Commodity Review 20190816 by Andrew Pedler – Now available

Commodity Review 20190816 by Andrew Pedler – Now available

USA – Housing Starts, Industrial Production, Electricity End-Use, Bond Yields

Matau’s Comments:  

  • USA   is slowing!  Data this week reinforces last week’s OECD CLI implications.
  • Base metal inventories continue to remain tight.   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.  
  • Several metals (Ni & Co this week)  are showing signs that reduced supply is likely to lead to higher prices.
  • Outlook is for ‘not enough’ new mine supply in coming years (the next decade), for several key commodities. 

The theme of the Resources Rising Stars conference at the Gold Coast earlier this year is appropriate:  “Pick the stock, not the market”.



*Copper  Codelco optimistic about long term price for Cu.  Short term prices pressured by growth concerns.

*Cobalt  Co price is up on news that Glencore is shutting its large DRC mine.

*Nickel  Philippines’ largest exporter of ‘high’ grade Ni laterite ore is to shut upon depletion of its Reserves.

*Zinc & Lead  ORN calling for ongoing need for more Zn & Cu production.  Nyrstar Pb smelter stopped again.

*Tin  Trump acknowledges that tariffs increase domestic prices.  Delays new tariffs till after Christmas.

Aluminium  Beijing announced additional import scrap quotas.

*Gold  Gold price gains as faith in Central Banks is about to be tested again.

Platinum & Palladium  Progress … of sorts … being made in wage negotiations with AMCU..

*Oil  .Russia & China have stuck by Venezuela, though that may change.

Coal  A weaker CNY, a safety campaign, shipment restrictions, though premium HCC is preferred.

Iron Ore  Beijing’s stimulus restraint driven by low infrastructure spend, impacting prices.

Shipping  Baltic indices, Cape, Panamax & Handymax up this week.


Port Hedland – Iron Ore shipments:  Shipments down in July after a bumper June effort.

USA – Electricity End-Use:  Total demand slowing, mostly in residential demand.

USA – Bond Yields:  A historical review + Current 10yr-2yr curves ‘almost’ inverted.  10yr-3mo is!

USA – Industrial Production – Capacity Utilisation: Really slow IP growth.  Cap Util is sub optimal.

USA – Housing Starts:  House starts almost stalled.

USA Electricity End-Use

USA electricity end-use is divided broadly equally into a) residential, b) commercial, and c) industrial usage, with d) transport usage being miniscule.

From about 1973, electricity usage was roughly evenly split between residential, commercial and industrial. The annual, seasonal, high-low demand cycles (winter-summer) can be readily seen in residential and commercial demand, both widening with teh advance of time and increased usage of airconditioning and or heating.  There is also some more limited annual cyclicity in industrial demand.

The impact of recessions in 1975 and 1982, on industrial demand, can be seen followed by a return to growth.   However upon the 2000 ‘Tech crash’ industrial demand dropped  but thereafter growth did not resume.  Was the industrial growth effectively ‘exported’ or outsourced to other countries?  A similar effect is seen upon the 2008/09 ‘global financial crisis’.

It also appears that since early 2017, that USA industrial demand on electricity may be declining further.

The USA is an advanced economy, with about 70% of GDP reliant on consumer spending, and services industries making up a significant part of GDP.  We have also noted that USA’s direct consumption of raw materials has, over time, since about the 1980’s declined from circa 20% of global commodities to roughly 5-7% today, as it tends to import finished goods, more than manufacture them domestically, i.e. exporting the manufacturing function to lower cost jurisdictions.

Matau will be watching the apparent new trend from early 2017.