Investment Themes - Precious Metals / Commodities

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April 12 2018

Commentary by Eoin Treacy

Metal Matters

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

Funds turn buyers again on Comex
The net long fund position (NLFP) has up until recently been declining, but this has mainly been a result of stale long liquidation, as seen by the drop in the black line in the chart above. But, while the longs have cut exposure (until recently); shorts have not been getting bearish, as seen by the declining red line. This has suggested longs have grown impatient as Gold prices have failed to break higher, but lack of upside has not encouraged bears to increase exposure. More recently, fund longs have started to increase exposure again. The gross long fund position has climbed to 259,032 contracts as of 27th March, from a recent low of 223,882 contracts. The NLFP has returned to 203,354 contracts from a low of 148,731 contracts on 20th March. This latest change was driven by 35,150 contracts of fresh buying and 19,473 contracts of short-covering.

Investors increase exposure to ETFs
Holdings in Gold ETFs are edging higher with investors adding 18.5 tonnes in March. Holdings now stand at 2,162 tonnes, up some 39 tonnes so far this year. Holdings averaged 2,068 tonnes in 2017. Given the lukewarm investor interest in Gold ETFs, it may be that the market is waiting for prices to break higher above the $1,366-$1,388/oz resistance area before increasing exposure.

Eoin Treacy's view -

A link to the full report and a section from it are posted in the Subscriber's Area.

ETF Holdings of Gold have shown surprising resolve over the last 18 months. The fact that all those long positions, opened when gold rallied to break its downtrend in 2016, hung around until now, and are adding to the total outstanding long position, is a testament to the bullish interest in the metal. Considering how volatile the price has been over the same period this is a particularly noteworthy development.



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April 12 2018

Commentary by Eoin Treacy

Email of the day on guest publications and lithium miners

What are your current views on lithium and lithium miners?

I continue to enjoy your tour de force reporting and analysis. Nothing stops you, not even airline travel. Amazing.

Eoin Treacy's view -

Thanks for this question which I’m sure will be of interest to other subscribers. It’s been a busy few weeks, what with an enjoyable and educative trip to Japan last week and the upcoming flight to Melbourne for The Chart Seminar and another conference next week, where I’m looking forward to chatting with Marc Faber.

Sometimes I look back with a sense of yearning on the days when David could still take a month off in August to cycle from Land’s End to John O’Groats and back again. In fact, part of the reason he brought me onboard in 2003 was to ensure the service could move to a seamless daily publication schedule.

I’m beginning to think about how to arrange taking a holiday over the summer. David used to invite guest writers to contribute copy to the site when he was away and I would like to do the same thing while I am away for perhaps two weeks in July or August. If any subscribers are interested in submitting an article during that time please let me know and I would be happy to discuss the conditions under which that might be appropriate.

Now let’s turn to lithium miners.



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April 10 2018

Commentary by Eoin Treacy

Saudi Arabia Is Said to Signal Ambition for $80 Oil Price

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

Saudi Oil Minister Khalid Al-Falih has also sounded increasingly hawkish in public, suggesting that OPEC should keep tightening the oil market even through the cartel is close to meeting its goal of cutting crude inventories in industrialized countries back to their five-year average.

In an interview in New York last month, he said today’s price near $70 a barrel hadn’t been sufficient to stimulate investment in the industry, which remains significantly below levels seen before 2014’s price crash.

"That tells me that the pricing signals that have come out of the recovery haven’t been sufficient," he said, without giving a target for prices.

The Saudi Ministry of Energy didn’t immediately respond to a request for comment.

Domestic Policy
Riyadh’s desire for higher prices is driven by domestic policy imperatives. Although Saudi Arabia’s budget deficit has narrowed sharply as oil has recovered, Prince Mohammed has set out an ambitious and expensive economic and social reform program. He also needs to pay for the kingdom’s increasingly drawn-out military entanglement in Yemen.

While there’s little indication the Saudis are prepared to deepen their oil cuts to achieve $80, at the very least the aspiration suggests they’ll keep with the current measures until the price goal is closer. Riyadh is counting on declining Venezuelan oil production, the likely imposition of new U.S. sanctions on Iran, and continued demand growth to absorb U.S. shale production.

Eoin Treacy's view -

In addition to sanctions on Iran, the deteriorating relationship Europe and the US have with Russia is exerting an influence on oil prices which closed above $70 today and in dynamic fashion. That is going to act as an incentive to increase supply among various higher cost producers such as shale properties, tar sands and deep water, though that supply is going to take time to come to market.

 



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April 09 2018

Commentary by Eoin Treacy

Two major crop scourges are hybridizing to produce a new mega-pest

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

Helicoverpa armigera, commonly known as the cotton bollworm, and Helicoverpa zea, the corn earworm, are two types of very hungry caterpillar that cause billions of dollars of damage to crops every year. Corn, cotton, tomato and soybean are just some of the many crops these pests can attack, with the cotton bollworm having developed resistance to all pesticides targeted at it.

In 2017, an eight-year project that mapped the entire genome of both caterpillars was completed. The study was designed to help researchers identify specific genes that cause the pests to become resistant to pesticides. A new paper has now been published showing evidence that the two moths are clearly hybridizing in a variety of novel ways.

"No two hybrids were the same suggesting a 'hybrid swarm' where multiple versions of different hybrids can be present within one population," says one of the researchers on the study, Tom Walsh.

Eoin Treacy's view -

A plague of locusts, let alone moths, is not currently a problem. However new varieties of insects that are immune to the most commonly used pesticides represents a threat to supply. That’s an important consideration for crop prices particularly since oversupply has resulted in the sector underperforming the broader commodity complex over the last few years.



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April 03 2018

Commentary by Eoin Treacy

Goldman Sachs: 20 Years Left of Mineable Gold

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

"The combination of very low concentrations of metals in the Earth’s crust, and very few high-quality deposits, means some things are truly scarce." He wrote in the report.

King notes that the intention behind the report was to highlight the areas of scarcity, and demonstrate how scarcity is the ultimate driver of value and investment.

"Perhaps unsurprisingly, these are the so-called precious metals (and diamonds), and that their value is derived from the fact they are rare." He writes, "Gold has been used as a measure of wealth for more than 4,000 years, as the ancient Egyptians soon worked out that gold was not only shiny and heavy, but rare."

He adds that the relative scarcity of the commodity, and "the market’s belief that new discoveries will be limited, is what drives the price of these super-rare commodities."

King’s report falls in line with the forecast made last year, estimating that 2015 will be the year when gold production would reach its peak in the mining industry, a concept known as Peak Gold.

Eoin Treacy's view -

Mineral discoveries are a function of geology, technology and price. Shale oil was known about for over a century but was completely uneconomic until technology improved and that changed the pricing structure of the gas, and later the oil markets, beyond recognition.



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March 29 2018

Commentary by Eoin Treacy

Anti-Corruption Crusader Is Eyeing Brazil Presidential Bid, Sources Say

This article by Simone Preissler Iglesias and Samy Adghirni for Bloomberg may be of interest to subscribers. Here is a section:

Barbosa, a 63 year-old black man raised in poverty, became a household name in Brazil during the Supreme Court’s handling of the so-called "mensalao" corruption scandal in the government of President Luiz Inacio Lula da Silva. Of all the potential candidates for October’s presidential elections, Barbosa has one of the lowest rejection ratings, at just 14 percent, according to Datafolha polling company. That compares with 60 percent for President Michel Temer and 40 percent for Lula.

The former judge is a presidential candidate "with potentially the best profile in the field," according to a note published by Eurasia Group on March 29, adding that he has a good mix of experience, anti-corruption credentials, and credibility on social issues.

"It’s a huge movement on the electoral chess board," said Richard Back, a political analyst at XP Investimentos.

Eoin Treacy's view -

The Brazilian iBovespa Index has been the best performing major market globally over the first quarter. It has been assisted by improving perceptions that the crusade against institutional and political corruption is gaining traction and the relative stability of the Real over the same period.



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March 26 2018

Commentary by Eoin Treacy

Fear of trade war between US and China

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

Eoin Treacy's view -

A link to the full note and a section from it are posted in the Subscriber's Area.

ETF Holdings of gold has been remarkably steady since the initial surge in 2016 suggesting investors were willing to continue to hold gold despite a lengthy period of consolidation. Holdings are now hitting new recovery highs and a clear move below 70 million ounces would be required to question the return to demand dominance.



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March 22 2018

Commentary by Eoin Treacy

Long-term themes review March 7th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a brief summary of my view at present.



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March 21 2018

Commentary by Eoin Treacy

Policy focus shifted to sustainability from stability

Thanks to a subscriber for this note from Deutsche Bank which may be of interest. Here is a section:

March 16 2018

Commentary by Eoin Treacy

Precious Metals Review

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

Capital allocation: We are nearing 5 years since the significant gold price (~$1,600/oz down to $1,360/oz) correction in early April 2013. The period since has largely been characterized by cost cutting, capex reduction and de-leveraging of Balance Sheets. With an average ND/2018E EBITDA ratio of 0.5x for Precious stocks under coverage, companies are largely finished with debt reduction and must now decide on the right mix of project capex (brownfield and greenfield) /exploration /dividends/buybacks/further debt reduction/M&A opportunities. Management decisions to define companies will likely diverge over the coming years and we believe this is a key consideration for investors, particularly for a sector that does not have a good record of deploying capital. In terms of dividends, companies will need to define policies that are both sustainable but also representative of variation in cash flow through the cycle, e.g., a base dividend with a supplementary dividend is most likely.

Cost pressure starting to come back: A number of companies on recent conference calls mentioned cost pressure that is entering the industry either through macro factors or through mining sector specific areas.

Examples include the increase in energy costs (mainly due to higher diesel/gas prices), some currency moves, consumables, equipment and contracting. It does not appear to be significant at this stage but the opportunities for cost-cutting initiatives seem to have largely ended (with the potential exception of technology impacts, e.g., Barrick's initiatives medium- to long-term). As an example of cost pressure, Barrick's nearterm All-In Sustaining Costs (AISC) are expected to be ~$765-815/oz for 2018, ~$50/oz higher than previous guidance of $740-760/oz. Longer term, Barrick has alluded to the fact that its target of $700/oz is going to be more difficult to achieve.

Eoin Treacy's view -

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

The Gold/NYSE Arca Gold BUGS Index ratio hit an important peak near 10 in late 2015 which presaged the recovery rally in the metal price which broke the five-year downtrend. That undervaluation of the miners relative to the gold price represented a period of deep stress for the sector as companies scrambled to pay down debt and to keep their operations afloat. However, as the gold price rallied the miners exhibited high beta characteristics which saw them double relative to the gold price.



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March 16 2018

Commentary by Eoin Treacy

New study rips into cobalt, lithium price bulls

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

Prominent commodities research house Wood Mackenzie this week released a report on battery materials that forecasts a decline in the price of cobalt and lithium this year which would turn into a rout from 2019 onwards.

Woodmac is not lowballing demand growth for lithium and the authors expect demand to grow from 233 kilotonnes (kt) in 2017 to 330kt of lithium carbonate equivalent in 2020 and 405kt in 2022, but:

… the supply response is under way. Yet it will take some time for this new capacity to materialise as battery-grade chemicals. As such, we expect relatively high price levels to be maintained over 2018. However, for 2019 and beyond, supply will start to outpace demand more aggressively and price levels will decline in turn.

According to Woodmac data, spot lithium carbonate prices on the domestic market in China are already down 6% from December levels to around $24,500 a tonne while international market prices have remained robust rising to $16,000 at the end of February.

Eoin Treacy's view -

Lithium and cobalt represent the freshest iterations of the supply inelasticity meets rising demand condition that contributes to the cyclicality of mining ventures. Batteries are now big business and with Volkswagen saying this week that it is willing to outspend Tesla on batteries by the early 2020s the demand portion of the market is well affirmed.



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March 15 2018

Commentary by Eoin Treacy

Deep Thaw Below Arctic Circle Risks $30 Billion Nordic Industry

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

The forest floors below the Arctic Circle are usually frozen solid this time of year, hard enough to support the giant timber machines needed to harvest their wood.

But that’s changing, according to the foresters who work the land in Finland and Sweden. Unusually mild winters are turning once icy grounds into thick layers of mud capable of swallowing up the 25-ton vehicles used to gather the materials that go into pulp, paper and packaging.

“We will see more and more of these difficult conditions,”

Uno Brinnen, head of forestry at Sweden’s BillerudKorsnas AB, said in an interview. “It will always shift between warm and cold winters, but the long-term trend seems clear.”

Temperatures across large swathes of Sweden were as much as 3 degrees Celsius (5.4 degrees Fahrenheit) higher than normal in December and January, according to the Swedish Meteorological and Hydrological Institute. That warming forms part of a trend that’s likely to persist, according to SMHI, whose scientists expect temperatures to continue rising over the next six decades because of climate change.

The travails increasingly experienced by Nordic foresters underscore the economic impacts of climate change. Even as warming temperatures in and around the Arctic Circle frees waterways and reveals new paths to exploit natural resources, countries and companies in the region are being forced to adopt new ways of conducting traditional business.

Eoin Treacy's view -

Lumber prices have pulled back over the course of the last month but are still holding the breakout from a 25-year range. The renegotiation of NAFTA rules on trading lumber across the US/Canadian border, the long-term impact of mountain pine beetle infestations, which are themselves a result of milder winters, coupled with warmer weather in Scandinavia and stronger economic growth are driving a supply inelasticity bull market in lumber.



