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Commodity Super-Cycle and Decline

From Alcoa to Freeport, Metal Producers See Cost Creep Set In – by Joe Deaux and Danielle Bochove (Bloomberg News – February 2, 2018)

https://www.bloomberg.com/

Mining and metal companies are rediscovering the downside of rallying prices: higher costs. A sharp rebound in commodity markets in the past two years put producers in a profitability sweet spot after years of cost-cutting to cope with low prices.

Now, as the upturn matures and the higher cost of energy and other materials starts to bite, some companies are beginning to struggle to maintain margins.

As the quarterly earnings season unfolds, companies from Alcoa Corp. to AK Steel Holding Corp. have seen their shares slump amid signs that cost creep is eating into profit.

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COLUMN-Five stand-outs in China’s base metals trade last year – by Andy Home (Reuters U.S. – January 29, 2018)

https://www.reuters.com/

LONDON, Jan 29 (Reuters) – China’s base metals imports stopped offering a simple, over-arching story line several years ago. The country has built out ever more processing capacity over the last decade, meaning that the “real” story is often what’s happening at the raw materials stage of the supply chain.

In cases such as aluminium, China has arguably constructed too much smelter capacity, to the point that the rest of the world has stopped caring about how much it imports but rather how much it exports.

Across the rest of the metallic complex, individual market dynamics have become ever more important, fracturing the Chinese trade picture into multiple, sometimes contradictory parts. Against an increasingly kaleidoscopic backdrop, here are five key take-aways from last year’s trade flows.

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As Global Economy Hums, Davos Turns Bullish on Commodities – by Javier Blas (Bloomberg News – January 26, 2018)

https://www.bloomberg.com/

The last two editions of the World Economic Forum were somber affairs for oil industry chieftains and commodities tycoons. The consensus in Davos was that oil was going to stay low, OPEC would fail to lift prices, and the mining industry faced a difficult time.

Roll forward to 2018 and there’s been a near-universal shift in sentiment as strong and synchronized global economic growth drives demand for raw materials. “We have not seen this kind of growth since before the global financial crisis,” OPEC Secretary-General Mohammad Barkindo said in an interview.

In panel discussions, interviews, and conversations on the evening cocktail circuit at the Steigenberger Grandhotel Belvedere, it was hard to find a bearish voice. The Bloomberg Commodity Spot Index, a gauge that tracks raw materials from oil to wheat, has risen 41 percent over the last two years to trade at highs last seen in November 2014.

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COLUMN- Industrial metals bull party on hold; will restart shortly – by Andy Home (Reuters U.K. – January 18, 2018)

https://uk.reuters.com/

LONDON, Jan 18 (Reuters) – After the party must come the hangover. Industrial metals went on something of a bull bender over the course of December and have done no more than stagger into the New Year.

Copper went on an 11-day binge of consecutive highs as London Metal Exchange (LME) three-month metal powered through the $7,000 a tonne barrier to a four-year peak of $7,312.50 on Dec. 28. It’s now back below $7,100, with another New Year just around the corner.

The Chinese Year of the Dog starts on Feb. 16 and the onshore Chinese markets are chilling the bull party even further with long liquidation across the metallic board. But the analyst consensus is that this is no more than a pause in the two-year, 60 percent rally in the LME index of core contracts.

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Metals Power Higher as Sickly Dollar Spurs Copper-to-Gold Rally (Bloomberg News – January 15, 2018)

https://www.bloomberg.com/

Copper jumped by the most in two months and zinc hit a fresh decade-high as base metals rallied on a potent combination of a softer dollar, dwindling inventories and continued robust outlook for demand. Palladium rallied to a new record as all precious metals climbed.

Copper surged as much as 2.1 percent, the most since Nov. 13, to $7,262 a metric ton on the London Metal Exchange. All metals climbed as the Bloomberg Dollar Spot Index fell to the lowest since September, reinforcing sentiment in a market that’s being buoyed by signs of supply constraints and rebounding demand across the globe.

