Copper market getting tighter and tighter: Commerzbank

Last Updated : 02 September 2011 at 21:05 IST

NEW YORK (Commodity Online): Copper supplies are getting tighter on higher Chinese imports and copper mine strikes around the world. Decreased availability of high quality ore is also expected to support copper prices.

"Copper is getting tighter and tighter due to supply problems. Not only strikes but also lower ore grades are cutting production, especially in Chile and Peru” said Commerzbank analyst Daniel Briesemann, Reuters reported.

-Data showed that China’s copper imports rose by 8.8% in July. And imports are expected to rise further after the inventories are tapped into and China starts restocking.

-The Copper mine strike at Escondida had caused a 14% in copper production. Possibilities of more strikes around the world especially in Chile (Collahuasi) and Indonesia remain very high.

-Peru’s government is considering increasing mining royalties. This would discourage new investments in this area.

"Recent economic data suggests that global growth could stabilize. Moreover China is starting to import more again. This should Lead to further price gains”, said a Credit Suisse note.

At the London Metal Exchange (LME), copper prices have traded in a range of around $10000 to $8500 for 2011.

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Buffett Tells CNBC 'This Isn't 2008' As Bank of America Gets $5B Loan at Just 6%

Warren Buffett tells CNBC's Becky Quick "this isn't 2008" and that's why Bank of America is getting better terms for its $5 billion loan today from Berkshire Hathaway, compared to what General Electric and Goldman Sachs paid for similar loans almost three years ago at the height of the credit crisis.

Bank of America shares [BAC  Loading...      ()   ] jumped more than 9 percent to close at $7.65 in trading on Thursday.

Buffett is also stressing the investment was his idea, perhaps to downplay any fears that Bank of America is desperate for a cash infusion.

This morning, Bank of America announced that Berkshire will use cash to buy 50,000 shares of preferred stock with a liquidation value of $100,000 per share in a private offering. 

That is, in effect, a loan to the bank, in which it will pay around $300 million in dividends each year to Berkshire.  BofA can pay back that loan at any time, but it will have to make an additional 5 percent dividend payment to do so.

The interest rate on the loan is 6 percent, well below the 10 percent that Buffett got from GE and Goldman almost three years ago, but not at all bad with 10-year Treasuries just above 2.2 percent.

Goldman paid back its $5 billion loan in April of this year, sending Berkshire roughly $1.6 billion in dividends over the 2-1/2 year life of the deal.  That's an annualized return on investment of 12.6 percent.  Warrants that came with that deal are out of the money, with Goldman trading a few dollars below the $115 strike price. Current price: [GS  Loading...      ()   ]  

Buffett had said he didn't want Goldman to buy back its preferred shares, because it cut off the stream of $500 million a year going from Goldman to Berkshire.  He's also indicated he doesn't plan to exercise the Goldman warrants until just before they expire in 2013.

General Electric has said it will pay off its $3 billion loan this October.  Berkshire will pocket a total of $1.2 billion in dividends over that deal's three years for an annual return on investment of 11.1 percent.  Like Goldman, warrants in that deal are also out of the money, with GE trading almost seven dollars below the $22.25 strike price.  Current price: [GE  Loading...      ()   ]

In today's deal, Berkshire gets warrants to buy up to $5 billion of BofA's common stock, 700 million shares at an exercise price of just over $7.14 a share.  It can make those purchases at its discretion anytime in the next 10 years.

That gives Berkshire the potential to become BofA's largest shareholder.  State Street is currently at the top of that list with 460.5 million shares, about 4.5 percent of the bank's outstanding shares.  (Berkshire sold a 5 million share stake in BofA during 2010's fourth quarter.  It had been purchased by the now-retired GEICO stock picker Lou Simpson.)

As was the case with GE and Goldman, Bank of America also gets a strong endorsement from Buffett.  He calls the investment a vote of confidence in both BofA and the United States.

