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Commodity Super-Cycle and Decline

It’s a cycle, not a crisis, say fundies as bear market in commodities worsens – by Vesna Poljak (Australian Financial Review – November 13, 2015)

http://www.afr.com/

The prospect of further monetary stimulus from the European Central Bank has added to mounting bad news for commodity prices which already face the threat of a rising United States dollar if the Federal Reserve lifts interest rates next month.

All things being equal, a higher US dollar – if it is not already priced-in – makes oil, copper and iron ore less affordable for buyers funding their purchases in other currencies, especially those in vulnerable emerging markets prone to currency depreciation and foreign capital flight.

Commodity prices have been decimated in 2015 but it has taken a long time since the commodity cycle peaked for the big producers to become ensnared in a bear market.

This year markets finally responded because of higher production volumes, slowing investment in China hurting demand, the devaluation of the yuan and the US dollar’s stop-start rally.

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COLUMN-Global PMI may be signalling commodity lift-off, but wait for China – by Clyde Russell (Reuters U.S. – November 12, 2015)

http://www.reuters.com/

Nov 12 (Reuters) – – The recent uptick in purchasing managers’ indexes in both China and the developed world has led to some optimism that a rebound in commodity demand and prices is just around the corner.

This view is largely based on previous experiences of rising PMIs being accompanied by stronger consumption of natural resources, and both data evidence and logic support the historical argument.

However, like the legal disclaimers that accompany investment brochures, it’s worth noting that past performance is not always a reliable indicator of future outcomes.

The positive case is that the global PMI for October accelerated to 51.4 from September’s 50.7, the strongest monthly gain in nearly two years. October’s reading was also the first timer since March that the global PMI had moved above its three-month moving average.

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China domestic demand could be driver to new commodities supercycle – by Lawrie Williams (Lawrieongold.com – November 12, 2015)

http://lawrieongold.com/

If you thought Black Friday and Cyber Monday were the peak of overhyped sales frenzy – you ain’t seen nothing yet! China’s Singles Day – an even more hyped up event from China’s online giant, Alibaba, sees even more conspicuous demand than Black Friday and Cyber Monday rolled together – and all in one day.

The event falls on the 11th day of the 11th month and this year saw sales hit an almost unbelievable US$14.3 billion – up from just over $9 billion a year earlier.

For a country the media tells us is in recession and struggling with its domestic economy – a factor blamed for many of theWest’s current ills, and for the resource sector’s poor performance in particular – this has to be a truly remarkable figure and suggests that whatever may be afflicting the country’s manufacturing and exports sector, domestic demand is running higher than it has ever been – and substantially so.

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Commodities keep falling as major mining projects come into production – by Ian McGugan (Globe and Mail – November 12, 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.

If you want to understand the forces behind the global commodity slump, turn your thoughts to the rust-red flatlands of Western Australia, where a mining magnate’s grand ambition is on the verge of becoming reality.

It’s there that Gina Rinehart, chairman of Hancock Prospecting and the richest person in Australia, is putting the final touches on her Roy Hill project, a new iron ore mine that cost $11-billion (U.S.) to develop. It is expected to begin producing any day now and at full capacity will churn out 55 million tonnes of ore a year, using its own railway and a specially built port facility to get its output to buyers.

But here’s the catch: The new mine, the culmination of a 20-year-old dream for Ms. Rinehart, is entering a market already flooded with iron ore. Prices have plunged by two-thirds since their peak in 2012, and even more capacity is being added, notably through Vale SA’s S11D project, a massive new Brazilian mine that is expected to start production next year.

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Gadget Hungry China to Drive `Lifestyle’ Metal Gains, PwC Says – by David Stringer Bloomberg News – November 10, 2015)

http://www.bloomberg.com/

China’s swelling middle class is poised to drive long-term demand gains for metals including copper, zinc and nickel as the world’s second-largest economy transitions to consumer-driven growth, according to PricewaterhouseCoopers Australia.

The urbanization of the world’s most populous nation, which moved about 300 million people to cities in the past 20 years, promises to herald an increased need for metals required to make every kind of consumer product from smartphones to refrigerators, PwC Australia’s Melbourne-based national mining leader Chris Dodd said in an interview.

