Investment Themes - Precious Metals / Commodities

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January 21 2022

Commentary by Eoin Treacy

Bitcoin billionaire Mike Novogratz says plunging crypto will have a hard time rallying until stocks find a base

This note from Bloomberg may be of interest to subscribers. Here is a section:

Billionaire investor Mike Novogratz has said cryptocurrencies will struggle to pull out of their sell-off if stocks keep falling, as he urged investors not to buy the dip.

Prices for bitcoin, ether and other digital currencies have fallen sharply across the board as they track Wall Street's rout in tech stocks, driven by pressure from rising bond yields.

"Crypto will have a hard time rallying until stocks find a base," Novogratz, CEO of investment company Galaxy Digital, tweeted late Thursday.

Novogratz pointed to the sharp fall in the Russell index, which is down almost 10% year to date, saying there are 1.2 trillion bad equity longs above the market.

"This is now a bear market," he said, adding: "Sell rallies.  Don't buy dips."

Eoin Treacy's view -

Doubts about whether bitcoin is a risk asset or a safe haven have been dispelled over night as bitcoin followed the stock market to new lows. That’s an important distinction because the primary comparison between bitcoin and gold over the last couple of years is they are both long-term stores of value. Recent action suggests that belief is wrong.



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January 20 2022

Commentary by Eoin Treacy

Logical inconsistencies

Eoin Treacy's view -

There are times in the market when a comparison between two assets classes serves to highlight a disparity that has become so wide that it inspires a sense of wonder, confusion and questioning

In December 2020 there was a news headline to the effect that Tesla’s market cap was greater than that of the next 9 largest car companies combined. There are two ways of thinking about that statistic. The first is enthusiasm for Tesla shares was running at fever pitch. The second was that the other auto companies were cheap by comparison.



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January 20 2022

Commentary by Eoin Treacy

China Stocks Rally With Tech, Property in Lead Amid Easing Bets

This article from Bloomberg may be of interest to subscribers. Here is a section:

The Hang Seng Tech Index jumped 4.5%, with Meituan and Tencent Holdings among those leading gains. The gauge has started 2022 with an advance after losing about a third of its value last year amid Beijing’s clampdown on tech companies. 

The rally followed clarification from China’s internet regulator late Wednesday that it’s not asking to approve all investments or fundraising by big tech companies, denying an earlier media report.  

A Bloomberg Intelligence gauge of Chinese real estate developers advanced 3.6%, following reports that the government may ease access to some funds. The sector’s gains came even as Thursday’s cut in the five-year loan prime rate left some market watchers disappointed.    

Shares of Country Garden Services Holdings Co. and Sunac China Holdings Ltd. surged more than 10% each. The unwinding of some short positions also likely aided the rally in property stocks, traders said.  

Agile Group, Shimao Group and Guangzhou R&F have about 20% of their free-float shares sold short, among the highest in the MSCI Asia Pacific Index, according to data from IHS Markit. 

Eoin Treacy's view -

Chinese New Year is on February 1st and will be followed by a week-long holiday for mainland markets. At the same time the winter Olympics begins on the 4th which will focus the sporting media’s attention on Beijing. The central bank is making sure its messaging is clear ahead of the shutdown. That’s also aimed at instilling some confidence in investors that the squeeze on private property developers will be limited to that sector.



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January 19 2022

Commentary by Eoin Treacy

Barrick Gold Meets Output Guidance in 2021

This article from Bloomberg may be of interest to subscribers. Here is a section:

Barrick Gold Corp. said Wednesday that it has met its production targets for 2021.

The Canadian mining giant said preliminary gold production for the full year was of 4.44 million troy ounces, within its target range of 4.4 million to 4.7 million.

Barrick said the Africa and Middle East, Latin America and Asia Pacific regions performed particularly well, at the upper end of their regional gold guidance ranges.

Preliminary copper production reached 415 million pounds for the year, toward the lower end of Barrick's target range of between 410 million and 460 million pounds.

In the fourth quarter, the company said it sold about 1.23 million ounces of gold and 113 million pounds of copper, with average market prices reaching $1,795 an ounce of gold and $4.40 a pound of copper.

Barrick is scheduled to release its fourth-quarter and full-year results on Feb. 16.

Eoin Treacy's view -

Investors are not expressing a great deal of faith in gold miners. Most related stocks have experienced significant corrections over the last year, despite the fact gold prices are only 11.5 % below the all-time peak. At current prices most miners are enjoying close to record margins and that is despite the relative strength of oil. It would appear to be only a matter of time before investors reassess the sector’s prospects.



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January 18 2022

Commentary by Eoin Treacy

Commodities Boom Sends Industry Titan Glencore to Decade High

This article from Bloomberg may be of interest to subscribers. Here is a section:

Commodities giant Glencore Plc hit the highest in almost a decade, driven by rallies in everything from metals to coal and optimism for a years-long supercycle.

The world’s biggest commodity trader surpassed its 2018 intraday peak on Tuesday, valuing the Swiss company at about $74 billion. Like its mining rivals, Glencore has benefited from massive global stimulus measures that have stoked demand for raw materials, and has also been a big winner from an energy crunch that sent coal prices to a record high. 

A Bloomberg gauge of spot commodities has doubled since early in the pandemic -- reaching an all-time high in October -- as government measures to bolster economies underpinned demand while supply curbs further tightened metals markets. At the same time, a green revolution is boosting long-term prospects for metals including cobalt and nickel for products like batteries.

Glencore is expected to deliver record profits and a bumper dividend when it reports earnings in February. And as the boom draws more investors into commodities, many analysts forecast prices to remain high. Goldman Sachs Group Inc. said that a commodities supercycle has the potential to last for a decade.

Eoin Treacy's view -

The London Metals Index is testing the 2007 and 2011 highs. Those were bumper years for mining profits so this year is likely to be no different. The challenge for investors is those peaks also represented major climaxes ahead of a rapid tightening of monetary conditions and slowing global growth. The question is whether this time is different?



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January 17 2022

Commentary by Eoin Treacy

Email of the day on an expected copper supply surplus

Thanks for your insightful reports from the meeting in Saudi Arabia. Amazing to have taken part in presentations by so many important CEOs.

I was particularly interested in your story of the mining companies salivating at the thought of all the coming increased demand for copper.  Yet a number of reports I have seen recently predict that the copper price will actually fall in 2022.  For example:

https://www.indexbox.io/blog/copper-prices-to-slump-in-2022-on-rising-supply/
https://www.spglobal.com/platts/en/market-insights/latest-news/metals/120721-feature-copper-market-to-be-well-supplied-in-2022

How can I reconcile these views in your opinion?

Thanks for keeping the videos going despite time changes and jetlag. It is particularly impressive that you manage to keep the audio completely intelligible, even if one isn't watching the video at the same time.  That makes it possible to listen to it while for instance having breakfast, which is my habit.

Eoin Treacy's view -

Thank you for your kind email and this topical question. I’ve seen these same kinds of reports anticipating a surplus this year and next. Ultimately, it is going to be a question about how many of the policies committed to at COP26 and other forums will in fact be acted upon.



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January 17 2022

Commentary by Eoin Treacy

Selling Out

Thanks to a subscriber for this latest memo from Howard Marks which concentrates on selling. Here is a section:

Many people have remarked on the wonders of compounding. For example, Albert Einstein reportedly called compound interest “the eighth wonder of the world.” If $1 could be invested today at the historic compound return of 10.5% per year, it would grow to $147 in 50 years. One might argue that economic growth will be slower in the years ahead than it was in the past, or that bargain stocks were easier to find in previous periods than they are today. Nevertheless, even if it compounds at just 7%, $1 invested today will grow to over $29 in 50 years. Thus, someone entering adulthood today is practically guaranteed to be well fixed by the time they retire if they merely start investing promptly and avoid tampering with the process by trading.

I like the way Bill Miller, one of the great investors of our time, put it in his 3Q 2021 Market Letter:

In the post-war period the US stock market has gone up in around 70% of the years . . . Odds much less favorable than that have made casino owners very rich, yet most investors try to guess the 30% of the time stocks decline, or even worse spend time trying to surf, to no avail, the quarterly up and down waves in the market. Most of the returns in stocks are concentrated in sharp bursts beginning in periods of great pessimism or fear, as we saw most recently in the 2020 pandemic decline. We believe time, not timing, is the key to building wealth in the stock market. (October 18, 2021. Emphasis added)

What are the “sharp bursts” Miller talks about? On April 11, 2019, The Motley Fool cited data from JP Morgan Asset Management’s 2019 Retirement Guide showing that in the 20-year period between 1999 and 2018, the annual return on the S&P 500 was 5.6%, but your return would only have been 2.0% if you had sat out the 10 best days (or roughly 0.4% of the trading days), and you wouldn’t have made any money at all if you had missed the 20 best days. In the past, returns have often been similarly concentrated in a small number of days. Nevertheless, overactive investors continue to jump in and out of the market, incurring transactions costs and capital gains taxes and running the risk of missing those “sharp bursts.”

As mentioned earlier, investors often engage in selling because they believe a decline is imminent and they have the ability to avoid it. The truth, however, is that buying or holding – even at elevated prices – and experiencing a decline is in itself far from fatal. Usually, every market high is followed by a higher one and, after all, only the long-term return matters. Reducing market exposure through ill-conceived selling – and thus failing to participate fully in the markets’ positive long-term trend – is a cardinal sin in investing. That’s even more true of selling without reason things that have fallen, turning negative fluctuations into permanent losses and missing out on the miracle of long-term compounding.

Eoin Treacy's view -

The arguments against selling become progressively more compelling the longer prices move up and to the right. It would have been a mistake to sell everything in January 2020 when news of the coronavirus was breaking unless you were equally committed to buying it all back at the first sign of bottoming in March. That visceral experience has acted as a learning experience for many investors who will have resolved never to sell. That is most particularly evident in the crypto markets where faith in the bullish hypothesis has been rewarded time and again.



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January 13 2022

Commentary by Eoin Treacy

Ivanhoe Mines and geophysics

Eoin Treacy's view -

Robert Friedland delivered a speech at the Future Metals Forum today which caused something of a stir. The graphics detailing copper demand growth in an electrification and simple growth scenario were impressive and not least because his conclusion is the mining industry is in no position to deliver the quantity of supply required to reach anything approaching decarbonisation goals.



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January 11 2022

Commentary by Eoin Treacy

Gold and subscriptions

Eoin Treacy's view -

I lost a subscriber today. In our business losing a subscriber is not unusual. Every loss is mourned while gaining a subscriber is always celebrated. Hopefully the latter outweighs the former and, more often than not, it does. Above all we have always prized the dedication of the people who stick with us through thick and thin. For that I simply wish to say thank you.

We have an enormous wealth of experience within the Fuller Treacy Money Subscriber collective. If any of our seasoned investors would like to introduce some younger potential subscribers we would be happy to offer them free trials.

Most successful newsletters have calculated how long a subscriber remains a customer. Then they attempt to maximise revenue from that person by upselling into sequentially more expensive products; while they have the person’s attention. Ultimately, they seek to sell a lifetime subscription. We’ve never done that for better or worse. You get everything in one product: video, audio, commentary, my personal trading details for one price.

I had an email today from a soon to be former subscriber expressing frustration at the fact I do not provide enough analysis and provide too much commentary. He also expressed frustration at the sideways trend in gold. I said in yesterday’s copy that the renewed bull trend in gold will be confirmed by a move above $1850. Until then we are still in a range. I am positioned to benefit from a breakout, and based on my original entry points, my breakeven is $1800. Nothing I say or do will cause a breakout to occur sooner than the market is ready to support it.  



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January 11 2022

Commentary by Eoin Treacy

Nickel Hits Seven-Year High as Hunt for Battery Metals Heats Up

This article from Bloomberg may be of interest to subscribers. Here is a section:

Nickel rallied to the highest in more than seven years as surging sales of electric vehicles leave carmakers racing to lock in supplies of the critical battery metal. 

Prices of the metal jumped as much as 3.4% to $21,500 a ton, the highest since May 2014, as Tesla Inc. moved to secure future supplies from Talon Metals Corp. That added fresh impetus to a rally built on surging sales of electric vehicles, which has also pushed other battery metals including lithium and cobalt sharply higher. 

In other major investments in the battery sector, chemicals maker LG Chem also said Tuesday it will spend 500 billion won ($420 million) by 2025 to build a battery materials plant, while BHP Group on Monday said it will pay $100 million to take a stake in an early-stage nickel project in Tanzania.  

While the race to secure future supplies is heating up, there are also growing signs of limited spot availability on the London Metal Exchange. Inventories tracked by the bourse fell for a 50th consecutive day on Tuesday, in the longest run of declines since 2000. 

“We have so many stories all pointing in the same direction,” Michael Widmer, head of metals research at Bank of America, said by phone from London. “People do realize that there is potentially a tightness in supply going on, and that is taking prices ultimately higher.”

Nickel prices traded 2.8% higher at 12 p.m. local time on the London Metal Exchange, reaching $21,375 a ton. Copper, aluminum and tin all gained.

 

Eoin Treacy's view -

Nickel contributes to battery energy density but also to combustibility. Tesla may be securing additional nickel supplies and BHP is investing in new production in Tanzania but Tesla is also now selling lithium/iron/phosphate batteries in the USA which are less energy dense but do not need nickel or cobalt.



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January 06 2022

Commentary by Eoin Treacy

The Fed Minutes That Shook the World

This article from John Authers may be of interest to subscribers. Here is a section:

Why such angst? There’s a lot in the minutes, with much useful information for students of the economy and monetary policy. You can find the full version here. For those less interested in such studies, the passage of three sentences that accounted for more or less all of the market reaction read as follows:

it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated. Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate. Some participants judged that a less accommodative future stance of policy would likely be warranted and that the Committee should convey a strong commitment to address elevated inflation pressures.

This commits the central bank to nothing, but the notion that there were hawks on the committee who thought that the Fed should reduce the size of its balance sheet (in other words, start to sell off its huge bond holdings in a move that, all else being equal, should raise yields) came as an unpleasant surprise. Those words are there for a reason. The Fed thought it a good idea to plant a reminder of hawkish intent just as markets were ramping up again after the New Year break, and it seems to have worked.

Eoin Treacy's view -

The Fed Minutes were the catalyst for the sell-off in bonds yesterday which contributed to the weakness in the growth sector. I suspect talk of being more aggressive in quantitative tightening than the 2018/19 period was the primary reason investors took fright.



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January 06 2022

Commentary by Eoin Treacy

Crackdown Deepens as Russian Troops Arrive

This article from Bloomberg may be of interest to subscribers. Here is a section:

Kazakhstan’s top uranium miner, Kazatomprom, said supplies of the radioactive metal used for nuclear fuel haven’t been disrupted by the unrest and work at all company units has continued. Kazakhstan produces more than 40% of the world’s uranium; prices for the metal jumped.

“We are fulfilling all our obligations easily, there are no problems with uranium shipments and we will meet all delivery deadlines,” Kazatomprom Chief Commercial Officer Askar Batyrbayev said in a phone interview.

Russian Foreign Ministry Says Unrest ‘Inspired From Outside’ (1:51 p.m.)
The unrest in Kazakhstan is “an attempt inspired from outside to violently undermine the security and integrity of the state with the use of organized and trained armed units,” Russia’s Foreign Ministry said on Thursday in a statement.

The ministry didn’t offer further details on who was meant by outside forces. A senior Russian legislator, Konstantin Kosachyov, blamed terrorist groups from Afghanistan and the Middle East, without providing evidence.

