THEME: FED

" While Fed members acknowledged an improving economy, they didn't see any "significant inflationary pressures" that would require higher interest rates. Even if the economy were to grow according to their forecasts, slack resource use in the economy would not dissipate "until perhaps the latter part of 2005 or even later," the summary says.

"Keep in mind that as of Oct. 28, the Federal Reserve had yet to see any gains in the monthly payroll data," which through revisions issued in nearly November showed four months of gains, said Tony Crescenzi, chief bond market strategist with Miller Tabak & Co. "Therefore, the timeline for when the Fed believes excess capacity would be absorbed might now be 1 to 1 1/2 years, instead of 1 to 2 years."

FOMC minutes released today suggest that the Fed is going to wait for a "considerable period" before hiking rates. What is the Fed waiting for? Jobs. The big question is can low interest rates actually create jobs? If they keep rates low and jobs continue to not appear, then all the bubbles can just keep going up leading to inflation. This may be the ultimate stagflation scenario. No jobs, but high prices everywhere.

THEME: CHINA / METALS
This is a shocker from Reuters...

ANALYSIS-Why China is scooping up Europe's old coins
Reuters, 12.11.03, 5:06 AM ET

By Polly Yam and Declan Conway

HONG KONG/LONDON, Dec 11 (Reuters) - A pocketful of centimes or pfennigs won't get you far in Europe these days, but in China they might just be worth their weight in nickel.

Such is China's voracious appetite for raw materials to feed its rapidly growing economy, that the country is snapping up the obsolete coins and melting them down for their metal content.

The Asian giant, with booming construction and automobile sectors, is scouring the globe for every piece of scrap metal it can lay its hands on -- and France is one country that has a ready supply of much-sought-after nickel-containing coins.

"The stainless steel producers can just put them (the coins) into their furnaces as nickel feed," said a trader in China, who added the coins are often tendered by French suppliers.

"The shipments are usually packed 500 to 1,000 tonnes per lot," another Chinese trader said.

China's stainless steel demand is predicted to rise to four million tonnes next year from 3.4 million in 2003, analysts said.

Stainless steel, of which nickel is a key component, is a versatile metal used in construction. It also finds its way into cars, appliances and kitchenware.

CENTIMES IN DEMAND

An official at France's mint told Reuters China had been a major buyer of French coins since they were replaced by euros as the country's legal tender almost two years ago.

He said the mint had not auctioned its coins directly. Instead, it sold them to dealers, some of whom in turn sell to smelters and scrap metal traders.

The old 50-centime coin, almost 100 percent nickel, is proving particularly popular in China, where it is bought as scrap to supplement tight supplies of the main raw material, refined nickel.

Even collectors' items have found their way into Chinese furnaces. "We sell special commemorative coins to various shops, which have then sold some of this stock to the Chinese," said the French mint official.

Christian de Barrin, spokesman for the Brussels-based European Copper Institute (ECI), estimated around 260,000 tonnes of old European coins would be recycled by 2005 from the beginning of last year.

Germany, the region's largest coin user, had almost 79,000 tonnes of old marks and pfennig coins. But like most other EU countries, it sold most within 18 months of the euro's launch.

France had around 43,000 tonnes of old coins and still retains a large portion of this total, the ECI said.

NICKEL DEMAND

Secondary copper producers Norddeutsche Affinerie AG of Germany and Elmet of Spain were the two main companies involved in recycling old European coins, said the ECI.

De Barrin said the 260,000 tonnes of old coins would yield around 150,000 tonnes of copper, 54,000 tonnes of steel and 43,000 tonnes of nickel.

"The old (French) 50-centime coin contained 100 percent nickel, whereas the five-, 10- and 20-centime coins contained 92 percent copper," he said.

China only has its eye on the nickel, which is used as an anti-corrosive additive in stainless steel production.

Chinese traders saw the nickel contained in coin scrap being offered to China at a discount of two to three percent on the London Metal Exchange (LME) cash settlement price.

But Chinese demand for copper-rich coins is much weaker, the traders said. These coins contain only eight percent aluminium and nickel, and separating these metals from the copper is a difficult and expensive process, they said.

