Turbulence in the Markets
By Jens Glüsing, Alexander Jung and Thomas Schulz
Hedge funds and other major investors are always looking for new places to park their cash. Now copper is attracting the hot money, causing the price of the metal to fluctuate wildly. Key industries are warning of the consequences.
[snip] On this particular day, a ton of copper sells for about $8,100 (€5,844) on the commodities exchanges, according to the current price CODELCO manager Rodrigo Toro sees on his computer screen. Only 24 hours earlier, the price was almost $200 higher. "The market has become very volatile," he says.
Wild Ups and Downs
Toro's office is about 1,200 kilometers south of Chuquicamata, on the 10th floor of the CODELCO headquarters building in Santiago, the executive floor. Everything here is made of copper, from the counter in the lobby to the handrails and the elevators. Metal fibers are even woven into the towels in the bathrooms.
In the past, it would have taken weeks for the market price to move as much as it did on this single day. A price change of that magnitude would have had Toro and his fellow executives deeply concerned. There would have been talk of a warning signal for the global economy. But today no one is surprised by these wild ups and downs.
This year, the price went from $6,400 in February to $8,000 in April, then plunged to $6,100 and is currently rushing back up toward $8,900, which would be an all-time high. The metal has become an object of speculation, and the copper business a playing field for deep-pocketed gamblers. Price movements have less and less to do with the product itself. In fact, the prices are set elsewhere -- in New York, for example.
Going Long or Short
In Manhattan, only one block from Ground Zero, 12 men are sitting at a round table in a windowless room. If it weren't for the countless flashing screens and electronic display panels, they might resemble a group of old men who had gathered to play poker. But these men are copper traders who have gathered at the New York Mercantile Exchange (NYMEX), the world's largest physical commodity futures exchange.
They trade in futures contracts, or agreements that obligate them to sell highly pure copper at a fixed price on a specific date. Each contract represents about 11 tons, with a current market value of roughly $95,000.
Sometimes they go "long," which means betting that prices will rise. Or they take short positions when they expect prices to fall. These traders no longer have any interest whatsoever in the metal itself.
Traders today deal in unimaginable sums worldwide, with securities worth more than $20 billion changing hands every day. Last year, copper futures corresponding to 1.13 billion tons were traded on the world's four largest copper exchanges, in London, New York, Shanghai and Mumbai. It was 71 times as much copper as the industry actually produced in the same period. moreEven if one doesn't believe that oil prices can go to triple digits, the speculators are going to do their best to see that happens too.
Jeff Rubin: Speculators Will Drive Oil Prices To Triple Digits Within Months
Gus Lubin | Oct. 27, 2010, 10:12 AM
Oil pundit Jeff Rubin has long predicted triple digit oil by year-end, and he's sticking to it.
Although crude prices dropped from $86 to $65-bbl in May, Rubin says on his blog the recent rise to $81.73 will accelerate over the next two months.
Concerns about peak oil will be the main factor:
As I’ve said before, peak oil isn’t a problem if the economy it’s powering is shrinking. Triple-digit oil prices are only a problem if we want the economy they’re fuelling to grow. And most of us do.
Speculators will enable the rapid price increase:
Movements in oil prices have never been linear in the past, and there’s no reason to expect them to be so in the future. The interaction between genuine market forces and financial speculation is a fact of life in virtually all commodity markets.
Speculators have been in the oil market before, and guess what? They’ll soon be back. And it will be the same pull as ever—that of a world ever more desperate for the increasingly expensive fuel that got them on the price bandwagon last cycle and that will soon draw them back again. moreAnd of course, these guys know how to put the squeeze on food prices.
Global food crisis forecast as prices reach record highs
Cost of meat, sugar, rice, wheat and maize soars as World Bank predicts five years of price volatility
• Six casualties of the world food crisis
• UN warned of major new food crisis at emergency meeting in Rome
John Vidal, environment editor
guardian.co.uk, Monday 25 October 2010 15.26 BST
Rising food prices and shortages could cause instability in many countries as the cost of staple foods and vegetables reached their highest levels in two years, with scientists predicting further widespread droughts and floods.
Although food stocks are generally good despite much of this year's harvests being wiped out in Pakistan and Russia, sugar and rice remain at a record price.
Global wheat and maize prices recently jumped nearly 30% in a few weeks while meat prices are at 20-year highs, according to the key Reuters-Jefferies commodity price indicator. Last week, the US predicted that global wheat harvests would be 30m tonnes lower than last year, a 5.5% fall. Meanwhile, the price of tomatoes in Egypt, garlic in China and bread in Pakistan are at near-record levels.
"The situation has deteriorated since September," said Abdolreza Abbassian of the UN food and agriculture organisation. "In the last few weeks there have been signs we are heading the same way as in 2008.
"We may not get to the prices of 2008 but this time they could stay high much longer." moreTrade wars are triggered by more than simple speculation. It turns out the Chinese are not about to sell their valuable rare earth elements cheaply and this is causing all sorts of worries in the fields of new technologies.
Western Electronics, Chinese Mines
German Industry Feels Rare-Earth Metals Squeeze
Over 95 percent of commercial rare-earth metals are mined in China.
Worries over a bottleneck in rare-earth metals from China, which are needed in the production of high-tech equipment, have dominated a conference on raw materials in Berlin this week. Beijing says export quotas are almost filled for the year. German Economics Minister Rainer Brüderle has called for more recycling and greater cooperation between the EU and the US to fill the gap.
German Economics Minister Rainer Brüderle told industrial and financial heads in Berlin on Tuesday that Chinese restrictions on rare-earth metal exports have started to weigh on the German economy.
