Aluminum prices in London reached their highest in two years as the industrial metals rebound theme continued, driven by a combination of supply constraints and the prospect of increased demand in China and the US.

The latest driver for the silvery-white, lightweight metal, used in everything from vehicles to aircraft to window frames to soda cans, comes as China, the world’s top producer, signaled overnight aggressive emission-cutting targets for smelters, in return, tighter metal capacity.

In a further boost for the bulls, China’s State Council pledged to strengthen capacity limits in industries from steel to alumina in a work plan for energy conservation and carbon reduction in 2024-25. The move to constrain additional supply comes at a time when the transition to greener energy is boosting demand for copper and aluminum.

The country will strictly control new capacity for copper smelters and alumina output, and take a reasonable approach in allocating fresh capacity for silicon, lithium and magnesium, the government said late Wednesday.

The government also reiterated strict implementation of the “aluminum swap scheme,” or the requirement for any new smelter to be matched by closure of an existing one. New capacity for aluminum, alumina, polysilicon and lithium batteries must meet advanced levels of energy efficiency, it added. –Bloomberg

With the US economy chugging along with the US government spending $1 trillion every 100 days, i.e., stealth stimulus, demand for metals and other commodities has increased. Easing in China has also boosted the prospect of demand increases for industrial metals. However, Chaos Ternary Research Institute wrote in a note that a near-term pullback in aluminum prices is quite possibly because of inventories in China and deliveries to the London Metal Exchange, which remain elevated.

…click on the above link to read the rest of the article…

There’s More to China’s U.S. Debt-Dumping Rush Than Meets the Eye

May 27, 2024

There’s More to China’s U.S. Debt-Dumping Rush Than Meets the Eye

Unprintable Alternative to Debt, De-Dollarization, Not Just China, Leaving the West for the East

“Gold is money. Everything else is credit.”
~ J. P. Morgan

Earlier this week, I told you how China has accelerated its de-dollarization efforts with rapid-fire sales of U.S. debt.

The country offloaded $53.3 billion worth of U.S. Treasuries and U.S. agency bonds. This is the largest single sale of U.S. debt in its history.

But, as I explained, even U.S. allies like Belgium and Switzerland have recently dumped an impressive $20 billion and $43 billion worth of Treasuries, respectively.

If this trend keeps up, it could be a big problem for the U.S. government. That’s because about one-third of its debt, or $8 trillion, is held by foreign countries.

The Unprintable Alternative

Now, the main reason foreigners own such a large portion of U.S. debt is simple: the U.S. dollar is the world’s primary reserve currency.

Currently, central banks hold about 58% of their foreign reserves in U.S. dollars. To earn returns on all this cash, they invest it in U.S. Treasuries, which are considered the safest assets in the world.

There’s just no alternative… or is there?

Well, China certainly seems to think so.

Just take a look at the next graph showing China’s holdings of U.S. Treasuries and gold as a percentage of its foreign reserves since 2015.

The chart above shows that as China cut back on U.S. debt, it ramped up its gold purchases. This inverse relationship between China’s gold and U.S. debt holdings became really noticeable around 2018, when the trade war with the U.S. kicked off. And as I mentioned in my last essay, by 2019, China had given up its spot as the biggest holder of U.S. debt to Japan.

…click on the above link to read the rest of the article…

The Blood-Red Sunset of the West. Strengthening of the Sino-Russian Relations

May 23, 2024

The Blood-Red Sunset of the West. Strengthening of the Sino-Russian Relations

On President of the People’s Republic of China Xi Jinping’s invitation, President Vladimir Putin paid a state visit to China.

It is not a formal act, but a further step in strengthening economic, political, and military relations between the two countries.

China produces a third of the world’s manufacturing products, more than the United States, Germany, Japan, South Korea, and Britain combined.

