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Commodity Super-Cycle and Decline

Scrap your career plans for Wall Street, study agriculture and mining instead: Jim Rogers – by Anthony Halley (Mining.com – September 17, 2013)

 

http://www.mining.com/

The US economy is no longer producing anything and the finance industry is completely saturated, presenting a unique opportunity for young people to study agriculture and mining, Jim Rogers told a crowd at a recent public appearance:

The event’s moderator began by quoting Rogers to himself:

“Scrap career plans for Wall Street or the City, London’s financial district, and study agriculture and mining instead. Power is shifting again from financial centres to the producers of real goods. The place to be is in commodities: raw materials and natural resources.”

After hearing the quotes, Rogers asked who had done the “homework” for the event, suggesting that they deserve a raise.

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As a Boom Slows, Peru Grows Uneasy – by William Neuman (New York Times – August 19, 2013)

http://www.nytimes.com/

LIMA, Peru — From his office window, Henrik Kristensen, the chief executive of the company that runs Peru’s main port, can still look out at rows of newly arrived, shiny Kia automobiles from South Korea and shipping containers stacked four high, full of imported items like television sets and brand-name clothing bound for the growing number of malls that serve this country’s burgeoning middle class.

“This is Peru,” he said. “When you go to the shopping malls they’re full of people, they’re full. That’s a good indicator that people are really spending money.”

Peru’s economy grew an average of 6.4 percent a year from 2002-12 after adjusting for inflation, according to government figures, a remarkable period of sustained expansion that has made it one of the world’s star economies.

But suddenly growth has slowed here, and just beyond the view from Mr. Kristensen’s window, under Lima’s perpetually gray winter sky, the reason becomes clear.

At Dock 5B, ships are loaded with Peru’s mining riches, including copper ore, lead and zinc — the raw materials that fueled the Peruvian boom with their rising prices in recent years.

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Insight – Changing China set to shake world economy, again – by Kevin Yao and Alan Wheatley (Reuters India – September 11, 2013)

http://in.reuters.com/

BEIJING/LONDON – (Reuters) – Long after concerns about tightening U.S. monetary policy have faded, a more profound issue will still dog global policymakers: how to handle the second stage of China’s economic revolution.

The first phase, industrialisation, shook the world. Commodity-producing countries boomed as they fed China’s endless appetite for natural resources. Six of the 10 fastest-growing economies last decade were in Africa.

China’s flood of keenly priced manufactured goods hollowed out jobs in advanced and emerging nations alike but also helped cap inflation and made an array of consumer goods affordable for tens of millions of people for the first time.

The second stage of China’s development promises to be no less momentous. Consumption will take over the growth baton from investment. Services will grow as a share of the economy, while industry shrinks. Commodity-intensive mass manufacturing based on cheap labour will give way to greener, cleaner ways of making things.

More of the value added by a better-educated, more productive workforce harnessing new technologies will stay in China instead of going to multinational companies.

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Old Economies Rise as Growing Markets Begin to Falter – by Nathaniel Popper (New York Time – August 14, 2013)

http://www.nytimes.com/

The balance of world economic growth is tipping in another direction. Just as economists have begun lowering their forecasts for China and many other developing economies, the American economy is bouncing back. Japan appears to have turned a corner and is ending almost two decades of grinding deflation. Economic data out of Europe on Wednesday provided the first solid indication that many countries in the euro zone may be escaping the clutches of recession.

The gross domestic product of the 17-nation euro zone grew at an annualized rate of about 1.2 percent in the second quarter. It is certainly not clear, based on only three months of data, that Europe’s recession has ended. But it is further evidence that the older engines of growth are revving into gear as the most recent sources of growth have been slowing down.

“The general proposition for much of the last generation has been that emerging markets grow faster. That’s what’s changed,” said Neal Soss, the chief economist at Credit Suisse. “The acceleration such as it is happening is in the first-world economy rather than the emerging markets.”

The growth of the BRIC countries — Brazil, Russia, India and China — has raised living standards in those nations and in others in Southeast Asia, Latin America and Eastern Europe.

