Japanese nuclear situation interviews

Again the power of social media reveals itself.  There is a multi part interview series here
http://georneys.blogspot.com/2011/03/third-follow-up-interview-with-my-dad.html
of a retired Navy and civilian nuclear engineer which I highly recommend you listen to.  He does an excellent job laying out the facts of what we know and don't know as time has progressed through this emergency.

I'm not going to comment/report/speculate on the current news of the moment regarding the nuclear situation in Japan as its changing so often and right now the news flow from Japan is sparse as it is night time over there.  In a few hours we'll have another update on what is going on.  If you listen to the interviews above you can get a sense of the unfolding situation and how Mr. Mervine predicted the fuel rod storage problem.  Hopefully the 3 active plants will be successfully cooled down and the fuel rod storage situation in the 3 (#4,#5,#6) non active plants will be contained.

You can follow the blog's author on Twitter at:
http://twitter.com/#!/GeoEvelyn

Real time Geiger counter in Tokyo

While trolling around the internet attempting to find hard data on what sort of radiation levels we are seeing in Japan I found this site where someone is graphing radiation levels in real time in Tokyo.
 http://park18.wakwak.com/~weather/geiger_index.html

The site is in Japanese but you can translate it using google translate or other services available on the web.   While the graph shown does show an increase in radiation levels it is only ~4 times the background level which is very minimal.  This is good news compared to the other reports coming out of Japan regarding the radiation leaking from the stricken nuclear plants.  It is important to get factual data about what sort of radiation levels are being detected and where and unfortunately it has been hard to find so far.

 If you can pass along any quantitative data I'd appreciate it.


ht: http://bravenewclimate.com/2011/03/15/fukushima-15-march-summary/#comment-115804

News and Photos of Japanese destruction

The news and photos out of Japan are incredibly powerful.  Here's a bit of what I've found:

http://totallycoolpix.com/2011/03/japan-hit-by-massive-earthquake-and-tsunami/
http://totallycoolpix.com/2011/03/the-japan-earthquake-and-tsunami-aftermath/

The site fades in and out and I'm guessing it is due to massive traffic to the site. The photos are stunning. Here's a few samples:

While I have not heard anyone separate the damage between the two events it appears the tsunami did more damage. I was watching CNN a few minutes ago and the official body count is approximately 1,600 but they have just found another 2,000 bodies so I'm certain the toll will rise as the days progress.

Video:

Keeping up to date:  There are some English based news sources in Japan

http://www3.nhk.or.jp/daily/english/index.html

On Twitter:

https://twitter.com/W7VOA - Voice of America reporter on the ground.

Nuclear power plant situation:  This is an ongoing event and so separating the facts from rumor or speculation is a challenge.  What we know right now is there have been explosions at  Fukushima Daiichi plants #1 & #3.  Before you panic it appears this was due to the venting of hydrogen from the inner core which mixed with oxygen and exploded.   When the earthquake hit the nuclear power plants immediately shut down by dropping their control rods.  The problems started when the backup generators failed due to the tsunami and could no longer run the pumps cooling the reactor cores.  (Even after a shutdown there is a massive amount of residual heat which must be shunted away from the core)  In an attempt to prevent the central core from breaching they vented gas to bring the pressure down and release heat which then released the hydrogen and it blew off the exterior structure.  

 So far it appears the main central core which actually holds the fissable material is still intact.  Fortunately the prevailing winds are blowing any radioactive gas east offshore and into the ocean.  Right now they are flooding #1 reactor with seawater and boric acid to cool the reactor.

I have simplified this description a bit but if you want the technical details I suggest you go to:

http://bravenewclimate.com/2011/03/12/japan-nuclear-earthquake

which has quite a bit of technical information and a continuing discussion of the ramifications.

I'm not making any predictions as to what happens but the central core appears to be still intact and considering what is has been through is actually pretty impressive.  They still need to cool both cores and keep them from breaching. I'll be watching this closely over the next few days.

Update: Here's a video of plant #3 exploding

Copper roundup

To follow up on my previous copper post here is some additional articles:

One trader (suspected to be JP Morgan) held nearly 90% of the outstanding copper on the LME in late 2010
WSJ December 21, 2010

As commodity prices soar to new records, the ability of a few traders to hold huge swaths of the world's stockpiles is coming under scrutiny.
The latest example is in the copper market, where a single trader has reported it owns 80%-90% of the copper sitting in London Metal Exchange warehouses, equal to about half of the world's exchange-registered copper stockpile and worth about $3 billion.