After the major gas pipeline Nord Stream, which transported its gas to Europe, was interrupted by US-NATO military sabotage and the country was subjected to sanctions by the EU – Russia is supplying more and more gas and oil to China and imports from there the industrial products that it previously imported from Europe.

The strengthening of relations between the two countries is part of the BRICS: this intergovernmental organization — made up of Brazil, Russia, India, China, and South Africa — has extended to Saudi Arabia, Iran, Egypt, Ethiopia, and the United Arab Emirates. Several other countries want to join this international organization, chaired this year by Russia, which aims to create a multipolar world order alternative to the unipolar one of the West.

To maintain dominance in a changing world at all costs, the West resorts to war in a scenario that ranges from Europe to the Middle East and East Asia.

In his speech at the May 9th Parade for the 79th Anniversary of the Victory of the 1941-1945 Great Patriotic War against Nazi Germany, President Putin describes this scenario as follows:

“Feeding revanchist sentiments, mocking history and trying to justify the current followers of Nazism is part of what is the common policy of the Western elites to fuel regional conflicts, inter-ethnic and inter-religious struggles and to contain the sovereign and independent centre of global development.”

China Just Dumped the Largest Amount of U.S. Debt in History

May 22, 2024

China Just Dumped the Largest Amount of U.S. Debt in History

Dropping It Like a Hot Potato, the Lowest level of U.S. Debt Ownership in Decades, Not Just a “China-Leaning” Countries Problem

At this point, the government is completely and totally bankrupt. It’s like Wile E. Coyote that’s walked off a cliff, but doesn’t really realize it yet.
~ Doug Casey

We just learned that China has accelerated its de-dollarization efforts with record sales of U.S. debt.

Turns out, China dumped a staggering $53.3 billion worth of U.S. Treasuries and U.S. agency bonds in the first quarter of this year.

Interestingly, the Chinese government announced the sale right after issuing a joint statement with Russia, where both nations emphasized their resolve to keep moving away from reliance on Western countries.

No doubt, this will seriously dent the appeal of U.S. debt on the international market. But let’s take a closer look to see exactly why.

Yes, It Is a Big Deal...

Now, this isn’t the first time China has unloaded a portion of the U.S. debt it owns. For example, the country sold $21 billion in U.S. Treasuries and agency bonds in late 2023.

But what makes this latest dump stand out is that it’s the first time China has shed such a big chunk of debt so quickly.

The move brings the nation’s holdings of U.S. government debt to around $767 billion. That’s the lowest level of ownership in decades.

It’s quite something when you think about it… Just a few years back, China was leading the pack in investing in U.S. debt. Things changed around 2018 though, when the trade war with the U.S. began. By 2019, China ceded the position to Japan as the biggest holder of U.S. debt.

…click on the above link to read the rest of the article…

Hoot of the Day: No One Wants Green Energy if It’s Too Cheap

May 22, 2024

Hoot of the Day: No One Wants Green Energy if It’s Too Cheap

Treasury Secretary Janet Yellen wants the EU to hike tariffs on China just as the US did.

Curbs on Cheap Chinese Exports

The Guardian reports Janet Yellen urges EU to join US in curbs on cheap Chinese exports

Janet Yellen, the US treasury secretary, has urged the EU to intervene urgently to dampen the growing export levels of Chinese cut-price green technology including solar panels and wind turbines, pushing European leaders to move to a full-scale trade war.

At the same time she urged German bank executives on Tuesday to step up efforts to comply with sanctions against Russia and shut down efforts to circumvent them to avoid potential penalties themselves that could see the US cut them off from dollar access.

Her remarks, in Frankfurt, come just hours after the European Commission president, Ursula von der Leyen, gave her strongest hint yet that the EU would join the US and impose tariffs on Chinese electric vehicles after a soon-to-be completed investigation into alleged state subsidies into the automotive industry in China.

Wind turbine manufacturers in the EU have protested that Chinese rivals are undercutting them by 50% in a move that is appealing to cash-strapped state and regional authorities facing targets in reductions of greenhouse gases.