Secondary copper smelters in China prefer to import other grades of copper scrap, which are easier to process and relatively cheap, the traders said.

CLEARING CUSTOMS

Most of the coins imported by China are already destroyed before clearing customs. Otherwise, Chinese authorities might demand papers certifying they are no longer legal currency.

China's nickel importers are not banking on the French mint as a major supplier of the metal for years to come.

Its shipments to China are still limited, the Chinese traders said. They added a growing international shortage of nickel and a 14-½ year high in the LME three-month price was also making the coins popular among end-users in Europe.

LME three-month nickel closed at $13,250 a tonne on Wednesday, up $30 on Tuesday's kerb close but down from the 14-1/2-year high of $13,415 a tonne reached during the day.

In the Chinese domestic market, spot nickel was trading early this week at 121,200-125,000 yuan ($14,638-15,097) a tonne, up from 103,000-106,000 yuan two months ago. ($1 =8.28 yuan)

Copyright 2003, Reuters News Service

THEME: CHINA/ALUMINUM
Reuters

China smelters to seek more alumina imports
Reuters, 12.11.03, 5:55 AM ET

By Polly Yam

HONG KONG, Dec 11 (Reuters) - Many of China's aluminium smelters will seek next year to import more of their key raw material, alumina, after securing insufficient from the country's dominant producer, Aluminum Corp of China Ltd (Chalco) <2600.HK>.

Industry sources said on Thursday increased Chinese purchasing would further strengthen the country's role in the volatile international spot alumina market. China is already the world's largest importer of alumina.

"Chalco cannot make all the smelters happy. It needs to be selective," a source at the state-controlled company said.

"Some smelters that used to rely on domestic supplies will have to start looking for imports next year," an industry source in Beijing added.

Chalco produces more than 90 percent of China's alumina. The country is expected to produce about 6.6 million tonnes of the raw material next year, against demand of 12 million to 13 million tonnes.

The huge supply shortfall has triggered many smelters in China to try to secure long-term contracts for alumina from Chalco because its prices are lower than those for spot imports.

In the Chinese domestic market, spot Australian alumina changed hands at more than 4,700 yuan a tonne, as supplied from warehouses in Chinese ports, against 3,300 yuan offered by Chalco for 2003 term contracts.

The main international suppliers of alumina to China include Alcoa World Alumina & Chemicals (AWAC). That company, a 60-40 global joint venture between Alcoa Inc (nyse: AA - news - people) of the U.S. and Australia's Alumina Ltd , operates three alumina refineries in Western Australia.

Comalco, the Australia-based aluminium unit of Rio Tinto Ltd/Plc ,is building a new refinery in Queensland and owns a stake in Queensland Alumina Ltd, operator of the world's largest refinery. Alcan Inc and Pechiney are also shareholders in Queensland Alumina.

NEW SALES POLICY

Chalco has changed its 2004 domestic sales policy to focus on selected smelters, industry sources said.

Chalco officials told its customers in an annual sales meeting in late-November that, in principle, it would no longer supply alumina to smelters that owed money to it or did not follow government policy, sources who attended the meeting said.

Under the new policy, around 26 smelters that had previously received alumina from Chalco were not invited to the meeting and failed to get any allocations from Chalco, they said.

"Some smelters were told about the new policy and paid their debts to Chalco right away. But they still didn't get any alumina (for 2004)," an official for one large northern Chinese smelter said.

"But a few old and small smelters that are not competitive in the market have received allocations from Chalco. It's not clear how it works," he said.

"I think Chalco concentrates its supplies on smelters with which it has good relationships and those that bought alumina from Chalco even when the domestic market was bad," another smelter official said.

The Chalco official did not comment on this. But he said the company encouraged smelters to follow government policies that include closing down old plants and building modern smelters with Beijing's permission.

The government requires all smelters that use dirty and outdated Soederberg technology to close down before the end of 2005.

This could wipe out as much as 1.3 million tonnes of aluminium capacity in an industry that is rapidly expanding elsewhere.

