October 20, 2011 /> David A. Banister- www.MarketTrendForecast.com

Back on October 3rd I wrote a public article forecasting a major market bottom at around 1088 on the SP 500 index.  I surmised we were about to complete a 5 wave move to the downside that commenced with the Bin Laden highs of 1370 in early May of this year.  The following day we bottomed at 1074 intra-day and closed over my 1088 pivot and continued higher as we all know.  That brings us to the recent highs of 1233 intra-day this week, a strong 159 point rally off the 1074 lows in just a few weeks.

Markets I contend move based on human behavioral patterns, mostly because the crowd reacts to good or bad news in different ways depending on the collective psychology of the masses.  There are times when seemingly bad news is ignored and the markets keep going higher, and there are times when very good news is also ignored and the markets go lower. This is why I largely ignore the day to day economic headlines and talking heads on CNBC, as they are not much help in forecasting markets at all.

Using my methods, I was able to forecast the top in Gold from 1862-1907 while everyone was screaming to buy.  I was able to forecast the April 2010 top in the SP 500 well in advance, the bottom last summer, and recent pivot tops at 1231 and 1220 amongst others.  All of this is done using crowd behavioral theory and a bit of my own recipes.  That brings us forward to this recent rally from 1074 to 1233, which as it turns out is not all that random.

The rally to 1233 will have taken place within a 13 Fibonacci trading day window which ends today.  In addition, the rally is leading into the end of Options Expiration week which tends to mark pivot highs and pivot lows nearly every single month.  Also, at 1233 we have a 61% Fibonacci retracement level of the 1010 lows of July 2010 and the 1370 highs of May 2011.  1233 was my “Bear line in the sand” I gave out a few months ago to my subscribers as a likely bull back breaker.  In essence, the market is having trouble breaking the glass ceiling at 1233 for a reason; it’s a psychological barrier for investors now.

Near term, I expect the market to have another sharp correction to work off the near 160 point SP 500 rally that has taken hold in just over two weeks and again on 13 Fibonacci trading days as of today.  In addition to that, we should follow copper as it tends to be an extremely good indicator for the SP 500 index long and short term. /> Right now, Copper has dropped 8% this week while the SP 500 levitates on a magic carpet ride within a 30 point range.  Copper looks like it has begun a 5th wave down, which will likely take it to the $2.70’s per pound from $3.46 last week on its recent bounce from $2.99.  Below I offer a few charts showing the projected copper pattern and also one showing the SP 500 relating to Copper.

Right now, Copper has dropped 8% this week while the SP 500 levitates on a magic carpet ride within a 30 point range.  Copper looks like it has begun a 5th wave down, which will likely take it to the $2.70’s per pound from $3.46 last week on its recent bounce from $2.99.  Below I offer a few charts showing the projected copper pattern and also one showing the SP 500 relating to Copper.

In any event, we are due for what I call a “B wave” correction of sentiment in the SP 500 and market indices, which should take the SP 500 to the 1149-1167 ranges minimally, and perhaps set up another entry for a C wave to the upside.  Caution is warranted near term is my point.  If you’d like to receive these types of regular updates during the week covering Gold, Silver, and SP 500 and more, check us out for a coupon or free weekly update at www.MarketTrendForecast.com

Richard (Rick) Mills /> Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

A critical or strategic material is a commodity whose lack of availability during a national emergency would seriously affect the economic, industrial, and defensive capability of a country.

The report “Critical Raw Materials for the EU” listed 14 raw materials which they deemed critical to the European Union (EU): antimony, beryllium, cobalt, fluorspar, gallium, germanium, graphite, indium, magnesium, niobium, platinum group metals, rare earths, tantalum and tungsten.

The French Bureau de Recherches Géologiques et Minières rates high tech metals as critical, or not, based on three criteria:

• Possibility (or not) of substitution
• Irreplaceable functionality
• Potential supply risks

Demand is increasing for critical metals due to:

• Economic growth of developing countries
• Emergence of new technologies and products

Access to raw materials at competitive prices has become essential to the functioning of all industrialized economies. As we move forward developing and developed countries will, with their:

• Massive population booms
• Infrastructure build out and urbanization plans
• Modernization programs for existing, tired and worn out infrastructure

Continue to place extraordinary demands on our ability to access and distribute the planets natural resources.

Threats to access and distribution of these commodities could include:

• Political instability of supplier countries
• The manipulation of supplies
• The competition over supplies
• Attacks on supply infrastructure
• Accidents and natural disasters
• Climate change

Accessing a sustainable, and secure, supply of raw materials is going to become the number one priority for all countries. Increasingly we are going to see countries ensuring their own industries have first rights of access to internally produced commodities and they will look for such privileged access from other countries.

