ALUMINUM AND OIL SIGNS OF THE FUTURE

Well Alcoa brought us the awaited numbers and beat the St. in sales and profits . Sales fell 41% to $4.24 billion from $7.62 billion last year, beating analyst expectations of $3.93 billion. The aluminum giant said it lost 26 cents a share last quarter, better than the 38 cents expected, despite the 41% drop in sales from 2008. This is their third consecutive quarterly loss reported .

The company said the average price of aluminum on the London Metal Exchange in the second quarter was $1,485 per tonne, a 9% increase from the first quarter of 2009, but a 49 % decrease from the second quarter of 2008. No doubt they have been hit hard with the downturn their big markets of building and construction, aerospace, and the motor industry. They showed the better than expected results partly due to Job cuts, by cutting their divi and cutting spending also by raising $1.3b.

The big killer for the company is that cut in the price of aluminum.

The Juruti bauxite mine in Brazil and the Alumar alumina refining upgrade and expansion are both in the process of being commissioned. The first shipment of bauxite from Juruti is expected within the next 90 days.

Chuck Bradford an analyst at Affiliated Research Group said "Results were better than expected due to improved costs, In the last several days it became pretty clear that Alcoa was going to do much better on the cost side than we had thought."
He cautioned, however, that the report, which is generally viewed as a bellwether for the broader economy, should not be taken as a sign of a strong earnings season.
"Alcoa's numbers really have no relation to anybody else or the economy," Bradford said. "It's strictly a matter of worldwide metal supply and demand and the savings Alcoa achieved in cost were purely company related."

The shares traded up in AH trading and are currently at 10.12 as I type having hit 10.35. A lot will depend on their guidance in the conference call which will be tonight 8th July.

HANDY LINKS:

http://www.kitcometals.com/

http://www.kitcometals.com/charts/aluminum_historical.html

I wouldn't be overly enthusiastic with these results but the company is trying hard to keep on top of things in these hard times.

In other news we saw that Consumers trimmed borrowing in May for the fourth straight month as the recession took another bite out of investments and drove unemployment higher. According to a report in the AP The Federal Reserve said Wednesday that consumer credit fell at an annual rate of 1.5 percent, or by $3.2 billion, from April. Economists expected a deeper cut of $9.5 billion.

But the new figures still mark the latest move by consumers to curb borrowing, pay down debt and strengthen household budgets. Americans have been spending less and saving more to cope with the recession, which started in December 2007 and is the longest since World War II.
The savings rate jumped to 6.9 percent in May, the highest since December 1993. The amount of money saved — $768.8 billion — was the most on records that started in January 1959, the government recently reported.

Also in the news was the UK is heading for an "energy crunch" after new oil and gas exploration in the North Sea dropped 57pc in the first half of this year. A report by Oil & Gas UK, the industry group, showed that companies are cutting back on new projects as costs rise and funding is scarce during the recession.
Investment in the industry fell to £4.8bn last year, down £1.2bn over the last two years, and it could drop below £3bn next year. The report estimates that £5bn a year is needed to maintain exploration.

In a report from Bloomberg

Venezuela oil and natural-gas drilling slowed to a five-year low in June after the country’s state oil company deferred payments to service providers, spurring rig shutdowns in the South American country that was the fourth-biggest source of U.S. crude-oil imports last year.
Oil rig use fell to 58 from 63 in the previous month, while natural-gas drillers kept using three rigs, according to figures released today by Baker Hughes Inc., the world’s third-largest oilfield-services company, which tracks drilling worldwide. The combined total is the lowest since October 2004.
Drillers are shutting down after Venezuela’s state oil company, Petroleos de Venezuela SA, failed to pay its bills for as long as a year. The prospect that a U.S. recession will further erode oil demand has prompted companies worldwide to reduce drilling investments, said Fadel Gheit, an analyst at Oppenheimer & Co.
“Everything in the oil business has been skidding for the last seven to eight months,” he said today in a telephone interview from New York. “Not only is demand not going to grow, but demand will decline in the next five years.”
Oil won’t return to its record level of $147.27 a barrel reached in July 2008, he said.


