Commodity Super-Cycle and Decline – Page 28

Super Slump: Why there’s no end in sight as resources rout gathers steam – by Ian McGugan and Rachelle Youghlai (Globe and Mail – November 28, 2015)

November 30, 2015

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

Welcome to the superslump.

Four years after the commodity supercycle began to ebb in 2011, prices for raw materials are hitting surprising new depths. From aluminum to iron ore to nickel to zinc, the basic building blocks of global industry are in free fall.

The forces driving the great decline in commodity prices are no secret – it’s the result of too little demand from a slowing Chinese economy meeting too much supply from mines launched in better times. Still, the ferocity of the downturn has shocked executives and investors. Most frightening of all, there is no sign the rout in raw materials will let up any time soon.

Miners are trapped in a world where next to nobody sees reason to cut production despite obvious gluts.

The No Breakfast Fallacy: Why the Club of Rome was wrong about us running out of resources – by Tim Worstall (The Adam Smith Institute – 2015)

November 30, 2015

http://www.adamsmith.org/

1. Introduction

The scene is an early morning current affairs radio show. Very important people talk to the nation here. Evan Humphries (for it is he): “Mr. Worstall, why is it that your new report shows that soon all will be dead?”

Worstall: “Evan, it’s 7 am. Currently there is food in the fridges of the nation for breakfast. But in two hours time that will be eaten, gone, there will be no more. Therefore everyone will die because NO BREAKFAST.” Sorry, might I just rerecord that?

Worstall: “Evan, mineral reserves are disappearing at an alarming rate. Official figures show that within 30 years most of them will be used up and there are no more reserves. Industrial civilisation will crash, billions die, because NO MINERALS.”

Rio Tinto And Vale Killed The Commodities Supercycle, Not China Or The Fed – by Tim Worstall (Forbes Magazine – November 29, 2015)

November 30, 2015

http://www.forbes.com/

That the commodities supercycle is over is obvious: we can see that just by looking at the falling values of pretty much all of the commodities. However, there’s a number of implications of this being bandied about which are wrong.

It’s not, for example, slowing growth in China which has killed it, nor will it be the Federal Reserve raising interest rates which gives it the final death blow. It’s much more accurate to say that the producing companies, like say Rio Tinto or Vale in iron ore, which have killed off the cycle.

And as a result of that we can’t quite say that falling commodity prices are symptoms of the global economy about to fall over into depression.

Maximum pain for commodities. Are we there yet? – by Clyde Russell (Reuters U.S. – November 26, 2015)

November 26, 2015

http://www.reuters.com/

Nov 26 – The dominant theme of commodity markets in recent months, in virtually every article or conversation at events, has been how much lower can prices possibly go. The answer is simple, they will stop falling when the point of maximum pain is reached.

With the prices of many commodities at multi-year lows and the broad Bloomberg Commodity Index close to its weakest in more than 16 years, many commodity producers, investors and traders are becoming desperate for any positive signs.

But any bottoming of prices, or indeed the start of a rally, requires more than desperation, it needs fundamental re-alignment of the existing supply-demand balances.

Dr. Copper’ plunges to US$2 for first time since 2009: ‘Things are quite horrible and about to get worse’ – by Peter Koven (National Post – November 25, 2015)

November 25, 2015

The National Post is Canada’s second largest national paper.

Copper goes by the nickname “Dr. Copper,” because the red metal is viewed as a barometer for the global economy. And unfortunately, it hasn’t been saying anything cheery of late.

Copper prices plunged back to US$2.00 a pound this week, the first time they have touched that level since the last gasps of the Great Recession in 2009. Prices are down nearly 60 per cent from their 2011 highs of more than US$4.60, and plenty of experts think they will keep going lower.

“What the market is telling us from the price is that things are quite horrible and about to get worse,” said Bart Melek, head of commodity strategy at TD Securities.

Falling commodity prices in a volatile corner: Why ‘quiet’ Mauritania is being watched closely (Mail and Guardian Africa – November 24, 2015)

November 25, 2015

http://mgafrica.com/

MAURITANIA doesn’t often make the news. It’s mostly desert and sparsely populated – just 3.5 million people for a land area larger than Egypt or Nigeria.