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March 14 2018

Commentary by Eoin Treacy

Commodities Daily

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

The cocoa price has soared by 33% in New York and by 28% in London since the beginning of the year. Thus cocoa has achieved the best price performance of all the commodities we track this year – with the exception of carbon. The Coffee and Cocoa Council (CCC) of Ivory Coast, the world’s largest cocoa producer, apparently wishes to curtail its cocoa production. The first step is to count the plantations. Depending on the result, the distribution of higher-quality seeds and plants for the 2018/19 season is then to be temporarily suspended. The aim is to combat the overproduction that saw cocoa prices forced to multi-year lows at the end of last year. According to the International Cocoa Organization, global supply exceeded demand by 300,000 tons in the 2016/17 crop year. The surplus is set to decline to a good 100,000 tons in the current crop year 2017/18. Deficits are needed to reduce the cumulative surplus, as was the case on the oil market a good year ago. OPEC brought this about by cutting production, and Ivory Coast appears to want to follow a similar strategy for cocoa. If the CCC has its way, Ivorian cocoa production will be lowered from 2 million tons now to 1.7-1.8 million tons within two years. Ivory Coast has a good 40% share of the cocoa market, which is even somewhat higher than OPEC’s share of the oil market.

Eoin Treacy's view -

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

I was trading cocoa back in August for rather modest profits because I was hoping it would complete its base formation. I grew impatient with the ranging, and probably would not have held in any case during the steep decline posted in December, but there was certainly a case for buying it back at the January lows. The price has now surged higher to emphatically complete its base formation and while increasingly overbought in the short term, a clear downward dynamic would be required to check momentum.



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March 13 2018

Commentary by Eoin Treacy

Volkswagen Steps Up Tesla Rivalry in $25 Billion Battery Buy

This article by Chris Reiter and Christoph Rauwald for Bloomberg may be of interest to subscribers. Here is a section:

 

Volkswagen AG secured 20 billion euros ($25 billion) in battery supplies to underpin an aggressive push into electric cars in the coming years, ramping up pressure on Tesla Inc. as it struggles with production issues for the mainstream Model 3.

The world’s largest carmaker will equip 16 factories to produce electric vehicles by the end of 2022, compared with three currently, Volkswagen said Tuesday in Berlin. The German manufacturer’s plans to build as many as 3 million of the cars a year by 2025 is backstopped by deals with suppliers including Samsung SDI Co., LG Chem Ltd. and Contemporary Amperex Technology Ltd. for batteries in Europe and China.

With the powerpack deliveries secured for its two biggest markets, a deal for North America will follow shortly, Volkswagen said. In total, the Wolfsburg-based automaker has said it plans to purchase about 50 billion euros in batteries as part of its electric-car push, which includes three new models in 2018 with dozens more following. 

Eoin Treacy's view -

Volkswagen needs a new strategy if it is going to get past the diesel scandal, so embracing batteries whether for all-electric or hybrid vehicles is a solution. By committing to such a large purchase of batteries it will overtake Tesla as the largest consumer and this announcement helps to backstop demand for the world’s largest battery producers as well as the miners that produce the requisite metals.



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March 02 2018

Commentary by Eoin Treacy

Diesel ban approved for German cities to cut pollution

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

The likelihood now is that the German government will rush to introduce some sort of national policy, to ensure at least some level of consistency across the country.

It's not just about Germany either - cities across Europe are struggling to meet EU air quality standards, and may well see the German ruling as setting a precedent.

New diesel cars won't be affected, but that's not really the point. Consumers are already moving away from the technology - and the prospect of city bans will only accelerate that process.

So diesel's decline is likely to gather momentum.

That's a problem for the industry, because while diesels produce high levels of nitrogen oxide - a major urban pollutant - they emit relatively low levels of carbon dioxide, a greenhouse gas.

So moves to control one environmental problem may end up undermining efforts to combat another - unless we all start driving electric cars very soon.

Eoin Treacy's view -

Platinum has been struggling to rally since the Volkswagen scandal broke in 2015 and this ban of diesel vehicles from city centres represents an additional headwind.



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February 22 2018

Commentary by Eoin Treacy

The lithium ion battery and the eV Market

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

Eoin Treacy's view -

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

Battery chemistry is complicated and the rate at which energy density doubles is about every five years. That’s quite a bit slower than the 18-month pace of doubling of efficiency seen in the semiconductors sector on which Moore’s Law is based. 



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February 22 2018

Commentary by Eoin Treacy

Brazil Seen as More Corrupt Than Argentina in Global Ranking

This article by David Biller and Charlie Devereux for Bloomberg may be of interest to subscribers. Here is a section: 

Brazil is now seen as more corrupt than Argentina for the first time in over two decades after suffering last year one of the biggest plunges among the nations tracked by a global transparency ranking.

Latin America’s largest economy fell 17 positions in the2017 index released by graft watchdog Transparency International on Thursday. It now ranks 96th among 180 nations, tied in the region with Colombia and Peru. Only two other countries in the whole index -- Bahrain and Liberia -- slid more than Brazil last year. Argentina meantime rose 10 spots, to 85th place and now ranks better than Brazil for the first time since 1996.

A series of corruption scandals have rocked Brazil over the past few years as the so-called Carwash probe uncovered a massive kickback scheme involving the country’s political and business elite. Former President Luiz Inacio Lula da Silva was convicted for graft last year while allegations against President Michel Temer are still being investigated. In Argentina, meanwhile, President Mauricio Macri has worked to make public tenders more transparent and successfully pushed for a law allowing plea bargain testimonies to resolve corruption cases.

Among key Latin American countries, the least transparent are still Venezuela (169th position) and Mexico (135th spot).

Transparency International’s ranking is based on surveys and assessments from 12 institutions and has become a benchmark gauge of corruption perception used by analysts and investors.

Eoin Treacy's view -

There is no Brazilian politician that has not been embroiled in the carwash probe. That’s bad news. However, the fact the scandal has broken, is being addressed by the judiciary and is making headlines both domestically and internationally speaks to the fact that Brazil does have institutions that can tackle corruption if the will to do is present. 



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February 21 2018

Commentary by Eoin Treacy

Email of the day on the potential for downtrends

Your recent assessments of the markets appear to be that a period of ranging is likely to be followed by markets going up again. Of course, whilst no one knows what the future will be, I wonder why you don't see the greater likelihood of markets turning down after some consolidation. With the amount of US debt increasing, interest rates increasing, and stock market levels already high by historical standards, are you not more concerned that markets, being forwards looking, might be more likely to head down than up? Esp. since markets struggle when interest rates go above 3%? I appreciate your talk of share rotation, but a rising tide lifts all boats and surely the opposite is true when markets tank?

Eoin Treacy's view -

Thank you for these questions which I think everyone asks from time to time. For someone in our position of attempting to forecast the outlook for markets the most important thing we have to remember is that markets rise for longer than they fall but when they fall they often do so quite quickly. However, they do not fall without first exhibiting topping characteristics. 



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February 21 2018

Commentary by Eoin Treacy

Email of the day on the Dow/Gold miners ratio

You have cited the Gold/Dow relationship and how if this ratio was to do what it has in the past, Dow has lots of upside versus gold. However, Jesse Felder sees it just the opposite. Not sure why your tow ratio charts would be opposite. Here is a link to the public post

Eoin Treacy's view -

Thank you for this email which may be of interest to other subscribers. In the Big Picture Long-Term audios and videos, I tend to use the Dow/Gold ratio over the course of the last century because it gives us a graphic illustration of how stocks outperform gold in secular trends but gold outperforms stocks following stock market peaks. 



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February 20 2018

Commentary by Eoin Treacy

Email of the day on stagflation

I have been a long-time subscriber and attended the Chart Seminar around ten years ago. Back then you were a young kid and David led the show. Showing no disrespect for David who admire greatly, you have become at least an equal when it comes to your daily audios. I found this weekend's long-term picture very interesting and well done. I think you have properly described where we are at presently and the likely outcomes in the medium and longer terms. I do get the sense over here in the US that we may be facing an environment of Stagflation. With rising inflation and what now looks like slower growth in the near term, combined with a shrinking Fed balance sheet and rising rates, we could be facing some real headwinds for equities. Can you share your insights on an environment of stagflation and what asset classes would generally over-perform and underperform if the past is a guide? Thank you and keep up the great work!

Eoin Treacy's view -

Thank you for your kind words. David is a visionary I can only hope to emulate. Luckily, the reason we have always gotten along so well is because we share a very similar world view.

Tax cuts funded with debt, a potential infrastructure bill funded with debt and the prospect of tariffs on steel and other basic commodities all represent inflationary pressures. 



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February 15 2018

Commentary by Eoin Treacy

The Biggest Headaches for South Africa's Incoming President

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

Investigations by the nation’s graft ombudsman and Auditor- General found that graft is endemic in the state, with tens of billions of rand stolen or squandered each year. Zuma appointees head almost all the law-enforcement agencies, which have been slow or loathe to act against some of his closest allies who’ve been implicated in the free-for-all. The new president will need to replace several key officials, reassert confidence in the independence and integrity of the criminal prosecution system and show that the government is intent on ensuring all those found guilty of corruption are held accountable.

2. State-owned companies in chaos
The looting spree largely targeted state companies, especially power utility Eskom Holdings SOC Ltd., which is at risk of running out of cash. While Ramaphosa has already overseen the appointment of a new board at Eskom, it still needs to appoint a permanent chief executive officer, fill several other top management posts and urgently raise new funding. South African Airways and oil and gas company PetroSA Ltd. are among the other entities that have been hobbled by a lack of leadership and oversight.

 

Eoin Treacy's view -

Governance is Everything has been a mantra at this service for decades. Zuma did everything he could while in power to line the pockets of everyone loyal to him and that system of rent seeking and bribery is going to take a long time to unwind. It could well be that the water crisis in Capetown and the near bankruptcy of Eskom were the final catalysts for Zuma’s ouster. Right now, the market is willing to give the benefit of the doubt to Ramaphosa that some of these issues can be addressed. Capetown’s situation is urgent so Ramaphosa is unlikely to have much of a honeymoon period.



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February 15 2018

Commentary by Eoin Treacy

Copper, iron ore price jump sparks rally in mining stocks

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section: 

The iron ore price which has been defying expectations of a pullback for months gained on Wednesday with benchmark Northern China import prices rising to a five-week best of $78.25 a tonne. The last time the steelmaking raw material traded above $80 was April 2017. Coking coal was also higher at $233.10 a tonne. Premium Australian exports were at $154 a tonne this time last year.

Obituaries were being written for Anglo two years ago before the 100-year old company went on radical restructuring drive. Since then the world's fourth largest diversified miner has surged 500%

The bullishness spilled over to mining's heavyweights which outperformed broader gains on US equity markets.

Shares in world number one miner BHP Billiton (NYSE: BHP) gained 2.8% in New York while Anglo-Australian peer Rio Tinto (NYSE: RIO) added 1.8%. Both companies are worth more than $100 billion having doubled in value since the beginning of 2016 when the mining industry hit the bottom of the cycle.

Vale (NYSE: VALE.P), the world's top iron ore and nickel producer, was one of the best performers on the day with a 6% jump valuing the company at $73.1 billion. The Rio de Janeiro-based company is up 30% over the past year and is up a fourfold since the end of the downturn when iron ore reached $37 a tonne and nickel bottomed at $7,700 a tonne.

Eoin Treacy's view -

The vast majority of the global economy is still growing at a rate well above the trend of the last few years and that is helping to boost demand growth for commodities. Considering the majority of miners are no longer willing to bet big on expansion and development of greenfield sites, they now exhibit greater commonality with metal prices and even have potential to act in a high beta manner. 



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February 07 2018

Commentary by Eoin Treacy

Treasury Market's Long-Dormant Term Premium Is Finally Reviving

This article by Liz Capo McCormick and Luke Kawa for Bloomberg may be of interest. Here is a section:

 

“We remain of the view that the U.S. term premium is still too low when conditioned against the macro outlook, and the uncertainty around it,” Francesco Garzarelli and his fellow strategists wrote in a note Tuesday. “We recommend preserving a short duration exposure and expect the rebuild of the term premium to lead to a steeper” U.S. yield curve.

Goldman Sachs issued a short recommendation for 10-year Treasuries in November, which the strategists maintain. The firm’s model for fair value -- given economic fundamental and the expected pace of Fed tightening -- has the note at 3.09 percent, compared with about 2.8 percent now.

The term premium is the extra compensation that buyers demand to hold longer-maturity debt instead of a succession of short-term securities year after year. A widely used valuation tool, it tumbled across world markets in the wake of the financial crisis as the Fed and its counterparts bought debt as part of stimulus measures.

The 10-year Treasury term premium is negative 0.29 percentage point, up from a record low of negative 0.84 percentage point in 2016. As the name implies, it’s normally positive.

Its increase in 2018 marks a departure from its typical downward trend during Fed tightening cycles. But much is different this time around -- namely, the central bank’s balance-sheet tapering.

Eoin Treacy's view -

The Fed is buying fewer bonds and the Treasury is attempting to issue more. That is a recipe for yields to move higher. The imposition of deficit fueled tax cuts has reignited the prospect of the bond market taking issue with fiscal profligacy while the prospect of an additional infrastructure bill is likely to have an even greater deleterious effect. 



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February 06 2018

Commentary by Eoin Treacy

Interesting charts February 6th 2018

Eoin Treacy's view -

S&P500 Consumer Staples has lost momentum over the last couple of years with larger pull backs that dip into the underlying range and somewhat less impressive rallies subsequently. Last week’s downside weekly key reversal with follow through this week represents another in a series of failed upside breaks. It is back testing the region of the 200-day MA and will need to continue to hold the 550 area if top formation completion is to be avoided. 



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February 05 2018

Commentary by Eoin Treacy

Email of the day on rotation into cyclicals

Thank you for another very helpful weekend broadcast. At this interesting moment in the markets, your insights are worth a great deal to me.    