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Iron ore prices moving higher as China steel production rises – by Lawrence Williams (Mineweb.com – August 15, 2013)

http://www.mineweb.com/

After a bit of a dip, iron ore prices are on the rise as Chinese steel production begins to increase again and the world’s top diversified miners will be the likely principal beneficiaries.

LONDON (MINEWEB)  – It should not have escaped anyone who follows the global mining sector’s attention that the world’s three biggest mining companies by a long way, BHP, Rio Tinto and Vale, are also the three biggest miners of high grade iron ore.

There had been much discussion of how these would fare in a Chinese downturn, given that China is by far the world’s largest importer of iron ore and there was comment that iron ore prices would fall dramatically, thus decimating the big three’s revenues and profits – exacerbated perhaps by the fact that they are all growing production with the inevitable additional costs that involves.

What the observers seemed to have failed to take into account is that China, in a recession, is still the equivalent of anyone else in a mega growth phase! Growth falling perhaps from 10% plus per annum to maybe 6 or 7% – figures western economies would give their eye teeth for!

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Is the rally in global miners too good to be true? – by Ansuya Harjani (CNBC Asia – August 14, 2013)

http://www.cnbc.com/

Even as global resource stocks have had a stellar run-up in the recent weeks, driven by signs of stabilization in China’s economy, cheap valuations and short covering, questions are building over the sustainability of this trend.

Shares of large-cap mining companies such as Australia-listed BHP Billiton and Rio Tinto and U.K.-listed Vedanta have rallied between 11 percent and 14 percent since mid-July.

“There has been a lot of trading money coming into the space by longer-term investors who have wanted to buy the mining space, but haven’t had the clarity because of China, falling commodity prices,” Chris Weston, senior investment strategist at IG Markets told CNBC. “But the easy money has been made. The question now is how much more upside do we think there’s going to be,” he said.

According to Weston, further gains are likely in the near term given improving sentiment around the global economy. But beyond that, he says the outlook for mining stocks remains unclear, pointing to the risk of a selloff in commodities once the U.S. Federal Reserve begins to taper monetary stimulus and potential oversupply in resources such as iron ore in 2014.

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Decade-long Australia mining boom turns to bust (The Associated Press/Las Vegas Sun – August 10, 2013)

http://www.lasvegassun.com/

The Australian mining boom built over a decade on Chinese hunger for energy and raw materials is turning into bust for many business owners as China’s cooling growth reverberates through a country accustomed to winning from the rise of an Asian economic giant.

Endowed with vast mineral resources, Australia has been the envy of the Western world for avoiding recession during the global financial crisis while other wealthy countries drowned in debt. But the country now faces a potentially painful transition as it weans itself off a heavy reliance on its two biggest exports, coal and iron ore.

Australia’s dilemma underscores that China’s long run of supercharged growth has given it enough weight in the world economy to create not only winners, but losers too when its own fortunes change.

Trade between Australia and China equaled 7.6 percent of Australia’s $1.5 trillion economy last year, a dramatic threefold increase from a decade earlier, according to an Associated Press analysis of trade data. During that time, mining companies gushed multibillion dollar profits while jobs as mundane as maintenance commanded salaries above $120,000.

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Australian Broadcasting Corporation Interview with BHP Billiton CEO Andrew Mackenzie (Australia Broadcasting Corporation – August 8, 2013)

http://www.abc.net.au/

Click here for extended interview: http://www.abc.net.au/7.30/content/2013/s3820498.htm

Transcript

LEIGH SALES, PRESENTER: You may recall last night that during a discussion with the Prime Minister, we ran a brief excerpt of an interview with the head of the world’s biggest mining company BHP chief executive Andrew MacKenzie. We had to hold over the full interview because of the need to make time for Kevin Rudd.

So as promised last night, here’s more of what Mr MacKenzie had to say when he joined the program.

Mr McKenzie, I’d like to start by getting your views on some broad economic questions. Do you think that Australia is transitioning out of the resources boom?

ANDREW MACKENZIE, CHIEF EXEC., BHP BILLITON: Not at all. I think maybe some of the best days are ahead of it. I believe, obviously as you’re hinting, that the resources industry has been pivotal to Australia, but as we go forward, demand continues to increase and everything is for Australia to play for.

