Ah, if it were only iron ore.
The big three companies that dominate the world iron ore market—Vale (VALE), Rio Tinto (RTP), and BHP Billiton (BHP)—have won price increases of 80% to 100% from Asian steelmakers. Like it or not, European steelmakers will have to fall in line. (The United States is a special case because it is the only major steel making country that also exports all the ingredients needed to make steel: iron ore, coking coal, and scrap.)
That price increase for iron ore will increase steel prices by a third, say the world’s steel makers. And that will then turn into higher prices for everything from cars to washing machines to construction machinery to construction.
But while the price increases in iron ore are so shockingly large that they’re grabbing the headlines, they’re just part of an increase in commodity prices across the board.
Oil closed at $86.62 a barrel, up $1.75, in New York today, April 5. That pushes crude above the $70 to $80 a barrel price range that has held for six months. Oil prices haven’t been this high since October 2008.  Oil prices have climbed more than 75% in the last year.
Copper was up today too by 4.75 cents to $3.6315 a pound. That’s the highest price since August 2008.
Nickel, a metal used to make stainless steel, is at its highest level since May 2008.
If you tend to see the glass a half full, you’ll find these high commodity prices a heartening sign that the global economy is moving into a higher gear.
If you tend to see the glass half empty, you’re starting to worry that high prices for everything from oil to copper to iron ore could be enough to stall an economic recovery that is still very tentative in the developed countries of the world.
Frankly, I’m more worried than elated. Higher gasoline prices for the summer driving season in the United States, for example, would take a bite out of family budgets just as consumers are starting to spend a little bit more on discretionary purchases.
But I want to wait to see if these higher prices spur increases in supply before I put on my official worry cap. OPEC (Organization of Petroleum Exporting Countries) does have unused capacity and can add to global oil supplies relatively quickly—if it wants to. Vale could settle the strike that has idled much of its nickel production. Copper producers such as Freeport McMoRan Copper & Gold (FCX) could expand production by re-opening capacity that has been shut down and speeding up plans to open new mines.
Look to see if we get news about added supply from commodity producers in the next couple of months. If not, if the commodity producers decide that they’re not worried about slowing global growth and just want to get their profits now, then I think it will be time to really worry.
southof8 on 6 April 2010
Anyone know the difference between fsumf and fsumy?
FSUMF = Common Stock (Pink Sheets)
FSUMY = American Depository Receipts with Bank NY Mellon
Saurin,
I would call PALL a “hold” at this time, but definitely NOT a buy! Frankly, it needs to settle down. While I enjoy seeing my investments shooting for the stars in a straight line up, that is not the time to buy.
Truth be told, I like GLD better among the precious metals right now. It just broke it’s trendline downwards yesterday, and it has a lot of room to run. I picked up a little GLD yesterday.
I do have my eyes on PPLT(physical platinum ETF) and PALL though. But they need to correct before I’ll buy. And I may be selling some PALL if it keeps going insanely upwards.
Anyone know the difference between fsumf and fsumy?
I’ve been watching oil climb for the past two months and am elated since I own shares in USO and UGA. But, I am beginning to wonder if we are setting up a repeat of 2008 when we saw oil go to 147 based on speculation. Are the speculators out again speculating on a fat economic rebound …hoping to push oil to that ominous 200 dollar a barrel mark that a few prognosticators have predicted?
Salmoned- Being retired I have a much different personal view.
That aside, the last major inflationary period caused a R.E slow down by high interest rates. Unemployment approached 15 %. gasoline supplies were limited (waited in line for an hour to buy five gallons if they didn’t run out) and terrorism was aimed at the US (remember the 40 hostages?).
Today R.E. is already depressed, gasoline is near the most expensive ever, unemployment is too high, salaries are going nowhere, people are struggling to save again and wall street is praying for the consumer to spend.
The point here is that we are in terrible condition and inflation has not reared it’s ugly head…yet. Do you really believe that the consumer can support 30% increase in costs without the ridulus salary increases we had last time? Savings are much lower, R.E. equity is much lower and we are overjoyed by a normal annual increase in employment (happens every spring). SS and medicare are broke but through the genius of government we think we are wealthy enough to pay everyone’s health costs. Costs that as always will fall to us, but this time we are broke.
No, this time inflation won’t be the cause, it will be the final blow.
Ed…is PALL a good buy now…I think I will have to be on sidelines for a while before it drops. What say ya..
I’ve been kicking myself for not owning more palladium, as I watch my shares in PALL go up and up and up. In my defense, it was trading toward an upward angle, but it did routinely drop again. Now, it’s not dropping.
Heck, even gold broke out of it’s trading range yesterday.
While the market is moving up nicely, the precious metals are going berserk. The “upper range” on platinum and palladium is almost vertical.
In considering the inflationary aspect of this, remember that iron ore prices fell 33% – 44% (depending on specific item) from 2008 – 2009, The spot price for iron ore has been rising steadily all years and was already about double the contract price for last year {http://www.mineweb.com/mineweb/view/mineweb/en/page39?oid=98926&sn=Detail}. That means for companies previously purchasing in the spot market, the new benchmark price is actually no increase in price at all.
I don’t necessarily buy the idea that OPEC has extra capacity. Remember, the amount they can export is based on their “reserves,” so it’s in their best short-term interest to overestimate their reserves. One of these days, we’ll be in for a shock.
FSUMY-Iron ore mining company.
Jim,
With the thesis you have laid out what are your thoughts on General Cable stock right now? Would you wait for it to pull back? or is it a contrarian play right now?
Thanks
God help us if the idea is to inflate all assets to the bubblicious values of condos circa 2006. Is there any evidence that such a plan has ever worked?
I can’t imagine that could ever be successful but the world-wide damage in trying will make Weimar Republic’s prices look stable by comparison. Wasn’t their demise caused by trying to find a back door to avoid paying full vaule on their WWI reparations?
Making my toyota sell for $50,000 to bail me out because I paid $500,000 for a condo now worth $300,000 does not strike me as much of a solution to my problems.
Off topic…. Palladium, platinum surge on economic news, dollar.
Story complements what EdMcGon said March 31 regarding metals.
http://www.google.com/hostednews/ap/article/ALeqM5hLdQzzkk_vLW3OsMLzbo-eZnRKbAD9ET4Q700
Palladium for June delivery settled up $16.65 at $508 an ounce Monday, exceeding the $500-an-ounce mark for the first time since March 2008, Steel said. April platinum rose $34 to settle at $1,703.80 an ounce.
I beg to differ, amtrend10. Inflation will be the very thing that saves our bacon. It’s the only way to transform multi-trillion dollar debt (and big mortgages) into small potatoes. It will eat away at savings, but who’s got much of that, anyway?
this is an unsustainable increase in commodities. Everyone and his brother is looking for ways around these prices.
I say unsustainable because inflation will eat us alive if we don’t figure a way around these prices.
I think we will see China reacting to this very soon.
Jim,
POT has been down the past 2 sessions including today – Not by a lot but it seems to be bucking the market’s up trend. Part of it was probably MOS disappointing the Street in its earnings call. Could this be an attractive entry point to buy POT? Or is it better to wait until POT reports as well?? (I just wonder if POT could disappoint as well.)