Commodities & Metals

Commodities Watch: Iron Ore Mining Wins, Uranium Mining Doesn't; Corn Prices Continue Falling; Gold, Silver Headed in Opposite Directions (VALE, NHYDY, CCJ, ARVCF, RIO, CORN, GLD, SLV)

Vale SA (NYSE: VALE), one of the world’s leading producers of iron ore posted record profit in the first quarter of $6.8 billion. Even discounting a one-time gain on the sale of $1.5 billion in aluminum assets to Norsk Hydro ASA (OTC: NHYDY) the company posted record profits and beat earnings expectations of $5.43 billion. Vale cited demand for iron ore, and higher prices for that ore, as the driver of its profits. The average price for iron ore in the quarter was $126.19/ton, essentially double the price from a year ago. Vale sold 71.5 million metric tons of iron in the first quarter, up 3.7% from the same period a year ago.

Word from Canada, and Cameco Corp. (NYSE: CCJ), was not so encouraging. The company is the world’s leading uranium producer, and the disaster in Japan, which didn’t really affect quarterly results, could result in lower sales. But Cameco did increased its 2011 forecast revenue growth from 5% to 10% above 2010 revenue, with uranium sales and fuel services the growth drivers. Unfortunately, the company had previously forecast growth of 15%-20% year-over-year. The change is based on currency exchange rate projections, for an even exchange between the US and Canadian dollars, to a 5% stronger Canadian dollar.

Worldwide uranium production in 2010 reached nearly 54,000 metric tons, about one sixth of which came from Canada. Demand is expected to grow by about 6% annually as new nuclear plants are built between now and 2020. About 26% of nuclear fuel is made from government stockpiles or decommissioned Soviet nuclear warheads. By 2020 that number will fall by half, meaning the growth will be even stronger. In addition to Cameco, France’s Areva, and Rio Tinto plc (NYSE: RIO) are major producers of uranium.

Uranium prices, according to Cameco, are projected at $70/pound, up from $55.25/pound currently. Many observers expect prices to rise even higher as demand, particularly from new nuclear plants in China, come online.

Heavy flooding along the lower Mississippi River probably can’t be avoided this spring, even if the rains stop. Heavy rain upstream is slowly flowing south, threatening more flooding along the river.

But the big water flowing downstream is not having any impact on corn futures, which are falling again today on some hangover from yesterday’s clearance sale on commodity futures. But, as always, traders will be watching the weather for clues to the size of harvests, and wet weather is expected to keep crop plantings down for at least a few more days. Some areas of Iowa and Nebraska could actually get all their planting finished by this weekend.

Corn stockpiles are expected to dwindle this summer and the expected size of the fall harvest will have a large impact on corn futures. Prices are down -$0.25 again today, at $6.84/bushel. But the drop probably has more to do with technical issues than fundamentals. At best, this year, corn is likely to just meet demand. Any unexpected weather event could toss the whole market into an uproar. The Teucrium Corn Fund (NYSE: CORN) is off about -1.8%, at $42.91, within a 52-week range of $23.79-$48.77.

Gold has staged a bit of a comeback today, trading at $1,485.20 shortly before the market closes. The SPDR Gold Trust (NYSE: GLD) is up about 1.5%, to $145.70, in a 52-week range of $113.08-$153.61.

Silver futures are down another -3% today, at $35.14. However, the iShares Silver Trust (NYSE: SLV) is trading up about 2.5%, at $34.55, in a 52-week range of $16.91-$48.35.

WTI crude oil is also back below $100/barrel, after climbing back above $102/barrel earlier today.

Paul Ausick