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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…

It’s Not Just Gold. This Is A Full-On Commodities Bull Market

May 19, 2024

It’s Not Just Gold. This Is A Full-On Commodities Bull Market

Which, ironically, is a good reason to be careful

First, uranium had a nice run. But it was all alone for a depressingly long time.

That changed a couple of months ago as gold, silver, and copper began runs of their own:

Nickel, meanwhile, has staged a nice recovery from its brutal late 2023 flash crash:

The point? This isn’t just gold breaking out of its trading range. We’re witnessing the launch of a broad-based commodities bull market. And history says that once such a thing gets started, it can persist for a very long time (on the following chart, CAGR stands for “compound annual growth rate”).

Another way of analyzing this trend is to compare commodities to equities. The next chart is a bit outdated but its point remains valid: Commodities are dirt cheap relative to the S&P 500, and if history repeats, gold, copper, etc., should outperform tech and financial stocks for another decade or two.

Keep a Cool Head

This is potentially a once-in-a-generation cycle, with “real” replacing “financial” in the esteem of momentum traders. But don’t jump in with both feet. The charts on this page contain multiple bull market corrections. And after the nice recent run, a double-digit percentage loss for many commodities won’t be surprising.

So continue to buy high-quality commodities stocks gradually via low-ball bids, dollar cost averaging, or put writing.

Here’s Why Magazine Covers Reveal the “Market Zeitgeist”… What Investors Should Do Instead..

April 26, 2024

Here’s Why Magazine Covers Reveal the “Market Zeitgeist”… What Investors Should Do Instead..

Too many times in the past have I seen covers like this… and a few years later it didn’t turn out too bullish!

We covered magazine covers before as a great way to gauge “market zeitgeist.” It will be a while before we see offshore oil and gas, coal, or uranium hailed as a worthwhile investment on these covers. And when it happens, that’s when you’ll know it might be a good time to offload our positions. In other words, there’s still a lot of upside available in the hated sectors we focus on here at Insider.

Offshore Juice

Coming back to the offshore oil and gas theme…

Oil Majors Set To Sanction $125 Billion Upstream Projects in 2024

International oil and gas majors and the Middle East’s national oil companies are expected to give the green light this year to up to 30 projects, worth a total investment of $125 billion and holding an estimated 14 billion barrels of oil equivalent (boe) of resources.

That’s the estimate in Wood Mackenzie’s latest analysis of upstream oil and gas projects expected to reach final investment decisions (FIDs) in 2024.

And who stands to gain by all this spend? Oil and gas service companies — still the world’s worst performing sector over the last 10 years and still down some 80% from the start of 2012.

Philadelphia Oil and Gas Equipment and Services Index relative to S&P 500 indexed

Australia: Lights Out or Diesel?

This is Hegelian dialectic (an interpretive method in which the contradiction between a proposition and its antithesis is resolved at a higher level of truth) at play in the land down under.

Let the lights go out (let our standard of living go backwards) or burn diesel (maintain our standard of living)? You guessed it…

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

Trading Houses Will Collapse As “Margin Call Doom Loop” Goes Global, Trafigura CFO Warns

March 23, 2022

Trading Houses Will Collapse As “Margin Call Doom Loop” Goes Global, Trafigura CFO Warns

Sometimes repo guru Zoltan Pozsar is so far ahead of his time, it takes the “experts” weeks just to read up on all the required source docs to even grasp what he is talking about.

Last week we reported that the Bloomberg news that one of the world’s largest independent energy merchants – the secretive Trafigura which trades hundreds of billion in commodities every year – was facing “margin calls in the billions of dollars” meant that the commodity “margin call doom loop” idea floated more than three weeks ago by Pozsar who warned that commodity traders and clearinghouses could be facing a liquidity crisis of historic proportions, was coming true and despite Barclays’ earnest attempts to minimize its impact, could threaten broader financial stability and was manifesting itself in broad liquidity squeezes which could be observed in the surge in such unsecured funding markets as the FRA-OIS.

That was just the start, because the very next day Zoltan was proven correct again, after the FT reported that Europe’s largest energy traders have taken the place of Europe’s insolvent banks in calling on governments and central banks to provide “emergency” assistance to avert a cash crunch as sharp price moves triggered by the Ukraine crisis strain commodity markets.

