India is still bullish on gold. This was evident when reports said India’s Reserve Bank is still in talks with the International Monetary Fund (IMF) to buy another 200 tonnes of gold which the international body is ready to dispose of to fund development projects.

Earlier this month, India bought 200 tonnes of gold from the IMF for more than $6.7 billion, following this the global bullion market has enjoyed a bull run, seeing prices above $1150 per ounce. On Wednesday, gold prices soared to cross $1180 per ounce on news that India is considering buying more gold from IMF.

At the time of the purchase of the first lot of 200 tonnes, RBI had said it was part of its foreign exchange reserves management operations. According to the  IMF, it has no fixed timetable for completing the sale.

RBI is on a buying spree at present in a bid to enrich its reserves & it would seem that gold rather than dollar is the target. In just three weeks from its initial block purchase, India has benefited to the tune of $800 million .

RBI bought the 200 tonnes at $1,045 an ounce. The transaction, from IMF to RBI, involved daily sales that were staggered over a two-week period through October 19-30, with each daily sale conducted at a price set on the basis of that day’s basket price. On Tuesday, gold prices stood at $1,168, an increase of 12% over the price RBI paid.

However, Prime Minister Manmohan Singh now on a tour to the US said there wasn’t a substitute for the dollar yet. “My own feeling is that we have not entered an era of irreversible shift in the economic strength of the US,” he said ahead of his visit to Washington.

This comes a day after the Business Standard released an article stating : ” the availability of recycled gold in India, the world’s largest consumer, rose 12.5 % in the third quarter of the current calendar year on heavy selling of used jewellery by retail consumers at record high prices”

China imported 405 million tons of iron ore so far this year, an increase of 30% from 2008.

Much of this iron ore came from Brazil—specifically from Brazil’s gargantuan iron miner Vale SA. Vale has ridden the commodity-to-China wave and has made a tremendous amount of money in the process. Its year-to-date stock price is up 120% (compared to the S&P roughly 20% rise) and its market capitalization today is roughly US$140 billion.

Things may soon change, however. Brazilian legislators are considering the implementation of a new royalty payment system in the mining sector. This royalty could increase fees that mining companies like Vale pay to the Brazilian government, especially those that simply export ore and do not “add value in Brazil.”

Miguel Nery, Head of Brazil’s National Production of Mineral Production (DNPM), stated that the plans are in motion to send the new royalty laws to Brazil’s Congress, along with other, wide-ranging changes to Brazilian mining laws. “It hasn’t been decided yet, but the royalty rate will likely be higher for mining companies that do not add value to the raw material in Brazil,” said Nery, who argued that he does not believe that the laws will in any way slow down new investments in the mining sector. Brazilian mining companies, meanwhile, chafe that new royalty payments will make certain new projects less financially viable.

Vale, the world’s largest iron ore mining company, has been especially singled out. The pressure could force Vale (NYSE: VALE) to take larger stakes in Brazil’s steel companies. Last week, Vale’s CEO met with Brazil’s President Luiz Inacio Lula da Silva following strong government criticism that the company was not doing enough to advance the country’s steel industry. Lula insists that Vale should not simply export raw materials but should also develop higher value-added products. To its credit, Vale has made minority investments in the Brazilian steel industry. But the company insists it wants remain a minority shareholder in most of its projects in order to avoid competing with its clients.

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Erik Bethel, is a co-founder & CEO of SinoLatin Capital, which as the name suggests, provides an investment platform between China & Latin America. Erik also authors the SinoLatin Perspectives blog, where he shares his thoughts &commentary on these two BRIC economies.

“The investment plan continues to reflect the focus on organic growth as the priority of our growth strategy,” the release said.

About 76% of the budget is being allocated to research and development, and greenfield and brownfield projects, compared to an average of 71% over the last five years. The company said its output index – which encompasses the operational performance of all minerals and metals produced – is estimated to increase at an annual average rate of 12.6% during the 2010-14 period, compared to 11% per year in 2003-08.

Vale (NYSE:VALE) which is the world’s largest iron ore producer and second largest miner by market capitalisation also has plans to boost the production capacity of it’s copper, coal and fertilizer assets. Current projections for production for output in 2014 is expected to reach 450Mt of iron ore, 380,000t nickel, 650,000t of copper, 30Mt of coal, 3.1Mt of potash and 6.6Mt of phosphate rock, the release said.

