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Commodity Super-Cycle and Decline

X2 boss Davis calls next supply deficit – by David McKay (Miningmx.com – July 1, 2014)

http://www.miningmx.com/

[miningmx.com] – THERE’S A MOMENT when X2 Resources founder, Mick Davis, can’t contain a smile. Asked whether there was any mischief in the naming of his new company, he replied: “Maybe just a bit of fun.”

The psychology of naming, however, runs deep. It’s no coincidence, for instance, that a year after completing the ‘merger’ of Glencore Xstrata, the combined company should resolve at its recent annual general meeting to rename the company Glencore plc. The merger of equals was long dead, but the name change sealed it.

Said Hanré Rossouw, who is head of commodities for frontier and emerging markets at Investec Asset Management of the decision to call Davis’s new venture ‘X2’: “I think the name says it. It’s the Xstrata model rebooted”.
Yet is the market similarly positioned for another Xstrata?

“I think Mick has got a good track record,” said Rossouw. “He brought change to the industry by introducing a more financial focus. Before that you still had mining engineers running companies.

“The only disadvantage is that because Mick has had success, so it may become more difficult to get the same kind of deals. In the past, he seemed to come out of nowhere”. Rossouw was a CFO of Xstrata Alloys before joining Investec in Cape Town.

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Have You Hugged a Concrete Pillar Today? – by Bill Gates (June 12, 2014)

 

http://www.gatesnotes.com/ – The Blog of Bill Gates

The car I drive to work is made of around 2,600 pounds of steel, 800 pounds of plastic, and 400 pounds of light metal alloys. The trip from my house to the office is roughly four miles long, all surface streets, which means I travel over some 15,000 tons of concrete each morning.

Once I’m at the office, I usually open a can of Diet Coke. Over the course of the day I might drink three or four. All those cans also add up to something like 35 pounds of aluminum a year.

I got to thinking about all this after reading Making the Modern World: Materials and Dematerialization, by my favorite author, the historian Vaclav Smil. Not only did I learn some mind-blowing facts, but I also gained a new appreciation for all the materials that make modern life possible.

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Western Investors Might Not Yet Have Redeveloped An Appetite For Resources But China Certainly Has – by Tim Treadgold (Forbes Magazine – May 16, 2014)

http://www.forbes.com/

China is buying resources. The west is selling. Who’s got the timing right? That’s the $64 billion question as interest in mineral resources heats up just as some people expect it to continue cooling.

Over the past 12 months a series of deals has seen Chinese companies soak up surplus assets being offloaded by western companies or, more recently, step up their buying demands by launching unsolicited takeover offers.

The latest raid came on Tuesday when Guangdong Rising made a $1.4 billion, all-cash offer, for full control of the Australian-base copper producer, PanAust. That followed a similar $1.4 billion all-cash offer by China’s biggest steel-maker Baosteel, in conjunction with an Australian rail operator, Aurizon, for the iron ore project developer, Aquila Resources.

Buying Ahead Of A Possible Commodity-Price Recovery

Interesting as the bids are for PanAust and Aquila the more important message for investors is that they are not the only moves by Chinese companies on mining assets, nor are they the only recent examples of corporate activity in the global mining sector which seems to be developing a head of steam despite there being little evidence of a significant recovery in commodity prices.

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BHP Billiton to follow China on its next growth journey – by Vicky Validakis (Australian Mining – June 6, 2014)

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

BHP Billiton will invest heavily in energy and food as it follows China on its transition from a construction-led economy to a consumption power-house.

Speaking to the media in Beijing where he wound up a 10-day tour of meeting BHP’s commodity customers in China, India, Japan and South Korea, BHP boss Andrew Mackenzie said while Chinese steel production would remain strong the company was also keen to meet the country’s other needs.

“We see a Chinese economy gradually shifting from construction to consumption,” he told reporters yesterday, adding “and so, will we transition.”