As is implied in the article, having just one party hold such a huge portion of the outstanding asset is just an invitation for manipulation. For some reason the LME states controls are in place to prevent abuse but I'm a bit skeptical.

I am not the first one to comment on China and their bonded warehouses' providing a convenient 'hiding spot' for excess copper.  Ft.com December 21,2010

As Reuters noted, the London/China arbitrage window was after all firmly shut during the period:

The November inflow was a surprise to many market watchers  given that the arbitrage window — buying from the London Metal Exchange and selling to Shanghai — was shut for much of  last month, Beijing Capital Futures analyst Xiao Jing said.

And, as they also noted:

But trade and warehousing sources in China said the London Metal Exchange and Shanghai arbitrage had stayed closed last month and thatshould have prompted importers to store some arrivals of refined copper in bonded warehouses.

Bonded material can be shipped out to the international  market easily or imported into China after the 17 percent  value added tax is paid.

Finally, something I suspected but had no 'proof''.  Chinese traders may be using copper and other base metals as a cheap funding source as well as a currency play.
From Ft.com March 9,2011

To reiterate: that’s Chinese companies using copper as collateral for financing deals — also known as a somewhat ingenious nationwide inflation hedge (in the event copper prices continue to rise).Let’s just say it’s a bit like living off a loan taken out against your house. The loan won’t be a problem because you believe the price of your house will only go up.
And while that remains your view, there’s no reason not to double up. Buy even morehouses for the sole purpose of transforming cold hard cash — not inflation proof — into an asset which can continue to be monetised via ever depreciating bank loans.
Magic.
That is, of course, until copper prices stop rising.

It's all fun and games until the party stops and the margin calls start.  Just think about how much chicanery occurred during the US housing boom.  You don't think games like that are being played in China?

Some news on Libya

Here's a video on the Libyan situation.    France also officially recognized the Libyan rebels which could set up a situation where the frozen Libyan assets are released to the rebels.  This would allows the rebels to arm themselves and get on with winning the civil war.

From UPI

France recognized the Libyan opposition movement Thursday as the representative of the Libyan people, a former Libyan envoy said from Paris.Ali al-Issawi, the former Libyan envoy to India, announced in Paris that France recognized "the (Interim Transitional) National Council as the legitimate representative of the Libyan people," reports French news agency France 24.

This is not the copper you are looking for

Edit: A followup to my bearish copper case was posted on 09/27/11

Copper has had quite a run, but is it legit?  Numerous experts are calling for continued strength in the commodity as well as continued supply deficits.  I offer a contrary opinion.

There are several fundamental reasons for this alternate opinion and we'll go over them.   From a technical standpoint copper as well almost all other commodities has been on a tear upwards ever since the announcement of QE 2.  Recent events in the Middle East have slowed the rise in prices and higher oil prices may dent future economic growth worldwide so forces may be aligned to drive copper down in the near future.

Chinese Copper Demand
Copper is traded worldwide on several exchanges and as such provides an opportunity to see where prices (and by implication demand) are higher.

China is commonly cited as a source of continued copper demand.  If this is so one would think copper sells at a premium to elsewhere in the world.  This is not the case and copper has been selling at a discount to the LME (London Metal Exchange) for several months.  As you can see here the last time couple times Chinese copper was cheaper worldwide prices stopped going up.  (ht news-to-use.com )

One can see the real time arbitrage price difference on Bloomberg. While the arbitrage values do swing between positive and negative, since mid July the arbitrage price has been negative.  Take a look at the long term trends and you'll see periods of negative arbitrage have coincided in the past with lower future prices as well as increasing inventory levels.


Inventories

One of the common bullish themes is how copper has been in a deficit for several years and will continue to be so in the future. A long term inventory chart provides some clarity.  Longer term copper inventories have been both lower and higher than today.  While right now copper inventories are dropping on a year over year basis the last inventory peak was in early February 2010 and as you can see inventories tend to trend in one direction or another for a period of several months.  Right now we are on an upswing. Copper inventories (LME, SHFE,  Comex) bottomed mid December and have risen nearly 130,000 thousand tonnes since then and are rising at over one thousand tonnes a day right now.

Furthermore the number of cancelled warrants continues to drop and has remained well below 20,000 for several weeks now.  A low cancelled warrant number is an indication of fewer lots of copper coming out of inventory for delivery.

