Global Commodities Outlook

[greengiraffe]

• Nov 28 2015 at 6:02 AM 
  

Nickel drops despite Chinese plan to cut output by 20pc

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[img=620x0]http://www.afr.com/content/dam/images/g/h/9/w/f/7/image.related.afrArticleLead.620x350.glaaee.png/1448650938658.jpg[/img]At least 800,000 tons of nickel inventories are stockpiled in warehouses around the world, Citigroup estimates.FDC
Nickel fell for the first time in four days after smelters in China vowed to curtail output from next month, underscoring scepticism among investors on whether cutbacks by the world's biggest producer are able to make a dent in the global glut.
Eight producers, including the largest refined metal supplier Jinchuan Group and nickel pig iron maker Tsingshan Holding Group, also agreed to cut output next month by 15,000 metric tons, according to a statement circulated by the group on Wechat.
The smelters didn't say how much of China's total supply the 20 per cent reduction would account for, but their statement suggests cuts of about 120,000 tons next year, according to Celia Wang, general manager at Tianjin Zhongwei Group's investment department. The eight account for almost all of China's nickel capacity, she said. Refined nickel producers Jilin Ji En Nickel Industry and Xinjiang Xinxin Mining Industry also attended the meeting.
Nevertheless, three-month nickel slid 5.5 per cent to an intraday low of $US8685 a tonne. It pared losses to close 4.5 per cent weaker at $US8775.

Nickel had slumped to $US8145 on Tuesday, the lowest in more than a decade, and has been the worst performing LME base metal this year, sliding 42 per cent.
"The plan may provide support to prices in the short-term period," Peter Peng, a Beijing-based CRU analyst, said by phone. "Whether it can fuel the market for a longer period depends on the implementation."
Mainly used to make stainless steel, nickel has been weighed down by heavy oversupply and concern about demand in top consumer China that has also pressured other metals.
"I think the market is waiting for those production cuts to be realised before pricing anything in," said Eugen Weinberg, head of commodity research at Commerzbank in Frankfurt.


"The psychological stance of the market has changed. It doesn't really believe in the news until it becomes a reality, especially if the news comes from China."
"On a pure production versus pure consumption basis, the market this year isn't dramatically oversupplied," David Wilson, an analyst at Citigroup in London, said by phone. "But there is a huge amount of legacy inventory from previous years of really dramatic oversupply."
At least 800,000 tons of nickel inventories are stockpiled in warehouses around the world, Citigroup estimates. That's equal to more than a year of Chinese supply. The market is also sceptical about the cuts because producers operating at lower costs, such as MMC Norilsk Nickel PJSC, may step up output, according to Malcolm Freeman, a director of West Malling, England-based brokerage Kingdom Futures Ltd.
Also hitting commodities on Friday was a slide in Chinese shares by more than 5 per cent, their biggest drop since this summer's rout.

Over the last few days, most base metals have snapped back from multi-year lows, as bearish investors cancel positions on knee-jerk reactions to reports of production cuts and possible limitations on short-selling in China.
Investors also failed to get excited on Friday about news that China's state stockpiler is considering buying more than 1 million tonnes of aluminium from local smelters, according to industry sources.
"Ali prices are also down, as the move is not seen as addressing China's chronic oversupply problem," analyst Edward Meir at broker INTL FCStone in New York said in a note.
LME aluminium slumped 2.9 per cent to end at $US1458 a tonne, still above Monday's 6-1/2 year low of $US1432.50. The metal gained nearly 1 per cent for the week.

Copper smelters including Jiangxi Copper and Tongling Nonferrous Metals Group, the biggest in the country, plan to gather on Saturday in Shanghai to discuss their response to prices at six-year lows, according to people with knowledge of the event.
They'll exchange views on the market, update each other on fee negotiations with global miners, and discuss countermeasures to the price collapse, according to the people, who asked not to be identified because the gathering is private. It's not certain that the copper smelters will take similar action on production cuts.
An official at a Chinese copper smelter who won't be part of the meeting said the recent fall in copper prices won't lead to production cuts as current TC/RC "is still good".
LME copper finished down 1.4 per cent to $US4573 a tonne, holding above its low of $US4443.50 struck on Monday, its weakest since May 2009.
Tin bucked the weaker trend, climbing 0.7 per cent to close at $US15,000 a tonne, but zinc slid 3.5 per cent to finish at $US1548 and lead lost 1.5 per cent to $US1616.50.
with Bloomberg