In the release, Buffett says, "Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest in it.  I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them. Bank of America is focused on their customers and on serving them well. That's what customers want, and that's the company's strategy."

Buffett tells us he came up with the idea of an investment while taking a bath earlier this week, and he asked BofA CEO Brian Moynihan yesterday if Berkshire could do the deal.

Why now?  Buffett tells Becky that BofA's shares "have gone down a lot" and the bank is "certain to be around" for a long time.

He says Wells Fargo [WFC  Loading...      ()   ] , a large Berkshire holding, and BofA have the best deposit franchises in the country, and compares today's investment to Berkshire's past deals for GEICO and American Express [AXP  Loading...      ()   ] .

Current Berkshire stock prices:

Class B: [BRK.B  Loading...      ()   ]

Class A: [BRK.A  Loading...      ()   ]

For more Buffett Watch updates follow alexcrippen on Twitter.

Email comments todocument.write("");document.write("buffettwatch"+"@"+"cnbc.com");document.write('');

General Electric has a 49 percent stake in NBCUniversal, CNBC's parent company.

© 2011 CNBC, Inc. All Rights Reserved

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Aluminium to gain as China curtails production on power crisis

Last Updated : 02 September 2011 at 18:05 IST

BEIJING (Commodity Online): Power shortages have forced aluminum producers in the Guangxi district of China to start cutting production in September, causing a 120,000 tonnes production loss in the region.

-The action will cause a decline of 4% of China’s total production capacity and will trip the supply-demand equation from surplus to near equilibrium.

"The cut will also coincide with the start of the peak consumption season in China, thus lending support to prices then. We are also watching the situation to see if it widens to include other Aluminium producing provinces in the region. There are signs that Guizhou may be next”, said Zhang Xin, a metals analyst, Reuters reported.

"If aluminium prices rise high enough during the dry season to offset higher Electricity costs then, smelters may ramp up production before that. But we think that they are likelier to resume full production only next year" he added.

Smelters will possibly start full production only by May 2012 when the rainfall season will result in a higher hydro electricity generation and lower energy costs.

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Mexico closing in on Peru for top silver spot

Last Updated : 02 September 2011 at 19:20 IST

MEXICO CITY (Commodity Online) : Mexico could overtake Peru as world’s largest Silver producer as Fortuna Silver Mines announced starting commercial production from its San Jose silver-gold mine in Oaxaca.

The mine is expected to produce 520,000 ounces of silver and 4,600 ounces of Gold this year and 1.7 million ounces of silver and 15,000 ounces of gold in 2012 at an estimated cash cost of $5.04 per ounce, net of byproducts. Construction capex was $55 million.

Over the weekend, Camimex, the Mexican mining industry group, sent out a news release claiming Mexico has overtaken Peru, according to its own figures.

However Peru mining ministry said based on the latest figures from the U.S. Geological Survey, Peru is the world leader in 2010.

Peru and Mexico are jockeying for bragging rights as the world's top silver producer.

The battle lines are drawn as both nations point to a significant ramp-up in production that will keep them at the top of the Silver heap. Both countries are looking for foreign investment for projects that require big upfront expenses for long-term gains.

It was only in the last 10 years that the bustling mining industry in Peru allowed it to pull ahead of Mexico as the top producer. The two countries supplied about 30% of the world's silver.

Mexico’s Fresnillo is the biggest primary silver producer in the world. Two big Fresnillo mining projects coming online this year should add as much as 155.5 tons to silver production in 2011.

According to GFMS, a leading international precious metals consultancy, as of Nov. 1, global holdings in silver-backed ETFs, or exchange-traded funds, stood at more than 490 million ounces

Anlaysts said demand for one-ounce silver coins is reaching record levels in the U.S. and Canada.

Industrial demand for silver, which is used as a conductor of heat and electricity, and as an antibacterial agent, is also boosting its price, analysrts added.

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