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Commodity Super-Cycle and Decline

COLUMN-China stimulus, jobs worry may boost some commodity exports – by Clyde Russell (Reuters India – May 11, 2015)

http://in.reuters.com/

LAUNCESTON, Australia, May 11 (Reuters) – China’s efforts to re-energise its economy through interest rate cuts are probably not enough to give much of a boost to commodity import demand, but oddly enough may act to boost some commodity exports.

The People’s Bank of China cut interest rates for the third time in six months on May 10 in the wake of weaker-than-expected trade and inflation numbers.

Analysts are divided on whether the rate cut will have much of an impact, with a seeming consensus that at best it will act to halt the slowing of economic growth, rather than increasing the pace.

For natural resource producers, already pressured by prices close to multi-year lows for several major commodities such as iron ore and coal, even a stabilisation of economic growth around Beijing’s 7 percent annual target would be good news.

However, for China’s commodity demand to rise in any meaningful way, it’s likely that fiscal stimulus in the form of increased spending on infrastructure and social housing will have to be put in place.

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Don’t count out India for Asia’s top economy – by Gwynne Dyer (Sudbury Star – May 7, 2015)

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

The picture of the two Asian giants that most people carry around in their heads shows China racing ahead economically while India bumbles along, falling ever further behind.

People even talk about the 21st century as “China’s century”, just as they called the 20th century the “American century”. But it may turn out to be only China’s quarter-century.

The headline economic news this year is that India’s economy is growing faster than China’s. Not much faster yet, according to the official figures — a 7.5% annual rate for India vs. 7.4% for China — but there is good reason to suspect that the real Chinese growth rate is considerably lower than that.

Anybody who goes to both countries will see that India has a huge amount of catching up to do. The contrast in infrastructure is especially striking: China has 100,000 kilometres of expressways (freeways, motorways); India has only 1,000 km.

The differences in income and productivity are also very big: Gross domestic product per capita in China is between three and five times higher than in India, depending on how you calculate it.

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India a year after Modi’s election: The bullish case – by Vaishali Gauba (CNBC.com – May 5, 2015)

http://www.cnbc.com/

Almost a year after the world’s biggest democracy sent a reform-minded, pro-business candidate to its top political office, the bulls still have a case to make in favor of India—at least in the longer term.

Narendra Modi’s election whipped up an optimism that soon played out in India’s markets. The BSE Sensex, India’s chief stock index, shot up roughly 40 percent after his election last year. But things have cooled a lot in 2015, with the Sensex lower by 1.8 percent year-to-date.

But in the longer term, the bulls are still making a case for India. The nation is likely to become an increasingly important source of labor for global corporations. It has the best demographics among the big emerging-market countries, said Jim O’Neill, the former Goldman Sachs Asset Management chairman who famously coined the term “BRIC”—a catch-all for Brazil, Russia, India and China. A strong domestic market and a credible legal system are factors that make India slightly more balanced than China, he said.

“India has fantastic demographics. With urbanization in its early stages, size of the working population and productivity, India has great growth potential,” said O’Neill, now a visiting research fellow at leading European think tank Bruegel.

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Commodity rush: turnaround…or a dead cat? – by Sungula Nkabinde (Moneyweb.com – April 29, 2015)

http://www.moneyweb.co.za/

Significant gains over the past few days may cloud judgement over commodity cycle turnaround.

Even though the JSE closed in the red, Tuesday was another good day for resource stocks with many companies boasting significant gains. Kumba Iron Ore was up 8.44%, Assore rose by 9.63%, while the platinum miners Anglo American Platinum and Impala Platinum gaining 7.42% and 7.55% respectively. The gold stocks also performed well, but to a lesser extent. Harmony Gold (4.27%) and AngloGold Ashanti (4.46%), among others, were also in the black.

This was the second run in as many (South African business) days. Kumba also rose by 11% on Friday in response to an increase in iron ore prices. BHP Billiton, though it lost some ground on Tuesday, also climbed by about 3.5% on the day.

So, could this be the beginning of the turnaround in commodity stocks that the industry has so desperately been waiting for? Ryan Wibberley, Investec Asset Management’s head of dealing for emerging and frontier markets, says it’s too early to tell but argues that it could be.