Yes, that’s what happens when a “margin call doom loop” goes global.

The FT wrote that in a letter it had seen, the European Federation of Energy Traders, a trade body that counts BP, Shell and commodity traders Vitol and the margin-call stricken Trafigura as members, said the industry needed “time-limited emergency liquidity support to ensure that wholesale gas and power markets continued to function”.

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

“The Market Is Starting To Fail”: Buyers Balk At Russian Oil Purchases Despite Record Discounts, Sanction Carve Outs

March 1, 2022

“The Market Is Starting To Fail”: Buyers Balk At Russian Oil Purchases Despite Record Discounts, Sanction Carve Outs

While in their unprecedented broadside of sanctions on Russia, the U.S. and Western allies went out of their way to spare Russian energy shipments and keep economies humming and voters warm, the oil market has gone on strike anyway. Acting as if energy were already in the crosshairs of Western sanctions officials, refiners have balked at buying Russian oil and banks are refusing to finance shipments of Russian commodities, the WSJ reports citing traders, oil executives and bankers.

This self-imposed embargo which has effectively halted a majority of Russian oil shipments, threatens to drive up energy prices globally by removing a gusher of oil from a market that was tight even before the Russian invasion of Ukraine. Meanwhile, Russia, waging war and in need of revenue with its financial system in turmoil, is taking extreme steps to convince companies to buy its most precious commodity.

We previously reported that owners of oil tankers had already started to avoid Russian ports because of both the military invasion of Ukraine and apprehension that sanctions for oil could also come soon, and as a result rates for oil tankers on Russian crude routes had exploded as much as nine-fold in the past few days.

But now, amid growing fears they will fall afoul of complex restrictions in different jurisdictions, refiners and banks are balking at purchasing any Russian oil at all, traders and others involved in the market say. Market players also fear that measures that target oil exports directly could land as fighting in Ukraine intensifies.

“This is going to make it very complex to trade with Russia,” Sarah Hunt, a partner at law firm HFW who works with commodities traders, said of the sanctions laid out as of Monday. “These sanctions against Russia will have an incredible effect on global trade and on trade finance.”

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

JPMorgan Publishes Terrifying Take On What Ukraine Crisis Will Do To Commodity Prices

February 23, 2022

JPMorgan Publishes Terrifying Take On What Ukraine Crisis Will Do To Commodity Prices

So far western media has been relatively silent on what the escalating Ukraine crisis means for western consumers when it comes to prices for everyday commodities such as oil, gas, wheat, corn (and gold, for the goldbugs), and with good reason: as the Russian ambassador warned, “ordinary Americans” are about to feel the pain. As such it is understandable that the pro-Biden media is hoping to avoid discussing the consequences to America’s checkbook from the escalation in Ukraine: after all, the last thing hundreds of millions of Americans want to hear is that already sky high prices are about to get even higher.

JPMorgan’s commodity desk, however, has no such political considerations and in a must-read note published earlier today by the bank’s commodity strategist team led by Natasha Kaneva (available to pro subs in the usual place), the bank writes that “geopolitical escalation over the last few days has materially increased the risk of further aggravating commodity market imbalances. At this stage of the conflict, it is hard to see a path towards an easy de-escalation.” Consequently, JPM now expects “a steady rise of tensions in Ukraine and a corresponding intensification of sanctions from the West.” In that case, the bank warns that “the world could see an extended period of elevated geopolitical tensions and high risk premium in all commodities given Russia’s far reaching impact on global commodities markets.“

First, JPMorgan looks at what the impact on oil could be and it’s not pretty.

Confirming what we wrote just two days ago in “Oil Prices Will Be Above $100 For A “Prolonged Period“, Kaneva notes that Russia has always been a reliable supplier of oil, even at the height of the Cold War…

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

Someone is betting that oil will soar to a record US$200 per barrel

October 6, 2021

Someone is betting that oil will soar to a record US$200 per barrel

Crude oil prices are falling after inventories revealed a build in stockpiles for the first time in eight weeks after natural disasters knocked several U.S. refineries offline.

Could the energy crunch get so bad that oil prices hit US$200 a barrel? One options trader thinks so.