China has signaled it will retaliate against any tariffs with potential duties on French brandy, EU wine and dairy products.

Von der Leyen said Europe would take a different approach to the US. While an increase in tariffs is expected, they are unlikely to match the rate imposed by the US.

Von der Leyen told the Financial Times that China had “massive overcapacity” that was “flooding” the EU market with “artificially cheap products”.

She said she expected the investigation into alleged Chinese state subsidies launched last September and due to be finished by 5 June, to conclude there were “excessive production subsidies”.

Wind Power

…click on the above link to read the rest of the article…

China Shock II Is Coming, the EU Will Be Hit Hard, Then the US

May 22, 2024

China Shock II Is Coming, the EU Will Be Hit Hard, Then the US

China Shock

Eurointelligence discusses China shock in its article Technology Is Why We Are Losing.

We are not sure that the effect of high tariffs on Chinese electric cars will work quite as intended. We are also skeptical of hydraulic theories of global trade flows – of Chinese goods suddenly starting to swamp European markets.

The much bigger problem at least for German industry has nothing to do with trade policy, but with China crowding in on previously monopolistic and oligopolistic markets dominated by German firms.

Handelsblatt alerts to research just published by the economics team of Allianz that in our view comes much closer to explaining the current dynamics. Previously, the partnership between Germany and China was complementary. The Germans built the factories and the Chinese made the consumer products. Or the Germans specialized in fuel-driven cars, and the Chinese in electric cars. China is now challenging Germany in areas Germany dominated previously. These are the largest parts of the German industrial economy: machines, chemical and electrical engineering. The study says that in many segments of the market, the Chinese are more successful than the Germans. Ludovic Subran, the Allianz chief economist, predicts that the China boom will be followed by a China shock.

We see this similarly. In our own research on the shifting nature of German competitiveness, we find that the most important issue is not trade, but technology. Digital technologies are encroaching on classic engineering. Apple’s latest commercial of a large steel press crushing a whole bunch of analogue devices caused a lot of criticism. Apple apologized, but the commercial is a good visualization of what is currently happening to parts of the German economy…

…click on the above link to read the rest of the article…

The Biggest Risks of This Decade

May 20, 2024

The Biggest Risks of This Decade

Since the 2020 pandemic, many things have changed, but nothing more than geopolitics. Wars and clashes that used to be largely national have given way to more regional conflicts that threaten to upend the current world order. The Ukraine War and Israel-Iran conflicts have the potential to lead to world war.

The international arena once dominated by the United States has gradually changed into a more multipolar stage. China and India have grown in economic and military significance, and Russia and Iran have reasserted their influence. Rising world powers are increasingly challenging the over-extended leading power.

“The disintegration of the old order is visible everywhere…It is close to collapse.”

The Economist

Half of world’s nations feel that they are victims of economic and political inequality. A similar sentiment is found in the rising tide of populism—even in rich countries—because most people know that their economic situation has worsened in recent decades. At the core of both is the higher cost of energy and materials.

Figure 1 shows that oil price, inflation and interest rates rise and fall in tandem, and are considerably higher now than during the period before the Covid pandemic. The Ukraine War contributed to an energy shock that has moderated but oil prices have averaged nearly 60% higher after 2020 than they were in the six previous years. U.S. interest rates and inflation are more than three times higher.

Figure 1. U.S. inflation and oil price fell in 2023 but federal funds rate increased. Inflation was lower in Q1 2024, oil price rose and federal funds rate was marginally higher.
Source: St. Louis Federal Reserve Bank, EIA & Labyrinth Consulting Services, Inc.

French president Emmanuel Macron observed in 2022 that these changes are probably secular.

…click on the above link to read the rest of the article…

Is China Dumping US Treasuries and Buying Gold? Bloomberg Says Yes, Pettis Uncertain

May 18, 2024

Is China Dumping US Treasuries and Buying Gold? Bloomberg Says Yes, Pettis Uncertain

Bloomberg reported that China is selling a record amount of US debt while buying gold. Previous reports of debt selling were false. Let’s check in with Michael Pettis at China Financial Markets for another opinion.