While most industry officials welcomed such moves, some said Chalco's new policy might prompt outdated smelters to rebuild their plants with larger capacities than before.

They said the closure of many old smelters in the next two years would also create social problems.

"The closures will force thousands of workers out of their jobs and will reduce revenues to local governments," the source in Beijing said. "Local governments will try to keep them operating."

China's primary aluminium production is expected to rise to about 5.5 million tonnes this year.

Copyright 2003, Reuters News Service

THEME: CHINA/OIL
From Xinhua...

Half of China's oil consumption will depend on imports within four years
( 2003-12-11 22:36) (Xinhua)

China will see an increasing dependency on crude oil imports, with the amount of crude oil imported rising from 31 percent in 2002 to 50 percent four years later in 2007, according to official research released in Beijing Thursday.

Research by China's Ministry of Communications on marine oil transportation predicted that the country would import 100 million tons of crude oil in 2005, 150 million tons in 2010 and in 2020 the number would soar to 250 to 300 million.

China would become the world's second biggest oil consumer following the United States and third oil importer after the United States and Japan, said the research report.

The more than 6 percent annual growth of China's national economy and the readjustment of the economic structure are behind the country's higher demand for crude oil, but the oil production failed to keep pace with the economic growth and only registered 1.7 percent growth annually, the research report pointed out.

The shortage of oil supply forced China to become a net oil importer since 1993. Official statistics showed that the volume of imported oil has increased from over 20 million tons to 70 million tons from 1996 to 2002.

China imported approximately 1.4 million barrels of crude oil per day in the international market during the time, the report added.

The experiences of foreign developed countries proved that the oil consumption would increase at a low speed in an economy backed by industrial sectors, and during the industrializing process before the tertiary industry becomes the backbone of the national economy, the domestic oil consumption would undergo a rocketing growth, the report further explained.

China would be in a vital period of industrialization from now until 2020, stressed the report, predicting that China's average annual consumption of crude oil would secure an increase by 4 percent in the coming five to ten years.

THEME: CHINA/PLATINUM
BBC article on platinum

Friday 15 August 2003

China Platinum

China has allowed the Shanghai gold exchange to start trading in platinum. The aim is to stop the smuggling of the precious metal. For now, it is not necessary to pay the normal seventeen percent value added tax on platinum. China is the world's biggest market for platinum jewellery. This report from Francis Markus:

Listen to the story

China's fashion conscious urban young are developing a growing appetite for the cool white look of platinum jewellery.

The country now accounts for fifty-five percent of the world market and the consumption is increasing fast so it is hardly surprising that there is rampant smuggling of the precious metal which comes mostly from countries like South Africa, Zimbabwe and Russia.

To try to regulate the market, the Chinese authorities have this week allowed Shanghai's gold exchange to start trading in platinum too. As an encouragement, all transactions, for now at least, are free of the normal seventeen percent value added tax.

The move comes at a strategic time for the industry with high demand from couples who plan to get married in the popular wedding month of October, but the platinum producers also have their eye on China's vast market in the longer term for another key, if less romantic, use of the metal in car catalytic converters to cut exhaust emissions.

Another article about demand...

China's platinum demand in Q1 reaches 560,000 ounces, exceeding Japan's



Platinum sales in China continued to grow in the first quarter and reached 560,000 ounces, exceeding Japan's demand for the first time. Robust demand from the jewelry and manufacturing industries has driven up sales.

Demand for platinum in China jumped 53% in 2001 over the previous year to 1.2 mln ounces, much higher than the average demand growth rate of 19% in the international market, Guoji Jinrong Bao reported.

Shenzhen is China's refining center for platinum, handling 70-80% of the wholesale volume in the country. Raw materials are supplied by neighboring Hong Kong, and the price of 90% pure platinum has reached RMB 141.7 (USD 17.11) per gram, and that of 95% purity RMB 143.9 (USD 17.38).

Demand is expected to remain strong in the latter half of this year. The jewelry trade in the single largest platinum market in China, followed by catalytic converter, TV, computer monitor, and optical fiber manufacturers. (Source: Interfax)

THEME: CHINA/DEFLATION
Good article in NYT discussing unemployment in China...