I am fascinated by one thing in my own portfolio. Today is a good example. When just about everything is down 1 to 4 percent, my Copper ETF is up 2.3% and the Nickel ETF is up 3.4%. I have noticed this on other days recently. Do the algorithms see these as long-term hedges and buy accordingly?

Eoin Treacy's view -

Thank you for sharing your observation. Rather than attribute this action specifically to algorithms lets think about what we should expect from the maturing phase of the interest rate cycle. 



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January 31 2018

Commentary by Eoin Treacy

How have traditional safe haven assets been performing?

Eoin Treacy's view -

Three points agitated investors on the 30th and contributed the largest decline on the stock market seen in months. Amazon, JPMorgan and Berkshire Hathaway announcing a plan to reduce healthcare costs for their employees hit the healthcare sector, there were fears that President Trump’s State of the Union address would focus on trade, the Dollar and China but the speech was noticeably light on these topics. Meanwhile any investment manager looking to sustain a 60/40 split in bonds to equities had until today’s close rebalance some of their overweight equities into bonds. 



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January 29 2018

Commentary by Eoin Treacy

Cotton Is Set for "Epic Showdown" Between Hedge Funds and Mills

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

Hedge funds are abundantly optimistic about cotton prices. But just as the excitement escalates, farmers are gearing up to increase plantings in the U.S., the world’s top exporter.

Cotton has been the recent star of the crop world, with prices heading for a third straightly monthly gain. The advance was underpinned by demand that’s poised to increase to the highest since 2008. That captured the attention of investors, who have piled into speculative wagers that futures will keep climbing. But it’s also caught the eye of American farmers who are in the midst of making planting decisions at a time when grain prices have stayed historically low.

U.S. cotton plantings this year will probably reach the highest since 2011, a Bloomberg survey showed. The rising acreage could be why commercial traders such as textile mills have taken the opposite approach of hedge funds and are holding a huge short position, or bets on falling prices.

“The market is setting up for another epic showdown between speculative longs and trade shorts, and at this point it is still anybody’s guess who will prevail,” said Peter Egli, the Chicago-based director of risk management for Plexus Cotton Ltd.

“This could turn into a drawn-out process, with prices moving in a narrow band for another two or three months before a final blow.”

Eoin Treacy's view -

Cotton is trading in contango between the March 2018 contract and the July before moving into backwardation between October and March 2019. When we chart the spread between the front and second month contracts we get a graphic representation of the seasonality of the cotton market which tells us that backwardations in May are to be expected as the old crop expires through July and makes way for the new crop in October. 



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January 26 2018

Commentary by Eoin Treacy

Cobalt Market report

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

A section from this report is posted in the Subscriber's Area. 

Eoin Treacy's view -

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

The argument about whether electric cars are less polluting on an all-in basis is likely to continue to rage, with the crux of the argument focusing on what kind of generating capacity is used to produce electricity in any given country. However, the fact electric cars contribute to a country being less dependent on imported oil represents a powerful argument for adoption. 



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January 24 2018

Commentary by Eoin Treacy

Mining Supply

Thanks to a subscriber for this note by Jim Sinclair which refreshes the mining supply cliff argument for gold mining which has been a mainstay of the gold market for as long as I can remember at least. Here is a section: 

Please review the charts below "Mine Supply since 1970 and Projection to 2030" produced by Dan Popescu via Thomson Reuters Eikon.  These charts indicate that in the coming years, the mine supply will be reduced by half of its supply during 2018.  Mr. Popescu is an independent gold/silver analyst whose projections in the mining supply are consistent with my own.  Few investors understand the gold industry, and the reasons for the approaching decline are numerous and industry specific.  An understanding of the gold mining industry is necessary in order to understand why the mining supply of gold is dramatically and rapidly shrinking.  Junior gold producers and new miners will have an almost impossible task to achieve what Tanzanian Royalty has already achieved thus far.  The analysis to support these charts is dry and complex subject matter, which I hope to provide in the most easily understandable read...  

Eoin Treacy's view -

Secular bull markets in commodities result in step-ups in the marginal cost of production. Prior to the commodity bull market, it was common to see production costs at around $200- $400. Today that figure is generally between $700 and $1000. Additional new supply needs to come in below $1200 to have any chance of development. Additionally, since prices were trending lower between 2013 and 2016 there were very few people who were willing to finance mining expansion plans of any hue, much less gold. 



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January 19 2018

Commentary by Eoin Treacy

Gold ETF Holdings at new recovery high

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

Global holdings in gold exchange-traded funds soared to the highest level since 2013 as investors got behind a rally in the metal. Most of the inflows were into SPDR Gold Shares, a U.S.-based ETF favored by money managers with a short-term view for its relatively high liquidity and narrow bid-offer spread. Gold has jumped 2.4 percent this year, touching the highest price in four months, as the dollar fell, Chinese consumers stocked up for the Lunar New Year and signs of global inflation picked up.

Eoin Treacy's view -

ETF holdings of gold represent an important and potentially pivotal marginal buyer for the yellow metal. Central banks are generally not overly volatile in their actions while jewelry demand, which admittedly is subject to season variations, is also reasonably steady. Investors on the other hand tend to come back to the gold market in times of uncertainty such as when the Dollar weak of inflationary pressures are mounting. 



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January 15 2018

Commentary by Eoin Treacy

South African Police Reported to Get Gupta Arrest Warrant

This article by Paul Vecchiatto for Bloomberg may be of interest to subscribers. Here it is in full:

 

South Africa’s Hawks police unit has obtained an arrest warrant for at least one of the members of the politically connected Gupta family, City Press reported.

The unit is now waiting for prosecutors at the National Prosecuting Authority to sign the warrants so that the arrests can be made, the Johannesburg-based newspaper reported on its website, citing an official at the Hawks it didn’t name. The official couldn’t say which of the three Gupta brothers -- Ajay, Atul or Rajesh -- would face arrest.

Former Public Protector Thuli Madonsela had ordered an inquiry into allegations that the Guptas may have influenced the appointment of cabinet members in President Jacob Zuma’s administration and received special treatment for a coal business linked to the family and one of the president’s sons.

This was part of Madonsela’s report about state capture, a term used to describe influence over government appointments and the awarding of state contracts.

Zuma and the Guptas have denied wrongdoing.

“We have not applied for an arrest warrant against any member of the Gupta family,” Hawks spokesman Brigadier Hangwani Mulaudzi said by phone from Johannesburg. “We are investigating a number of cases related to the issue of state capture, some of which have passed their stage-one levels, and we are awaiting direction from the National Prosecuting Authority.”

Ajay Gupta didn’t immediately respond to a phone call and text message seeking comment.

Eoin Treacy's view -

Power is always subject to corruption so the strength of a nation’s checks and balances goes a long way towards informing out view of whether governance is improving or deteriorating. South Africa has an independent judiciary. That is not a boast many emerging markets can make and it has been the cornerstone of attempts to combat the deteriorating standards of governance represented by Zuma’s premiership. 



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January 12 2018

Commentary by Eoin Treacy

Precious Metals 2018 Forecast Silver

Thanks to a subscriber for this report from ScotiaBank focusing on silver which may be of interest. Here is a section: 

A section from this report is posted in the Subscriber's Area. 

Eoin Treacy's view -

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

Silver is often described as high beta gold and is best bought following reaction. The most react of these was in December when it tested the lower side of a more than yearlong range. It is now in the middle of that congestion area with the upper side somewhere in the region of $18.60. 



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January 11 2018

Commentary by Eoin Treacy

Russia Kicks Off Currency Buying Spree With $4.5 Billion Program

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

Russia’s Finance Ministry will buy about $4.5 billion in foreign currency over the next three weeks, increasing purchases after changes aimed at further limiting the economy’s dependence on oil.

The amount of additional budget revenue earned in January from oil and gas is expected at 257.1 billion rubles ($4.5 billion) as a result of higher crude prices, the Finance Ministry said on Wednesday. Under a so-called budget rule, the entire windfall will be spent on buying foreign currency in the domestic market, with daily purchases at 15.1 billion rubles from Jan. 15 to Feb. 1, it said in a statement.

The operations will help insulate the economy from the ups and downs in crude and shield the ruble’s exchange rate from volatility. The government is absorbing all revenue earned when Russia’s Urals export blend is above $40 a barrel, channeling the excess income into its sovereign wealth fund.

Eoin Treacy's view -

The Ruble accelerated to an important low in early 2015 which prompted the central bank to intervene and to push interest rates up to 17%. The collapse in oil prices into the 2016 low saw the currency hit a nadir but the interest rate and oil’s recovery resulted in a major short covering rally. 



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January 10 2018

Commentary by Eoin Treacy

Year-end Review and Outlook

Thanks to a subscriber for this report from M Partners focusing on the Canadian mining sector. Here is a section:

A section from the full report is posted in the Subscriber's Area. 

Eoin Treacy's view -

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

The mining sector went through a painful process of rationalization between 2011 and 2015 which resulted in exploration being cancelled and development of new mines being shelved. A substantial and sustained price rally is generally required to encourage new supply into the market following such an event. After two years of rallies the first signs of interest in developing new supply are now being seen but it will take time for it to come on line. 



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January 10 2018

Commentary by Eoin Treacy

World's No.1 Miner Is Building an EV Hub It Doesn't Want to Keep

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

“The investment in Nickel West makes sense regardless,” said James Eginton, an analyst at Sydney-based Tribeca Investments Partners Pty, a BHP shareholder that’s urged the producer to extend its suite of commodities to tap rising battery demand. Efforts to refocus the business will either boost the value of a sale, or lift the unit’s cashflow if the assets are retained, he said.

BHP began building a nickel sulphate plant at Nickel West in recent weeks and is considering a slate of further expansions to make it the largest source of the material and a hub for other battery ingredients. It’s aiming to sell 90 percent of output into the battery supply chain by about 2021, from less than a third at the end of last year. Global nickel demand could more than double by 2050, fueled in part by rising electric vehicle sales, Bloomberg Intelligence said in a June report.

The world’s biggest mining companies are ratcheting up their response to the booming demand for battery raw materials.

Rio Tinto Group is developing a lithium project in Serbia, while Glencore Plc plans to double production of cobalt and is effectively “a one-stop-shop” for investors seeking exposure to EV gains, Sanford C. Bernstein Ltd. said in a note this month.

Eoin Treacy's view -

A measure of just how technology focused the automotive sector has become is how many CEOs have turned up at the Consumer Electronics Symposium (CES) this year. When I attended two years ago Faraday Futures stole the show but this year Ford and other manufacturers were keen to lay out their electric car ambitions. 



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January 05 2018

Commentary by Eoin Treacy

Cobalt price bulls' worst fears may just have been confirmed

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

“Because there is only one lithium ion per one cobalt, that limits of how much charge can be stored. What’s worse is that current batteries in your cell phone or laptop typically only use half of the lithium in the cathode.”

The [Northwestern] fully rechargeable battery starts with four lithium ions, instead of one. The current reaction can reversibly exploit one of these lithium ions, significantly increasing the capacity beyond today’s batteries. But the potential to cycle all four back and forth by using both iron and oxygen to drive the reaction is tantalizing.

“Four lithium ions for each metal — that would change everything,” Wolverton said. “That means that your phone could last eight times longer or your car could drive eight times farther. If battery-powered cars can compete with or exceed gasoline-powered cars in terms of range and cost, that will change the world.”

Eoin Treacy's view -

Cobalt is both expensive and rare so it is not the best candidate for use in mass market applications; particularly where there is significant room to scale such as in electric vehicles. Therefore, a race is underway to get an alternative chemistry up and running which can replace cobalt. Lithium iron oxide is one of a number of candidates vying for attention so are solid state batteries and zinc oxide batteries.



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January 02 2018

Commentary by Eoin Treacy

Recreational pot puts medicinal marijuana on the backburner just as demand explodes

This article by Geoff Zochodne for the Financial Post may be of interest to subscribers. Here is a section:

But PwC said in a report earlier this year that some industry stakeholders felt the federal government’s “tight timeframe” for recreational legalization would lead to a lack of consultation and the potential to miss the opportunity to right the medical regime.

“Because decision-makers will have so little time for regulatory development, the focus will be exclusively on recreational cannabis, to the detriment of changes that may be required for medical cannabis,” PwC warned, adding that changes to the medical regime could be as far away as three years as a result.

One outstanding problem is that doctors may still be hesitant to prescribe cannabis to their patients, creating a bottleneck in the system for both patients and producers.

Eoin Treacy's view -

2018 will see Canada become the first G7 nation to adopt recreational cannabis laws. That will subsequently represent significant challenges for the medical cannabis sector which will is dependent on prescription reimbursements from the national health system. 



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December 27 2017

Commentary by Eoin Treacy

Copper Rallies to Three-Year High as China Plant Halts Aid Bulls

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

Copper’s latest leg up follows news that Jiangxi Copper Co., China’s largest producer, had been ordered to stop output for at least a week before a further assessment based on local pollution levels. Earlier in the month, the No. 2 smelter, Tongling Nonferrous Metals Group, was asked to make similar cuts.

Jiangxi Copper gained 3.4 percent in Hong Kong and Tongling Nonferrous added 0.7 percent in Shenzhen to the highest close since Nov. 9.

“Copper stocks are rising as investors are bullish on copper prices amid an improving demand outlook from the U.S. and Europe in particular,” Yang Kunhe, an analyst with Pacific Securities Ltd., said by phone from Beijing. “The production cuts are temporary. A one-week halt won’t cause too big a problem for Jiangxi Copper. Smelters can also adjust by moving forward their annual maintenance.”