In a separate report Crude oil fell for a sixth day, the longest losing streak since December, and gasoline tumbled to a two-month low after a report showed a bigger-than-expected gain in U.S. fuel supplies as the recession curbed demand.
Gasoline stockpiles climbed 1.9 million barrels to 213.1 million in the week ended July 3, more than twice the increase forecast in a Bloomberg News survey, the Energy Department said. Inventories of distillate fuel, a category that includes heating oil and diesel, rose to the highest since 1985 as consumption dropped to a 10-year low.
“The market is starting to focus on the weak fundamentals,” said Antoine Halff, head of energy research at Newedge USA LLC in New York. “The deterioration of the fundamentals should continue in the weeks ahead. The drop in prices has yet to run its course.”
Crude oil for August delivery fell $2.79, or 4.4 percent, to $60.14 a barrel at 2:42 p.m. on the New York Mercantile Exchange, the lowest settlement since May 19. Prices have dropped 16 percent in the past six days.
Gasoline for August delivery declined 9.95 cents, or 5.7 percent, to $1.6333 a gallon in New York, the lowest settlement since May 6. It was the biggest one-day drop since March 30.

Distillate Supplies
Distillate fuel inventories rose 3.74 million barrels to 158.7 million, the biggest gain since January, the report showed. The increase left supplies last week 30 percent higher than the five-year average for the period.
Gasoline inventories were forecast to increase 900,000 barrels last week, according to the median of 16 responses in a Bloomberg News survey. Supplies of distillate fuel were estimated to rise 1.83 million barrels.
Total U.S. daily fuel demand averaged 18.4 million barrels in the past four weeks, down 5.9 percent from a year earlier, the report showed. Distillate consumption fell 12 percent to 3.27 million over the period, the lowest since July 1999.
“The distillate demand numbers just look awful,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “There’s a double-digit year-on-year decline in demand because of the economy. If GM isn’t making cars, they aren’t shipping them, either.”
Crude Oil Inventories
Crude oil inventories fell 2.9 million barrels to 347.3 million last week, the lowest since January, the report showed. Supplies last week were 7.4 percent higher than the five-year average, according to the department.
“This report is incredibly bearish,” Evans said. “The drop in crude-oil stocks isn’t that important because total petroleum stocks keep rising.”

To read the full report go to http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a3K2HPWe2JIo

OPEC Expects Demand for Its Crude in 2013 to Be Below Last Year .

The vix for oil is showing a high level of uncertainty among investors as efforts intensify for stronger regulation of energy trading. This measure is a relatively recent addition to the CBOE. Oil VIX Ticker - OVX tracks the United States Oil Fund ETF (NYSEArca:USO - News).


All very bearish there.

Well today I traded the big shorts FAZ & TZA it was a shorts dream day and I switched for the inevitable end of day pop to FAS. It's nice of Uncle Sam to throw us a few $'s each day like this.

