David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Iron Ore Imports Collapse as China's Great Cleanup Kicks In

    This article by Jasmine Ng and David Stringer for Bloomberg may be of interest to subscribers. Here is a section:

    Purchases dropped to 79.49 million tons in October, according to customs data on Wednesday. That’s down from September’s 102.8 million tons, and is the lowest amount since February 2016. Over the first 10 months, imports by the world’s top buyer still expanded 6.3 percent to 896 million tons.

    Iron ore users and investors have been tracking China’s bid to rein in pollution this winter by imposing restrictions on mills’ production, in addition to curbs on other industrial activity. The drive has buttressed prices of higher-quality ores that are more efficient, while spurring speculation about a demand roller-coaster, with weaker consumption seen near term before a possible snapback in spring. At the same time, miners in Brazil and Australia have added supply.

    The decline in China’s iron imports was the standout item amid a broader weakening of purchases, Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd., said in a note. “The closures of steel mills due to environmental concerns were behind the fall,” he said. Demand for raw materials imports is likely to rebound, according to the bank.


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    Venezuela Will Seek to Restructure Debt, Blaming Sanctions

    This article by Katia Porzecanski, Patricia Laya, Ben Bartenstein, and Christine Jenkins for Bloomberg may be of interest to subscribers. Here is a section: 

    Prices on PDVSA’s $3 billion of bonds maturing in 2027 were quoted at 20 cents on the dollar at 9:23 a.m. in London, according to pricing source CBBT. Venezuelan government bonds maturing in 2018 slid 16 cents on the dollar to 63 cents, while longer-maturity debt was little changed.

    Even after the oil producer known as PDVSA made an $842 million principal payment Oct. 27, the nation is behind on about $800 million of interest payments. All told, there’s $143 billion in foreign debt owed by the government and state entities, with about $52 billion in bonds, according to Torino Capital.

    Sanctions imposed in August by the U.S. have made it difficult to raise money from international investors, and effectively prohibit refinancing or restructuring existing debt, because they block U.S.-regulated institutions from buying new bonds. It’s an unprecedented situation for bondholders, who have limited recourse as long as sanctions are in effect.

    “I decree a refinancing and restructuring of external debt and all Venezuelan payments,” Maduro said. “We’re going to a complete reformatting. To find an equilibrium, and to cover the necessities of the country, the investments of the country.”


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    Ride is not over after Uber catalyst

    Thanks to a subscriber for this report from Deutsche Bank focusing on ride sharing investments. It’s dated July 14th, but the points made are equally relevant today. Here is a section:

    Specific financial disclosures around the new JV are limited, but management did note that NewCo will 1) be able to enter new markets outside of the current six country region, 2) the new entity has a current gross bookings run rate of $1.578B and a 5-6% penetration rate of the taxi market across the six markets and 3) that UberEATS and other logistical opportunities will be a part of this new operation. Assuming no unforeseen regulatory hang-ups, management anticipates they will have regulatory approval for the deal in 4Q17 and commence operations as planned shortly thereafter.

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    Good Morning November 8th 2017

    Thanks to a subscriber for this edition of Anthony Peters missive which today discussed Isaiah Berlin’s “Two Concepts of Liberty”. Here is a section:

    Looking at the world around us this morning and the events from Catalonia to Riyadh, from Brexit to quantitative easing, from blockchain to the Paradise Papers many of the issues which are at the centre of the respective debates and actions can and should be held up, looked at and then filtered through the Berlin’s weighing up of positive and negative liberty. In his paper Berlin distilled the essence of socio-political dialectic around the thesis and antithesis of freedom to and freedom from. 

    It might be ironical that I am chewing over Berlin’s seminal paper on the somewhat forgotten, especially in Moscow, 100th anniversary of the October Revolution. I was born less than 40 years after the Bolshevik take-over of Russia and the creation of the Soviet Union and I grew up very much in the shadow of the daily threat of nuclear conflict between NATO and the Warsaw Pact, themselves some form of incarnation of freedom to and freedom from. I mentioned in a recent column a comment which had come out of Poland which, with the UK leaving the EU, becomes the next truculent child. The line had been that Warsaw had not fought to free itself from the diktat of Moscow only to find itself subject to equally stringent controls out of Brussels.

    On September 11th 1990 – eleven years to the day before the attack on the Twin Towers, now known simply as 9/11 – President George Bush Sr gave a speech titled “Towards the new World Order” in which he embraced the polices of Mikhail Gorbachev and the dismantling of the Soviet empire. The dreams of democracy and self-determination for which NATO had stood and which were being pursued by way of the opening of borders across Europe though the structures of the EEC were in the ascendant. Twenty seven years later with the EEC having been replaced by the EU, with membership of 12 having been expanded to 28 and with the first ever member in the process of leaving again, the union looks ossified and in many respects now looks and behaves more like Soviet Moscow than it does like the old EEC. 


