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Commodity Super-Cycle and Decline

Miners juggle debts rather than sell assets cheap – by Marcus Leroux (The Australian – July 21, 2016)

http://www.theaustralian.com.au/

The Times – Three years ago, Ivan Glasenberg issued a characteristically blunt assessment of where the mining industry had gone wrong. “The big guys really screwed up,” the Glencore boss told an industry conference. “We’ve always been wanting to keep building and keep putting the cash which we generate into new assets.”

In the months that followed Glasenberg’s speech, news emerged of billions of dollars of private capital being pooled to take advantage of the impending shake-out. The consensus view was that the global resources industry had, in chasing an outsized Chinese boom, merely laid the groundwork for a China-inspired bust.

The private equity vultures were gathering to swoop on any gems discarded by debt-saddled companies battling to survive the downturn.

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Mick Davis rethinks mining fund after failing to complete deals – by Neil Hume (Financial Times – July 18, 2016)

https://next.ft.com/

Former Xstrata boss is considering removing veto over potential investments

Launched three years ago with $5.6bn of commitments, Mr Davis’s X2 Resources has yet to complete its first acquisition. Relatively high valuations for mining assets and an investor veto on deals have frustrated Mr Davis and his team in their search for bargains in metals and mining.

They came close to buying a group of coal mines from Rio Tinto a year ago, only for the deal to fall apart after it was blocked by key investors on environmental grounds.

Mr Davis also approached BHP Billiton with an offer to buy a collection of its non-core mines but the Anglo-Australian miner decided to stick with to a plan to spin off the non-core assets into a newly listed company.

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Metals rebound restores some luster to lowly zinc and nickel – by Peter Koven(Financial Post – July 15, 2016)

http://business.financialpost.com/

After many months in the gutter, two of the world’s least-loved metals are enjoying an honest-to-goodness turnaround.

Zinc and nickel are both soaring this summer after recovering from shocking depths early in the year. Zinc touched US$1.00 a pound on Thursday for the first time since mid-2015, while nickel jumped to a nine-month high of US$4.73 a pound. Zinc is up 48 per cent from its January low, and nickel is up 38 per cent in the same period.

These moves were a long time coming. For the past two years, experts have been warning of major supply-side problems in these markets and predicting that rallies were inevitable. It took a while for them to materialize, in part because of high inventories. And now that they are finally here, there is debate about whether they are sustainable.

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All change in the world of industrial metals trading? – by Andy Home (Reuters U.S. – July 12, 2016)

http://www.reuters.com/

LONDON – China has loomed large over the world of industrial raw materials for many years. The prices of metals from aluminum to zinc have long swayed to the beat of the world’s largest manufacturing nation.

But this is the year that China has emerged from the limelight to take center-stage in the trading of those metals. On one day alone, March 10, trading volumes on the Dalian Exchange iron ore contract exceeded one billion tonnes, more than the combined annual output of the world’s biggest three producers, Rio Tinto, BHP Billiton and Brazil’s Vale.

The following month, on April 21, more than 240 million tonnes of steel rebar traded on the Shanghai Futures Exchange (ShFE), equivalent to around a third of China’s steel production last year, not just of construction-destined rebar but of every imaginable type of steel product.

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Brexit panic to give way to commodity revival, Citi report suggests – by Ian McGugan (Globe and Mail – July 12, 2016)

http://www.theglobeandmail.com/

Commodities from oil to sugar to copper are poised for big gains in 2017, according to analysts at Citigroup Inc. They suggest that investors’ anxiety over Brexit will dissipate quickly, giving way to renewed interest in raw materials.

Since the commodity super-cycle peaked in 2011, prices for metals, energy and agricultural goods have frequently risen from January to June, only to slump during the second half of the year. This year will break that discouraging pattern, the analysts assert.

“Citi expects the strong performance of commodities to resume this quarter and through the end of the year,” Edward Morse and his team wrote in a report published on Monday. The gains will only pick up speed after that, they said. “Citi is especially bullish [on] commodities for 2017.”

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Copper Rises on Prospects for Japanese Stimulus, U.S. Jobs Data – by Thomas Biesheuvel and Joe Deaux (Bloomberg News – July 11, 2016)

http://www.bloomberg.com/

Copper helped lead a rally of industrial metals as prospects for stimulus in Japan and better-than-estimated U.S. jobs data boosted the outlook for commodities demand. Mining stocks in the Americas rose to the highest in a year.