The improving demand outlook has helped lift the Bloomberg Commodity Index toward the highest level in 11 months. Gold climbed as the dollar weakened and investors weighed the risks of a potential U.S. government shutdown at the end of the week. Palladium hit a fresh all-time high, extending gains seen on Friday amid supply constraints.

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Mining Profits Are Super-Charged and BlackRock Wants to Get Paid – by Thomas Wilson, Anna Edwards and Manus Cranny (Bloomberg News – January 11, 2018)

https://www.bloomberg.com/

The world’s mining sector is firing on all cylinders again, and one of it’s biggest investors can’t wait to get paid.

After five years of under-performance, a combination of synchronous global growth and under-investment in new supply has driven up commodity prices, increasing cash flow and profit margins for the world’s biggest mining companies, according to BlackRock Inc.’s Evy Hambro.

“When those things converge you get a pretty explosive price response, and that’s what we’ve seen,” Hambro, who manages BlackRock’s $6.4 billion World Mining Fund, said in a Bloomberg TV interview on Thursday.

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Commodities Are on Their Longest Winning Streak in History – by Mark Burton and Jake Lloyd-Smith (Bloomberg News – January 4, 2018)

https://www.bloomberg.com/

Commodities are forging a record-setting run of gains that straddles the end of 2017 and the start of the new year as crude oil notches multiyear highs and investors bet that booming global manufacturing output will help to sustain rising demand for raw materials.

The Bloomberg Commodity Index, which tracks returns on 22 raw materials, posted an unprecedented 14 days of gains to Wednesday, closing at the highest since February.

The index is poised for further gains as metals and oil climb higher, supported by supply disruptions, a weaker dollar and improving demand. Palladium, a metal used in car exhaust systems, is approaching an all-time high.

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A New Commodities Boom Doesn’t Mean Ecological Doom – by Mac Margolis (Bloomberg News – January 2, 2018)

https://www.bloomberg.com/

The world’s renewed appetite for natural riches once again tests Latin America.

Demand is surging again for oil, minerals and grains – the basic goods to which Latin America`s fortunes have long been tethered. After a year of graft scandals and political whiplash, you can just about hear the sighs of collective relief. Or is that just a giant sucking sound?

Since the voyages of discovery, raw materials and farm goods have been Latin America’s blessing and its trap, filling official coffers but too often despoiling the environment and condemning economies to boom and bust.

Through last decade’s swoon, hopes ran high that China’s demand would help clients climb the value chain and become developed nations. Yet Latin America still relies on grains, minerals and raw energy for half its export revenues, the same share as three decades ago.

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Can electric cars and an expanding global economy power the next commodity supercycle? – by Geoffrey Morgan (Financial Post – December 27, 2017)

http://business.financialpost.com/

Besides the expected ramp-up in electric vehicle manufacturing, economists are predicting that rising global economic growth will make 2018 the year when base metals shine

Mining executive Russell Hallbauer is palpably excited about the components that go inside electric cars.

The chief executive of Vancouver-based Taseko Mines Ltd. can give a detailed description of the length and thickness of the solid copper bus bar that transmits power from each Tesla car’s lithium ion battery to its wheel motors. “That piece of copper probably weighs 50 pounds,” he said.

Hallbauer’s enthusiasm for electric cars is warranted. The market for such vehicles is expected to grow to 11 million cars sold in 2025 from 330,000 in 2015 , according to Morningstar forecasts, and copper miners such as Taseko expect that will create a lot of demand for copper bus bars.

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Value of top 50 mining companies surge $140 billion in 2017 – by Frik Els (Mining.com – December 20, 2017)

http://www.mining.com/

Heading into 2018 the world’s 50 largest listed firms are worth a collective $896 billion, adding $141 billion in combined market capitalization year-to-date, with the bulk of those gains recorded since July.

Go back to the start of the mining industry’s upswing around 18 months ago and $227 billion of wealth has been created for shareholders of the MINING.com Top 50.

The top 10 make up more than half the sector’s market value and after underperforming the rest of the field during the first half of 2017, the big diversified and base metals companies caught up rapidly.

