Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 1
Many of the commodity, infrastructure and oil related stocks have come down by >30% in the past month. Just look at the fall in copper, zinc, aluminum and steel and even many oil stocks. I wonder if this is a clear sign of trend to follow in the near future with a global economic slowdown that is now indisputable.

I am glad to have sold many of my oil and steel stocks at the peak during the last 6 months. I wish I had sold my copper and aluminum stocks too.

I think this is healthy. A drop in commodities is neccessary for the global growth to resume.

Anurag
Print the post Back To Top
No. of Recommendations: 0
"A drop in commodities is neccessary for the global growth to resume."

I agree, which is why I bought back in a little bit. My only exposure to this side is with PBT and PDS ... I put a little in each a few days ago. I expected a slow-down related drop at some point (got to cash in on options in american airlines and delta that I'd been starting to get nervous about) but now that its down so far & so fast, it might be smart to ease back in a bit - both as a hedge against inflation (fed rate held back at 2%) and because gasoline demand can be very price sensitive (I can't wait to see prices come down at the pump). Also, there's the talk of a new 'economic stimulus package' which means another $600 check for everyone to spend on gas.
Perhaps if it dips back toward $12 I'll try a taste of GSI.

-John
Print the post Back To Top
No. of Recommendations: 0
Options on airlines was a very smart thing to do. I just kept thinking about it and never purchased the airline stocks. I wanted to buy LCC (US airways) so bad at ~1 and now it is $6.
Print the post Back To Top
No. of Recommendations: 3
I would not call it the end of the commodity boom just yet. I call it more like a lull in the middle of the continuing move upwards. I do not know how long the drop in prices could last. It could only last one week or as much as 18 months.

DEEJ sums it up best in post 770 of this thread:

http://boards.fool.com/Message.asp?mid=26878251&sort=whole where he says:



" Great link, thanks kidchicago. Not only does this mean that China is committed to providing the infrastructure that will help Macau grow but on a higher level it demonstrates that China plans to continue to grow aggressively and to consume massive amounts of resources, which is bullish for both investments in the country and commodities in general.

Deej
Long MPEL "


Everyone wants much, much lower energy prices. The only way that is going to happen is with huge investments in infrastructure. The infrastructure needs to make energy cheaper to allow for healthy global growth will require massive amounts of steel and other commodities.

The long term story for commodities is still intact. I am a subscriber to HG also and I was wondering about Bill Mann pick of a certain Zinc miner. I had to ask myself why a investor that is considered as intelligent as Bill Mann would be picking a zinc miner at the top of the cycle especially as he states the best times to buy zinc stocks is near the bottom of the cycle. It just don't make sense to me unless Bill Mann and his guest analyst on HG believes that maybe the commodity bull market has not yet run it's full course.

I am actually thinking of buying SLT instead of selling, as the price of zinc has a great effect on SLT price.

Among the reasons why I am a commodity bull is because I am a engineer by trade and so far I have not seen the new technology that will really lessen the reliance on many commodities. You can be certain that there are many scientists around the world working on many solutions that will break the reliance on many different commodities but the big break throughs have not come yet.

For instance maybe the steel commodity boom will end because a new material is engineered that is superior to steel at less cost with much more abundant resources. Companies are already looking in this direction. A few metal replacement ideas:

http://goliath.ecnext.com/coms2/gi_0199-7260251/DuPont-unvei...

http://www.borealisgroup.com/industry-solutions/automotive-a...

http://www.thomasnet.com/products/composites-high-strength-m...

http://www2.dupont.com/Plastics/en_US/News_Events/article200...

http://www.netcomposites.com/news.asp?2171



So far they have not found the idea that will replace all metal use but they are looking. I am sure steel manufacturers will have their prices for steel drop through the floor and various specialty mining companies go belly up when they do find a solution.

Maybe one day a solution will be found that won't require scarce resources but abundant ones.....BUT that day is not here yet.

Right now, the price of oil is falling on the belief that "demand destruction" is taking place in the US oil market. The only problem is that "emerging markets" such as China, India, Indonesia while also having slowing economic growth are still sucking up the oil faster than the USA can go into conservation mode.

