Last week the Association of American Railroads [AAR] released data that showed that carload volumes were higher than the corresponding week in 2008. Several bulls seized on this data as an indication that things were getting better, whereas realists had a more measured interpretation of the data. You see last week the AAR release was for the week ending July 3. In 2008 the data was for the week ending July 5, i.e. it included the July 4 holiday. Naturally anyone who wasn’t searching for data to fit a narrative would have expected that data from a week that included a July 4 holiday would be lower than from the weeks either side of the release. It follows that it was a no brainer to predict that volumes this week would be significantly down on 2008, and that is what has eventuated. As the AAR said in their press release:

WASHINGTON, D.C. – July 15, 2010 – The Association of American Railroads (AAR) today reported a decline in rail traffic for the week ending July 10, 2010, with U.S. railroads originating 252,963 carloads, down 3.5 percent compared with the same week in 2009 and down 20.8 percent from 2008. The July 4 Independence Day holiday did not affect comparison weeks in 2008 or 2009. In order to offer a complete picture of the progress in rail traffic, AAR reports 2010 weekly rail traffic with comparison weeks in both 2009 and 2008.

The following charts show intermodal and carloads freight volumes since 2007. Growth in carload volumes has stalled now for several weeks and currently shows no signs of reaching pre-crash levels. (Click charts to enlarge)

Intermodal rail freight has been stronger than carloads this year, i.e. closer to pre-crash volumes than carloads.

Based on from what we know about intermodal freight there should be some sort of correlation between container activity at our ports and intermodal rail freight, i.e. containers coming and going from ports have to be transported. The chart below shows moving averages of intermodal rail freight and total container movement at the ports of Los Angeles and Long Beach and New York/New Jersey — a 52 point moving average of the weekly intermodal freight data and a 12 point moving average of the monthly port data.

The carload data is divided by the AAR into 18 specific categories (plus a 19th called “other”). Below are the charts for each of the 18 individual categories. The same color coding used in the first two charts above applies: black — 2007; orange — 2008; green — 2009; blue — 2010. Please click on the images below to enlarge them.

freight · rail freight

Outbound and inbound container movements from the ports of Los Angeles, Long Beach and New York/New Jersey are shown in the next two charts. Of note is that container movement is trending up at both the west coast and east coast. Inbound container volumes have increased quite a lot in the last couple of months in line with an apparent seasonal trend.

freight · trade · US trade

I’ve mentioned Sundance Resources a couple of times this year as a company readers may want to take a look at. Sundance Resources is currently undertaking a definitive feasibility study on its large Mbalam iron ore project in Cameroon. I did have a speculative stake in this company before the GFC and keep it on my watch-list to consider re-entering.

While I was away in June a plane carrying 6 of the Sundance Resources board, including the company chairman, the CEO, and the largest shareholder (Aussie mining magnate Ken Talbot) crashed near the Cameroon/Congo border. All people on the plane were killed. In the interim the company has appointed Gindalbie Metals founder George Jones, who was involved with the company a few years ago, as strategic advisor to help them through the transition period until a new board and CEO are appointed.

Hard to say how the stock will trade when it emerges from the trading halt. My feeling about the longer term prospects of this company is that, given the size of the project, it would be unlikely that they’d get the funding without Chinese involvement. The exact amount needed will be known when the feasibility study is completed but numbers of the order of $2.5 billion have been talked about, admittedly speculatively, in the past. It could well be that the upheaval resulting from this tragedy, and the death of a major shareholder, could provide an opportunity for Chinese participation in the project. It is worth noting that George Jones has strong Chinese connections through Gindalbie (which is 36% owned by Chinese steel producer  Ansteel) and was previously involved in a proposal to merge Sundance Resources and Gindalbie Metals.

Due to the flat-lining of the global economy I have been in no rush to buy mining stocks this year — among other things I have said often that they look overpriced at the moment — but it might be time to (re)consider Sundance Resources, starting with a small stake, as a bet on a stronger price if and when a Chinese company becomes involved.

http://www.sundanceresources.com.au (note that the websote was down at the time of writing this)

iron · minerals · Sundance Resources

The Australian Government has announces a revised version of the mining tax that, when announced a couple of months ago, resulted in a virtual capital strike by miners. The previous tax, known as the Resource Super Profits Tax [RSPT], would have seen an additional tax on miners of 40% on profits above a threshold which was set at the 10 year bond rate. The announcement of that tax resulted a vigorous media campaign by both miners and government as each lobbied, via advertising, for public support of their positions. The announcement of the tax appears to have been one of many blunders that ultimately saw the resignation of the Prime Minister due to perceptions within his party that the election due later in the year was unwinnable on the current course they were following. A change of party leader immediately brought a more conciliatory tone in negotiations with miners.

After meeting with three key miners, BHP Billiton, Rio Tinto, and Xstrata the Australian government has announced that the restructured tax will now be called the Mineral Resource Rent Tax [MRRT], that the tax rate will drop to 30%, and that the hurdle rate will be 7% above the 10 year bond rate. This appears to be a major win for the mining industry and should see a spike in prices, notwithstanding other global forces/sentiment that are moving to push prices down at the moment.

A breakdown of the changes can be found here:

http://www.abc.net.au/news/stories/2010/07/02/2943317.htm

Australia · coal · iron · taxes