Reuters

[fundamentalman]

When It Rains It Pours as China Unleashes Commodity Torrent
Heesu Lee
HEESU_LEE
December 8, 2015 — 4:46 AM PST Updated on December 8, 2015 — 2:22 PM PST
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Commodities Implosion Boosts U.S. Dollar's Surge

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Net oil-product exports surge to record; aluminum, steel rise
Flood threatens global producers, prompts trade disputes
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There’s no let-up in the onslaught of commodities from China.
While the country’s total exports are slowing in dollar terms, shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs. That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.
The flood is compounding a worldwide surplus of commodities that’s driven returns from raw materials to the lowest since 1999, threatening producers from India to Pennsylvania and aggravating trade disputes. While companies such as India’s JSW Steel Ltd. decry cheap exports as unfair, China says the overcapacity is a global problem.

“It puts global commodities producers in a bad situation as China struggles with excess supplies of base metals, steel and oil products,” Kang Yoo Jin, a commodities analyst at NH Investment & Securities Co., said by phone from Seoul. “The surplus of commodities is becoming a real pain for China and to ease the glut, it’s increasing its shipments overseas.”
Net fuel exports surged to an all-time high of 2.22 million metric tons in November, 77 percent above the previous month, customs data showed. Aluminum shipments jumped 37 percent to the second-highest level on record while sales of steel products climbed 6.5 percent, taking annual exports above 100 million tons for the first time.
Aluminum prices on the London Metal Exchange have fallen 20 percent this year to $1,477 a ton as of Tuesday.
Chinese oil refiners are tapping export markets to reduce swelling fuel stockpiles, particularly diesel. The nation is also encouraging overseas shipments by allowing independent plants to apply for export quotas to sustain refining operation rates and ease an economic slowdown, according to Yuan Jun, general manager at oil trader China Zhenhua Oil Co.
Economic Slowdown
A slowdown in domestic aluminum demand has coincided with the start-up of millions of tons of new capacity in the world’s biggest producer while Chinese steelmakers battling losses have stepped up exports to compensate for shrinking consumption at home as economic growth weakens. The country makes about half the world’s steel.
The flood of Chinese supplies is roiling manufacturers around the world and exacerbating trade frictions. The steel market is being overwhelmed with metal from China’s government-owned and state-supported producers, a collection of industry associations have said. The nine groups, including Eurofer and the American Iron and Steel Institute, said there is almost 700 million tons of excess capacity around the world, with the Asian nation contributing as much as 425 million tons.
Steel Curbs
Low-cost supply from China in Europe prompted producer ArcelorMittal to reduce its profit forecast and suspend its dividend. India’s government has signaled it’s planning more curbs on steel imports while regulators in the U.S. are planning to lift levies on shipments from some Chinese companies.
It’s not all one-way traffic. Copper imports into the country, the biggest refined metal producer and user, surged to the highest in 22 months in November as traders sought to profit from cheaper prices in London and financing demand rose before the end of the year. China’s crude purchases climbed 3.8 percent and the nation bought 8.8 percent more iron ore.

[weijian]

This thread stopped in late 2015. If we look at the commodity index in the article, we will realize that since 2015, commodities continued to stagnate in multi decades low, before covid19 came in with the sucker punch.

Are we witnessing a potential rotation in asset class as the Ben Carlson has demonstrated from a historical basis? There are sceptics and bulls. From late 2020 to 2021, the last of tech sceptics were mostly wiped out (of course, there will always be a few old geysers too slow to change ) and that may have signaled the end of the tech boom. There are considerable bulls and sceptics for the commodity boom and it is possible that the presence of sceptics will continue to add fuel for the commodity boom.

The Boom-Bust Cycle in Commodities

Commodities over the long-term give you roughly the returns of cash but with much higher volatility.

Volatility is not good or bad per se. It really depends on how you react to or use that volatility.

The volatility in commodities can present both danger and opportunity depending on where we are in the cycle.

https://awealthofcommonsense.com/2022/03...mmodities/

[donmihaihai]

Interestingly, thread like this follow the price too. 2015 to 2021 was the best time to buy in the last decade or two and this thread was dead.

Interestingly also, it took 5 to 6 years for people to give up. From clash in 2008/9 till the death of this thread.

This can't be commodities specific, what about technology?

