There are some variables that will determine this. FCX's Grasberg update next Tuesday. The MoP raising rates would slow the ascent some. The renewed weakness of the USD will determine how quickly crack-up boom speculators get back in.
But generally, as Train Wreck price rationing takes hold over the next several months, or even weeks, I would expect to see dramatic price increases. The aspect that is really tough to gauge is how quickly Asian or even US operations go under or collapse. I wish we had somebody right there who could gauge this. I haven't heard from Jay Chen for awhile. I have a Morgan Stanley account I use some, so I e mailed my broker there for comments from Andy Xie about this very thing. One of the reasons I'm active here, is to have multiple eyes watching this, because the financial press is rather slow to it. I would think Asian companies are already very stressed though.
So at some point in the ascent, price rationing will take out and shoot about 5-10% of world consumption in copper, and even more in metals like tin and nickel. Energy and food will be a factor too. As these marginal operations collapse in the Train Wreck, then the commodity market will return to some heightened version of equilibrium. The intensity of all this will be impossible to predict with precision, but the table is set. I don't expect post-Train Wreck equilibrium to be 90 cent Cu, or $4.00 Ni, $25 crude, or $5.00 soybeans though, it will be higher, because the supply for the surviving 90% of demand just isn't there.
The advanced stage, or even early stage producers are just way to cheap and neglected right now, this is an opportunity, but the risk is they could be impacted by Train Wreck economics. We saw what happened to CLG at Meadowlark. For example, I was going over the incredible NTO story, but wonder what that $250M capex conveyor belt from Aqua Rica to Alumbrera might really cost. Of course that's down the road, and right now it would likely trade as a call on copper/gold? At least that's the idea. |
