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Commodity Super-Cycle and Decline

Commodity pricing divergence calls for ‘discerning and tactical’ investors now that it’s tougher to pick winners – by Peter Koven (Financial Post – August 30, 2016)

http://business.financialpost.com/

During the commodity bull market from 2002 to 2011, it was almost impossible not to make money in this space. The price of nearly every energy, metal and agricultural commodity dramatically rose, driven by China’s massive economic growth. Some performed better than others, of course, but the proverbial monkey with a dartboard could pick winners as well as many humans did.

It was just the opposite from 2012 to early 2016. There was nowhere to hide in this period as commodities got mashed. They didn’t all drop at once, but they ended up in the same gutter by early 2016.

Now a bifurcation is emerging: Some commodities have spiked this year, some have gone up a little bit, some are more or less flat, and a handful have actually weakened during what is supposed to be a market recovery. As a result, a very strong understanding of the supply-demand balance is needed if investors want to pick the winners and come out ahead.

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India Seeks $15 Billion Investment to Double Mining Output – by Archana Chaudhary and Rajesh Kumar Singh (Bloomberg News – August 29, 2016)

http://www.bloomberg.com/

India expects to woo 1 trillion rupees ($15 billion) of investment over five years to double mining output and cut mineral imports.

The government’s goal is to speed up exploration, including upfront payments for discovered deposits when the mines are auctioned, Mines Minister Piyush Goyal said in an interview. The administration will invite foreign companies to participate, he said, while acknowledging challenges such as land acquisition and environmental hurdles.

“We’re working to change the rules of the game from doing small amounts of exploration in an incremental fashion to doing it on a fast-track, one-shot, big-picture way,” Goyal, 52, said on Saturday in New Delhi. There’s “easily” scope to pour 50 billion rupees into the search for deposits, he said.

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Column: What do surging LME copper stocks say about China? – by Andy Home (Reuters U.S. – August 26, 2016)

http://www.reuters.com/

LONDON – A wave of copper is currently washing up in London Metal Exchange (LME) warehouses. Arrivals of metal have totaled 73,325 tonnes this week, lifting headline exchange inventory to 271,575 tonnes, the highest level since October last year.

There’s no big mystery as to where this metal is coming from. Surging arrivals at LME sheds in Singapore and South Korea have broadly corresponded to export flows out of China. And in part this is no more than a continuation of the stocks rebalancing that has been playing out for several months, a refilling of a depleted LME system from high inventories in China that accumulated earlier this year.

But unlike the mini surge of LME arrivals in early June, there is no obvious bull-bear battle being waged across the front part of the London copper curve. If no-one is being forced to deliver metal against a short position, the alternative explanation would be that this is China pushing out surplus.

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Make trade with China a priority – by Don Lindsay (Financial Post – August 26, 2016)

http://business.financialpost.com/

Don Lindsay is President & CEO, Teck.

The upcoming G20 summit in China and week-long visit by Prime Minister Justin Trudeau are shining a light on Canada and China’s economic ties at a pivotal time for both our countries. Recent negative economic headlines aside, China remains a key trading partner and Canada’s prosperity now – and in the years ahead – continues to be closely tied with theirs.

But in order to move the Canada-China relationship forward in a way that supports Canada’s long-term prosperity, it is critical that we imbue our trade discussions with a sense of purpose and momentum. Our new government needs to strengthen economic and diplomatic ties with China.

China remains Canada’s most important trading partner next to the United States, yet we continue to struggle with how to best cultivate and grow this partnership. China is both the top overseas destination for our exports and the largest overseas source of imports to Canada.

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Global aluminum production is falling, but for how long – by Andy Home (Reuters U.S. – August 25, 2016)

http://www.reuters.com/

LONDON – Global aluminum production fell by 1.2 percent to 33.12 million tonnes in the first seven months of this year, according to the International Aluminium Institute (IAI).

It doesn’t sound like much and in volume terms the decline amounts to just 390,000 tonnes, no more than a drop in the global aluminum ocean.

But this is the first year that output has consistently fallen since 2009, a year when financial crisis was rapidly morphing into manufacturing crisis with devastating consequences for aluminum producers.Equally noteworthy are the divergent trends between dominant producer China and the rest of the world.