Jim Yardley NYT

Tuesday, December 9, 2003
BEIJING When President George W. Bush welcomes Prime Minister Wen Jiabao of China at the White House on Tuesday, a pressing issue on the American side of the table will be jobs, and the impression, fair or not, that the United States is losing them directly to China.
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But as American leaders in both parties complain about lost manufacturing jobs and push for China to revalue its currency, China has its own serious jobs problem. In recent years, the shock therapy of China's economic restructuring has caused huge layoffs at old, unprofitable state-owned factories, while an overpopulated countryside has too little usable land and too many farmers.
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"Unemployment is a severe problem," said Zhong Dajun, who runs an economic research center in Beijing. "It's a problem that is affecting not just ordinary farmers and workers, but even university graduates, who are finding it very difficult to find any work. I don't know if it's going to worsen, but it's bad enough already."
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Factory unemployment is highest in the northeastern Rust Belt, where state-owned enterprises have either closed or downsized. Experts estimate that as many as 200 million farmers and rural workers are either unemployed or underemployed in a country of 1.3 billion people. And a report in the state media found that only half of college graduates got jobs this year, compared with 95 percent in 1997.
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China's economic growth rates remain the envy of the world, but many economists say the boom is still not providing enough new jobs to curb unemployment in such a populous nation. A new International Monetary Fund working paper predicts that China's urban unemployment rate could double to 10 percent by 2007, even with annual economic growth rates of 7 percent.
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For Wen and his political ally, President Hu Jintao, unemployment is a pressing economic and political issue. The Communist Party, which long ago cast aside its founding ideology to embrace capitalism, has pointed to rising personal incomes and fast economic growth.
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For many Chinese, that promise has been delivered, particularly in large cities like Beijing and Shanghai, where incomes have risen sharply in the past decade. But it has also brought a growing divide between rich and poor. Consumption is soaring in big cities, particularly of cars, including luxury sedans like BMW. Still, peasants occasionally can be seen riding mules on the outskirts of Beijing.
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In recent years, some of those cast off by the new economy have vented their anger in labor protests. Many are small and peaceful, with complaints of low severance payments. But some are large and violent. Last month, thousands of workers from two factories in central China reportedly clashed with police in a protest over layoffs and payments.
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Dorothy Solinger, a professor of political science at the University of California at Irvine, said the nondemocratic government has largely kept the protests under control by arresting the leaders and appeasing the mass of workers with small concessions and payments. Still, she said that government leaders worry that political opposition could arise from alliances of different groups of disgruntled workers.
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"They are terrified that all these people with grievances could coalesce," Professor Solinger said of the government. She added: "They put a lot of energy into trying to keep the boiling pressure down."
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The government is putting some of that energy in trying to develop a nationwide social safety net to replace the discarded cradle-to-grave socialist system in which workers ate, lived and received health care from their state employer. A pilot program is under way in the Rust Belt's Liaoning Province that provides a range of welfare and health payments for unemployed workers or those laid off workers categorized as 'furloughed.'
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Joseph Fewsmith, a professor of international relations and political science at Boston University, wrote in a recent report that the number of laid-off workers who are able to find a new job has dropped to 20 percent in 2002 from 50 percent in 1998, according to the Blue Book of China, an annual survey by the Chinese Academy of Social Science.
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That same Blue Book report found that China's urban residents ranked unemployment as their second leading concern, following social security. In another poll, a group of provincial officials ranked the income divide as China's most important problem, with unemployment coming in second.
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The biggest employment losers in China are much like the people losing their once secure jobs in the United States, older workers, often in their 50's, who have less education and are thus harder to re-employ. These workers also are facing increasing competition as the number of college graduates is expected to jump to about three million in 2005 from roughly two million this year, according to Southern Breeze, a Guangzhou magazine.
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In an interview, Mr. Fewsmith said China's older workers have already borne the brunt of every cycle of modern Chinese history. Citing a Chinese expression, he said: "They didn't get enough to eat during the famines of the Great Leap Forward. They didn't get an education because of the Cultural Revolution. And they are getting laid off because of the economic reforms."
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The New York Times

THEME: DOLLAR & COMMODITIES
From the FT...

