Tuesday, July 31, 2007

Straits announced force majeure on Sebuku coal operations

Was working when a friend told me about yongnam breaking resistance...yup..could be probably due to market sentiment. Drags down all the construction sector and the other pennies too. I'm worried about other things at the moment.

Before I left, I saw the announcement that straits asia resource made. 'Force majeure', french for "greater force", is a clause in contracts which frees one or both parties from liability or obligation when an extraordinary event or circumstances beyond the control of the parties, prevent them from fulfilling their obligations under the contract. War, strikes, riot, act of gods (in this case, heavy rains) are examples of situation where force majeure can be exercised.

According to their announcement, heavy rainfall over at Sebuku (South Kalimantan, Indonesia) had resulted in the disruption of mining operations. Not sure if straits have to pay penalties because force majeure can be partial or full. Have to wait for more announcements to be made.

I did some checking.

1. The heavy rainfall is due to the La nina effect currently affecting global climate around the world. La nina, opposite effect to El nino, causes cooling and more rain over the western equatorial Pacific, Indonesia and philippines and is nearly absent across the eastern equatorial Pacific.

2. Wetter than normal conditions tend to be observed during June-August and December-February period for Indonesia.

3. La Nina can last for 1-3 years (I've checked, usually 1 yr), occurring periodically every 3-5 years.

Assuming the worst is over around February, the force majeure might be extend to end of this year? Perhaps have to add in another time period for the mines to be recovered before mining activities can be resumed. If you look at the other areas that Straits operate in Australia, it seems its relatively untouched by La nina effect. Could the coal mining over at Australia be sufficient to cover the needs of Straits Asia pacific contract obligations? Will coal prices shoot up and affect the next financial year's negotiation of coal prices? Straits negotiate coal prices well in advance, so this year's drop in supply could mean higher coal prices next year?

Lots of questions, with no seemingly adequate answer.

Today's price action seems to suggest strong hands at work supporting Straits asia. Just last week, Fidelity funds bought into Straits, followed by directors buy in. A trick to get prices high so as to sell? Today the price dropped to 0.995 then rose up to 1.15 thereabouts. Shortists covering?

This might just be the best time to enter Straits asia.

My portfolio bleeding now, ouch.

Dow +72, europe all green.