Numerous countries are taking steps to safeguard their own supply by:

• Stopping or slowing the export of natural resources
• Shutting down traditional supply markets
• Buying companies for their deposits
• Project finance tied to off take agreements

Many countries classify cobalt as a critical or a strategic metal.

The US is the world’s largest consumer of cobalt and the US also considers cobalt a strategic metal. The US has no domestic production – the United States is 100% dependent on imports for its supply of primary cobalt – currently about 15% of U.S. cobalt consumption is from recycled scrap, resulting in a net import reliance of 85%.

Although cobalt is one of the 30 most abundant elements within the earth’s crust it’s low concentration (.002%) means it’s usually produced as a by-product – cobalt is mainly obtained as a by-product of copper and nickel mining activities.

Today 40% of the cobalt consumed in the world originated as a by-product from copper production in the West African country of the Democratic Republic of Congo (DRC) – cobalt production in most other countries is a by-product of nickel mining.

The copper deposits in the Katanga Province of the Democratic Republic of the Congo are the top producers of cobalt and the political situation in the Congo influences the price of cobalt significantly. The politically unstable Democratic Republic of Congo contains half the world’s cobalt supply and represents the lion’s share of anticipated future cobalt supply – the DRC’s 2007 output was equal to the combined production of cobalt by Canada, Australia and Zambia.

In a nine billion dollar joint venture with the DRC China got the rights to the vast copper and cobalt resources of the North Kivu in exchange for providing $6 billion worth of road construction, two hydroelectric dams, hospitals, schools and railway links to southern Africa, to Katanga and to the Congo Atlantic port at Matadi. The other $3 billion is to be invested by China in development of new mining areas. Approximately half of  known global cobalt reserves are in the DRC, and close to 40%-50% of incremental cobalt production, over the next five years, is anticipated to emanate from the DRC.

At 19.7 percent of global supply Zambia is the world’s second largest producer of copper-cobalt. According to a recently released report by the Zambian Central Bank cobalt production rose to 2,236 tons in the first quarter of 2011 from 1,989 tons last year, exports increased to 2,279 from 1,977.

China is extremely short of cobalt concentrates and needs to import cobalt concentrates in large amounts every year. The leading global producers of refined cobalt are China (39%), Finland (15%) and Canada (8%). China is a leading supplier of cobalt imports to the United States.

The cobalt market is small in comparison with other base metals. Consumers purchase cobalt through negotiated agreements, bids, and open markets from producers, traders and to a lesser degree, government stockpiles and private inventories.

Uses

Cobalt is a strategic and critical metal used in many diverse industrial and military applications.

• Super alloys
• Renewable Energy Re-usable energy storage systems
• Wear resistant alloys
• Magnets
• Binder Material
• Thermal spray coatings
• Orthopedics
• Life Science
• Catalyst in de-sulfurizing crude oil and as a catalyst in hydrogenation, oxidation, reduction, and synthesis of hydrocarbons.
• Gas to liquid technology (GLT)
• Other Uses – Drying agents in paints, de-colorizers, dyes, pigments, and oxidizers. Promotes adherence of enamel to steel, and steel to rubber in steel belted radial tires

Conclusion

China seemingly has most of the DRC’s production of cobalt locked up, that’s up to 40% of global mined cobalt.

Cobalt is classified as a strategic/critical metal.

With the recent strong support for electric vehicles the use of cobalt in this sector alone has led to a formidable demand for the element and the US cannot continue to depend on its cobalt being supplied mostly from China.

There is no doubt in this author’s mind that cobalt’s profile will continue growing in the coming months and years.

Is cobalt on your radar screen?

If not maybe it should be.

Richard (Rick) Mills /> rick@aheadoftheherd.com /> www.aheadoftheherd.com

If you’re interested in learning more about the junior resource, bio-tech and technology sectors please come and visit us at www.aheadoftheherd.com

Site membership, and our AOTH newsletter, are free. No credit card or personal information is asked for.

***

Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

For site advertising rates contact: rick@aheadoftheherd.com

Richard Mills does not own shares of any companies mentioned in this report.

Metals prices pushed upward amid the same unresolved concerns that moved China’s futures markets Tuesday, including the ongoing strike at world’s largest copper mine and the unbroken stalemate in the US over raising the country’s debt limit.

