Author Archives: Taras Berezowsky

Earlier this year, a friend of mine mentioned that platinum, palladium and titanium are all the rage because of their strength-to-weight ratio and, well, that’s just what’s “in right now. If I was to go the more traditional route gold she told me to wait until the gold price dipped under $1,000 an ounce. (As most of us can see, that doesn’t look like it’s happening in the near term.)

However, my friend is not a trader or adviser. She’s a metalsmith and jewelry designer. I’m not a metals producer, buyer or speculator. No, folks, I am in a different market altogether.

I’m in the market for a wedding band.

You see, I’m getting married next summer. Having already made the proposal-and-engagement-ring leap, I am now beginning to think about what type of wedding band I should be buying. And although I know what I can afford (and will likely end up purchasing), the occasion gives rise to ponder: What are some metals other than gold that could really perform well in the future? Any “sleepers that would make a great investment?

With the Financial Times reporting this morning that jittery speculators have pushed the price of gold above $1,420 an ounce, now seems a good time to think outside the box when it comes to wedding bands.

Over a series of posts, I will lay out a look into particular metals that may perform well in the longer term. I do not intend on, nor do I foresee, having the need to cash in on my investment; but it could pay out to consider the classic go-to mantra, “Buy Low, Sell High. A more pertinent question: what if I lose the damn thing? If that were to happen, a simple cost analysis of the current precious metals market now could surely pay dividends later.

Stay tuned, as they used to say.

–Taras Berezowsky

Will we see aluminum prices suffer because of oversupply issues? Several analysts are saying no, and Harbor Aluminum’s recent conclusions on the topic point otherwise.

Sucden Financial recently released their quarterly base metals report, with a spotlight on aluminum, copper and tin activity. Brenda Sullivan, Sucden’s head of research, spoke with Reuters Insider reporters and underlined that both aluminum and copper are bucking their longer-term downtrends and moving upwards.

Aluminum and copper have both seen historic price increases in the wake of the Fed’s decision to buy up treasuries to the tune of $600 billion over the next several months. The aluminum cash price hit a high around $2,500 before the weekend.

Source: LME

Sucden is forecasting Q4 prices for aluminum to remain in the $2,000-$2,500 range.

Whether this remains a sustainable trend remains to be seen. Volatility has been higher, with spreads tightening, much of it due to supply-side issues. One reason aluminum’s price rise may be short-lived (or, at the very least, illogical) is that warehouse stockpiles are larger than producers would like them to be.   According to an article in Aluminum Investing News, “the amount of aluminum stored in warehouses has climbed to a 32-year high.   In the past year alone aluminum stocks have risen 25 percent, paradoxically futures prices are up 67 percent. Between 2000 and 2009, aluminum demand grew 38 percent, compared to 20 percent across other metals. However, supply has outpaced demand by 6 million tons since 2007, said William Adams, an analyst for basemetals.com.

Going back into the world of ETFs for a moment, Steve Hardcastle, head of client services at JPMorgan Commodity ETF Services, seems to share the view of aluminum perhaps not making the most sense in the ETF market. “The aluminum fundamentals are by no means bullish,” he said in a Reuters report. “I cannot see that aluminum would be a particularly attractive investment for the ETC client base. It would be a very welcome introduction of somewhere else to park this surplus aluminum.”

But with global demand still pulsing (as opposed to domestic demand here in the US, what with the residential construction sector still sluggish) it may be hard to downplay the notion that aluminum prices have room to rise. In contrast to the above views, which downplay aluminum’s potential increases, Harbor Aluminum’s recent outlook seems more a rosy one.

Although we cannot republish these findings in detail, we can report that Harbor expects the developed world to do better than feared, and tightness in the scrap market and the launch of the new ETFs to buoy aluminum demand.

–Taras Berezowsky

For more information on Harbor Aluminum’s research and reports, click here.

A lot of things have been going wrong in the marketplace for Rolls Royce. Their share price fell a bit more than 5 percent today on the LSE in the aftermath of Qantas grounding their half-dozen Airbus A380s. But stock price seems a more near-term hiccup as opposed to the potentially systemic failings of their jet engines. The malfunction may came down to a rather small but not insignificant metal part upon which the propeller is mounted: the rotating spline.

Splines are defined simply as a series of grooves that fit into a shaft to transfer torque:

Source: Perry Technology Corporation

The real issue at hand in the Qantas accident may be the wear and tear noticed on the splines. Aviation Week reported that an airworthiness directive had been issued for Rolls’ Trent 900 engine back in January by the European Aviation Safety Agency.

“As the shaft-to-coupling spline interface provides the means of controlling the turbine axial setting, the wear through of the splines would permit the IP turbine to move rearward¦This rearward movement “would enable contact with static turbine components and would result in loss of engine performance with potential for in-flight shut down, oil migration and oil fire below the [low-pressure] turbine discs prior to sufficient indication resulting in loss of [low-pressure] turbine disc integrity, the article explained.

Clearly, metal factors into the airline industry, in several industrial metals that we cover play crucial roles. Jet engines are made from various alloys of steel, stainless steel, nickel, aluminum and titanium. In fact, according to Rolls Royce’s Web site, the fan containment system in their engines is the first to be manufactured from titanium and does not need the additional Kevlar wrap (which has become more common than the alternative, fiberglass), making it a lighter and smaller system.

In recent years, there has been a significant rise in the demand for titanium and titanium alloys. The price of commercially pure titanium (CP) has risen sharply since 2003, from $15.00 per lb to $50.00 per lb., according to All Metals & Forge Group.  The price remains up as we head into 2011.

