Commodity Super-Cycle and Decline – Page 43

China’s changing growth profile and the commodities that stand to benefit – by Geoff Candy (Mineweb.com – October 11, 2013)

October 11, 2013

http://www.mineweb.com/

According to Standard Bank, while it is not going to be a linear progression, the nature of Chinese growth is likely to moderate over the next five years.

GRONINGEN (MINEWEB) – Like any good relationship, it is hard to imagine one’s life without the other person while things are going well. Which is why, any mention of slowing growth in China was met by many in the commodities market with loud cries of “I can’t hear you” and hands clasped firmly over ears.

A case in point, it could be argued, is the massive expansion in iron ore production by the likes of Rio Tinto and BHP Billiton in the face of slowing demand from China, which is expected to result in at least four years of expanding gluts, according to data compiled by Bloomberg.

That’s also not to say, and this is an important distinction, that growth in China has stopped, rather it is moderating. Overall growth is expected to slow over the course of the next few years but it is still going to be at a healthy rate. Indeed, it should also be noted that the base on which this, albeit slower, growth is now placed, and thus the quantum of commodities required in any given year, is vastly higher than it once was.

Commodity managers warm up to metals as world economy improves – by Claire Milhench (Reuters India – October 10, 2013)

October 10, 2013

http://in.reuters.com/

LONDON, Oct 10 (Reuters) – Base metals are back in favour with commodity managers after a long period in the dog house, reflecting a new enthusiasm for growth-oriented assets as the global economy picks up.

“The key economic regions of the world have either resumed a slight upward trend or have at least put the worst behind them,” said Ronald Wildmann, an adviser to the GFP Long Mining Fund , which returned almost 15 percent in the third quarter. “In China, the hard landing feared by many has not come to pass.”

Commodity prices as indicated by the Thomson Reuters-Jefferies CRB index rose 3 percent in the third quarter, compared with a 6 percent fall in the second quarter.

This turnaround meant the average actively-managed fund in the Lipper Global Commodity sector was up 1.94 percent, compared with a loss of 9.58 percent in the second quarter.

BHP BILLITON NEWS RELEASE: BUILDING ON AUSTRALIA’S COMPARATIVE ADVANTAGE

October 4, 2013

3 October 2013

BHP Billiton today further outlined its productivity agenda to capitalise on the next phase of the Asian growth cycle.

Speaking at the Australian National Conference on Resources and Energy, BHP Billiton President, HSEC, Marketing and Technology, Mike Henry, said the commodities that would feed future China growth would require Australia’s resources industry to continue to improve its competitiveness.

“We see moderation in the rate of GDP growth in China, and a reduction in manufacturing and investment share over time, but it is really important to note that there is still an incredibly large opportunity to be captured from a commodity demand perspective.

“Commodity demand growth will remain robust as the fundamentals of wealth creation, demographics and urbanisation continue to drive demand for resources. However the shifting dynamics of economic growth will challenge Australia’s traditional understanding of core ‘commodities’.

The X factor – how well timed is Davis’ return to mining? – by Lawrence Williams (Mineweb.com – October 3, 2013)

October 3, 2013

http://www.mineweb.com/

Former Xstrata CEO, Mick Davis, has raised $1 billion towards what appears to be his aim of creating a new major diversified mining company from scratch.

LONDON (MINEWEB) – Given the low commodity prices currently facing the sector, Mick Davis, former highly successful dealmaking CEO of Xstrata, could well have picked the perfect time to start a new company.

On Monday, Davis announced his return and, importantly, that he has already raised $1 billion with which he hopes to become a major player in the diversified mining sector – in short birthing another Xstrata (he has even named his new company X2 Resources). Buying when prices are depressed would seem to be the ideal time for a well-funded entity to enter the market, provided prices don’t fall too much further.

But even if commodity prices do fall further, the downside is probably relatively low given the extent of the fall to date, which has left companies really focusing on savings and cost cutting which should leave them in a far better position to weather any continuing storm. And in setting up a new major mining company you don’t invest for the short term anyway, but look for long term growth – and the depths of a market downturn are obviously the best time to do this.