Brent US$200 calls for December 2022, options contracts that would profit a buyer from a rally toward that level, traded 1,300 times on Wednesday. While the contracts don’t expire until October next year, they could profit from any sharp spike in prices this winter or next summer.

In a market where a single cargo of crude would currently fetch about US$160 million, the US$130,000 wager on oil reaching an all-time high is tiny. However, it reflects the fact that a growing number of options traders are betting that an energy crunch this winter may see prices rip higher.

Embedded Image Brent crude, the global benchmark, hit US$80 for the first time in three years this week. Market watchers see demand exceeding supply to the tune of more than a million barrels a day and expect that switching from gas to oil because of high power prices could exacerbate that deficit. Bank of America Corp. this week underlined an earlier call that crude could top US$100 a barrel at some point over the winter, if it is exceptionally cold.

It’s not just US$200 calls that have been trading in recent days. Holdings in Brent US$100 calls through to the end of next year have climbed by 20,000 contracts this month.

World’s Largest Commodity Traders Face Massive Margin Calls As Global NatGas Arb Explodes

October 4, 2021

World’s Largest Commodity Traders Face Massive Margin Calls As Global NatGas Arb Explodes

Just one week ago, we highlighted the first victim of the latest “rogue wave” in global natural gas markets.

As Miami-based Statar Capital gave up its “hefty gains” from earlier in the year, tumbling into the red amid the NatGas market turbulence, we warned that it would not be the last fund to admit major losses through this period of chaos.

It appears we were right, and three years after James Cordier – head trader at OptionsSellers.com – became infamous after a “catastrophic loss event” thanks to a “rogue wave” in NatGas options markets, Reuters reports on what could be the next escalation in energy markets,

Seven sources with direct knowledge of the matter told Reuters that the world’s top commodity trading houses are being told by brokers and exchanges to deposit hundreds of millions of dollars in extra funds to cover their exposure to soaring gas prices.

Glencore, Gunvor, Trafigura and Vitol are among the commodity merchants facing massive margin calls on their positions in natural gas markets across Europe and US.

According to reports, it appears the trading shops have all been hammered by a spread (or arbitrage trade) gone wrong.

For years, the prices of European (red) and US natural gas (green) have traded within a well-defined range. When the spread between the two reaches one extreme or the other, you buy one and sell the other – easy, right?

Source: Bloomberg

So as European NatGas prices surged in Q2, it reached a notable extreme relative to US NatGas, prompting traders to instigate the strategy of selling European Gas and Buying US Gas in the hopes the spread compresses.

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

Commodities, Supply-Chains and Structural Changes in Demand

July 17, 2021

COMMODITIES, SUPPLY-CHAINS AND STRUCTURAL CHANGES IN DEMAND

Talk of a new commodity super-cycle may be premature
Once GDP growth returns to trend, commodity demand will moderate
Fiscal and monetary relief are key to maintaining growth and demand
Structural changes in energy demand will prove more persistent

As the spectre of inflation begins to haunt economists, many market commentators have started to focus on commodity prices in an attempt to predict the likely direction of the general price level for goods and services. This indexing of the most heterogeneous asset class has always struck me as destined to disappoint. Commodity prices change in response to, often, small variation in supply or demand and the price of some commodities varies enormously from one geographic location to another. Occasionally the majority of commodities rise in tandem but more frequently they dance to their own peculiar tunes.

Commodity analysts tend to focus on Energy and Industrial Metals foremost; Agricultural Commodities, which are more diverse by nature are often left as a footnote. Occasionally, however, a demand-side event occurs which causes nearly all sectors to rise. The Covid-19 event was just such a shock, disrupting global supply-chains and consumer demand patterns simultaneously.

The chart below shows the CRB Index since 1995: –

Source: CRB, Yardeni

This chart looks very different to the energy heavy GSCI Index, which is weighted on the basis of liquidity and by the respective world production quantities of its underlying components: –

Source: S&P GSCI, Trading Economics

The small rebound on the chart above is not that insignificant, however, it equates to a 55% rise since the lows on 2020. The fact that prices collapsed, as the pandemic broke, and subsequently soared, as vaccines allowed economies to reopen, is hardly surprising. Economic cycles wield a powerful influence over commodity prices; short-term, inelastic, supply, confronted by an unexpected jump in demand, invariably precipitates sharp price increases.