This quarter, Codelco said the company’s projections showed a sustained increase in deficits and “we don’t have any reason -- that we know of -- for closing them in the future.” The International Copper Study Group said the global deficit was 181,000 tons in the first nine months of 2017.

Eoin Treacy's view -

We are almost two full years into a recovery in metal prices which is being fueled on the demand side by a return to synchronized global economic expansion and on the supply side by a reluctance to invest following what was a major bust between the 2011 and early 2016. That is contributing to the relative strength of the mining sector not least since it is still trading at a discount to the wider market on a valuations basis. 



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December 27 2017

Commentary by Eoin Treacy

Brazilian miner Vale says entering new era of big dividends

This article from Reuters appeared in mining.com. Here is a section: 

Vale is entering a period in which it plans to pay out big dividends, Chief Executive Officer Fabio Schvartsman said on Friday at an event commemorating the Brazilian miner's inclusion in the Sao Paulo stock exchange's strictest listing market segment.

"Now is the era of the Vale dividends. Vale will become a big payer of dividends if everything goes well," Schvartsman said, reiterating that a new dividend plan would be released in March, without stating an amount.

In April Vale paid out 0.905 reais per share.

Vale shareholders, he said, supported the company in tough times when metal prices were low and now is "Vale's time to pay it back."

Eoin Treacy's view -

Nothing says a mining company is reluctant to invest in new supply like committing to paying out fat dividends. The company went through a painful rationalization between 2011 and early 2016 when the dividend was slashed from $1.75 to less than 5¢. The commitment to increase the payout is designed at attracting dividend investors and to try and create confidence in management’s commitment to creating value. 



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December 22 2017

Commentary by Eoin Treacy

Bitcoin Tumbles More than 25% as Sharks "Beginning to Circle"

This article by Samuel Potter and Eddie van der Walt for Bloomberg may be of interest to subscribers. Here is a section:

Bitcoin dropped to as low as $10,776. It last traded below $10, 000 on Dec. 1, when the U.S. Commodity Futures Trading Commission agreed to allow trading in bitcoin futures. For the week, the decline is as much as 39 percent. That follows gains of 13 percent, 44 percent and 32 percent in the prior three weeks.

The losses represent a major test for the cryptocurrency industry and the blockchain technology that underpins it, which have rapidly entered the mainstream in recent weeks. Bears cast doubt on the value of the virtual assets, with UBS Group AG this week calling bitcoin the “biggest speculative bubble in history.” Bulls argue the technology is a game changer for the world of investment and finance. Both will be closely watching the outcome of the current selloff.

Eoin Treacy's view -

If the history of bubbles tells us anything it is that the pace of innovation occurs largely independently of the price action. Crowds tend to overshoot in both directions and the merits or otherwise of blockchain technology, as a way of streamlining transactions and verifying contracts, are separate from the vicissitudes of token price action.



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December 20 2017

Commentary by Eoin Treacy

European Metals & Mining - 2018 Outlook

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

A section from the report is posted in the Subscriber's Area.

Eoin Treacy's view -

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

The excesses in the global steel sector, primary driven by overcapacity in China, are well documented. Right now, the risk represented by that headwind are being outweighed by synchronized global growth. Meanwhile significant investment is flowing into capacity growth for the resources required to supply battery manufacturing. 



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December 19 2017

Commentary by Eoin Treacy

Sugar industry likely to see record global production of 192m tonnes

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

According to Informa's Agribusiness Intelligence, an industry research and analysis firm, the biggest driver behind the record output this year will be the European Union, India and Thailand.

Despite this, sugar cane diversion to ethanol production in Brazil means global prices will remain high as the country will produce less sugar in 2018-19.

Agribusiness Intelligence said that in October, for the first time in more than a year, there was a year-on-year increase in local sales of ethanol of 11% in Brazil. This accelerated to a plus of 16% in the first half of November.

"The most important reasons for the attractiveness of ethanol versus sugar are: the relatively high price of gasoline at the pump, an advantageous tax structure, recovering fuel demand as the Brazilian economy is moving out of recession and the low sugar price."

Meanwhile, within the EU, the market is still responding to the scrapping of production quotas for sugar refined from sugar beet, which is creating a huge jump in production. In the EU, 20 million tonnes of sugar will be produced by the end of 2017-18 which is an increase of 3 million tonnes compared to the previous year.

"This growing trend has not been supported by domestic consumption which has been declining in the EU steadily over the last few years. This will have a direct impact on the trade balance of EU countries, with imports declining and exports could double to as much as 4 million tonnes by the end of 2017-18," the analysis firm added.

Eoin Treacy's view -

Synchronised global growth helps to boost demand for all commodities but energy is particularly affected since OPEC is attempting to curtail supply. That is helping Brent Crude prices hold above the $60 area. Meanwhile it improves the allure of producing ethanol for Brazil because of the arbitrage consumers benefit from as long as sugar prices are low. 



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December 19 2017

Commentary by Eoin Treacy

Supply cuts a 'step change' for uranium price

This article by Frik Els for Mining.com may be of interest to subscribes. Here is a section:

The announcement made by uranium giant Cameco in November that it’s suspending operations at its flagship McArthur River mine in northern Saskatchewan and surprisingly deep three-year cuts by Kazakhstan’s state-owned Kazatomprom provide a "step change" for uranium prices says a new report on the sector from Cantor Fitzgerald equity research.

On Monday, the world largest producer of uranium, surprised the beleaguered market with a larger than expected cut to production of its own.

Two weeks ago, Kazakhstan’s state-owned Kazatomprom announced intentions to reduce its output of U3O8 by 20% or 11,000 tonnes (around 28.5m pounds) over the next three years beginning in January 2018. According to the company roughly 4,000 tonnes will be cut in 2018 alone "representing approximately 7.5% of global uranium production for 2018 as forecast by UxC."

Cameco's shuttering of McArthur River for ten months is expected to reduce production by 13.7m pounds in 2018 translating to a combined 42.3m pounds of expected production that has been removed from the market. In 2018 alone, the reduction will be about 24.1m pounds of U3O8 or about 15% of Cantor Fitzgerald's prior forecast of 158.4m pounds of output.

Eoin Treacy's view -

The price of commodities is set by the marginal cost of production and when two of the largest producers’ shutter facilities, it means prices have fallen to uneconomic levels. Uranium isn’t exactly fashionable but it is still required to fuel reactors all over the world. If supply is being curtailed prices will have to rise to attract producers back into the market. 



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December 18 2017

Commentary by Eoin Treacy

Platinum Outshines Palladium on Prospect of Europe Diesel Demand

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

“Car sales are one of the strongest indicators of consumption of raw materials,” said Peter Thomas, a senior vice president at Zaner Group in Chicago, citing the one to two ounces of platinum or palladium that goes into each vehicle.

“You’ve also got a lot of window dressing going on,” with traders selling palladium to book their gains for the year, and buying platinum, he said.

Palladium, used mostly in pollution-control devices for gasoline engines, has led gains in precious metals this year by climbing 48 percent. It surpassed the price of platinum in September for the first time since 2001. Gold has gained 9.9 percent in 2017, while silver increased 1.4 percent.

Supply of platinum will trail consumption by 275,000 ounces in 2018, after being largely balanced this year, the World Platinum Investment Council forecast in November. Mine closures in the second half of this year will have a larger impact on production next year, it said.

Eoin Treacy's view -

Platinum has been priced as if diesel cars are going to be discontinued tomorrow. The reality is somewhat different since European consumers pay some of the highest prices for gasoline in the world and diesel cars are both more efficient and last longer. Despite projections for increased electric vehicle use from the 2020s, and more stringent emissions testing, diesel cars are still likely to be in demand for at least the next few years. 



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December 15 2017

Commentary by Eoin Treacy

This is how much copper, nickel, cobalt an electric vehicle world needs

This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

The London-based research company modelled metal requirements across the supply chain – from generation and grid infrastructure through to storage, charging and vehicles – based on relatively modest penetration of EVs in the total global vehicle market out to 2030.

According to the study as early as 2020, when EVs would still make up only 2% of new vehicle sales, related metal demand already becomes significant, requiring an additional 390,000 tonnes of copper, 85,000 tonnes of nickel and 24,000 tonnes of cobalt.

Based on an EV market share of less than 32% in 2030, forecast metal requirements are roughly 4.1m tonnes of additional copper (18% of 2016 supply). The move away from gasoline and diesel-powered vehicles would need 56% more nickel production or 1.1m tonnes compared to 2016 and 314,000 tonnes of cobalt, a fourfold increase from 2016 supply.

Eoin Treacy's view -

Miners went through a decade of investing in supply and then prices collapsed. They were forced to cancel exploration and to focus on free cash flow. Appetite for investing in additional new supply is low but there are obvious demand drivers coming from the electric car market. 



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December 12 2017

Commentary by Eoin Treacy

Cobalt: Solving for a Supply-Constrained Market

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

A section from this report is posted in the Subscriber's Area. 

Eoin Treacy's view -

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

There are at least four factories under construction in Asia that are on par with Tesla’s giga-factory with even more smaller factories also under construction. That represents a considerable quantity of potential raw materials demand lining up as battery manufacturing picks up. Since it takes time to build new mining/brine and refining capacity, a supply inelasticity meets rising demand environment is increasingly evident. 



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December 07 2017

Commentary by Eoin Treacy

Stock Wobble No Help to Gold as Market Bets on U.S. Rate Hike

This note by Eddie van der Walt for Bloomberg may be of interest to subscribers. Here it is in full:

Falling stock prices and geopolitical risks haven’t done much to support gold amid expectations of tighter U.S. monetary policy.

Metal for immediate delivery fell to the lowest in four months at $1,252.44 an ounce in London, having dropped every day this week as traders factor in an increase in interest rates this month as a near certainty. Prices declined despite growing volatility in equity markets, with the S&P 500 Index losing ground in four of the last five sessions.

“The rate hike is now looming and people are suddenly realizing that gold may not be the most attractive long position at the moment,” said David Govett, head of precious metals trading at Marex Spectron in London.

Bullion is heading for the the first back-to-back annual advance since 2012, but traders recently have dented those gains. Higher rates and a change in leadership at the Fed have outweighed deepening geopolitical risks, including the threat of war on the Korean peninsula and a third intifada in Israel.

“People’s memories are short and their pockets not so deep,” Govett said.

 

Eoin Treacy's view -

Gold does best when inflation is rising faster than central banks are willing to raise interest rates. That is when its credentials as a store of value really shine. Alternatively, it also does well in a supply inelasticity meets rising demand environment such as we saw in the last major bull advance that peaked in 2011. Right now, we are somewhere in between with expectations for future inflation outpacing the reality represented by official statistics so gold remains largely rangebound, albeit with a downward bias as of today. 



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December 06 2017

Commentary by Eoin Treacy

The Future of Nickel: A class act

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

A section from this report is posted in the Subscriber's Area. 

Eoin Treacy's view -

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

The LME signaled a couple of months ago that it is assessing whether to split the nickel contract in two. The decision will hinge on whether they believe battery demand will in fact ramp higher as many of us expect. The demands from the emerging battery sector are much more stringent in terms of delivery specifications than are currently the norm for LME warehouses so there is a compelling argument for the creation of a new contract.



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December 05 2017

Commentary by Eoin Treacy

Copper Falls to 2-Month Low on Worries of Slowing China Demand

This article by Yuliya Fedorinova for Bloomberg may be of interest to subscribers. Here it is in full: 

“Industrial metals prices will consolidate due to a marked slowdown in China’s metals consumption growth,” BMI Research wrote in an emailed note.

China’s frenzied construction of roads, bridges and subways is set for a major slowdown, adding a headwind to economic growth in 2018. Fixed-asset investment in infrastructure will grow 12 percent next year, according to the median estimate in a Bloomberg survey, down from almost 20 percent in the first ten months this year.

All 18 economists in the survey anticipated a moderation, adding to reports by Morgan Stanley, Goldman Sachs Group Inc. and UBS Group AG predicting a similar trend.

Adding to the selloff is speculation that metals prices have overshot fundamentals in the recent run up. Nickel has retreated 13 percent since early November, giving up some gains from earlier in the year.

"The recent rally in nickel was mostly due to expectations of increased use of the metal in batteries, which will definitely realize some day, but right now stainless steel, not EVs, is still major consumer of nickel and its market driver," Boris Krasnojenov, an analyst at Alfa Bank in Moscow, said by phone.

 

Eoin Treacy's view -

China has infrastructure on par with many developed countries and has more spare steel capacity, for example, than the entire industries of Japan, South Korea and Taiwan combined. At some point there will be a rationalization of that industry. However the big question is what will replace it? 



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December 04 2017

Commentary by Eoin Treacy

December 04 2017

Commentary by Eoin Treacy

November 24 2017

Commentary by Eoin Treacy

After Sudden Rout, China Stock Traders Question Beijing Put

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

For Sun Jianbo, president of China Vision Capital Management Co. in Beijing, valuations among large-cap shares are too expensive for state-backed funds to intervene.

The CSI 300 traded at its highest level relative to the broader Shanghai Composite Index in at least 12 years at the start of this week as investors flocked to large caps such as Moutai and Ping An Insurance (Group) Co.

"There’s no need to prop up the market yet," Sun said. "A lot of big caps are still expensive and it would do more harm than good to state-backed funds if they buy now."

The divergence between large-cap shares and the rest of the market may be one reason why the government took aim at Moutai. Before Xinhua warned last week that gains in the liquor maker were excessive, the stock had more than doubled this year.

Eoin Treacy's view -

Following the botched introduction of options trading in 2015 the Chinese administration introduced new rules on disclosures and selling by company principles. It also banned short selling for a time. Through steady purchases by various state-owned vehicles, they manufactured the slow and steady pace of the stock market’s advance since the low in early 2016. 