$100bn in private equity stalking mining assets – by Frik Els (Mining.com – October 2, 2013)

October 3, 2013

http://www.mining.com/

It may be too early for private equity players to gobble up juniors or put together mega-deals, but mid-tier miners may have new investors knocking on their doors. The $1 billion injection for former Xstrata chief executive Mick Davis’ new venture X2 Resources may be just the start of wave of new private equity investments in the mining industry.

According to one estimate cash raised for investment funds dedicated to mining and oil has reached a decade high of $24 billion this year. The 2013 year to date record haul brings the total close to $100 billion accumulated for resource investments over the past six years.

Philip Heywood, director for transaction services at consultants PwC in Vancouver, says although there hasn’t been that many big deals announced, interest in mining from private equity players is strong and picking up.

“There has always been a niche interest from private equity in mining, but now larger players are entering the market,” says Heywood, adding that private equity players are seeing opportunity in the sector now that valuations have come down, sellers expectations are diminished and competition for good assets are much less.

Appetite for Destruction – by Damien Ma and William Adams (Foreign Policy Magazine – October 1, 2013)

October 3, 2013

http://www.foreignpolicy.com/

Why feeding China’s 1.3 billion people could leave the rest of the world hungry.

On Aug. 20, the Australian mining giant BHP Billiton announced that it will pump nearly $3 billion into developing a deposit of Canadian potash, a mineral used in the manufacture of fertilizer destined for farms fields across the world. And in late September, Chinese pork producer Shuanghui officially purchased Smithfield Foods in the largest Chinese acquisition ever made in the United States. The companies’ investments are both decisions that speak to a vote of confidence in global food consumption growth over the next decade — and nowhere will bellies be filling up faster than in China.

For three decades, resource-intensive manufacturing fueled China’s spectacular economic rise. By 2012, the country was consuming nearly half of the world’s coal and producing 46 percent of its steel, 43 percent of its aluminum, and about 60 percent of its cement. The Chinese economy has slowed in 2013 in part because of the government’s recognition that such a resource-intensive growth model has become unsustainable.

As a result, Beijing is trying to rebalance away from exports and investments and toward domestic consumption. Companies like BHP Billiton are betting that China’s rebalancing will spur rapid growth in demand for food and the inputs needed to produce it.

What China’s massive urbanization drive means for Canada’s economy – by John Shmuel (National Post – October 2, 2013)

October 2, 2013

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

China’s premier, Li Keqiang, announced earlier this year upon taking office that he
wants to modernize China’s economy. Part of that will involve facilitating the movement
of 400 million rural Chinese to the country’s cities over the next decade. A lot of
expectation is pinned on this mass urbanization. (John Shmuel – National Post)

There’s an ambitious plan underway in China , one that will represent one of the largest migrations of humans in history. China’s premier, Li Keqiang, announced earlier this year upon taking office that he wants to modernize China’s economy. Part of that will involve facilitating the movement of 400 million rural Chinese to the country’s cities over the next decade.

A lot of expectation is pinned on this mass urbanization. Officials in the country hope it will transform China’s economy, the world’s second largest, into one that resembles those of the developed world, instead of the credit-focused, export-driven economy that China is today.

It’s also a transformation that, if successful, will hugely benefit Canada’s economy and companies.

NEWS RELEASE: Commodity Supercycle Slows Down in 2012

October 1, 2013

New Worldwatch Institute study examines the slowdown in the global commodities market

Washington, D.C.—-Global commodity prices dropped by 6 percent in 2012, a marked change from the dizzying growth during the “commodities supercycle” of 2002-12, when prices surged an average of 9.5 percent a year, or 150 percent over the 10-year period, according to the new Vital Signs Online trend released by the Worldwatch Institute (www.worldwatch.org). This change of pace is largely attributed to China’s shift to less commodity-intensive growth. Yet while prices declined overall in 2012, some commodity categories-energy, food, and precious metals-continued their decade-long trend of price increases.