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

Rabo: We Are Edging Closer To A Biblical Commodity Price Increase Scenario

April 28, 2021

Rabo: We Are Edging Closer To A Biblical Commodity Price Increase Scenario

We Need Some Serious Remodelling

Yesterday’s Daily saw me float the model hypothesis that the Fed would like everyone to have all their money in stocks, so they would have a practical mechanism for inflating and deflating the economy above and beyond the need to mess around with interest rates or QE. Of course, this was a huge over-simplification. In particular, it overlooked housing: why bother only inflating stocks when not everyone holds them, when you can do the same to housing, which everyone needs? Lo and behold, yesterday’s S&P/CoreLogic 20-city prices were up 11.9% y/y. (A figure the RBA will look at with smug contempt: “That’s all you got?”)

Presumably the matching rise in US consumer confidence was driven more by stimulus checks in the mail than rent checks going out the door, or chats with realtors about affording a home in a country not exactly famous for its lack of available land. Yet surely the Fed is still missing a trick? Just switch to a digital currency, like China, and assets can be turned on and off at will, and there is no need to go through with the pretense of inflating asset markets in lieu of the general economy.

Yesterday’s Daily was also a vowel-less attempt to emphasize what is missing from the macro-models the Fed uses to form the view it will share with the world later today – in-between pushing up stock and house prices:

Functioning banks and credit are not part of it. Professor Steve Keen’s ‘Minsky’ software is unlikely used in the Eccles Building to spit out hockey-stick recoveries; or, if it is, the users really don’t understand what it implies is going to happen next;

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

On The Verge Of A Global Crisis: One Bank Warns Of A “Biblical” Surge In Food Prices

March 19, 2021

On The Verge Of A Global Crisis: One Bank Warns Of A “Biblical” Surge In Food Prices

Biblical, Lean, and Mean: ‘Dreams’ of an agri-commodity super-cycle

Then Pharaoh said to Joseph: “Behold, in my dream I stood on the bank of the river. Suddenly seven cows came up out of the river, fine looking and fat; and they fed in the meadow. Then behold, seven other cows came up after them, poor and very ugly and gaunt, such ugliness as I have never seen in all the land of Egypt. And the gaunt and ugly cows ate up the first seven, the fat cows. When they had eaten them up, no one would have known that they had eaten them, for they were just as ugly as at the beginning. So I awoke.”

– Genesis 41:17-21

Summary

Key feed and food prices have been pulled to 9-month and 7-year highs
We explore the ‘dream’ of Biblical scarcity; its origins and impacts; and draw comparisons with Joseph, the trader and central planner who avoided starvation for ancient Egypt
One point is clear: global food insecurity falls heaviest on lower income, importing nations, who spend a far greater share of their income on food than the richer ones
The Fed would play an ironic role in this process even as it embraces fighting poverty and inequality alongside inflation
This could exacerbate (geo)political risk – potentially even regarding institutional architecture

Our Base Commodity Call

At time of writing, our forecasts for three of the world’s key agri commodities, soybeans, corn, and wheat are as follows:

The First Big Commodity Call

In the Bible, Joseph interpreted Pharaoh’s dream as meaning great abundance for seven years would be followed by an equal famine. He was then entrusted with ensuring Egypt’s storehouses were full of grain so the country could survive – which he, and it, did.

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

The End Game

December 27, 2020

The End Game

Dear Investors:

Markets are cyclical. Today, stocks trade at record high valuations while commodities are historically undervalued in relation. The setup is in place for a macro pivot in the relative performance of these two asset classes. Comparable conditions were present with the 1972 Nifty Fifty and 2000 Dotcom bubbles as we show in the chart below.

As capital seeks to redeploy towards the highest growth and lowest valuation opportunities, we expect analytically minded investors will soon be rotating, if not stampeding, out of expensive deflation-era growth equities and fixed income securities and into cheap hard assets, creating a reversal in the 30-year declining trend of money velocity.

Today’s Modern Monetary Theory world with its double barreled fiscal and monetary stimulus is crashing head on with an accumulation of years of declining investment in the basic industries such as materials, energy, and agriculture. In our analysis, the “end game” for the Fed’s twin asset bubbles in stocks and bonds is inflation. We can already see it developing on the commodity front.

