Commodity Super-Cycle and Decline – Page 50

Commodities on the Rise – by Dambisa Moyo (Project Syndicate – March 14, 2013)

March 14, 2013

Dambisa Moyo is the author, most recently, of Winner Take All: China’s Race for Resources and What it Means for the World.

SEOUL – The commodity super-cycle – in which commodity prices reach ever-higher highs, and fall only to higher lows – is not over. Despite the euphoria around shale gas – indeed, despite weak global growth – commodity prices have risen by as much as 150% in the aftermath of the financial crisis. In the medium term, this trend will continue to pose an inflation risk and undermine living standards worldwide.

For starters, there is the convergence argument. As China grows, its increasing size, wealth, and urbanization will continue to stoke demand for energy, grains, minerals, and other resources.

For example, the US consumes more than nine times as much oil as China on a per capita basis. As more of China’s population converges to Western standards of consumption, demand for commodities – and thus their prices – will remain on an upward trajectory.

Of course, not all commodities are equal. For example, although the case for copper seems straightforward, given that it is a key input for wiring, electronics, and indoor plumbing, a strong bid for iron is not as obvious, given the Chinese infrastructure boom that already has occurred in the last two decades.

Worst-case estimates have China’s real GDP growing at around 7% per year over the next decade. Meanwhile, the supply of most commodities is forecast to grow by no more than 2% annually in real terms.

Opinion & Analysis: Commodity supercycle is resting between courses – by Michael Power (Business Day Live – March 13, 2013)

March 13, 2013

http://www.bdlive.co.za/

Michael Power is a strategist with Investec Asset Management. This article was first published in China Daily.

IN THE world of commodities, the past couple of years should be viewed as an abrasive palate-cleanser between the first course of the supercycle — which ran from 2000 until 2008 — and the main course that is now being prepared.

To understand why, one first needs to re-examine the specifics of China’s recent nominal dollar growth in gross domestic product (GDP) — an extraordinary compound annual growth rate of 18.5% over the past decade. Even now, China’s nominal dollar GDP — that pool of demand that matters most to business — is still growing by about 13% a year.

One also needs to develop a proper understanding of the sheer scale of the compounding effect that is now happening on China’s ever-increasing economic base.

This means not being hypnotised by the annual growth rate, but rather focusing on the sheer quantum of new Chinese dollar demand for commodities that is likely to be created in each successive year over the coming decade. Last year, China added an Australia to its economy; by 2020, it could be adding a Germany every year.

Death of Commodities Super-Cycle? Not Quite – by Ansuya Harjani (CNBC Asia – January 25, 2013)

March 13, 2013

http://www.cnbc.com/

The slowdown in the world’s largest economies last year, particularly in China, led to warnings that the end of the commodities super-cycle was near, as prices of key resources plummeted.

However, a flood of government stimulus unveiled in recent months has reversed that trend, prompting one expert to say the commodities bull run that began in 2002 is here to stay.

“(The super cycle) is still intact. The combination of the economic recovery, especially with China powering ahead, and continuing support from central banks…It’s going to be a good year for commodities,” Eugen Weinberg, global head of commodities research at Commerzbank told CNBC on Friday, pointing to the Bank of Japan’s commitment to open-ended easing this week.

Mining bull run to return in the second half of the decade – Mohr – Interviewer: Geoff Candy (Mineweb.com – March 8, 2013)

March 8, 2013

http://www.mineweb.com/

While Scotia Capital commodity expert Patricia Mohr believes that base metal prices are likely to go lower over the course of the next two years, the following five should prove interesting.

GEOFF CANDY: Hello and welcome to this Mineweb.com Newsmaker podcast. Joining me live at the PADC 2013 is Patricia Mohr – she’s the vice president of economics and commodity market specialist at Scotia Capital. Patricia there’s been a lot of talk over the last few months, well indeed over the last few years about the rise of China, the impact of China on the supercycle. More recently there’s been a lot of talk about whether or not the supercycle is coming to an end. There does seem to be a divide – some people saying it is at an end, others saying that this is just a pause or almost a palate cleanser between courses. What is your view, where are we placed in the current cycle?

PATRICIA MOHR: Well I think in the next few years probably we’re going to see a little bit of a slowdown in global exploration activity and of course the junior mining sector is having difficulty getting equity finance at the moment. I think we’re at a point where some new mine capability either has come on stream in the case of commodities such as nickel or is about to come on stream which I think is the case for copper and so probably we’re going to have a number of years – I’m really talking about two years when market prices are a little bit lower than they have been in the past five years.