An election win by Japanese Prime Minister Shinzo Abe’s ruling coalition on Sunday raised speculation the government will spur growth through new spending. Better-than-expected U.S. payrolls figures on Friday also eased concerns about the U.S. economy.

“You have the potential for additional stimulus there in Japan, and the payrolls report was good, which sends a better signal that things aren’t falling apart,” Mike Dragosits, a senior commodity strategist at TD Securities in Toronto, said in a telephone interview. “It’s adding to a bit of a risk-on bid, and that’s impacting base metals.”

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A murky picture unfolds as commodity rally stuns even bullish analysts – by Ian McGugan (Globe and Mail – July 5, 2016)

http://www.theglobeandmail.com/

The commodity boom is back – surprising many observers and raising questions about how long the good times will persist.

Over the first six months of the year, the Bloomberg Commodity Index surged 14 per cent, well ahead of global stocks and bonds. The benchmark, which follows the prices of 22 raw materials, continued its strong performance on Monday, with silver and nickel making big advances.

Prices for several commodities are now outrunning the expectations of even bullish analysts. Last week, in response to silver’s brighter outlook, Anita Soni at Credit Suisse raised her forecast for the metal by 15 per cent, bumping it up to $19.03 (U.S.) an ounce in 2017. On Monday, silver sped past her revised estimate for next year and briefly touched $21 an ounce.

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China commodities rally on hopes of stimulus to boost economy – by Manolo Serapio Jr. (Reuters U.S. – July 4, 2016)

http://www.reuters.com/

MANILA – Chinese commodities from nickel to cotton surged on Monday on hopes Beijing will unleash more stimulus to prop up a sluggish economy, brightening the outlook for raw material demand.

An official survey on Friday pointed to China’s weak manufacturing sector in June with export orders and inventories falling and factories shedding more workers.

“There are headwinds in the domestic market and exports and for the government to achieve its macroeconomic targets they need to focus on more stimulus in the second half of the year,” said Helen Lau, an analyst at Argonaut Securities in Hong Kong. “That will be good for commodity demand.”

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Commodities Reel in World Market Tumult as U.K. Votes for Brexit – by Dan Murtaugh, Heesu Lee and Thomas Biesheuvel (Bloomberg News – June 24, 2016)

http://www.bloomberg.com/

Commodities were swept up in a global market frenzy as investors sold assets linked to economic growth such as oil and copper and sought safety in precious metals after U.K. voters opted to leave the European Union.

Gold posted its biggest one-day gain since the global financial crisis of 2008 and silver jumped the most in 18 months after U.K. voters backed the “Leave” campaign by 52 percent to 48 percent in a referendum on EU membership.

Brent crude futures slumped as much as 6.6 percent and copper in London sank the most since Jan. 7 as the U.S. dollar surged. The Bloomberg Commodities Index of returns on 22 raw materials fell as much as 2.2 percent, the most since January.

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Selling The Crown Jewels; The New Game In Russia, Brazil and Saudi Arabia – by Tim Treadgold (Forbes Magazine – June 22, 2016)

http://www.forbes.com/

Crown jewels are generally regarded as priceless assets and are rarely for sale. But in tough times they can be all that a royal family has to sell, which is what seems to be happening today in at least three commodity-rich countries.

Three months ago the only hint of royalty offloading a few gems to maintain a regal lifestyle and carry out repairs to a palace (or two) was a suggestion that the House of Saud, the family which rules oil-rich Saudi Arabia, might be prepared to sell a slice of the country’s oil business.

Last week in Brazil, another country once ruled by a king, the country’s biggest mining company, Vale, hinted at the sale of an interest in its world-class iron ore business.

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Is China the de facto, unwitting OPEC for metals? – by Clyde Russell (Reuters U.S. – June 20, 2016)

http://www.reuters.com/

LAUNCESTON, AUSTRALIA – Is China doing for metals markets what Saudi Arabia used to do for crude oil? The world’s largest producer and consumer of industrial metals may be acting as a de facto, if unwitting, type of OPEC for metals, adjusting supply in response to price signals and balancing the market.

