TranSystems Transportation Activity Index, February 24, 2010



Commentary:

Copper Mines Intact, But Production Halted – Copper Prices to Shoot Up in Near Term

Infrastructure damage, risk to workers, electronics manufacturers taking note

Chile and the disruption in the numerous products that come from the country will headline much of the activity in the US and abroad for some time. Key commodities supplied by the country include: copper, fish, fruits, paper and pulp, and certain chemicals. In other news impacting the TTAI, weather on the east coast continues to be a major bottleneck for supply chains and passenger traffic. Significant delays in both are slowing progress and growth in general for the economy in those regions, and adding cost to local and state governments already strapped by the recession.

Special Note:

Copper to Potentially be the Commodity Story of the Week

The devastating earthquake in Chile has added a new wrinkle to the global economic recovery environment. Chile continues to experience after-shocks with hundreds of medium and small sized earthquakes making the restoration of activities in the largest copper mines of the world problematic. Bloomberg reported this weekend that: “Santiago-based Codelco, the world’s biggest copper producer, said yesterday its El Teniente and Andina mines, which produce about 600,000 tons of copper, remained closed for a second day. London-based Anglo American Plc said Feb. 27 its Los Bronces and El Soldado mines in Chile, which produce a combined 280,000 tons a year, stopped operating.”

Electricity has been cut to the mines – but is expected to be restored shortly. In addition, analysts believe that it might be difficult to get workers to go back into the mines as aftershocks continue to rock the facilities.

As a result, copper prices could rise as much as $200 per ton according to the news source. The increase in copper prices will affect transportation in a number of ways. First, copper is one of the primary components in electronic manufacturing, and will affect the volume of material and cost for thousands of electronics makers worldwide. Chinese companies had begun to stockpile stocks of Copper during last summer’s government-stimulated spending spree. This will put those companies at a significant competitive advantage if other competing companies have to purchase copper at higher rates.

Therefore, the volume of products being transportation will change. The volume of certain items in specific lanes could change – affecting the flow of goods and changing volumes. In some cases, the higher inflationary pressure on some goods will be significant enough to affect sales and increase consumer prices. Both issues will add to an economy that is struggling to gain recovery momentum.

Second, infrastructure in Chile at the ports and key highway systems that affect production and delivery of goods was interrupted. That will add to the challenges for getting products to market. This condition with copper shortages could continue for some time. Chile accounts for more than 36% of the global supply of copper to manufacturers.

Freight Transportation:
Weather: Winter weather across the upper north east is still playing havoc with supply chains in the region as snow and ice have disrupted freight networks and delayed deliveries of products. Again, history has shown that business volumes lost during a weather-related interruption tend to be pure losses of business – the volumes lost are rarely recovered. This will become evident in first quarter earnings releases and the unemployment figures for Q1.

Consumer Spending: Consumer spending rose by .5% in January, after rising .3% in December. There are a couple of things going on here. First, consumers dipped deeper into savings to make purchases in January – and the effect of gift card purchases after the Christmas season also helped to boost spending. Second, there is a percentage of the population that is still gainfully employed that has begun to take the economic stability to heart – and is beginning to make purchases that they put off for the majority of the last 24 months. Whether this is sustainable with some of the recent news of layoffs increasing in February has yet to be seen – confidence fell in February.

Passenger Transportation:
Weather: Just as with the freight transportation sector, weather is once again impacting flights and passenger rail service in the region. The significance of the volume lost is still being accumulated – but is expected to affect the volumes in overall transportation in the upper northeast for the first quarter in a “major” way.

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