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November 24 2017

Commentary by Eoin Treacy

Platinum industry expects supply deficit in 2018

This article by Valentina Ruiz Leotaud for mining.com may be of interest to subscribers. Here is a section: 

In its latest Platinum Quarterly report, the World Platinum Investment Council predicts a deficit of 275 koz of the precious metal for 2018 caused by an increase in jewellery and industrial demand.

Overall supply is probably going to drop by 1% next year “due in part to a 2% reduction in South African mine supply compounded by closures in the second half of 2017,” the report states.

In the third quarter of 2017, production from Zimbabwe declined to 95 koz owing to furnace maintenance work, while Russian supply fell to 185 koz, which is lower than the 205 koz produced in Q2’17. “Overall, global refined production for Q3’17 is estimated at 1,495 koz, which is a 4% reduction from Q2’17 and an 8% fall year-on-year.”

When it comes to next year’s overall demand, the WPIC says it is going to grow by 2% when compared to 2017. In particular, platinum jewellery demand will rise by 3%, which would represent its first spike since 2014. Behind this recovery is the double-digit growth in the rapidly expanding Indian market.

Eoin Treacy's view -

Platinum is trading at a significant discount to both gold and palladium which is a rather odd circumstance for a metal which is the used in all of the most expensive jewelry. However, the revolt against diesel engines, prompted by the Volkswagen cheating scandal, has cast a pall over the sector which has confined prices to a reasonably tight range over the last year. 



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November 22 2017

Commentary by Eoin Treacy

Global Gold Outlook

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

A closer look at the assumptions of the theory
The obvious conclusion for gold investors would be to celebrate the coming era of skyrocketing gold prices, as supply dwindles, and the greatest gold rush of all time ensues in the markets. Such a scenario sounds very enticing. However, instead of taking the news at face value, it is worth examining the matter in more detail and understanding what the decline in production actually means for gold in the mid- and long-term. 

One of the main problems with most peak gold analyses and projections is that they are based on estimates of known mineable reserves of gold.  However, the number of known reserves increases over time as new discoveries are made thanks to technological and scientific advances. Even as the currently operational mines might be slowly exhausting their reserves, new projects and potential discoveries remain untapped.

In this context, “peak gold” can be seen as the gradual depletion of the current, relatively easily accessible deposits. Once these are completely mined, the industry would be forced to move on to new locations that are currently not preferred, because they either involve higher production costs or present other challenges. Nevertheless, higher gold prices would motivate miners to seek out and explore new discoveries and deposits, as well as invest in research and new technologies.

Furthermore, one must bear in mind that the gold market is extensive and quite complex. Currently, the precious metal is being mined in every continent except Antarctica. However, as gold traditionally holds its value and does not corrode, it also has a strong recycling industry, refining and re-smelting the metal, which accounts for 1/3 of the total supply on average.

Therefore, “peak gold” can be viewed as a temporary supply restriction, which would trigger gold price increases in the mid-term. But it also has a much more important aspect to it: over the long term, the depletion of mines currently in operation translates to a “gap-up” of the gold price, as the production costs for new discoveries are drastically lifted. In other words, “peak gold” might not mean the end of our gold supply, but it could introduce a whole new average price range and “price floor” for gold.

Eoin Treacy's view -

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

The price of any commodity tends to fluctuate mostly above the marginal cost of production. Oil experienced a step up in production costs over the last decade with the $40 area representing a new floor whereas it had previously been a ceiling. The big question for gold is where the marginal cost of production now rests 



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November 22 2017

Commentary by Eoin Treacy

November 20 2017

Commentary by Eoin Treacy

The Chart Seminar

Eoin Treacy's view -

It is always a pleasure to meet subscribers but doubly so when we get to spend two days together discussing the outlook for psychological makeup of the market, where we are in the big cycles and which sectors are leading and which are showing relative strength. I had three big takeaways from last week’s seminar in London.

As anyone who has attended the seminar will know, I do not have examples but offer delegates the opportunity to dictate the direction of the conversation. That ensures the subject matter is relevant to what they are interested in and also highlights the fact that subject matter is applicable to all markets where an imbalance between supply and demand exists. The second benefit of allowing delegates to pick the subject matter is that it is offers a window into what is popular in markets right now and what might be getting overlooked. 



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November 15 2017

Commentary by Eoin Treacy

Gold makes some recovery on fresh demand, global events

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

Globally, gold prices rose for a third day, helped by a weaker dollar and falling US bond yields ahead of inflation data later that could influence how quickly the Federal Reserve will raise interest rates.

Eoin Treacy's view -

Palladium continues to outperform in the precious metals sector because of its relationship to the gasoline market and continued ambivalence towards diesel engines. However, gold, silver and platinum have been much quieter as they waited for a catalyst to reignite interest. Some consolidation on stock markets may be signalling a flip to risk-off trading which should be positive for a safe haven like gold. 



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November 09 2017

Commentary by Eoin Treacy

Rio Tinto joins race for stake in world's largest lithium miner

Rio Tinto joins race for stake in world’s largest lithium miner – This article by Cecilia Jamasmie for Mining.com may be of interest to subscribers. Here is a section: 

 

El Mostrador suggested Tinto Rio had already made a bid, potentially trumping Chinese companies Sinochem, Tianqi and GSR Capital, all of which had also expressed interest in SQM.

The news came on the heels of PotashCorp and Agrium announcing Tuesday that China’s ministry of commerce had approved the merger, but required the sale of PotashCorp’s minority holdings in Arab Potash Company and SQM within 18 months of closing, and Israel Chemicals Ltd. within nine months.

SQM, which has a market value at just over $15 billion, produced roughly 44 million tonnes of lithium carbonate last year and is developing new projects in Chile and Australia.

Rio's current incursion in the lithium market is mostly limited to its 100%-owned lithium and borates mineral project in Jadar, Serbia, which is still in the early stages of development.

Eoin Treacy's view -

Rio Tinto generates 68% of its revenue from iron-ore and aluminium. Diamonds and minerals, copper and energy make up the balance of its operations in that order. Despite enthusiasm about lithium SQM generate about 26.5% of its revenue from the metal, with plant nutrition (32.2%) and potassium (20.8%) also representing major businesses for the company. 



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November 08 2017

Commentary by Eoin Treacy

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

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

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

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

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

 

Eoin Treacy's view -

China’s pollution problem is a political liability. That fact highlights the evolution of a middle class, but it also reflects the transition underway as the consumer takes over as the engine for growth. China is gradually moving away from highly polluting industries while at the same time focusing on continued urbanisation and more value-added products. 



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November 08 2017

Commentary by Eoin Treacy

Interesting charts November 8th 2017

Eoin Treacy's view -

Palladium rallied successfully through $1000 today for the first time since 2001. The last time it traded at this level was following a massive rally spurred by a supply shortage. On this occasion the move might be somewhat overbought relative to the trend mean but is looks better supported. A break in the progression of higher reaction lows, currently near $950, would be required to question medium-term scope for additional upside. 



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November 01 2017

Commentary by Eoin Treacy

Nickel Rallies Most in Five Years on Promise of Electric Cars

This article by Yuliya Fedorinova and Martin Ritchie for Bloomberg may be of interest to subscribers. Here it is in full:

The nickel market has caught fire, with prices posting the biggest two-day advance in five years.

Nickel rose as much as 6 percent to $13,030 a metric ton on the London Metal Exchange, the highest since June 2015. That added to Tuesday’s 5.3 percent gain after Trafigura Group Pte joined Glencore Plc in unveiling bullish usage forecasts. In Shanghai, prices climbed by the daily limit.

"Such breakthrough has been cooking long, backed by relative value and EVs," Richard Fu, head of Asia Pacific at Amalgamated Metal Trading Ltd., said by email.

Nickel sulphate, a key ingredient in lithium-ion batteries, will see demand increase by half to 3 million tons by 2030, Saad Rahim, chief economist at Trafigura, said in an interview. That echoes bullish views from miner and trader Glencore. Batteries are likely to use more nickel and less cobalt in future, Rahim said.

Nickel is now up 28 percent for 2017, vying with aluminum for the title of top base metal of the year.

Chinese investors piled into Shanghai futures at the start of morning session, and prices were locked up by the limit just short of 100,000 yuan a ton, the highest intraday level since November.

MMC Norilsk Nickel PJSC, which competes with Vale SA as the world’s top nickel producer, has warned that the market may have become too bullish too quickly. The company sees this year’s nickel demand from batteries at about 65,000 tons, compared with total usage of 2 million tons, according to Anton Berlin, head of analysis and market development. It will take a few years for EVs to become a significant consumer, he said.

 

Eoin Treacy's view -

The London Metals Index has been on a recovery trajectory for more than a year with five of the six constituents rallying impressively in 2016 and again more recently. Nickel has been something of a wallflower in that time because it was plagued by oversupply and lacked a clear bullish catalyst for demand dominance. 



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November 01 2017

Commentary by Eoin Treacy

October 24 2017

Commentary by Eoin Treacy

Xi's China a boon for mining

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

And Xi's enormous power also means his pet projects should receive the full backing of the state.

The One Belt One Road initiative to recreate the Old Silk Road connecting Asia with Europe was mentioned five times during the speech. (Mao Zedong and Deng Xiaoping received four mentions each)

Another mega-undertaking, Beijing-Tianjin-Hebei integration, which includes the Xiongan New Area, Xi mentioned twice.
And even if the party's priorities are shifting away from market-orientated reforms, Beijing's transformation of its heavy industries coupled with programs to fight pollution has already benefitted mining.

For instance, eliminating overcapacity has boosted profitability in the domestic steel industry and in the process steelmaking raw material prices have been dragged higher. At the end of last year consensus forecast for the iron ore price was $57 a tonne during 2017. Year-to-date it's averaging $71.

 

Eoin Treacy's view -

Building new cities is nothing new for China but the Xiongan New Area will move the administrative hub from central Beijing to a new city which will remove a substantial number of people in one fell swoop. This also means that the new city will need to be both architecturally secure and technologically capable enough to house one of the world’s largest and most ambitious bureaucracies. 



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October 23 2017

Commentary by Eoin Treacy

Venezuela's Behind on Its Debt and Facing Two Huge Bond Payments

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

Venezuela could still also make the payments on time. While $10 billion in foreign reserves isn’t much for a country that now owes some $140 billion to foreign creditors, it’s still enough to pay the bills for a while.

And the Maduro government has surprised the bond market before, making payments the past couple years that many traders had anticipated would be missed. Some of those now betting that these next two payments will also be made actually point to the $350 million currently overdue on the other notes as an encouraging sign. Those arrears indicate, they contend, that officials are prioritizing the payment of bonds with no grace period at the expense of those they can put off without penalty.

Even if Venezuela can make the payments due this year, investors say that, unless oil prices stage some sort of miraculous comeback, they still see default as an inevitable outcome. Credit-default swaps show they’re pricing in a 75 percent chance of a PDVSA default in the next 12 months and 99 percent in the next five years.

 

Eoin Treacy's view -

Venezuela represents a problem for bond investors because it could either be a one-off default or be the thin end of the wedge for distressed energy producers. The fact PDVSA sinkable bonds are now trading at a spread of 526 basis points, versus 200 last week, suggests investors are increasingly skeptical the government is going to be able to make principal payments when they mature on November 2nd. 



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October 20 2017

Commentary by Eoin Treacy

Electric Vehicle Revolution and Implications for the Nickel Market

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

 

Electric vehicles will usher in a new age for nickel

A more balanced nickel consumption profile between stainless and non-stainless applications

Batteries need high purity nickel sulphate, cannot readily use Class II such as nickel pig iron or ferronickel units – today, only ~50% of global production is suitable

Nickel industry needs to grow significantly in suitable units to meet demand for battery manufacture

Growing in suitable nickel units is expensive

Eoin Treacy's view -

A link to the full presentation is available in the Subscriber's Area.

The message from this report is very clear. The global economy is going to need a lot more nickel and Vale is going to need to raise quite a lot capital if it is to have any chance of meeting demand. 



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October 19 2017

Commentary by Eoin Treacy

Why We Don't Trust Government Inflation Statistics...

Thanks to a subscriber for this interesting report from Oppenheimer which may be appreciated by the Collective. Here is a section:

We all know that nominal interest rates are a function of real interest rates and inflation expectations. The nub of our argument is that the consumer price index (CPI) as measured by the Bureau of Labor Statistics (BLS) sharply understates what bond investors should incorporate into their inflation expectations. 

The first component of our three-part argument is that CPI measures inflation where the people are, not where the money is. That is an appropriate stance for BLS since CPI is used to set government benefit levels, but consider that the top 20%, who effectively own all the bonds, generate as much consumer spending as the lower 62%. The basket of goods that 20% buys likely differs significantly from the basket of the average person. 

Second, we look at the healthcare anomaly. Healthcare accounts for 17.7% of GDP and 14.5% of the S&P 500 but only 8.5% of CPI. Most private sources estimate healthcare costs have been increasing by ~6%+ in recent years, but BLS puts the number at 2.8%. A recent study found that the average health insurance plan now costs ~$19K (with ~$6K from the employee), but healthcare insurance is just 1.004% of CPI.

Third, in looking at how CPI is calculated, we suspect there is a "streetlight effect," where one searches where the light is good rather than where the sought object is likely to be. In the case of CPI, we suspect they measure what is easily quantified. There is incredible granularity on the cost of apples, bananas and peanut butter but only big sweeping categories for healthcare and housing. 

The bottom line is that we think CPI substantially understates the inflation expectations that investors should incorporate into the pricing of bonds and that long-term rates should increase. One does not have to believe this to own bank stocks as they remain cheap in any case at a 66% relative P/E, but if we are correct about CPI, the upside should be even better.