Yen, Dollar Rise on Iran Concern, World Bank Recession Forecast

By Yoshiaki Nohara and Ron Harui
June 22 (Bloomberg) -- The yen and the dollar gained as concern the political tension in Iran is worsening and a World Bank report saying the global recession will be deeper than earlier predicted fanned demand for the currencies as a refuge.
The yen strengthened versus all 16 major currencies after Iran’s government detained five members of former President Ali Akbar Hashemi Rafsanjani’s family and said at least 17 people had been killed during protests over this month’s disputed election. The Australian and New Zealand dollars and South Africa’s rand fell the most against the greenback and the yen after the World Bank also warned that a flight of capital from developing nations will increase the number of jobless.
“There is growing uncertainty over what will happen in Iran that seems to be sparking risk aversion,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest bank. “This would be supportive of the yen.”
The yen advanced to 133.24 per euro as of 7:49 a.m. in London from 134.18 in New York last week, after rising as high as 133.02. Japan’s currency strengthened to 96.13 per dollar from 96.27. The dollar climbed to $1.3855 per euro from $1.3937.
Japan’s currency gained 1 percent to 76.80 versus the Australian dollar and climbed 1 percent to 61.26 to the New Zealand dollar as splits within Iran’s ruling elite deepened. Parliament Speaker Ali Larijani yesterday criticized the top election body for siding with President Mahmoud Ahmadinejad and said most Iranians don’t accept Ahmadinejad’s electoral victory.
World Bank Forecast
The yen typically strengthens in times of financial turmoil as Japan’s trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders. The dollar benefits as it is the world’s reserve currency.
The World Bank forecast in a report that the world economy will contract 2.9 percent this year, compared with a previous estimate of a 1.7 percent decline.
Japan’s gross domestic product will shrink 6.8 percent this year, more than the Washington-based bank’s prediction in March of a 5.3 percent decline, while the euro area will shrink 4.5 percent, almost twice as much as the previous forecast for a 2.7 percent contraction.
“The reality is that economic numbers speak for themselves, and the data in Europe has been more negative than elsewhere,” said Mitul Kotecha, Hong Kong-based head of global foreign- exchange strategy at Calyon. “Equity markets are really struggling at the moment. When equity markets struggle, the U.S. dollar generally benefits.”
Dollar Index
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, gained 0.3 percent to 80.48.
The yen also rose as rising volatility damped demand for so-called carry trades. Volatility implied by one-month euro options against the yen climbed to 17.6 percent from 17.1 percent on June 19, indicating a greater risk of exchange-rate fluctuations that can erode profit on such trades.
In carry trades, investors get funds in a country with relatively low borrowing costs and invest in another with higher interest rates. The risk is market moves can erase those profits. The benchmark interest rate is 0.1 percent in Japan, compared with 3 percent in Australia and 2.5 percent in New Zealand.
Asian Currencies
Indonesia’s rupiah led Asian currencies lower as concern the global slump will be prolonged curbed demand for emerging- market assets.
“Markets are cautious about the global growth story,” said Thio Chin Loo, a senior currency analyst at BNP Paribas SA in Singapore. “The outlook is mixed and I don’t expect it to clear up for the next few days.”
Foreign investors sold $42 million more Indonesian stocks than they bought last week, and cut their holdings of local- currency bonds to 86.4 trillion rupiah ($8.3 billion) as of June 16, from 89 trillion rupiah on June 5, government and stock exchange data showed.
The rupiah fell 0.5 percent to 10,455 per dollar, according to data compiled by Bloomberg. It dropped 2.9 percent last week. India’s rupee lost 0.7 percent to 48.44 per dollar.
Analyst forecasts about the dollar have become the most scattered in two years, driving up foreign-exchange price swings and increasing risks that trading strategies and corporate hedges will backfire.
Redtower Asset Management, an Aberdeen, Scotland, investment adviser, sees the currency strengthening to $1.16 per Euro by year’s end, from $1.3906 today, as the world economy recovers from the first global recession since World War II. Standard Chartered Plc predicts a more stable economy will weaken the dollar to $1.55 as the Federal Reserve keeps its benchmark interest rate near zero to sustain growth, prompting investors to sell greenbacks for higher-returning assets.
Rising Volatility
The 39-cent gap between the high and low calls in Bloomberg’s strategist survey is almost double August 2007’s 20- cent divide. Wider fluctuations increase the risk for so-called carry trades, where money borrowed from countries with low rates is used to invest for higher yields. A move to unwind such investments probably would drive down the Brazilian real, South African rand and other developing nations’ currencies.
“It’s usually in this environment when volatility starts to pick up, before you have a real big move toward one camp,” said Paresh Upadhyaya, who helps manage $21 billion in currencies as senior vice president at Putnam Investments in Boston. “The dollar’s at a critical juncture, and to me it’s a sign we’re going to see a more significant move one way or the other.”
To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net. Last Updated: June 22, 2009 02:53 EDT