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Executives believe they can survive lower metals outlook – KPMG – by Megan Van Wyngaardt (MiningWeekly.com – August 23, 2016)

http://www.miningweekly.com/

JOHANNESBURG (miningweekly.com) – Fewer than half of senior metals executives responding to KPMG International’s 2016 Global Metals & Mining Outlook survey voiced any level of confidence in the prospects for the global economy over the next two years.

This was particularly concerning given the tight relationship between the fortunes of the global economy and that of the global metals and mining industry, the advisory firm says.

However, while confidence in the global economy is low, the KPMG survey suggests that most metals executives believe they can survive and maybe even grow in the medium term.

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Glencore, Anglo Rally Loses Steam as Miners Deliver on Debt Cuts – by Jesse Riseborough (Bloomberg News – August 23, 2016)

http://www.bloomberg.com/

Rescue plans unveiled by embattled mining companies Glencore Plc and Anglo American Plc in the past year have won over investors. Yet a rally in the stocks is stalling this month.

Glencore is barely changed in August and Anglo is up less than 4 percent after they more than doubled in the year through July. For Glencore, there are now fewer catalysts for gains as the Swiss company is closer to completing a $13 billion debt reduction plan, according to Macquarie Group Ltd. analyst Alon Olsha, who downgraded the stock to neutral last week because of the rally.

The world’s biggest mining companies have sold assets, scrapped dividends, reined in spending, and in Glencore’s case sold $2.5 billion of stock, to cut debt loads that panicked investors last year as raw-materials prices collapsed. On Wednesday, Glencore investors will get an update on its progress toward a net-debt target of as low as $17 billion by the end of the year as it announces first-half profits.

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A Commodities Rebound Is Accelerating at China’s Doorstop – by David Stringer (Bloomberg News – August 19, 2016)

http://www.bloomberg.com/

China may be slowing, but a commodities rebound is under way and the world’s biggest miner knows where the next growth story is building — emerging economies in Southeast Asia.

Combined gross domestic product in the ASEAN-5 nations — Indonesia, Thailand, Malaysia, the Philippines and Vietnam — will rise about a third to $3 trillion in the five years to 2020, fueling commodities-intensive infrastructure projects. Momentum like this across Asia will help maintain and increase commodity demand, BHP Billiton Ltd.’s Chief Executive Officer Andrew Mackenzie said this week.

“People have been so used to believing that commodities was a China story, and that with China decelerating where’s the growth going to come from?” Nathan Lim, Sydney-based head of research for Morgan Stanley’s wealth management division, said by phone. “That incremental demand is coming from the emerging markets, and that’s the part people don’t have their head around.”

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Mining future is formed by Chinese policy movements (MINEX Forum – August 18, 2016)

http://minexforum.com/en/

Because of this China and its demand still remains at the heart of the global resources industry. China once consumed 60 per cent of all seaborne iron ore, and despite its waning appetite it still has the largest influence on many metals due to its overwhelming demand for raw materials – relative to other nations.

“If you believe that China is one of the most significant factors in the global mining market – whether it be capital, consumption, stockpiling, project construction or its announced infrastructure initiatives – then it’s imperative to pay attention to the economic and political issues shaping the country’s future,” australianmining.com.au reports in reference to Deloitte Canada’s global leader for mining M&A advisory, Jeremy South.

Unlike many other nations China has a highly interventionist government, which dictates market controls. “Beyond interfering with the free movement of markets, the government’s fiscal intervention may threaten its ability to fund new programs designed to spur future growth,” Deloitte reports.

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After years of pain, coal becomes one of the hottest commodities of 2016 – by Henning Gloystein (Reuters U.S. – August 17, 2016)

http://www.reuters.com/

SINGAPORE – Less than a year after the coal industry was declared to be in terminal decline, the fossil fuel has staged its steepest price rally in over half a decade, making it one of the hottest major commodities.

Cargo prices for Australian thermal coal from its Newcastle terminal, seen as the Asian benchmark, have soared over 35 percent since mid-June to more than one-year highs of almost $70 a ton, pushed by surprise increases in Chinese imports.

“Chinese regulators have assumed the role that markets traditionally play in bringing oversupplied commodities back to balance,” Goldman Sachs said in a note to clients late on Tuesday, reversing a gloomy outlook it issued last September.