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    Musings From The Oil Patch November 7th 2017

    Thanks to a subscriber for this edition of Allen Brooks’ everinteresting report for PPHB which may be of interest. Here is a section: 

    The euphoria that greeted the production cut agreement announcement lifted oil prices above $50 a barrel, a critical threshold for market confidence.  As global oil inventories failed to drop as the market expected, investors turned on the commodity as well as energy stocks, sending their prices lower.  Since the oil price drop in early 2007, prices have largely traded between the low $40s a barrel to now above $54, with a brief excursion as low as $26.  The narrow price range reflected global oil inventories remaining relatively flat, until recently.  As oil inventories started falling a few weeks ago, we are now in a period favorable for higher prices.  

    Today, we are firmly planted in an oil market reflecting positive price momentum.  Better projected oil demand growth seemed to be the initial factor that helped lift the oil market.  The International Energy Agency (IEA) upped its demand growth estimates for the second half of 2017.  About the same time, U.S. shale producers began shedding oil drilling rigs in response to weakening oil prices and as they sensed a need to rebuild investor confidence in their financial health.  Producers had to dispel the image of exploration and production (E&P) companies as destroyers of capital, a label the industry’s record seemed to warrant.  Disciplined capital spending, meaning living within a company’s cash flow in order to not have to borrow money or sell more equity to fund the overspending, appears to be the new mantra for E&P companies.  The latest survey of E&P company spending plans versus cash flow demonstrates that overspending remains high.  This may signal that it will take time for companies to generate positive cash flow.  

    In recent weeks, as Brent oil prices have risen at a faster rate than WTI oil, the forward oil price curve moved into backwardation, meaning that barrels of oil able to be delivered immediately are worth more than if they are stored and delivered in the future.  This price disparity is further impacted by the cost of storing the oil.  Backwardation encourages holders of oil in storage to begin selling those barrels, which has accelerated the shrinking of global oil inventories.   

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    Switzer Report

    Thanks to a subscriber for this report concentrating on the Australian market. Here is a section on retail:

    Longer term, the fortress shopping malls are fabulous assets. A prime shopping centre, such as Chadstone in Melbourne, or Westfield Bondi Junction, is impossible to replicate at the location. As they attract more service outlets, such as fancier restaurants, consumers are visiting the mall as much for entertainment as to buy basic products.

    In time, newer fortress shopping centres will offer upmarket housing accommodation and hotels, as integrated property developments. Westfield is embracing this trend offshore.

    The changing retail mix at fortress malls will lead to a higher average spend per customer, per visit, in the next five years. More people will eat breakfast at the mall when they shop early; or dinner when they go to a movie there. We’ll buy more goods and services at fortress malls and fewer at strip shopping malls and sub-regional (or second-tier) malls.
    It’s no surprise that Westfield is rationalising its US, UK and European portfolio away from second-tier assets to fortress centres. The shopping-centre giant wants to own the world’s premium shopping-centre portfolio and is investing billions to get there.

    Westfield is a story of short-term pain for long-term gain. Its shopping-centre redevelopment will drag on earnings as rents are foregone during construction. But the medium-term effect should be faster growth in Westfield’s net tangible assets and a rising share price.


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    Don't let the EU dictate Brexit if you want a speedy US trade deal, Trump adviser warns UK

    Thanks to David for this article by Ambrose Evans Pritchard for the Daily Telegraph. Here is a section: 

    Speaking at the Confederation of British Industry (CBI) conference, Mr Ross said his trip to the UK allowed him to “address with the UK some concerns we have that they may be tempted to include (provisions) in their agreement with the European Commission (EC) that could be problems for a subsequent FTA (Free Trade Agreement) with the US".

    While he struck a friendly tone, he also issued a veiled warning that talks with Washington could go off the rails if Theresa May, the Prime Minister, aligned too closely with Brussels in designing the post-Brexit settlement.

    It is a reminder that Britain risks having to pick sides between two trade superpowers with starkly different demands.
    Mr Ross accused Brussels of imposing higher tariffs than the US across the “vast majority” of traded goods – including a 10 per cent charge on cars, compared to America’s 2.5 per cent – and trying to enforce its regulatory codes on third countries rather than allowing an open global system.

    “While the EU talks a lot of free-trade rhetoric, it is really quite protectionist,” he said.

    He vowed to avoid “tit-for-tat” bargaining when it came to negotiating a trade deal with Britain but left no doubt that there would be trouble if the UK signed up to core elements of EU ideology deemed most aggravating in Washington, not least the EU curbs on chlorinated chickens and – far more important – genetically modified foods.


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