The International Monetary Fund made an after-hours announcement yesterday of the sale of 10 metric tonnes of gold to the central bank of Bangladesh, at Market Price, on Tuesday Sept  7.

In September 2009 the IMF’s executive board approved a plan to sell a total of 403.3 tonnes of gold (approximately 13 percent of their gold holdings). The 10 tonnes sold (equal to 321,000 ounces) raised $403 million for the IMF. The funds generated from the sales of bullion generate a diversified source of income as part of a plan to shore up its finances and allow for increased low-cost lending to low income countries by up to $17 billion through 2014.

This is not the first sale of their 403 tonnes being offered. In November of last year The IMF sold a total of 212 tonnes of gold. The Reserve Bank of India bought 200 tonnes, the central bank of Sri Lanka 10 tonnes and the Bank of Mauritius 2 tonnes. The IMF sold these 212 tonnes at an average price of $1,048/ounce.

It is perceived that uncertainty regarding outlooks for the world’s two major reserve currencies (the dollar and the Euro) impelled central banks to buy gold. The estimated net income profit to the IMF from gold sales for the year (ended April 30) is US$5.1 billion. Initially only selling to central banks, in February, the IMF expanded the program to allow sales to the open market and a further 88.3 t had been sold under this “on-market” sales program at the end of July.

Although Thursday’s IMF gold sale accounted for only 3 percent of the days overall gold sales on the COMEX exchange it drew attention in the markets and the POG dropped 0.9 percent, the biggest decline since July 27. Only a day earlier gold futures had ran up to their highest level since June 28. Strong demand for physical gold on price dips continues to limit the downside in gold and there remains enough investor interest to shrug off the IMF announcement. Gold for immediate delivery is gaining back ground today, and the price is only about $19 below the record of $1,265/ounce set on June 21.

The IMF is still intent on selling the remaining 191.3 tonnes of its 403.3 tonnes of gold on the market. Their plan is to sell the gold in an orderly fashion phased in over an extended period of time so as not to disrupt the gold price.  What influence would a lump sum sale of the remaining 191 tonnes to a central bank have on the price of gold?

IS ONE OF THE WORLD’S LARGEST TIRE BUILDERS READING OUR BLOG ?

BAOR Press Release:

Bridgestone Americas increasing OTR tire prices

Bridgestone Americas’ Off -The Road Tires Sales division (BAOR) is raising prices as of September 1st.

The increase will affect all mining, construction and industrial tires sold by the company.

The increase, ranging from 2 to 7 percent, with some in-line adjustments, covers products sold in the U.S. and Canada.

“We continue to search for new, innovative and efficient ways to bring the best product for the best price to all dealers,” said the President of BAOR. He continued: “At this point, we’ve been unable to completely offset rising raw material, energy and transportation costs with improved efficiencies, and therefore, we find it necessary to increase prices on our off-the-road tires.”

Bridgestone last raised OTR tire prices April 1, by up to 4 percent.

You can be sure that this increase by Bridgestone will be echoed in some form by their peers Goodyear and Michelin. And this announcement must be music to the ears of Titan, Belshina, Triangle and Eurotire, just to name a few – who are in the same boat struggling to control rising costs and remain profitable.

Because they are forward looking, most of the biggest global mining and construction companies have already established commitments from the big 3 for their projected tire needs. And that is having a notable effect on production, quantities, and scheduling.

Companies finalizing plans to open or expand operations over the next couple of years (who do not have tire supply contracts in place) must start preparing now for the sticker-shock they are going to face while trying to secure tires in the open market.  Prices for 57 inch major brand tires have doubled on the open market during the last 3 months!  And 49, 51, and 63 inch tires are up 20 to 50 percent over the same period. Where are we headed?

The other day, Mike and I were discussing how the current prices various metals is affecting the mining industry.  Gold, at record prices, was an easy one to agree on. I can remember in 2002 while managing a gold mine sitting with the planning and operations department someone waving at an area of the map and commenting “if gold was $350 an ounce all this would be economic”.  Well today I guess that rock that we had to leave behind is being mined.

