Investors are nervous.
Some are taking their profits out of commodities before there is a " turn ". Yet - despite ag stocks and energy stocks not climbing - the underlining commodities remain strong. Even a $10 or $ 20 fall in oil will not make the commodity cheap or more available. Higher rice and grain prices won't prevent most people eating or farmers wanting fertilizer for greater growth. It is reasonable to take some of your profits - but don't expect or live in fear of a market collapse in commodities .
A) Freeport - McMoran Gold and Copper Inc. ( FCX)
Freeport-McMoRan reported record first-quarter profits on Wednesday, April 23 ,despite a drop in production, as worldwide demand pumped up copper and gold prices.
But industry observers said investors worried about whether the slumping American housing market would slow the rush on copper, and Freeport's shares fell $2.57 to close at $116.08 Wednesday, after climbing to a 52-week high of $123.27 earlier in the session.
"There's a lot of skepticism regarding whether copper can maintain these high (price) levels that we're experiencing," said Brian Hicks, co-manager of U.S. Global Investors' Global Resources Fund in San Antonio, Texas. The fund owns Freeport shares.
Phoenix-based Freeport said first-quarter profit more than doubled one year after it bought Phelps Dodge Corp. for $26 billion. Net income rose to $1.12 billion, or $2.64 per share, in the three-month period that ended March 31, compared with $476 million, or $2.02, a year earlier.
Quarterly sales jumped to $5.67 billion from $2.25 billion.
Analysts polled by Thomson Financial had expected a profit of $2.12 per share on $4.69 billion in sales.
"Given the very strong prices for copper, gold and molybdenum, it was a great quarter for us," Freeport Chief Executive Richard C. Adkerson said in a conference call with analysts.
Molybdenum is an element that's used in steel, cast iron, and metal alloys to enhance strength, toughness, and resistance to corrosion.
Freeport's acquisition of Phelps Dodge in March 2007 made it the largest publicly traded copper company. Besides Phelps Dodge mines, Freeport operates the Grasberg mine, one of the world's largest sources of precious metals in Papua, Indonesia.
Copper remains in high demand despite the faltering U.S. housing market because China and India continue to press for more resources. A strike by mine workers in Chile, the world's primary copper-producing nation, also is boosting copper prices.
"The U.S. is a relatively small factor in the marketplace," Adkerson said in the conference call. "The market continues to be very tight globally." ( from The Report on Business )
The shares of Freeport-McMoRan Copper & Gold Inc., like the prices of the two commodities it produces, are near their record high.
Yesterday, Lehman Brothers Inc. raised its share price target on Freeport to $200 (U.S.) from $130 following an increase in its copper price forecasts, according to Bloomberg. The shares closed yesterday at $118.65 after setting a new 52-week high of $121.28.
John Redstone, an analyst with Desjardins Securities, forecasts copper prices will average $3.50 (U.S.) a pound in 2008 and $4 in 2009. Copper traded yesterday at $3.99 a pound on the London Metal Exchange. McMoran
Analysts are also looking for a pickup in copper and gold production at the Grasberg mine in Indonesia and Safford mine in Arizona in the second half of 2008.
"We expect approximately 60 per cent of Freeport's earnings to be generated in the second half due to production volumes below normal operating levels in the first six months of the year," according to Deutsche Bank Securities Ltd.
Freeport is the second largest global copper producer after state-owned Codelco of Chile, but ahead of competitors like BHP Billiton Ltd., Xstrata Plc, Rio Tinto PLC and Anglo American PLC, according to Bloomberg. Copper is expected to account for about 80 per cent of Freeport's forecast 2008 revenue of $21-billion (U.S.).
Deutsche Bank said that Freeport's capital spending program on several mines should peak this year at $2.4-billion and total about $5.2-billion by 2010 before declining to a maintenance level of $800-million from 2012. Freeport could generate about $6.6-billion in cash flow in 2008, said Deutsche Bank.
B) Teck Cominco ( TCK.B) $ 48.26 up .76 ( 1.6 %)
Teck forecast record earnings for itself in the next twelve months
- based on high prices and production of copper and coal.
CEO Lindsay on copper demand :
" Everything we see suggests that things are going to keep going and that there is not that much connection to any recession in the U.S. "
Secondly the Company expects to announce a new plan for the recently suspended Galore mine - which is a copper - gold -silver project in B.C.
On coal - the CEO said the Company has the financial capacity to make acquisitions and is looking at opportunities around the world.
... we think copper is going to stay tight
These two stocks and their similar take on continuing global growth are a more accurate reflection of a strong commodity demand than rice riots - and deserve more attention in your portfolio selections.
Jack Bass is the editor of the stock market letter The Apprentice Millionaire Program availavble at www.amrogram.com
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Further comments on the
Further comments on the issue of a commodity roll over in oil :
CIBC World Markets Forecast :
Much smaller net production gains than we previously forecast now point to a more rapid escalation in crude prices over the next several years, with prices likely to soar to an average of US$150 /bbl by 2010 and continuing to rise to over US$200/bbl by 2012. We have reduced our estimates for net global supply increases by nearly 1 mn bbl/day for the 2008 through 2010 period, and by over half a million barrels for the two years after that, leading to a discernibly tighter oil market than we had previously projected
At the same time, there is little evidence to suggest that there is any compensating reduction in global demand growth. Instead, aggregate crude demand remains robust as burgeoning demand for crude oil outside of the OECD, and in major oil-producing countries in particular, has more than offset demand destruction in OECD markets. Juxtaposed against more limited supply gains, the resilience of demand in developing countries points to increasing global competition for increasingly scarce oil resources.
Jack Bass is the editor of the market letter The
Apprenice Millionaire Program available at www.amprogram.com