He said materials with high consumer demand included copper, energy and potash. “Copper is core. Coal is core. Oil and gas is core. Potash is core,” Mackenzie said.

“We’ve exited diamonds. We’ve exited arguably medium-sized ore bodies which don’t fit with our overall strategy to own the great ore bodies of uranium and copper and to some extent in oil and gas. And we reduced our exposure to liquefied natural gas.

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India’s Growth Could Pass China Under Modi: Jim O’Neill Interview (Bloomberg T.V. – June 3, 2014)

  http://www.bloomberg.com/tv/ June 3, 2014 (Bloomberg) — Bloomberg View columnist Jim O’Neill examines the strength of the Chinese economy following Monday’s strong PMI Manufacturing report, offers his outlook for India’s economy following the election of Prime Minister Narendra Modi, and previews this week’s European Central bank meeting. He speaks on Bloomberg Television’s “The Pulse.”

A Ten-Step Program for Understanding Emerging Markets – by Jim O’Neill (Bloomberg News – May 20, 2014)

http://www.bloombergview.com/

In a recent round of conferences about the so-called emerging-market economies, I often found myself at odds with other analysts and had to keep making the same points repeatedly. To save time in the future, here they are:

1. The emerging economies are more different from one another than they are alike. China is bigger than Germany, France and Italy combined, even in current dollar terms. On the basis of new purchasing-power-parity estimates, China might already be as big as the US, South Korea is as rich as Portugal and not far behind Spain: it has plenty in common with those “advanced economies” and nothing in common with the “emerging markets” of Africa.

2. The mood of the markets is sometimes good for a laugh, but not much else. At one of the conferences, I was assigned this question: “Is this emerging-market crisis going to be as bad as 1998?” This was in March. For the year to date, with the important exceptions of the Chinese and Russian markets, virtually all emerging-market equity indexes are showing stronger gains than the US, many of them at doubledigit rates.

3. Let’s stop supposing that the advanced economies can have a good recovery while the rest fall back —let alone fall as far as they did in 1998. In differing degrees, the US, Europe and Japan all need to export their way to a full recovery from their post-2008 doldrums.

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Mine M&A Set to Double as China Returns in Coal to Copper Deals – by Elisabeth Behrmann, David Stringer and Brett Foley (Bloomberg News – May 07, 2014)

http://www.businessweek.com/

China, the world’s biggest buyer of metals, is back on the hunt for acquisitions, triggered by a decline in prices and a shift in government policy.

Chinese demand for assets may help fuel a doubling in the number of mining deals worldwide this year, according to Jay Leary, law firm Herbert Smith Freehills’s joint global relationship partner for BHP Billiton Ltd. (BHP), the world’s biggest miner. Copper, iron ore and coal are the top targets, he said.

“Over the past six weeks we have seen a significant step-change in the amount of M&A activity in the mining sector,” Leary said in an e-mail. “Over the next year, we would expect Chinese investors to represent a material proportion of mining global transactions, perhaps as much as 30 percent of transactions.”

Mining acquisitions by Chinese companies surged 63 percent in the first four months of this year and are forecast to accelerate as new rules from today mean most overseas deals under $1 billion don’t need government approval.

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COLUMN-China’s robust commodity imports boosted by stockpiling, financing – by Clyde Russell (Reuters U.S. – May 8, 2014)

http://www.reuters.com/

Clyde Russell is a Reuters columnist. The views expressed are his own.

LAUNCESTON, Australia, May 8 (Reuters) – How long can strength in China’s commodity imports co-exist with weakness in other key indicators, such as manufacturing?

If you accept the argument that China can’t continue to import record, or near-record, levels of major commodities while experiencing slowing growth, then one of two outcomes becomes inevitable.

Either commodity imports start to moderate to align more closely with other economic data, such as the HSBC Purchasing Managers’ Index, which fell for a fourth straight month in April, or China’s growth shows evidence of re-accelerating.