The only way I see true demand destruction occurring is for China, Indonesia and others to totally eliminate their oil subsidies and that ain't happening. They reason I know that won't happen is because I am slightly familiar with Indonesian politics and I know of the large scale riots and the possible collapse of the government if the government were too quick to eliminate the subsidies. The same thing would happen in China too.

Eventually oil subsidies worldwide will be eliminated but probably at too slow a pace to effect the demand-supply equation.

Any way...I am not too big on oil. I am more of a Natty Gas type of guy like T Boone Pickens. It might be the time to buy some more CHK. I do like the deep oil drillers, though, even though I am not much of a oil guy. A purchase of RIG, KPELY or NOV might be a good thing here.

Of course, also I am big on CBI and FWLT. My number one play though is WGOV. Anything doing with energy efficiency or conservation is or will be in a huge bull market for the next several years which is why I am also looking at MXWL. Some people are interested in batteries but I am more interested in Capacitors. Read here for reason why:

"Technology advantages

Due to the capacitor's high number of charge-discharge cycles (millions or more compared to 200–1000 for most commercially available rechargeable batteries) there are no disposable parts during the whole operating life of the device, which makes the device environmentally friendly. Batteries wear out on the order of a few years, and their highly reactive chemical electrolytes present a serious disposal and safety hazard. This can be improved by only charging under favorable conditions, at an ideal rate, and as rarely as possible. Electric double-layer capacitors can help in this regard, acting as a charge conditioner, storing energy from other sources for load balancing purposes and then using any excess energy to charge the batteries only at opportune times.

Other advantages of electric double-layer capacitors compared with rechargeable batteries are extremely low internal resistance or ESR, high efficiency (up to 97-98%), high output power, extremely low heating levels, and improved safety. According to ITS (Institute of Transportation Studies, Davis, CA) test results, the specific power of electric double-layer capacitors can exceed 6 kW/kg at 95% efficiency [8]

The idea of replacing batteries with capacitors in conjunction with novel alternative energy sources became a conceptual umbrella of the Green Electricity (GEL) Initiative [2], [3], introduced by Dr. Alexander Bell. One particular successful implementation of the GEL Initiative concept was a muscle-driven autonomous solution which employs a multi-farad electric double-layer capacitor (hecto- and kilofarad range capacitors are now available) as an intermediate energy storage to power a variety of portable electrical and electronic devices such as MP3 players, AM/FM radios, flashlights, cell phones, and emergency kits.[9] As the energy density of electric double-layer capacitors is bridging the gap with batteries, it is hoped that in the near future the automotive industry will start to deploy ultracapacitors as a replacement for chemical batteries.

[edit] Transportation applications

China is experimenting with a new form of electric bus (capabus) that runs without powerlines using power stored in large onboard electric double-layer capacitors, which are quickly recharged whenever the electric bus stops at any bus stop (under so-called electric umbrellas), and fully charged in the terminus. A few prototypes were being tested in Shanghai in early 2005. In 2006, two commercial bus routes began to use electric double-layer capacitor buses; one of them is route 11 in Shanghai. [10]

In 2001 and 2002, VAG, the public transport operator in Nuremberg, Germany tested a hybrid bus which uses a diesel-electric drive system with electric double-layer capacitors.[11]

Since 2003 Mannheim Stadtbahn in Mannheim, Germany has operated an LRV (light-rail vehicle) which uses electric double-layer capacitors to store braking energy.[12][13]

Other companies from the public transport manufacturing sector are developing electric double-layer capacitor technology: The Transportation Systems division of Siemens AG is developing a mobile energy storage based on double-layer capacitors called Sibac Energy Storage [14] and also Sitras SES, a stationary version integrated into the trackside power supply [15]. The company Cegelec is also developing a electric double-layer capacitor-based energy storage system[citation needed].

Proton Power Systems has created the world's first triple hybrid Forklift Truck, which uses fuel cells and battery as primary energy storage and electric double-layer capacitors to supplement this overall energy efficient storage solution.[16]"


http://en.wikipedia.org/wiki/Supercapacitor




Rob S
Print the post Back To Top
No. of Recommendations: 0
Print the post Back To Top
No. of Recommendations: 0
Rob,

We should not forget that any change in demand in the US affect global prices in a very big way. Developing countries may be consuming a lot but the consumption is still a fraction of the US or Europe. If US and European economies falter, even briefly, the impact on commodity prices would be huge. Eventually all prices have to respond to a global demand and supply volume and not a few fast growing economies.

