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