So far this year, strength in commodity imports has tended be put down to either one-off factors, or demand unrelated to actual consumption, for example, buying iron ore in order to secure financing to use in unrelated investments.

If these factors are the reason behind the seeming disconnect between natural resource imports and the overall economy, then the most likely outcome will be for imports of crude oil, iron ore, copper, soybeans and other commodities to ease in coming months.

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Indonesia needs to tackle infrastructure hurdles to build on its youthful potential – by Jim O’Neil (Emerging Markets.org – May 2, 2014)

http://www.emergingmarkets.org/

Jim O’Neill is Visiting Research Fellow to BRUEGEL and Economic Advisor to the International Finance Corporation

Indonesians probably have the most justifiable gripe of any nation, along with Mexico, not to be included in the Bric group that I dreamt up in 2001.

Indonesia has a larger population than two of the four Bric nations, Brazil and Russia, and of course, it has a remarkably youthful population also, with demographic dynamics that give its growth potential a lot of hope in the next couple of decades.

These basic attractions are partly what led me to thinking of the notion of an additional group of emerging economies to focus on: the so-called Mint countries; Mexico, Indonesia, Nigeria and Turkey. Each of these has the potential to be a significant part of the world economy if not quite as important as the Bric economies. I define a Bric in a global context these days, as an emerging economy that if not already 3% of global GDP or more, one that has that clear potential in the next decade or two. For the Mint economies, I think of them as emerging economies that either are, or have the potential to be somewhere between 1%–2% of global GDP.

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COLUMN-China economic data shows trend to less-intensive commodity use – by Clyde Russell (Reuters U.K. – April 16, 2014)

http://uk.reuters.com/

Clyde Russell is a Reuters columnist. The views expressed are his own.

LAUNCESTON, Australia, April 16 (Reuters) – China’s economic growth data contains a short-term positive and longer-term negative for commodity demand in the world’s largest user of raw materials.

The positive is that gross domestic product (GDP) growth of 1.4 percent in the first quarter is soft enough to justify the mini-stimulus spending on infrastructure planned by the authorities.

While many in the market will focus on the year-on-year GDP growth of 7.4 percent being ahead of the market consensus for 7.3 percent, the more important figure is the quarterly outcome. If annualised, this would come in at 5.8 percent, well below the government’s target for 7.5 percent growth.

Even a mini-stimulus that boosts spending on rail and other infrastructure would be positive for demand for major commodities, such as iron ore, copper, crude oil and coal. There are, of course, risks to the short-term outlook in the form of a crackdown on using commodities as collateral for financing deals.

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Copper miners look past present pain to future gain – by Xan Rice (Financial Times – April 14, 2014)

http://www.ft.com/home/us

Santiago – These are tough times in the copper world. Prices have fallen nearly 10 per cent in 2014, testing four-year lows. Meanwhile, the long-awaited global surplus of refined metal is mounting. So why is the gloom lifting among miners?

“Short-term pain, long-term gain?” – the title of one of the main presentations at the annual copper conference in Chile – offered a hint: better days surely lie ahead.

Several key reasons to be positive emerged from Cesco week in Santiago. First, the plunge in prices is no disaster. Some small, high-cost producers may be struggling, but the industry’s healthy margins mean larger miners and producers remain comfortable.

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Despite Slowdown in China, Rio Tinto Stays Committed to Mining Plans – by Stanley Reed (New York Times – April 3, 2014)

http://www.nytimes.com/

LONDON — Rio Tinto, one of the world’s largest mining companies, has big plans for pulling even more iron ore from the earth.

It is spending billions of dollars to expand its existing operations in the Pilbara region of Western Australia, where driverless trucks the size of three-story buildings haul iron ore out of 15 mines. The trouble is, the buildup comes just as Rio Tinto’s single biggest customer, China, is losing economic steam and global demand for raw materials like iron ore and copper has been cooling.

On a single day in early March, the spot market price of iron ore — the main ingredient in steel — fell by more than 8 percent, and it is down 12 percent for the year. The price of copper, another essential raw material for industry, has recently hovered near four-year lows.