China Sells Record Sum of US Debt

Bloomberg reports China Sells Record Sum of US Debt Amid Signs of Diversification

China sold a record amount of Treasury and US agency bonds in the first quarter, highlighting the Asian nation’s move to diversify away from American assets as trade tensions persist.

Beijing offloaded a total of $53.3 billion of Treasuries and agency bonds combined in the first quarter, according to calculations based on the latest data from the US Department of the Treasury. Belgium, often seen as a custodian of China’s holdings, disposed of $22 billion of Treasuries during the period.

China’s investments in the US are garnering renewed investor attention amid signs that tensions between the world’s largest economies may worsen. President Joe Biden has unveiled sweeping tariff hikes on a range of Chinese imports, while his predecessor Donald Trump said he might impose a levy of more than 60% on Chinese goods if elected.

“As China is selling both despite the fact that we are closer to a Fed rate-cut cycle, there should be a clear intention of diversifying away from US dollar holdings,” said Stephen Chiu, chief Asia foreign-exchange and rates strategist at Bloomberg Intelligence. “China’s selling of US securities could speed up as US-China trade war resumes” especially if Trump returns as president, he said.

China is Buying Gold

One part of the story is not in question. That part pertains to China buying gold.

Is China Dumping US Debt?

I asked Michael Pettis that question yesterday. Pettis graciously replied with an email this morning plus a five-part Tweet.

…click on the above link to read the rest of the article…

China Unveils A Housing Market Bailout: Here’s What’s In It, And Why It Is Still Not Enough

May 18, 2024

China Unveils A Housing Market Bailout: Here’s What’s In It, And Why It Is Still Not Enough

More than four years ago, when China first launched its latest “deleveraging” campaign targeted at bursting the country’s housing bubble in a controlled fashion, which coincidentally was the single largest asset for China’s massive middle class, we – and many others – said that this experiment was doomed and that all China is doing is delaying the inevitable bailout of the property sector with another metric asston of new debt. Well, as the news overnight confirmed, we were right… but not before China saw all of its largest domestic real estate developers collapse, push its housing market into a deflationary tailspin from which the country has not yet recovered, and suffered five years where its economy stagnated and pushed social tension to the edge.

So what happened?

On Friday, Chinese policymakers unveiled a fresh batch of easing measures for the housing market, including:

clear top-down guidance for local governments to purchase existing housing inventory for public housing provision,
an RMB300bn relending quota for destocking the housing market,
reductions in downpayment ratios and mortgage rates,
more policy support to secure the delivery of pre-sold homes.

Needless to say, local government (which is really just an extension of the central government) purchases of existing housing inventory is for lack of a better word, nationalization, and as Goldman writes in its post-mortem (pdf available to pro subs), if implemented at scale, can help stabilize home sales, prices and completions, but the boost to new starts and land purchase would be limited.

And while lower downpayment ratios and mortgage rates may boost home sales to some degree, the magnitude of downpayment ratio reductions was relatively small this time, and the pace of cuts to effective mortgage rates could be somewhat constrained by bank net interest margins.

…click on the above link to read the rest of the article…

Why Gold Is Flowing From West To East

May 17, 2024

Why Gold Is Flowing From West To East

Yesterday silver hit a four-week high and gold continues to hold onto recent gains. Today’s labour market data isn’t sparking significant movement in the gold market. However, it is facing some technical selling pressure as it tests resistance levels slightly below $2,400 per ounce. Yesterday’s US CPI report presented a scenario that is bullish for precious metals investors. With CPI data coming in lower than expected policy doves will now be pushing for the FOMC to cut rates sooner, rather than later.

