Commodities & Metals

Commodities Watch: Molycorp Acquires A US Processing Plant; Demand for Steel to Grow; Wheat Prices Rise Again (MCP, REE, AVL, REMX, MT, AKS, ATI, X, NUE, GLD, SLV)

Commodities news today features another processing plant acquisition, the latest projections on demand for steel, and more increases in the price of wheat. Gold and silver continue to make new highs today, as crude prices decline some.

Rare earths darling Molycorp, Inc. (NYSE: MCP) has acquired an Arizona processor of rare earth alloys and metals for $17.5 million. Earlier this month Molycorp spent $89 million to acquire a European rare earths processor.

The most interesting news about the latest Molycorp acquisition is its plan to begin immediately shipping rare earth feedstock from its California mine to the Arizona facility for processing. Molycorp has long said that it would begin production before the end of 2011, but this is a lot earlier than anyone expected. The company is probably shipping ore from stockpiles, and likely has been for a while, but now Molycorp will begin to capture the profits at a higher level on the value chain.

Other rare earth miners Rare Element Resources Ltd. (AMEX: REE) and Avalon Rare Metals, Inc. (AMEX: AVL) cannot afford to keep pace with Molycorp’s acquisitions nor will they be able to begin production as soon as Molycorp. Whenever Molycorp does a deal, it bashes the other stocks. When there’s news affecting rare earths in general, the other stocks benefit — and really for no good reason other than they have a stake in the ground on a rare earths play. The Market Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX) down more than -3% today, to $27.06, in a 52-week range of $19.25-$28.91.

The World Steel Association expects steel consumption to rise by 5.9% in 2011, to 1,359 million metric tons, less than half the 13.2% growth in 2010. The group expects demand to rise another 6% in 2012, to 1,441 million metric tons.

The outlook is promising for steel producers ArcelorMittal (NYSE: MT), AK Steel Holding Corp. (NYSE: AKS), Allegheny Technologies Inc. (NYSE: ATI), United States Steel Corp. (NYSE: X), and Nucor Corp. (NYSE: NUE). Goldman Sachs upgraded ArcelorMittal from ‘neutral’ to ‘buy’ today, and either maintained or downgraded three other European steel makers.

Demand from China is expected to be about 605 million metric tons in 2011, almost 45% of the worldwide total. Much of that will come from Chinese producers.

Wheat prices both in Chicago and Kansas City are up more than 4% today as traders are now worried about the European wheat crop. A lack of rain in the north is expected to continue for at least another week.

Gold prices have reached another record high above $1,498/ounce, helped by a change in the outlook for US debt from ‘stable’ to ‘negative.’ Silver prices topped $43.50/ounce, but have come back below $43/ounce late in the day. The SPDR Gold Shares ETF (NYSE: GLD) is up to $145.58 after having set a new 52-week high of $146.07. The iShares Siver Trust (NYSE: SLV) is off fractionally late in the day, at $41.83, after also posting a new 52-week high earlier of $42.50.

Paul Ausick