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Commodity Super-Cycle and Decline

The World from Berlin: Germany Playing Catch-Up in Scramble for Resources – by David Gordon Smith and Christopher Cottrell (Spiegel Online International – October 14, 2011)

This article is from Germany’s Speigel Online International: http://www.spiegel.de/international/

Chancellor Angela Merkel has signed a commodities deal with Mongolia during her visit to the Central Asian country. The agreement is intended to secure access to much-needed raw materials for German industry. But commentators point out that it will take more than just a piece of paper to win the scramble for rare earths.

At first glance, German Chancellor Angela Merkel’s decision to visit Mongolia precisely at a time when Europe’s debt crisis is hotter than ever might seem peculiar. But cool-headed economic interests were behind the trip: The Central Asian country has raw materials that Germany’s industry desperately needs.

On Thursday, the governments of the two countries signed a commodity partnership agreement. The deal promises, among other things, that no limits will be imposed on the quantity of raw materials that Mongolia supplies to Germany. Mongolia, for its part, wants to benefit from the deal by making sure that the raw materials are processed in the country.

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12 companies join German commodity alliance – by Michael Hogan (Reuters – January 30, 2012)

This article is from: http://af.reuters.com/

* German companies plan cooperation on commodity sourcing

* Will consider investment in commodity projects

* Aim to secure commodity supply for German industry

HAMBURG, Jan 30 (Reuters) – Twelve German companies have joined the new German alliance aimed at securing raw materials supplies in the face of growing competition for key commodities, the Federation of German industry BDI said on Monday.

In October 2010, Germany’s government approved a new commodities strategy aimed at helping German industry secure supplies in the face of intense competition from China and other newly-industrialised countries which will include partnerships with supplier countries and greater cooperation between German commodity consumers.

A series of major German companies have been involved in talks about a project lad by German industrial association BDI to invest in foreign commodity projects and 12 have now agreed to join, the BDI said.

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Few changes expected if Xstrata Glencore merger deal goes ahead, union says – by Craig Wong (Winnipeg Free Pres – February 2, 2012)

This article came from: http://www.winnipegfreepress.com/

The Canadian Press

Merger talks that could result the creation of a new European giant in the global mining industry, are being watched carefully in Canada.

A union leader representing 850 mine and smelter workers in Sudbury, Ont., said Thursday he’s doesn’t expect much change if their employer — Xstrata PLC — merges with commodities trader Glencore International PLC.

“The rock ain’t moving,” Richard Paquin, president of the Canadian Auto Workers Local 598, said Thursday.

“For us it is not a new venture,” he said. “It is a matter of co-operating with the new employer if it every happens and trying to get the best we can for our workers.”

He said the Sudbury operation has already been through the uncertainty of Xstrata’s takeover of Canadian nickel and copper producer Falconbridge in 2006 after a takeover battle that lasted nearly two years.

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Fiery CEOs may clash in Glencore-Xstrata talks – by Eric Onstad (Reuters – February 2, 2012)

This article is from: http://www.reuters.com/

(Reuters) – As a tie-up between trader Glencore (GLEN.L) and miner Xstrata (XTA.L) is hammered out in coming days there is plenty of scope for hard bargaining between the two sides’ highly competitive South African bosses.

Glencore’s Ivan Glasenberg and Xstrata’s Mick Davis — both hard-driven, keen sportsmen who climbed the corporate ladder in the South African coal industry — have had a close and sometimes tense relationship for more than a decade. Glasenberg hand-picked Davis to run Xstrata 11 years ago. Xstrata floated in 2002, after buying up key Glencore coal assets, leaving the trader with a 34 percent stake.

“They clearly have a history together, as do Xstrata and Glencore, and I would expect nothing less than that they try to drive the best bargain for their shareholders,” said analyst Jeff Largey at investment bank Macquarie in London.

One key element of Glencore’s move on Xstrata — which is being billed as a “merger of equals” — is who gets to run the enlarged trader and miner.

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Commodities: Now is a good time to load up on CARBS – by Garry White (The Telegraph – November 27, 2011)

This article came from: http://www.telegraph.co.uk/

The City loves acronyms. We’ve had BRICS, PIIGS, SPDRs and BASICs – but now we have another to add to the Square Mile’s lexicon. The CARBS.