For gold and silver investors in the West, the uncertainty regarding the FOMC’s next moves is dampening prices somewhat, but they do remain in a solid uptrend. We continue to see a divergence between gold demand drivers between the East and West. In the West central bank decisions and economic data remain at the forefront of buyers’ minds, but in the East this is now a secondary factor. Instead central banks, institutions and consumer East of Germany are focused on gold accumulation, even buying into the price surge last month.

The release of the World Gold Council’s Q1 demand trends report has confirmed this. Data for the first quarter of this year showed the PBoC’s gold purchases continued for a 17th month in a row, whilst gold bar and coin demand was also driven by China.

So where does this leave the West? In today’s video Jan Skoyles wonders if it leaves them with ‘no plan B’. Do you agree? We’ve been chatting to a few clients recently and it has been interesting to hear thoughts on future gold market trends and what is driving people to increase their gold allocation. Let us know yours, either by replying to this email or in the comments below the video.

Why is China buying up so much gold and what does it mean for the gold price? We take a look in this week’s latest video.

Bidenomics At Work: Ford Slashing Battery Orders As Losses Per EV Approach $100,000

May 12, 2024

Bidenomics At Work: Ford Slashing Battery Orders As Losses Per EV Approach $100,000

Ford is cutting battery orders in yet another sign that the EV market, despite a constant tailwind from the U.S. taxpayer, is starting to slow.

The company is cutting the orders to curb electric-vehicle losses as it scales back its EV strategy in a slowing plug-in market, according to insiders who spoke to Bloomberg.

Ford CEO Jim Farley has said the company’s EV unit “is the main drag on the whole company right now” and CAT said its “cooperation with Ford is moving forward as normal”.

The company responded by saying it wouldn’t comment on relationships with suppliers.

Bloomberg notes that with plummeting EV prices and weakening demand, Ford’s losses per electric vehicle exceeded $100,000 in the first quarter, doubling last year’s deficit.

Bloomberg Intelligence estimates that Ford’s projected EV unit losses this year will nearly offset profits from its Ford Blue division, which produces traditional internal combustion engine vehicles like the Bronco SUV and gas-electric hybrids such as the Maverick truck.

BI analysts said of the results: “That raises questions about the prudence of investing heavily in EVs.”

Ford’s order reductions highlight industry challenges as U.S. automakers face weaker-than-expected EV demand and battery makers in South Korea, China, and beyond struggle with unsold inventory.

This has affected prices for key metals like lithium, cobalt, and nickel, leading to multiyear lows and stalling new projects. Ford has reduced EV production costs but had to cut prices to stay competitive with Tesla.

Ford CFO John Lawler said in April: “We’ve seen prices coming down quite dramatically and that’s why we haven’t been able to keep up from a cost reduction standpoint.”

…click on the above link to read the rest of the article…

Is China’s Oil Demand Set For A Major Bounce Back?

May 11, 2024

Is China’s Oil Demand Set For A Major Bounce Back?

China’s extraordinary economic expansion almost singlehandedly drove a supercycle in key commodities since the mid-90s.
This robust performance across several major sectors in China’s economy is in sharp contrast to the growth drivers seen last year.
China continues to buy oil from Russia and Iran at a discounted price.

Since the mid-1990s, China’s extraordinary economic expansion almost singlehandedly drove a supercycle in key commodities prices it required to power such growth, including oil and gas. In 2013, it became the world’s largest net importer of total petroleum and other liquid fuels and, as late as 2017, its still high rate of economic growth allowed it to overtake the U.S. as the largest annual gross crude oil importer in the world. Late 2019 saw much of this activity grind to a halt as Covid hit the country, and the economic slowdown was exacerbated by its Draconian ‘zero-Covid’ policy that saw complete shutdowns of major economic centres at the slightest hint of infection. However, 2023 saw it achieve its official gross domestic product (GDP) growth target of “around 5 percent” – posting 5.2 percent in the end. The same official target is in place this year, with the key questions for oil markets being whether this will be achieved and if so, how easily?