I am glad, I sold my most of my metal and oil stocks at a peak, based on my reasoning put forth on this board a while ago. I will get back into them when I perceive that global growth is set to resume. That would be close to the bottom.

You can be certain that there are many scientists around the world working on many solutions that will break the reliance on many different commodities but the big break throughs have not come yet.

This is precisely the reason why I feel the investment into commodities should be capped to a certain level in one's portfolio. Technological shifts taking place regularly are the reason why in the last 100 years commodity prices did not appreciate dramaically and went thru large downcycles. The stocks I would prefer to go would be engineered materials rather than just minerals. And those too only at reasonable valuations.
Print the post Back To Top
No. of Recommendations: 0
The US/Euro connection to market slowdowns is rather hard to call.

China ... they have just begun to touch the domestic market for sales. Only about 3% of the Chinese population have cars. That will jump huge in the next couple years. As will the need for roads infrastructure ... everything.

Now as all the SE Asian countries, S America, Middle East and Russia/Eastern Europe.

The US and Europe will remain major exporters to these countries. Believe the US exports to China for 2000 to 2007 grew 300 percent, from $16 billion to $65 billion; total US exports to the rest of the world grew only 50 percent. I have watched a few programs that clearly showed Chinese love US goods. They look at them as Quality over Chinese made goods (Autos, Clothing, Furniture, design.)

In one documentary they pointed out an interesting fact. I don't remember the name of the firm, but it was an architectural firm that designs five star resorts and luxury condos. The whole design department is headed up by one guy, an American. What they pointed out was they can have 100's of designers and cad operators from China, but they have no idea what to do or design .... none of them has seen a five star resort let alone a one star ... or can invision of what "luxury" means to the wealthy. Interesting point for all areas of upper end products in China.

Another was on the building in the Middle East .... amazing

And then, the food problems .... Interesting fact from another documentary, if the whole Chinese population were to begin eating like Americans .... we would need another planet to grow the food necessary ......

That is a shocker ... and price driver


Bears
Print the post Back To Top
No. of Recommendations: 1
"We should not forget that any change in demand in the US affect global prices in a very big way. Developing countries may be consuming a lot but the consumption is still a fraction of the US or Europe. If US and European economies falter, even briefly, the impact on commodity prices would be huge. Eventually all prices have to respond to a global demand and supply volume and not a few fast growing economies."



That is not a given. I will go with Jim Rogers on this one since he is the most accurate with his analysis on the situation:

"Why Jim Rogers thinks the commodity bull will run to 2022

Jim rogers


Talk of a commodities bubble is balderdash, according to legendary investor Jim Rogers: history indicates that the bull market has at least eight more years to run and may not lose steam until 2022.

And as Nils Pratley reminded Guardian readers, Rogers has proved unusually prescient since he urged others to buy into the old economy back in 1999 when gold and oil were coming off 25-year lows.

But the best bets are in agricultural commodities rather than metals, says Rogers. He singles out sugar, maize and cotton, which are 80-90% below their all-time highs after adjustment for inflation.

“The world has consumed more food than it has produced for the past five years and that’s the first time in recorded history that’s happened,” he says, despite there being no worldwide drought for several years. With supply tight, a replay of the 1970s, when sugar prices rose 47-fold over eight years, is conceivable if supply disruptions occur again.

Not that current favourites such as oil and copper will lag far behind, Rogers argues. “Where is the copper coming from that’s going to drive down the price and keep it down? Where are the mines?” Miners would love to profit from high prices, but new discoveries can take years to bring onstream and short supplies of everything from dumper-truck wheels to oil for lamps prevent them from digging faster.


Rogers dismisses those talking about a bubble as “the same people who missed the move completely and were buying dotcom stocks” when the current bull run began. But he agrees that commodities aren’t a one-way bet in the short-term. A correction – or consolidation, as he prefers – could be triggered by anything from a slowdown in China to a bird flu outbreak in Germany. "

http://www.moneyweek.com/file/13805/why-jim-rogers-thinks-th...


