Fortescue cracks new low as UBS says don’t buy miners now!

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Fortescue cracks a new correction low below $14 as UBS declares “don’t buy miners now!”

UBS View: Start of the commodity down cycle – too early to Buy the miners

In June (Topping out) we highlighted that we did not believe we were at the start of a commodity ‘super-cycle’ and, even though the demand outlook appeared solid, fundamentals were not strong enough to support prices at elevated levels. What’s changed? The outlook for commodity demand has deteriorated as: (1) Evergrande’s financial issues have triggered a slowdown in China property sales (note); (2) Power shortages & power rationing in China (to meet the 2021 energy intensity target) has slowed industrial activity materially since July (note); (3) The post Covid demand impulse in developed markets has peaked as reopening drives a shift in spending from goods to services. Offsetting this are the near-term supply constraints in smelting/ refining in China due to power shortages/ rationing. The macro backdrop for commodities has also deteriorated with inflationary pressures pushing central banks closer to policy normalisation/rate hikes. In our view this is not the backdrop for a sharp recovery in commodity prices; we expect prices fall further over the next 12mths.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.