The trouble is, these low rates, were not appropriate for the lame ducks. They had been restrained from easy credit in the past because the markets knew they could not be trusted. As individual countries they faced exorbitant interest rates and weak currencies. Why? because they are liars and cheats. I don’t mean that in a bad way, but, they just are. When they joined the Euro, everybody said go away and say 5 Hail Marys and don’t lie again. Once they had finished praying, they enjoyed the fruits of this forgiveness, easy money at unbelievably low interest rates. This set the seed of today’s debacle. Well its time we expelled the Alien lurking with the sheep’s clothing! A Euro without Germany would fall around 30%, this would create inflation to a degree but not much (see the example of the UK) It would most certainly drive exports from the Industrial areas and importantly, it will allow the Mediterranean countries to regain the holiday market from the likes of Turkey, Egypt, Tunisia etc. I know it sounds crazy but I cant see Greek people enjoying being in the Euro over the next ten years under German rule.

I wounder why all the highly paid economists and Politicians could not see what Germany was up to. ooohhh yes I can, they were all too busy with their snout in the trough!

 

As a catch up. I know I have not blogged for a while.

Steel companies continue to plunge. China is pumping ever greater quantities into inventory. One of two things will happen with this pile of metal. One, it will topple, killing the BRIC economies who depend so much on the raw materials required to make it (Iron Ore, Coal), or secondly, Tracey Emin will flick a bit of paint at it and win a Turner Prize. Shipping stocks continue to plunge with the Baltic Freight Index pointing to complete capitulation in that sector. I will update the AP Moeller chart (16 year head and shoulder) soon. Mining companies (and the machine suppliers eg Joy Global) continue to plunge with BHP close to a 20% fall at the base of another head and shoulders (charts another day). Truck manufacturers in the US continue to fall with a sudden fall off in Class 8 truck orders being a big surprise to analysts (read Finance-Reaper you guys). European truck manufacturers still have further downside, mainly Volvo, as MAN and Scania will soon be fully under the ownership of VW to create another global German super industry power. The only saving grace for them (Volvo) is a merger with or a takeover from a Chinese player looking to compete and take the technology.

The UK is hurtling towards the end game. I have blogged regularly about sterling, inferring significant weakness with a target of the all time low vs the $ of 1.08. I have talked in the past of Sterling strong vs Euro and weak vs $. This is the worst case scenario for UK manufacturing.

The UK government are not being straight with the budget deficit. It is getting worse and will continue to do so. If the weak kneed amongst you call for massive infrastructure spending to drive some growth, I refer you to a previous blog regarding the vast numbers of overseas machinery manufacturers and immigrant site workers who would  benefit from this spending, ccrrraazzzzyyyyyy! With respect to the thorny issue of management remuneration, I would like to offer a solution. A 90% tax on any income which is over 40 times that of the average wage in the company. Given that this multiple has grown from around 35 in the 1990`s to around 100 today, it would have some impact. Shareholders can veto the tax if 51% vote in favour of a much higher reward (highly unlikely). As a significant proportion of management have driven profits by squeezing the employees to breaking point, thus driving up their own salary, its about time their compensation is improved in line with the entire company.

The US is on collision course with reality. As I have said since the spring, stock prices were not looking any further than their nose. Tough decisions are due by the end of this year. Are US politicians capable of steering the good ship Boston tea Party away from the rocks? I wont answer that, simply I will direct you to the US Postal Service (USPS). It is up guano creek without a paddle, losing money like there are no tomorrows and needs to cut staff and logistical facilities. If that outcome is anything to go by, they have still not learnt any lessons. Good luck electing the next can kicker!

China. I refer you to my December 19th blog quoting Larry Lang. He claimed 70% of Chinese GDP was infrastructure. As I have stated many times, the huge overcapacity in heavy industries will be their downfall.

As for Greece and Spain, I refer to my December blog Economageddon..The end is near..Thank goodness! I have not changed my view on the countries just that Germany should go, not Greece.d

Friday, June 1st, 2012 Predictions 3 Comments
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