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The molybdenum canary just died
Old 07-14-2015, 11:19 AM   #1
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The molybdenum canary just died

Molybdenum Oxide, used in high strength steels has fallen this week by 30% to a multi-decade low of $4.20 per pound.

I feel this means world growth figures are not quite as good as we have been told, if demand is that low.

Anyway it will be interesting to see how earnings go over the next few quarters.

I wouldn't want to be a molybdenum miner...cost to produce is over $9 per pound for most of them.
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Old 07-14-2015, 11:23 AM   #2
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I like the sound of long-term lows. Might be time to buy some ArcelorMittal.
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Old 07-14-2015, 11:24 AM   #3
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Well, this low price is obviously not sustainable, unless there is already a stockpile that can last a few decades.

When can we start to buy?
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Old 07-15-2015, 05:22 AM   #4
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I like the sound of long-term lows. Might be time to buy some ArcelorMittal.
I thought so two years ago. Still own them.

Today it's 20% lower still. So .. throw good money after bad

I'm sure tempted.
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Old 07-15-2015, 05:41 AM   #5
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The same thing is reflected in metallurgical coal (coke) prices.

coking coal prices metallurgical coal steelmaking costs

http://www.eia.gov/coal/news_markets/coal_price.cfm
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Old 07-15-2015, 06:10 AM   #6
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Baltic dry index is recovering though (slowly).
BDIY Quote - Baltic Dry Index - Bloomberg Markets

Seems issue is only on the input side (mining) then? Steel volumes worldwide are also rising (1 - 2% per annum).
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Old 07-15-2015, 05:42 PM   #7
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There are others who know far more about it than I do, but it is my impression that part of the severe drop in the Baltic Dry Index can be attributed to an oversupply of new hulls. The sky high shipping rates of 2007 and 2008 sparked a frenzy of new ship construction, and that oversupply condition may take many years to work off.
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Old 07-15-2015, 07:53 PM   #8
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In the years of 2003-2008, the Chinese build-up caused a shortage of everything: iron ore, copper, silver, steel, phosphate, fertilizer, cement, coal, oil, even semiconductor wafers to build solar cells, etc... I got a 3x portfolio increase, from a personal bottom due to being tech stock heavy in 2000-2003, by being overweight in the material stocks. Just thinking about those years brings tears to my eyes.

The demand caused producers to trip over themselves to open up more mines, build more ships, more factories, more oil rigs. And now they are all dressed up, with no place to go.
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Old 07-15-2015, 08:15 PM   #9
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In the years of 2003-2008, the Chinese build-up caused a shortage of everything: iron ore, copper, silver, steel, phosphate, fertilizer, cement, coal, oil, even semiconductor wafers to build solar cells, etc... I got a 3x portfolio increase, from a personal bottom due to being tech stock heavy in 2000-2003, by being overweight in the material stocks. Just thinking about those years brings tears to my eyes.

The demand caused producers to trip over themselves to open up more mines, build more ships, more factories, more oil rigs. And now they are all dressed up, with no place to go.
Agreed. However, different bits are in different parts of the cycle. Hard to see iron ore prices rebounding for a while, for example. O&G I will leave up to the reader. Dry bulk ships are an open question. There are numerous shipyards on the brink of serious financial trouble because there are simply too many yards. Meanwhile owners have been scrapping ships at a record pace this year. It is possible we will see a sustained recovery in dry bulk rates before long. After all, it happened for tankers long before anyone guessed and now both dirty and clean tankers are printing money.
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Old 07-15-2015, 11:07 PM   #10
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This explains why my Molybdenum deposit has tanked from 8 cents to zero cents for the past year or two....

So much for a hot tip....
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Old 07-16-2015, 10:23 AM   #11
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I got out of dry ship companies a few years ago, and kept only the ETF SEA as it is more diversified. Then, sold it too 6 months ago, and stopped following this sector. Just now looked at SEA again. It recovered, then dropped further, and just recently recovered back to where I sold. This of course roughly corresponds to the Baltic Dry Index movement.

So, the $10K question is, is this recovery for real or will I be fooled into throwing good money after bad?
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Old 07-16-2015, 10:41 AM   #12
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I got out of dry ship companies a few years ago, and kept only the ETF SEA as it is more diversified. Then, sold it too 6 months ago, and stopped following this sector. Just now looked at SEA again. It recovered, then dropped further, and just recently recovered back to where I sold. This of course roughly corresponds to the Baltic Dry Index movement.

So, the $10K question is, is this recovery for real or will I be fooled into throwing good money after bad?
Your guess is as good as anyone else's. I think the more obvious play is in tanker companies. Day rates have gone nuts (especially for VLCCs and clean/products tonnage) and it is not reflected in the shares of the firms that own the ships. I expect a lot of upward revisions of analyst estimates in the next few weeks followed by a loud, optimistic earnings reporting season.
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Old 07-17-2015, 08:56 AM   #13
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Day rates have gone nuts (especially for VLCCs and clean/products tonnage) and it is not reflected in the shares of the firms that own the ships.
Do you know whether most companies act on the spot market and how easy / planned it is to increase capacity in the market?

I have shares in one rather small dry bulk shipping company, been waiting for the rebound three years now.

Been interesting following their press releases. It started with "we have long term contracts", then it became "scrapping is high, and we are in a strong position for the rebound", to "the rebound seems to be happening", and most recently "historical lows, but we have cash to survive the storm".
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Old 07-17-2015, 04:34 PM   #14
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Do you know whether most companies act on the spot market and how easy / planned it is to increase capacity in the market?

I have shares in one rather small dry bulk shipping company, been waiting for the rebound three years now.

Been interesting following their press releases. It started with "we have long term contracts", then it became "scrapping is high, and we are in a strong position for the rebound", to "the rebound seems to be happening", and most recently "historical lows, but we have cash to survive the storm".
Different companies have different appetites for spot vs. long term charters. The downside to spot charters is that spot rate volatility makes equity volatility look like a concrete surface. The downside to long term charters is that you generally have to accept lower rates and you have to evaluate counterparty credit quality very carefully (if your charterer goes bust after rates have crashed you are hosed with a long term charter). In practice, most companies try to operate with a mix of spot and long term charters. When rates are very low, though, you will usually see very little interest fro the owners in locking in long term rates.

Dry bulk rates are rebounding strongly, but they are still at modest levels for now. You can see spot rates here: DryShips Inc.

Tanker rates have gone gonzo. VLCCs on the biggest benchmark route (ME Gulf to Japan) are getting just about 100k/day, for example. Its a little tougher to source tanker rates. Best way to follow it is to read weekly shipbrokers reports at Hellenic Shipping News: Weekly Shipbrokers Reports | Hellenic Shipping News Worldwide

I get the impression that shipping stocks in general are starting to attract interest from the hoi polloi again. I think it is much easier to make a fundamental case for tankers than bulkers. All sectors of shipping are prone to boom-bust cycles, so these generally are sectors you should be prepared to jettison when everyone loves them. "Market rallies are like sex: just when it starts to feel the best, it is about over."
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