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NEW YORK (RealMoney) -- We used to call it "building a thesis." That means you take enough data from enough places and you put it all together and link it to the prospects of individual companies.
Here's what I am seeing. This morning, we got a terrific note from Frank Mitsch, my favorite chemical analyst, talking about chemicals prices coming down, notably for classic building block propylene. For Mitsch, that means cutting numbers for LyondellBasell Industries (LYB). For me it means that the raw costs of so many products are at last showing the weakness that could lead to margin expansion -- not contraction -- for consumers of the polys and the ethyls, the basics of plastics.
Then we have Alcoa (AA) talking down the price of raw aluminum, which was one of the reasons for the company's big earnings shortfall last night. Klaus Kleinfeld talks about the issues it causes for AA's earnings and calls out aggressive short selling of the metal itself as crucial to the decline in the commodity. I don't care about the Alcoa shortfall for the thesis as much as what it says about another building block for so many industries. We have already seen copper plummet drastically. The only metal you can switch to for conductivity now joins copper in the inability to keep prices from a free fall.Then, we got a ho-hum crop report that signals that perhaps the grain complex, which had run up in anticipation of a less than bumper crop, may go back to levels that give important year-over-year price degradations. Grains! Alas, how much have they meant to the costs you have seen in the supermarket? We know that copper has been weak. Steel's trying to find footing but the possibility of a spike up is not going to happen. Goldman has tried to call the bottom in coal pricing, but have we really seen one? The stocks have overshot but coal itself is stalled. And then natural gas is down again. It has been stuck at $3.50 per gallon for so long that we have to begin to believe that, even with the fall heating season upon us, the glut is going to keep it down, allowing still one more break to the consumer. Of course, oil's been stubborn and we see no sign of a Brent retreat, but we know that the price at the pump has fallen rather dramatically. We can only hope that by 2012 all the Rube Goldberg-like measures to get our light sweet crude to market -- the crude that is from the Bakken -- could impact refinery costs. They need light sweet crude to process from somewhere and have been buying Brent. If you get Bakken crude to them, then gasoline can go down again.
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