 

Eoin Treacy's view -

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

Anyone who lives in the real world and pays their own bills, mortgage and taxes knows inflation is understated. Additionally, since government spending is integrally tied to official statistics, politicians have an interest in the understatement persisting not least because fiscal deficits are already wide. However, it is reasonable to conclude that we have had such an uptick in reactionism against the status quo is because consumers have direct experience of inflation which the statistics refuse to acknowledge. 



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October 16 2017

Commentary by Eoin Treacy

Email of the day on investing in Africa

Thank you for a very informative big picture on Friday. Do you know of any fund managers that are investing in Africa with good track records for us to consider investing with?

Eoin Treacy's view -

Thank you for this question which I’m sure will be of interest to subscribers. Investing in Africa is not a simple matter. The entire continent has 1649 listed companies with major markets like South Africa, Nigeria and Egypt representing significant weightings.  



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October 12 2017

Commentary by Eoin Treacy

Australia Doesn't Have the Answers

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

Finally, the system may well fail in its primary objective -- that is, to minimize the need for the government to finance retirement. The typical accumulated balance at retirement age is around A$200,000 for men and around A$110,000 for women. The averages are artificially increased by a small pool of people with large balances, yet they're still well below the A$600,000 to A$700,000 estimated to be necessary for homeowning and debt-free couples to finance their retirements, which may last 20 or more years.

The Australian government will need to cover the shortfall for a large proportion of the population. In fact, it will lose doubly, having already suffered a loss of revenue from the generous tax breaks provided for the schemes (estimated at A$30 billion annually and increasing), which have been used, especially by wealthy individuals, as a way to reduce their tax burden.

Future generations will also be affected adversely, having to finance payments to older generations through higher taxes or additional government debt, reduced wealth transfers from parents, and lower benefits than those awarded to their predecessors.

 

Eoin Treacy's view -

Australia has gone decades without a recession not least because it has benefitted from the evolution of commodity demand from China, the growth associated with inward migration of a highly educated workforce and the evolution of the services sector. That has allowed it to retain the mantle of a AAA rated credit while much larger economies like the USA and UK have been downgraded. 



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October 10 2017

Commentary by Eoin Treacy

Commodities report

Thanks to a subscriber for this report from MacQuarie which may be of interest. Here is a section on precious metals: 

In the PGMs, we have again reduced our platinum price expectations. The rally we had been calling for from July did happen, but when it came it was so unconvincing, mainly based on a higher gold price, it might have been better if it had not happened at all. When gold lost steam it was exposed for what it was. A number of bullish factors we had cited – such as strong Chinese imports – have faded, and our expectations of a stabilisation of the European diesel share look to be premature. We continue to believe – absent a sharp decline in the rand – that platinum’s worst days are behind it, and our gold and FX forecasts imply decent gains in 2018/2019. A better world economy should help platinum jewellery demand, while the Chinese diesel sector offers some respite from the European negativity. But platinum simply isn’t in short supply at present. 

Whereas palladium is. We still can’t quite believe it should be worth more than platinum, and we don’t think it will be for long. But the internal forces that would bring this about are currently quite weak – gasoline engines continue to gain market share vs diesel, and substitution of platinum, while now making more sense than the reverse, is not an immediate thing. So while palladium is still set to fall back over 2018, that will be largely on external factors – weaker US and Chinese car sales – and that process has been delayed by the stronger-for-longer world economy we now see. Adding to this, investor sales have dried up. This matters as the market is in deficit, and we had expected investors, scared by the prospect of EVs, to fund it. That EVs haven’t scared them is perhaps understandable given limited volumes so far, but the deficit still needs funding, and a higher price for longer is the result. 

 

Eoin Treacy's view -

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

Palladium has been outperforming the other precious metals and indeed the industrial metals all year but it has paused in the region of $1000 and some consolidation has been underway for the last couple of months. Nevertheless, a sustained move below the trend mean would be required to question medium-term scope for additional upside. 



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September 28 2017

Commentary by Eoin Treacy

The World Is Creeping Toward De-Dollarization

Thanks to a subscriber for this article by Ronald-Peter Stöferle for the Mises Institute. Here is a section:

A clear signal that something is afoot would be the abolition of the Saudi riyal's peg to the US dollar. As recently as April of this year economist Nasser Saeedi advised Middle Eastern countries to prepare for a “new normal” — and specifically to review the dollar pegs of their currencies: “By 2025 it is clear that the center of global economic geography is very much in Asia. What we’ve been living in over the past two decades is a very big shift in the political, economic, and financial geography.”

While the role of oil-producing countries (and particularly Saudi Arabia) shouldn't be underestimated, at present the driving forces with regard to de-dollarization are primarily Moscow and Beijing. We want to take a closer look at this process.

There exist numerous political statements in this context which leave no room for doubt. The Russians and Chinese are quite open about their views regarding the role of gold in the current phase of the transition. Thus, Russian prime minister Dimitri Medvedev, at the time president of Russia, held a gold coin up to a camera on occasion of the 2008 G8 meeting in Aquila in Italy. Medvedev said that debates over the reserve currency question had become a permanent fixture of the meetings of government leaders.

Almost ten years later, the topic of currencies and gold is on the Sino-Russian agenda again. In March, Russia's central bank opened its first office in Beijing. Russia is preparing to place its first renminbi-denominated government bond. Both sides have intensified efforts in recent years to settle bilateral trade not in US dollars, but in rubles and yuan. Gold is considered important by both countries.

 

Eoin Treacy's view -

Oil and its derivative products are used in every country in the world so it is logical that the acquiescence of major suppliers to a Dollar standard is a necessary condition of the USA’s international currency hegemony. However, it is not the only consideration. 



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September 27 2017

Commentary by Eoin Treacy

2017 at the Three Quarter Pole

Thanks to a subscriber for securing an invitation for me to attend Jeff Gundlach’s presentation yesterday which as always was an educative experience. 

Eoin Treacy's view -

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

There were a number of interesting points raised but I believe the most relevant for subscribers’ centre on what he said about shrinking the Fed’s balance sheet, the outlook for the Dollar, commodity markets, the relative attractiveness of emerging markets and his best guess for when to expect the next recession.



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September 26 2017

Commentary by Eoin Treacy

BHP, world's largest miner, says 2017 is 'tipping point' for electric cars

This article by Clara Ferreira-Marques and Gavin Maguire for Reuters may be of interest to subscribers. Here is a section: 

Balhuizen said he expected the electric vehicle boom would be felt - for producers - first in copper, where supply will struggle to match increased demand. The world’s top mines are aging and there have been no major discoveries in two decades.

The market, he said, may have underestimated the impact on the red metal: fully electric vehicles require four times as much copper as cars that run on combustion engines.

BHP, Balhuizen said, is well-placed, with assets like Escondida and Spence in Chile, and Olympic Dam in Australia. BHP said last month it was spending $2.5 billion to extend the life of the Spence mine in northern Chile by more than 50 years.

 

Eoin Treacy's view -

Copper is currently in contango suggesting a short-term supply deficit is not what has driven prices higher over the last couple of months. The outage at Escondido which restricted supply was a consideration that contributed to the gain but was not enough to push the futures curve into backwardation. Enthusiasm about the demand vector electric vehicles represents for metals like copper, nickel, lithium and cobalt could be a better explanation despite the fact these represent medium rather than short-term considerations. 



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September 18 2017

Commentary by Eoin Treacy

Gold in correction mode

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

Precious metals: Gold has dropped to a 2½-week low of $1,315 per troy ounce this morning amid increased risk appetite among market participants. Gold in euro terms is trading at only around €1,100 per troy ounce. The Dow Jones Industrial Average and S&P 500 indices in the US had both climbed to new record highs on Friday. The rise in stock markets is continuing in the Asian region today. What is more, bond yields in the US have increased significantly of late, which makes gold less attractive as an alternative investment.

Presumably this is also why Friday saw the second consecutive daily outflow from gold ETFs. Portugal’s credit rating was upgraded on Friday evening by the ratings agency S&P, achieving an investment grade rating again for the first time since January 2012. Ireland was also upgraded, this time by the ratings agency Moody’s. Wednesday could see further volatility on the gold market, as this is when the US Federal Reserve meeting will take place.

If the market’s currently low rate hike expectations increase as a result of the meeting, this is likely to weigh on the gold price. According to the CFTC’s statistics, speculative financial investors further expanded their net long positions in gold in the week to 12 September, putting them at 253,500 contracts now. This was already the ninth weekly increase in a row.
The price rise to a 13-month high of just shy of $1,360 was thus driven largely by speculation. Given that the gold price is now trading considerably lower, positions have presumably been squared in the meantime

 

Eoin Treacy's view -

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

We are in a period of synchronised global economic expansion where central banks are only just beginning to turn the corner towards tightening; with the USA’s Federal Reserve in the lead. Commodities no longer share the trending commonality evident at the dawn of the commodity boom in the early 2000s. Industrial resources including palladium are recovering while energy and agricultural prices have been subject to a great deal of volatility. 



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September 11 2017

Commentary by Eoin Treacy

Dollar Advances From 2015 Low Before UN Meeting on North Korea

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

“Markets seem to have headed into the weekend priced for the worst -- a North Korean missile test and maximum financial damage from Irma,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “The dollar seems overdue for a bounce. The dollar should return to 109 to 110 yen early in the week.”

The dollar is also supported by “decent” U.S. economic data momentum and a deal between President Donald Trump and the Democrats suspending the debt ceiling to December, Callow said.

Still, traders said some short-term accounts took long-yen positions after the state-run Korean Central News Agency said Monday morning that the U.S. will pay a "due price" if harsher sanctions were imposed on North Korea at an expected United Nations Security Council meeting.

 

Eoin Treacy's view -

The Dollar has a widening interest rate differential with its largest trading partners, an economy that is expanding, a hot technology sector, full employment and the prospect of reduced supply as the Fed begins to tinker with the size of its balance sheet. 



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September 06 2017

Commentary by Eoin Treacy

Investment Gurus Counsel Catching Reform Tailwinds in Latin America

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

“The broad outperformance in Latin America -- particularly Argentina, Mexico, and Brazil -- speaks to the broad reform programs we have seen in each of these countries and the stable backdrop these reforms have provided,” said Kofi Bentsi, a money manager focused on emerging-market corporate bonds at Pimco, the second-largest U.S. fixed-income management firm. He says Argentina and Brazil are likely to continue to outperform. 

Jim Barrineau, the co-head of emerging-markets debt at Schroders in New York, said the region has benefited from a combination of the highest yields among emerging markets and improving economies, especially in Argentina and Brazil, which overcame deep recessions. This backdrop, he says, tends to favor corporate bonds over government securities.

“They are more responsive to changes in economic growth,” said Barrineau, who helps oversee Schroders’ $520 billion in assets. His emerging-market bond fund has outperformed 81 percent of peers this year.

Eoin Treacy's view -

The LME Metals Index has been on a recovery trajectory since January 2016 and has rallied to break a lengthy medium-term downtrend.
The CRB Index, which is skewed by energy prices, has been ranging below 200 since late 2015 but is currently bouncing, having found support in June. 



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September 01 2017

Commentary by Eoin Treacy

Email of the day on cobalt

Nickel is an important metal in itself for battery technology, but 2/3 of nickel goes into stainless steel, so from this perspective nickel isn't a very highly leveraged play on battery advances. Whilst Cobalt is a by-product of nickel mining, it is my understanding that this is mainly the case from lateritic nickel deposits, and there is a much lower % of cobalt by-product from deep mines. 

Eoin Treacy's view -

Thank you for this educative email, from a subscriber who literally wrote the book on mining economics. I agree that not every nickel company produces cobalt which is why the three large miners I mentioned all specifically state they do produce it. 



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August 31 2017

Commentary by Eoin Treacy

Gasoline Surges as Harvey Traps Gasoline in the South

This article by Jessica Summers for Bloomberg may be of interest to subscribes. Here is a section: 

 

Gasoline extended its longest rally since 2013 as traders assess how quickly key Gulf Coast refineries and pipelines are able to return to service following Harvey.

Motor-fuel prices jumped as much as 15 percent in New York. Harvey has shuttered about 23 percent of U.S. refining capacity since its first landfall as a Category 4 hurricane on Friday. While refineries in the Port Arthur, Beaumont and Houston areas remain off line, some plants in the Corpus Christi area -- where Harvey first hit -- are working to restart and the Strategic Petroleum Reserve on Thursday approved the release of 1 million barrels of crude to a Gulf Coast refinery.

Colonial said its Lines 1 and 2 are operating east of Lake Charles and it will be able to bypass any shuttered terminals near Port Arthur, Texas when it resumes shipments Sunday from Houston-area origin points.

The focus is on how long refineries will take to get back online, according to Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors LLC, in a telephone interview. “This is more of an unleaded gasoline story. The impact on the whole Texas area--the story is still developing.”

Eoin Treacy's view -

Today was the last day of trading for the September gasoline contract. Anyone who needed to take delivery and waited till the last minute was forced to pay whatever the market offered today and the contract surged higher. However, with southwest Texas refineries already starting back up and Harvey being downgraded to a tropical storm, the October contract does not have quite the same time pressure as the September. 



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August 31 2017

Commentary by Eoin Treacy

Gordhan Expects Charges as South African Succession Battle Rages

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

The National Prosecuting Authority has been probing the unit in an investigation that Gordhan, opposion parties and civil-society groups say is politically motivated. The former finance minister described the latest moves as an attempt to discredit politicians who oppose Zuma and are fighting against the plunder of state resources in Africa’s most-industrialized economy.