The CARBS are the major commodity producing countries – Canada, Australia, Russia, Brazil and South Africa – according to a report published last week by Citigroup’s equity strategists. They argue that “CARBS make you strong” and these countries should be considered a distinct asset class in their own right.

Between them the CARBS control commodity assets worth almost $60 trillion (£38.7 trillion) and 29pc of the world’s landmass. They produce between a quarter and a half of most major commodities.

The crux of Citi’s argument is sound. Basically, it’s all about the amount of infrastructure these countries will have to build if they are going to fully exploit the opportunity they have in their commodity reserves. “CARBS are the new carnivores,” Citi argues.

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China enhances position as world No. 1 gold producer – but where’s it all going? – by Lawrence Williams (Mineweb.com – February 1, 2012)

This article is from: www.mineweb.com

China’s gold output rose again in 2011 confirming its position as global No. 1 producer, but is it surreptitiously taking all its domestic production into its reserves?

LONDON –  As had been expected, China, already the world No. 1 gold producer, saw its output rise again this year.  The country produced a record 360.96 tonnes  of the yellow metal in 2011, a 5.9% increase, making it the world’s top gold producer for a fifth consecutive year, according to  the China Gold Association.

Meanwhile, the country has been importing record amounts of gold as well with the volumes coming in through Hong Kong, which are officially reported figures, climbing to over 100 tonnes in November – and by all accounts gold purchasing in China has been booming since then, so imports are likely to have remained at this kind of level in December and January as well.  Estimates have suggested that China’s total gold imports for 2011 will have been some 490 tonnes – double that of 2010, but this may well be an under-estimate, possibly a substantial one.

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Xstrata confirms Glencore merger of equals talks – by Elisabeth Behrmann and Jesse Riseborough (Mineweb.com – February 2, 2012)

This article is from: www.mineweb.com

In a statement issued this morning, and subsequently confirmed by Glencore, Xstrata said the commodities trader has made an approach about an all-share offer for “a merger of equals.”

(Bloomberg)  –  Glencore International Plc, the world’s largest publicly traded commodities supplier, is in talks to buy the shares in Xstrata Plc that it doesn’t already own to add coal, copper and nickel mines from Africa to Asia.

Glencore made an approach about an all-share offer for “a merger of equals,” Zug, Switzerland-based Xstrata said today in a statement to the London stock exchange. Glencore holds 34 percent and the rest of the company is valued at 21.9 billion pounds ($35 billion) based on yesterday’s closing price. Glencore said in a statement there’s no certainty of an offer.

Joining Xstrata with Glencore, located two miles away in Baar, would reunite two groups that separated a decade ago when Xstrata bought Glencore’s Australian and South African coal mines for $2.5 billion and went public in London. The combined company may be valued at about 52 billion pounds after excluding Glencore’s stake in Xstrata.

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[Jim O’Neil and BRIC countries] The world’s not in crisis – it’s just between stabilities – by Doug Saunders (Globe and Mail – January 28, 2012)

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.

There’s something you crucially need to understand about the global economic crisis: It doesn’t exist.

Sure, Europe may be weeks away from a monetary cataclysm that has the potential of crashing all its economies plus some of the euro-exposed banks across the Atlantic. The United States may be suffering its highest poverty rates in half a century. And here in Britain, the combination of high inflation and an economy that actually shrank last quarter may return the ugly word “stagflation” – stagnation plus inflation – to our vocabulary.

But that hardly constitutes “global.” If you live in Sao Paulo, Moscow, Mumbai, Shanghai, Mexico City, Jakarta, Istanbul, Johannesburg or a dozen other centres in the eastern and southern three-quarters of the world, then your country hasn’t been experiencing any kind of crisis, beyond a few rough months in 2008 and 2009. In fact, most of those places have been enjoying a more or less continuous boom.

If you view the world rather strictly through the lens of economic growth, you can paint a picture of neatly symmetrical rebalancing.