“We’re heading towards the period in China for the lifestyle metals to really come to the fore,” Dodd said by phone. “If you currently have a mobile phone in your hand you are not going to tolerate a scenario where you don’t have one in the future. If you’ve ever put an air conditioner in your house, you are not going to live without one.”

While metals prices have tumbled this year as the Chinese economy expands at the slowest pace in two decades, copper and nickel are likely to be the first to emerge from the rout in commodities, according to T. Rowe Price Inc.

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Economist Saul Eslake says the mining boom may be the last ever – by Peter Ker (Sydney Morning Herald – November 11, 2015)

http://www.smh.com.au/

The final commodities boom in “human history” may have just finished, according to prominent economist Saul Eslake.

In a gloomy opening to the International Mining and Resources Conference in Melbourne on Tuesday, Mr Eslake said the downturn in mineral commodity prices had probably not reached its nadir, and there was little prospect of the recent China boom being repeated in the future.

While the mining industry often touts the future growth potential from urbanisation and development in nations like Indonesia, Vietnam, Pakistan and African giants like Nigeria, Mr Eslake said those nations could not match the population impact of China’s recent rise.

“The countries that are still to develop are much smaller than China and India are, they are not, in most cases, starting from as far back on the development curve as China was in 1979 or India was in 1991, and most of them are much more self sufficient in commodities than China or India ever were,” he said.

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Miners Find $42 Billion Writedowns as Diversification Backfires – by Joe Deaux and Danielle Bochove (Bloomberg News – November 9, 2015)

http://www.bloomberg.com/

A bid by some big mining companies to spread the risk of low commodity prices by expanding and diversifying in recent years has turned into a costly failure.

Over the past 12 months, major mine owners including Freeport-McMoRan Inc. and Vedanta Resources Plc have written down asset values by a combined $42.2 billion, 46 percent more than the previous period, data compiled by Bloomberg show. The adjustments reflect an across-the-board plunge in raw materials and the prospect of a prolonged slump.

Just a few years ago, the companies were flush with cash as oil topped $100 a barrel, copper and gold were at records, and Chinese demand seemed unquenchable. In the seven years through 2014, mining companies made about $400 billion of acquisitions, data show. With commodities at a nine-year low, and China’s economy slowing, companies have stepped up writedowns of the assets they bought.

“It was an overaggressive investment cycle, which was badly timed,” Colin Hamilton, head of global commodities research at Macquarie Group in London, said by telephone.

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Cure for low commodities prices is staring us in the face – by Merryn Somerset Webb (Financial Times – November 6, 2015)

http://www.ft.com/

Low Chinese demand is blinding us to the obvious

China’s gross domestic product growth is slowing. It might even have stalled completely. That means China’s demand for all industrial commodities is falling and is going to keep falling. And that means you shouldn’t invest in any of the big mining companies ever again.

Without China importing 50 per cent of every commodity produced everywhere to build its millions of miles of super-fast railways, prices can’t rise, profits can’t rise and share prices can’t rise.

Sound like a familiar argument? It should do. It’s been in every paper and on every analyst’s lips all year. If you look at a couple of charts of commodity demand and prices you can see why.

China’s global metal imports were flattish until the late 1990s. They then soared into 2009 (the 10 per cent a year “miracle” growth period) before slowing and flattening again into 2011, when growth started to slow.

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COLUMN-China commodity outlook brightens, but beware caveats – by Clyde Russell (Reuters U.S. – November 3, 2015)

http://www.reuters.com/

Nov 3 (Reuters) – – Lost amid the headlines about China’s decision to end its one-child policy was news that points to a brighter medium-term outlook for commodity demand in the world’s biggest consumer of natural resources.

While all the nitty-gritty details of the ruling Communist Party’s fifth plenary have yet to be published, the world of commodities should note the commitment to double gross domestic product (GDP) and per capita income by 2020 from 2010 levels.

This should go some way towards alleviating fears that China’s economy is in structural decline, as achieving those goals will require ongoing urbanisation to boost earnings to a level where China could be considered a middle income country.

While it’s no secret that Chinese leaders want to see an economy led by more sustainable consumer spending, in order to get there the country needs consumers with higher disposable incomes, and this means city-based jobs, whether these be in services such as finance or in manufacturing.