Scandals have shadowed Zuma, 75, during his eight-year presidency, including a finding by the nation’s top court that he broke his oath of office by refusing to repay taxpayer funds spent on his private home.

‘State Capture’

The nation’s graft ombudsman accused him of allowing members of the Gupta family, who are in business with his son, to influence cabinet appointments and the award of state contracts, referred to as “state capture.” Zuma and the Guptas deny wrongdoing.

On Aug. 8 more than two dozen of the ruling African National Congress’s lawmakers backed an opposition motion of no confidence in Zuma in a secret ballot in parliament. While he survived, the party fired Makhosi Khoza as chairwoman of a portfolio committee and wrote to Derek Hanekom, the head of its disciplinary committee, rebuking him for his Twitter postings calling for the president’s removal.

Zuma is due to step down as the ANC’s leader in December, with his ex-wife, Nkosazana Dlamini-Zuma, and Deputy President Cyril Ramaphosa seen as the leading contenders to replace him.

“It’s a massive tussle -- it’s about the future of the ANC as we’ve known it,” Gordhan said. “Either you follow the capture of the ANC,” or change the party’s character and “recapture the state, which has now gotten into the wrong hands. People like ourselves are backing Mr. Ramaphosa, because we believe he has the integrity, to put it bluntly. And secondly, he has the modernity to innovate, to allow new ideas to emerge, understands the economy. ”

Eoin Treacy's view -

In much the same way Winnie Mandela took a dominant position in the ANC, Zuma’ ex-wife is likely to be a formidable opponent not least because of the support she will receive from Jakob Zuma’s tenure.  However, despite the continued deterioration of standards of governance under Zuma the existence of opposition both within and outside the ANC is positive as is the freedom of south Africa’s judiciary. 



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August 30 2017

Commentary by Eoin Treacy

Musings from the Oil Patch August 29th 2017

Thanks to a subscriber for this edition of Allen Brook’s ever interesting report for PPHB. Here is a section on lithium and cobalt:

We don’t know the details behind the Morgan Stanley electric vehicle forecast, but we know there are both more and less aggressive forecasts.  We wonder if those forecasters have considered the potential constraints from lithium carbonate supply.  There is a greater issue with cobalt, which accounts for 58% of a battery by weight, more than the lithium in a battery, and consumes 42% of all cobalt output.  The problem is that cobalt supplies are smaller and about 60% comes from the Democratic Republic of Congo, which is controlled by war lords and relies on child labor for mining the ore.  The governments we will have to deal with to meet the demand for rare minerals to meet electric vehicle forecasts present many moral and financial question marks.  In fact, when we were in Tibet earlier this summer, we followed Chinese trucks hauling bags of lithium carbonate from mines to shipping depots.  That supply is likely committed to the Chinese electric vehicle industry, which needs it to meet its anticipated growth outlook.   

As a result of the growing demand for lithium and other rare minerals, their prices are climbing, and in some cases at alarming rates.  Since 2015, lithium prices have quadrupled, while cobalt prices have doubled.  What will rising prices and limited availability mean for the forecasts of ever cheaper batteries?   

 

Eoin Treacy's view -

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

Forecasts for where lithium and cobalt demand is going to be in 2025 are being used to drive investment in new supply today, but it takes years to bring new supply to market. In that window between when demand increases and supply responds there is room for prices to increase meaningfully; in a rerun of the Supply Inelasticity Meets Rising Demand dynamic that animated the commodity bull market from the early 2000s. 



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August 24 2017

Commentary by Eoin Treacy

Harvey Likely to Be First Hurricane to Strike Texas Since 2008

This article by Brian K Sullivan and Melissa Cheok for Bloomberg may be of interest to subscribers. Here is a section: 

“It could intensify right up to landfall on Friday,” said Jeff Masters, co-founder of Weather Underground in Ann Arbor, Michigan. “I expect a Category 1 hurricane at landfall, but I cannot rule out a Category 2.”

Harvey is expected to bring multiple hazards including heavy rainfall, storm surge and possible hurricane conditions to parts of the Texas coast on Friday. Heavy rainfall is expected to spread across portions of south, central and eastern Texas and the lower Mississippi Valley from Friday through early next week and could cause life-threatening flooding, according to the advisory.

The Gulf Coast from Corpus Christi, Texas, to Lake Charles, Louisiana, is home to nearly 30 refineries -- making up about 7 million barrels a day of refining capacity, or one-third of the U.S. total. It’s in the path of expected heavy rainfall. Flooding poses risks to operations and may cause power failures.

 

Eoin Treacy's view -

The last few years have been particularly quiet hurricane seasons and even though Harvey will struggle to exceed category one its location ensures there will be plenty of precipitation falling in the Corpus Christ through Louisiana areas which will disrupt businesses. 



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August 23 2017

Commentary by Eoin Treacy

It's Hard to Keep Up With All That Lithium Demand

This article by Laura Millan Lombrana and Jonathan Gilbert for Bloomberg may be of interest to subscribers. Here is a section:

Producers everywhere have struggled to keep up with demand as electric cars went from almost no sales a decade ago to more than half a million vehicles last year. The battery in a Model S from Musk’s Tesla Inc. uses about 45 kilograms (100 pounds) of lithium carbonate. More mines are planned, but difficulties at Olaroz -- the first new South American lithium mine in two decades -- are limiting funding for new ventures in Argentina, home to the world’s third-largest reserves.

“The uncertainty on the supply side is driving prices up and making investors nervous,” said Daniela Desormeaux, CEO of Santiago-based lithium consulting firm SignumBOX. “We need a new project entering the market every year to satisfy growing demand. If that doesn’t happen, the market will be tight.”

 

Eoin Treacy's view -

Tesla gigafactory might be the first large-scale lithium battery plant for vehicles and powerplants but it is just the beginning of what is a significant build out in production capacity as progressively more auto manufacturers roll out plans for electric vehicles. Against that background miners are scrambling to keep up with supply. This is about as close as a throwback to the heady days of the commodity boom as one might wish for and is a fresh example of the supply inelasticity meets rising demand model. 



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August 23 2017

Commentary by Eoin Treacy

Copper rally lifts Antofagasta's profits, up 88% in first half of 2017

This article by Cecilia Jamasmie for Mining.com may be of interest to subscribers. Here is a section: 

Chile-focused copper miner Antofagasta Plc. (LON:ANTO) posted Tuesday an impressive 88% jump in earnings during the six months to June 30, thanks to a sustained rally in prices for the metal, which has surged 19% so far this year, as well as cost savings.

The miner, one of the oldest companies listed in London, said earnings before interest, tax, depreciation and amortization, or Ebitda, increased to $1.1 billion in the period, as revenues grew by 42% to $2 billion.

Chief executive Iván Arriagada, who has been at the helm for less than a year and a half, said the improved performance will allow the company to pay an interim dividend of 10.3 US cents a share, up from 3.1 a year ago. This is in line with Antofagasta’s policy of paying out a minimum of 35% of underlying net earnings to investors, he said.

 

Eoin Treacy's view -

During the expansion phase associated with the commodity boom, miners ploughed their earnings into investment rather than paying dividends. That meant they underperformed the rises in metal prices, particularly in the gold mining sector and left them with no cushion of support when commodity prices peaked. 



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August 21 2017

Commentary by Eoin Treacy

Fortescue Sees Dividend Bonanza as Miners Reward Investors

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

Fortescue Metals Group Ltd., the fourth- biggest iron ore exporter, tripled its full-year dividend and may lift returns further as top miners reward investors with higher payouts amid a price revival.

The Perth-based producer declared a total annual dividend of 45 Australian cents a share, compared with 15 cents a year earlier, topping the average 39 cent forecast among 19 analysts surveyed by Bloomberg. Fortescue expects to pay between 50 percent to 80 percent of net profit after tax in dividends in the current fiscal year, the company said Monday when reporting full-year earnings.

Rio Tinto Group aims to pay a $2 billion interim dividend and increased its share buyback by $1 billion this year on stronger materials prices, while Anglo American Plc last month announced plans to resume dividend payments about six months ahead of schedule. BHP Billiton Ltd. is forecast to raise its full-year payout almost to 88 cents a share when it reports earnings Tuesday, according to the average of 15 analysts’ forecasts.

“They are making hay while the sun shines, and it’s been a while coming,” said James Wilson, a Perth-based analyst at Argonaut Securities Ltd. “Hard times have driven a lot of innovation, and the miners are now very lean and extremely efficient -- when prices come back, they pop in a big way, and make a lot of money.”

Iron ore, the top earning material for Fortescue, BHP and Rio, has rebounded since mid-June on strong steel demand in China and weaker-than-expected gains in low-cost supply.

Fortescue, which cut cash operating costs 17 percent in fiscal 2017, plans to hold annual shipments at the current rate of 170 million tons, the producer said last month. 

 

Eoin Treacy's view -

Iron-ore prices posted a truly impressive rally in 2016 and an equally stunning setback at the beginning of this year which challenged the recovery hypothesis. The price found support in region of the upper side of the underlying base formation, near $60 in June and continues to rebound. 



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August 16 2017

Commentary by Eoin Treacy

Zinc Breaks Through $3,000 Barrier as Metals Rally Gathers Pace

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

Zinc surged above $3,000 a metric ton amid persistent global deficits, and aluminum climbed as China reined in illegal capacity, adding fresh impetus to the rally even as some investors expressed concerns.

Zinc jumped as much as 2.6 percent to $3,037 a ton on the London Metal Exchange, the highest level since 2007, and traded at $3,029 at 1:20 p.m. in London. Aluminum gained as much as 1.3 percent to $2,075.50 a ton, the highest since November 2014, while nickel, copper and lead all traded higher.

An index of base metals rallied to a two-year high last week amid better-than-expected demand in China and a weakening dollar. The Chinese government is stepping up moves to shut illegal aluminum and steel plants this year, both to cut excess capacity and help to protect the environment. 

Efforts to promote economic growth in China ahead of a leadership reshuffle scheduled for later this year are also boosting metals usage in manufacturing and industrial sectors, according to Bernard Dahdah, a metals analyst at Natixis SA in London.

“Earlier this year, a lot of the rally was supply related, but recently we’ve seen demand starting to support as well,” Dahdah said by phone.

 

Eoin Treacy's view -

Synchronised global economic expansion, evident for the first time since the financial crisis, tends to boost demand for basic commodities. This is particularly evident in the industrial resources sector because it went through such a painful rationalization where expansion plans were cancelled, administrative staff fired and expenditures cut to the bone. That has resulted in an industry less inclined to increase supply in response to high prices. 



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August 16 2017

Commentary by Eoin Treacy

Email of the day on cyclicals

Thank you for another exceptionally interesting Long-Term Commentary. Once again, you have referred to "cyclicals" and given mining as an example. Which other sectors would you include in this category?

Eoin Treacy's view -

Thank you for your kinds words and this question which other subscribers may have an interest in. Generally speaking, miners, shipping, banking and technology are considered cyclical sectors. 



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August 16 2017

Commentary by Eoin Treacy

Email of the day on inflation-adjusted charts

Can you enlighten me on the following? (1) If I want to see the inflation-adjusted price of gold, or any other commodity when priced in USD, what inflation index is most suitable to use? (I occasionally use "US CPI Urban Consumers, Non-Seasonally-Adjusted”, with Bloomberg symbol "CPURNSA: IND".) (2) is your suggested inflation index in the chart library? (3) if the price of the commodity is not in USD, is another inflation index more suitable?

Eoin Treacy's view -

Thank you for some interesting questions which may be of interest to the Collective. The Index I have always used for inflation adjusted calculations is the US CPI Urban Consumers SA Index with back history to at least 1948. The SA stands for seasonally adjusted and I believe that is the better way of looking at the data because the adjustment smoothens out the chart. 



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August 15 2017

Commentary by Eoin Treacy

August 14 2017

Commentary by Eoin Treacy

Trump trade investigation will 'poison' relations with China, media warns

This article by for the Guardian may be of interest to subscribers. Here is a section: 

“Given Trump’s transactional approach to foreign affairs, it is impossible to look at the matter without taking into account his increasing disappointment at what he deems as China’s failure to bring into line [North] Korea,” the English-language paper said.

“But instead of advancing the United States’ interests, politicising trade will only exacerbate the country’s economic woes, and poison the overall China-US relationship.”

An administration official said diplomacy over North Korea and the potential trade probe were “totally unrelated”, saying the trade action was not a pressure tactic.

The China Daily said it was unfair for Trump to put the burden on China for dissuading Pyongyang from its actions.
“By trying to incriminate Beijing as an accomplice in [North Korea’s] nuclear adventure and blame it for a failure that is essentially a failure of all stakeholders, Trump risks making the serious mistake of splitting up the international coalition that is the means to resolve the issue peacefully,” it said.

 

Eoin Treacy's view -

The US Administration might be backing away from confrontational rhetoric regarding North Korea, but the question of China’s trade practices is now moving centre stage. China’s practice of insisting on technology transfer, which is then used to promote domestic manufacturing in direct opposition to the original foreign firm’s interests is predatory. It’s hard to imagine that a government investigation won’t be able to find evidence of unfair trade practices if it wants to. 



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August 10 2017

Commentary by Eoin Treacy

Glencore Slashes Debt as It Positions for M&A in Commodities

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

"These results indicate the strong position Glencore has built in the recent past and we expect the momentum to continue," said Heath Jansen, a mining analyst at Citigroup Inc. Glencore shares slipped 1.8 percent to 333.55 pence as of 8:56 a.m. in London.

Glasenberg, 60, said in February that the "time is right" to reward shareholders after difficult years in 2015 and 2016, when the company suspended dividends and sold shares to raise cash.