When it comes to oil demand then read this article:

"Emerging Market Oil Use Exceeds U.S. as Prices Rise (Update2)

By Mark Shenk
Enlarge Image/Details

April 21 (Bloomberg) -- Traffic jams in Beijing and humming air conditioners in Dubai are replacing U.S. highways and suburbs as the driver of global oil prices.

China, India, Russia and the Middle East for the first time will consume more crude oil than the U.S., burning 20.67 million barrels a day this year, an increase of 4.4 percent, according to the International Energy Agency in Paris. U.S. demand will contract 2 percent to 20.38 million barrels daily, the IEA says.

Economic growth of more than 8 percent in China and India, coupled with increasing car ownership among the countries' combined populations of 2.45 billion people, will more than compensate for falling U.S. demand. Oil use worldwide will increase 2 percent this year because of growth in emerging markets, the Paris-based IEA says."

http://www.bloomberg.com/apps/news?pid=20601109&sid=a_YCEx7d...


Another thing is I keep a close eye on technology and I will say once again that there is no technology that is currently available that will make a immediate impact on prices.

I will also say again that the type of infrastructure build out necessary to bring enough energy on the market to substantially impact prices requires massive amount of steel.

Maybe this is the reason why Buffett placed a bet on PKX:


http://seekingalpha.com/article/28506-berkshire-discloses-4-...

http://network.nationalpost.com/np/blogs/tradingdesk/archive...

When I hear Buffett considers PKX over-valued, then I will take into consideration that the great commodity bull run might be ending and not before.

When I make these calls I don't just rely on Buffett and Jim Rogers opinions. Because I have been involved with shipping and enery production in general, I happen to know the immense amount of steel, copper and other metals that it takes to construct oil rigs, refineries, ships, nuclear power plants, pipelines, wind mills, solar arrays, etc...

You can't have more energy production without the investment in infrastructure and if you invest in infrastructure, you will use more steel, copper and companies such as BOOM will prosper.

I follow technology more than most and I just don't see anything on the horizon yet. Maybe nanotechnology or fusion power in 15 or 20 years but where is the technology to drop our energy concerns???? I know many don't want to hear that but the magic of technology producing the perpetual motion machine is not here yet:

http://www.phact.org/e/dennis4.html

Chances are that the prices for heating your house, cooling with the Air conditioner and driving your car will continue to go up over the medium and long term. Over the short term the prices will move wildly but no one has shown me the thing that will drive prices down and keep them down.

This past week prices dropped but next week Israel could bomb Iraq and the prices go through the roof again. I am not even going to get into food commodities. That is why I have a investment in CRESY for.

I also don't want to jump in and out of the market just off of my perception of what the short term price movement might do. It might cause me to miss the most rapid appreciation of these stocks.

SLT should be on accumulate. Copper and zinc prices will make big moves upwards in the next several years.

Ok, I got to go back to my ship soon and I got more stuff to read....Later.



Rob S
Print the post Back To Top
No. of Recommendations: 0
Check this out:

http://investor.fluor.com/phoenix.zhtml?c=124955&p=irol-news...

All I see with a article like that is a tremendous use of steel and steel specialty products made by companies such as BOOM. Projects like these are happening all over the place witness the CBI backlog.

I don't care about the short term....Steel use is going up, as are the prices in the medium to long term (about 5 to 10 years).




Rob S
Print the post Back To Top
No. of Recommendations: 0
Print the post Back To Top
No. of Recommendations: 0
This is the reason why I believe things like natural gas and steel will continue up in the long term. Hmmm...seems like they need more steel:


Tight pipe supplies bedevil U.S. energy companies
Fri Aug 8, 2008 1:40pm EDT



By Anna Driver

HOUSTON, Aug 8 (Reuters) - A shortage of steel pipes could disrupt the boom in U.S. natural gas drilling for the energy companies that rely on the tubes to drill and line their wells.

Seamless steel pipes, known as tubular goods in the oil patch, are in short supply after an unexpected resurgence in the North American onshore drilling market.