I don't know if GSCI commodity index is good but it is one with long historical price.

https://tradingeconomics.com/commodity/gsci

[weijian]

Interestingly, thread like this follow the price too. 2015 to 2021 was the best time to buy in the last decade or two and this thread was dead.

Interestingly also, it took 5 to 6 years for people to give up. From clash in 2008/9 till the death of this thread.

This can't be commodities specific, what about technology?

I don't know if GSCI commodity index is good but it is one with long historical price.

https://tradingeconomics.com/commodity/gsci

Well, the end of this thread might be related to GG's deciding to enjoy this well deserved retirement. I just conveniently used it to make my explanation sound more plausible 

Technology was actually shunned for a long time after the dot com bubble, before it came into vogue again for the last 5-6 years. After the dot com bubble, value investing came into vogue before GFC2008 gave everyone a sucker punch. With ultra low interest rates since then, value investing never came back and Technology took back its crown.

Of course, hindsight is always 20/20 and nobody knows with high degree of certainty what will happen in the future. We all know with high certainty that "what is in style" will change, but just without high certainty when it will. In the last 3 years, many VBs have been speculating the moment of the "turn".

And I think if one were overweight in commodities in the 1st 3 years of 2015-2021, they will probably still be doing bad now because the S&P500 slightly doubled in that timeframe.

1-2 years of underperformance? --> no problem, the market is wrong.
2-3 years of underperformance? --> ok, I might be too early in calling this but I am still right.
5 years of underperformance? --> I am probably wrong.... Only a rich man (who cares about absolute returns) and an old geyser will think different. 

My only lesson is that the more I read and understand history, the more realization that the less I know.

[donmihaihai]

Yeah tech in the 2000s and Google had a lukewarm IPO during that period. Lucky I still managed to google it out.
https://www.marketwatch.com/story/day-tw...google-ipo
https://www.jstor.org/stable/24117522

It happen that I do search old threads once a while to tell me whether this or that company is "dead". I am interested when people stop taking and I believe that a few investors who are doing the same thing. A part of investing is human nature, which one need to understand it which include social proof

[weijian]

It happen that I do search old threads once a while to tell me whether this or that company is "dead". I am interested when people stop taking and I believe that a few investors who are doing the same thing. A part of investing is human nature, which one need to understand it which include social proof

In a way, VB doesn't have that much "liquidity" to start with. Maybe yes on certain favorite value stocks though.

Nowadays, there are many other methods to gauge this - through Twitter, Youtube or blogs which has more "liquidity" and provide better "signals".

[ksir]

Still remember the times (think is late 2020) when retail investors seem to come to consensus of looking down at local market (STI) and looking up the flying high overseas (ie. US market, mostly referring to those high-growth high-cash burning high-tech companies - let's call them triple-high).
I was really excited and pumped more into Sg market.
Now, STI seems to be holding rather well amidst the triple-high companies jumping down the hill.
Interesting, I might start looking deeper into a few of them.
It's strange and likely politically incorrect, but war times almost always throw some good opportunities. It's "exciting" times to be a value investor.

[Wildreamz]

It takes a historically unprecedented war since WWII, and an almost embargo level sanctions of one of the largest oil export for oil price to go back to it's long term trend prior to 2015.

My guess is over the next few days/months/years, oil price (and many commodities that spiked in the recent days) will come back down to earth very quickly; whatever the outcome of the Russian-Ukrainian conflict. Human society is resilient, and will readjust to new normals very quickly, especially in recent years, as seen from the Covid crisis.

(no position)

[weijian]

I am not sure how 8billion of losses would not be classified as "normal hedging purposes". Under "normal hedging purposes", if you have 8bil of losses here, you are supposed to have similar gains elsewhere to largely offset it. And you are a producer of a metal that has soared in prices and made hedging losses due to soaring prices.

Nickel Market Crisis Sends London Metal Exchange Scrambling to Prevent Damage

At the center of the action is Chinese nickel titan Tsingshan Holding Group, the world’s biggest producer of a metal used in stainless steel and electric-vehicle batteries. The company, sitting on $8 billion in trading losses, said Wednesday it had secured enough metal to settle all its loss-making positions, according to a state-run media outlet.

Tsingshan has strategic importance to China’s metals industry as a major supplier of nickel and steel. Chinese regulators stepped in and called on domestic banks to help support the company, one of the people said. The fact that Tsingshan’s nickel forward contracts were for normal hedging purposes—and not speculative in nature—helped the company win government support, the person added.

https://www.wsj.com/articles/nickel-mark...1646858558