Article on commodsInteresting article. Found it on another forum. Predicts that commodity prices will rebound significantly and that demand has not been crimped.
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Telegraph.Co.UK
Last Updated: 12:53am BST 25/08/2007
Do freight rates tell the true story?
The focus has been on the credit crunch but the Baltic Index may give a better picture of the state of the world economy, writes Ambrose Evans-Pritchard
The cost of leasing cargo ships to carry coal and metal to China reached an all-time high this week, defiantly ignoring a month of panic and tumbling prices across the commodity markets.
Heavy traffic: the credit squeeze is having no impact on the day-to-day demand for base metals
A 170,000-tonne Cape-size vessel now rents for $118,400 a day, roughly double the level a year ago. The Baltic Dry Index - which measures freight rates and is allegedly one of Alan Greenspan's favourite barometers of global health - has rocketed to a record 7,319.
The Baltic Index tells the underlying truth, missed amid all the headline chatter about the credit crunch, says Barclays Capital.
"Twice already this year it has proved a reliable indicator of fundamental trends for commodities when markets wobbled," it says. "Once the dust settles, the likelihood is for some very strong rebounds in commodity prices."
Indeed, outside the Australian port of Newcastle a fleet of 55 immense cargo ships is still waiting to pick up iron ore and coal to supply the industrial revolutions of Asia - a powerful rebuke to bears insisting that the great commodity boom is now over. Yet - big caveat - the share prices of mining companies have plummeted, many dropping much harder than those of the banks loaded with sub-prime debt and toxic CDOs (collateralised debt obligations).
Rio Tinto and Xstrata fell a quarter from their peaks in late July before recovering somewhat this week, while the smaller miners and explorers on London's Aim index or the Toronto exchange have been slaughtered.
In Canada, a clutch of mining companies have been burned by the wild ructions in the credit markets. Many had exposure to the finance company Coventree, which failed to roll over $4.8bn (£2.4bn) of asset-backed commercial paper last week.
Baffinland Iron Mines ($44m), Barrick Gold Corp ($65m), Ivanhoe Mines ($14m), and New Gold Inc ($152m), are among the companies that have not been able to get their money back - in some cases most of their cash. (Hence the recent flight into three-month treasury notes, deemed the only safe repository)
In this climate of near panic it has become all but impossible for miners to raise loans. Credit will be at least 100 basis points more costly (1pc) for those - in the top tier - still able to obtain it.
It is perhaps no surprise that mining shares have been driven into the floor.