“The majority of general equity portfolios in South Africa, at the moment, are significantly underweight when it comes to resources.

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The End of the BRICs – by Gwynne Dyer (Gwynne Dyer.com – April 8, 2015)

http://gwynnedyer.com/

“The only function of economic forecasting is to make astrology look respectable,” said John Kenneth Galbraith, the wisest American economist of his generation. (“A paltry honour,” he would have murmured.) But you still can’t resist wondering when the Chinese economy will be bigger than the US economy – or the Brazilian bigger than the British, or the Turkish bigger than the Italian – as if it were some kind of horse race.

The latest document to tackle these questions is “The World in 2050″, drawn up by HSBC bank, which ranks the world’s hundred biggest economies as they are now, and as (it thinks) they will be in 2050. It contains the usual little surprises, like a prediction that per capita incomes in the Philippines and Indonesia, now roughly the same, will diverge so fast that the average Filipino will have twice the income of the average Indonesian by 2050.

The Venezuelan economy will only triple in size, but Peru’s economy will grow eightfold. Per capita income will double-and-a-bit in Nigeria; in Ethiopia it will grow sixfold. Bangladesh powers past Pakistan, with a per capita income in 2050 that’s half again as big as Pakistan’s. (It’s only two-thirds of Pakistan’s at the moment.) And so on and so forth: local phenomena mostly of interest to local people.

But what’s happening at the top of the list is of interest to everybody. That’s where the great powers all live, with the BRICs nipping at their heels. Or rather, some of the BRICs are nipping at their heels, and some are not. That’s the big news.

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China plans new commodity superhighway, altering energy trade flow – by Ilan Solomons (MiningWeekly.com – April 24, 2015)

http://www.miningweekly.com/page/americas-home

JOHANNESBURG (miningweekly.com) – China’s Go West strategy of encouraging coastal to inland flow of capital and people will result in the formation of a new commodity superhighway, says advisory firm Wood Mackenzie (Woodmac).

This new superhighway will impact the energy trade flows within China and externally, through the new Silk Road routes, and will link the country from east to west, onwards to Central Asia and beyond.

“This represents a significant business and investment opportunity for China’s western region,” states Woodmac. Woodmac principal Asia economist Cynthia Lim explains China’s Go West policy is already under way and is often touted as the country’s “silver bullet” to ensure long-term gross domestic product (GDP) growth, as China’s economically dominant coastal regions approach maturity.

“The coastal provinces will have to upgrade their industries to higher value-add sectors, such as services, while industries will relocate inland, westwards. This is shifting the regional distribution of demand centres and power generation; and the impact will become more apparent over the next two decades.

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China is burning through its natural resources – by Vladimir Basov (Mining.com – April 26, 2015)

http://www.mining.com/

China is the world’s top mining country, but lack of local reserves of main mineral commodities forces local companies to hunt for mining deals globally.

Since nearly all essential production data has became available to the public, this is a good time to determine the biggest mining countries throughout the world in terms of their domestic mines output.

Due to lack of a common methodology, a simple principle of appreciated mining points credited to countries comprising the top 10 was used in this preliminary estimation.

For example, the leader in copper production was awarded 10 points, whereas a country sitting on tenth place earned one point. If a country placed out of the top 10 producers for a particular commodity, it earned zero mining points.

To simplify calculations, no weights reflecting the importance of each commodity, and other modifying factors, were taken into account. Only those most important for the world economy and most popular among investable mineral commodities, have been considered.

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Surprises aside, economic power shifts south, east [toward BRICs] – by Gwynne Dyer (Sudbury Star – April 8, 2015)

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

“The only function of economic forecasting is to make astrology look respectable,” said John Kenneth Galbraith, the wisest American economist of his generation.

But you still can’t resist wondering when the Chinese economy will be bigger than the American economy — or the Brazilian economy bigger than the British, or the Turkish bigger than the Italian — as if it were some kind of horse race.