The most active copper contract, for October delivery, rose about 0.6 percent on Wednesday to settle at 72,830 yuan ($11,307.08) per ton on the Shanghai Futures Exchange. The contract jumped 0.8 percent at the market’s opening, following the rise in international copper prices overnight.

The benchmark three-month copper contract on the London Metal Exchange rose 1.7 percent in Tuesday’s session, but then retreated on Wednesday. It was trading at $9,821 per ton, down 0.2 percent, at 3:15 pm Beijing Time on Wednesday.

SHFE gold prices rose steadily on Wednesday, with the most traded contract rising 0.4 percent to settle at 336.84 yuan per gram. The price of gold for immediate delivery hit a record high of $1,624.55 an ounce on the COMEX on Wednesday.

Other SHFE base metals benefited from the rise in international prices overnight, with the most active aluminum contract spiking 1.9 percent to settle at 18,210 yuan per ton. The contract was up more than 3.5 percent for the week due to strong fundamentals, according to Tong Changzheng, an aluminum analyst with Huatai Great Wall Futures.

A bulletin on the China Nonferrous Metal Industry Association website highlighted a rumor that may have influenced aluminum futures, according to an analyst surnamed Yuan with Shanghai East Asia Futures.

The bulletin said that Indonesia may impose export restrictions on aluminum ore to China, though probably not this year.

“China, the largest consumer of aluminum, imports 80 of its aluminum ore from Indonesia, so the change could constrict supply,” Yuan said.

Zinc for October delivery rose 1.3 percent to settle at 19,010 yuan per ton.

The September delivery lead contract gained about 1 percent to settle at 17,740 yuan per ton at close on Wednesday.

Chinese copper industry experts believe that the government’s recent decision to shut outdated copper facilities will be offset by the ongoing expansion of domestic refined copper output capacity, market participants in China said Thursday.

“We see little market impact from the elimination of outdated capacity due to the ongoing copper expansion projects,” a copper analyst with Beijing Antaike, the state-run metals consultancy said, without elaborating on the ongoing projects.

China’s Ministry of Industry and Information Technology said July 12 that it would eliminate total outdated copper smelting capacity of 425,000 mt/year by the end of 2011.

Meanwhile, China last year added refined copper output capacity of 590,000 mt/year, lifting national refined copper capacity to 5.88 million mt/year as of end-2010, figures from Ministry of Commerce showed.

Separately, in Zhejiang, a source with the subsidiary of key Chinese nonferrous metals trader Wanxiang Group said China was expected to add 800,000-900,000 mt/year new copper capacity this year. “It’s big enough to offset the impact from the outdated capacity shuttering,” the source said.

In South China, a source with the subsidiary of a Chinese copper smelter said: “Before the state’s announcement, some companies with outdated facilities had already ceased using theirs, so we see minimal impact from the shuttering news.”

In another development, Chinese copper industry sources said the recent talk in China about using aluminum to replace copper due to rising copper prices would not have a significant impact on the copper market, citing the difficulties in using aluminum to fully substitute copper and lack of market acceptance.

“Due to the performance factor, aluminum has proved unable to replace copper in many cases, so we don’t see a major impact from the substitution talk on the copper market,” the Antaike source said.

The Wanxiang source said that some air-conditioner makers in China were trying to use aluminum to replace copper in the connecting pipes, but as aluminum pipes don’t function as well as copper ones, the replacement was not popular. “As air-conditioners are inexpensive, consumers would rather buy those made using better material,” he said.

The Antaike source said China’s copper consumption was expected to grow 8% to 7.35 million mt in 2011 from 6.8 million mt in 2010. However, other analysts predicted China’s national import volume in 2011 would be less than the 2010 levels, citing rising domestic refined copper output.

“We see China’s copper import volume to rise to around 200,000 mt/month by the fourth quarter of this year, when the boom domestic copper consumption season comes, but annual import volume this year should be less than last year’s on rising domestic refined copper output,” the Wanxiang source said.

China imported 178,638 mt refined copper in June this year, down 16% on year, customs figures showed, while in 2010, China imported 2.92 million mt refined copper in 2010, down 8% from 2009.

China produced 2.644 million mt refined copper in the first half of this year, up 14% on year, figures from State Statistics Bureau showed.

London Metals Exchange three-month copper prices were $9,644-9,805/mt over Monday-Wednesday, much higher than prices of of less than $9,000/mt in December last year.

Aluminum prices on the Shanghai Futures Exchange continued to soar on Thursday as investors eyed the metal as an alternative to copper.