The commodities market consists of various raw materials and agricultural products with fluctuating value that are bought and sold in global exchanges. This includes agricultural products, such as corn, wheat, soybeans, and cotton; energy sources, such as crude oil and natural gas; metals used in construction, such as copper and aluminum; and precious metals that are often used for financial security, such as gold, silver, and platinum.

“Commodity prices were generally in decline for decades before 2002,” said Mark Konold, Worldwatch’s Caribbean Program Manager and the report’s author. “But as the number of rapidly growing emerging economies grew after 2000, urbanization led to a surge in demand. But that demand bumped up against a supply that was limited because of underinvestment in new capital expenditures as well as the difficulty of procuring new supplies due to stricter environmental regulations and deposits that were more remote. This opened the door to a dizzying climb in commodities prices over the next 10 years.”

The merger of the century – by Diane Francis (National Post – September 30, 2013)

September 30, 2013

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

“The problem for Americans as well as Canadians is that foreign governments, and their vassal
corporate entities, have established themselves in Canada and are nibbling away at resource
assets … Their targets include resources, farmland, market access and iconic corporations,
assets that they do not allow Canadian or American individuals, corporations or governments
to acquire in their own countries.” (Diane Francis, National Post, September 30, 2013)

In her new book, National Post columnist Diane Francis makes the case for the U.S. and Canada forming a united North America

The 9/11 attacks and the financial crisis that started in 2008 damaged the economies of Canada and the United States, and accelerated the decline of most wealthy democracies. Throughout it all, emerging economies, led by China and India, did not skip a beat. Between 2000 and 2010, they grew by an average of 6% per year, while developed nations posted an average of only 3.6%, according to The Economist’s “Power shift” report.

By 2030, Brazil, Russia, India and China could overtake the U.S., Japan, Germany, Italy, Britain, France and Canada in economic size. And these seven nations, the original G7, cannot catch up because of debt, demographics, resistance to change and an inability to recognize and counteract the strategies of their rivals.

NEWS RELEASE: Resource revolution: Tracking global commodity markets – by Richard Dobbs, Jeremy Oppenheim, Fraser Thompson, Sigurd Mareels, Scott Nyquist, and Sunil Sanghvi (McKinsey & Company – September 2013)

September 26, 2013

http://www.mckinsey.com/

For the full report, click here: http://www.mckinsey.com/insights/energy_resources_materials/resource_revolution_tracking_global_commodity_markets

Resource Revolution: Tracking global commodity markets is a comprehensive examination of how resource markets are evolving, not a price-forecasting exercise.

It may be tempting to view recent declines in commodity prices as the end of the resource “supercycle”—the period of sharp price rises and heightened volatility since the turn of the 21st century. Yet rumors of the supercycle’s death are greatly exaggerated. Despite recent falls, commodity prices are still near their levels of early to mid-2008, just before the global financial crisis hit. (To track the movements in commodity prices over time, see the interactive, “MGI’s Commodity Price Index—an interactive tool.”) At a time when the world economy remains below full power, this phenomenon is striking, and a sign that the supercycle is alive and well.

Our first annual survey of resource markets was conducted by the McKinsey Global Institute and McKinsey’s sustainability and resource productivity practice. They found that a key reason for the price resilience appears to be higher marginal supply costs, which continue to rise for most commodities.

Commodities ‘Super Cycle’ Is Seen Enduring by McKinsey – by Joe Richter (Bloomberg News – September 25, 2013)

September 26, 2013

http://www.bloomberg.com/

Commodity supply constraints and demand from emerging markets mean it’s premature to talk about the death of the super cycle that brought a longer-than-average period of rising prices, McKinsey & Co. said.

Energy, metal and agricultural prices that more than doubled since 2000 are still close to highs reached before the financial crisis, even after commodities from gold to wheat dropped into bear markets, McKinsey said in a report today.