Supercycle shifting to new, more subtle stage – by Geoff Candy (Mineweb.com – February 12, 2013)

February 12, 2013

http://www.mineweb.com/

Canada likely to be a big winner as volume gearing becomes increasingly important.

JOHANNESBURG (MINEWEB) – The current environment should be viewed as a fairly abrasive palette cleanser between the first course of the commodities super cycle and the main one that is soon to start.

But, while the starter was hearty fare that pleased all tastes, raising prices and stocks of all stripes, the main course is going to be a much subtler dish, full of complexity. And, most importantly, one focused on volume rather than purely on price.

This is the view of Investec Asset Management investment strategist, Michael Power, who told Mineweb, “We are just moving into the main course – it is going to be fairly drawn out. It’s going to be when China really reaches its potential; when by 2020 it is adding an economy the size of Japan to its growth every year, and then India and Indonesia and a few other players are actually starting to nip at its heels in quite a material way.”

But he says, not everyone is going to be a winner.

“Winners are going to have to be built on relatively easily accessible, relatively connectable supply where the costs associated with setting up the recovery are not going to be ridiculously high…because the reality is that the base that this growth is now being generated upon is so enormous that it is probably more important to look at the quantum of growth that is being generated from one year to the next, rather than the GDP growth rate.”

Germany focusing on Canada’s mineral wealth by Ian Ross (Northern Ontario Business – January 11, 2013)

January 11, 2013

Established in 1980, Northern Ontario Business provides Canadians and international investors with relevant, current and insightful editorial content and business news information about Ontario’s vibrant and resource-rich North. Ian Ross is the editor of Northern Ontario Business ianross@nob.on.ca.

Canada is increasingly being looked upon by Germany as a source of supply for strategic raw materials. The 500-member Canadian German Chamber of Industry and Commerce is promoting Canada as a stable and viable place to invest, establish a presence and form strategic partnerships.

With Canada acknowledged as a global mining hub and a friendly producer of metals, the chamber is pushing for more business relationships between the two countries as mineral resources are taking a new priority in the European country.

“The German companies are realizing that Canada has a lot of potential and it’s politically stable,” said Aarti Soerensen, the chamber’s manager of mining and mineral resources. “It’s not a complicated country.”

Germany is one of the world’s largest consumers of raw materials and its companies are increasingly looking for secure sources of resources to feed its high-tech manufacturing and processing sector.

Spurred by global events with China’s increasing grip in accessing strategic resources and the race for Africa’s mineral wealth, Germany’s federal ministry of economics and technology launched a new raw materials strategy in 2010.

Are You a Base Metal Growth Bull or a Gold Gloom-and-Doomer? – by Brian Sylvester (The Gold Report – January 2, 2013)

January 3, 2013

http://www.theaureport.com/

Gold bugs say the global economy could collapse any day now. But what about investors who see continued growth in emerging economies and a steady, if slow, U.S. recovery? Look to base metals, recommends Haywood Analyst Stefan Ioannou. He expects price runs for 2013–2015, especially for zinc, which is facing a serious supply squeeze. Do your homework now to get positioned as soon as the uptick begins. Ioannou shares his favorites in this Gold Report interview.

The Gold Report: Stefan, what is your 2013 outlook for copper?

Stefan Ioannou: Strong fundamentals underpin the copper price going into 2013. Despite a tough copper equity market in 2012, the metal price itself has been pretty solid, averaging around $3.60 per pound ($3.60/lb). Improving automobile numbers out of the U.S. and stronger manufacturing numbers out of China will both have a positive near-term impact on the copper price. We expect copper prices to move a bit higher in 2013.

TGR: How far off is a return to $4/lb copper?

SI: I think 2013 is too soon for a sustained $4/lb price, but it will likely test that mark a few times in the coming year. There is a stronger argument for a long-term $4/lb copper price.

TGR: Many of the copper companies you cover also have a zinc component. Zinc started 2012 near $2,200 per metric ton ($2,200/mt), dipped to $1,750/mt at midyear and now hovers around $2,000/mt. What is behind the volatility?

China North: Canada’s resources and China’s Arctic long game – by James Munson (iPolitics.ca – December 31, 2012)

December 31, 2012

http://www.ipolitics.ca/

China’s designs for a greater role in the Arctic could be built on Canadian resources.

Chinese firms have invested over $400 million in northern Canada through various mineral and petroleum projects, while the Chinese government tries to simultaneously edge its way into the region’s key governance body, the Arctic Council.

While most of these deals are small, the resource sector is intiminately linked to the larger policy questions facing Arctic nations, which range from environmental protection to shipping corridors. If China gains influence in Artic affairs in the coming years, the impacts could be felt in Canada’s northern backyard.