"Germany is dependent on imports for most industrial materials," Brüderle said. "That impacts us currently in regard to many metals and energy supplies. But it also impacts us in rare earths that are essential for high-tech industries." The Economics Minister spoke at a conference organized by the Federation of German Industries (BDI), which included representatives from the European Union, the World Trade Organization and the World Bank.
Most of the current world supply of rare-earth metals is mined in China, which says its export quotas for the year have almost been met. The resources are indispensable in high technology, where they are essential to the operation of hybrid vehicles, high-performance magnets and computer hard drives. Some 95 percent of metals such as lanthanum and neodymium are mined in the People's Republic, giving Beijing a virtual monopoly on these resources. The Chinese have no intention of exporting these materials without demanding substantially higher export tariffs. China reportedly even wants to prohibit export of some rare-earth metals completely by 2015, prompting observers in Japan to describe the valuable resources as a "21st-century economic weapon."
"Raw materials have become a geopolitical issue," said BDI chief Hans-Peter Keitel, who called for more political help with supply problems. "We don't want a trade war," he said.
Other German industrial heads claimed China was using its raw materials advantage to position itself politically. "Rare-earth exports from China could fall even further, even by 30 percent next year," said Ulrich Grillo, head of a chemical firm called Grillo-Werke, according to the New York Times . "So what the Chinese are telling us, directly or indirectly, is that if we want access to their rare-earth material metals, we should invest in China." moreUnfortunately, most of the green technologies we all are hoping to see end some of the great problems facing the planet rely on some of these rare elements.
China stops our Green Revolution in its tracks
Tue Oct 19, 2010 at 08:24:29 PM CDT
The news media and the political blogs are enraptured with handicapping the political races. No one has time to worry about real issues anymore. This is the silly season, when immigrant nannies and comments from comedians become "important". When shady television hucksters are inexplicably taken seriously and hold huge political rallies.
Yet the real world, the one that operates on tangible things that make an actual difference in our lives, keeps chugging along.
While some of you were busy obsessing about political trivialities, the governments of the world were entering a global trade war. This development entered a scary stage yesterday when Brazil decided not to attend the coming G20 summit.
However, that was nothing compared to China's latest move.
China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted shipments of some of those same materials to the United States and Europe, three industry officials said on Tuesday.
"The embargo is expanding" beyond Japan, said one of the three rare earth industry officials, all of whom insisted on anonymity for fear of business retaliation by Chinese authorities. They said Chinese customs officials imposed the broader shipment restrictions Monday morning, hours after a top Chinese official had summoned international news media Sunday night to denounce United States trade actions.
China mines 95 percent of the world’s rare earth elements, which have broad commercial and military applications, and are vital to the manufacture of diverse products including large wind turbines and guided missiles. Any curtailment of Chinese supplies of rare earths is likely to be greeted with alarm in Western capitals, particularly because Western companies are believed to keep much smaller stockpiles of rare earths than Japanese companies do.
American officials had announced on Friday to investigate if China was violating trade laws by subsidizing their clean energy industry. China responded on Sunday with the statement that Washington "cannot win this trade fight." moreBut as we can see, the alternative energy business is already hurting.
Vestas to close five wind turbine plants
Vestas, the Danish wind turbine manufacturer, will cut 3,000 jobs as a result of the closures
guardian.co.uk, Tuesday 26 October 2010 19.05 BST
Vestas, the Danish wind turbine manufacturer, said today it would close five production plants across Scandinavia and cut 3,000 jobs.
The group said the surge in demand for wind power it had hoped for in Europe had not materialised and it would have to shift production away from Denmark and Sweden towards Spain to protect profits.
It is closing four plants in Denmark and one in Sweden, including one in Viborg where it has been manufacturing since 1989. The factory moves follow Vestas' decision to move production of turbines away from the UK last year, when it closed its Isle of Wight facility. moreVestas and wind are not the only players in the world of alternative energy. Here is a "boosters" list of some of the other actors. Note that unlike the commodity markets that have WAY too much money to play with, many of these energy companies are starved for capital.
The 25 Most Important Alternative Energy Companies
Posted: October 19, 2010 at 5:23 am
Alternative energy is big business — and getting bigger. The industry includes hundreds of companies that make a piece of the continuously expanding jigsaw puzzle that is the alt energy space.
Rather than trying to pick winners and losers — which at this point is probably impossible — we’ve tried instead to identify the 25 companies we think will shape the alt energy industry for the next three to five years.
To make this determination, we’ve looked at a number of characteristics we think will play an important role in shaping the industry’s future.
First, we chose companies we think are market leaders based on their market capitalization, revenues, and technology leadership.
Second, we tried to assess the longer-term opportunities a company has based on its current influence, the strength of its competitors, how much influence government policy will have on its success, and how likely it is and how quickly the company’s products can be implemented at a reasonable scale.
Third, we tried to assess a company’s access to capital. Some of the questions we asked were: Is it publicly traded or privately held, how strong is its balance sheet, and, perhaps most important, how much support can it expect from government?
Fourth, we looked at a company’s customers, their size, and their influence in their own industries. Finally, we tried to assess how high the barriers are to competitors entering the same sector. Likewise, how well can a company fight off competition that’s already in the sector?
Not every company has a top rating in each category, but the ones we’ve picked have a good many of them.
In addition to looking at the companies, we’ve also identified a few issues that are going to provide the context for alt energy companies in the years ahead. Perhaps the most important of these, from a commercial standpoint, is what policies China and the US will adopt. China plans to spend aggressively on its own domestic alt energy initiatives, and it is pouring enormous amounts of money into the coffers of several of the country’s manufacturers.
Other areas that bear watching are consumer acceptance for electric vehicles and plans for infrastructure investments in the electricity grid and in smart-grid technology. more