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Commodity Super-Cycle and Decline

Threat of Contagion in Emerging Markets Deepens Commodity Risk – by Javier Blas (Bloomberg News – August 14, 2018)

https://www.bloomberg.com/

When Thailand devalued its currency two decades ago, few in global commodity markets took note. Within a year, the crisis morphed into an emerging-market rout that eviscerated the price of everything from crude oil to copper.

Fast forward to today and Turkey is presenting a similar challenge. The lira plunged to a record low against the dollar this month, taking local stocks and bonds with it.

Commodity markets have failed to react, with even gold unmoved by the chaos. Traders are focused more on Iranian sanctions, South American mine strikes and drought damage to crops, all of which point to higher, not lower, raw-material prices.

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China’s commodity imports stay resilient, but U.S. trade dispute looms – by Clyde Russell (Reuters U.S. – August 9, 2018)

https://www.reuters.com/

LAUNCESTON, Australia (Reuters) – It’s tempting to look at China’s imports of major commodities in July and conclude that the strength is a sign that the escalating trade dispute with the United States isn’t having much of an impact.

While the first of the tit-for-tat tariffs came into effect in July, it will likely take several months before any real impact is discernable, and even then, separating out the effect of trade measures from other factors will be tricky.

In the meantime, the commodity trade data can still provide insight to China’s economy, and it’s largely painting a picture of resilience. Imports of crude oil rose slightly in July to about 8.48 million barrels per day (bpd), up from June’s 8.36 million, according to customs data released on Wednesday.

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Glencore looks to buybacks, not dealmaking – by Barbara Lewis (Reuters U.S. – August 8, 2018)

https://www.reuters.com/

LONDON (Reuters) – Glencore (GLEN.L) said it would favour share buybacks over deal-making after it reported a 23 percent rise in first-half core earnings on Wednesday, just below analyst forecasts.

The miner and commodities trader said its earnings for January-June were a record – building on 2017 full-year results it said were the best yet – but it also said higher costs and lower prices for cobalt and other byproducts ate into profits.

CEO Ivan Glasenberg said market conditions were likely to remain volatile. Many mining stocks have pared gains this year as metals markets weakened in response to trade tensions and uncertainty about Chinese demand.

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RPT=COLUMN-Commodities may be first to show real impact of Trump-China trade war – by Clyde Russell (Reuters U.K. – August 2, 2018)

https://uk.reuters.com/

LAUNCESTON, Australia, Aug 2 (Reuters) – The Phoney War stage of U.S. President Donald Trump’s trade dispute with China may be ending, with economic indicators and commodity flows and prices starting to show real world effects.

The latest signal that China’s economy may be feeling some pain associated with Trump’s tariffs on about $34 billion in Chinese goods was the softening of the Purchasing Managers’ Index (PMI) in July.

While the overall drop to 50.8 in July from June’s 51.0 was small, of bigger concern was the slump in the subindex for new export orders, which dropped to 48.4, a fourth consecutive monthly decline.

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Why Shareholders Aren’t Loving Rio Tinto’s Cash Machine – by David Fickling (Bloomberg News – August 1, 2018)

https://www.bloomberg.com/

The big mining companies are thriving again, but they’re right to be cautious.

Poor little rich kids. After a brush with death when commodity prices slumped barely three years ago, the world’s miners are back in rude health. Net debt at the big five is now headed to its lowest levels since the peak of the previous mining boom in 2011, based on reported results and analyst estimates.

Free cash flow hasn’t quite scraped those heady heights yet, but it’s looking barely less robust than it was back then — and much more sustainable, too. While the measure dropped by 38 percent in Rio Tinto Group’s first-half results Wednesday, the change was attributable almost entirely to the timing of a $1.2 billion tax payment on the previous year’s earnings:

One obvious reason for the strength of cash flows is that, contrary to predictions including our own, the companies have so far resisted the temptation to fall off the capital-discipline wagon and splurge on building new mines and infrastructure.

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The world’s most insatiable consumer digs deep into Canadian miners – by Gabriel Friedman (Financial Post – July 28, 2018)

https://business.financialpost.com/

How Chinese investment and pull increasingly drive our mining sector

After spending billions of dollars and two decades trying — and failing — to build a mine on the border of Chile and Argentina, Toronto-based Barrick Gold Corp. is reverting to a predictable strategy: it wants to partner with a Chinese company.

