Morning Mumble: Ken's Mare, Petrofac and any old tin!

It would appear in the rush to the train today this wasn't "published".

Good Morning,

The unfortunate position of Kenmare has be exacerbated by issues in South Africa with an update this morning. Petrochemical firm Sasol have also pulled all their South African employees out of Mozambique. Sasol's Inhambane natural gas connections might have to be put on hold for some time if the feuding continues. 

It appears to be an issue stemming from the South African Zulu King, Goodwill Zwelithini. His words, whether taken out of context or not, caused an outbreak of violence and looting. Goodwill, (whether lacking or not, poor I know) has alleged to have said that foreigners cause the crime and they must “take their bags and go." The question being, can KMR continue operations in the absence of these 62 workers, and what impact this has on their Iluka and refinancing discussions. Iluka should really just bypass the KMR and offer the banks par for the debt, surely a better deal?

Petrofac's SP is destined for some short-term weakness with yet another 'warning', It brings in to question, in the current climate, the fixed cost contract base. Petrofac are slowly falling to the whoes of being a contractor, although not without some positives it's a stock simply put, with a few warnings under it's belt its not for the faint hearted. Having risen to strongly in the last 3+ months, its wise to cut and run! Simply put, if the management have no handle on the costs, there's a likelihood of more and more warnings. Time will tell.

Last Friday was amusing to say the least, having only a few days earlier been discussing why tin isn't worth much over $15,000/t on a good day, lo and behold, it motors south by near 10%. The biggest move in some time, 5-6 years. Simply put, its wise when your position is not that strong to keep quiet scale back production and allow the market to rebalance. 

Indonesia's ability to manage the commodity cycle is borderline laughable, decided instead to publicly state, they aren't selling below $17,000 a tonne. The Indonesian tin producers shot themselves in the foot causing a brilliant sell off. Tin has dropped 20+% in the last year and almost halved since March 2011. 

With oversupply in the market and limited hope for a surge in Chinese manufacturing, the market is awash with it, the Indonesian demands are unlikely to be met. More so, if you're a producer, and you're withholding the sale of a commodity, the market is going to react entirely how it should. 

You should be wary of believing PT Timah's or their tin association assertions of stockpiling until $17k/t is achieved. They have no choice but to keep on selling up to their quotas if they're producing; some even ignore this and sell illegally (another story). About half of Indonesia's tin producers should be on care and maintenance and the rest are likely to be running at 50% capacity, if they're complying with their quotas.

The Indonesians are their own worse enemy, not only did they flood the market very predictably before the April quota's. They are now attempting to hold the market to ransom with pricing expectations 20% above the currently levels. When a market is awash with a commodity, statements about shutting supply, are pointless.

If the 'word' on the street is correct (more to the beach) in Sungai Liat, Bangka Belitung. Indonesian tin producers actually need the price nearer $20k/t for tin to remain viable. So in the short-term there's more pain likely. With the Chinese woes and reducing demand for solder in electrical manufacturing, Burma (Myanmar) are slowly destroying the price (for now). 

Back tomorrow, 

Atb Fraser