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China mining Canadian resources – by Tim Armstrong (Hamilton Spectator – January 27, 2012)

This column was originally in the Hamilton Spectator: http://www.thespec.com/

Tim Armstrong is a lawyer, who has been Ontario deputy minister of industry and trade and agent general for the Asia-Pacific Region.

Harper’s visit to China essential; Canada needs a strategy to deal with the huge trade imbalance

In February, Prime Minister Harper will revisit China, a nation that The New Yorker’s Henrik Hertzberg has accurately labelled “a fearsome engine of capitalist commerce.” What are the goals, and the prospects for achieving them?

In 1986, as Ontario’s Agent General, I made my first visit to the Ontario-Jiangsu Science and Technology Centre in Nanjing. The building had just been completed by workers from Hong Kong, because the local Nanjing workforce lacked the skills to perform simple construction work. Later that year, in Shanghai, I gazed at the empty mud flats of Pudong across the Huangpu River. A decade later, the site was dominated by a skyline resembling Manhattan. Since then, China’s spectacular growth has continued to outpace all other nations. So Harper’s mission is essential.

The Prime Minister’s Office has announced the agenda will focus on trade and investment, heralding the fact that China is now our second-largest trading partner, with two-way trade tripling over the last decade to a total of about $58 billion.

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Critical Metal Shortages – a look at global graphite, manganese and vanadium supply – by Brian Sylvester (Mineweb.com – January 11, 2012)

http://www.mineweb.com/

The U.S. is now dependent on foreign sources for critical metals like graphite, vanadium and manganese. The Critical Metals Report interviews Michael and Chris Berry.

PETALUMA, CA (The Critical Metals Report) –  The Critical Metals Report: In a presentation at the China Investment Conference in December, you said that over the last 20 years the U.S. government has mismanaged its supplies of critical metals to the point where it depends almost exclusively on foreign sources. How did this happen?

Michael Berry: It’s just now starting to dawn on Washington that we don’t have a stockpile. We had a stockpile through World War I and World War II (WWII) that was necessary to our national security. The U.S. was the biggest producer of rare earth elements (REEs) in the 1970s and 1980s. But then we allowed China to undercut our prices and we shut down the Mountain Pass mine, which was one of the largest if not the largest producer of rare earths in the world.

We lost not only production and access to REEs, which are critical for weapons systems, automobiles, alternative energy and a number of other applications, but we lost the processing chain that actually integrates and creates the metal, creates the alloy and magnets, and integrates it into material. China now controls these markets. There are four or five pieces of legislation pending in Washington, but it will take a decade or more to replace and rebuild these crucial supply chains.

Chris Berry: When the Soviet Union collapsed in 1991, the idea of a unipolar world came into vogue and I think the United States took its eye off the ball by selling off stockpiles of numerous metals.

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Brazil overtakes UK as sixth-largest economy – by Phillip Inman (The Guardian – December 26, 2011)

http://www.guardian.co.uk/

UK relegated to seventh place in world league of leading economies in 2011, according to team of economists

Brazil has overtaken the UK to become the world’s sixth-largest economy, according to a team of economists. The banking crash of 2008 and the subsequent recession has relegated the UK to seventh place in 2011, behind South America’s largest economy, which has boomed on the back of exports to China and the far east.

Russia and India are expected to benefit from a surge in growth over the next 10 years and push the UK into eighth place. Like most economies, India is struggling with high inflation and slowing growth, but its highly educated workforce and skills in growth areas from IT and services to engineering will push the economy into fifth place. After a decade of selling oil and gas to Europe and other parts of Asia, Russia will be at number four.

The only compensation for ministers concerned by Britain’s relative fall is that France will fall at a faster pace. Nicolas Sarkozy can still boast that France is the fifth-largest economy behind the US at number one, China, Japan and Germany, but by 2020, the Centre for Economics and business Research (CEBR) forecasts it will fall past the UK into ninth spot. Germany will also slip to seventh place in 2020.

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High commodity prices will drive innovation in industry – by Tyler Hamilton (Toronto Star – December 31, 2011)

The Toronto Star, has the largest circulation in Canada. The paper has an enormous impact on federal and Ontario politics as well as shaping public opinion.