But copper stumped us. I do take notice of the copper price but do not keep up on settlements, futures, or check inventories.  I did recently read one interesting article on Kitco reporting that LME warehouse stocks have declined significantly from Feb highs and after a surge of copper into the Shanghai warehoused copper listings in March the stocks have since declined significantly too. This was contrary to projections for a small surplus of new supply. Okay – basic supply and demand scenario being painted here. I think I can follow along. Since it is noted that supply is shrinking the question must be whether demand will be high enough to push the prices up? The report concludes that “We are entering a long period in which individual supply/demand fundamentals rather than economic stats will focus metal pricing. Copper’s supply side is tighter than most other commodities. [1]

This morning, perusing the headlines I noted two very contrasting headlines regarding copper, published on the same date, on the same news network.

One report, Copper May Decline Before U.S. Economic-Growth Report, Speech By Bernanke (Bloomberg, by Chanyaporn Chanjaroen – Aug 27, 2010), informs that any signs from Bernanke on measures to stimulate the U.S. economy would be positive for industrial metals. That is because there have been mixed reports this week on the outlook of the U.S. economy with orders of durable goods less than forecast and sales of both existing and new homes weaker than estimated. The take home message was: “The likelihood is that the market will be disappointed, as the Fed probably hasn’t decided on more measures themselves and a lack of clarity would pressure prices.

The other report, Copper On Track For Weekly Advance On China Demand Outlook (Bloomberg, byGlenys Sim, – August 27, 2010), claims that copper prices have gained and are headed for a second weekly advance. There is optimism that demand will improve in China, the world’s largest user, as the weak consumption season ends. Prices rose to a one-week high in Shanghai. Luo Dayun, a trader at China Rising Futures Co. contributed his two-cents and said; “The market will consolidate at these high prices until a clearer consumption picture emerges in the fourth quarter”.  He also added that recent data highlight uncertainties still exist in the economy and this will keep rallies in check but once prices go up; price-sensitive Chinese buyers will start to make hand-to-mouth purchases, so support from the physical market is reduced.

Apparently agreeing with Luo, the December-delivery contract on the Shanghai Futures Exchange gained for a second day, rising as much as 0.9%.[2]

Hmmm, one envisions that the impending US economic report may cause the decline of the price of copper – due to poor stimulation of the US economy. And another report that copper prices will continue to advance based on the optimism that demand will improve in China, the world’s largest user. I don’t know, what do you think?

[2] http://www.businessweek.com/news/2010-08-27/copper-on-track-for-weekly-advance-on-china-demand-outlook.html

Will mines be back on bias tires due to shortages of major brand radials?

Once again the buzz in the OTR tire business is that shortages of popular sizes of large OTR tires are being caused by tire manufactures limiting their production in order to artificially inflate prices; economics 101, supply and demand. If you have been around the OTR tire business very long you have heard this complaint many times.

I spoke to some people on the inside at some of the major tire companies. They insist that they are building everything they can, running at 100% capacity. One of them did mention that: “his company has focused their production on tires that are in high demand”, which makes perfect sense. We do the same thing in our business; we buy the OTR tires that will turnover fast. I am not stocking any 49.5/85X57 loader tires. Anyway, I asked my old friend what he meant by the comment: “his company has focused their production on tires that are in high demand”; does your company ever focus on building OTR tires that are in low demand?  All he would say is that: “many factors are considered when deciding what to build and when to build it”. He went on to say that profit is not a dirty word, just ask any mining company.  Hmmmmmmm.

My thinking is that the big 3 tire builders are currently the only companies building 51 inch and larger radial OTR tires that have a proven track record. Nobody is contacting us looking for 4000R57 Mine Masters.  Not to say that Mine Master does not build a fine tire; I just have never seen any data on Mine Masters so I have no idea how well they run. But is that not the point.  Goodyear, Michelin and Bridgestone spend millions every year on research and development; including a small army of field engineers.  They build great tires and my belief is that they have all decided that they are going to sell them at a reasonable profit. Maybe the mantra at the major brand tire builders has changed from: “we are going to process as many pounds of rubber as we possibly can” to: “we are building the best tires in the world and we are going to make a profit on every tire we sell”.

When Titan gets their big radials tuned in (and they will) things might change but for now I think we need to accept that B, G and M are focused like a laser on their own bottom lines rather that beating each other out of the next sale at zero profit.