But Mauritania is of strategic importance in the “war on terror” in Africa, on account of its “ungoverned” spaces – as US securocrats see places like the vast Sahara desert – which run the risk of being used as a safe haven or rear base for terror groups.

Last year, the US Africa Command gave Mauritania a $21m pair of military aircraft outfitted with advanced surveillance equipment; cooperation between the two countries has deepened in recent years amid growing threat from al-Qaeda in the Islamic Maghreb.

If China Killed Commodity Super Cycle, Fed to Bury It – by Kevin Crowley (Bloomberg News – November 25, 2015)

November 25, 2015

http://www.bloomberg.com/

For commodities, it’s like the 21st century never happened.

The last time the Bloomberg Commodity Index of investor returns was this low, Apple Inc.’s best-selling product was a desktop computer, and you could pay for it with francs and deutsche marks.

The gauge tracking the performance of 22 natural resources has plunged two-thirds from its peak, to the lowest level since 1999. That shows it’s back to square one for the so-called commodity super cycle, a hunger for coal, oil and metals from Chinese manufacturers that powered a bull market for about a decade until 2011.

Deepening Metals Rout Sends Copper Below $4,500 as Nickel Slumps – by Agnieszka De Sousa (Bloomberg News – November 23, 2015)

November 23, 2015

http://www.bloomberg.com/

Copper fell below $4,500 a metric ton for the first time in six years and nickel touched the lowest in more than a decade on concern producers aren’t doing enough to trim a glut of metal.

The retreat in commodities helped send a gauge of mining companies to near the lowest in almost seven years. The London Metal Exchange’s index of six main contracts has slumped 27 percent this year, the most since the global financial crisis in 2008, as a slowdown in top user China cut demand.

Expectations that the Federal Reserve will soon raise U.S. interest rates has boosted the dollar and made metals more expensive for buyers holding other currencies.

Natural resources prices ‘may fall again’ – by Neil Hume and David Sheppard (Financial Times – November 19, 2015)

November 23, 2015

http://www.ft.com/

Natural resources prices have not bottomed and could fall further unless demand improves or more supply is curtailed, according to Goldman Sachs, one of the most influential banks in commodity markets.

With raw materials from oil, copper, coal and zinc trading around their lowest levels since the financial crisis, some investors said that prices might have troughed and could recover in the next 12 months.

Production cuts from miners such as Glencore, which plans to reduce annual production of zinc by a third, have given further grounds for optimism.

The Commodity Roller Coaster – by Carmen Reinhart (Project Syndicate – Novemeber 19, 2015)

November 19, 2015

https://www.project-syndicate.org/

CAMBRIDGE – The global commodity super-cycle is hardly a new phenomenon. Though the details vary, primary commodity exporters tend to act out the same story, and economic outcomes tend to follow recognizable patterns.

But the element of predictability in the path of the commodity-price cycle, like that in the course of a roller coaster, does not make its twists and turns any easier to stomach.

Since the late eighteenth century, there have been seven or eight booms in non-oil commodity prices, relative to the price of manufactured goods. (The exact number depends on how peaks and troughs are defined.) The booms typically lasted 7-8 years, though the one that began in 1933 spanned almost two decades.

Copper price slump could create headwinds for Glencore’s debt plan – by Olivia Kumwenda-Mtambo and Atul Prakash (Reuters U.S. – November 17, 2015)

November 17, 2015

http://www.reuters.com/

JOHANNESBURG/LONDON – Further falls in copper prices might yet undermine the fightback mounted by mining and trading company Glencore after its shares tumbled to record lows this year, analysts said.

London Metal Exchange benchmark copper plunged to $4,590 a tonne on Tuesday, its lowest in more than six years, as fears about slowing demand growth in top consumer China and a higher dollar fueled negative sentiment.

Glencore saw its shares hit a record low at 66.67 pence in September over concerns it was not doing enough to cut its debt to withstand a prolonged fall in copper – its key metal.

Swiss-based Glencore has pledged to cut its net debt from nearly $30 billion to $20 billion by the end of 2016, a plan the company said would allow it withstand copper prices of $4,000 a tonne, as expected by some market players.

