I love Bear Traps Report as a contrarian signal. Just do the opposite on commodities: Complacency is off the charts. Per a BofA survey released Friday,nearly 72% of investors believe inflation is transitory–a decade of conditioning will do the trick every time. This is a startling statistic and the oxygen behind the recent growth-tech sector
Yesterday evening, the Reserve Bank of Australia (RBA) released its commodity price index for June, which surged another 5.6% over the month in SDR terms (the closest correlation to the terms-of-trade) to be up a whopping 14.9% over the quarter: The RBA’s commodity price index is now tracking at its second highest level in history
The ferrous complex was firm on June 1, 2021 with spot stable, paper easing and a steel pop: Not much in news but Brazil release June export numbers and they went boom at 33.5mt, a 400mt annualised run rate: This level won’t be sustained but it does go to show that Brazil is ramping back
Evergrande should perhaps be rebranded Lessgrande. As it lurches daily from one debt crisis to the next, it is shrinking at a marvelous rate. Bloomie: Total borrowings fell 15% from March to $88bn by cutting land buys, doing fire sales and selling businesses. EGR needs to cut debt to $54bn by 2023 to meet the
The ferrous complex was firm on June 30, 2021 as spot lifted and paper followed. Steel has not updated: There are a number of marginal signals suggesting weakness creeping in. The China steel PMI is steadily softening, especially new orders at 34.8: Grade spreads are widening as well: Prices of lower Fe grade iron ore
Two points to make. Short-term, land sales are a key leading indicator for property development and iron ore. Currently cratering. Long-term, you will know that China’s iron ore era is over for real when a land tax is fully enacted. Mizuho with the note: The government used to rely on administrative measures (such as home
The ferous complex was weak yesterday for no apparent reason as spot fell, paper fell more overnight and steel eased: Perhaps it was yesterday’s Twitter assault by Westpac Robert Rennie which made a good case for a major price correction in H2: 2.Steel prices have dropped sharply from May record highs. Indeed, rebar down 18/20%
The ferrous complex was firm on June 28, 2021 as spot, paper and steel rallied play Chinese port stocks fell 124mt: Levels are lowish but not alarming. Readers will know my base case is that we will see a few more months of strong prices before we start to fall away in Sep/Oct as both
The Office of the Chief Economist (formerly BREE) has put its Juen QTR forecasts out and it’s a job well done as it refuses to be drawn into the garbage raining from Wall Street on commodity prices. It has done a good job across all major dirts. First, iron ore, where it sees Iron ore
TS Lombard with the note: Beijing is concerned about the impact of higher commodity prices on the Chinese economy and the possibility of cost-push inflation raising CPI. However, for the first time in over 20 years the driver of the commodity cycle is not China. Central authorities view DM stimulus and Covid-19-related supply shocks as
The ferrous complex is going nowhere despite the froth and bubble in every corner of the land. Spot was up a bit, paper too, steel has not updated: For the time being, we seem to have some kind of equilibrium above and below $200. It will take something extra to push out of this range
The ferrous complex was roughly stable on June 24, 2021 with spot iron ore down, paper flat overnight and steel going nowhere: A couple of extra charts today from mid-June CISA steel output which has rebound though is still flattening out: Year-on-year growth firmed but is still trending lower: No change from me. Firm pricing
Oil is the last bastion of the commodity scoundrel. A completely manipulated market upon which just about any fantasy can be projected. Take BofA for instance: Brent prices should average $68/bbl in 2021 but… Back in June of last year, we argued that crude oil prices would be on an upward path into 2021 as
The ferrous complex is playing a game of cat and mouse with Chinese authorities while the market remains tight. Spot was up. Paper up more overnight. Steel is stuck: The forward-looking view remains bearish. Supply is arriving from every spare and hidden and pile of dirt worldwide. From Darwin: Iron ore will leave the Northern
The divergence between iron ore prices and what is happening on the ground in the only market that matters for iron ore demand is reaching new wides daily. Readers will know that China’s “three red-lines” policy for deleveraging the property development sector is delivering with distressed developers defaulting and dumping assets, credit lines being pulled
