Base Metals Prices Spiking After China Earthquake

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In addition to the massive human tragedy from the earth quake in China, base metals prices are jumping in the futures markets as China shuts down zinc and aluminium smelters. Bloomberg reports that, “Bosai Minerals Group Co.’s 120,000-metric ton aluminium smelter has halted output since the 7.9-magnitude tremor hit western China three days ago. Sichuan Hongda Chemical Industry Co.’s 100,000-ton zinc plant also stopped production.”

As we wrote a few months ago in the Australian Small Cap Investigator, China’s days of being a large aluminium producer are probably numbered. Aluminium is energy intensive, and we production migrating to the Middle East, closer to sources of abundant energy (and increasingly abundant demand).

In any event, look for an increase in alumina prices (Rio Tinto reckons demand will grow by 8% this year). And look for the bauxite market to heat up in Australia and Guinea, the two biggest owners of bauxite deposits in the world.

And keep an eye on Alumina (ASX:AWC) shares, too. We asked our technical analyst Gabriel Andre to take a look this morning. If the stock can summon the energy to beat resistance at $65, it would establish, perhaps, some new bullish momentum. The old momentum is visible in the old trading channel. But this is old news Gabriel says. The stock has traded out of it for so long that a break through $65 means a new kind of dynamic altogether.

Chart: http://www.dailyreckoning.com.au/images/20080516DRB.png

 

By the way, if you thought China was slowing down, Bloomberg reports that factory spending was up 25.7% in the first four months of the year. “Fixed asset investment in urban areas rose to 2.8 trillion yuan (US$400 billion).” That figure reminded us of the chart below, taken from Rio chief Tom Albanese’s recent presentation in London.

Chart: http://www.dailyreckoning.com.au/images/20080516DRC.png

 

Dan Denning
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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