“They have demonstrated that they will play hardball politics in terms of their interests,” said Rob Hubert, an associate professor at the University of Calgary who tracks China’s economic and strategic creep into the Arctic.

Ottawa enacted new restrictions on the foreign ownership of oilsands and other sectors in early December, signalling that the Asian powerhouse’s interest aren’t always concurrent with Canada’s.

Yet the two countries are engaged in a “strategic partnership,” an economic relationship that has a don’t-ask, don’t-tell approach to issues with more friction like human rights and foreign policy.

It’s a balancing act in constant evolution and the North — filled with oil, gas and minerals that could one day be feeding Chinese homes — is one place where the relationship could one day get icy.

Why Latin America is a magnet for Canadian businesses – Tavia Grant (Globe and Mail Editorial – December 5, 2012)

December 6, 2012

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 there is one word that signifies the march of millions of Brazilians out of poverty and into the middle class, it is this: perfume.

Brazil is now the world’s largest fragrance market, and third in the $300-billion-plus global beauty market. Its consumer class, the biggest in the continent, also has a voracious appetite for cellphones, flat-screen TVs and tablet computers.

It’s not just Brazil. A sea change is rippling through Latin America, a region once better known for hyper-inflation, political instability and high poverty rates. In the past decade, 50 million people have joined the middle class, a World Bank study showed last month. The massive shift means the middle class and the poor now account for about the same share of region’s population, at about 30 per cent.

With rising fortunes come shifts in consumption patterns, from needs to wants, from low-priced goods to middle and high-end products such as fridges and cars. It explains why companies are so keen on the region, where Dorel Industries is selling more car seats, Lush Fresh Handmade Cosmetics more soap, Research In Motion more BlackBerrys and Bank of Nova Scotia more mortgages. It’s also where Canada’s biggest public pension manager is pouring investments – into Brazilian shopping malls and Chilean toll roads – a long-term bet this trend will only gather steam.

UPDATE 5-Vale to scale back investment as global economy bites – by Jeb Blount (Reuters U.S. – December 3, 2012)

December 4, 2012

http://www.reuters.com/

RIO DE JANEIRO, Dec 3, 2012 (Reuters) – Brazil’s Vale SA , the world’s second-largest mining company, cut estimated 2013 capital spending by 24 percent after a global slowdown and a drop in iron ore prices led the company to rethink expansion.

The retrenchment comes after sluggish growth in the United States, China and Europe diminished demand for metals and weighed on the price of iron ore, Vale’s main product.

Iron ore , a key ingredient in steel, fell to a three-year low in September, and is currently hovering around $115 a tonne. Vale forecasts a $110-$140 a tonne range in the coming year.

Vale will invest $16.3 billion in 2013, down from the $21.4 billion budgeted this year for new projects, research and development and to maintain existing mines and plants, according to a regulatory filing on Monday.

“The outlook for slower expansion of global demand for minerals and metals in the medium term requires rigid discipline in the allocation of capital and greater focus in maximizing efficiency and reducing costs,” the company said in the statement.

Carney on commodities: ‘wrong conclusions … could do a lot of damage’ – by James Munson (iPolitics.ca – Septmeber 19, 2012)

December 4, 2012

http://www.ipolitics.ca/

iPolitics’ James Munson interviewed Bank of Canada Governor Mark Carney to get his thoughts on Canada’s role in the global commodities supercycle this past Friday. Here in Part 1, he explains his view that the resource boom is “unambiguously good” for Canada. Tomorrow, in Part 2, Carney explains the supercycle as part of a larger global economic restructuring. And on Friday, he’ll describe the policy and investments options Canada has at its disposal to best take advantage of high commodity prices.

Mark Carney doesn’t think Canada has any control over the resource boom.

The 47-year-old governor of the Bank of Canada, sitting beneath the portraits of his predecessors in the bank’s stately Graham Towers boardroom, says that as China and other emerging economies have fuelled a sustained rush for resources, sometimes called a commodities supercycle, they have redrawn the fortunes of developed countries like Canada.

The supercycle has spurred a massive expansion of the country’s biggest commodity export in the Albertan oilsands, triggered the deregulation of federal environmental assessments, made mining projects in the country’s northern regions viable and – at least according to the official opposition – contributed to the decline of the manufacturing sector.

As politicians have wrestled with this historic new force in the Canadian economy, misunderstandings about its root causes have developed and, left unchallenged, these could prompt bad policy choices.

