Zeev's Turnips Patch-No Politics (ZEEV)

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Hi opnion,
Of interest?

The Daily Resource

By Dave Forest
April 28, 2005

Although it may not be sexy, the steel industry has a lot riding on it for commodities investors. Such buyers were likely relieved yesterday to hear from analysts MEPS International that global steel production will increase by a healthy 5 percent this year, to 1,100 million tonnes.

The increase – which is well below the 9 percent gain seen in 2004 – will come mainly from China, with that country accounting for 90 percent of growth. At the same time, former USSR nations are expected to contribute less than last year.

Wall Street for one believes the steel sector is a good place to be, according to Morgan Joseph & Co managing director Andrew J. Silver, who spoke at the Dow Jones & Co Steel Finance 2005 conference in Cleveland Tuesday. Silver noted, “We think the good times will last” for the industry, saying, according to Platts, that institutional investors are once again eyeing steel after several years of shying away.

Silver did offer a few reservations on the steel industry, most notably the possibility that rapidly increasing production in China will not be absorbed domestically and will result in a glut of exports. China is expected to produce 370 million tonnes of steel per year by 2007.

But according to China’s People’s Daily, Chinese steel output is already starting to leak into the export market. The news service reported yesterday that exports in the first quarter of 2005 grew 319 percent year-on-year to 8.38 million tons. At the same time, it was reported that imports dropped 46 percent or 6.74 million tons.

The same article noted that China may also be curbing its steel industry through macro-economic controls. Steel production was reportedly the only one of the nation’s main industrial sectors that saw fixed asset investment decline in the first quarter of this year, dropping 1.4 percent to US$4.01 billion. "The tumble was the positive result of the nation's macro economic control policies and will help curb blind expansion of low-level production capacity in the sector," Chinese steel association vice-president Luo Bingsheng said.

One final note on steel: analysts CFSB are reporting that April may mark the first month in over three years that steel slab prices decline. The slide would follow similar decreases already seen in Europe and the US.

Such a decline would be in line with the general trend for many of the other industrial metals as of late. Copper fell for the sixth successive session in London overnight, and is currently trading at $1.5098/lb. According to Hong Kong’s The Standard, Chinese buyers are steering clear of the metal, speculating that China will revalue the yuan some time around next week’s Labor Day holiday, making commodities cheaper for Chinese users. The paper also noted that the high prices seen in the copper market during the first quarter of this year may have reduced demand, with Chinese imports falling 15.4 percent year-on-year during the period.

In other base metals news, the International Lead and Zinc Study Group said yesterday that the western world zinc market will be in deficit to the tune of 200,000 tons in 2005. The Group forecast a 2.4 percent rise in global consumption to 10.69 million tons, along with a 5.2 percent increase in mine output to 10.15 million tons. Chinese zinc imports are expected to jump above 100,000 tons. The news did little to help the zinc price, however, which spiked briefly to $0.58/lb but then fell back to a current $0.5747/lb.

Also falling yesterday was oil, which dropped $2.59 in New York to close at $51.61. The loss came after the US Energy Department reported that oil inventories rose 5.5 million barrels during the week ended April 22. The price decline was the largest daily drop for oil this year. Currently, crude is trading at $51.26.

The decline in the oil price helped boost the dollar, which initially fell yesterday when a Commerce Department report showed that US factory orders for durable goods fell 2.8 percent in March. Currency investors are now looking to data due out today on US first-quarter GDP growth. The buck gained late yesterday on speculation that the numbers will be heated enough to spur the Federal Reserve into increasing the pace of interest rate hikes. Currently, the greenback is trading at $1.2931 under the euro. (Up-to-date currency prices)

It appears, however, that the dollar may be coming under increased selling pressure from international financiers. According to The Daily Pfennig, Russia’s central bank yesterday announced that it will increase its euro holdings to 30 percent of total currency reserves. Previously this year the bank had said that euros would make up only 10 percent of its holdings.

Gold and silver both fell on the dollar rally, with the yellow metal shedding $4 to below $432/oz before flattening out to a current $432.10. Silver dropped $0.15 early in New York and then headed sideways for the rest of the day, currently sitting at $7.13/oz.

Finally, it looks as if the world may lose 12 of its nuclear reactors, if the EU gets their way. According to Platts, the Union has told Russia that it must shut down a dozen reactors deemed unsafe, in order for the nation to qualify for increased energy export quotas to Europe. Speaking of the terms, an EU official told the news service, “The Russian authorities are not being tremendously helpful on this point.”

That’s what’s happening… until tomorrow!

http://www.caseyresearch.com/displayArticle.php?id=86