Has the global economy entered a long period of persistently high, volatile commodity prices? That’s a question asked recently by international consultancy McKinsey & Co., which analyzed a century of data and found that the trend – for at least the next 20 years – doesn’t look good.

The previous 100 years told a different story. Since 1910, it found that the average combined price (inflation-adjusted) of food, agricultural raw materials, metals and energy reached its lowest historical level in the late 1990s.

Sure, there were big dips during the post-World War I depression and the Great Depression a decade later. But major technological advancements in areas such as exploration, extraction and cultivation allowed us during prosperous times to satisfy the demands of a growing global population, while keeping commodity prices at record lows.

“This ability to access progressively cheaper resources underpinned a 20-fold expansion of the world economy,” according to McKinsey’s analysis.

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McKinsey & Company Report: Resource revolution: Meeting the world’s energy, materials, food, and water needs (November 2011)

McKinsey & Company is a global management consulting firm that provides strategic advise to many of the world’s leading businesses, governments, and institutions. http://www.mckinsey.com/

Click here for the full report: Resource Revolution: Meeting the world’s energy, materials, food, and water needs

The next agro-industrial revolution

Resource prices are rising and becoming more volatile. Without a resource revolution, we all face the prospect of damage to global growth, welfare, and the environment.

The English thinker Thomas Malthus argued in his famous essay1 on the principle of population that there was no longer sufficient land to feed the world’s rapidly growing population, threatening poverty and famine. But an agro-industrial revolution soon transformed the economies of Europe and North America, and his fears proved unfounded.

More recently, conventional wisdom held that market forces would always come to the rescue. Until ten years ago, this hope was largely fulfilled. During most of the 20th century, resource prices—of food, water, energy, steel, for example—declined, despite strong growth in the world’s population and even stronger growth in GDP. Prices fell because of a combination of new low-cost sources of supply and technological innovation.

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Just how resourceful are we? [Material shortages or not?] – by Eoin Redahan (Materials World – December 4, 2011)

Materials World magazine and website is specifically devoted to the engineering materials cycle, from mining and extraction, through processing and application, to recycling and recovery.

The house asked if we should be concerned about the future global supply of strategic materials. After listening to the tactful use of statistics, semantics and the C word, delegates at the Royal Academy of Engineering debate in London, UK, had to decide. Eoin Redahan regurgitates both sides of the argument.

‘There is no need for concern’

Horses lowered the tone in 19th Century London. With equine waste littering the roads, it was predicted that the city would be buried beneath manure by the year 2000.

The motion’s proponents argued that there is similar scaremongering today when it comes to strategic minerals. In the early 1970s, we were supposedly running out of tin, zinc and lead, yet they are still being mined 40 years later.

The evening’s first speaker, Andrew Bloodworth, Head of Science for Minerals and Waste at the British Geological Survey, said there hasn’t been an increase in new discoveries, but technological advances, improved methods of working old technology and better accessibility have helped increase yields in brownfield sites. ‘We can now move lowgrade deposits in more difficult environments,’ he said. ‘We are doing more with less.’

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Brazil: South America’s tiger – by Jorge Heine (Toronto star – December 28, 2011)

The Toronto Star, has the largest circulation in Canada. The paper has an enormous impact on federal and Ontario politics as well as shaping public opinion.

Jorge Heine holds the CIGI Chair in Global Governance at the Balsillie School of International Affairs, Wilfrid Laurier University. His book (with Andrew Cooper) Which Way Latin America? Hemispheric Politics Meets Globalization, is published by United Nations University Press.

For those who arrive by ship to what some describe as the most beautiful city in the world, landfall can be disappointing. The first thing one is confronted with after setting foot in Rio de Janeiro and going through customs, is an elevated highway running along the coast, blocking views both ways. But there is good news.

That highway, an urban monstrosity if there ever was one, will be one of the first things to go as Rio gets a facelift for the 2014 FIFA World Cup and the 2016 Olympics. The underground burial of this monument to the “cult of the car” in 20th century cities, is part and parcel of Brazil’s massive infrastructure spending program as it gears up for hosting the world’s two leading sports events.

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