Of course I could be absolutely wrong. What do you think?

They are all alive!

Chilean President, Sebastian Pinera, stunned his nation and the mining world Sunday when he held up a handwritten note sent up to surface from the darkness of the San Jose gold and copper mine. The note was retrieved through a bore-hole that rescuers had drilled in attempt to verify the condition of the 33 miners who have been trapped in the mine since a collapse on August 5^th.

The note, written in bold red capital letters, said “Estamos bien en el refugio los 33”; “All 33 of us are well inside the refuge shelter”.  President Pinera read the message aloud and waved it in the air, as friends and relatives wept with joy outside the northern Chilean mine.

During the past 17 days, more than 500 people climbed to the mine on top of a mountain in Chile’s Atacama desert to pray for the trapped men. But, until Sunday there had been no sign that any miner had survived. In response, Chileans honked their car horns across the country on Sunday night, restaurant patrons burst into cheers and applause when they heard the news and thousands gathered throughout the country to celebrate and wave the national flag.

At the mine site, as a cold fog enveloped the mine, ecstatic relatives and mine rescuers gathered around bonfires for a barbecue, celebrating the good news by cheering and waving a Chilean flag that had been found among the debris left by the earthquake and tsunami that devastated central Chile on February 27.

Rescue workers reinforced the bore-hole as it will serve as an umbilical cord to lower glucose, hydration gels and food down to the 33 miners found alive, 2300 feet (700m) vertically underground.  A camera was lowered down the bore-hole and showed the miners sweaty and shirtless in the hot 97 Fahrenheit (36 Celsius) shelter, but apparently in good condition and high spirits. “Many of them approached the camera and we could see happiness and hope in their eyes,” Pinera said, adding that the images “gave me a lot of happiness and faith that this is going to end well.” A cable telephone will be dropped down the drill bore to facilitate communications and allow relatives to speak with their loved ones.

The men drank water from the tanks of drilling machines to survive and had no supply of food. Health officials estimate they may have lost about 17.5 to 20 pounds (8 to 9 kg) each. They used the batteries of a mine truck to power lights in the refuge station and recharge their helmet lamps.

A second note recovered through the bore-hole was written by 63 year old miner Mario Gomez to his wife Liliana Ramirez, his “Dearest Lila” and the note read “I am OK thanks to God. I hope to get out soon. Patience and faith. God is great and the help of my God is going to make it possible to leave this mine alive.” Mario  appear aware that it will take some time for rescuers to reach him and his fellow miners. “Even if we have to wait months to communicate…. I want to tell everyone that I’m good and we’ll surely come out OK,” he wrote.  Liliana responded to reporters; “I know my husband is strong, and at 63, is the most experienced miner who could lead his co-workers, but no more mining [for him].” she said.

Chilean mine rescue teams are now preparing to launch a new operation to bring to the surface 33 miners trapped deep underground for 17 days. But it could be months before the trapped miners are brought safely to surface; the rescue operation is expected to take at least 120 days.

However, “The wait is very different now,” said Elias Barros whose brother is among those trapped. “It is a wait free of anguish. This isn’t over but we are much more hopeful it will end happily.”  Let’s hope and pray that the miners are able to spend Christmas with their families.

Equipment was being assembled Sunday to bore a 27 inch (68 centimeter) diameter hole to where the trapped miners are located, through which the miners will be extracted. Engineers are still evaluating where to drill the large hole without endangering the trapped miners or risking further cave-ins at the potentially unstable mine.

Choking with emotion, President Pinera stated; “They’ll come out thin and dirty, but whole and strong, because the miners have shown they have courage and mettle, which is what has kept them together.”

The U.S. Court of International Trade has ordered the Commerce Department to stop imposing countervailing duties on some OTR tires imported from China.

The August 4 ruling stated that the Commerce Department’s calculations of duties, based on antidumping and countervailing measurements, amounts to “double counting” and has ordered the Commerce Department to forego the imposition of countervailing duties on certain OTR tires.

The lawsuit, brought Dec. 30, 2008, by OTR tire builder GPX International Tire Corp against Bridgestone Americas Inc., Titan Tire Inc. and the United Steelworkers Union was partial cause of bankruptcy filing by GPX.