Eoin Treacy's view -

The Arab Spring began as a series of popular protests in Tunisia, in response to the rising cost of bread. Eventually, the popular movement toppled Egypt’s government and created strife everywhere in the region. It appears likely Russia and its satellites have learned the lesson. Allowing protest movements’, a toehold can have a disastrous impact on the ability of a regime to retain control. China’s efforts to control all public discourse are also informed by the results of the Arab Spring.



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January 05 2022

Commentary by Eoin Treacy

Byron Wien and Joe Zidle Announce the Ten Surprises of 2022

Here is a link to this year’s 10 potential surprises from Blackstone. Here is a section:

6.The price of gold rallies by 20% to a new record high. Despite strong growth in the US, investors seek the perceived safety and inflation hedge of gold amidst rising prices and volatility. Gold reclaims its title as a haven for newly minted billionaires, even as cryptocurrencies continue to gain market share.

7.While the major oil-producing countries conclude that high oil prices are speeding up the implementation of alternative energy programs and allowing US shale producers to become profitable again, these countries can’t increase production enough to meet demand. The price of West Texas crude confounds forward curves and analyst forecasts when it rises above $100 per barrel.

Eoin Treacy's view -

One of the big lessons from The Chart Seminar is “ranges are explosions waiting to happen”. The longer a range persists for the lower expectations for future potential become. Even so the range stores up potential for a breakout like a spring under compression. A breakout unleashes waves of new buying and price continue to rise until a new balance is found with sellers.



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December 31 2021

Commentary by Eoin Treacy

Unloved and Uninteresting, Gold Heads for Worst Year Since 2015

This article from Bloomberg may be of interest to subscribers. Here is a section:   

One key factor has been a lack of interest from financial investors, who are crucial to driving gold’s rallies. Holdings in exchange-traded funds have dropped almost 9% through the year, while hedge funds trading Comex futures have kept their bullion bets muted.
 
While the prospect of monetary tightening hurt gold’s appeal, prices were supported by strong demand from Asian jewelry consumers and central bank buying.

The opposing drivers have left bullion hovering almost magnetically around the $1,800-an-ounce mark. While that’s a historically high price, it will be disappointing to those who enjoyed the surge to a record in 2020.

However, the equilibrium between dip buyers and sellers may not hold for long. More gains in the dollar could spell misery. On the other hand, signs of persistent, runaway inflation could finally provide the spark needed for a sustainable gold rally.
 
BlackRock Inc.’s Evy Hambro said earlier this month that gold could climb in 2022, driven by a combination of real interest rates, U.S. dollar performance and demand for haven assets. However, analysts at JPMorgan Chase & Co. see gold coming under more pressure as the global economic recovery continues, forecasting an average price of $1,520 an ounce in the fourth quarter.
 
On the last day of 2021, gold edged up 0.3% to $1,820 an ounce by 1:04 p.m. in London. Silver also gained, while platinum and palladium declined. The Bloomberg Dollar Spot Index weakened.

Eoin Treacy's view -

In a market accustomed to instant gratification, gold has been conspicuously quiet. 2021 delivered meme stocks with no earnings or prospects, yet they soared to unimaginable levels. We’ve also seen grainy jpegs achieve prices comparable to those of the great masters. It was also a year when the FANGMANT shares persisted in gaining market share which supported the dominance of Wall Street in currency adjusted terms.



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December 30 2021

Commentary by Eoin Treacy

China merges 3 rare earths miners to strengthen dominance of sector

Thanks to a subscriber for this article from the Financial Times which may be of interest. Here is a section:

The move is the latest step by Beijing to consolidate an industry often buffeted by wild price swings that cause headaches for end users. The merger will reduce competitive pressure in the industry by shrinking the number of Chinese rare earths producers from six to four.

The Chinese government has used the same strategy in other industries, including rail transport and shipping lines, to prevent rival groups from undercutting each other when bidding for lucrative overseas contracts.

“We can’t let market force determine how much rare earths should cost given their strategic importance,” said one person close to Ganzhou Rare Earth who asked not to be identified. “We need to keep prices stable so end users could control costs and move up the value chain.”

The Chinese government also wants to strengthen the industry as the US and other large importers of rare earths mined or refined in China seek to develop alternative supply sources, such as large mines in California and Australia.

Daan de Jonge of consultants CRU Group said the merger would see the pricing power of key rare earths, such as dysprosium and terbium, consolidated in the hands of one “super group”.
“Given that the majority of rare earths investment outside of China has centred on light rare earths, it is likely that prices and access for the historically volatile heavy rare earths will be de facto controlled by this group until new capacity can come online, which may take several years,” he said.

Eoin Treacy's view -

Moving up the value chain in manufacturing is a national priority for China. Almost every industry where the country wishes to play a leading role, whether renewable infrastructure, electronics or weapons requires rare earth metals. The result is China is consuming more of its supply of these refined products than ever before which necessarily means there is less to export.



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December 22 2021

Commentary by Eoin Treacy

Email of the day on the tin supply deficit

You have mentioned Afritin Mining as a tin miner to watch. Michael Rawlinson is new board member and believes it could become a billion $ company.

AfriTin NED - Michael Rawlinson Introduction - YouTube

Michael Rawlinson's CV in mining is impressive

Michael Rawlinson has over 25 years experience in mining finance as research analyst, corporate financier, investor and non executive Director. He as the Global Co-Head of Mining and Metals at Barclays investment bank between 2013 and 2017 having joined from the boutique investment bank, Liberum Capital, a business he helped found in 2007. Prior to that he was a Partner at Cazenove and MD at JP Morgan Cazenove.

He is currently Chairman of Balkan mining development company Adriatic Metals plc, a Senior Independent Non-Executive Director at precious metals producer Hochschild Mining and Independent Non-Executive Director at African mining services provider Capital Limited.

I am no expert but this looks like a large flag forming since April and we have now reached the apex of the triangle on the FM weekly chart.

Eoin Treacy's view -

Thank you for this information which may be of interest to the Collective. Indonesia is the primary producer of tin and they are considering a ban on exports of concentrate. The market was already in a chronic deficit and that announcement two weeks ago raised fears tin would be in even shorter supply. The inability of primary producers to increase output and the ongoing difficulties countries like Myanmar and Indonesia are having with COVID have contributed to the squeeze. 



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December 16 2021

Commentary by Eoin Treacy

Stocks Under Pressure as Megacap Tech Sells Off

This note from Bloomberg may be of interest. Here is a section:

A rout in some of the world’s biggest technology companies dragged down the broader equity market, outweighing gains in companies that stand to benefit the most from an economic rebound.

The S&P 500 fell after earlier climbing on bets that central banks can move toward tighter policies to fight inflation without derailing the economy. The Nasdaq 100 tumbled, led by losses in giants like Apple Inc. and Tesla Inc. Commodity, financial and industrial shares rose. European equities jumped as the region’s policy makers unveiled a gradual pullback of pandemic stimulus, while the pound gained as the Bank of England unexpectedly raised rates. Bitcoin slumped.

Central banks are weighing measures to fight price pressures while balancing risks to growth amid coronavirus challenges. European Central Bank President Christine Lagarde unveiled forecasts showing a strong economic rebound along with an outlook for faster inflation. The Federal Reserve said Wednesday it will accelerate the pace at which it tapers bond purchases, and projected rate hikes through 2024.

Eoin Treacy's view -

This is a very whippy environment for trading. No sooner do we see a rebound than most of its is given up. This is attributable to the divergence between central bank pronouncements about their expected rate hikes and what the market believes is possible. Short-dated bond yields contracted today to reflect the expectation that if the Fed were in fact to raise rates three times, there will be economic consequences.



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December 16 2021

Commentary by Eoin Treacy

Copper Jumps as Miner to Halt Output in Peru Amid Protests

This article for Bloomberg may be of interest to subscribers. Here is a section:

It’s the second Peruvian mine to suspend production this week after Nexa Resources SA halted Cerro Lindo, although Prime Minister Mirtha Vasquez said Wednesday that police had dispersed protesters at that zinc operation. 

And

A prolonged shutdown at a mine that before the pandemic accounted for almost 2% of the world’s mined copper would further tighten global supplies that have been hit with shipping snarls and low warehouse inventories. Las Bambas has 60,770 tons of copper stranded on site. 

 

Eoin Treacy's view -

The global market remains tight and susceptible to supply disruptions. The sensitivity of the market has also been exacerbated by the surge in demand from transportation and energy infrastructure projects. In just the same way that autos are now competing with traditional demand for semiconductors, auto and wind turbine motors, recharging stations and sub-sea cables are competing with telecommunications, construction, and power line demand for copper.



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December 13 2021

Commentary by Eoin Treacy

European Gas, Power Surge to Record on Russia-Ukraine Tension

This article from Bloomberg may be of interest to subscribers. Here is a section:

European gas and power prices closed at a record high as heightened tension between Russia and Ukraine threatened to further crimp supply, increasing the risk the energy crunch will persist into next winter.

The West is hardening its stance against Russia. New German Chancellor Olaf Scholz said he will “do everything” to prevent Russia from using the controversial Nord Stream 2 pipeline to cripple flows through Ukraine, while Belarus’s leader reiterated threats to halt supplies if the West presses on with sanctions in a dispute over migrants. 

The risks for Europe are mounting with gas stockpiles dropping to record lows for this time of the year and no end to the crisis in sight. Inventories are only 63% full, a level more typical for mid-January, which leaves little in reserve in case of colder weather in the coming months. If stocks fall too low, it’ll be harder to refill them in time for next winter.

Eoin Treacy's view -

The market has become accustomed to risks to the economy from an oil shock but Europe is currently going through a gas shock. The price is already multiples of where it peaked ahead of the credit crisis and closed at a new high today.



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December 10 2021

Commentary by Eoin Treacy

Global Shortage of Fertilizers Sends Demand for Dung Soaring

This article from Bloomberg may be of interest to subscribers. Here is a section:

“The arable area still requires significant tonnage of synthetic fertilizer, but this is reduced by the use of manures,” Butler said. Since the animal waste from his farm is not enough, he has been buying biosolids from utility Thames Water, which produces over 750,000 meters squared of sludge each year for farmers across Britain’s southeast. 

However, Butler said that it’s increasingly difficult to source human excrement as “there is more demand than supply for biosolid materials.”

In the U.S., biosolids are regulated by the Environmental Protection Agency, and in Europe, biosolids have been in use since 1986 when it received regulatory approval from the European Union. 

While manure is an inexpensive alternative to pricey synthetic fertilizers, it is a “poor replacement for those accustomed to traditional fertilizer products,” said Alexis Maxwell, an analyst at Bloomberg’s Green Markets. For example, the fertilizer diammonium phosphate has six times the nitrogen and 15 times the phosphate as manure on a per ton basis.

Eoin Treacy's view -

The farmer a mile from my old home in Ireland had a contract with the sewage treatment plant to buy waste. It made for a very smelly couple of days when he was spreading it on his land. However, it also meant he was not spending on costlier imports. That kind of business model has a lot more competition today, because of the surge in European natural gas prices which continue to recover from the October correction.



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December 10 2021

Commentary by Eoin Treacy

Trafigura Co-Founder Moves From Oil to Lumber for Skyscrapers

This article from Bloomberg may be of interest to subscribers. Here is a section:

While the idea of mass timber has been kicking around for years, increasing pressure on developers to reduce their carbon footprint may finally help propel the market. The Economist Intelligence Unit estimates that demand for cross-laminated timber, one of the most widely used mass timber products, will grow more than 13% a year through the mid-2020s. By 2025, mass timber is expected to account for about $1.4 billion of the $14 trillion global construction industry.

Norway boasts the world’s tallest wood building at 18 stories, soon to be displaced by a 25-story mass-timber tower in Milwaukee next year. Vienna has built an entire district out of the stuff. In the U.S., the number of mass-timber buildings completed or under construction soared more than seven-fold in just three years to 576 at the end of September. Another 665 are in the design phase, according to data compiled by the Softwood Lumber Board.

Not everyone is sold on mass timber. There are concerns about its resistance to moisture and fire. And critics say its environmental benefits are overstated due to the carbon that’s released from the decay of branches and tree tops left in the forest after the wood is cut, and also through the burning of waste products like sawdust. That carbon footprint swells even more when considering wood’s shorter lifespan and greater vulnerability to natural disasters than concrete buildings, said Beverly Law, a carbon-cycle scientist and emeritus professor at Oregon State University.

“The reason you might see it catching on more is because it’s being marketed heavily by the timber industry in the U.S.,” Law said.

Eoin Treacy's view -

It strikes me as a modern form of sophistry that the carbon wells represented by standing trees are now considered inefficient at best and a liability at worst. It is very convenient that improving their carbon usefulness results in logging and using them as building materials. This same argument is used for supporting wood fired power plants and pellet heating systems. Little concern is given to the potential that trees will be cut down quicker than new ones grow if this new industry takes off.



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December 07 2021

Commentary by Eoin Treacy

Email of the day on Brazil and copper miners

In today's commentary you talked about Brazilian copper miners. Vale's chart seems to suggest a bottoming pattern. It is primarily an iron ore producer but it does have a copper interest. This may be a medium to long term level.

Eoin Treacy's view -

Thank you for this email. Unfortunately, Vale is a bit player in the copper sector. Its primary business is in the ferrous metal sector, so it is intimately related to China’s steel production. Vale is a major nickel producer following the acquisition of Inco more than a decade ago. That offers exposure to the battery metals sector but unfortunately nickel is the least supply constrained of the industrial metals.



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December 06 2021

Commentary by Eoin Treacy

Email of the day on lithium mining

a contact living in northern Portugal has informed me of the ecological disaster there being caused by Lithium mining. In the attached article we can read that thousands of protesters are marching in Serbia in opposition to Lithium mining there. https://www.theguardian.com/world/2021/dec/05/rio-tinto-lithium-mine-thousands-of-protesters-block-roads-across-serbia Regards A.

Eoin Treacy's view -

There is no getting around two important facts. Mining, all mining, is destructive. It is also absolutely necessary to further the goal of global economic development of every kind. There is a good reason that most mining takes place in sparsely populated areas and most particularly in emerging markets. No one wants a mine in their backyard.



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December 03 2021

Commentary by Eoin Treacy

Secular Themes Review December 3rd 2021

Eoin Treacy's view -

A year ago, I began a series of reviews of longer-term themes which will be updated going forward on the first Monday every month. The last was on October 1st. These reviews can be found via the search bar using the term “Secular Themes Review”.

One of the most basic truisms in the financial markets is it is easier to make money in a bull market. The bull market that began in late 2008 and early 2009 has been liquidity fuelled. That was not obvious to everyone a decade ago but now everyone gets the message. Money printing inflates asset prices. As long as central banks are printing, we will have bull markets and the most speculative assets will perform best.



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December 02 2021

Commentary by Eoin Treacy

Email of the day - on deflationary risks

In today’s Audio you stated that there was an increasing risk of deflation. This is unsurprising because the capitalist system rewards the production of cheaper and better goods, while the continuing industrialization of the under-developed countries maintains downward pressure on wages. Throw in the emergence of crypto currencies and one must ask if gold will ever regain its former status in the economic system. Your views would be appreciated.

Eoin Treacy's view -

Thank you for this question which is particularly topical as we look to the year ahead. This year has been notable for a significant uptick in inflationary pressures. The extraordinarily low base level of 2021 contributed enormously to the year over year change while the tsunami of liquidity ensured readings were above even the most ambitious forecasts. This has resulted in economic statistics hitting headlines for most of the year even though most of what has happened is a product of base effects and liquidity.