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BHP’s CEO Sees U.S. Shale Expansion as Mineral Demand Grows – by Elisabeth Behrmann (Bloomberg News – August 7, 2013)

http://www.bloomberg.com/

BHP Billiton Ltd. (BHP), the world’s biggest mining company, signaled it will expand in the shale oil and gas industry in the U.S., forecasting global commodity demand will jump 75 percent over the next 15 years.

“It’s my intention to make us hugely proficient, if not one of the leaders in the shale gas and oil business,” Andrew Mackenzie, chief executive officer of the Melbourne-based company, said today in an interview. “Which means if there are opportunities elsewhere we’ll be able to consider them with a lot of precision and interest.”

China, the biggest consumer of metals and energy, will continue to fuel demand for commodities as 250 million people move into cities, said Mackenzie, 56, who succeeded Marius Kloppers in May. BHP spent $20 billion in 2011 on shale assets in the U.S., joining rivals including Exxon Mobil Corp. and China Petrochemical Corp. in seeking to tap surging energy demand that’s driving an industrial revival.

BHP slipped 2.0 percent to A$34.90 at the close of trading in Sydney. It’s dropped 5.9 percent this year.

Premier Li Keqiang is driving reform of the Chinese economy in a bid to maintain growth while reining in financial risks and controlling local government debt.

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COLUMN-China commodity surge more about stockpiling than consumption – by Clyde Russell (Reuters India – August 8, 2013)

http://in.reuters.com/

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

LAUNCESTON, Australia, Aug 8 (Reuters) – Will record imports of crude oil, iron ore and soybeans in July force a re-think of the consensus view that the China-led commodity boom is largely over, or is this just a one-month blip that can be dismissed?

Even the most bullish of analysts are likely to have been surprised by the strength in the July numbers, which stand in stark contrast to the last few months of gradually weakening economic indicators in the world’s largest commodity consumer.

Ultimately there are two basic explanations for the increase in commodity imports. Either demand has risen, or is expected to rise in the next few months, or stockpiles are being built, or a combination of the two.

Different dynamics exist for different commodities, so it’s worth looking at the breakdown. Crude oil imports rose to 26.11 million tonnes in July, a 17.8 percent leap from June and at 6.15 million barrels per day (bpd), the highest on record.

The surge in July was enough to turn the year-to-date number positive, with imports for the first seven months now 1.4 percent higher than the same period in 2012, where as at the end of June they were 1.4 percent weaker.

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BHP Billiton CEO, Andrew MacKenzie Speech to the Asia Society on August 7, 2013

http://www.bhpbilliton.com/home/Pages/default.aspx

For a detailed interview of BHP Billiton CEO Andrew MacKenzie by Australia Broadcasting Corporation, click here: http://www.abc.net.au/7.30/content/2013/s3820498.htm

I am delighted that so many of our shareholders and friends from business, government, the media and elsewhere have joined us today. Welcome to you all.

I would also like to mention two individuals in the audience. First, one of BHP Billiton’s longest serving employees – Eric Gray. Eric is a maintenance supervisor at our Illawarra coal operations and is celebrating 45 years with the company. And second, Martin Ferguson, who needs no introduction. A special welcome to you both.

I am honoured to lead this tremendous, Australian company and pleased to be making my first Australian speech here in Melbourne; a city my wife, Liz, and I are delighted to now call home. We recently purchased a house in Richmond and I have adopted St Kilda as my AFL team. Richmond, anyway, has proved to be a terrific choice.

Melbourne is a city with a rich mining history, a history of which BHP Billiton is proud to be a part. Our global headquarters have been in Melbourne since 1885 and next month we will relocate to Collins Street, where our company first began.

Now speaking of our history, one of my fellow Scots, George McCulloch, was vital to BHP’s formation in the late 19th century as manager of the Mt Gipps station in New South Wales. George organised a group of pioneers to sink the first shaft at Broken Hill, which led to the development of BHP’s first and famous ‘Big Mine’.