The latest document to tackle these questions is The World in 2050, drawn up by HSBC bank, which ranks the world’s hundred biggest economies as they are now, and as (it thinks) they will be in 2050.

It contains the usual little surprises, like a prediction that per-capita incomes in the Philippines and Indonesia, now roughly the same, will diverge so fast that the average Filipino will have twice the income of the average Indonesian by 2050.

But what’s happening at the top of the list is of interest to everybody. That’s where the great powers all live, with the so-called BRICs — Brazil, Russia, India, China — nipping at their heels. Or rather, some of the BRICs are nipping at their heels, and some are not.

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What the end of the commodity supercycle means for Canada – by Glen Hodgson (Globe and Mail – April 8, 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.

Glen Hodgson is senior vice-president and chief economist of the Conference Board of Canada.

It appears more and more likely that the global commodity supercycle has come to an end. While the recent collapse in oil prices has attracted much of the focus, prices for many commodities across the board have softened. These commodities include energy, metals and agricultural products, all of which are important to Canada. No one has a crystal ball but if the commodity supercycle is indeed winding down, Canada will surely be affected.

As The Economist magazine has regularly reminded us, aggregate commodity prices fell in real terms (with the impact of inflation removed) for most of the 20th century. Prices then took off in 2002-03 with China’s growing integration into the global economy. Robust Chinese economic growth and infrastructure development essentially added a one-time boost to demand for resources of all types, and prices responded accordingly.

Between 2003 and 2008, many commodity prices effectively doubled or more in real terms. Turbulence and instability in commodity prices also grew during that period; financial markets increasingly saw commodities as an instrument for speculative investment, not just a product to be bought and sold to meet end demand.

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COLUMN-Commodity price boom over, volume boom gathers pace – by Clyde Russell (Reuters U.S. – March 19, 2015)

http://www.reuters.com/

LAUNCESTON, Australia, March 19 (Reuters) – It’s become conventional wisdom that the commodities boom is over, and while the era of rising prices is gone, figures from the Australian government suggest the surge in volumes is well under way.

Exports of iron ore will jump 22.5 percent between the 2014-15 fiscal year and 2019-20, while liquefied natural gas (LNG) shipments will triple, according to the latest quarterly report from official forecaster, the Department of Industry.

Even the pressured coal sector is expected to post gains, with thermal coal exports climbing 16.6 percent over the period and those of metallurgical grades rising 7.3 percent.

Australia is the world’s top shipper of iron ore and metallurgical coal, number two in thermal coal and soon to take the lead in LNG, once the seven gas projects under construction are completed. But while the report, released on Wednesday, is relatively bullish about the outlook for export volumes, it’s another matter when it comes to prices.

Iron ore will average $60.40 a tonne in 2015, dropping to $56.80 next year before recovering to $64.60 in 2017, the department said. It expects the price recovery to continue to 2020, when it will reach $81.80 a tonne.

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Mining and geopolitical risk: A global breakdown – by Cole Latimer (Australian Mining – March 17, 2015)

http://www.miningaustralia.com.au/home

Australia has always had an insular view of the mining industry.

It is often forgotten that many of the mining companies that operate here have a large suite of overseas operations, or are simply headquartered here but operate solely overseas.

There is more to the resources industry than what is happening on our island tucked away in the corner of the Pacific, and the vagaries of overseas machinations that affect it.

Yet, the mining sector has always viewed itself as a global industry, and one of the most important aspects of maintaining its ability to operate is remaining closely abreast of the constantly changing geopolitical landscape.

However as Deloitte points out: “As the pace of change accelerates it’s getting harder to predict the impact of these (shifting geopolitical) trends.” “It is becoming eminently clear that mining companies face rising regulatory, geopolitical, economic, and technological uncertainty.”

It goes on to state that despite best planning, much of the time miners will have to continue embracing uncertainty, essentially planning for the worst but hoping for the best.

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All is not well on the metals commodities front – by Lawrence Williams (Mineweb.com – March 10, 2015)

http://www.mineweb.com/

In US dollar terms, metals commodities have seen drastic falls over the past 4-5 years which will just perpetuate the mining boom-bust cycle.