"The tubular situation is about as tight as we've seen it in the last 20 or 30 years," Mark Papa, the chief executive officer of EOG Resources Inc (EOG.N: Quote, Profile, Research, Stock Buzz) recently told investors.

The jump in natural gas prices earlier this year and the move to tap shale rock formations that were once seen as untenable have triggered a rush to secure tubular supplies, surprising the industry.


http://www.reuters.com/article/marketsNews/idINN084613402008...
Print the post Back To Top
No. of Recommendations: 0
Rob,

Thanks for posting all this wealth of information and taking the time to write detailed comments.

I don't disagree that the demand for most commodities will rise over time. What I fail to get a grip over is by how much is the demand going to rise annually over the next 15 years and what is the latent production capacity of various commodities that could enable meeting the rising demand. Unless this connection is very clear, I would prefer staying with those companies that are using the latest technologies in deploying commodities. This way, one captures the commodity boom with minimum risks. And then again, there are many sectors to the economy that would affect commodities and the related companies. I like the TMF approach of looking for potentially great companies with certain qualities regardless of the sector.

I am open for small speculative plays in commodities though. Any suggestions?

BTW your recommended WGOV is not 58% up from when I purchased. Thanks to you!

Anurag
Print the post Back To Top
No. of Recommendations: 0
I wonder if this is a clear sign of trend to follow in the near future with a global economic slowdown that is now indisputable.


Just my opinion, but I believe the impact of a global slowdown will be more towards individual stocks than commodities.

There are some very big economies out there which only 10 years ago did not exist. They will manufacture so they will consume.

Then there is the "full circle" effect of commodity pricing. Was listening to one of the large commercial farm owners the other day, They were bringing in the corm,

What he pointed out was that Corn became profitable due to the ethanol/oil boom, but the result is fertilizer has gone up making planting corn more risky, so they are going back to soybeans since soybeans require no fertilizer and the China market is huge.

I would guess that situation will reduce the supply of corn for the ethanol producers, moving it's price back up until it is to a point it can cover fertilizer

(one other thing he mentioned is that with the rising cost of fertilizer came the requirement to order the fertilizer early to ensure supply. Fertilizer is delivered COD.

Same cycle will go for the scarcer heavily used metals like copper. Growing consumer base demanding more product means more manufacturing which leads to shortages, price increases lead to further exploration and mining ......... Shades of the 1950's.

Bears
Print the post Back To Top
No. of Recommendations: 0
"I am open for small speculative plays in commodities though. Any suggestions?"

I am bullish on commodities in general but it is rare (or never so far)that I invest directly in commodities. I am more interested in the effects that commodity prices cause and I like to invest in companies that stand to benefit. Eventually, it will be technology that will cause the commodity boom to end but I am always cautious when it comes to new technology because many times the side effects could be worse than the cure.

For instance maybe our food commodity crisis could be solved through the use of technology that can create Soylent Green
http://en.wikipedia.org/wiki/Soylent_Green but I am not sure many people would like that idea.


Right now, I am very interested in ultracapacitors. MXWL is highly speculative and I might buy it if it dips back to around 8 or 9 dollars. Any company that can increase energy efficiency will do very well. Check out what ultra capacitors are and what they do here:

http://www.popularmechanics.com/automotive/new_cars/4252628....
http://www.worldandi.com/subscribers/feature_detail.asp?num=...
http://en.wikipedia.org/wiki/Supercapacitor


Here is a speculative play to buy if one buys into T Boone Pickens energy plan: Clean Energy Fuels Corp. (CLNE) http://caps.fool.com/Ticker/CLNE.aspx?q=clne

I also keep tabs occasionally on Fusion power. Some people think Fusion power is just another perpetual motion machine. Others believe Fusion power can be made commercial within 20 years. If fusion power does become a reality I will be looking for a angle on how to invest in it. Maybe investing in the mining company or the company that produces the equipment for mining Helium-3 from the moon???

More on Helium-3:

http://dvice.com/archives/2007/08/mining_helium_from_the_moo...
http://www.space.com/scienceastronomy/helium3_000630.html
http://en.wikipedia.org/wiki/Helium-3


Rob S
Print the post Back To Top