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Revolution in air as Latino voters eye change – by John Paul Rathbone (Financial Times – November 1, 2015)

http://www.ft.com/

Volatile times ahead in region as popular expectations remain high

The commodity supercycle ended and in the Americas the political repercussions have followed swiftly. Almost everywhere, the status quo is being upended. Citizens are agitating for change. Their ends are sometimes revolutionary.

In Argentina, pro-business presidential candidate Mauricio Macri may well end 12 years of populist rule at an electoral run-off on November 22. In Brazil, Dilma Rousseff, elected president last year, is now the most unpopular leader in national history, while her Workers Party is in disgrace.

In Venezuela, the long-ruling socialist party will likely be trounced in December’s mid-terms; the only question is by how much. In Guatemala, a television comedian with no political experience has been elected president while his predecessor has been indicted for corruption.

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As downturn bites, Australia’s miners could turn to crowdfunding – by James Regan (Reuters U.S. – November 2, 2015)

http://www.reuters.com/

SYDNEY – Nov 2 A pair of former miners are hoping to launch a crowdfunding website in Australia for small mining companies struggling to raise capital via traditional outlets as lenders turn their back on the sector.

Crowdfunding in Australia to raise equity is prohibited under the nation’s Corporations Act. The founders of Mineral Intelligence Pty, however, are counting on this to change by the end of the year under pro-business initiatives being considered by lawmakers.

U.S. securities regulators approved new crowdfunding rules on Friday, allowing start-up companies to raise money for the first time from mom-and-pop investors over the internet.

Over the past three years, tens of thousands of jobs have gone in Australian mining, once the nation’s economic engine, while some executives have taken pay cuts or forsaken bonuses to support the bottom line in the absence of fresh capital.

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Blame mining companies, not China, for resource value wipeout – by Eric Reguly (Globe and Mail – October 31, 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.

ROME — American senator Everett Dirksen wasn’t talking about the commodities industry when he reputedly said “a billion here, a billion there, pretty soon you’re talking real money.” Were he alive today, he could have. Great gobs of real money are being vaporized by mining and oil and gas companies. The slowdown in China, conveniently, is taking much of the blame. It shouldn’t.

Episodes of woe are recorded almost every day. Shares of Royal Dutch Shell, one of the world’s biggest oil companies, slumped again this week after it took an $8.2-billion (U.S.) hit on weak oil prices and decisions to scrap a Canadian oil sands project and retreat from Alaska.

Glencore, the world’s top commodities trader, has fallen by two-thirds this year alone. The Swiss company, which acquired Viterra and Falconbridge in Canada, is now busy shrinking its asset base and debt. On Friday, Chevron announced it would cut as many as 7,000 jobs – up to 11 per cent of its work force.

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Papua New Guinea is falling short of its potential – by Devesh Rasgotra (Global Risk Insights – November 1, 2015)

http://globalriskinsights.com/

Falling commodity prices alongside poor political governance have meant that Papa New Guinea, rich in natural resources, is seemingly not fulfilling its potential.

Papua New Guinea is one of the poorest and most isolated countries in the world. Yet it has experienced sustained economic growth in recent years. The country is rich in gold, oil, gas, copper, silver and timber.

The extraction of these natural resources accounts for 60% of its GDP whilst it’s other main economic sector, agriculture, employs up to 85% of the population.

The revenues from this commodity-based economy have not translated into strong economic development and improvements to living standards. Despite maintaining an average annual growth rate of 6.5% over the past 10 years, the country is blighted by corruption and poor fiscal management by the government.

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China is Not Collapsing – by Anatole Kaletsky (Project Syndicate – October 12, 2015)

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

LONDON – One question has dominated the International Monetary Fund’s annual meeting this year in Peru: Will China’s economic downturn trigger a new financial crisis just as the world is putting the last one to bed? But the assumption underlying that question – that China is now the global economy’s weakest link – is highly suspect.

China certainly experienced a turbulent summer, owing to three factors: economic weakness, financial panic, and the policy response to these problems. While none on its own would have threatened the world economy, the danger stemmed from a self-reinforcing interaction among them: weak economic data leads to financial turmoil, which induces policy blunders that in turn fuel more financial panic, economic weakness, and policy mistakes.

Such self-reinforcing financial feedback is much more powerful in transmitting global economic contagion than ordinary commercial or trade exposures, as the world learned in 2008-2009. The question now is whether the vicious circle that began in China over the summer will continue.

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