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December 02 2021

Commentary by Eoin Treacy

December Kicks Off Record Warmth in U.S. Great Plains

This article from Bloomberg may be of interest to subscribers. Here is a section:

December began with record warm temperatures across the central U.S. and the promise of seasonally balmy weather for weeks ahead, holding down natural gas consumption when the world struggles with high fuel prices and inflation.

Denver reached 73 degrees Fahrenheit (22.8 degrees Celsius) on Wednesday, a record for the day, while new highs were also set in North Platte and Broken Bow in Nebraska, Bismark, North Dakota, and Rapid City, South Dakota, according to the National Weather Service. Overall, it looks like mild temperatures will dig in across the eastern two-thirds of the U.S. through at least Dec. 16.

December will likely be the third warmest going back to 1950 based on natural gas consumption, said Bradley Harvey, a meteorologist at commercial forecaster Maxar. Some of those mild trends may start to spill over into Europe and Asia as well.

“The European pattern should warm up in the middle third of the month,” Harvey said.

Atmospheric and Environmental Research updated its winter forecast earlier this week, calling for more mild conditions across the U.S. The outlook for warmer weather has killed bullish expectations that sent natural gas prices surging to the highest level in seven years in October. Traders were betting that inventories were too low to withstand a harsh winter. But warmer conditions have eroded heating demand, allowing producers to refill stockpiles to near normal levels.

Eoin Treacy's view -

I was playing tennis last night in shorts and t-shirt. It felt more like an early summer evening in Dallas than early December. That balmy weather extends across much of the USA and has contributed to natural gas prices fully unwinding the short-term overbought condition relative to the trend mean.



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December 01 2021

Commentary by Eoin Treacy

Lira Respite Will Come Down to How Far the Central Bank Can Go

This article from Bloomberg may be of interest to subscribers. Here is a section:

Turkey’s direct intervention in its currency markets on Wednesday, the first in seven years, shows policy makers are intent on drawing a line in the sand on how far they are willing to tolerate weakness in the lira.

However, how long policy makers are able to buy the currency some respite will essentially come down to the size of the war chest and how willing the central bank is to run down those assets. The Turkish central bank’s gross reserves add up to $128.5 billion, with $60.5 billion coming from the bank’s swap deals, according to latest data released on Nov. 19. When swaps and other liabilities such as required reserves are stripped, Turkey’s net reserves stand at -$35 billion. The bank has repeatedly said that its gross reserves -- the total amount at its disposal at the time -- are more important than net reserves.

The central bank’s intervention this morning is significant if only for the signaling it sends. During a previous episode of similar stress in the lira back in 2018, there was no reported intervention. In other words, the policy makers may be telling the markets that their strategy to ward off any speculation on the currency will take a different tack this time. In 2018, the central bank took the benchmark rate to 24% from 8% in a short span to arrest the decline in the lira.

Last week the lira tumbled more than 11% against the dollar in a single day, representing a 10-standard deviation shock based on its moves in the past five years. The currency has weakened after the central bank slashed its benchmark by 400 basis points since the end of August. The monetary authority meets next on Dec. 16.

Eoin Treacy's view -

Erdogan seems to remain of the opinion that the answer to high inflation is low interest rates. At the same time, he has said that the central bank’s intervention in the market, to trim the currency’s decline, is lawful. Without the ability to raise rates, the central bank has even fewer resources. Eventually it will run out of money.



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December 01 2021

Commentary by Eoin Treacy

Lumber Firm Sees Shipments Plunge on Canada Floods

This article from Bloomberg may be of interest to subscribers. Here is a section:

British Columbia on Monday extended a state of emergency and fuel rationing until mid-December as it braces for more heavy rain. Parts of the province are still struggling with damage from floods and landslides that closed highways and railways two weeks ago, sharply reducing the flow of goods like grain and lumber to Canada’s biggest port in Vancouver.

Rainfall warnings are in effect for Vancouver, with Environment Canada forecasting a prolonged period of heavy rain through Wednesday. Total rainfall of 60 millimeters (2.4 inches) is expected over the region, and rising freezing levels and snow melt may contribute to increased runoff.

Eoin Treacy's view -

Lumber supply was a major issue in the early part of the year and prices spiked to previously unimaginable levels. That cut into demand with many projects delayed while simultaneously encouraging additional supply into the market. It was a perfect example of the commodity market adage “the cure for high prices is high prices”.



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November 29 2021

Commentary by Eoin Treacy

Australia Sees Record Wheat Harvest But Warns Rains Hurt Quality

This article from Bloomberg may be of interest to subscribers. Here is a section:

Early spring rainfall had helped yields across eastern states, while cropping regions in South Australia and Western Australia were boosted by rain and mild temperatures in October. The damage and losses from torrential rains in November are likely to be worst in New South Wales. 

Receivals of grain are already showing signs of reduced quality, though canola crops are indicating good oil content, the forecaster said. There is a risk that more heavy rains in December could spur further downgrades and the potential for more crop losses. The national winter crop is expected to reach a record 58.4 million tons, an increase of 6.6% from the September forecast.

Eoin Treacy's view -

Low quality wheat ends up as animal feed. Higher quality grains end up as bread and other products for human consumption. Even though the Euronext feed wheat and Chicago wheat futures have different delivery qualifications, they tend to share a great deal of commonality.



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November 25 2021

Commentary by Eoin Treacy

Australia Firms Ramp Up Spending Plans Signaling Strong Recovery

This article from Bloomberg may be of interest to subscribers. Here is a section:

The result is likely to boost the Reserve Bank of Australia’s confidence in the economy’s prospects as the board prepares to review the A$4 billion weekly pace of its bond-buying program in February. Su-Lin Ong at Royal Bank of Canada put the odds of quantitative easing ending at that meeting at 30%.

The capex data is “likely to see markets continue to price in multiple hikes over the year ahead,” said Ong, head of Australian economic and fixed-income strategy at RBC. Money markets are wagering the RBA will start its policy tightening cycle with a 15 basis point hike to 0.25% by May 2022.

Today’s report showed the Covid lockdowns weighed on outlays, with total capital expenditure slipping 2.2% in the three months through September from the prior quarter. Spending on equipment, plant and machinery fell 4.1%, suggesting it will detract from economic growth in the period. 

Eoin Treacy's view -

Australian firms are looking around the world and see massive monetary and fiscal stimulus. Much of that spending will be focused on infrastructure and they are in line to benefit from outsized demand for resources. This is the time to invest in new supply before everyone else does.



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November 25 2021

Commentary by Eoin Treacy

Hochschild says key mines to continue operations as Peru eases stance

This article from Bloomberg may be of interest to subscribers. Here is a section:

Hochschild Mining Plc jumped as much as 26% after Peru’s government appeared to back away from a plan to withhold further permitting extensions at its two most important mines

“We are pleased that our Inmaculada and Pallancata mines can continue to operate without further uncertainty and, furthermore, we reaffirm our goal to increasing our resources and extending our mine lives, in accordance with current legislation,” Hochschild Chief Executive Officer Ignacio Bustamante said Thursday in a statement.

The company’s London listed stock rose as high as 153.4 pence, before trading 15% higher as of 8:16 a.m. local time.

Hochschild lost a third of its value on Monday as investors reacted to news that the company may be forced by the government to close two silver mines in the country. That followed an announcement by Prime Minister Mirtha Vasquez on Friday that four mines in the Andean region of Ayacucho wouldn’t be allowed extensions. Vasquez’s comments sent shock waves through the local mining industry.  

Those concerns now seem to easing. Vasquez said yesterday that there will be no “unilateral shutdowns.” 

Investors have been nervous about Peru’s mining sector since the April elections were won by Pedro Castillo, a former rural union activist from a Marxist party who had vowed to nationalize assets, block projects and take a bigger share of the mineral windfall to fight poverty. 

Peru is one of the world’s biggest copper producers, with operators including BHP Group, Anglo American Plc and Freeport-McMoRan Inc.

Eoin Treacy's view -

Political uncertainty is a significant hazard for resources investors. In developed countries, it is increasingly difficult to get permitting for new operations. That’s true even in “mining friendly” jurisdictions. In emerging markets, the risk is that a new government will tear up royalty agreements or appropriate assets with little notice. That risk increases the higher prices go because profits are a powerful siren call for cash-hungry governments. The parlous state of government finances may well have aided in the Peruvian government’s decision not to rock the boat with mining groups. They need the inward investment.



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November 22 2021

Commentary by Eoin Treacy

World Fish Stocks Are in Worse State Than Expected, Study Shows

This article from Bloomberg may be of interest to subscribers. Here is a section: 

The world’s fish population is in a dire state, with about half of assessed stocks being overfished,
according to a study backed by Australian billionaire Andrew Forrest. 

The rate of depletion is worse than previous estimates of just over a third, Forrest’s Minderoo Foundation said in a report Sunday. A tenth of fish stocks worldwide is now on the brink of collapse, reduced to 10% of their original size, the study shows.

The findings are based on 48% of the total global catch for which there’s sufficient data, according to the report. The other half lacks information to say if they are sustainable or not. More than 1,400 stocks were assessed from 142 countries.

The journey to replenishing fish numbers isn’t easy. The report noted that it could take between three and 30 years for stocks to recover, and in many places that would require a major overhaul. The foundation recommended increased intervention and investment from governments, as well as better auditing and management practices from businesses.

Eoin Treacy's view -

Two important characteristics to the global fishery are worth considering. The first is overfishing which is a current problem and will likely get worse. The second is cyclicality. We have enough back data to conclude the Pacific goes through long warming and cooling cycles. Together with intense fishing, the current time is when we would expect to have lower catches of small pelagics like sardines and anchovy.



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November 19 2021

Commentary by Eoin Treacy

Solar demands to normalize in 2022, polysilicon price likely to remain high

Thanks to a subscriber for this report from ICBC which may be of interest. Here is a section:

While some factories have already resumed operation after the mandatory power rationing expired, for instance GCL-Poly revealed that their 36,000 tonnes polysilicon factory has already restarted production after making use of the 2-week suspension period to undergo repair and maintenance, most solar materials have also witnessed significant price increase under the adverse effect of supply reduction. One of the clear examples is the sharp price rally of silicon raw material, which is the major material for making polysilicon and on average account for 40% of polysilicon’s production cost. The silicon raw material price rose sharply from USD 2.4/kg in Aug-21 to the peak of USD 10.4/kg in late Sep-21, before gradually normalizing to USD 6/kg in Nov (See Exhibit 3), especially after the Yunnan government decided to restrict the utilization of most energy-intensive production, including silicon raw material, by 90% starting from Sep in 2021. It is noteworthy that Yunnan accounts for 20% of total silicon raw material production in China, while Xinjiang and Sichuan’s market shares are 40% and 15% respectively. In our view, the cost pressure originated from silicon raw material price rally would gradually pass down the supply chain, implying subsequent solar material price hike would continue to emerge in other segments.

Eoin Treacy's view -

China has historically been willing to do whatever it takes to capture market share in emerging industries. That helped it dominate the entire supply chain for solar panels in the last decade. Deploying excess energy from coal fired power stations into polysilicon production was a big part of that strategy.



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November 17 2021

Commentary by Eoin Treacy

Cargill CEO Says Food Prices to Stay High on Labor Crunch

This article for Bloomberg may be of interest to subscribers. Here is a section: 

MacLennan said in September that soaring food costs would prove transitory and should dissipate in time. Since then, the rally in energy prices and continued supply-chain snarls have made markets “a lot tighter,” he said.

“When you have limited supply, that can lead to higher prices,” MacLennan said. However, he noted that China hasn’t been buying crops as aggressively as it did last year, while North American harvests are robust. “That takes some pressure off the system.”

A search for greener airplane fuel and biodiesel is also pitting food against energy production, leading to tighter edible oil supplies. Prices for palm oil, the world’s most consumed vegetable oil, have soared about 50% in the past year, while soybean oil is up 60%. Canola, also used to make oil, is near a record.

The food-versus-fuel tension will become more intense than it’s ever been in the last 15 years, MacLennan said. The day will come when more agricultural products will be used for energy than food, so it will be incumbent upon the farmers of the world to innovate and become more productive, he added.

Eoin Treacy's view -

Using food for fuel should be a much more controversial practice. We are literally substituting political idealism for the wellbeing of millions of people. The fact that palm oil demand is soaring because of its use as both a food ingredient and a fuel is a useful example of how the environmental lobby often does more harm than good.



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November 15 2021

Commentary by Eoin Treacy

4 Million Tons a Day Show Why China and India Won't Quit Coal

This article from Bloomberg may be of interest to subscribers. Here is a section:

Meanwhile, mines across China and India have been ramping up production in recent weeks to ease a supply crunch that’s caused widespread power shortages and curbs on industrial activity. China’s miners have beaten a government target to raise output to 12 million tons a day, while India’s daily production is close to 2 million tons.

“The power cuts since mid-to-late September show that we are still not prepared enough,” Yang Weimin, a member of the economic committee of the Chinese People’s Political Consultative Conference and a government advisor, told a conference in Beijing on Saturday. Additional funding is needed to ensure coal plants can be used to complement a rising share of renewables, he said.

Coal’s share in global electricity generation fell in 2020 to 34%, the smallest in more than two decades, though it remains the single largest power source, according to BloombergNEF.

In China, it accounted for about 62% of electricity generation last year. President Xi Jinping has set a target for the nation to peak its consumption of the fuel in 2025, and aims to have non-fossil fuel energy sources exceed 80% of its total mix by 2060.

For India, coal is even more important, representing 72% of electricity generation. The fuel will still make up 21% of India’s electricity mix by 2050, BNEF analysts including Atin Jain said in a note last month.

Eoin Treacy's view -

The focus on attention right now is on the willingness and potential of both India and China to eventually limit their use of coal. Much less attention is focused on Africa where the bulk of population growth is occurring. The next couple of billion people will mostly be born in Africa. That means increasing demand for power and higher standards of living as the continent urbanises



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November 12 2021

Commentary by Eoin Treacy

Easing Auto Supply-Chain Woes May Foreshadow Path for Inflation

This note from Bloomberg may be of interest to subscribers. Here is a section:

Investors will keep a close eye on UMich inflation expectations, due at 10 a.m. NYT. Another piece of the inflation picture that bears attention is the auto supply-chain crunch that’s been an exceptionally large contributor to rising prices.

News from Toyota adds to signs that supply issues may finally be easing. The carmaker is targeting greater December output than it’s seen in recent years, with next month set to be the first time in seven months that all of Toyota’s production lines in Japan will be operating normally.

That follows an Oct. 31 report that GM had no chips-related downtime scheduled in North America, the first time it had been able to resume full production since February. BMW’s results showed it’s muscling through the chip shortage, and Ford said revenue and profit rose due to increases in chip availability and vehicle shipments. Smartphone chipmaker Qualcomm‘s outlook, and steel and freight shifts, have also added to recent signs of broader relief.

Yet consumers may not feel like there’s been a downshift. U.S. used-vehicle prices rose 9.2% in October, according to Manheim Auctions; the index was up 38% from a year earlier. Reported used-vehicle inflation is also lower than suggested by the Manheim index, suggesting another big print for November’s CPI, as my colleague Cameron Crise pointed out.

Eoin Treacy's view -

There is clear potential that we are looking at the peak of supply disruption for chips. This is obviously a nuanced topic because there are lots of different kinds of chips and not every sector requires the same types of components. However, on aggregate, the supply of chips to the sectors that have contributed most to inflationary pressures is improving.