Earlier this month, the largest gold miner in the world announced that it asked Shandong Gold Group Co. Ltd, a smaller, younger, less well-known state-owned Chinese company, to study whether its long-delayed Pascua-Lama mine could be economically built if the Chilean part of the deposit were left in the ground — something Barrick’s own geologists and engineers thus far have not justified to management’s satisfaction.

It is far from Barrick’s first partnership with a Chinese company, but in the past it partnered by selling stakes in its mines and forming joint ventures.

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Trump Started the Metals Rally, Now He’s the Reason It’s Ending – by Mark Burton and Gianlucca De Paoli (Bloomberg News – July 11, 2018)

https://www.bloomberg.com/

The U.S. election of Donald Trump lit a fire under metals markets in 2016 as investors took a liking to his pro-business agenda. Now, copper and other metals are tanking as Trump’s trade war against China threatens to derail economic growth.

Copper sunk to an almost one-year low and has fallen 16 percent from a high in June. All the major metals were in the red on Wednesday as the U.S. unveiled tariffs on $200 billion worth of Chinese-made products.

Mining stocks also took a hit, with Glencore Plc and Kaz Minerals Plc falling more than 4 percent. Even gold, considered a haven asset, fell as trade angst boosted the dollar, making commodities more expensive for holders of other currencies.

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Mining can be a major driver of development in poor countries – ICMM – by Marleny Arnoldi (MiningWeekly.com – July 10, 2018)

http://www.miningweekly.com/

The lives of people living in countries whose economies are dependent on mining have, on average, improved faster than those of people in other countries over the past 20 years, a report by the International Council of Mining and Metals (ICMM) has found.

The ‘Social progress in mining-dependent countries’ report, which was published on Tuesday, uses the lens of the United Nations Sustainable Development Goals (SDGs) to determine social progress in mining-dependent countries and finds that most of those countries have significantly improved their social performance over the 20 years leading up to the launch of the goals in 2015.

People in the 25 countries that are considered mining-dependent are now generally healthier, better educated and enjoy improved access to affordable and clean energy, water and sanitation. They also enjoy access to telecommunications and financial services, ICMM says.

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Copper price takes another huge hit – by Frik Els (Mining.com – July 5, 2018)

http://www.mining.com/

The price of copper suffered its seventh straight day of declines on Thursday, losing more than 3% in New York to $2.8205 or $6,220 a tonne on the Comex market, its lowest level since July last year.

It was one of the busiest days of 2018 on commodity futures markets with with over 2.3m tonnes of September copper worth $14.6 billion exchanging hands by mid-afternoon. 2018 star performer nickel also succumbed on Thursday, becoming the last of the base metal complex to drop below its 100-day moving average at $14,200 a tonne. Zinc’s woes continued and the metal is now down nearly 20% year to date.

Reports out on Thursday suggest the trade spat between the US and China, responsible for half the world’s consumption of copper, could quickly turn nasty. President Trump’s 25% tariffs on more than 800 Chinese goods worth $34 billion kick in midnight Friday. The latest round comes a few months after duties on steel and aluminum exports from China and other countries went into effect.

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Metal Markets Are Preparing for a New World Disorder – by Joe Deaux, Danielle Bochove and Luzi-Ann Javier (Bloomberg News – July 6, 2018)

https://www.bloomberg.com/

Donald Trump’s attempts to re-balance global trade have already sent the metals world into a tizzy. As countries respond to U.S. tariffs and sanctions, the disarray is set to increase.

Steel prices and aluminum premiums are shooting up in the U.S. thanks to tariffs, threatening to wreak havoc on manufacturers. Everywhere else metal prices are on a roller-coaster ride, with copper and zinc retreating on fears of slowing demand. If equity investors have stayed sanguine so far, metal investors are voting with their feet.

The next steps may be more dramatic as the U.S. and China engage in trade-war brinkmanship that may involve hundreds of billions in tariffs on everything from cars to soybeans.