Chinese demand needed to alleviate mining pain unlikely to come – by Cole Latimer (Australian Mining – November 17, 2015)

November 17, 2015

http://www.australianmining.com.au/

Bankers are forecasting a rise in Chinese demand as the only way for mining to grow, but those in the industry are not expecting strong growth in the nation, however this is not fazing miners.

The Goldman Sachs Group has outlined ongoing weakness in copper and aluminium markets, and continued pain in iron ore, unless a rise in seen in Chinese metal demands.

It went on to say cost cutting exercises by miners in an attempt to tighten operations won’t help margins in the long term.

“While recent supply cuts in copper and aluminium may appear to bring the markets closer to balance, the cuts in our view are not sufficient to do so,” analysts explained according to Bloomberg.

“It is our view that the supply cuts confirm the bear case for these metals. “Only a major pickup in Chinese demand is likely to be sufficient to balance metals markets.”

Caterpillar warns lower Chinese demand will limit sales – by Lindsay Whipp (Financial Times – November 15, 2015)

November 16, 2015

http://www.ft.com/

Chicago – Caterpillar, the world’s largest mining and construction equipment manufacturer by sales, has warned that it does not expect Chinese demand for excavators to recover to the peaks of 2010-12.

Tom Pellette, group president for construction industry equipment, made the remarks as the Chinese economy recorded its slowest growth rate since 2009 in the third quarter, due to declining construction and factory activity, which many economists do not believe has bottomed out yet.

The forecasts also highlight Beijing’s efforts to rebalance the economy away from its traditional drivers such as manufacturing and investment and towards consumer spending. It also demonstrates the impact of the stimulus programme, which the government unleashed during the global financial crisis, had on demand.

Mr Pellette said industry-wide sales of hydraulic excavators between 10-90 tonnes, will reach the “23,000 range” in China this year. That compares with a total of more than 27,000 sold in March alone in 2011 and more than 112,000 for the whole of 2010, which was the peak year for the market. The company does not disclose figures for sales of its own products by country.

COLUMN-Commodity producers may be better bet in any demand recovery – by Clyde Russell (Reuters U.S. – November 16, 2015)

November 16, 2015

http://www.reuters.com/

Nov 16 – Let’s assume that you are a somewhat contrarian investor and take the view that the recent slump to fresh lows in commodity prices, and the share prices of producers, is a sign that a turnaround is coming in 2016.

If you do take this view, is it better to buy the actual commodities or the shares of the companies that extract them?

Unfortunately there is no clear precedent from recent history to suggest that one will significantly outpace the other, but that doesn’t mean there’s no value in looking in what has happened in prior commodity routs.

BHP Billiton, the world’s largest diversified miner, reached its lowest since the 2008 financial crisis in Sydney trading on Nov. 11, hitting an intraday low of A$19.81 ($14.06) a share, before closing at A$20.23.

Converting to U.S. dollars, which is more relevant for internationals investors and because the commodities BHP sells are priced in the greenback, and BHP is still some way above the 2008 low at a Nov. 13 close of $14.42.

World’s Second-Biggest Miner Unfazed by China Growth Pessimists – by Jesse Riseborough and Ryan Chilcote (Bloomberg News – November 15, 2015)

November 16, 2015

http://www.bloomberg.com/

The head of the world’s second-biggest mining company says he’s unfazed by pessimism around China’s ability to meet official economic growth forecasts that are critical to the fortunes of the embattled industry.

“There are lot of pundits saying that growth will be slower than the government will be expecting,” Sam Walsh, chief executive officer of Rio Tinto Group, said in an interview with Bloomberg Television in Antalya, Turkey on Sunday referring to China’s 7 percent growth target this year. “Quite frankly we have conducted our own independent research and analysis and it’s indicating that it’s pretty close to 7 percent.”

A retreat in prices for industrial metals deepened last week on concerns over demand in China, the world’s biggest consumer, after data showed the country’s industrial output matching the weakest reading since 2008.

Monetary and fiscal easing have yet to spur a rebound with the economy expanding at the slowest pace in a quarter of a century. Bloomberg’s monthly gross domestic product tracker remained below the Chinese government’s 7 percent goal in October with a reading of 6.57 percent.