China and copper

A good report out of Desjardins this morning that goes beyond the headline drop in China copper imports and sees that it's really not that gloomy at all, though let's be clear that the Desjardins position on copper is strong bullish and has been for quite a while. Anyway, the analysis by Redstone & Co stands up to scrutiny, unlike the armwaving "we're all gonna die" feeling out there in the whacky world of markets this morning (you'd never guess that gold was selling at over $1.4k/oz, would yaz?).

Here's the intro blurb to the Desjardins piece, click through here to get your copy of the PDF (it's only 72k, so a light an easy download).

Metals & Mining
 
Seasonality in Chinese trade data -- John Redstone (514) 2XXXXXXXX john.redstone (AT) vmd (DOT) desjardins (DOT) com
 
Impact: Neutral
 
Metal stocks may come under pressure today following the release of Chinese trade data for raw materials for February 2011. In particular, unwrought copper imports for February fell 35.4% mom and 26.9% yoy.
 
Firstly, we should point out that this figure includes imports of copper alloy, semi-fabricated products and unrefined smelter product, as well as refined metal. The import level for refined metal alone will not be released for another two weeks. Furthermore, we would point out that the year-to-date total (ie January plus February imports) is down only 2.4% yoy. The data is distorted by the timing of the one-week Lunar Holiday--which this year fell in early February. In addition, we understand copper consumers temporarily reduced orders before the Lunar Holiday because of the difficulty in obtaining financing for copper, which is currently at historically high prices. We hear that this situation has been rectified and orders have risen sharply in early March.
 
We would suggest that, given the quality of the data, a 2.4% yoy drop is statistically insignificant, ie shipments of copper to China in the first two months of 2011 were roughly unchanged year-over-year. This is in line with our forecast for Chinese copper imports of 2.9 MMT in 2011, the same level as 2010. Consequently, we would suggest that any pressure on the stocks of copper producers that results from this data is unwarranted and presents a buying opportunity.
 
We should also point out that year-to-date iron ore imports into China rose 22.6% yoy. We expect Chinese imports of iron ore to rise 10% in 2011 to 680 MMT. (To view tables, please click on link to pdf attachment below.)
 
Please see the Desjardins research website www.desjardins-securities.ca for complete company specific disclosures, analyst certification and legal disclaimers.

 

Two brokerage notes for y'all: CIBC on Fortuna (FVI.to), Desjardins on Copper

1) Want to know what CIBC thinks of Fortuna Silver (FVI.to) after this week's results and ConfCall? Click here for the note by Brian Quast but don't expect negativity. Apart from his modest price target (which looks likely for review soon), your author agrees with Quast's call here.

2) Desjardins has seen the copper bull very well this past year/18 months and isn't going to start rolling over yet, it seems. Here's how the latest note begins:

"Copper outlook—US$4/lb may be too conservative
"At the risk of sounding like a ‘broken record’, the outlook for the copper market remains extremely strong. We would suggest that the risk is that demand will outstrip supply by an even greater amount than we forecast, driving prices well above our forecast average price for 2011 of US$4/lb."

To read it all, download right here.

Desjardins, bullish on copper

John Redstone and his pals over at Desjardins are still very bullish copper. The Feb 23rd note out of the house was headed up by their "controversial calls" bullet points this way:

• Controversial call #1: Real demand for copper in China is growing at a faster rate than consensus

• Controversial call #2: The level of unreported copper inventory in China is declining at a significant rate

• Controversial call #3: Declining copper inventory in China’s bonded warehouses is a key event

• Controversial call #4: LME copper inventory should decline through 2Q10

• Controversial call #5: Declining copper imports into China should not impact the LME copper price

You can see how the argument develops on each of these points in the full report, available as a PDF download right here. We aim to please.

More Shakespearian copper thoughts

What is it with copper and Shakespeare anyway?

Excuse my personal mania here.

I don't like being a bear on things. It's much easier to be bullish and win friends and influence people and say what everyone wants to hear, because we humanoids are optimistic by nature and look for success, green lights, upwards movements, shiny happy people. But bearish on copper I must be. It's a nice time to quote a bit of Shakespeare, in fact:

This above all: to thine own self be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.

The only problem is that Shakespeare put the words into the mouth of Polonius, a real interfering, medieval dumbass who got what was coming to him on the end of Hamlet's sword.