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November 11 2021

Commentary by Eoin Treacy

Greenland parliament vote effectively halts Kvanefjeld rare earths project

This article from agmetalminer.com may be of interest to subscribers. Here is a section: 

Earlier this year, we touched on the snap elections in Greenland, where the victorious left-wing Inuit Ataqatigiit party ran in opposition to the promising Kvanefjeld mining project on the southern tip of the island.

Australian firm Greenland Minerals had been working to secure a mining license for the project.

“The project is centred on the globally unique Ilimaussaq Alkaline Complex in southern Greenland,” the firm says on its website. “To date over 1 billion tonnes of mineral resources (JORC-code compliant) have been delineated in the project area, across three different zones – Kvanefjeld, Sørensen and Zone 3. Mineralisation is hosted by a rock-type called lujavrite, and is enriched in rare earths, uranium, and zinc.”

However, Greenland’s parliament voted Tuesday to ban uranium mining and exploration, effectively halting the project.

On Wednesday, Greenland Minerals submitted a request for a trading halt “pending an update to the market regarding passing of legislation concerning uranium, in the Greenland parliament.” As of Wednesday, the company had yet to release a statement about parliament’s decision.

Eoin Treacy's view -

Greenland has some of the most promising rare earth and uranium deposits in the world and the receding ice is revealing additional untapped potential sources of minerals. Shutting down exploration/development of uranium removes potential sources of new supply from the global market. It could well be terminal for Greenland Minerals.



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November 10 2021

Commentary by Eoin Treacy

Newcrest Joins M&A Gold Rush With $2.8 Billion Pretium Buy

This article from Bloomberg may be of interest to subscribers. Here is a section:

Newcrest Mining Ltd. agreed to buy Pretium Resources Inc. in a cash and shares deal valuing the Canadian gold producer at about $2.8 billion, adding to a wave of consolidation in the sector.

Melbourne-based Newcrest will offer Pretium holders C$18.50 ($14.87) a share, a 23% premium to the target’s closing price Monday in Toronto. Pretium’s board has unanimously recommended the transaction, although it still requires the approval of two-thirds of the company’s shareholders.   

“Our strategy is to specialize in low-cost, long-life and large-scale gold mines, and this is certainly that,” Sandeep Biswas, Newcrest’s managing director and chief executive officer, said on a media call. Adding Pretium, which owns the Brucejack operation close to Newcrest’s Red Chris mine in British Columbia, would immediately add more than 300,000 ounces a year of gold output, the company said, taking annual production to more than 2 million ounces. 

Eoin Treacy's view -

Exploration and development is risky, expensive and time consuming. M&A by contrast is quick, the reserves are relatively well understood but the upfront cost tends to be headline grabbing. That’s why timing of purchases is so important. Miners have a long dismal history of paying record prices at market peaks. At least on this occasion Newcrest is buying Pretium after a good-sized shakeout.



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November 09 2021

Commentary by Eoin Treacy

Email of the day on gold, ratios and real rates

In contradistinction to your bullish backdrop for gold and your contention of an eventual breakout (not breakdown) of the price, I would appreciate your comments on the relevance and significance of this part of the John Authers’ Points of Return article in Bloomberg this morning:

The Loser of the Year of the Vaccine: Gold
The last 12 months have seen a steady rise in inflation, yet gold has Authors taken a drubbing. That is weird, because the precious metal has long been regarded, more or less correctly, as a hedge against inflation and monetary debasement. There’s been a lot of both inflation and money-printing in the last 12 months, and yet gold has declined, with miners of the metal becoming the single worst-performing sector in the S&P 500.

We would have found this even harder to predict if we had been told a year ago that real yields would stay solidly and historically negative. Gold has no yield and historically has a strong inverse relationship with real yields. The less bonds pay after inflation, the less unappealing gold will appear. But real yields have remained bafflingly low and that hasn’t helped:

As the chart indicates, there is only one other period since the crisis that looks anything much like this. Unfortunately, that was in 2012 and early 2013, when real yields stayed low during the Federal Reserve’s “QE Infinity” and gold began to fall. It turned out on that occasion that the price was telling us something. The spring of 2013 saw first a dramatic fall for gold and then the “taper tantrum” as bond yields shot upward in response to a hawkish Fed.

Another indicator looks surprising. The ratio of stocks to gold, the effective price of the S&P 500 in ounces rather than dollars, has stayed surprisingly constant since Richard Nixon removed the U.S. from the last vestiges of the gold standard in 1971. The S&P has been worth more in gold terms than it was in 1971 only for a few years at the top of the 1990s bull market. Despite all the worries about debasement, that golden ratio is now stronger than it was in 1971, and at a 16-year high:

It’s possible that gold’s admirers have deserted it for cryptocurrencies, of course. There are various explanations out there. But the interpretation that it’s telling us to beware a possible tantrum in the bond market and correction in stocks seems fair.

Eoin Treacy's view -

Thank you for this email which raises a number of important points. I don’t mind admitting I have found the Dow/Gold ratio to be particularly perplexing over the last three years. For the first 15 years of my career, it was the most reliable of all long-term ratios. It had a wonderful history of cyclicality which depicted the ebb and flow of capital between asset classes over more than a century. It was one of the primary tools for rationalising the beginning of a secular bull market in equities from 2011 onwards. Then it pulled back in a big way in 2018 which raised big questions about the consistency of the move.



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November 05 2021

Commentary by Eoin Treacy

Treasuries Surge Despite Strong Jobs Data, Pricing In Slower Fed

This article from Bloomberg may be of interest to subscribers. Here is a section:

Gains in Treasuries may be partly driven by short-covering, which appears to have contributed to Thursday’s U.K.-led rally. CME Group Inc.’s preliminary open-interest data for Treasury futures show steep declines, in particular for the two-year note contract. Open interest in two-year note futures fell 2.3%, its biggest drop in three weeks.

Fed officials continue to emphasize that inflation is too high even as they hope to foster labor-market recovery by keeping interest rates low.

Federal Reserve Bank of Kansas City President Esther George Friday said “the risk of a prolonged period of elevated inflation has increased,” and “the argument for patience in the face of these inflation pressures has diminished.”

The declines in 10- and 30-year yields -- which fell as much as 6.5 basis points to 1.899%, the lowest since Sept. 23 -- come despite next week’s auctions of those tenors. The auctions, whose sizes were announced on Nov. 3, are smaller than the previous new-issue auctions in August, however. The reductions were the first since 2016.

Eoin Treacy's view -

The longer-term inflationary trend is being driven by wage demand growth and the upward pressure on the cost of housing and rents. However, it does not all happen at once, and some of the supply inelasticity factors that contributed to inflation over the last year are easing.



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November 04 2021

Commentary by Eoin Treacy

Sprott Analysis of I-80

Thanks to a subscriber for this report which may be of interest to subscribers. Here is a section:

The acquisition of Lone Tree and Ruby Hill makes I-80 the premier gold developer in the US, and on par with the best developers in Canada and Australia. For SCPe capex of US$458m, we estimate that I-80 can reach annual production of >400koz/year. Adding the Ruby Hill open pit, we estimate 2026-2031e average annual production of 500koz(peaking at 638koz) at LOM US$1,155/oz AISC. On defined resources alone, this generates an NPV5%-1850 of US$1.73bn. Uplift to producer peer averages results in annualized returns of 21-31% from present to 2026e. Moreover, all of I-80’s assets have exploration upside at depth with limited historic exploration for sulphides due to a lack of sulphide processing capacity. To reiterate: a path to 500kozpa, exploration upside, sulphide processing ability and 20% annual returns equates to one of the best risk-adjusted return opportunities in the gold miner/developer peer group. We update our model for the transaction and reiterate our BUY rating and lift our price target to C$7.00/sh on our unchanged target multiple of 0.75xNAV5%-1850. Stepping back, yes for newcomers this is a complex set of assets but upside is spectacular and with domestic US assets in a mining friendly state.  

Eoin Treacy's view -

The big challenge for gold explorers is securing acreage in close proximity to major mines. That greatly enhances their chances of securing funding because they can point to their neighbours and argue that where gold was found once it can be found again.



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November 03 2021

Commentary by Eoin Treacy

China Urges Winter Food Stockpiling, Prompting Online Worry

This article from Bloomberg may be of interest to subscribers. Here is a section:

China’s bracing for a cold snap this week, with temperatures in some regions forecast to fall by as much as 15 degrees Celsius. Vegetable prices typically rise when the temperature drops in winter and supply is unable to catch up with increasing demand before the Lunar New Year holiday.

The Monday statement told local commerce departments to coordinate more to improve local and inter-provincial supply chains for vegetables and also to strengthen monitoring of the prices of key staples such as vegetables and meat. 

Major agricultural distributors were encouraged to sign long-term contracts with producers, while provinces in both southern and northern China were told to improve their vegetable reserve systems and also release meat and vegetables from the reserves in a timely manner to replenish supplies. 

The call to stock up on food comes less than two weeks after a different government department told companies not to hoard food. 

 

Eoin Treacy's view -

Food prices are rising everywhere and that is putting everyone on edge. The experience of empty supermarket shelves was isolated to only a few household items during the pandemic while supply of staples was relatively constant. We’re still eating the rice we bought in January 2020 as a precautionary measure for example. (The chocolate is long gone).



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November 02 2021

Commentary by Eoin Treacy

Cash on Cash, Gold on Gold

Thanks to Iain Little for this edition of his Global Thematic Investors’ Diary focusing on gold miners. Here is a section:

For most of my 40 year career, analysts have mocked poor management in the mining business. The wisdom is that gold mines -perhaps with the exception of royalty or streaming financiers- are low quality, cyclical investments that only work when the cycle is right. Management doesn’t matter. The gold price -and luck with your timing- do. So I was intrigued by this chart. After decades of devouring investors capital for capital-intensive projects and surviving on shareholder bounty, the current generation of gold miners have finally got the message. They have done so when most of their all-in, sustainable costs cluster around USD 1,000 an ounce. Gold trades near USD 1800. Free cash flow yield (FCFY) measures the free cash flow (net profits plus depreciation less annualized capex) as a percentage of a company’s market value. It can be compared to the yield on a bond or a cash deposit. Gold mining, handcuffed by capital constraints after years of shareholder abuse, is now the highest yielding sector on the planet, with a FCFY of 7%, roughly double that of the rest of the market. During the last 2001-2012 bull cycle, when most gold shares multi-bagged, they never really got close to cash positivity. This is money -or maybe gold- that can be paid to investors and it is on the increase. In a yield deprived, inflationary age, is this not El Dorado?

Eoin Treacy's view -

It is going to take a long time to shake the reputation miners’ earned for being capital destroyers. The move to positive free cash flow yields is indeed positive and is helping to support the shares of the major miners during what has been a lengthy correction for the gold price.



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November 01 2021

Commentary by Eoin Treacy

America's Plunging Barley Crop Means Cheap Beer No More

This note from Bloomberg may be of interest to subscribers.

It’s last call for cheap beer. Rising input costs are soaring across the globe, fueled by withering barley supplies and surging aluminum costs, plus the same labor and transport bottlenecks plaguing every other industry. In North America, dry weather scorched fields, which typically produce enough barley to account for about 20% of global commercial beer production. In the U.S., American farmers reaped the smallest crop since 1934, just after Prohibition ended, while in Canada - - the fifth-largest producer -- barley output shrunk 34% to the second-smallest harvest since 1968

Eoin Treacy's view -

The cost of both barley and aluminium might be rising but there is increasing evidence that brewers are using this as an opportunity to raise prices. Many consumers have been couped up at home for more than a year and they are probably more willing to accept a price increase now than before the pandemic if they can get some semblance of their normal social life back.



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November 01 2021

Commentary by Eoin Treacy

I'm A Twenty Year Truck Driver, I Will Tell You Why America's "Shipping Crisis" Will Not End

This article from Medium.com may be of interest to subscribers. Here is a section:

How do you convince truckers to work when their pay isn’t guaranteed, even to the point where they lose money?

Nobody is compelling the transportation industries to make the needed changes to their infrastructure. There are no laws compelling them to hire the needed workers, or pay them a living wage, or improve working conditions. And nobody is compelling them to buy more container chassis units, more cranes, or more storage space. This is for an industry that literally every business in the world is reliant on in some way or another.

My prediction is that nothing is going to change and the shipping crisis is only going to get worse. Nobody in the supply chain wants to pay to solve the problem. They literally just won’t pay to solve the problem. At the point we are at now, things are so backed up that the backups THEMSELVES are causing container companies, ports, warehouses, and trucking companies to charge massive rate increases for doing literally NOTHING. Container companies have already decreased the maximum allowable times before containers have to be back to the port, and if the congestion is so bad that you can’t get the container back into the port when it is due, the container company can charge massive late fees. The ports themselves will start charging massive storage fees for not getting containers out on time — storage charges alone can run into thousands of dollars a day. Warehouses can charge massive premiums for their services, and so can trucking companies. Chronic understaffing has led to this problem, but it is allowing these same companies to charge ten times more for regular services. Since they’re not paying the workers any more than they did last year or five years ago, the whole industry sits back and cashes in on the mess it created. In fact, the more things are backed up, the more every point of the supply chain cashes in. There is literally NO incentive to change, even if it means consumers have to do holiday shopping in July and pay triple for shipping.

Eoin Treacy's view -

I was at the bonded warehouse in Dallas this morning to pick up Mrs. Treacy’s Christmas inventory. There is a great deal of talk at present about the supply chain crisis so I thought subscribers might be interested to know how long it took for us to get our goods.



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October 29 2021

Commentary by Eoin Treacy

The Macro Case for Precious Metals

Thanks to a subscriber for this chart-laden article from Crescat Capital. Here is a section:

As inflation continues to develop in the economy, see below the incredible link between gold and CPI since the GFC.

Note how after the pandemic lows, gold front ran the potential risk of a rise in consumer prices and the entire precious metals market appreciated sharply.

It is important to remember that before recently peaking, gold had been going on a streak for two years already.

The metal was up more than 75% from August 2018 to August 2020 and even reached historical highs during this period.

Back then, with CPI around 1%, very few investors foresaw inflation as a risk to the economy. Now it is a real problem.

We think gold likely appreciated too quick and too fast becoming what some thought as an obvious trade.

Extreme sentiment probably explains the reason for its recent weakness after signaling way earlier than any other asset the possibility that an inflationary environment could be ahead of us.
We are now on the other side of this extreme.

 

Eoin Treacy's view -

I have a lot of sympathy with the view that gold ran ahead for almost two years so it was due a pause. We also know that medium-term corrections in gold can last up to 18 months so it is a good time to start looking at the sector again since the peak was in August 2020.



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October 26 2021

Commentary by Eoin Treacy

Smashing Atoms: The History of Uranium and Nuclear Power

This infographic from Sprott focusing on uranium may be of interest to subscribers. Here is a section:

Although uranium mining is a global activity, only a handful of companies account for the majority of production.

The top 10 uranium mining companies accounted for 85% of global production in 2020.

The demand for this uranium come from nuclear reactors around the world.

Eoin Treacy's view -

There is no groundswell of support for a new massive round of reactor building. At least, not yet. The anti-nuclear lobby has been incredibly successful in pushing their agenda, over the last sixty years, and not least because of the Cold War and the threat of mutually assured destruction.



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October 26 2021

Commentary by Eoin Treacy

Robusta Coffee Prices Hit Highest Since 2011 on Supply Woes

This article from Bloomberg may be of interest to subscribers. Here it is in full:

Robusta coffee futures rallied to the highest in more than a decade driven by dwindling stockpiles for the beans favored for instant-coffee brands such as Nestle SA’s Nescafe. 

January futures in London jumped as much as 3.8% to $2,278 a ton, the highest for a most-active contract since September 2011. Arabica coffee also rose in New York. 