16 April saw China’s National Bureau of Statistics release the country’s Q1 GDP figure, which showed a 5.3 percent year-on-year increase. This was way above consensus analyst expectations of 4.6 percent and was also a rise from the Q4 2023’s 5.2 percent. “Aside from the continued decline in the property sector, policy support is filtering through investment,” Eugenia Victorino, head of Asia strategy for SEB in Singapore exclusively told OilPrice.com. “With property sales now 60 percent lower than their mid-2021 peak, transaction volumes are now comparable to levels last seen in 2012,” she added…

…click on the above link to read the rest of the article…

Biden Wants EVs so Badly That He Will Quadruple Tariffs on Them

May 10, 2024

Biden Wants EVs so Badly That He Will Quadruple Tariffs on Them

Astute readers will immediately notice the title of this post makes no sense. It’s not supposed to. But it is exactly what President Biden is doing.

Biden to Quadruple Tariffs on Chinese EVs

Counter to the idea that quick EV adoption is needed to save the planet from a climate disaster, please note Biden to Quadruple Tariffs on Chinese EVs

The Biden administration is preparing to raise tariffs on clean-energy goods from China in the coming days, with the levy on Chinese electric vehicles set to roughly quadruple, according to people familiar with the matter.

Higher tariffs, which Biden administration officials are preparing to announce on Tuesday, will also hit critical minerals, solar goods and batteries sourced from China, according to the people. The decision comes at the end of a yearslong review of tariffs imposed by former President Donald Trump on roughly $300 billion in goods from China.

Officials are particularly focused on electric vehicles, and they are expected to raise the tariff rate to roughly 100% from 25%, according to the people. An additional 2.5% duty applies to all automobiles imported into the U.S. The existing 25% tariff on Chinese electric vehicles has so far effectively barred those models, often cheaper than Western-made cars, from the U.S. market. Biden administration officials, automakers and some lawmakers worry that wouldn’t be enough given the scale of Chinese manufacturing.

Conflicting Goals

We need EVs so badly that we also need a 100% tariff to stop them. That makes no sense but it is the precise message.

Stated differently, we don’t want EVs unless people are willing to pay 100% more for them. And this is despite the claim that the world as we know it will end in 12 years if we don’t act on them.

World Will End in 12 Years

…click on the above link to read the rest of the article…

“Economics Works In Mysterious Ways”: Is China’s Wealth Effect Being Substituted?

May 8, 2024

“Economics Works In Mysterious Ways”: Is China’s Wealth Effect Being Substituted?

Is the wealth effect being substituted?

Summary

China’s real estate market suffered heavy losses early this year while stock market investors continue to face huge uncertainty.
This will add to the deterioration of household balances and as such could influence private domestic (consumer) demand.
While the wealth effect predicts a deterioration of consumption, the substitution effect would predict the exact opposite.
This paper concludes that the substitution effect is more likely in the case of real estate.
This could be explained by the fact that housing is still expensive despite declining housing prices while at the same time wages are suppressed and youth unemployment is high.
But more explanations (like prepayment risks) could be given for the positive correlation between housing prices and the savings ratio.

Introduction

The new year in China kicked off with turmoil on China’s stock markets. Amongst others, the decision of the court in Hong Kong to liquidate real estate giant Evergrande further undermined investors’ confidence in China’s stock market. A market that already had been battered during the last three years due to ongoing worries about China’s economic prospects, regulatory crackdowns, a changing geopolitical landscape and a real estate sector in crisis. While China’s stock markets have pared some of the most recent losses due to (expectations of) increased government support, investor sentiment will likely remain fragile for some time to come. Moreover, many of the recently imposed government regulations, such as short selling curbs, are likely to be temporary assuming China is really serious about attracting more foreign investments. This follows from the fact that a full functioning market environment includes the possibility to sell stocks short and let market forces determine market outcomes.

…click on the above link to read the rest of the article…

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