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Mining stocks rally postpones industry revamp – by Barbara Lewis and Pratima Desai (Reuters U.S. – August 15, 2016)

http://www.reuters.com/

LONDON – Investors in mining stocks could face years of weak returns as a rally in share and industrial metals prices eases pressure on companies to restructure and curb oversupply. The mining sector is known for over-investment in boom times and crashes when demand weakens as economies slow, but many companies say they have learnt lessons and are making efforts to reduce debt and control spending.

Mining stocks have more than doubled since multi-year lows touched in January, a rebound analysts link to cheap cash from Chinese financial stimulus rather than a fundamental increase in demand for industrial materials.

The rally has given companies with fragile balance sheets a reprieve from the bankruptcies and mergers analysts say are needed to adapt to lower demand. This could extend the stagnation as production at weaker firms limps along, adding to inventories.

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CHARTS: Maybe India can ignite new commodity supercycle – by Frik Els (Mining.com – August 11, 2016)

http://www.mining.com/

According to the World Bank, together the BRIC nations (Brazil, Russia, India and China) consume 40% of global energy and food commodities and over half of the world’s metals. China alone accounted for virtually all the increase in metals (aluminum, copper, lead, nickel, tin and zinc) consumption of the BRICs since 1994.

India’s consumption of metals almost doubled over the past 20 years. But it’s only taken the sub-continent’s global share from 1.9% to 3.4% according to the report. By contrast, China’s share of worldwide metals consumption went from 6.4% in 1990 to 43.9% last year.

Statistics like these is heartbreaking for those hoping that India, which will likely top China’s population in little over a decade from now, can take over from China as the driver of global growth and specifically spark a new supercycle in commodity consumption.

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InvestorIntel Report: China’s new metals splurge?; Lithium forecast; Gold stock profits – by Robin Bromby (InvestorIntel.com – August 8, 2016)

http://investorintel.com/

If the Fitch rating agency is right, China will need to consume mountains of metals — copper, zinc, iron, as well as all the technology metals — for the next 14 years. Fitch is predicting that China will need to build new housing stock of 800 million square metres every year through to 2030.

As the Nikkei news service adds, that is roughly equivalent to the housing space of Singapore 15 times over for more than the next decade. (Apologies for the italics, but the sheer enormity of this forecast demands them.)

Where is the zircon going to come from for the tiles and wash basins? What about all that copper wiring? How much stainless steel, and therefore nickel, will all this require? Those buildings will all need steel containing manganese and niobium as well as iron ore (not to mention graphene). The digital electronics will need everything from tantalum to rare earths, from tin to lithium and graphite.

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COLUMN-Small Australian miners are the canaries of commodity prices – by Clyde Russell (Reuters U.K. – August 4, 2016)

http://uk.reuters.com/

Aug 4 Are the strong gains this year in small Australian resource companies a harbinger of sustainable rallies for both bigger miners and commodity prices in general? Past evidence suggests yes.

The Australian Stock Exchange (ASX) Small Resources Index has jumped 66 percent so far this year, comfortably ahead of both large mining stocks like Rio Tinto, which has gained 10.5 percent, and a broad commodity price indicator, such as the Bloomberg Commodity Index, up 8.6 percent.

What this tells you is that small-capitalisation resource stocks have been the outperformer, but if you believe history is a guide then it is worth noting that the minnows have in the past rallied and peaked prior to major companies and overall commodity prices.

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Chinese firms back on the hunt for mining treasure as majors offload assets – by Eric Ng (South China Morning Post – July 25, 2016)

http://www.scmp.com/

Study shows domestic firms snap up US$4.49b worth of overseas mining interests in the first six months, an 18.2pc rise

Resurgent Chinese interest in overseas mining acquisitions is expected to remain strong, amid expectations that metal prices may be bottoming out and as international mining majors look to improve their portfolios by selling assets.

Domestic firms snapped up US$4.49 billion worth of overseas mining assets in the first six months of the year, an 18.2 per cent rise on the US$3.8 billion in the same period last year, according to data collated by Mergermarket which has co-published a report on the findings with international law firm Baker & McKenzie.

“In the past, China’s demand [for overseas assets] has been driven by central [government] policy, [but now] we are seeing more opportunistic buying,” said John Mollard, global head of mining at Baker & McKenzie.

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