I digress. Today, this humble corner of cyberspace was sent this link to a report from Desjardins on base metals but headlining their call for copper to move back to $3.00/lb by 2010. Nicely done and all very bullish. Wise saws and modern instances all told in fact, and all very rounded and shinyhappy. The only problem is that I don't buy the argument.

• One reason is that the numbers they use seem to be reverse engineered to fit their preconceived ideas .

• Another reason is that this is exactly what clients of Desjardins would want to read (note bear talk above)

• Another is the talk on scrap metal, which seems to be the latest bull meme doing the rounds. Sorry guys, tightening prices or not the scrap sector doesn't lead the market, it follows it.
  

• Another is what's written in this FT report from yesterday (here's an extract)

He told the Financial Times he expected average (Chinese) urban residential property prices to fall by 40 to 50 per cent over the next two years from their levels at the end of 2008.

“Prices may not fall in the near term but I expect a collapse starting next year, followed by many years of stagnation,” said Mr Cao, known as one of the “three swordsmen” of the real estate market because of his influence as an official economist.

(By the way, that FT report is truly frightening and a must-read). So where's this uptick in end user demand coming from, folks? Detroit? Here below is what I wrote back to the person who kindly sent the link my way. DYODD, dude.

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That's an interesting call from Desjardins. I've been staring at that supply/demand table of theirs and something doesn't seem to add up...seems rather sweeping in its assumptions. esp for SW-EX production. Why should SW-EX jump 10% this year? I can't think of a single reason, in fact. The scrap tightening argument works, but scrap isn't that much of the market in total perentage, either.

Also notable how they hit supply/demand balance of 17.45MMT for FY09. Convenient and very bullish compared to other forecasts. Sure, ICSG is always bearish on this and has called a surplus every year for the last three years, but this time there's plenty of reason to believe we are in surplus.

Next: basic logic suggests that the Chinese stockpile buying is the reason we're at $2/lb. This won't last forever. Desjardins glosses over this by pointing to secondary manufacturing figures, but that's a small % of copper demand in China. Also, nothing is said about the world car industry demand here. That's a glaring error of omission because last time I looked the Detroit trio weren't thinking of upping production schedules...even Toyota is laying off.

The bottom line is that Desjardins THINKS or maybe even WANTS copper to rise and has reverse engineered its report to fit the desired conclusion. Or in other words, it's a pump. A more intellectual pump, perhaps, but it's still a pump.

Corriente (CTQ.to): The difference between rumours started by CFAs and rumours started by anyone else is.....

....that there is no difference.

Remember back on March 11th and 12th when Corriente Resources (CTQ.to) (ETQ) ran up on big volumes? Then remember on March 13th when Desjardins announced that takeover talks between CTQ.to and its 'mystery buyer' (whose name starts with a T, ends with a G and has onglin in the middle...apart from that we know nothing) were well advanced and how the sale would go through in the next two to three weeks?

Well last night we had this from the company:

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Mar 25, 2009 -- Corriente Resources Inc. wishes to advise that, contrary to recent media reports, there are no material developments to disclose regarding ongoing exclusive negotiations for the potential sale of the company that were announced on December 16, 2008.

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And today we have the stock down 6.15% on 350k traded. The big day (and probably the reason why Desjardins started the rumour in the first place) is that the mystery buyer has an exclusivity deal up to and including March 31st, after which the deal is likely to lapse.

And you guys still believe these clowns-in-suits after all they've done to you. I know the saying goes "Fool me once shame on you. fool me twice shame on me", but how does it work for "fool me 100 times"?

What Desjardins thought of PDAC this year

Desjardins published its review of PDAC 2009 today. They diplomatically label it a "less wild party" (you saw the photos sent in yesterday by people that don't have to wear suits and speak prettily, yeah?) and bulletpoint the first page with:

• Industry sees a ‘difficult year ahead’ with a lack of available financing and no new major base metal discoveries
• Review of 4Q08 results released so far; most companies in ‘reasonable’ financial condition at the end of 2008, but metal prices have fallen further so far this year
• Rate of production cutbacks continues to outstrip rise in inventories

Finally, let me point out that I have no idea where you might be able to get a copy of this client-only report and read it yourself, but if you're lucky enough to find one it's a worthwhile good read.