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Commodities Slide as U.S.-China Spat Hits Soy to Steelmakers – by Thomas Biesheuvel (Bloomberg News – June 19, 2018)

https://www.bloomberg.com/

A rout in commodities deepened as the threat of a trade war between the world’s two biggest economies intensified, hitting markets from steelmakers to soybeans.

As the tit-for-tat trade dispute between the U.S. and China stepped up, a Bloomberg gauge of commodities fell to the lowest since early April, with agriculture being the worst hit. . Almost all raw materials fell after President Donald Trump threatened tariffs on another $200 billion of Chinese goods.

A Bloomberg agriculture index fell to the lowest since at least 1991, while global mining stocks sank to the lowest in 18 months. Industrial metals fell, with copper, nickel and zinc all giving up more than 2 percent.

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Commodities of the future – by Molly Lempriere (Mining Technology – June 13, 2018)

https://www.mining-technology.com/

The latest Deloitte mining trends report identifies ‘commodities of the future’ as one of the key turning points for the industry. MINE presents the commodities likely to make a splash on the market in the future, and those that may be better left in the past.

Deloitte’s report, Tracking the trends 2018: The top 10 issues shaping mining in the year ahead, ended with a section on the commodities of the future. Choosing which commodities to invest in and which to divest is an important challenge for mining decision-makers, especially as industrial needs change and environmental concerns come to the fore. Deloitte, therefore, presented its predictions, taking into account technological developments.

“Given how inextricably socioeconomic trends link to commodity demand, mining executives have long had to double as futurists,” says the Deloitte report. “To assess which commodities to invest in, and which to divest, miners need to keep their fingers on the pulse of fluctuating consumer demands, global demographic and economic shifts, and the effects of environmental change.”

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Top global miners’ profits to rise to $76bn in 2018 – by Esmarie Swanepoel (MiningWeekly.com – June 5, 2018)

http://www.miningweekly.com/

PERTH (miningweekly.com) – New data from advisory firm PwC has found that the top global mining companies were reaching near boom profits, with net profits up 126% in the last year. Net profits for the top 40 mines reached $61-billion in 2017, and are forecast to climb further to $76-billion in 2018.

Market capitalisation also increased by 30%, to $926-billion in 2017, while revenue for the top miners increased by 23% to $600-billion, and earnings before interest, taxes, depreciation and amortisation (Ebitda) rose 38% to $146-billion.

PwC Australia mining leader Chris Dodd said on Tuesday that strong balance sheets were tempting the top 40 mining companies to pursue bold investment and growth opportunities, but many remained focused on maintaining a robust and flexible balance sheet to avoid the misgivings of the past.

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Has the commodities cycle now reached its peak? (Australian Mining – May 21, 2018)

https://www.australianmining.com.au/

The commodities industry downturn from 2013–2016 had a massive effect on companies in Australia and around the globe – with most mining companies going into survival mode. Since mid-2016 though, the market has been in a strong recovery cycle and, some say, it has now reached its peak.

Where we are now is really at an inflection point and, depending on where the global economic cycle moves, commodities will follow accordingly. There are exciting opportunities emerging as well, coming from new technologies especially that can help drive more sustained growth for the industry.

Ernie Thrasher, Chief Executive Officer at Xcoal Energy & Resources explained that “we are at a point where either the global demand will sustain this commodities cycle, or we’re at a point where the recovery cycle has reached its end and we may see another downturn up ahead.”

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The Goldman wake-up call: It’s time to tilt towards commodities in your portfolio – by Ian McGugan (Globe and Mail – May 5, 2018)

https://www.theglobeandmail.com/

Goldman Sachs loves commodities. You may want to at least like them. The Wall Street investment bank argued in a research note this week that the case for owning the raw materials of the global economy has “rarely been stronger” than it is right now.

Not everyone agrees, of course. But investors fretting about stock-market turbulence and the punishing impact of rising interest rates on bond prices should take a look at the case for unloved commodities. These overlooked assets can diversify your portfolio, shield you against inflation and allow you to benefit from the late stages of a long-in-the-tooth economic recovery.

The simplest case for them is this: They’re due. While Wall Street stocks have delivered a steady stream of pleasant surprises in recent years, commodities have brought nothing but pain – at least, until the past few months.

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