The surge in raw-material output in the past two years and signs of cooling economic growth in China, the world’s biggest consumer of everything from cotton to zinc, prompted Goldman Sachs Group Inc. and Citigroup Inc. to say the super cycle ended. McKinsey said producers are being forced deeper into remote areas to secure supplies that require increasingly sophisticated technology to extract as consumption expands.

“When we look forward, we see a separation between new technology and productivity on the one hand, and emerging-market demand and supply constraints on the other,” Fraser Thompson, a senior fellow at the McKinsey Global Institute, said in a telephone interview from London. “We don’t want to bet against technology, but what we think often gets overlooked is the scale of the challenge we’re facing.”

The gold rush for commodities isn’t over yet, despite claims the super-cycle is dead – by Christopher Silvester (Spear’s.com – September 24 2013)

September 24, 2013

http://www.spearswms.com/

Demand from governments and private investors for gold and other commodities suggests that, contrary to popular opinion, the latest super-cycle has plenty of life left in it

WE’VE BEEN HERE before, haven’t we? Perhaps the clamour of Cassandra-like voices was not so great in 2011 when Spear’s previously wrote about the supposedly imminent demise of the commodities super-cycle, but it was nonetheless already a clamour. The past nine months or so have heard that clamour amplified several times over.

The Financial Times declared that the super-cycle was dead at the end of June, only to declare about ten days later that rumours of its death were greatly exaggerated. Most recently, the Wall Street Journal reported that the broad consensus of analysts and investors has called the end of the super-cycle.

But super-cycles tend to die slowly. The first identifiable commodities super-cycle in modern times lasted from 1894 to 1932, peaking in 1917, according to academics Bilge Erten and José Antonio Ocampo. The second lasted from 1932 to 1971, peaking in 1951, and the third lasted from 1971 to 1999, peaking almost as soon as it began.

COLUMN-Commodity markets sceptical of China PMI boost – by Clyde Russell (Reuters India – September 24, 2013)

September 24, 2013

http://in.reuters.com/

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

LAUNCESTON, Australia, Sept 24 (Reuters) – What does China’s factory sector growing at its strongest pace in six months have in common with the U.S. Federal Reserve’s decision to keep buying bonds? Both failed to boost commodity prices much.

The flash HSBC Purchasing Managers’ Index (PMI) rose to 51.2 in September from August’s 50.1, the highest level since March and strengthening the view that economic growth in the world’s largest commodity consumer is regaining momentum.

The PMI improvement came days after the Fed surprised market watchers by keeping its bond purchases at $85 billion a month, judging that it is still too early to taper monetary stimulus, given the nascent economic recovery in the United States.

Both developments should be positives for commodity prices, as both point to the likelihood of stronger growth in the next few months in the world’s two largest economies.

While the Fed decision did give a small boost to some commodity prices, it didn’t last, with London benchmark copper CMCU3 having given up more than half of the 2.1 percent rally on Sept. 19, the day after the Fed announcement.

Guest post: more super, less cycle for commodities prices – by Paul Bloxham (Financial Times – September 17, 2013)

September 17, 2013

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

http://blogs.ft.com/beyond-brics/

Paul Bloxham is HSBC’s chief economist for Australia and New Zealand

Commodity prices have been broadly steady over the past year. This is despite China’s slowdown, fears of Federal Reserve tapering and nervousness about the emerging economies. Indeed, commodity prices are still over 120 per cent above their 1990s levels, in inflation-adjusted terms. This may have surprised some observers, particularly those expecting the end of the so-called commodities super-cycle and forecasting large commodity price declines. So far, it has not happened.

For some time now, our view has been that commodity prices will stay at much higher levels than in the late 20th century. While we expect strong mining investment to boost supply in coming years and keep commodity prices below their 2008 peak levels,we still think prices will stay structurally high. In short, the so-called super-cycle may be more super and less cycle.

Two elements drive our commodity prices outlook, the first empirical, the second theoretical. Empirically, history shows us that commodity prices are not in fact exceptionally high right now. Rather, they were exceptionally low in the 1980s and 1990s. Data for the past 150 years reveal that real commodity prices are actually currently around their long run average levels.