Podcast: The cavalry is not coming – by Warren Dick (Mineweb.com – July 20, 2015)


There’s fear and panic in the market and the commodity super-cycle is over, according to Bloomberg Intelligence’s Global Head of Metal and Mining, Ken Hoffman.

WARREN DICK: Good day, everyone. My name is Warren Dick, the editor of Mineweb.com. And joining me on the podcast today is Ken Hoffman, the global head of metal and mining research from Bloomberg Intelligence, and he is joining us from New York. How are you, Ken?

KEN HOFFMAN: I’m doing very well. How are you?

WARREN DICK: Very good, thanks. I think it might be as cold today in Johannesburg as it is in New York. I don’t know what the weather is like there.

KEN HOFFMAN: Oh, it’s absolutely perfect today, actually. Finally we are getting a little bit of summer here.

WARREN DICK: Well, I think, Ken, what we really wanted to do is just pick your brains. You guys are looking at trends in the market, and you’ve obviously seen the massive sell-off in commodity prices. That’s been pretty much indiscriminate. I think everything from iron ore to some of the precious metals we’ve seen. We’ve just seen platinum going below $1000/oz. Perhaps you could just give us some insight as to why this is happening and some specific reference to the biggest consumer of these commodities, which is China?

KEN HOFFMAN: Certainly. And that’s really important. In fact, actually not this Saturday but next Saturday [July 26] I’ll be heading over to China for my third trip this year. I usually head over to China three to six times a year to go down on the ground and see what’s going on.

And really what we are seeing is that people should not be surprised with what’s going on with metal prices. The reason is around two-and-a-half years ago China held something called the third plenum. The way the Chinese government works is the first plenum or first meeting is where they choose their new leadership. The second plenum is where they choose who is going to be all around – the ministers and who is going to run everything. But the most important is the third plenum, where all these people come together and they try to figure out for the next decade what the Chinese economy is going to look like

They made a sea change a few years ago. We have talked about it a heck of a lot in our research. What this is, is China really wants to go away from being a low value-add producer of goods. They really want to move up the value chain.


KEN HOFFMAN: A couple of other parts of what they’re doing is, No 1, to make the yuan more international and No 2, to try to figure out their own balance sheet. So what China did that I think changed is in 2008 the financial crisis hit and the Chinese government at the time, the prior Chinese government, went to their localities and said spend, spend, spend. So China started this unprecedented building out of infrastructure.

Obviously that was a huge boon to iron ore and all base metals, and they probably spent close to $2 trillion on infrastructure. The issue now is the new government comes in and sees that China uses an entire North American metal supply every 11 days. But they’ve really gone far, far out of control. By some measures they are building apartments for 3.2 billion people. They only have 1.2 billion.

For the rest of this interview, click here: http://www.mineweb.com/podcasts/podcast-the-cavalry-is-not-coming/