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Risk appetite firmed over the week with equities benefiting from better than expected corporate earnings data, improving investor confidence, technical buying on resistance levels and an International Monetary Fund upgrade to global growth forecasts for 2010. Gold, like equities, also rallied whilst volatility, measured by the VIX index dipped again after temporarily spiking on poor jobless data from the 2nd which sparked last week’s decline.
Oil also stabilised near $60 after a brief sell off but remains rangebound with improving global sentiment offsetting growing US inventories.
Risky asset prices are not yet stretched (RSI) following the week’s progress and with most key corporations surpassing earning predictions further gains can not be ruled out in the short term.
S&P 500 Daily Chart
SPY Daily to 17th July 2009
Gold Weekly Chart
Gold Weekly Chart to 17th July 2009
Crude Oil Weekly Chart
Crude Oil Weekly to 17th July 2009
VIX Weekly Chart
VIX Weekly Chart to 17th July 2009
International Ferro Metals (IFL) is one of the lesser known commodity plays listed on the London Stock Exchange. The firm is one of the leading global producers of ferrochrome, an essential ingredient in the manufacture of stainless steel. Commodity geeks will cite 18% of stainless steel consists of chrome. I am in no position to argue.
IFL’s mine and processing operations are located near Johannesburg, South Africa. The firm proudly states its cost ratio resides in the lowest quartile relative to like-for-like producers encouraging commodity investors to dig a little deeper and in search of further reasons to invest as the global economy recovers, and with it presumably demand for steel. In fact steel is arguably the most cyclically sensitive commodity based asset and production data from the company not only reinforces this view but puts in total clarity the vulnerability of chrome producers to the ebbs and flows of fast changing global demand.
Production in the 3 months to end of June totalled 18,437 tonnes compared to a painfully low 1,168 tonnes in the previous quarter. That data at first glance implies a business back to normal level of output, until a year-on-year comparison is made. In the same quarter a year earlier the production was 56,608 tonnes. Production does not, of course, always equate to sales and the volatility in revenue as also startlingly varying from 10,484 tonnes in Jan-Mar 2009, to 89,091 tonnes during April-June 2008.
The next inevitable question addresses current inventory levels. I predict a lot more picks and shovels are now being put to work. As at the 30th June, the firm had less than 9,400 tonnes of ferrochrome ‘on the shelf’ for sale. That is a lower level of inventory than was sold in the catastrophic depths of the global recession during the first three months of 2009.
Elsewhere on the balance sheet cash levels remain adequate, the firm clearly has a skill for controlling output and therefore costs and it’s certainly one for the watch-list.
Chief Executive David Kovarsky added the following statement to the firm’s production update: “The furnace restart in April to monetise our inventory went very smoothly and we are on track to achieving our production target for this three month campaign. We are encouraged by the perceived improvement in market conditions, specifically by the increase n ferrochrome demand and spot prices as a result of the Chinese stimulus programme. We will continue to monitor the market to assess global inventory levels, demand and pricing going forward. The combination of our healthy cash balance and recently upgraded facilities means that IFL can respond quickly to a sustained increase in demand.”
He makes it sound so easy.
The Goldman Sachs Commodity Index (Agricultural), highlights a dominant chart pattern with prices at the bottom of a clearly defined channel. Inflationary pressures have already returned in energy markets. Most analysts questioned by TradingHelpDesk predict foodstuffs are next in-line.
Weekly Agri to July 1st 2009