In order to increase competitiveness, Vale also said it “will continue to invest a sizeable amount of funds in railroads, maritime terminals, shipping and power generation.”

China informs Australia that proof is irrefutable (sic) Basically the Chinese authorities are not going to back off, having been snubbed over the Chinalco deal. I reckon this will run & be very detrimental for both Rio & BHP Billiton. Anyyone else noted that both firms have been talking up inventories being built up elsewhere ? The real deal is in the 2nd last paragraph of the story :

“At the same time, although Rio Tinto had made statements last week emphasizing that it would ‘continue its iron-ore operations in China’, the actual situation does not seem to reflect this. The overseas media yesterday reported that shipments of spot market iron-ore from Brazil to China soared to record highs in July, which could be related to the Rio Tinto case. Australia seems to have temporarily suspended its exports of spot market iron-ore to China. Data from the shipping company AXSMarine indicates that orders for shipments to China from Australia’s main iron-ore port fell to 12 this month, while orders for shipments from Brazil reached the record high of 31. This means that China’s demand for iron ore is still strong.”

so basically VALE is picking up the slack & would also seem to be enjoying it too, if this piece from Reuters is anything to go by :

Vale Resists China Price Cut Request on Demand Gain

“Politically Vale has done well with its customers by letting the Australians settle first,” Cliff said. In the first quarter, China took 66.5 percent of Vale’s total iron-ore sales of 52.1 million metric tons, up from 32 percent a year earlier.”

Regular readers of MyStockVoice will know that I’m a big fan of Vale, so, long VALE is a no brainer & I have felt that BHP is a little toppy for a week or so, may instigate a short. RTP I’ll leave for bigger fish to swim with.

However, there are signs that the Brazilian mining giant may be turning the corner, as the Baltic Dry Index (BDI) has begun to show some activity off the back of speculation that the steel industry is picking up, particularly in Asia.

Vale said steel output across Asia declined by only 8.9% in the first quarter, despite the Japanese recession. This would indicate continuing strength in Chinese demand, compared to North American steel output falling by 52% & European output declining by 44%. Furthermore, Vale said its first-quarter copper output was unchanged year-on-year, aided by Chinese consumer demand for durable goods.

Steel demand is set to stabilize in the latter part of 2009, leading to “mild” recovery in 2010, according to the World Steel Association. German car registrations in March rose to the highest since 1992 after the government began paying owners to trade in old vehicles for new models. Sales in China of cars, minivans and multipurpose vehicles rose to a record in April. Car makers are the fourth-biggest steel consuming indutry, according to the association.

“The first-half will be pretty poor, but by the third or fourth quarter demand will improve,” said Peter Fish an analyst at UK based metals consulting company MEPS International Ltd. “The time is approaching when so-called destocking, in which customers use up inventories, ends and new orders will be made”

China’s imports of iron ore also spiked dramatically in February & March,  as larger iron ore producers such as Vale & Rio Tinto have been selling their iron ore to Chinese customers at a discount. Based on comments from the China Iron & Steel Association, it’s possible that small Chinese steel mills are taking advantage of the opportunity to buy higher-grade imported ore at attractive prices. Previously, imported ore was only available to large mills.

A recent report in Tradewinds shows that Vale chartered 25 Capesize vessels last month for chinese delivery, which should point to flows of iron ore resuming, although a base price for 2009 has still not been agreed with Chinese steelmakers. At present, iron ore is being sold on the spot market at roughly 20-40% discount from 2008 highs of $200 per tonne, by Rio Tinto & BHP Billiton. Valke on the other hand has dropped production & delivery in step with falling demand & has maintained last years benchmark pricing.

Chinese negotiators from Bao Steel had tried to force prices down to 60% of last years benchmark, however it would seem that Vale’s stance regards shipment may have forced China’s hand, as demand for steel is growing. Vale (NYSE : VALE) finished trading on Friday at  $17.42 off of a YTD low of $11.90 on heavier than norma buying activity.

For me Vale is in a much more enviable position than its two main competitors, Rio Tinto & BHP, as they have expended a lot of energy in last years failed takeover bid. Rio Tinto in particular is saddled with huge amounts of debt & no doubt is coming under a lot of political pressure form its would be Chinese bail out “sugar daddy”. I firmly belive that Vale will be able to add at least 50% to its stock price this year & is one of the best value buys in the commodities sector right now.