Although the Casey report was well researched at first glance, it may not be taking all the factors into play. For one, while China got back into the game of export after backing out, why then did the price not come down right away? And in spite of being an exporter in 2004, what was their total usage? In other words if their demand tripled and imports increased, as seems to be the case, the 5 million lbs export simply reflects increased demand in other sectors overseas. You can import 15 million lbs and export 5. That we see in stats all the time. It does not mean that usage has reduced. Oil goes through a similar pattern in Canada. Canada exports oil and imports oil. It is self sufficient in oil totally. Yet it imports too.
Their take on the Chinese suddenly getting out of the market or curtailing exports was not totally correct. For one, that move was foreseen by NRCAN in 1997! In other words it was not a wild and crazy market move that did not have fundamentals behind it. Not a blip on the graph, but a progressively influenced happening. In addition the NRCAN report alleges, during a time when Casey alleges things were pretty much static, that the Moly demand was steadily growing throughout the western world, and it was predicted that this would drive price up into the double digits and it would stay high well into the millenium. Moly price was not expected to rise during the nineties as it had already fallen, as money was being dragged out of production enterprise, and was going into stocks i.e. tech and explo. This was a period of non-inflationary growth.
NRCAN and Phelps Dodge called for a multi year high priced environment. NRCAN said about 7, which would bring us to 2005, and Phelps Dodge indicated in 2004 that prices would be high for 4 years or more.
The eighties was too inflationary to see production enterprise profit much as mining and money was too expensive Not a time for expansion of industry. Money is cheap now. This is the time to build plants.
Chinese growth has finally hit home. It has taken hold of people's imagination. That is the difference. This was not operative as much when NRCAN made their report, so it adds an additional driver to the price of metals.
Chinese roasters and Indian smelters are demanding moly. They will take all you can send them that they can handle. In fact the Indian roasters want minimum deliveries that are fairly large. This points to metal demand beyond the roaster. The story of it being a roaster bottleneck alone may not be that factual.
The fundamentals of Moly supply are tied to the revamping of copper production mills to favour copper only roasting. Despite the Casey assertion that the tap has only to be turned on to change this, I would say they are wrong. To cut back on copper smelting at high copper prices is not favoured at all. To put in additional moly flotation and roasting plants as Noranda did in Chile, is not ABC. Noranda had an unused roasting plant in place and recommissioning alone cost 6 million. Not everyone can do this. It would be tens of millions or more to expand capacity and several years to gear up. And more floor space. You don't add floor space for peanuts.
All in all, the interest rate being low, and growing obviously and industrial demand growing too, it follows we are in a cycle of relatively low metal prices. If you take the copper price of 1968 and bring it forward, you get 908 dollars per Mtonne US, which in 2005 dollars, is $5021/metric tonne or 2.28 US per lb.
We see that in pure inflationary terms copper has a ways yet to go. The steady inflation grind alone does not tell us the story however, as copper prices shot up with fuel in the 1970's as did many other things. Right now we are either at a peak of metal prices or a pause in another bull run. At any rate 70 dollar bbl fuel cannot do other than continue to put pressure on prices across the board.
EC<:-} |
