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| Daily Jurojin - Wednesday, June 17, 2009 |
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Wednesday, June 17, 2009 House full of aluminum for sale - any buyers?An increasing number of banks are seeing trade financed by stockpiles of raw materials. After all, piles of iron ore pellets or copper are merely a proxy for money as they work their way from a dusty quarry to an industrial end-user. All that's missing is the final cash transaction. And the Chinese announced in April that they were starting to build strategic reserves of certain raw materials as a way of hedging against the dollar. If the dollar falls, the stockpiles should in theory increase in value.For many companies that deal in converting raw minerals into semi or finished goods, it proves too costly to shutter their factories and idle plant. It takes months to get an alumina factory in a capacity to complete the productive process. So instead of stopping completely they simply run at an idling speed with many these days running at less than half their full capacity. The Federal Reserve on Tuesday said that industrial companies nationwide were running at their lowest level of production since records began in 1967. At a capacity utilization rate of 68.3%, industrial companies could produce 50% more than they currently do. However, such is the state of local and global demand that there simply isn't a need to do so. Blame some of this on the automakers in bankruptcy as they shutter entire factories and idle workers, but the reality is that Chapter 11 happened and their emergence might be some time away and a return to full output simply is not an item on the agenda. Sticking with the theme of strange economic reports, housing starts jumped once again. But just like everyone else we wonder who is buying these new homes. A JP Morgan analysis of the supply of homes on the Californian market suggests that no bottom is in sight for higher priced homes for another two years on account of both the amount already on the market, but also the inability to finance purchases of such homes. It would take until 2011 to clear the current inventory at the current sales pace. So you can see why we greet with some skepticism the optimism expressed on Bloomberg Television in an interview with the chief financial officer at Toll Brothers, when he says that deposits on new homes are increasing, that buyer traffic is returning and it would appear that signs of a bottom are in place. Nope, we have our heads firmly in the sand and we can't see a recovery yet - not with inventories at such a high level, increasing length of days on the market despite the fact that summer is here and still tight lending conditions. Housing starts might have run at a 532,000 annualized pace last month, but with industrial production sinking at the same time and with unemployment likely to continue rising to a double-digit pace through year end at the very least, there will be little respite for manufacturers wanting to add to slack capacity and boost sales. The return to the American dream will be a slow one, punctuated by night terrors on the way. In the meantime, does anyone have a spare room to look after a couple of tankers of copper pellets please? The Supreme Council of the Secret Order of Jurojin |