Though mining executives tend to take the long view of their markets, where price cycles are part of the game, some analysts say that this time the industry may be staring at a deeper set of problems from which miners like Rio Tinto could have trouble extracting themselves. Even as China’s decades-old appetite for steel may be abating, there is a potential iron-ore glut coming because so many mining companies increased production to chase prices that for years were alluringly high.

The stock fell by 13 percent from mid-February to mid-March and since then has regained only about half that ground, even as broader indexes have been on the rise.

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Commodities Defy Citigroup ‘Death Bells’ With Quarter’s Best (3) – by Elizabeth Campbell (Bloomberg Business Week – April 01, 2014)

http://www.businessweek.com/

A year after Citigroup Inc. declared the decade-long run of commodity gains over, wacky weather, dead piglets and Vladimir Putin have gotten in the way.

While Citigroup rang “death bells” in April 2013 for the synchronized super cycle fueled by economic growth in China, extreme weather and supply squeezes led to surprise rallies in 2014’s first three months. Coffee hit a two-year high, cattle and hogs rose to records and nickel had its best quarter since 2010. Gold rebounded from the worst rout in 32 years after Putin’s incursion into Ukraine’s Crimea region set off the biggest standoff between Russia and the U.S. since the Cold War.

Commodities are “still a powerful hedge,” Rob Haworth, a Seattle-based senior investment strategist at U.S. Bank Wealth Management, which oversees $115 billion, said in a telephone interview. “Things happen that we don’t anticipate, whether it’s an invasion in Ukraine or twice as much snow in the middle of America as we normally get. Our clients benefit from having a little exposure to protect against the unanticipated.”

Commodities topped returns for stocks, bonds and currencies, the first quarterly outperformance against all asset classes since 2012. New York-based Citigroup and Goldman Sachs Group Inc. say the rally won’t last as supply surpluses start to emerge in everything from sugar to zinc.

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COLUMN-China PMI not that strong, but may be good for commodities – by Clyde Russell (Reuters India – April 1, 2014)

http://in.reuters.com/

Clyde Russell is a Reuters market analyst. The views expressed are his own.

LAUNCESTON, Australia, April 1 (Reuters) – China’s official Purchasing Managers’ Index for March probably isn’t as strong as it looks, but that’s likely not a bad thing for commodity demand in the next few months.

The National Bureau of Statistics (NBS) PMI rose to 50.3 in March from 50.2 in February, matching the consensus expectation and indicating that the factory sector expanded slightly in the month.

The official measure, which focuses more on large, state-owned enterprises, is somewhat at odds with the HSBC PMI, which fell to an 8-month low of 48 in March, its third straight month below the 50 level that separates expansion from contraction.

It’s likely that the HSBC survey is painting a more accurate picture of current conditions in China, given the NBS measure tends to be seasonally strong in March, as this is the first month after the Lunar New Year holidays, which this year straddled January and February.

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China’s ‘airpocalypse’ good news for commodities – by Howard Winn (South China Morning Post – March 27, 2014)

http://www.scmp.com/news

The mining industry may be in the doldrums but Robert Friedland, the executive chairman and founder of Ivanhoe Mines, remains undaunted and sees commodity prices bouncing back in two or three years, as he told the Mines & Money conference in Hong Kong earlier this week.

We make no apologies for giving you yet more of him, as he tells the best stories in the sector. Of hard and soft rocks, mineral grades and so on, he gives you all that, but tells you why it is important, and where this stuff is being used.

Naturally he has an interest in telling these stories since Ivanhoe is developing some of the world’s most significant finds in copper, zinc and gold in Africa. His big themes this week include copper. So why zinc? The metal is now recognised, along with potash, as one of the most intense organic fertilisers.

Some 60 per cent of soils in China and India have been depleted of zinc. Agricultural productivity increases significantly when added to the land as fertiliser.

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