A Cup of Tea 03 Aug'10

U.S. stocks closed at their highest level in 10 weeks on Monday, Dow Jones Industrial Average surged 208.44 points, or 2 percent, 10,674.38. Stocks rallied, sending the MSCI World Index to an 11-week high, oil surged above $81 a barrel and Treasuries fell following better-than-estimated earnings and growth in U.S. manufacturing and construction spending.

The July manufacturing PMI for the US came in at 55.5 from 56.2 in June and above the 54.7 expected by economists. Any score above 50 indicates growth in the manufacturing sector. U.S. construction spending unexpected increased 0.1% in June compared with a 0.7% loss expected. Growth in Europe’s manufacturing industry accelerated more than previously estimated in July, indicating an export-led recovery maintained its momentum. A gauge of manufacturing in the 16-nation euro region increased to 56.7 from 55.6 in the previous month.

TIN
Tin, the best performing industrial metal this year, climbed to the highest level since September 2008 as shrinking inventories signaled steady demand. The metal ended up $380 at $19,880 a tonne. LME inventories of the metal used in packaging solder and cans have shrunk 43 percent this year to 15,370 tons, the lowest level since June 2009. Exports of tin from Indonesia, the world’s largest producer, dropped 16 percent this year. Outbound shipments fell 25.7 percent in June from a year ago.

Tin continues to provide one of the most robust fundamental pictures across the base metals complex, in 2010 and in 2011” due to a “clear global market deficit. The shortage is due to falling production in Indonesia and robust consumption in Japan and, to a lesser extent, in Europe as manufacturing and electronic sectors increase output after the crisis. With falling production in Indonesia and better ISM data, I believe tin prices will rise above the key $20,000 a tonne level as soon as this week, and would surge to its record high of more than $25,000 in 2011.

Nickel
The base metals have recovered from the depressed levels of early June with prices trending higher in July. Concerns about sovereign credit risk in the euro zone and the uncertain impact of monetary tightening in China drove nickel prices lower by almost 35% in June 2010. However, a series of strikes, project delays and production problems have hurt nickel production in recent period. LME inventories have dropped by about 25 percent to five month low at 116,778 tonnes as on 30th July 2010. All these factors are supporting nickel and we expect LME nickel to touch $22,000-23000 in near term. Last night Nickel closed higher at $21875.

Crude Palm Oil
CPO Ends Up 2.1% amid Broad-Based Rally in Commodities; Higher Exports. Overseas buying in the cash market and slow growth in output supported prices and counterbalanced the ringgit's rally, which is bearish for prices. CPO rallied as crude oil prices rose as much as 95 cents to $79.90 a barrel in Asia.
Malaysia's palm oil exports in July reached 1.40 million to 1.41 million tons or 4.4%-4.7% higher than the June figures issued by cargo surveyors Intertek Agri Services and SGS (Malaysia) Bhd. Data from SGS showed Pakistan's palm oil purchases from Malaysia rose two-fold on month in July to cover demand for Ramadan, the Islamic holy month of fasting.

With La Nina weather now underway, recent heavy rain in several oil-palm growing regions is already hurting output growth, although it is likely to boost yields in the future. Analysts at the investment bank forecast cash CPO prices to gain 15%-20% this year as biological yield stress caused by dry weather earlier this year hurt production.

My View
I am still bullish for both sector. I had buy and hold recommendation for mid term investment.

Consensus Target Price for Metal and CPO shares








Bang Juntri
DISCLAIMER: This report is issued by Bang Juntri. Although the contents of this document may represent the personal opinion of Bang Juntri. We cannot guarantee its accuracy and completeness.