The most active aluminum contract, for October delivery, rose about 1.4 percent to settle at 18,455 yuan ($2,860.58) per ton. The contract was up 4.9 percent since the previous Friday, far more than other base metals. For example, the most traded SHFE copper contract was up 1 percent for the week.

Aluminum fundamentals have been strong lately, which has attracted speculators betting that prices will rise, according to Tong Changzheng, an analyst at Huatai Great Wall Futures.

Over the last few months, several analysts have told the Global Times that aluminum’s fundamentals are the strongest of the SHFE-traded base metals.

Some analysts have suggested that copper prices above 70,000 yuan per ton are just too high for most buyers, especially amid the current dour global economic landscape.

The October delivery copper contract slipped about 0.2 percent on Thursday to settle at 72,710 yuan per ton, bouncing back after falling 0.6 percent when the market opened.

The benchmark three-month copper contract on the London Metal Exchange lost 0.4 percent in Wednesday’s session, before inching up on Thursday. It was trading at $9,792 per ton, up 0.1 percent when the SHFE closed.

With a limited upside for copper, investors may have turned to aluminum.

But if this is the case, it won’t be much of a trend. SHFE aluminum rapid rise this week is based on a favorable short-term supply and demand basis, said an analyst surnamed Yuan with Shanghai East Asia Futures.

“Right now, investors show a preference for a short-term imbalance between supply and demand because of the bleak economic prospects,” Yuan said.

Zinc for October delivery slipped 0.1 percent to settle at 19,010 yuan per ton. The September delivery lead contract gained about 0.5 percent to settle at 17,645 yuan per ton.

Japan’s output of rolled copper products rose 2.4% in May from April as strong demand for environmentally friendly air conditioners offset weakness in chips and cars.

The Japan Copper and Brass Association said that rolled copper output totalled 72,328 tonnes in May on a seasonally adjusted basis nearly flat from a year earlier.

An industry official said that output has been almost flat on a year-on-year basis since March, meaning the magnitude 9.0 earthquake during the month has not had a big impact on Japan’s rolled copper output. But it is clear that air conditioner makers are ramping up output ahead of the peak demand season which helped offset soft demand from the semiconductor and auto sectors.

Demand for copper, used in a wide range of items including construction materials, computer chips and car parts is often seen as a measure of economic activity.

The Japan Electric Wire and Cable Makers’ Association said last week that cable copper wire and cable shipments in May inched up from a year earlier to 51,200 tonnes. That was the first YoY rise in three months but the third lowest level for the month of May in 35 years as exports declined in the wake of a slowdown in the Chinese economy.

Japanese manufacturers have been recovering from the effects of the March 11 earthquake and tsunami, making progress in restoring production and supply chains wrecked by the disaster.

The government last week upgraded its view of the economy’s performance and outlook for the first time in 4 months following the previous week’s upgrade in the Bank of Japan’s view of the economy. But a slowdown of the global economy, particularly China, the world’s biggest consumer of copper and Japan’s biggest export market is a worrying sign.

Japan’s refined copper exports plunged 52 percent in May from a year earlier to 23,764 tonnes for an eighth straight month of year-on-year declines, Ministry of Finance data showed on Wednesday, reflecting slowing demand
from China, the world’s top copper consumer.

But exports inched up 0.8 percent from April, with China’s share also improving to 36 percent in May from 29 percent in April.

China accounted for 48.5 percent of Japanese refined copper exports in March.

China’s imports of refined copper fell 6.9 percent in May to a 30-month low after falling 16.6 percent in April on ample domestic stocks and a slowdown in demand.

Taiwan accounted for 32 percent of Japan’s exports in May, steady from April. Indonesia and Thailand are also key markets for Japan’s copper.

Demand for copper, used in utensils, construction materials and computer chips, is often seen as a gauge of economic activity.

As Japanese manufacturers began recovering from production disruptions after the massive March 11 earthquake, Japan’s output of rolled copper products rose 2.4 percent in May from April, helped by strong demand for environmentally friendly air conditioners, which offset weakness in chips and cars.

Brazil and China are heading for a battle of strategic necessity over copper in Africa that will leave the winner walking away with the most expensive acquisition of a diversified minerals company.

Jinchuan Group, the biggest Chinese nickel producer, is considering a bid for Johannesburg-based Metorex Ltd. (MTX) to rival Vale SA (VALE5)’s offer, two people familiar with the deal said yesterday. Metorex is trading 6.1 percent above Rio de Janeiro- based Vale’s proposal of 7.35 rand a share, the most of any pending deal in Africa, making it the likeliest to garner a higher price tag, according to data compiled by Bloomberg. (more…)

The global copper-mining industry needs to expand to new regions if producers are to bring supply back into line with unprecedented demand, according to a mining- studies group in Chile, the world’s largest producer.

