Copper prices have doubled in almost a year. Bucyrus International (BUCY), an equipment mining company with a $3.6B market cap, provided some important commentary in its earnings report last week regarding the state of the global economy. In particular, BUCY expects copper prices to remain elevated (quotes from Seeking Alpha transcripts from the conference call):
“Particularly in oil, sands, copper and iron ore as we’ve talked about in the past, the big five [mining companies] that do mind the preponderance of the copper, their yields are down significantly which means that they need more equipment to get the same amount of ore out of the ground, and quite frankly the lack of the exploration in the low yields has led to the type of copper price that we’re seeing right now, and until more production can hit the market and that’s not going to be immediate, we see that copper pricing will continue to stay where it’s at.”
There has been a lot of debate about how long China’s commodity stockpiling cycle will last and debate about whether “real” demand will pick up the slack once that cycle ends. According to BUCY, it seems that the lack of investment starting from the deflationary panic of 2008 has left copper producers flat-footed. Copper could lead the way in demonstrating how a destructive deflation, followed by historic easy monetary policy, introduce the global economy to its next inflationary cycle. Stay tuned…
“Gwinnett County officials Friday unveiled plans to set a 2009 mill levy that would increase its portion of property taxes by about 21 percent. The proposal would generate $52.6 million in additional revenue to help restore emergency services, parks, recreation and other operations pared by budget cuts earlier this year. The increase, if passed, would add slightly more than $13 a month in county property taxes on a $200,000 house, or about $160 a year.”
This is the second time County Commissioners have proposed an increase in property taxes. Anti-tax activists defeated the earlier proposal, and the county responded with drastic cuts in services. This time around, the tax is likely to pass given that Debbie Dooley, the grass-roots coordinator for Freedomworks, will not oppose the plan:
“‘They explained in detail what this mill rate would fund. It’s what we’ve wanted all along. People just want accountability from their elected officials.’ Dooley said she has issues with some of the restorations in parks and recreation, and while she will not support the budget increase, she will not lead a drive to oppose it. She encouraged county residents to attend the public meeting Thursday to see a presentation on the plan and make up their own minds.”
The on-going tensions between government revenues and household budgets become most intense during recessionary economic conditions. Property taxes are a particularly hot topic because they drive up the cost of owning a home in ways that many struggling families are not prepared to handle. On the other hand, when deprived of these revenues, local governments can sometimes struggle to provide even the most basic services that these same families come to expect.
No matter where your sympathies reside, higher property taxes are inflationary for existing homeowners and are likely inflationary for aspirational homeowners (unless offset by federal tax credits, homebuilder discounts, etc…)
Although producer prices fell 0.6% in September, producers who rely heavily on commodities as inputs have experienced sharp pricing pressures for the past several months. Encore Wire Coporation (WIRE) provides one of many examples.
WIRE is a small producer of copper wiring ($486M market capitalization and net sales last quarter of $169M). The company described the squeeze it feels from higher copper prices during its conference call announcing third quarter earnings (click here for the complete transcript from Seeking Alpha):
“We’re tempted to lead the industry with several price increases during the quarter but met limited success…copper’s doubled since late last year and historically that’s been a fantastic situation for our industry. The change this time around on the copper climb has been there is a competitor that’s been very public with, they don’t agree with the passing on those cost, because they feel like the [market] won’t allow it.
Our approach to that is you pass it on and it is what it is regardless of the demand. It’s very transparent for contractors and distributors alike to see that copper is up $0.10 or down $0.05 or whatever the volatility would lead to and from my 20 years…copper is the deciding factor on a price increase or actually price decreases as well. You can have PVC, you can freight, you can nylon, you can have other cost influences but until copper trends one way or the other, the price increases typically fail.”
In other words, when construction activity picks up again and/or becomes relatively more robust, there is plenty of inflation waiting in the wings for commodity-based products like copper wiring. That inflation will likely translate quickly into higher costs for construction across the board.
From the Los Angeles Times:
Travelers who use the economy parking lots at Los Angeles International Airport will pay $2 more per day starting Nov.19. The Los Angeles Board of Airport Commissioners approved the increase Monday for parking lots B and C, whose rates were last raised in 2002. When the increase goes into effect it will cost $10 a day to park in Lot B on 111th Street and $12 a day in Lot C off Sepulveda Boulevard.
Sumitomo Rubber Industries Ltd. (SRI) is increasing prices for Dunlop-, Falken-, Sumitomo- and Ohtsu-brand tires it exports by 5 to 15 percent, depending on size, category and market …. SRI cited the rising cost of raw materials, including natural rubber and crude oil, as the reason for the increases.
From the China Post:
Nanya Technology Corp., Taiwan’s biggest computer-memory chipmaker, plans to raise prices 20 percent next month because of rising demand, Vice President Pai Pei-Lin said. The company increased prices by 20 percent this month from September, after boosting them 35 percent in the third quarter from the preceding three months, Pai said.
Related: Via the Wall Street Journal:
Contract prices of the dynamic random access memory chips widely used in personal computers increased sharply during the latter part of October, DRAMeXchange, a Taiwanese online chip clearinghouse, said Thursday. The average contract price of the mainstream 1-gigabit double-data-rate-two chip that runs at 667 megahertz rose 15.7% to US$2.06 from US$1.78 in early October, DRAMeXchange data showed.