While not as obvious as the role Saudi Arabia played as the market balancer for crude in the previous glory days of the Organization of the Petroleum Exporting Countries (OPEC), the dynamics for China and metals may be somewhat similar.

Consider the following. Up until fairly recently China was an insignificant player in the export market for most industrial, or semi-refined, metals such as steel, refined copper and aluminum. However, exports of steel and aluminum have surged since then, effectively integrating China into the global markets for these intermediate stage metals.

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China Plans to Boost Metals Reserves Amid Commodities Glut (Bloomberg News – June 16, 2016)

http://www.bloomberg.com/

China, the world’s top consumer of base metals, will boost stockpiles, accelerate the closure of excess capacity and provide tax breaks for producers as the country grapples with a raw-materials glut amid the slowest growth in decades.

The nation will increase reserves of some metals and study a trial program for companies to build stockpiles in addition to their inventories, according to State Council guidelines posted on its website Thursday. China already holds stockpiles of metals though the State Reserve Bureau. The statement from China’s cabinet didn’t specify a timeline or say how the plan would be financed.

China has set a priority of shuttering surplus industrial capacity as the country shifts from a capital-intensive to a consumption-led economy after commodities prices collapsed because of oversupply. Domestic smelters late last year pledged to cut output as metal prices fell to the lowest in six years.

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Toronto firm takes the long view when it comes to metal prices – by Ian McGugan (Globe and Mail – June 14, 2016)

http://www.theglobeandmail.com/

A Toronto-based private equity firm is finding a receptive audience among institutions looking for a way to bet on a long-term recovery in metal prices.

Waterton Global Resource Management said on Tuesday that it has raised $725-million (U.S.) to bankroll a fund that will invest in gold and copper properties in politically stable jurisdictions.

The Waterton Parallel Fund intends to follow in the footsteps of the company’s two-year-old Precious Metals Fund II, according to Isser Elishis, Waterton Global’s managing partner and chief investment officer. The earlier fund raised more than $1-billion in 2014, according to a company news release.

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PWC NEWS RELEASE: Slower, lower, weaker… but not defeated – PwC Global Mine 2016 report

Click here for full report: http://read.ca.pwc.com/i/689988-mine-2016-slower-lower-weaker-but-not-defeated

TORONTO, June 9, 2016 /CNW/ – 2015 was a race to the bottom with many new records set by the world’s 40 largest mining companies according to the PwC’s global annual Mine report. The report reveals a first ever collective net loss (US$27bn) for the Top 40 miners with market capitalisation falling by 37%, effectively wiping out all the gains made during the commodity super cycle.

“The last year was a challenging one for the global mining sector however there are some positive outliers in the Canadian market,” said Liam Fitzgerald, National Mining Leader, PwC Canada. “Capital markets appear to be steadying – gold and lithium are among the sectors that are seeing stability and modest growth in Canada. We’re also seeing a recalibration in the Canadian market as a result of cost efficiencies as well as less reliance on demand from China to drive recovery.”

“In contrast with weak market performance in 2015, we’re seeing signs of recovery in the first few months of 2016,” said Nochane Rousseau, Quebec Region Mining Leader, PwC Canada. “Greater stability in the base metal market as well as streamlined operating costs are now helping to mitigate some of the volatility in the global market to create a more favourable environment for growth in Canada.”

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Miners Starved of M&A Set to See Deals Revive Following Cutbacks – by Agnieszka De Sousa (Bloomberg News – June 8, 2016)

http://www.bloomberg.com/

The metals and mining world might be about to see a resurgence in deal-making. Mergers and acquisitions in the sector reached a decade-low last year, accounting for 3 percent of transactions across all industries, Macquarie Group Ltd. said. As long as commodities don’t plunge, weaker prices in the second half may spur more deals as buyers gain the upper hand and sellers become more desperate, according to the bank’s survey of more than 60 companies.

This year “could mark the turning point in deal activity,” Macquarie analysts including Alon Olsha said in a report Wednesday. “2016 should be the nadir for deal firepower.”

The Bloomberg Commodity Index reached the lowest in more than two decades in January amid slowing demand from top user China following years of over-investment in supply. Producers responded by cutting output, jobs and exploration spending and reducing debt.

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