The world of metalliferous mining – for the most part at least – is suffering, and suffering badly. No more China-driven supercycle (at least for the short to medium term). More of a China-driven downcycle seems to be in place as Asia’s biggest economy ceases to grow at its recent pace, and there are suggestions too that the Chinese, who look at these things with a rather longer-term viewpoint than most Western governments and businessmen, may even be actively driving down some commodity prices through destocking and reducing imports.

No matter that this impacts on the country’s own mining operations – there has been something of an ongoing programme anyway to rein in some of that nation’s more inefficient and most-polluting mining operations. Air quality in most Chinese cities remains below the standards acceptable in much of the West, but this is all changing, slowly, as the nation restructures. This could be a painful process.

While precious metals prices seem to engender most media coverage, there is little real evidence that China is actively driving these prices downwards – indeed this may be one of the few areas where Chinese demand is supporting prices, albeit obviously not very effectively. But take iron ore, where prices are currently close to one-third of their peak to see the real impacts of declining Chinese demand. With the big low cost producers raising production to protect revenues, smaller, higher cost operations (some of which are large) are being driven out of business.

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‘India poised to be world’s 3rd largest economy’ (Business Standard – March 9, 2015)

http://www.business-standard.com/

As India’s investment climate seems to be improving, the moment might not be far away for the country to emerge as the world’s third economy, says Jim O’Neill who is better known for coining the acronym BRIC.

“It is probably too early to say with certainty that India will soon take its place as the world’s third largest economy, behind China and the United States. But, given that India’s investment climate seems to be improving, that moment might not be too far away,” he said in a recent commentary posted on Project Syndicate website.

“By 2017, India could surpass Italy and Brazil to become the world’s seventh largest economy; by 2020, there is a reasonable chance that it will overtake France and the United Kingdom to become the fifth largest,” O’Neill, who was recently in India, said.

Way back in 2001, O’Neill, had coined the acronym BRIC — the grouping of Brazil, Russia, India and China — while mentioning about growth prospects in large emerging markets.

O’Neill, a former chairman of Goldman Sachs Asset Management, is now a Honorary Professor of Economics at Manchester University and Chairman of the Review on Antimicrobial Resistance, among other roles.

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Glencore transitioning into deficit in most commodities – Glasenberg – by Martin Creamer (MiningWeekly.com – March 3, 2015)

http://www.miningweekly.com/page/americas-home

JOHANNESBURG (miningweekly.com) – Diversified major Glencore was transitioning into deficit in most of the commodities it produced, CEO Ivan Glasenberg said on Tuesday.

Glasenberg, who has presided over returning $9.3-billion to shareholders in dividends and buybacks since 2011, told analysts and media in teleconferences in which Creamer Media’s Mining Weekly Online took part that most of the company’s commodities were free of oversupply threats.

“In most of our commodities, there’s no big supply coming into the market,” he said, adding that some of its commodities were already in deficit.

“We’re pretty comfortable we’re in the right commodities, which should bode well for the future,” he said, outlining how the company had returned $3.3-billion to shareholders during 2014.

Both a miner and a marketer, Glencore did far better than its peers in the 12 months to December 31, with earnings before interest, taxes, depreciation and amortisation (Ebitda) of $12.8-billion only 2% down on 2013.

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Commodity crash reflects global economic slump – by Brent Jang (Globe and Mail – February 24, 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.

VANCOUVER — Global commodity prices have tumbled to levels below the depths of the Great Recession, underscoring the widespread difficulties facing the global economy.

While crude oil’s price collapse has been in the spotlight, a wide range of other commodities are suffering as well, including natural gas, coal, iron ore, copper, grain and pulp and paper.

The commodity crash is the result of too little demand for raw goods now in plentiful supply after producers ramped up capacity in recent years in anticipation of steady global growth.

But trouble spots are everywhere. Commodity markets have declined during worldwide turbulence as the pace of growth in China continues to slow, Russia grapples with an imploding economy and ruble and Greece struggles through an economic crisis that Europe must solve. Oil’s big drop has hurt many energy-producing countries, including Canada, where low prices are hammering Alberta and reducing growth for Canada as a whole.

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