For the last few months, MB has had to battle a torrent of Wall Street (and local) drivel about a “new commodities supercycle”. This notion was never well-thought through. It mistook a global inventory supercycle for some kind of MMT supercycle. It mistook post-pandemic supply-side frictions for some kind of inflation supercycle. It mistook a
Evergrande. Remember the name. Because it may just be forming the dark nucleus of an economic singulatory in China that will suck Australia across an income shock event horizon. Throughout 2021, I’ve been tracking the evolution of a new policy regime for Chinese mega-developers called the “three red-lines”. It aims to deleverage one of China’s
The ferrous complex rebounded on June 22, 2021 as fears of Fed tightening abated. Spot popped. Dalian firmed overnight but steel has not updated: Nothing much to report today. I still see firm prices for a few months then a breakdown in Sep/Oct followed by better across the new year but trending down deep into
And here they come. Note from UBS: Sell: macro headwinds with Fed hawkish & China acting to deflate commodities We downgrade RIO to Sell (from Neutral) with an unchanged A$104/s target. The stock has generated a TSR of 79% over 12mths driven by the strong iron ore price (+104%) & record cash returns; we estimate
The great Chinese property developer shakeout is intensifying. This has global significance because this sector alone accounts for an enormous slice of global bulk and base metals demand and therefore inflation. Bloomie has a great article today on the unfolding drama around the “three red lines” policy: Many developers have gamed the new deleveraging rules.
The ferrous complex was smashed on June 21, 2021 as steel broke down, paper was obliterated and spot fell sharply: Much of this is seasonal. The Chinese rainy season is stalling construction and lifting steel inventories: EOFY adds more downside as mills rebalance. That said, China’s jawboning campaign continues, via FT: Beijing has launched a
The ferrous complex was weak across the board Friday June 18, 2021 as spot fell, paper fell more overnight and steel eased: A rising DXY is proving a headwind. In news, let me show you some material from Bloomberg that needs unpacking: There’s a simple reason why no amount of work meetings and control orders
Truly, global markets do not understand commodity cycles. Some of this is folks talking their books. Some of it is pure ignorance. What we can say for sure is that as the commodities bubble pops, the leftover space is being filled with balderdash. All areas of the commodity market are being covered in rhetorical manure,
The ferrous complex went through some gyrations on June 17, 2021 with paper and spot markets crossing over trying to catch one another: There’s not much else to report in the day. Broader circumstances are clearly turning hostile to high prices as China tightens and slows ahead merging with a slowing US and Fed policy
Chinese house prices out today. The monthly gain was 0.6% and annual up to 4.9%: Gains are still largely lower-tier cities: But the gains are broadening out: What is so interesting about this is that it has the appearance of a sustainable real estate regime that no longer misallocates capital and aids in its rebalancing
As we know, I triggered about a $30 rally in iron ore prices in the past week when I reminded the market that Vale was facing another possible dam bust and crisis (or it was thew wind). The news today is that that crisis ie easing swiftly: Brazilian regulators have inspected the Xingdu damn and
The ferrous complex was weak on June 16, 2021 as spot, paper and steel all fell: There was a pretty nasty combination of factors. First this: The State-owned Assets Supervision and Administration Commission has ordered state-owned enterprises to control risks and limit their exposure to overseas commodities markets, according to people with knowledge of the
The Bear Traps report goes full inflation. The few missing facts include that it was Republicans that ravaged the US budget, no mention of China, no reference to vast deflationary forces. This is Australian extremism not analysis. Ironically, this contrarian is a great contrarian signal. Sell metals! In 1787, with remarkable foresight, Scottish historian Alexander
As expected, China continues its systemic push towards tighter credit and economic restructuring away from construction. This time it’s wealth management products, an old favourite for developers to raise cash: Highly rated WMP will be prevented from buying junk debt from developers. This addresses the underlying duration mismatch. $400bn in junk debt will need to
The ferrous complex held on June 15, 2021 as many other commodities rolled into the big plunge. Spot was stable, paper up a bit, steel down: Steel was actually down yesterday but I didn’t have prices for a few days. The news is another accident, this time in China where more supply has come off