Glasenberg, the pugnacious South African CEO, now appears to be strengthening Glencore’s balance sheet first, a sign the company is looking at deals, rather than immediately returning more money to shareholders.

Eoin Treacy's view -

Glencore held their dividend and a couple of weeks ago Rio Tinto raised theirs but not as much as investors had been hoping. Appetite for M&A has been floated as a reason for these decisions to conserve cash and that argument has merit. 



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August 10 2017

Commentary by Eoin Treacy

August 09 2017

Commentary by Eoin Treacy

Ten-years from global financial crisis: a decade in charts

This article by Ritvik Carvalho for Reuters may be of interest to subscribers. Here is a section:

Ten years ago on Wednesday marked the start for many observers of the global financial crisis - a series of rolling credit shocks and bank crashes that led to the deepest world recession for a generation and a decade of slow growth and painful repair.

On Aug. 9, 2007, the European Central Bank flooded its money markets with billions of euros of emergency cash to prevent a seizure in the European banking system after France's BNP Paribas became the latest to shut down investment funds hobbled by a collapse of U.S. mortgage and asset-backed bond markets.

Serial bank collapses in Britain, the United States, Germany and elsewhere were to follow over the following 18 months. These culminated in U.S. investment bank Lehman Brothers being allowed to go bankrupt in September 2008, triggering a world financial panic, deep recession and eventual rescue package by the U.S. government, Federal Reserve and the rest of the G20 economic powers.

Eoin Treacy's view -

The number of articles pointing out this historical milestone has proliferated over the last week. It’s not particularly positive for sentiment because it reminds investors that everything comes to an end and often in a manner deleterious to one’s financial health. 



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August 09 2017

Commentary by Eoin Treacy

Elon Musk Inspires World's Top Miner to Target Electric Vehicle Boom

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

“As we delved in to understand more about the lithium-ion battery market, it became clear that demand from EVs was accelerating,” Haegel said Wednesday in an interview. “It also became clear that we had competitive advantages.”

As a result, BHP approved a $43 million project to begin production at its refinery from April 2019 of nickel sulfate, a product needed for lithium-ion batteries. The move will make BHP the top exporter of the material, Haegel said in Kalgoorlie, Western Australia.

Global nickel demand could more than double by 2050, fueled in part by rising electric-vehicle sales, Bloomberg Intelligence analyst Eily Ong wrote in a June report. Demand for nickel from lithium-ion batteries may rise to more than 190,000 metric tons a year by 2030 from about 5,200 tons in 2016, Bloomberg New Energy Finance analyst Julia Attwood forecast in April.

Eoin Treacy's view -

Lithium, nickel and cobalt are the primary metals used in the manufacture of lithium batteries. With demand for large batteries from the transportation and utility sectors growing the mining and refining sectors are scrambling to keep up.

 



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August 08 2017

Commentary by Eoin Treacy

Email of the day on diet and South African politics:

On diet. I have followed the recent discussions on diet with great interest. Having been in the veterinary profession for the last 50 years my own experience may be of interest. Two dictums I have always followed. You are what you eat and moderation in everything. For the last few million years or so humans have been omnivores and have a gut designed with that in mind, so a diet of vegetables, nuts, berries, meat and fish is ideal. 

When I joined a small animal practice on the North Yorkshire border so long ago I was given a tip by my then boss who incidentally was a great friend of James Herriott and was featured in his books. He had observed the huge beneficial effects that certain formulations of the antioxidant Vitamin E had on elderly canines prone to mini strokes and heart problems. Some forty years ago I decided to take a daily dose myself. At any rate, I have reached the age of 76 (David's vintage) Mild blood pressure, normal cholesterol and in possession of all my original joints in good working order. I now have a pretty stress-free life spent for the most part in South Africa and the only thing now that tends to affect my blood pressure is the politics of the place!

Eoin Treacy's view -

Thank you for the valuable feedback from a lifetime of healthy living which I’m sure will be appreciated by the Collective. I notice that your list of what is healthy in moderation conspicuously avoids carbohydrates and other processed sugars. In the meantime, the politics of your adopted home were on full show today. 



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August 02 2017

Commentary by Eoin Treacy

StanChart Plunges as Troubled Outlook Overshadows Revenue Gain

This article by Stephen Morris and Sofia Horta e Costa for Bloomberg may be of interest to subscribers. Here is a section:

Bill Winters’ overhaul of Standard Chartered Plc has stalled. The emerging-market-focused lender fell the most in almost nine months after the chief executive officer sounded caution about growth prospects and blamed “extraordinary uncertainty” around regulations for a decision not to reinstate the dividend.

The comments overshadowed a second quarter of revenue gains and pretax profit that doubled. “The absence of a dividend is a negative surprise,” said Ian Gordon, an analyst at Investec Bank Plc. “Revenues remain weak, improving only by $6 million quarter on quarter. The run- rate is far too low to generate the scale and pace of recovery” investors expect, he said, noting the “sheer scale” of the $5 billion decline in income between 2012 and 2016.

Winters, 55, is in his third year of trying to rebuild Standard Chartered’s reputation and balance sheet after an expansion into risky emerging-market lending led to billions of dollars of writedowns and misconduct fines. He’s led efforts to clean up the culture, while reducing risk and pulling back from underperforming businesses, such as an internal private-equity arm that lost $650 million last year.

“The external environment is still weighing on our full potential. Some of our markets are beginning to recover nicely, others are still in the doldrums,” Winters said on a call with reporters Wednesday. The bank has “a clear need to improve earnings,” with income rising at “a relatively modest pace.”

 

Eoin Treacy's view -

Standard Chartered might be emerging market focused but that is not what got the bank into difficulties. It was its aggressive lending practices to commodity businesses, based on the assumption Chinese demand growth was interminable, that resulted in the share collapsing as the commodity bull reversed. 



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August 01 2017

Commentary by Eoin Treacy

July 26 2017

Commentary by Eoin Treacy

Copper Posts Two-Year High, Miners Surge as China Brightens

This article by Mark Burton and Susanne Barton for Bloomberg may be of interest to subscribers. Here it is in full:

Copper posted its highest close in more than two years and shares in producers of the metal rallied amid a weaker dollar and expectations demand will increase in China, the world’s top user of industrial metals.

Copper surged as much as 4.2 percent, leading gains on the London Metal Exchange. Freeport-McMoRan Inc. paced gains by mining stocks as Jefferies LLC recommended buying the biggest publicly traded producer. Caterpillar Inc. is strengthening its forecast for a first annual sales increase in five years after construction demand surged last quarter in China.

Base metals have rallied in the past month as a gauge of the dollar trades around a one-year low, making materials priced in greenbacks more attractive. In addition, economists have become more upbeat about China’s economy and concerns about a tightening of liquidity in the nation have eased.

All main industrial metals climbed Tuesday, while steel and iron ore contracts also advanced as the People’s Bank of China said it will pursue stable monetary policies. The announcement came after economists raised their forecasts for China’s economic output after first-half growth beat estimates.
“The weaker dollar has had quite a positive effect on base metals markets, but we’re seeing some sector-specific elements helping too,” Casper Burgering, senior sector economist at ABN Amro Bank NV, said by phone from Amsterdam. Freer credit availability in China should boost demand in key end-use industries like construction, he said.

Copper for three-month delivery rose 3.3 percent to settle at $6,225 a metric ton by 6:15 p.m. on the LME. That’s the highest since May 2015. Lead, nickel and zinc all gained more than 1.7 percent.

A rebound in China’s construction sector will be particularly beneficial for zinc, which is used to galvanize steel, while nickel has also benefited from signs of a rebound in stainless-steel demand, Burgering said.

Nickel reached the highest in three months after Philippine President Rodrigo Duterte on Monday threatened to impose higher taxes on mining firms unless they take steps to protect the environment, renewing concerns about supply from the world’s top producer of mined nickel.

 

Eoin Treacy's view -

The commodity complex when through a painful process of rationalisation from the 2011 peak and by the beginning of 2016 a lot of the excess capacity in the sector has been eroded. With economic growth picking up the potential for prices to rally remains intact because so many miners have been scarred by the experience of the crash and will be slow to invest in boosting supply. 



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July 20 2017

Commentary by Eoin Treacy

Email of the day on genetically modified foods

Hope you’re hale and hearty.

You will recall we had a brief chat on GMO foods at lunch during the recent Chart Seminar in Singapore. 

I recall you disagreed with my views on GMO science.

Here is a video on the subject. It is very much science based. Hope you can spare some time off your busy schedule to watch it. I think you will appreciate it.

 

Eoin Treacy's view -

Thank you for this email and I have been ruminating on that conversation since April. Few topics get people more riled up than politics, religion, abortion, climate change and genetically modified foods. There are strong beliefs held by protagonists on both sides of the argument and I reached out to David Brown who I thought might have a scientist’s perspective on the question: 



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July 18 2017

Commentary by Eoin Treacy

Copper price jumps on gangbusters China growth

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

Copper futures trading on the Comex market in New York jumped on Monday on renewed optimism about economic strength in top commodity consumer China.

Copper for delivery in September jumped to a high of 2.7375 a pound (just over $6,000 a tonne) in lunchtime trade, up 1.7% on the day to the highest level since end-March. LME copper's 2017 year to date gains in percentage terms are now within shouting distance of 10%.

Commodity-intensive sectors continue to expand at a faster rate than the broader measure of industrial production

The economy of China, responsible for nearly half the world's consumption of copper, expanded at an annual rate of 6.9% in the second quarter against expectations of a slight decline and at a quicker pace than Beijing's own target of 6.5% growth for 2017.

In seasonally-adjusted quarter on quarter terms, growth was even more significant, picking up from 1.3% to 1.7%. If the trend continues, this year would be the first time since 2010 that the Chinese economy grew faster than the year before.

Industrial production data for June released today also pointed to a significant improvement. Growth in industrial output picked up from 6.5% year on year to 7.6% led by greater electricity and steel production. Bloomberg consensus forecasts pointed to no acceleration for Chinese industrial output.

 

Eoin Treacy's view -

China has a major political transition coming up in September or October. Xi Jinping has not yet anointed a new successor probably because so many positions are opening up in the Standing Committee and the Politburo, and he has a vested interest in stacking them with his own appointees. 
The ousting of Sun Zhengcai, a current Politburo member, from Chongqing over the weekend supports the view Xi is angling towards the kind of control Zhang Zemin had over the political apparatus which persisted long after he was in the top position. 

Talk of containing “grey rhinos” or in Donald Rumsfeld speak “known knowns” can also be viewed as an attempt to ensure Xi’s legacy. Here is a section from an article discussing the issue from Bloomberg: 

"The message from the leadership last weekend was very clear -- financial stability is now regarded as an important element of national security," said Raymond Yeung, the Hong Kong-based chief economist at Australia & New Zealand Banking Group Ltd.

An editorial in the Communist Party’s People Daily newspaper on Monday pointed to the seriousness of the campaign, warning of potential "grey rhinos" -- a variation on the black swan events popularized during the global financial crisis, with the difference that the danger from a charging rhino is more immediate and the animals are less rare.

 



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July 17 2017

Commentary by Eoin Treacy

Sweeping Wildfires Burn Canada's Timber as Lumber Prices Surge

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

Sweeping wildfires across Canada’s British Columbia are threatening timber supplies and sending lumber prices surging.

More than 375 fires have swept across the province, burning forests and forcing sawmills to shut down or evacuate. While the impact on supplies is minimal so far, there are concerns that the blazes will continue to spread amid hot, dry conditions, according to Paul Quinn, an analyst at RBC Capital Markets in Vancouver. Lumber futures on Monday jumped by the exchange limit in Chicago to the highest in more than two months.

“Forests are getting burnt, so that has a supply impact,” Quinn said by telephone. “The worry is they’ll continue to grow and get bigger,” he said, referring to the fires.

Last week, West Fraser Timber Co. suspended operations at three lumber mills that represent annual production capacity of 800 million board feet of lumber and 270 million square feet of plywood. Norbord Inc., the largest North American producer of oriented strand board used in residential construction, has also suspended production at its mill in 100 Mile House in central B.C.

On the Chicago Mercantile Exchange, lumber futures for September delivery rose by the $10 trading limit to $387.30 per 1,000 board feet at 11:37 a.m. local time. That’s the highest price for a most-active contract since May 9. Aggregate trading for this time is 44 percent above the 100-day average, according to data compiled by Bloomberg.

Cash prices for some grades of lumber rose 7 percent last week, Quinn of RBC said. “We’re at the seasonal peak in construction activity, so anything that reduces supply will create some pricing tension,” Mark Wilde, an analyst at BMO Capital Markets in New York, said in an email.

 

Eoin Treacy's view -

According to this article British Columbia has spent about $80 million in the first few weeks of the fire season compared with $100 million in all of last year. That gives us an idea of how large the issue is and firefighters expect to be fighting conflagrations for the next few months. 



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July 13 2017

Commentary by Eoin Treacy

Email of the day on rare earth metals

Rare earths are in increasing demand in several fields of high tech.  Lynas Corporation, the world’s biggest rare earths producer outside China, has had a chequered life but under new management appears poised to benefit substantially.  It may be of interest.  A copy of its Quarterly Activities Report taken from the company’s web site ( https://www.lynascorp.com ) is attached.

Needless to say, I am long this stock.

 

Eoin Treacy's view -

Back in 2010 China made sure everyone knew it is in command of the global rare earth metals market, when it restricted supply to Japan, in particular, but also to a number of other importers. The result was a surge in metal prices as supply was constrained and considerable investment in additional supply outside China. 

Lynas was one of the companies that IPOED to secure capital to bring Australian supply to market. It is also one of the few that survived when the market crashed as China reversed course and flooded the market with supply. 

 



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