Source: InfoMine.com

But Rolls has been under fire for the performance of a number of their latest products. On Aviation Week’s Things With Wings blog, Robert Wall reported that Rolls has experienced several setbacks with their Trent 1000 engine, among other things.

To put this into context, Rolls is the world’s second-largest jet engine manufacturer, and the majority of Airbus’s A380 line uses the Trent series engine.  (The company supplies to Lufthansa and Singapore Airlines as well.) If engine manufacturers like Rolls continue to experience trouble with their products, what could it mean from a design and development perspective using metals? Only time will tell, and we’ll keep an eye on it.

–Taras Berezowsky

Sure, rare earths have been in the news a lot lately (check out Lisa’s May 3 and Sept. 28 posts), but with China conditionally restricting exports, recycling those metals embedded in old mobile phones has been a relatively undercovered angle in the rare earths ‘big picture.’

NPR’s Marketplace interviewed our own Stuart Burns for his take on the issue — one that may prove to be crucial in the longer term. Burns has been at the forefront of rare earths analysis over the past year, having written several posts and spoken at a rare earths conference earlier this year.

Take a listen by clicking below:

Stuart Burns on NPR’s Marketplace – Searching for rare earth minerals in ‘urban mines’

I think it’s safe to bill Nov. 3 as “Double-Whammy Wednesday.

While the Republicans are basking in the first day of their win of the House in U.S. elections yesterday, the Federal Open Market Committee made a watershed announcement earlier today to undergo another round of QE. The Fed will buy up $600 billion in bond assets by the end of the second quarter of 2011, according to their press release.

The total amount is $100 billion more than predicted by most economists, and will very likely spur commodity prices upward.

Due to speculation that QE2 was looming, the dollar has lost about 7 percent against a basket of currencies over the past two months, according to an article in a Reuters report. Bill Gross, manager of the world’s largest bond fund PIMCO, told Reuters in a separate article on Monday that “the dollar risks losing 20 percent of its value over the next few years as a result of further heavy spending by the Fed. Against the Euro, the dollar has been steadily decreasing leading up to the Fed’s decision, as the chart below shows:

Source: www.infomine.com

If the dollar weakens further, metal prices will almost certainly rise. Certain metals have experienced significant appreciation, and there’s no reason to think copper, for example, won’t go up due to a weak dollar and the existing supply-demand landscape. Upward trends will likely continue:

Source: www.kitco.com

From a metals standpoint, copper and aluminum are sure to lead the way now that the Fed’s stimulus will likely drive the dollar’s value down. Frank Lesh of Future Path Trading in Chicago, as quoted by Reuters, said, “With the right news, I think copper wants to trade back to $4.00 (per lb). Initially, a lot of free money would buoy prices. The more free money, the better.

Although it has been reported that Fed chairman Ben Bernanke doesn’t seem concerned over inflation, the threat is hardly gone. According to the Fed’s release, Thomas M. Hoenig, the only member on the committee voting against the policy, cited concerns over long-term inflation. Many investors are leery, to say the least.

Such inflation fears pervade the global marketplace as well. The UK, says Bloomberg’s Matthew Lynn, must be extra cautious. “The U.K. central bank should forget about printing more money through the purchase of securities, he writes. “That is the last thing the economy needs. Instead, it should concentrate on the real problem: an inflation rate that is fast getting out of control. The rest of Lynn’s article highlights the danger the U.S.’s economy could find itself in very soon.

–Taras Berezowsky

It seems the gold rush is slowly working its way up again.

With an already weak dollar, QE2 around the corner and the price of gold at around $1350 per ounce”and few signs of letting up”certain market watchers and product providers are pointing to these factors as the main reason to invest in gold and other precious-metal securities.

Indeed, if QE2 goes through, many analysts say that gold prices will spike sharply.

One of the liveliest (and certainly lesser-known, at least in some U.S. markets) ways to invest in precious metals is with commodity ETFs. Now, one of the world’s leading promoters and issuers of these funds, ETF Securities (ETFS), is making a run on U.S. markets. More on ETFS’s performance can be found here.

On Nov. 2, at a precious metals briefing in Chicago, ETFS made their bid to prove to Chicago investors the global importance and potential value of investing in precious metals “baskets”bundles of precious metals securities”in this economy.

“At $1300 an ounce, is the price of gold really expensive? No, it’s not! said David Hightower, president and co-founder of The Hightower Report and a speaker at the briefing. “Just shows that times are changing.

In his view, gold’s market price should match the cost of production. By inducing another round of quantitative easing, Hightower later said, the Fed is extending the gold market for the future.

But what do commodity ETFs mean for metals buyers? In terms of gold and silver, probably not much. However, as far as platinum and palladium prices go”and even more importantly, base metals such as copper and aluminum”key developments are on the horizon.

After already introducing physically backed gold ETFs in the U.S. (traded on NYSE Arca), ETFS is set to introduce base metals baskets soon. When MetalMiner asked Nicholas Brooks, Head of Investment Research and Strategy at ETFS, when to expect an announcement on physically-backed base metal baskets, he kept mum.

As we look to watch metals such as copper and aluminum trade on ETFs, the biggest concern is when, not if, inflation will hit. The implications for buyers may be huge.

With Bernanke playing with QE fire the second time this decade, folks such as Hightower see no way around it. “In my 30 years of experience, he said, “I have not seen such a loaded macroeconomic setup for inflation, and politicians think they can stop this.

Regardless, it behooves investors and metals buyers to be educated on commodity ETFs so that they not only are aware of the risks, but of the potential rewards. Firms such as ETF Securities want to spread the word to buyers that the terms “commodity and “ETF, when used side-by-side, will no longer sound as opposite as oil and water.

–Taras Berezowsky

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