Both varieties have climbed more than 60% this year after drought and frosts damaged the arabica crop in Brazil, the No. 1 coffee producer, boosting demand for the cheaper robustas. The January-March spread in London surged to record premium. 

At the same time, soaring shipping costs are hindering a draw down of hefty stockpiles in robusta giant Vietnam. Exchange-monitored stockpiles for both varieties have continued to slide as roasters tap stored reserves.  

Technical-trading indicators are “very positive” and that attracted more buying, plus “there’s concern that flows have been paralyzed out of Vietnam because of the lack of container and elevated freights,” said Hernando de la Roche, senior vice president at StoneX Financial in Miami.

Eoin Treacy's view -

The Baltic Dry Index is currently unwinding a short-term overbought condition so that will take some of the pressure off of exporters of just about everything. Nevertheless, it will be quite some time before the port bottlenecks are eliminated.



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October 25 2021

Commentary by Eoin Treacy

Gold Extends Gain as Inflation Risks and Virus Concerns Persist

This article from Bloomberg may be of interest to subscribers. Here is a section:

“Gold and silver’s recent strong run of gains received a temporary setback on Friday in response to a sudden bout of taper tantrum following comments by Fed Chair Powell,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said in a note. “At the same time, however, he talked down the risk of raising interest rates while also expressing concern over persistently elevated inflation.” 

Eoin Treacy's view -

Around the world, central banks are raising interest rates in response to inflationary pressures that are both more persistent and intense than many anticipated. Some countries will benefit from this turn of events. They have positive balance of payments, booming exports and their currencies are appreciating. That group is concentrated among the commodity exporters.



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October 25 2021

Commentary by Eoin Treacy

Brazil Analysts Jack Up Inflation, Rate Forecasts as Woes Grow

This article from Bloomberg may be of interest to subscribers. Here is a section:

Brazil analysts expect a higher interest rate both this year and next after the government said it would
circumvent the public spending cap to increase spending on the poor.

The central bank will lift the Selic to 8.75% at the end of this year and 9.5% in 2022, up from prior projections of 8.25% and 8.75% respectively, according to a survey published on Monday. Analysts also lifted their year-end inflation forecasts to 8.96% this year and 4.40% in 2022, both above target. 

President Jair Bolsonaro announced last week plans for cash transfers to the poorest that would be financed either by a waiver or changes to the spending cap rule. The increased spending, coupled with a fresh plunge in the currency, are boosting bets that policy makers will have to raise borrowing
costs faster. The central bank will meet over rates Tuesday and Wednesday.

With annual inflation running above 10%, policy makers led by Roberto Campos Neto had promised their third consecutive rate hike of a full percentage point this week. But now analysts at major Wall Street firms expect them to deliver an increase of at least 125 basis points. 
 

Eoin Treacy's view -

It’s hard to imagine that 8.5% in short-term rates still represent negative real interest rates for Brazil. Inflation running at 10% is a major challenge for any government but especially during a time when a restive population is agitating for more spending and better conditions.



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October 22 2021

Commentary by Eoin Treacy

Russia sharply raises key rate as prices soar

This article from Bloomberg may be of interest to subscribers.

Russia's central bank aggressively raised its interest rate for the sixth time in a row Friday in an
effort to slow soaring food prices, and did not rule out further hikes.

Rising prices, falling incomes and a lack of tangible government support during the pandemic have been eroding popular support for President Vladimir Putin's two-decade rule, and authorities are under pressure to ease inflation.

At a meeting on Friday, the Bank of Russia increased its key rate by 0.75 percentage points to 7.50 percent, surprising many analysts who had expected a smaller hike.

The bank said that more hikes could follow and revised up inflation predictions.

"Inflation is developing substantially above the Bank of Russia's forecast and is expected to be within the range of 7.4-7.9 percent at the end of 2021," the bank said.

The Bank of Russia said that as of October 18, inflation stood at 7.8 percent but was expected to return to 4.0-4.5 percent next year.

"The central bank continues to act decisively and proactively," Dmitry Polevoy, head of investment at Locko Invest, said in a note to clients.

After months of historically low inflation, consumer prices began to climb in March 2020, driven by a drop in the ruble's value in the middle of the coronavirus pandemic.

The central bank started raising its historically low rate the same month. Its next rate review meeting is scheduled for December 17. In September, the bank raised its interest rate by 0.25 percentage points to 6.75 percent.

Eoin Treacy's view -

Russia is a major grain producer but is also reliant on imports for many additional food stuffs. That offers a graphic representation of how everyone is susceptible to the fragility of the global supply chain. Shutting the whole world down eighteen months ago had a dire effect on the ability of producers to manage their operations. The ensuing volatility has taken much longer than anyone thought to iron out and it is not over yet.



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October 21 2021

Commentary by Eoin Treacy

Email of the day on recycled gold

How will the recycling of gold, silver and other raw materials from mobile phones affect the markets for these metals. [Times article]

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. The World Gold Council estimated that about 10% of recycled gold comes from electronics at present. The method discussed in the above article suggests Excir is using both extreme heat and chemical deposition to extract precious metals from phones since they claim it can be done in seconds. There is no discussion of how dependent the process is on high prices.  



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October 18 2021

Commentary by Eoin Treacy

Radiant aims to replace diesel generators with small nuclear reactors

This article from NewAtlas may be of interest. Here is a section:

Radiant says its fuel "does not melt down, and withstands higher temperatures when compared to traditional nuclear fuels." Using helium as the coolant "greatly reduces corrosion, boiling and contamination risks," and the company says it's received provisional patents for ideas it's developed around refueling the reactors and efficiently transporting heat out of the reactor core.

Radiant joins a number of companies now working on compact nuclear reactors, and a smaller number focusing specifically on portable units, which would include the floating barges proposed for mass-manufacture by Seaborg. It'll be a while before we see one up and running, but a clean, convenient, low-cost, long-life alternative to diesel generators would be very welcome.

Eoin Treacy's view -

The evolution of small modular reactors and the increasing volume of space traffic point towards secular growth trends for helium. The terminal decline of helium supply from North America’s major source of production in Amarillo Texas was highlighted in 2018 as a major supply bottleneck. It had the potential to be a major supply inelasticity trend, as new sources of demand emerged. With so much enthusiasm about nuclear reactors in the market today, I thought it might be worth revisiting.  



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October 15 2021

Commentary by Eoin Treacy

Fertilizer Woes Paint Bleak Outlook for the Pantry

This article from Bloomberg may be of interest to subscribers. Here is a section:

Fertilizer plant shutdowns in the U.K. highlighted how critical the situation is, because it cut off supplies of carbon dioxide, a byproduct that’s needed for everything from slaughtering animals to packaging food. A deal was struck this week to maintain output in the coming months, averting more chaos for the sector.

The risk is that it’s just a quick fix. The owner of the British plants, CF Industries, said that CO2 users need to look for new sources of supply. An industry group also warned that temporary fertilizer-plant closures in Europe could become permanent.

It’s a worrying sign for future harvests a time when global food prices are at a 10-year high. There are concerns that farmers in France, the European Union’s top wheat grower, may find it hard to source fertilizers next spring, regardless of the price.

In Brazil, where a lot of farmers haven’t secured their fertilizer needs or locked in prices yet, worries of non-delivery are increasing. President Jair Bolsonaro has said the nation faces the risk of fertilizer shortfalls next year due to falling Chinese output in the wake of high energy costs.

Eoin Treacy's view -

Substituting coal for natural gas is the most common-sense solution to reduces carbon emissions. Unfortunately, that is not nearly ambitious enough to satisfy the demands of carbon fanatics. The result is there is resistance to increases supply from any and all sources. That’s putting pressure on fertiliser, carbon dioxide, heating and transportation costs.



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October 13 2021

Commentary by Eoin Treacy

This Company is Reinventing the Wheel and Ditching the Rubber Tire

This press release may be of interest to subscribers. Here is a section:

While GACW is initially targeting the OTR sector, which includes mining, the global tire market is much bigger, and the company has plans to enter that too. That said, the initial focus on mining could raise in excess of $20 million in revenue per mine site given the significant numbers of vehicles involved in each mining project.

And while the company may have competitors in the mid-sized market, it does not have any competitors in the global OTR sector.

In addition to this market, the ASW technology can be applied to all vehicles currently using traditional rubber tires, a $322 billion estimated value in 2022.

So far, the company has raised $3 million and has 4 patents with 13 others pending. It is also currently testing its ASW products with mining partners with an evaluation period of between 6 and 12 months. From 2022, it intends to ramp up its production of the ASW product with full commercialization expected in 2023.

“At this point, our plan is to expand our distribution network and really start taking the tire industry by storm,” the company said.

Eoin Treacy's view -

Mining costs are heavily dependent on energy and transportation prices and the cost of complying with increasingly stringent environmental regulations. As those costs rise, the incentive for companies to find alternatives where possible becomes progressively more urgent. Finding a cheaper alternative for a major cost centre, while also mitigating environmental liability represents an attractive sales pitch; if it works. Here is a link to Global Air Cylinder Wheels’ website. 



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October 13 2021

Commentary by Eoin Treacy

Uranium ETFs Roaring Back After $1 Billion Influx on Nuclear Bet

This article from Bloomberg may be of interest to subscribers. Here is a section:

That view has been buttressed by some recent announcements. On Tuesday, the French government said it will help a state-controlled utility company develop so-called small modular nuclear reactors by 2030, a move President Emmanuel Macron signaled as key to reducing global carbon emissions. Japan’s new prime minister said that the nation should replace aging nuclear power plants with such module reactors. 

Eoin Treacy's view -

This graphic, from the 1960s, depicting German expectations for how nuclear would become the dominant supplier of electricity is particularly noteworthy. It helps to highlights how wrong expectations for the future can be, particularly when linear extrapolations are relied on. It also highlights uranium has had plenty of false dawns over the decades.



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October 11 2021

Commentary by Eoin Treacy

Lumber prices have risen 50% since August, and 2 experts say the resurgence will continue through early 2022

This article from Markets Insider may be of interest to subscribers. Here is a section:

A reason for the price increase in lumber is a modest increase in renovation demand after price-sensitive buyers proceeded with home improvement projects now that wood prices have seen a substantial correction, Dustin Jalbert, senior economist at Fastmarkets, told Insider.

Though Jalbert does not expect the kind of runup in lumber prices seen earlier this year - a period when there was a backlog of homes waiting to be built and a shortage of key construction supplies - as pandemic-related supply constraints continued to ease.

"The market has finally transitioned to a more balanced state compared with being severely oversupplied in the summer months, which ultimately drove the massive correction in prices from record-high levels set in May," Jalbert told Insider.

And even if Americans wanted to build and renovate homes, the field consumption of lumber is being bogged down by shortages of other complementary materials such as windows, siding, cabinet appliances, and garage doors, he added.

The supply side, meanwhile, continues to face challenges, Jalbert said. Log costs in British Columbia, which accounts for about 16% of North American lumber capacity, remain elevated.

Eoin Treacy's view -

Commodities tend to remain in well-defined ranges for years before breaking out and rallying in a profound manner that creates an uncomfortable feeling for consumers and sets new price expectations for sellers. Lumber spiked higher between 1991 and 1993. It subsequently gave up most of the advance but never dropped back into the preceding range.



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October 08 2021

Commentary by Eoin Treacy

Strategy Data Pack October 2021

Thanks to a subscriber for this report from Mike Wilson’s team at Morgan Stanley which may be of interest. Here is a section:

Key Points:
• We are now calling for Fire AND Ice. We have been calling for a mid-cycle correction to happen one of two ways:
• Fire: tightening financial conditions as the Fed signals tapering is coming
• Ice: growth disappointment particularly on the earnings side
• We think it’s increasingly likely these scenarios happen together and we get a >10% correction. The Fed will likely announce its taper plans at its next FOMC meeting just as we expect a disappointment in earnings to materialize.

• Earnings Trouble Ahead. A number of companies have flagged serious supply chain issues in off-cycle earnings reports over the past month. Both forward earnings estimates and price de-rated after many of these reports. We think this will be a pervasive dynamic during 3Q reporting season and expect it to trigger downside in earnings revisions at the index level- a headwind for price. Beyond 3Q, we think the earnings risk comes more from (1) the inability of companies to pass on pricing (2) margin risk related more to higher wages and (3) a reversion (lower) in goods consumption

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

I don’t mind admitting I have been perplexed by the relative strength of Wall Street against a background of rising bond yields. The 5-year is trading above 1%, the 10-year hit 1.6% today and the 30-year is also running ahead. Meanwhile CPI at 5.2% is back at levels not seen since 2007.



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October 07 2021

Commentary by Eoin Treacy

Schumer Says Debt-Limit Deal Reached, With Vote Possible Today

This article from Bloomberg may be of interest to subscribers. Here is a section:

The plan reached between Senate Majority Leader Chuck Schumerand GOP counterpart Mitch McConnell would raise the statutory debt ceiling by $480 billion, according to a Senate aide. The amount would allow the Treasury to meet obligations through Dec. 3, the same day that the current short term government spending bill runs out.

“We’ve reached agreement to extend the debt ceiling through early December,” Schumer announced on the Senate floor Thursday morning.

The news added fuel to a rally in stocks. The S&P 500 Index headed for its biggest three-day advance since April as the risk of an economically devastating tightening in fiscal policy receded for now.

Eoin Treacy's view -

I’m not sold on the idea that investors were waiting with bated breath on the outcome of political negotiations to lift the debt ceiling. The initial furore about debt ceilings was a decade ago. Everyone now understands, it is mostly about political theatre. There is no realistic outcome where the US will renege on its debt obligations.



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October 05 2021

Commentary by Eoin Treacy

Oil jumps 2%, hits 3-year high as OPEC+ sticks to output plan

This article from Bloomberg may be of interest to subscribers. Here is a section:

Despite the pressure to ramp up output, OPEC+ was concerned that a fourth global wave of COVID-19 infections could hit the demand recovery, a source told Reuters a little before the vote.

"The (price) move looks a bit outsized given the ministers just reaffirmed the decision announced in July, but it shows how tight the market is, reinforcing our view of asymmetric price action with risks skewed to the upside at these inventory levels," Barclays said in a note. 

Investors will closely watch Wednesday's crude inventory data from the U.S. Energy Information Administration for further direction.

Eoin Treacy's view -

OPEC has a clear interest in sustaining reasonably high prices but not so high that significant additional supply is encouraged back into the market. At prices above $80, a lot of marginal supply becomes economic and it takes about 6 months to bring significant volumes online.



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October 04 2021

Commentary by Eoin Treacy

Email of the day on politically secure mining jurisdictions

Can you please give us a an update on copper producer plays for relative strength for listings in areas of good governance? As David said, we realize we need the tailwind or bull market to be successful investors.

Eoin Treacy's view -

It’s an unfortunate circumstance that many of the best sources of vital resources are located in politically unstable parts of the world. These are countries where a new government/regime may decide on a whim to massively increase royalties or retroactively charge taxes on the new laws. There is also the potential that any contracts signed with the last government may become null and void. Therefore, there is a solid argument for favouring miners with operations in politically stable parts of the world. That’s particularly relevant during bull markets because profits tend to attract the attention of governments.  



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October 01 2021

Commentary by Eoin Treacy

Secular Themes Review October 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”

Supply Inelasticity Meets Rising Demand was the phrase David coined to explain the last commodity-led bull market. After decades of underinvestment in commodity supply infrastructure, the market was not prepared for the massive swell of new demand from China; as it leaped from economic obscurity into one of the largest economies in the world. A decade of investment in new production was needed to supply China and that crested ahead of the credit crisis in 2008.