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COLUMN-China to remain the main game for global commodity demand – by Clyde Russell (Reuters U.S. – December 20, 2017)

https://www.reuters.com/

LAUNCESTON, Australia, Dec 20 (Reuters) – China strode like a colossus over major commodity markets in 2017, as the world’s biggest buyer of natural resources made its presence felt on demand for coal, iron ore, crude oil and liquefied natural gas (LNG).

China’s influence on major commodities is likely to remain the single most important factor driving supply and demand in 2018, but that’s not to say next year will simply be a repeat of what happened this year.

Still, some trends established in 2017 will continue, or even accelerate, with LNG potentially the best example. LNG imports surged 48 percent in the first 10 months of the year, as Beijing encouraged a switch from coal to the cleaner-burning fuel. Add in pipeline imports from central Asia, and China’s total natural gas imports were up 26.5 percent in the first 11 months of 2017.

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From Bitcoin to Trump: Mining Giants Identify 2018’s Challenges – by Danielle Bochove (Bloomberg News – December 20, 2017)

https://www.bloomberg.com/

In 2017, miners finally got some tailwinds from their commodities as unsavory supply pressures — from lower ore grades to worker strikes — bolstered prices.

What’s ahead for 2018? We asked six top executives from companies including Newmont Mining Corp., Barrick Gold Corp. and Teck Resources Ltd. for their outlooks.

With depleting reserves top of mind, they expect more focus on exploration and inter-company collaboration to develop assets. There’s consensus that large-scale mergers and acquisitions are a thing of the past and the rising interest in bitcoin poses no threat to gold. But opinion is split on whether miners will be able to grow, or even maintain production, without letting the hard-won cost discipline of past years fly out the window.

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Want to Make Money in Industrial Metals Next Year? Ask China How – by Aoyon Ashraf (Bloomberg News – December 12, 2017)

https://www.bloomberg.com/

Base metals have been hot this year with zinc, copper and aluminum among the leaders, climbing between 15% and 23%. But what about 2018? Where would you invest to make money in industrial metals?

China will have the answer. Its supply side discipline can make-or-break industrial metal sentiment for the next year, and will be the main focus for the market. Debates among analysts are heating up on copper and aluminum, while steel, coal and zinc are also creating buzz among the experts. Here are some takes on what analysts are expecting for 2018.

Goldman Sachs

Bank expects outlook of strong growth in Emerging Markets and “soggy” dollar to favor metals markets. Goldman is most bullish on copper and most bearish on aluminum. Copper is “clearly” at the end of a supply boom, where aluminum has rising risk of a supply response, both inside and outside China.

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China exports growth hits eight-month high, imports defy pollution curbs (Reuters U.s. – December 7, 2017)

https://www.reuters.com/

BEIJING (Reuters) – China’s exports and imports unexpectedly accelerated last month in an encouraging sign for the world’s second-biggest economy, though analysts expect growth to continue cooling amid a government crackdown on financial risks and polluting factories.

As global demand has surprised with its strength, consumers have lapped up Chinese goods at a rapid rate this year, giving the economy a boost and providing policy makers room to tighten rules to curb high-risk lending.

Exports in November rose 12.3 percent year-on-year, the fastest pace in eight months, led by strong sales of electronics and high-tech goods, while commodity purchases helped lift imports.The number beat analysts’ forecast of a 5.0 percent increase and compared with 6.9 percent growth in October.

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Here’s how to tell when metals markets are about to turn south – by Scott Barlow (Globe and Mail – November 8, 2017)

https://beta.theglobeandmail.com/

There are times when market action isn’t tough to figure out and the recent rally in base metals is one of those times.

For all the talk of the lithium, nickel and magnesium that would be needed during a surge in electric vehicles, broader metals prices continue to be driven primarily by Chinese imports and also by rising global manufacturing activity.

The catch is that forecasts for the Chinese economy imply the rally could be short-lived. China’s dominance in global commodity markets is highlighted by the fact the country consumes half of the global supply of copper and coal produced each year.

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