The Commerce Department imposed the duties because of a petition filed in 2007 by the United Steelworkers Union and Titan International Corp. seeking relief from Chinese OTR tire imports they claimed were causing material injury to US OTR tire makers. Bridgestone added its support to the petition after the fact.

Many Chinese OTR tire builders were charged substantial duties, some over 100% and many US tire dealers, importers and distributors have been adversely impacted by the duties.

Commerce has 30 days to file its response.

Businesses must adapt quickly when currency exchange rates change. Here at OTR Tire Supply we are fully aware that a weaker American dollar does have positive effects on our business opportunities with existing and potential international clients.

The dollar, coming under increased pressure, continues to weaken against world currencies. The dollar index (DXY:IND), which tracks the US greenback against a basket of major currencies, fell to 82.01 in North American trading late last Friday. It touched 81.98 intraday, the lowest level on a closing basis since the end of April. Why are a couple guys selling tires on the internet from Reno concerned about this? It is important to us because we use the internet to market ourselves and to sell tires. We conduct our business on the “world wide web”.  Thus our exposure is global and some of our clients don’t do their budgets, issue PO’s, and make payments in US$ but use €,  and ?.

The US Dollar has already dropped against the Pound and looks like its preparing for another battering as the pound strengthens.  Why does that interest us? Because the Brit’s are involved in a lot of expat mining and construction activity and many mining companies are headquartered in the UK. With a strong Pound their purchasing-power is enhanced when they buy product paying in dollars. With the Loonie tickling parity with the greenback the inquiries for all sorts of OTR, agricultural, and industrial tires from Canucks has notably increased.

During Q1 of this year the dollar strengthened against the euro and gained some ground back. This was due in part to concern over the several economically weak European Union countries that left spooked investors running for safety. However, that trend has reversed over the last two months and the Euro has gained 3.1%.  Last Friday, The euro (EURUSD) rose to $1.2916. The euro hasn’t been at those levels since early May.

Many economic forecasters are predicting the euro to continue to rise against the $ and be in the 1.30 to 1.35 range for the remainder of the year.  The one major disadvantage of a weak dollar for us is that foreign travel becomes more expensive and as predicted in a prior blog, we expect to be doing a lot of traveling for the remainder of 2010.

Will gold hit $2,000.--

Speaking bluntly last week in front of the Senate banking panel Ben Bernanke said that the “economic outlook remains unusually uncertain”. Resultantly the markets tanked that day. Bernanke continued “We will continue to carefully assess ongoing financial and economic developments, and we remain prepared to take further policy actions as needed to foster a return to full utilization of our nation’s productive potential in a context of price stability”.  Economists read into this that in a bid to keep the economy growing and raise employment the Fed will increase monetary stimulus.  The Fed has printed and spent $1.75 trillion already. Are they warming up the printing presses again?  Will such actions result in the consequence of further debasement of the US dollar — which will raise the gold price?

In the days of the gold standard (1788 to 1933) US banks lent money with the issuance of a gold receipt. Physically holding gold, the bank was to redeem gold whenever demanded by anyone holding a gold receipt. Is holding physical gold once again considered good insurance?  So far in 2010 Russia has increased its gold reserve 11%. During June the Russian Central Bank purchased another 200,000 ounces of gold. Their gold reserves now stand at 22.8 million troy ounces (709.2 tons of gold).

I was actually surprised to discover recently that China is the world’s largest gold producer. In the mid 90’s China took steps to revolutionize their mining industry. Reforms encouraged small producers to consolidate and foreign companies were invited to partner-in. With modern exploration techniques reserves at existing mines were increased and properly outlined. New discoveries were quickly advanced and brought online. Operating mines were optimized. Since 1999 China’s gold production is up 66%. In 2007 China overtook South Africa as the world’s largest gold producer.  A title that South Africa had held for over 100 years!  China is holding onto some of the gold they are mining. China’s gold reserve stands as 1,054 tonnes, the world’s seventh largest gold reserve.

Anyone unsettled by the current state of global economies, who considers currencies to be short-term unstable, thinks inflation is waiting to rise; is probably bullish on gold. The price of gold (POG) is generally considered a useful barometer as gold is commonly believed a safe haven by most investors during times of economic uncertainty. Sales of gold coins and bars, and stocks in mining and exploration companies, will keep mining going strong.