Today, we also have extreme example of supply inelasticity, and demand is breaking records for all manner of goods and services. The factors contributing to these trends are quite different from a decade though. Some will be resolved relatively quickly. Others will take years.



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September 29 2021

Commentary by Eoin Treacy

Solar ETF Drops Most in Four Months as China Rattles Sector

This note by Michael Bellusci for Bloomberg may be of interest to subscribers. Here it is in full:

Invesco Solar ETF (TAN) falls as much as 6.5% intraday, the most since May 4, amid growing investor jitters about China’s real estate crackdown potentially sparking a financial contagion. 

Among individual stocks, JinkoSolar down as much as 10.6% during the session, Beam Global -9%, Daqo New Energy -10%, First Solar-9.3%, Canadian Solar -7.8%

Eoin Treacy's view -

China is by far the largest manufacturer of solar panels. Silica is a major component for the sector and production is being hampered by electricity supply disruptions. That’s taking a toll on the solar sector. At the same time the upward pressure on government bond yields threatens the business model of many domestic installation businesses.



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September 27 2021

Commentary by Eoin Treacy

Email of the day - on the copper/silver ratio:

The price of copper has been rising for some time now, while the price of silver, an important industrial metal now is languishing at the bottom of its recent trading range. Would there be any merit in examining a long-term historical chart of the ratio of copper to silver?

Eoin Treacy's view -

Thank you for this question which may be of interest to the collective. The outlook for both copper and silver are increasingly intertwined with that of renewable energy. Copper is required in motors, electric recharging infrastructure and wind turbines. Silver is the best-known reflective material. It’s a major component of solar panels, although there are significant efforts underway to try to substitute reliance on the metal.



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September 27 2021

Commentary by Eoin Treacy

Email of the day on investing for inflation:

Dear Eoin, Many thanks for your comment on inflation as a solution for the massive public debts. In these circumstances how would you structure your portfolio? In which sectors would you invest your funds?

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. This is a very big question because the stocks that have done best over the last decade have benefitted enormously from the massive availability of liquidity and very low rates. Divesting from the best performers runs contrary to most people’s instinct to run their winners so monitoring the consistency of their price action is particularly relevant to all portfolios over the next decade.



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September 17 2021

Commentary by Eoin Treacy

How China's Pollution Fight Is Roiling Commodities

This article from Bloomberg may be of interest to subscribers. Here is a section:

The growing importance of the environment in Beijing’s policy mix has left commodities markets caught between decelerations in both supply and demand. Iron ore prices more than halved between mid-May and mid-September as the steel production limits slashed demand for the steel-making ingredient. Aluminum, meanwhile, has jumped 46% so far this year as Chinese production -- more than half the world’s total --  of the energy-intensive metal is cut. The curbs on coal are particularly eye-catching because China has been wrestling with an unprecedented spike in the cost of the fuel. Coal futures in Zhengzhou hit a record in September, defying what should be a seasonal slowdown in demand. Any further cutbacks on output would run counter to the government’s pledges to stabilize prices by encouraging more domestic supply. It also would make another round of power rationing for industry more likely. Since coal is the major energy source in China for the production of fertilizer, its price has also soared.

Eoin Treacy's view -

The big question for many commodity investors is how serious is China about curtailing emissions? Perhaps a better question is how important is it to China’s leadership that the country look good ahead of the Winter Olympics in less than five months? Very important, is probably an understatement.



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September 15 2021

Commentary by Eoin Treacy

Priciest Food Since 1970s Is a Big Challenge for Governments

This article from Bloomberg may be of interest to subscribers. Here is a section:

Adjusted for inflation and annualized, costs are already higher now than for almost anytime in the past six decades, according FAO data. Indeed, it’s now harder to afford food than it was during the 2011 protests in the Middle East that led to the overthrow of leaders in Tunisia, Libya and Egypt, said Alastair Smith, senior teaching fellow in global sustainable development at Warwick University in the U.K.

“Food is more expensive today than it has been for the vast majority of modern recorded history,” he said.

Eoin Treacy's view -

It is interesting to contrast the charts of Food and Agriculture World Prices disseminated by the UN with how the commodity sector as a whole has performed.



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September 10 2021

Commentary by Eoin Treacy

Shanghai Copper Stockpiles at Lowest in a Decade, Nickel Jumps

This note from Bloomberg may be of interest to subscribers. Here is a section:  

Copper inventories extend a drop to the lowest level in almost 10 years, while aluminum holdings also fell and nickel inventories climbed, according to weekly data from Shanghai Futures Exchanges.

Copper -11% to 61,838 tons, lowest since Dec. 2011
Aluminum -1.6% to 228,529 tons, lowest since Dec.
Lead +3.3% to record 204,008 tons
Nickel +45% to 8,608 tons, following a more than 30% gain the previous week

Eoin Treacy's view -

The realisation that contagion risk in the property sector could bring down the whole economy has refocused the attention of the Chinese administration on easing up on liquidity tightening measures. That has helped to stabilise the high yield sector and is also helping to improve the outlook for industrial resources.



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September 03 2021

Commentary by Eoin Treacy

Secular Themes Review September 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”.

If it walks like a duck and quacks like a duck, it must be a duck. Wall Street is behaving like it is in a bubble. The most important thing is the bubble is still inflating.



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September 02 2021

Commentary by Eoin Treacy

Email of the day - on candlestick patterns

Dear Eoin Your monthly chart of gold shows a perfect and quite rare "Dragonfly Doji" candlestick pattern. With your considerable charting knowledge would you regard this as a bullish technical signal?

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. There are hundreds of candlestick patterns with colourful names. In order to assess how meaningful any one of them is we generally only have to ask one question. Did the price action have a big psychological impact?



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September 02 2021

Commentary by Eoin Treacy

Email of the day on food price inflation and political polarisation

I did notice the surge in fresh fish prices for the past 6 months. For example, dover soles (300-400g size) had been in the 20-25 eur/kg (with an average at +/-23 eur) for +/- 15 years with a few peaks at 30 eur and dips at 18 eur; for the past 6 months, I have never seen the price below 30 euros and it has averaged 35-37eur with peaks at 40+ eur. I wonder whether it has to do with Brexit and therefore less fish available on the EU market. In any case all fish prices have substantially increased (depending on the species 40-70%); the cost of milk, pasta, etc. has also increased, not talking about gasoline or real estate.

(Here in Luxembourg, I have been made aware that a new project outside the city -at +/- 10 km to the north- a new residential development to be delivered in 2023 has prices at 20.000 euros/sq m for flats of 65-75 sq m) ... [Ed. c.€1890/sqft]

Wages are not following, and taxes are globally up with budgets still showing too large deficits. This will fuel resentment and populism, maybe revolts when people have nothing left to lose (the situation is dire in France and the split within the have and have nots deepening by the day compounded by and immigration - whether with a French ID or not - separatism being more evident by the day. Wages are not following.

Eoin Treacy's view -

Thank you for this insightful account. The rising cost of marine products may be an unintended consequence of renewable energy, regulations and compliance. This article from the BBC profiling Grimsby may be of interest. Here is a section: 

Shell fisherman Darren Kenyon is not a fan of the wind companies, though.

"It's been a really bad thing for us," he says. "They've taken thousands of miles of sea up, and put wind poles in. They've gridded the sea with electricity cables."

Darren complains that he cannot compete with the wages the wind farm companies pay their crews. 

And

According to the environmental group, Greenpeace, just five wealthy UK families own or control nearly a third of the country's fishing quota.

Danny complains that the whole system conspires to push small players out. Retiring smaller fishermen have often sold their quota - sometimes to continental Europeans. Others rent out their allocation on a monthly basis; they're known in the trade as "slipper skippers" because it's assumed that they sit snug and warm at home while others go fishing.



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September 01 2021

Commentary by Eoin Treacy

Biden administration ramps up antitrust efforts amid worries about high prices

Thanks to a subscriber for this article from The Washington Post may be of interest to subscribers. Here is a section:

But other troubling signs have emerged in ways that threaten the administration’s political agenda. The price of gasoline rose by 2.5% in June and 2.4% in July — a rate which, if consistent over the course of the year, would amount to a more than 20% annual increase. Gas prices have risen above $3 and are at their highest level since 2014 as part of a broader increase in prices that the administration is eager to reverse. Prices could increase further as Hurricane Ida slams into Louisiana, a key hub for refineries, although that uptick will likely prove temporary.

Food price hikes also strained family budgets, rising by roughly 3.4% from last year. The Agriculture Department saw faster than expected jumps between June and July in the price of 11 different food categories — including beef and veal; seafood; fish; and dairy products — with pork and chicken prices increasing by about 2% in just one month. USDA projected jumps in poultry prices of as high as 6% over 2021.

Eoin Treacy's view -

The big question for investors is how serious are politicians about interfering to control commodity prices? There are certainly measures which can be implemented to address anti-competitive behaviour, but the reality is that many of the supply bottlenecks have arisen as a result of direct government policies.



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August 31 2021

Commentary by Eoin Treacy

How water shortages are brewing wars

This article from the BBC may be of interest to subscribers. Here is a section:

Unfortunately, there's no one-size-fits-all solution to water scarcity. In many countries simply reducing loss and leaks could make a huge difference – Iraq loses as much as two-thirds of treated water due to damaged infrastructure. The WPS partners also suggest tackling corruption and reducing agricultural over-abstraction as other key policies that could help. Iceland even suggests increasing the price of water to reflect the cost of its provision – in many parts of the world, humans have grown used to getting water being a cheap and plentiful resource rather than something to be treasured.

Much can also be done by freeing up more water for use through techniques such as desalination of seawater. Saudi Arabia currently meets 50% of its water needs through the process. "Grey", or waste water, recycling can also offer a low-cost, easy-to-implement alternative, which can help farming communities impacted by drought. One assessment of global desalination and wastewater treatment predicted that increased capacity of these could reduce the proportion of the global population under severe water scarcity from 40% to 14%.

At the international level, extensive damming by countries upstream are likely to increase the risk of disputes with those that rely on rivers for much of their water supply further downstream. But Susanne Schmeier, associate professor of water law and diplomacy at IHE Delft in the Netherlands, says that co-riparian conflict is easier to spot and less likely to come to a head. "Local conflicts are much more difficult to control and tend to escalate rapidly – a main difference from the transboundary level, where relations between states often limit the escalation of water-related conflicts," she says

Eoin Treacy's view -

Large populations with aspirations of increasing living standards are bumping up against the reality of resource scarcity. This is particularly true for water because many people think of it as free resource that falls from the sky or flows through the city. As cities grow larger and the global population becomes further concentrated at the deltas of major rivers, it is inevitable that water is going to become an increasingly contentious issue. That’s before anyone even begins to think about the ramifications of a changing climate.



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August 27 2021

Commentary by Eoin Treacy

Fearing Inflation, Germans Load Up on Gold Bars

This article from Bloomberg may be of interest to subscribers. Here is a section:

Demand for physical bullion in Germany, traditionally the biggest coin and bar buyer in Europe, was the highest since at least 2009 in the first half, World Gold Council data show.

While purchases in other Western markets have also been strong, Germans in particular are pouring into the metal as a hedge against rising inflation -- and dealers say business remains good.

“We have a long history of inflation fear in our DNA. Now the inflation risk is picking up,” said Raphael Scherer, a managing director at metals dealer Philoro Edelmetalle GmbH, whose gold sales are up 25% on what was already a strong 2020.

“The outlook for precious metals is very positive.” Germany’s love of gold has its origins in the hyperinflation seen under the Weimar Republic a century ago, which saw consumers’ buying power collapse. Last month, the reopening of the economy helped German inflation jump to the highest in more than a decade. Negative interest rates in Europe are also making non-yielding assets like gold more attractive, Scherer said.

First-half demand for bar and coins in Germany increased by 35% from the previous six months, compared with 20% in the rest of the world, WGC data show.

Eoin Treacy's view -

I just realised this is the third day in a row I have featured an article relating to Germany. Imported inflation is running at a record rate and there is no sign it is abating just yet. Taiwan Semiconductor raising prices by 20% yesterday, rising shipping rates and higher commodity prices are all conspiring to raise prices for just about everything; everywhere. Meanwhile Euro weakness is a tailwind for inflationary pressures.  



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August 25 2021

Commentary by Eoin Treacy

Supply Squeezes are Reappearing Everywhere in Key Metal Markets

This article from Bloomberg may be of interest to subscribers. Here is a section:

It’s hard to think of two metals with more disparate fundamentals than copper and lead, and long-term projections for prices reflect that. In one corner, there’s a metal that looks set to soar as it powers the world’s rapidly burgeoning renewable-energy and electric-vehicle industries, and in the other corner there’s lead. The highly toxic metal has been substituted out of virtually every product it’s been used in throughout history, and now the electric-vehicle revolution is posing a manifest threat to its last major application in conventional car batteries.

Still, for buyers scrambling to get hold of spot metal on the LME, the fact that lead prices are likely to crumble in the future will be of no comfort at all. And the general rule in commodities markets is that as long as buyers are bidding up spot prices, futures are likely to follow.

Eoin Treacy's view -

Every country has some form of a recovery plan from the pandemic and so does every consumer. That points to increased spending and not least because many purchases were delayed by the pandemic. That’s helping to support the price of all industrial resources since infrastructure spending is the go-to area for government stimulus.



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August 24 2021

Commentary by Eoin Treacy

Iron Ore Spikes With Commodities Markets Set for Demand Revival

This article by Annie Lee and Mark Burton for Bloomberg may be of interest to subscribers. Here is a section:

Iron ore’s revival came after it lost about a quarter of its value in the past month, as China’s push to curb steel production hammered demand. But steel and other industrial commodities have rebounded this week, after China’s count of daily Covid cases fell back to zero and central bankers vowed to step up support for the real economy. Coking coal in China hit a record on Tuesday, while copper has also recovered amid signs that Chinese consumers are on a buying spree. 

“Iron ore just cannot be the only one lagging while everything else in steel space is massively bid,” Xiaoyu Zhu, a metals trader at StoneX Financial Inc., said by email. “After the price spike in coal products in the last two days, it’s hard for iron ore to stay quiet.”
 

Eoin Treacy's view -

Steel is as essential to economic development as it has ever been and that makes it a important component of global economic revival. The challenge for China is they have vast oversupply of manufacturing capacity for the alloy and rationalising it is an erstwhile priority.



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August 24 2021

Commentary by Eoin Treacy

Brazil farmers remove dead coffee trees, some switching to grains

This article from Reuters may be of interest to subscribers. Here is a section:

Adriano Rabelo de Rezende, technical head at the Minasul coffee co-op, who flew over damaged coffee fields https://www.reuters.com/world/americas/frosts-stain-brazil-coffee-belt-growers-see-nearly-third-fields-hit-2021-07-30 with Reuters after the frosts, said the recommendation is for farmers to wait for the rains before taking any action.

“With the rains some plants could recover, so it will be better to decide the best action: what type of pruning,” he said.

Rains are expected in Minas Gerais by the end of the month. They will be key not only for the trees’ ability to recover, but also for the flowering stage that will determine production potential for the next crop.

Mario Alvarenga, who has two coffee farms in Minas Gerais, said the drought remains challenging.

“You don’t find any moisture in the soil up to 1 meter (40 inches) deep. Crops that were not hit by frosts are withering,” he said.

Alvarenga estimates that 18% of his coffee crops were damaged by frosts. He has already started pruning where he thinks trees have a chance of recovering when the first rains arrive, leaving the ones that are dead to be taken out later.