The dog that did not bark
A most interesting news article ran across Bloomberg late last year regarding Shanghai and bonded warehouses.

http://www.bloomberg.com/news/2010-12-08/copper-trading-in-shanghai-may-reverse-drop-on-bonded-inventory-tax-waiver.html

Why provide this option of delivering copper from 'non official inventory' warehouses if it did not already exist?  While getting hard numbers about how much hidden inventory exists is nearly impossible, this rule change leads one to believe there is significant supply available, otherwise why provide the option?

Furthermore the 'movement' of inventories into and out of the official stockpiles occurs rather easily.  In January aluminum inventories went up 100,000 tonnes in one day.
http://traderightuk.wordpress.com/2011/01/10/now-you-dont-now-you-see-it/  100 thousand tonnes is a LOT of material. The largest ships in the world move 150 thousand tonnes of cargo to give you a sense of the mass involved.

Just because you can't see the copper (or aluminum) doesn't mean it is not there.  There are other quantitative numbers showing us there is a lack of demand in China such as the the lower relative price as well as a lack of imports.

Both refined and scrap copper imports have leveled off over the last few years and do not show a sustained rise in imports as one would expect if China is truly the voracious eater of copper as people have posited. 

Four dollar copper does wonders for encouraging more supply.  Heck, there's even supply developing underwater.  Nautilus minerals is currently building an underwater 'mine' and if they can pull it off the potential is huge.  

Furthermore a  little corruption goes a long way.  There's a 17% VAT tax on copper in China.  Does one honestly believe there is no skirting of the law?  A truckload of copper would be an easy thing to 'misplace' at a large import facility.  

Betting against the house
Looking at copper futures over the past several years one can see (green line) how commercial traders have never been this short as they have been during this recent run up in price. Remember when you are buying copper right now the person selling probably has more information about copper prices than you do.

Avoiding Imperial Entanglements and Bernankflation
Almost all commodities have been on an tear upwards since Ben Bernanke announced QE 2 in late 2010.  The results have come home to roost however as higher food prices may have been the spark that set off the political unrest in the Middle East.   Higher oil prices from the riots and regime change in Tunisia, Egypt, and Libya have people wondering who is next and what will that do to oil supplies.  Oil prices are now well above $100 a barrel and that price shock has yet to be fully realized throughout the world economy.   To hedge my short base metals position I'm also long precious metals and this combination has worked out well recently.  Continued tension in the oil producing nations will most likely keep gold rising and depress copper prices as people grow concerned about future economic growth.

Alternative learning annex
For those of you who can't stand looking at data and trying to understand the nuances of localized supply and demand I have created a short video explaining the high points of this post.




http://www.xtranormal.com/watch/11071592
http://www.youtube.com/watch?v=OoFQQlBWcOk (YouTube version)



Further reading:
Bearish calls:
http://finance.fortune.cnn.com/2010/11/17/chanos-vs-china/?iid=EAL

More supply on the way:
http://in.reuters.com/article/2011/02/11/idINIndia-54814820110211
http://www.reuters.com/article/2011/01/13/chile-codelco-investment-idUSN1328075420110113?feedType=RSS&feedName=everything&virtualBrandChannel=11563 -- 16 Billion for Codelco alone

Other base metals not doing so hot on a fundamental or technical level.
http://agmetalminer.com/2011/01/10/zinc-outlook-2011-part-one/

Financialization of commodities and correlation to equity markets.
http://macromon.wordpress.com/2011/02/10/sarkozy-and-g20-to-crackdown-on-food-specs/
http://agmetalminer.com/2011/02/28/copper-in-a-dip-or-on-the-slide/

Data:
http://www.cochilco.cl/english/productos/estadisticas.asp - Long term copper stats from Chile

Chinese copper imports:
http://www.bloomberg.com/apps/quote?ticker=CURIIQTL:IND
http://www.bloomberg.com/apps/quote?ticker=CNIVCOPP:IND

The author is short base metals and long precious metals.

All oil is not created equal

NPR recently spoke about how oil is not created equal. There are differing types of oil, with some having higher sulpher content as well as other parameters making it easier or harder to refine into the higher quality fuels.

http://www.npr.org/2011/02/25/134056647/ripple-in-libyan-oil-markets-make-waves-worldwide

"It happens that Libyan crude has almost no sulfur and produces a great deal of diesel fuel per barrel of crude, which means it is very valued," he says. "One can think of it as fat-free milk."
Libyan oil is light and sweet — it's the kind that refineries want for making low-sulfur diesel, which is widely desired in Europe, and jet fuel, of which the U.S. makes a lot. Both markets require low-sulfur fuel because it pollutes less.

It's a short (<4 minute) introduction to some of the intricacies of the energy markets and I suggest you listen to it.