‘Nature of global growth is shifting,’ and not just for commodities: Carney – by James Munson (Part 2 of 3)(iPolitics.ca – Septmeber 20, 2012)

December 4, 2012

http://www.ipolitics.ca/

iPolitics James Munson interviewed Bank of Canada Governor Mark Carney to get his thoughts on Canada’s role in the global commodities supercycle this past Friday. In Part 1, he explained his view that the resource boom is “unambiguously good” for Canada. Today, in Part 2, Carney explains the supercycle as part of a larger global economic restructuring. And on Friday, he’ll describe the policy and investments options Canada has at its disposal to best take advantage of high commodity prices.

Mark Carney keeps changing the subject.

The governor of the Bank of Canada has agreed to an interview to discuss the resource boom – and whether it’s good for Canada – but the conversation keeps turning to the global economic situation.

“The nature of growth globally is shifting,” Carney said. “In our opinion, we need a sustained strategy to really build our penetration of emerging markets and that is well beyond commodities – that is not a commodities statement.”

That’s the trouble with the resource boom, or the commodities supercycle as it’s sometimes called. It can’t be switched off and on to benefit other businesses that may be having a hard time adjusting to the resource sector’s newfound success.

‘Now’s the time to build,’ Carney says; Surprise upsides to an expensive dollar – by James Munson (iPolitics.ca – Septmeber 21, 2012)

December 4, 2012

http://www.ipolitics.ca/

iPolitics James Munson interviewed Bank of Canada Governor Mark Carney to get his thoughts on Canada’s role in the global commodities supercycle this past Friday. In Part 1, he explained his view that the resource boom is “unambiguously good” for Canada. In Part 2, Carney explained the supercycle as part of a larger global economic restructuring. Today, in Part 3, he describes the policy and investments options Canada has at its disposal to best take advantage of high commodity prices.

High commodity prices may hurt manufacturers, but they could provide ways to revive the sector and even reasons to go green, said Mark Carney.

The resource boom, sometimes called a commodities supercycle, stems from the rise of emerging economies as the main drivers of global growth and is “unambiguously good” for the country, said the governor of the Bank of Canada in an interview with iPolitics last week.

But while the benefits for the country’s miners and petroleum producers are obvious, Carney’s feel-good conclusion takes into account other opportunities for Canada stemming from the economic momentum of places like China.

“Just because it’s good doesn’t mean it could not be a whole lot better,” said Carney in the interview. “And that gets into questions of how do we maximize the returns, how do we deal with this world that has really been transformed?”

Dutch Disease [Commodity Supercycle] Speech – by Mark Carney – Governor of the Bank of Canada (Calgary, Alberta – September 7, 2012)

December 4, 2012December 4, 2012

Presented to: Spruce Meadows Round Table – Calgary, Alberta (September 7, 2012)

Introduction

Some regard Canada’s wealth of natural resources as a blessing. Others see it as a curse.

The latter look at the global commodity boom and make the grim diagnosis for Canada of “Dutch Disease.”1 They dismiss the enormous benefits, including higher incomes and greater economic security, our bountiful natural resources can provide.

Their argument goes as follows: record-high commodity prices have led to an appreciation of Canada’s exchange rate, which, in turn, is crowding out trade-sensitive sectors, particularly manufacturing. The disease is the notion that an ephemeral boom in one sector causes permanent losses in others, in a dynamic that is net harmful for the Canadian economy.

While the tidiness of the argument is appealing and making commodities the scapegoat is tempting, the diagnosis is overly simplistic and, in the end, wrong. Canada’s economy is much more diverse and much better integrated than the Dutch Disease caricature. Numerous factors influence our currency and, most fundamentally, higher commodity prices are unambiguously good for Canada.

NEWS RELEASE: Elevated Commodity Prices “Unambiguously Good” for Canada, Says Bank of Canada Governor Mark Carney (September 7, 2012)

December 4, 2012

FOR IMMEDIATE RELEASE

7 September 2012
Contact: Jeremy Harrison
613 782-8782

Calgary, Alberta – The global commodities boom drives enormous benefits for Canada, including higher incomes and greater economic security, Bank of Canada Governor Mark Carney said today in a speech to the 2012 Spruce Meadows Changing Fortunes: Global Economies Round Table.

“Most fundamentally, higher commodity prices are unambiguously good for Canada,” Governor Carney told delegates. “The strength of Canada’s resource sector is a reflection of success, not a harbinger of failure.”

The Governor addressed the diagnosis of Dutch Disease for the Canadian economy that suggests an ephemeral commodities boom is causing permanent losses in the manufacturing sector. He countered with three arguments.

First, despite the current strains on global growth, commodity prices are expected to remain elevated, primarily driven by a sustained increase in demand, much of it stemming from the rapid urbanisation of emerging markets.