Eoin Treacy's view -

Shortly after I started working with David, he was invited to speak at the World Money Show in Orlando. We used it as an experiment in direct marketing and had a booth. One of the most memorable conversations I had was with one of the delegates. He was asking about commodities and I said orange juice looked promising.



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August 23 2021

Commentary by Eoin Treacy

Powell's Jackson Hole Gamble Runs Risk of Backfiring

This article from Bloomberg may be of interest to subscribers. Here is a section:

In the end, it will come down to what Powell considers the bigger longer-term risk for the U.S.: Become trapped in a disinflationary spiral like that experienced by Japan as the forces of technological advances and globalization continue to press down on prices, or enter an inflationary zone of escalating cost pressures akin to what the U.S. suffered a half century ago.

Right now, he’s betting that the former is the bigger long-run danger, and holding off from tightening credit.

“The new framework is not so much about what kind of monetary policy you would expect right now, but what you might expect over the next year or perhaps longer as this recovery continues,” Wendy Edelberg, director of The Hamilton Project at the Brookings Institution, says. “They have made a pretty convincing argument they are going to keep monetary policy accommodative for longer than they would have under a different policy rule.”

But the path ahead will be far from easy as the Fed seeks to softly land the economy in the neighborhood of on-target inflation and maximum employment.

“It’s going to very difficult,” says Blinder, who was at the Fed when it achieved what many economists consider its only perfect landing for the economy, in the mid 1990s. “If they can achieve that, they deserve more than a pat on the back.” 

Eoin Treacy's view -

The US economic expansion is slowing down. The end of stimulus coupled with the rising perception of risk from the delta variant are conspiring to restrict economic activity. That’s not the kind of environment a central bank is likely to tighten into. In fact, these conditions are only likely to confirm the Fed’s conclusion that inflationary pressures are going to be transitory.



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August 23 2021

Commentary by Eoin Treacy

World's biggest wind turbine shows the disproportionate power of scale

This article from NewAtlas may be of interest to subscribers.

China's MingYang Smart Energy has announced an offshore wind turbine even bigger than GE's monstrous Haliade-X. The MySE 16.0-242 is a 16-megawatt, 242-meter-tall (794-ft) behemoth capable of powering 20,000 homes per unit over a 25-year service life.

The stats on these renewable-energy colossi are getting pretty crazy. When MingYang's new turbine first spins up in prototype form next year, its three 118-m (387-ft) blades will sweep a 46,000-sq-m (495,140-sq-ft) area bigger than six soccer fields.

Every year, each one expected to generate 80 GWh of electricity. That's 45 percent more than the company's MySE 11.0-203, from just a 19 percent increase in diameter. No wonder these things keep getting bigger; the bigger they get, the better they seem to work, and the fewer expensive installation projects need to be undertaken to develop the same capacity.

The overall result should be a drop in offshore wind energy production prices – a sorely needed drop, too. Current levelized costs of energy, as estimated by the US Energy Information Administration for new energy generation assets going live in 2026, place offshore wind as the most expensive way of generating a megawatt-hour right now, at US$120.52, where ultra-supercritical coal is more like $72.78 and standalone solar is around $32.78 before subsidies.

Obviously, wind fills in gaps that solar can't, and it'll be a crucial part of the energy mix going forward. Scaling the industry up with these mammoth turbines is the key reason why industry experts are predicting that the cost of offshore wind will drop by between 37 and 49 percent by 2050, as reported by Renew Economy.

MingYang says the MySE 16.0-242 is just the start of its "new 15MW+ offshore product platform," and that it's capable of operating installed to the sea floor or on a floating base. The full prototype will be built in 2022, installed and into operation by 2023. Commercial production is slated to begin in the first half of 2024.

Eoin Treacy's view -

The challenge for the wind sector is that many of the best locations have been taken up by turbines that are not nearly as powerful as the models currently being marketed. In many respects the wind sector is suffering from the same dilemma as the oil sector. How do you introduce new technology to an area where you have already sunk significant resources?



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August 19 2021

Commentary by Eoin Treacy

Evergrande Slumps as Investors See No Bailout After Huarong

This article from Bloomberg may be of interest to subscribers. Here is a section:

Huarong’s bailout was reassuring for investors who went through months of agony guessing just how determined the Chinese government was in combating moral hazard. But even with $300 billion in liabilities that could roil banks, suppliers and home buyers, junk-rated Evergrande is seen as a separate case as authorities crack down on excessive leverage in the property sector. 

Investor concerns grew Thursday evening after Chinese regulators demanded Evergrande resolve its debt risks and refrain from spreading untrue information. People’s Bank of China and banking watchdog officials summoned the company’s executives, telling them to maintain operations and protect the stability of financial and property markets, according to a joint statement.  

“The Chinese government’s stance to prioritize social harmony and equality over corporate profit is becoming increasingly clear,” said Anthony Leung, head of fixed income at Metropoly Capital HK. “Evergrande is completely different in the sense that it is the poster child of an industrywide reckless risk-taking culture.”

Eoin Treacy's view -

China Evergrande has been investing in a wide number of non-core businesses for years and will likely be forced to sell all of its appreciated assets in order to avoid bankruptcy. That position as a forced seller leaves it in a weak position to get fair value. Therefore, the only conclusion is the company’s management are been punished for taking on excessive leverage and favoured companies will have the opportunity to pick up renewable energy, batter manufacturing and other positions at a discount.



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August 19 2021

Commentary by Eoin Treacy

It's Not Just Poppies

Thanks to a subscriber for this article from Outcrop magazine. Here is a section:

Plus, it would be many years before any mines would be developed, even if (as now seems possible) the Chinese are allowed by the Taliban to bring their can-do attitude to the task.

China has been cosying up to the Taliban (some of their leaders were on a Beijing visit a few weeks ago) and the Chinese government made it clear this week they had "maintained contact and communication" in recent days with the bearded ones now in charge in Kabul.

China has also said it wishes to help the "reconstruction and development" of Afghanistan.

Clearly, Beijing wishes to draw Afghanistan into its Belt and Road Initiative (BRI). It is a telling detail that the 76km-long border between the two countries includes a pass that was a route on the old Silk Road, the template for the new BRI. Expect to see a highway and rail line this time rather than horses and camels.

China may be able to achieve what others have failed to do: make Afghanistan a vassal state. In that case, they will have under their control Afghanistan's mineral wealth.

The British Raj failed to subdue the Afghans — it's famous retreat from Kabul in 1842 ended with the entire 16,000-man army dying or being killed. Then the Soviet invasion came a cropper in more recent years.

And now the Americans have been humiliated.

Rare earths would be uppermost on Beijing's mind when it comes to mineral resources.

The USGS estimated that rare earths in Helmand province could contain up to 1.4 million tonnes of rare earth elements, which would dwarf what Australia could potentially supply to the world. China's control of those resources, as well as their downstream processing capabilities, would enable Beijing to maintain its stranglehold on those vital critical metals.

And presumably the Chinese would like to get their hands on the iron ore.

Eoin Treacy's view -

The mineral wealth of Afghanistan will inevitably be developed by whoever wins the looming civil war. China has a clear interest in furthering its political encirclement of India and will be eager to develop mining opportunities to fuel the high-tech sector. It is debatable how amenable the Taliban will be to China overtures when Xinjiang is only over the border from Afghanistan.



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August 18 2021

Commentary by Eoin Treacy

Shipping bottlenecks set to prolong supply chain turmoil

This article from the Financial Times may be of interest to subscribers. Here is a section:

The disruptions started in the second half of last year after demand for goods sank when the pandemic struck and carriers cut sailings, but locked-down consumers then ordered products online at an unprecedented rate.

Shipping companies’ efforts to catch up have been set back by the Suez Canal blockage in March and the Yantian terminal closure, as well as border restrictions and port worker absences.

An indefinite partial shutdown at Ningbo-Zhoushan is the latest problem that could deepen the strain on global logistics. Shipping lines have already started to omit calling at the Chinese port near Shanghai.

About 350 containerships capable of carrying almost 2.4m 20ft boxes are waiting off ports globally, according to VesselsValue. The congestion has been getting worse with idle capacity reaching 4.6 per cent of the global fleet, up from 3.5 per cent last month, data from Clarksons Platou Securities shows.

Lars Mikael Jensen, head of global ocean network at Maersk, the world’s largest container shipping group, agreed that the situation had shown no signs of improvement since the Delta variant of Covid emerged.

“It’s not getting any better on aggregate,” he said, adding that maritime transport networks are “still super stretched — it only takes a small thing then you’re back to square one or square one minus”.

Eoin Treacy's view -

The influence of the pandemic has resulted in sustained pressure on global supply chains. The primary difficulty for ports is ships have been one of the primary vectors through which the virus has spread internationally and many ports are having difficulty maintaining staffing levels because of infections among workers.  



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August 17 2021

Commentary by Eoin Treacy

Inflation Tempers Americans' Enthusiasm About Red-Hot Economy

This article from Bloomberg may be of interest to subscribers. Here is a section:

By global standards, the U.S. has bounced back fast. But as data on the recovery continue to pour in, there’s plenty to support the suspicion that the glass is still half-empty.

Consumer sentiment fell in early August to the lowest level in nearly a decade by one measure and U.S. retail sales fell in July by more than forecast.

The following charts help explain why Americans still aren’t clear how impressed they should be.

Eoin Treacy's view -

I was at a wholesale furniture warehouse this morning that does not deal with retail customers. The two things that employees related to me were that business was booming in the 1st and 2nd quarters, but over the last two months sales have been way down. The second was there was a big whiteboard on the wall with their monthly minimum sales target of $950,000. As of this morning they were at $431,000.



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August 17 2021

Commentary by Eoin Treacy

BHP Bets on Lower-Carbon World With Petroleum Exit, $5.7 Billion Potash Project

This article from the Wall Street Journal may be of interest to subscribers. Here is a section:

BHP and Woodside said the business would be one of the world's 10 largest producers of liquefied natural gas. Combining the businesses is expected to generate more than $400 million in annual savings, the companies said in a joint statement. They expect the deal to be completed by July next year.

Selling the petroleum business will lead to BHP focusing on mined commodities: iron ore, metallurgical coal, copper and nickel. On Tuesday, BHP confirmed that potash is on that list by approving the first stage of its Jansen project in Canada's Saskatchewan province. The operation is expected to start production in 2027, with an annual capacity of 4.35 million metric tons of potash.

Potash is one of three major fertilizer ingredients, alongside nitrogen and phosphate. BHP believes demand for potash could as much as double by the late 2040s to become a $50 billion market. Mr. Henry said mining at Jansen could last about 100 years.

"Under our 1.5-degree scenario, potash stands to be a winner, with increased biofuel production and intensified competition for land due to afforestation," Huw McKay, BHP's chief economist, said in June. Potash also doesn't generate some of the negative environmental impacts that other fertilizer nutrients do, especially the release of greenhouse gases during application, he said.

Potash is seen by farmers as an attractive resource because it tends to boost yields, aid in drought tolerance and improve crop quality.

Eoin Treacy's view -

Divesting of oil assets in the name of providing investors with a pure mining play is the opposite logic to what was used when those assets were originally acquired. Back then, it was viewed as prescient to acquire shale assets because investors would have a one stop shop to participate in the oil and iron-ore led commodity bull market.



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August 13 2021

Commentary by Eoin Treacy

Bitcoin's Surge Lacks Extreme Leverage That Powered Past Rallies

This article from Bloomberg may be of interest to subscribers. Here is a section:

“Typically we look at that as more of a strong-handed rally, which implies that the leverage portion of the rally comes later,” Ouellette, FRNT’s co-founder and chief executive officer, said on Bloomberg’s “QuickTake Stock” streaming program. “If that is the case, those $100,000 targets are very reasonable, I’d suggest. The last time we saw a move of this little leverage, we were pointing towards $20,000, and we didn’t really see the leverage come into the market in an aggressive way until we got to $40,000, which took us to $65,000.”

Eoin Treacy's view -

This is how all bull markets evolve. When prices are just breaking out there is no evidence that the price is about to multiply so few people are invested. As evidence becomes apparent more people are willing to commit funds. By the time prices accelerate people are jockeying to buy as much as they can because there is already so much evidence to support the bull market hypothesis. That final stage is usually when the most leverage is present.



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August 13 2021

Commentary by Eoin Treacy

China coronavirus infection closes shipping terminal at massive Ningbo-Zhoushan Port as container rates soar

This article from the China Morning Post may be of interest to subscribers. Here is a section:

Nair was referring to massive delays at Shenzhen's Yantian port in May and June. Weeks of containment efforts following outbreaks of Covid-19 among dockworkers in China's Pearl River Delta caused global shipping delays, supply-chain disruptions and surging freight costs. The problems have not been fully resolved.

Lars Jensen, CEO of liner consultancy Vespucci Maritime, also said the Meishan terminal closure could have a similar impact on the Ningbo-Zhoushan Port that Yantian experienced when it was closed for more than three weeks.

"Significant problems, both for export cargo as well as for the movement of empty containers into the region, would then ensue," he wrote in a LinkedIn post on Wednesday.

With its zero-tolerance approach to the coronavirus, China is currently carrying out mass testing to contain the spread of the highly infectious Delta variant, which Ningbo authorities said the Meishan worker tested positive for.

However, the deputy director of the Ningbo Centre for Disease Control and Prevention, Yi Bo, said the worker may have contracted the virus from his interactions with foreign crewmembers of cargo freighters that he had boarded at the port. Video surveillance showed he had close contact with crews.

Meishan is one of the busiest terminals at the Ningbo-Zhoushan Port, servicing main trade destinations in North America and Europe. In 2020, it handled 5,440,400 TEUs of container throughput, or around 20 per cent of the total container throughput at the Ningbo-Zhoushan Port, according to official statistics.

Eoin Treacy's view -

Shipping rates from China to the USA and Europe are up 400% in the last year. A good part of the reason for that jump is because ports are having difficulty managing the volume of traffic. That’s both a function of outsized demand during the pandemic and the infection rates among dock workers.



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August 13 2021

Commentary by Eoin Treacy

Rand Gains as South Africa Finance Head Pledges Fiscal Restraint

South Africa’s new finance minister, Enoch Godongwana, has a difficult job ahead: convincing investors that he can help Africa’s most industrialized economy reduce debt while boosting economic growth.

He took the first step in an investor call Friday, when said there would be no changes to the fiscal framework for Africa’s most industrialized economy. The rand gained and bond yields fell after he spoke.

“I don’t see much changing in that fiscal framework,” Godongwana said on the call. “There is commitment from myself as the minister of finance and I would imagine from government.”

The rand reversed losses against the dollar, and strengthened 0.2% to 14.7576 per U.S. dollar by 4:13 p.m. in Johannesburg. Yields on the most-liquid 2026 government fell three basis points to 7.39%.

Eoin Treacy's view -

Europe adopted fiscal austerity after the global financial crisis and its sovereign wealth crisis. The result was the surge in populism and widespread disaffection with the European project. On this occasion they have resolved not to make that mistake again. In fact, it could be argued the pandemic has been the perfect excuse to ditch the failed austerity program.



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August 12 2021

Commentary by Eoin Treacy

Rio Dumped After Massive Dividend

This note from the Sydney Morning Herald may be of interest to subscribers. 

Rio Tinto stock dropped as much as 7 per cent yesterday after the mining giant's shares traded ex-dividend.

The $190 billion company fell to a near seven-week low of $120.15 a week after it reported a record first-half profit and a massive $5.61 dividend per share.

The stock closed 6.9 per cent lower at $120.26.