So far, the industry’s reaction to record prices has been slow because of declining ore grades, the need for deeper mines and higher costs, Juan Carlos Guajardo, executive director of the Center for Copper & Mining Studies, said yesterday.

The global copper market faces a 377,000 metric ton deficit this year, according to the International Copper Study Group, as demand, led by China and other emerging markets, outpaces supply. Copper futures in London surged to an all-time high in February.

“Since mining is a long-term industry, more time is needed to reach a new equilibrium in the copper market,” said Guajardo, speaking at a Shanghai Futures Exchange conference. By 2015, a further 2.1 million tons of capacity is needed, he said.

Copper for delivery in three months on the London Metal Exchange climbed to a record of $10,190 a ton on Feb. 15 after gaining 30 percent last year and more than doubling in 2009. The contract for three-month delivery closed at $9,199 a ton on May 27, rallying 2 percent after Chinese stockpiles dropped.

Guajardo’s assessment is similar to the outlook from Rio Tinto Group, the third-largest mining company. New supply is particularly dependent on opening up so-called greenfield projects and is moving to higher-risk regions, Matthew Holcz, general manager of business development at the London-based company’s copper unit, said in an October 2010 presentation.

China’s Growth

Copper is used in pipes and wires. Demand has jumped as China builds more infrastructure and emerging-market consumers buy more appliances. Demand from China’s power industry may expand 5 percent this year, while transport-industry use may grow as much as 10 percent, Mark Loveitt, secretary-general of the International Wrought Copper Council, said at the conference.

There have been “significant production disappointments” in the global copper industry over the past five years driven by falling ore grades, power and water shortages, strikes and extreme weather events, UBS AG said in a report on May 18. As a result, mining companies are targeting mergers and acquisitions rather than developing new sites, the report said.

“Exploration is the most relevant way, but it takes time, while the maximization of current capacity is limited,” said the Center for Copper’s Guajardo.

Chile’s Outlook

Copper prices are expected to remain high even if China’s economy slows, Chile’s President Sebastian Pinera said in an interview with Bloomberg Television on May 25. While economic growth in China may slow to 7 percent to 9 percent, that would still be enough to keep commodity prices high for “a very long period of time,” Pinera said.

“China’s emergence as a major consumer of copper, most of which is imported, is now the major swing factor in the copper market, as is the issue of how fast supply additions can come into the market,” the UBS report said.

Kazakhmys Plc (KAZ), the biggest Kazakh copper company, said May 4 that its first-quarter production of finished copper fell from a year earlier on lower ore grades. A day earlier, Boliden AB (BOL) reported lower copper output. Codelco, the world’s biggest producer, said May 3 output at its largest mine will drop “strongly” during conversion into a subsurface operation.

“The market has been reminded about how tight the supply side looks for copper,” said Gayle Berry, an analyst at Barclays Capital in London. “The Q1 production results for a number of copper miners underperformed people’s bleak expectations. It does further illustrate how tight the raw materials market is for copper.”

Copper in London may rise this week after the mining companies’ comments on production, according to a Bloomberg survey. Seven of 13 analysts, investors and traders questioned by Bloomberg, or 54 percent, said prices will gain this week, while three predicted a drop and three forecast little change.

Jiangxi Copper Co., China’s biggest producer of the metal, posted a 158 percent increase in second- half profit because of rising copper demand and higher prices.

Net income rose to 2.79 billion yuan ($425 million) in the six months ended Dec. 31 from 1.11 billion yuan a year earlier. The result was derived by deducting the six-month figures from full-year profit released today on the Shanghai stock exchange, based on international accounting standards.

Chinese copper demand will gain 7 percent this year as the nation builds more homes, autos and upgrades power-grid networks, Chairman Li Yihuang said in March. Copper touched a record $10,190 a ton in February after surging 30 percent last year.

Shares in the company fell 2.3 percent to close at 39.55 yuan in Shanghai today, before the announcement. The stock was unchanged at HK$24.65 in Hong Kong.

Full-year net income more than doubled to 4.91 billion yuan in 2010 by Chinese accounting standards, Jiangxi Copper said. Net was 4.99 billion yuan by international standards, beating the 4.7 billion yuan mean estimate of 11 analysts surveyed by Bloomberg. Sales rose 48 percent to 76.4 billion yuan.

The company plans to boost copper smelting production capacity to 1 million metric tons this year, from 900,000 tons last year, Li said in March.