Platinum soars on fears over shortages
By Kevin Morrison and John Reed
Published: December 5 2003 4:00 | Last Updated: December 5 2003 4:00

Platinum prices rose to fresh 23-year highs yesterday after Anglo Platinum, the world's largest miner of the precious metal, cut back its production expansion forecasts over the next three years.

The cut in production by the South African miner, responsible for nearly 40 per cent of the metal's output last year, has stoked fears of possible shortages given that demand has exceeded supply for the past five years. The price has more than doubled in that period.

Platinum prices peaked at $796 a troy ounce in London, up $15 on the day, and is within sight of the $800 level - a price unseen since March 1980, when prices spiked to a record $1,048.

Despite soaring platinum prices, Anglo Platinum has seen its margins hit, like other South African mining companies, by the strengthening rand. The currency has appreciated by 50 per cent against the US dollar since hitting a low of more than 13 to the dollar in late 2001. South Africa produces about 70 per cent of global platinum supply, and this week Impala Platinum warned that its earnings for the year would be more than 30 per cent lower than last year's, also due to the rand.

Anglo Platinum said yesterday it was committed to expanding its production base, but uncertainty over the rand led the company to delay implementation of several of its mining projects by between one and three years.

"The relative strength of the rand means the projects are not as lucrative as they should be," said Ralph Havenstein, Anglo Platinum's chief executive officer.

SPEC: VIDEO GAMES
From BusinessWeek...

Q: Jonathan, is there any software that will be a hit during the Christmas shopping season? And what company will benefit, if any?
A: We like Electronic Arts (ERTS ) with its strong video-game library of brands, such as Lord of the Rings and Harry Potter, in addition to its market-dominant sports brands like Madden NFL Football and FIFA Soccer. We believe that ERTS should have a very strong Christmas selling season, as the current generation of hardware consoles continues to be built out.

THEME: CHINA/GOLD
As more proof that China is driving the gold boom, here is an article from the FT:

Li Ka-shing sets up new gold trading business
By Justine Lau in Hong Kong
Published: December 3 2003 10:38 | Last Updated: December 3 2003 10:38

Li Ka-shing, Hong Kong's richest businessman, on Wednesday set up a gold trading company called LOCO HK to take advantage of the boom in precious metals.

The company is wholly-owned by Mr Li privately and is based in Hong Kong, one of the biggest bullion markets in Asia.

Mr Li, who made his first fortune by making plastic flowers, is famous for his knack of spotting investment opportunities early. The tycoon, through his numerous companies including Hutchison and Cheung Kong, controls an empire spanning ports, telecommunications, property, retail, media, biotechnology, energy and other sectors.

While LOCO HK is the latest addition to the Li empire, the billionaire has been active in Hong Kong’s gold market for some time. Three years ago, he and his flagship conglomerate, Cheung Kong, jointly bought RNA, a local gold retailer and wholesaler. Mr Li personally owns 26 per cent of RNA, which has a real time electronic trading platform for precious metals.

LOCO HK has appointed RNA to be its adviser and will pay 30 per cent of its profit to RNA as fee.

Mr Li's investment comes at a good time. Bullion has risen from a low of $256 an ounce in 2001 to a seven-year high of over $400 this week, as a result of low interest rates, a weak dollar and global political uncertainties.

Daily trading volume in the Hong Kong’s gold and silver exchange has grown by about 30 per cent to around four tonnes in 2003 compared with the previous year, according to Herbert Tsang, a manager at local rival Chinese Gold & Silver Exchange Society, one of the world's first gold trading exchanges established in 1910.

"To create a gold trading company in Hong Kong is like opening a supermarket. Everyone can do it. But the question is whether people want to trade with a private company, or a more independent and long-established exchange," Mr Tsang said.
Looking Ahead: Markets come and go, but these truths of investing are forever