Even with the price of the yellow metal at record levels, its future is still bright. Many forecast that gold will hold its value and many actually project the POG will continue to rise as economic instability continues to play out and holding gold is the logical option. Unless, of course, the US figures out how get gold bars to come out of a printing press.

The OTR Tire Shortage Is Back!

Looks like I will be spending most of my time working in places other than the US for the foreseeable future. Equipment is rolling in other counties and large OTR tires (49 inch and larger) are once again in short supply. Many countries are rebounding, partly due to mining activities, while the US continues to flounder.

Since April, gray market prices for major brand 63, 57 and 51 inch tires are up 20% to 50% or more depending the size, brand and type. Speculators are already buying tires and sitting on them with the expectation of prices returning to the six figure levels of 2007/08.

Economic growth for the USA fell short of expectations during the first quarter of 2010 and the Commerce Department notes lower consumer spending than anticipated.  A USA Today report states that the Economic Outlook Index will continue to slow through the second half of the year with tight credit, high debt and continuing high unemployment being main contributing factors.  The USA is pondering a double-dip recession.

To the north, the IMF has raised Canada’s Economic Growth Outlook for 2010. Canada’s dollar is experiencing parity against the greenback, jobs are being added every month and home prices are rising. Canada’s economy is on the rebound with several Provinces experiencing stronger economic growth than expected. 

What about the rest of the hemisphere? A recent report by United Nations Economic Commission for Latin America and the Caribbean (“ECLAC”) Executive Secretary Alicia Bárcena titled “Latin America and the Caribbean to Grow 5.2% in 2010” reports that the growth rate is higher than expected, but economic performance in the region is very diverse. Countries that stand out for growth are those with strong domestic markets and those with exports to Asia.

In the western hemisphere, the highest growth rates in 2010 are in South America, led by Brazil, the biggest economy in the region, with growth expected at 7.6%, followed by Uruguay 7.0%, Paraguay 7.0%, Argentina 6.8% and Peru 6.7%, the Dominican Republic 6.0%, Panama 5.0%, Bolivia 4.5%, Chile 4.3% and Mexico 4.1%. Colombia will grow 3.7%, Ecuador and Honduras 2.5%, Nicaragua and Guatemala 2.0%. The exception being Venezuela which will experience negative growth: (-3.0%).

The anticipated 4.3% growth for Chile is somewhat camouflaged due to the fact that it was rocked by a magnitude 8.8 earthquake this year. Resultantly, economic activity was at the lowest pace over the last three years. Chile mines copper. In fact copper accounts for more than half of total exports. Demand for the metal is increasing and mining activity is ramping back up.

So I will be in Chile, Peru or Canada helping mining companies and contractors optimize tire performance to produce more with less. While I am overseas I expect the US debt to hit $14 trillion and US unemployment rate to stay above 9%. Or neighbors seem to know something we in the US have not figured out yet. I will let you know what I find out.

http://content.usatoday.com/communities/theoval/post/2010/02/obama-economic-report-not-much-job-growth-this-year/1

http://www.usatoday.com/money/economy/economic-outlook.htm

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOVRMHoZ_vKI

http://www.reuters.com/article/idUSN1526323920100615

I raised the question as to what’s going on up there north of the border. I guess someone was paying attention because I got my answer. On July 9th I read a report by The Canadian Press quoting a popular U.S. website that has a unique suggestion for Americans desperately seeking work. The advice? “Move to Canada.” The accompanying headline says: “Need A Job? Try Canada, Where Hiring Is Booming And Home Prices Are Rising.”

The article tells readers: “Stubbornly high unemployment rates got you down? Not sold on the economic recovery? Look no further than America’s polite neighbor to the north, where jobs numbers are surging and home prices have been rising steadily for nearly a year. That article states that Canada’s economy added a whopping 93,200 new jobs last month; the U.S., meanwhile, continues to struggle with unemployment woes. “Last month, Canada, a nation with roughly one tenth of our population, created about 10,000 more new jobs than America.”

It only figures that along with people getting back to work consumables and commodities start moving too. That’s good news for anyone in the tire business.

Keep on burning rubber Canada, and remember: keep your head up and your stick on the ice…
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