The mining giant has now shed 10.8 per cent of its value since hitting a record high $134.665 late last month as the outlook for iron ore demand continues to weaken amid Chinese government restrictions on steel output and a slowing housing market. Iron ore prices recovered slightly overnight, rising 1.9 per cent to $US165.48 a tonne.

Eoin Treacy's view -

Iron-ore prices surged during the pandemic and not least because China remained a bastion of uninterrupted economic activity while most other countries experienced a more difficult time with the first round of COVID. That helped boost demand while supply growth was contained.



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August 11 2021

Commentary by Eoin Treacy

Gold Gains as More Moderate U.S. Inflation Eases Taper Fears

This article from Bloomberg may be of interest to subscribers. Here is a section:

“There were fears of another hot print on inflation, so there is a relief rally,” said Jay Hatfield, chief executive officer of Infrastructure Capital Advisors in New York. Expectations of the Fed tapering “won’t get worse, that was feared.”

Spot gold added 0.8% to $1,742.65 an ounce by 10:33 a.m. in New York, snapping a four-day drop. Palladium slumped, while silver and platinum rose. The Bloomberg Dollar Spot Index fell 0.1%, erasing an earlier gain.

Officials including Chairman Jerome Powell have said they see price pressures eventually easing, though remain wary of the potential for excessive inflation. Chicago Fed President Charles Evans became the latest official to discuss the prospect, saying he expects substantial progress later this year on tapering intentions.

Eoin Treacy's view -

The big question for gold investors is whether a sound money, balance budgets, controlled spending movement akin to the Tea Party movement is going to evolve any time soon. Without it there is room for gold to continue trend higher over the medium term.



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August 10 2021

Commentary by Eoin Treacy

U.S. Sanctions on Belarus Potash Leave Out Its Sole Seller

This article may be of interest to subscribers. Here is a section:

“The penalties against Belaruskali add negative sentiments for the global potash market, but the fact that BPC is not the subject of the sanctions may ease the situation,” said Elena Sakhnova, an analyst at VTB Capital.

BCS Global Markets analyst Kirill Chuyko also said it may be safe to continue dealings with BPC, as long as it’s not added to the sanctions list.

BPC is studying the situation and it’s difficult to estimate what impact the sanctions will have, the company told RIA Novosti. The trader said it will make every effort to fulfill its contractual obligations, adding that the sanctions will lead to higher potash prices and less availability on the world market.

Eoin Treacy's view -

The announcement of sanctions against Belarus made headlines but the substance of the measures suggest more of a warning than a shutdown of activity. Nevertheless, the measures have introduced a measure of uncertainty to the agricultural chemicals sector, of which potash is a major constituent.



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August 10 2021

Commentary by Eoin Treacy

Predicting Equity Returns with Inflation

This article from Research Affiliates may be of interest to subscribers. Here is a section:

In this article, we document that two derived US inflation variables—inflation cycles and inflation surprises—have been robust predictors of US equity returns. We demonstrate that this predictability translates into new sources of alpha that investors can seek to harvest. In particular, we highlight the signals’ ability to perform during the worst times in the stock market without missing upside opportunities.

The tail-hedging properties derived from inflation signals are particularly desirable. Hedging positive inflation shocks can be costly when inflation is low.9 For example, strategic allocations to alternative assets, such as commodities, or absolute return strategies as a way to protect against inflation have not all fared well in recent years, with commodity indices down more than 30% versus their 2011 levels. As a result, many asset owners may not be able to stay the course if inflation fails to materialize in the medium term. We find that inflation signals can provide a new tool for investors who wish to hedge their portfolios against inflationary and deflationary risks.

“The tail-hedging properties derived from inflation signals are particularly desirable.”

Eoin Treacy's view -

For forty years inflation is the dog that refused to bite. There have been several occasions when it looked inevitable profligate spending, overly generous social programs, supply disruptions, commodity and property booms and busts would break the trend of disinflation but they never did.



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August 09 2021

Commentary by Eoin Treacy

Gold Claws Back Some Ground After Early Morning Flash Crash

This article from Bloomberg may be of interest to subscribers. Here is a section:

The recent slump highlights a worsening outlook for the bullion on fears that the strong rebound in the U.S. labor market could see the Fed pull back stimulus sooner than expected. Dallas Fed President Robert Kaplan’s said that the central bank should start tapering asset purchases sooner rather
than later.

Bullion was down 1% at $1,745.31 an ounce by 12:20 p.m. in London, after earlier touching the lowest since March, and coming close to its lowest in more than a year. In the futures market, over 3,000 contracts changed hands in a one-minute window -- equivalent to over $500 million notional value -- as
activity surged in a typically quiet trading period.

Gold “recovered in the course of trading as bargain hunters took advantage of the low price to enter the market,” said Falkmar Butgereit, a senior trader at refiner Heraeus Metals Germany GmbH & Co. KG. Still, “many investors now fear that the Fed will soon start tapering bond purchases, raising expectations of interest rate hikes in 2022/2023.”

Attention will turn to fresh economic data later this week to gauge the health of the recovery from coronavirus, as well as inflation. The consumer price index due Wednesday is expected to show a smaller increase than the previous month as pressures on supply chains caused by reopenings ease. That may lend support to the view held by the Fed that inflationary pressures will prove transitory.

Also key to the outlook is the rise of the delta variant in the U.S., which could complicate the country’s economic rebound. New Covid-19 cases have jumped to more than 100,000 a day on average, returning to the levels of the winter surge six months ago.

Eoin Treacy's view -

The primary argument for buying gold is centred on negative real interest rates and the repercussions for the purchasing power of fiat currencies. Central banks made a lot of comments a year ago about the need to ensure an economic recovery and their willingness to tolerate higher inflation to get there. That boosted gold to new all-time highs. As fears the global economy would be terminally damaged ebbed gold moved into a medium-term correction.



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August 06 2021

Commentary by Eoin Treacy

Secular Themes Review August 6th 2021

Eoin Treacy's view -

On November 24th I began a series of reviews of longer-term themes which will be updated on the first Friday of every month going forward. The last was on May 7th. These reviews can be found via the search bar using the term “Secular Themes Review”.

We are 17 months on from the panic low in 2020. At this stage it is quite normal to marvel at the speed of the advance and worry that the pace can’t possibly be sustained. The abiding sentiment is something like “surely, the world is not nearly as good as it was before the pandemic and therefore how on earth can prices be so high?”.

The world is not as good as it was before, millions of people have been deeply inconvenienced and many are traumatized by the events of the last 17 months. The counter argument is the quantity of money in circulation has only been matched during wartime and that has helped to inflate the price of everything. That’s the key to the argument. Having spent so much to achieve this recovery does anyone really believe central banks are going to endanger it? So where do we go from here?



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August 04 2021

Commentary by Eoin Treacy

Miners and Dividends

Eoin Treacy's view -

Gold prices have been ranging between $1700 and $1900 since November. That’s allowed gold miners to sell production at a consistently higher price. That margin boost has allowed a significant number of companies to pay down debt.

That’s a major achievement for the sector. Many miners were saddled with large debt piles when the last bull market peaked in 2011. They had borrowed heavily on the expectation that prices only go up. It has taken the survivors a decade to erode that burden.

An increasing number have no debt at all. When miners have no debt and increasing cash on their balance sheets, they have two choices. They either spend the money on exploration/expansion or they boost/introduce dividends or buy back stock. Often they do both.



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August 04 2021

Commentary by Eoin Treacy

Trend Compendium 2050: Six MegaTrends that will shape the world

Thanks to a subscriber for this report from Roland Berger which may be of interest. Here is a section:

Manmade global temperature increases can only be limited to 2°C if significant additional efforts are undertaken to become carbon-free in 2100

Is the limit of 2°C enough? To keep the global warming below 2°C had long been regarded as the right target measure to limit the most dangerous risks. More recently, 1.5°C has been considered safer, which requires rapid, far-reaching, and unprecedented changes across all aspects of society.

Eoin Treacy's view -

I posted a podcast featuring Jeremy Grantham a few weeks ago. He is a very vocal advocate for decarbonisation but he also echoed this prediction that limiting emissions to 2% was nowhere near enough. He also opined that the trend of climate change is irreversible anyway. Those are two extremely important considerations. 



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August 03 2021

Commentary by Eoin Treacy

Email of the day - on investing for the long term.

Would be very interested in your thoughts for positioning an investment portfolio (retirement monies) at this point in time. It is increasingly difficult for me to envision what could spark a leg up in the US equity markets in the near term. A leg down at some point feels more probable, yet I am not one for market timing. Nevertheless, increased uncertainty and volatility look to be on the menu for an extended period of time as the markets and Fed wrestle with the curtailing of the liquidity which has fueled the market's run. Is simply pruning equity positions and building cash the most reasonable course of action?

The FullerTreacy service is outstanding and all the more valuable at times like these. Thank you for your thoughts.

Eoin Treacy's view -

Thank you for this question and I am delighted you are enjoying the service. I write a long form summary of my views on the first Friday of every month so I will take this topic up again there.

The big question for investors is how long will the steady rise in the stock market persist? It’s easy to be derailed by valuations and predictions of imminent doom. Instead, let’s focus on consistency and money flows.



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July 22 2021

Commentary by Eoin Treacy

Brazil's Frost May Kill Young Coffee Trees, Hurt Crops for Years

This article from Bloomberg may be of interest to subscribers. Here is a section:

The freeze will have the greatest impact on coffee trees under 4 years old. Because of their fragile root systems, trees younger than two usually need be eliminated, while trees between 2 and 4 years old often have to be drastically trimmed and won’t produce the following crop year, said Regis Ricco, a director at Minas Gerais-based RR Consultoria Rural.

The consulting firm has been providing technical loss reports to growers who are going to seek debt renegotiations due to the frost damage. In some regions, farmers lost everything they had.

“Some farmers will have a difficult situation as they got loans from banks to fund irrigation systems, plantings and machinery,” Ricco said. “The impact is stunning.”

Eoin Treacy's view -

Frost in Brazil is a rare occurrence and it has had a significant impact on coffee prices. The price spent most of 2018 through 2020 ranging around $1. It completed the base formation in April and a sustained move back below $150 would be required to question medium-term scope for continued upside.



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July 21 2021

Commentary by Eoin Treacy

Enel installs 6.1 MWh vanadium redox flow battery in Spain

This article from PV Magazine may be of interest to subscribers. Here is a section:

Canada-based vanadium mining company Largo Resources has announced that its U.S.-based unit Largo Clean Energy has signed its first supply agreement for its VCHARGE ± vanadium redox flow battery system, with Enel Green Power Spain, a unit of Italian renewable energy company Enel Green Power, which is itself part of the Enel group. Under the terms of the deal, Largo Clean Energy will provide a five-hour, 6.1 MWh system for a project in Spain whose start-up is scheduled for the third quarter of 2022.

The company's VPURE and VPURE + vanadium products come from one of the three largest vanadium mines in the world, the company's Maracás Menchen mine, located in Brazil. These compounds are used to develop's Largo's  VCHARGE ± vanadium redox flow battery technology.

Largo Clean Energy began, last year, the development of its vanadium redox flow battery (VRFB) technology based on 12 patent families previously owned by U.S. storage specialist VionX Energy, whose assets it acquired for $3.8 million.

Eoin Treacy's view -

Vanadium surged in 2018 on expectations that the world would adopt redox flow batteries for utility-scale energy storage. The uptake was less enthusiastic than many expected and the price of the metal collapsed.



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July 16 2021

Commentary by Eoin Treacy

The Future of Space Is Bigger Than Bezos, Branson or Musk

This article from Bloomberg may be of interest to subscribers. Here is a section:

Here are just a few of the less remarked-on recent stories out of the private space industry. First was the stock market debut of a company called Astra Space, which, backed by venture capitalists, built a viable orbital rocket in just a few years. Its goal is to fly satellites into orbit every single day. Shortly after Astra went public at a value of $2.1 billion, satellite maker Planet Labs—which uses hundreds of eyes in the sky to photograph the Earth’s entire landmass daily—announced its plans to do the same, at a value of $2.8 billion. Firefly Aerospace has a rocket on a California pad awaiting clearance to launch. OneWeb and Musk’s SpaceX are both regularly launching satellites meant to blanket the planet in high-speed internet access. Rocket Lab, in the previously spacecraft-free country of New Zealand, is planning missions to the moon and Venus.

The SPAC frenzy has been particularly kind to the private space industry, including some of the companies named above. Easier access to public markets has helped draw billions of dollars from excited investors to an industry once dependent on governments with vague military objectives or expansive views of public works. Partly as a result, the number of satellites orbiting the Earth is projected to rise from about 3,400 to anywhere between 50,000 and 100,000 in the next decade or so—and that’s even if these companies just fulfill the orders they’ve received so far.

It seems likely the estimates will slide a bit, given that those kinds of numbers would require rockets to blast off one after another from bustling private spaceports all over the globe on an extremely frequent basis. But whatever the precise timing, the message will remain unchanged: Private space is here. This month’s space tourism race is just escape-velocity window dressing on a much bigger, more transformative set of changes. The results of these shifts will be unpredictable, except that ego and greed will likely be as present as ever. Nonetheless, the evidence on the non-ground suggests we should consider the possibility that this emerging industry might turn out OK.

Eoin Treacy's view -

The pace of innovation in lift (to space) technology is blisteringly quick. The size of rockets and payloads they carry continue to introduce economies of scale to a sector that has never known them. That’s an incredible change and opens the whole sector to waterfall of new ideas on how to commercialise the space.



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July 16 2021

Commentary by Eoin Treacy

Email of the day on tin

What is your view on the tin chart?  https://uk.investing.com/commodities/tin-streaming-chart

Looking at the LSE the only tin share I can find is AFRITIN MINING who produce in the safe jurisdiction of Namibia. Additionally, they are due to release an estimate on their lithium resources mined as a by-product at the same time.

Eoin Treacy's view -

Thank you for this question which may be of interest to the Collective. This graphic produced by Rio Tinto Ventures goes a long way towards explaining the recent strength in the tin market. Here is also is a section from Avalon Advanced Materials website which talks about the primary uses of the metal: 

Tin is perhaps better known for its historical use in tin cans than in modern technology; however, usage of tin in coating lead, zinc and steel to prevent corrosion (i.e., tin plating) is now the second highest usage of tin worldwide. Tin is primarily used in lead-free solders for electronic circuit boards and microchips – accounting for 50% of global tin consumption.

Tin is expected to increasingly contribute to modern, clean technologies including lithium-ion batteries for autonomous and electric vehicles. For example, battery researchers are developing solid-state batteries utilizing ceramic electrolytes (versus liquid) for improved safety and performance. Silicon is a potentially attractive anode material due to its high potential capacity and abundance in nature. Recent research has shown that adding tin to the silicon-based anode enhances its performance, creating the potential for tin to be a major contributor to the next generation of lithium batteries.

Further, researchers at the Texas Material Institute have demonstrated a tin-aluminium alloy can be produced that is cheaper and double the charge capacity of today’s copper-graphite anodes for lithium-ion batteries.

The greatest growth potential for tin is likely to be found in these and other automotive battery applications. As of 2016, use of tin in lead-acid batteries approached 30 kt and, supported by further growth in vehicles sales and the further substitution of antimony, use of tin in this application is expected to exceed 50 kt by 2027 (Roskill).

Finally, indium-tin-oxide is used as a glass coating due to its electrical conductivity and optical transparency and continues to find application in renewable energy and communications, including flat panel displays, smart windows, thin film photovoltaics (solar panels) and organic light emitting diodes lights.



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