Comments of particular interest are noted with ‘*’.
- World Steel production Yr-on-yr growth was positive on a month and 12 month basis, though the avg daily rate from June to July fell markedly driven by slowdown across the Asian producers, representing 72% of global steel. Matau considers that national steel production is a measure of the industrial ‘condition’ or ‘maturity’ of a country. Many of the developed economies had stagnant or declining steel output, while emerging nations are exhibiting growth in output.
- It is actually surprising how few steel producing nations have actually contributed (positively) to the global steel markets since June 2008, the increase since then being +27.2%. Those nations are: China, South Korea, India, Turkey and Iran (that we have 2008 production data for) plus other emerging nations like Thailand, Vietnam and I expect Indonesia. The rest (~ of the 69 producers) have -ve growth.
- China – Freight traffic continues to report strong positive growth, as did Electricity production (reported last week). These are two of the three key economic data that one of Xi’s predecessors used to assess the health of the economy. Be somewhat wary of underestimating China’s growth. Power generation is increasing and more goods / materials are being freighted around the country (and imported). I have not seen end-use data … It has been said more than once that China is further down the path toward a consumer driven economy than many suspect. As has been pointed out by Petit (earlier report) China’s GDP is arrived at by different methods than most, and unless methodology has changed is not all that useful. Industrial output data suggests overall growth though data is a bit volatile.
- It is the industrial output Matau is interested in, i.e. that consumes commodities. Part of China’s move to a consumer economy includes exporting some of its manufacturing capacity to lower cost [the Asia-five] nations (Philippines, Vietnam, Thailand, Malaysia, Indonesia) which changes perceived political risks in addition to improving economics). USA has lost a lot of industrial capacity to offshore jurisdictions, and the current Administration is attempting to reverse that … not sure that is a good idea.
- Base metal inventories continue to remain tight. In a broad sense not much has changed. Most prices are in the ‘nose of pinch-point graphs. Pinchpoint positions are mostly less than 1 week’s consumption. However sentiment (geopolitical) continues to drive prices over fundamentals.
- However Nickel price has now responded strongly to fears of supply disruption. This is an instance where fundamentals are surfacing through the wider geopolitical rhetoric. (… albeit still ‘fears’ of the fundamentals, but at least there is a real basis underlying the price movements). …
- Pinchpoint graphs are currently telling selective stories by (base metal) commodity, though most are fundamentally tight. Ni, Zn & Sn are in backwardation and the contangos for Cu and Pb are ‘small’. Nickel has shown how the market is likely to react to ‘fear’ of disruption in a market where supply is tight. Matau had a view that the Ni market (stock levels at about 4.5 weeks) may have had further to fall before exhibiting ‘tight’ reactions.
- Outlook remains for ‘not enough’ new mine supply in coming years (the next decade), for several key commodities, particularly for EV sales growth.
- Work on resources supply growth, which means achieving suitable commodity prices to incentivise new production, is required to meet the ambitious production and sales growth targets for EVs. (Matau reported on this in an earlier Commodity Review). Matau believes that without evidence of increased prices and increased development commitments, the EV sales growth targets (greater than ~20% p.a. for a decade … or so) will have to be tempered.
- The theme of the June Resources Rising Stars conference earlier this year was I think very appropriate for the current investment and geopolitical market … “Pick the stock, not the market” … which lends to careful assessment of projects, stocks and management, to choose where to invest. The nature of very tight metals markets has been seen before, and can turn markedly, very fast. However at this stage time frames are being clouded, and often delayed, which makes stock selection challenging.
*Copper BHP expects a structural Cu deficit to emerge in the early to mid- 2020s. SFR & MOD.
*Cobalt DRC economy to be hit with stoppage of Co output in the south. Supply growth issues remain.
*Nickel Nickel supply fears: fears of Indonesian export ban; Ramu threatened with shutdown.
*Zinc & Lead Teck’s Trail plant repairs reduces output by ~25%. ORN progressing Prieska.
*Tin Trade tensions between Japan & South Korea over WWII reparations agreement.
Aluminium Outlook for Japanese premia over LME to increase.
*Gold Speculative funds moving into gold-backed ETFs.
Platinum & Palladium China may ease restrictions on auto sales.
*Oil Russian oil production cuts smaller than expected in August, but had over-complied in July.
Coal Indian mills agreed to price-index-linked contacts for met coal. Demand for thermal soft at present.
*Iron Ore FMG confident in ongoing Fe-ore demand. Focus is on factors FMG can control.
Shipping Rates up on Asian routes. .
*World Steel production: A production rate drop from June to July, though +ve yr-on-yr growth.
*USA – Orders to Durable goods, Vehicles, Computers & Electronic goods: broadly +ve
*Japan – Industrial Production: -ve total, but +ve in key segments.