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ANALYSIS-Commodity funds on track for big launch year in uncertain market – by Barani Krishnan (Reuters India – August 6, 2013)

http://in.reuters.com/

NEW YORK, Aug 6 (Reuters) – An ex-Glencore (GLEN.L) oil trader and a veteran grains merchant with futures broker R.J. O’Brien are among those behind the largest number of commodity fund launches in 3 years despite investor worries the multi-year rally in those markets is over.

A dozen hedge funds trading raw materials derivatives on discretion were launched in the first six months of this year, the same as in the whole of 2012, data from London-based research house Preqin showed. In 2011, only seven of such funds took off, the smallest number in 5 years.

The new funds are led by managers who are convinced they can be outliers in one of the toughest commodity markets in years. The funds typically begin trading with a few million dollars of the managers’ own money and cash from family and friends, before seeking outside capital.

The launches coincide with talk the commodities “supercycle” of the past decade has been thwarted by the slowing of China’s phenomenal growth.

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Chinese copper demand could catch short-sellers by surprise – by Eric Onstad (Reuters U.S. – August 5, 2013)

http://www.reuters.com/

LONDON, Aug 5 (Reuters) – Gloom over weaker economic growth in China has led some investors to miss signs of robust underlying copper demand, which may wrong-foot those betting on a further slide in prices.

Benchmark prices in copper, viewed by many investors as a proxy for global economic health, hit the lowest levels in nearly three years at $6,602 a tonne in late June.

The price on the London Metal Exchange (LME) slid 21 percent from a peak this year in February, mainly due to worries about China, which accounts for 40 percent of copper demand. It has since rebounded modestly to trade just under $7,000 a tonne.

Despite China’s weak factory data and a credit crunch, spending on the power grid and other areas has meant copper consumption is fairly buoyant in the world’s biggest metals consuming nation.

China’s apparent copper demand, after adjusting for changes in stocks, surged over 20 percent in the second quarter, Barclays analyst Gayle Berry said.

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Despite gloom, prices for commodities China consumes are up – by Clyde Russell (Reuters India – August 6, 2013)

http://in.reuters.com/

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

LAUNCESTON, Australia, Aug 6 (Reuters) – It’s not hard to find bearish commentary on the outlook for China’s commodity demand, but every so often a little bit of information contrarian to the prevailing market views comes along.

Such a snippet is the latest China Commodity Index compiled by ANZ Banking Group, which shows the weighted average price for a basket of commodities imported by China rose to a three-month high last week.

The index gained 0.6 percent in the week ended Aug. 2, with only industrial metals detracting from the increase. It’s 0.4 percent higher than three months ago, but 2.7 percent below the level a year earlier.

Although it doesn’t have a long history, the ANZ index is useful as it tracks 22 major commodities and is weighted to reflect China’s consumption. The idea that prices of commodities most commonly used in the world’s largest consumer are at a three-month high appears at odds with other recent evidence that economic growth is stalling.

The rise in the official Purchasing Managers’ Index to 50.3 in July from 50.1 in June has been about the only significant recent Chinese economic data that has surprised on the upside.

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The ‘new world order’ of mining isn’t pretty – by John Shmuel (National Post – August 3, 2013)

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

If there was a stock market discount bin, it would be overflowing right now with mining stocks of all shapes and market caps.

The TSX materials sector is down more than 30% so far this year, with gold miners being particularly clobbered, having lost 38% of their value since January. It’s been the worst year for global mining stocks since the financial crisis.

The last bastion of safety for mining investors — potash stocks — collapsed this week to join their digging and drilling brethren in the basement. The break-up of a Belarusian-Russian cartel that was responsible for 43% of global potash exports is to blame. Its demise led to a potash price collapse, resulting in a sharp pullback for fertilizer stocks such as Potash Corp. of Saskatchewan Inc., Mosaic Co. and Agrium Inc.

The bad news didn’t stop there. A day later, Barrick Gold Corp. revealed the second-worst loss in Canadian corporate history. The miner announced it lost US$8.56-billion in the second quarter, after a massive US$9.3-billion writedown at its Pascua-Lama development in Chile.

All of that ensures Canadian mining stocks are well on their way to posting a third-straight annual decline. It’s no wonder many fund managers, despite seeing a lot of value in the sector, are proceeding cautiously.

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