Dennis Gartman was very bearish in his newsletter this morning on copper and all base metals. He is just looking at charts not the fundamentals. I've read that the Chinese were running down their stocks of the metal recently at the consumer level, you can only do that for a short time then you have to buy, someones buying. Read this too about Xstrata takeover of WMC.
Xstrata's WMC Bid Signals Metals Demand to Stay High (Update1)
(Closes shares.)
By Tan Hwee Ann
Oct. 29 (Bloomberg) -- Xstrata Plc, the world's biggest
exporter of coal for power plants, may be signaling record demand
and prices for commodities may stay higher for longer than
expected with its bid for WMC Resources Ltd., analysts said.
Zug, Switzerland-based Xstrata offered A$7.4 billion ($5.5
billion) for the world's fifth-largest nickel producer to add
nickel and copper mines as China's demand for metals grows.
Melbourne-based WMC Resources rejected the bid, a 24 percent
premium to its previous closing price, as too low.
``The bid may be a wake up shot to resources markets and to
corporates regarding the accepted level of long term commodities
prices,'' wrote Merrill Lynch analysts Vicky Binns, Mike
Harrowell and Duncan Hay in a note yesterday. ``The strength of
emerging markets commodity demand has created the possibility
that commodity prices will be higher in trend terms than the
levels we and much of the market are using for our valuation of
resources stocks.''
WMC Resources, BHP Billiton and other mining companies have
expanded output to meet demand from China, the world's biggest
consumer of copper, coal and steel. Prices of copper, used in
wiring and pipes, have surged 38 percent, and prices of nickel,
used in stainless steel, have gained 19 percent in the past 12
months. Nickel prices reached a 14-year high in January, and
copper prices reached a 15-year high this month.
Xstrata ``clearly believe in the stronger for longer theme,
and that some major resources companies are being undervalued by
the market,'' wrote Goldman Sachs JBWere analyst Malcolm
Southwood in an Oct. 28 note. Xstrata said the purchase would
make it the world's sixth-largest copper producer, up from 11th
today.
China Demand
Xstrata made the bid as the Chinese government wants to damp
inflation and curb investment to prevent excessive economic
growth. The People's Bank of China yesterday said it will raise
its benchmark rate by 0.27 percentage point, its first increase
in nine years, to cool the world's fastest growing major economy.
Chinese demand for raw materials may not slow though,
according to investors including Hans Kunnen.
``A more than short-term view supports that China's demand
for resources will stay strong,'' said Kunnen, who helps manages
the equivalent of $14.4 billion at Colonial First State
Investments in Sydney.
China Minmetals Co., the country's largest trader of metals,
yesterday said copper demand in the country may grow as much as
14 percent next year as it needs to build more power generators
to ease electricity shortages.
Having fewer producers will also help maintain prices, said
Tim Barker, who helps manages $30 billion at BT Financial Group.
Higher Bids
``With further consolidation of the industry, there's
expectation of greater control of production and therefore higher
long-term prices,'' said Barker in Sydney. ``That was also one of
the main reasons behind the turnaround in prices 18 months ago,
when producers decided low prices were ridiculous given what was
the future for consumption.''
Potential bidders for WMC Resources may need to bid between
A$7 and A$8.22, according to estimates by Merrill Lynch, Goldman
Sachs JBWere and UBS AG. Xstrata had bid at A$6.35, and WMC
shares closed today at A$6.75, a 6.3 percent premium, indicating
traders and investors expect a higher, or rival bid.
WMC Resources' assumption on long-term prices of uranium,
copper and nickel in Australian dollars term suggest the company
may be worth as much A$8.22 a share, wrote Glyn Lawcock, an
analyst at UBS AG, in a note yesterday.
Xstrata yesterday said it plans to continue talks. WMC
Resources said it was willing to talk to other potential buyers,
prompting speculation BHP Billiton, the world's biggest mining
company, Rio Tinto Group and other mining rivals may be
interested.
``WMC has good, long-term assets which are highly sought
after,'' said Pano Raftopoulos, who helps manage the equivalent
of $940 million at Challenger Financial Services in Sydney.
``There is a lot of interest in those assets.''
Both BHP Billiton and Rio Tinto have declined to comment.
--With reporting by Jason Gale Editor: Gosman, White. |
