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Monday, July 17, 2006

Back to Basics

By William Trent, CFA of Stock Market Beat

News and Commentary on Basic Materials:

Rising commodity prices have led to a flurry of new production announcements. However, some of them appear to be incremental - not enough to significantly add to supplies and hurt prices. And that doesn’t count any benefit from global turmoil.

Iran’s annual copper production to reach 440,000 tons by 2010. Yet Copper Rises on Speculation Output at Escondida Mine May Drop:

Copper rose in London, heading for a third consecutive weekly gain, on speculation that a pay dispute at the world’s largest mine producing the metal may curb output and worsen an expected global shortage of supply.

Watch List member Glamis Gold Ltd. (GLG) recently revised its gold production guidance for 2006, primarily due to mechanical difficulties experienced at its new Marlin mill facility in Guatemala. Glamis now expects to produce approximately 620,000 ounces of gold for the year, up 43% over 2005 production but below previous guidance of 670,000 ounces.
Ghana gold output seen up to 2.6 mln oz in 5 years.

Ghana’s gold production is set to rise to at least 2.6 million ounces in the next four to five years from 2.1 million in 2005, driven partly by the high gold price, the country’s industry regulator said.

“The price of gold has contributed to it significantly…it will be 2.6 million ounces within the next four to five years. If the gold price is sustained, it will be higher still beyond that,” Benjamin Aryee, chief executive of Ghana’s Minerals Commission, told Reuters late on Thursday.

24 percent growth in production over five years is not going to make a significant difference in the gold price, even if every producer managed to do it. However, China’s gold production rose 12% in 1st half of 2006. But it may just go into its gold reserves.

The opening of an office in Shanghai to help manage China’s foreign exchange reserves could accelerate its long-awaited diversification into assets such as gold and overseas equities, economists said on Tuesday.

Calls for China to wring higher returns from its hoard, believed to be invested mainly in low-yielding government bonds, are rising almost as quickly as the reserves, which an official newspaper has said swelled $30 billion in May to $925 billion.

Steel producers are raising prices:

Africa’s leading steel producer, Mittal Steel South Africa, has released details of yet another set of price increases from August 1, following hot on the heels of the average 5,4% flat-steel increase effective July 1.

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