The scarcity of jobs and abundance of debt were factors preventing the economy from reaching its full growth potential even before Covid-19. Such have been the concepts underlying the output gap, the theoretical paradox that is thought to have held inflation in check over the course of the last business cycle. But based on comparable historic periods, the macro setup for inflation is more likely to be kicked off by an input gap, i.e., shortages in the primary resources needed for both a strong reserve currency and economic growth at the same time as policy makers pull out their biggest bazookas yet to boost aggregate demand. We expect a new wave of rising commodity prices, set up by past underinvestment in basic resources, to soon ripple through the global supply chain creating a headwind for real living standards. Welcome to the Great Reset.

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

THE FORMER INDUSTRIAL METAL: The Silver Price Surges As Copper & Oil Get Crushed

October 2, 2020

THE FORMER INDUSTRIAL METAL: The Silver Price Surges As Copper & Oil Get Crushed

The notion that silver is just an “Industrial Metal” was utterly destroyed today as both the copper and oil prices were crushed as silver surged higher. This is precisely what I was looking for as a positive sign showing that silver is now disconnecting itself from the INDUSTRIAL METAL BALL & CHAIN.

While analysts will continue to regurgitate that the future silver price depends on industrial demand, we can now take this analysis and throw it into the dustbin. The world is heading into a new paradigm of “Building Wealth to Protecting Wealth.” And let me tell you, you cannot protect wealth in most STOCKS, BONDS, or REAL ESTATE. Those days are over for good.

Unfortunately, 99% of investors still haven’t figured that one out yet… but they will.

Today, it was quite an impressive day for silver (and gold) as the metals surged higher while copper, the king industrial metal, got destroyed. Here is a chart of the copper price versus silver.

As we can see, copper is down 5% while silver is up 2%. Thus, the leading indicator of the global economy, COPPER, just put out a very BAD SIGNAL, indeed. Now, if silver was just a mere industrial commodity, why didn’t it’s price follow along with copper???

And, if that isn’t bad enough, take a look at the WTI Oil price. The West Texas Intermediate oil price was down 5% as well.

With the U.S. oil price falling $2 in one day, that just wiped out $21 million in oil revenues to the oil companies. This is also terrible news for the U.S. Shale Oil Industry is being held together by DUCT TAPE, BAILING WIRE, and ELMERS GLUE.

Today, I also posted the broad selloff in oil on my SRSrocco Report Twitter feed:

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

$65 Oil And $5000 Gold: Traders Expect Volatility In Key Commodities

September 13, 2020

$65 Oil And $5000 Gold: Traders Expect Volatility In Key Commodities

The year of the pandemic put two commodities under the spotlight, but for different reasons. Gold prices hit an all-time high in August, while crude oil slipped into negative for a day in April, when demand crashed and inventories soared.

Both oil and gold have seen much volatility this year. Oil prices started 2020 at over $60 a barrel, dipped to the low teens in April – with front-month WTI Crude futures settling one day at a negative price – and rose to $40 in the summer, staying rangebound since then. The crash in demand pushed oil lower, while increased uncertainty over the economic and oil demand recovery, as well as the fears of a second COVID-19 wave, pushed investors to seek safe havens such as gold, driving the precious metal’s price to an all-time high of $2,075 an ounce last month.

The wild rides in the two commodities could represent buying opportunities, analysts argue, expecting oil and gold to rise in the medium term.

For oil, the uptrend may not come as soon as it could in gold, because of the heightened concern about the stalled demand recovery. Still, investment banks and analysts expect prices to increase from current levels over the next one to two years, especially if an effective vaccine hits the markets in 2021.

For gold, low or negative interest rates, continued economic stimulus, and the perception that gold is a hedge against uncertainty about the economy and the upcoming U.S. presidential election are expected to drive prices higher.

Alissa Corcoran, Director of Research at Kopernik Global Investors, told MarketWatch’s Myra P. Saefong that the short-term volatility in commodities could be an opportunity instead of risk.

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

Overcapacity / Oversupply Everywhere: Massive Deflation Ahead

April 16, 2020

Overcapacity / Oversupply Everywhere: Massive Deflation Ahead

The price of a great many assets will crash, out of proportion to the decline in demand.

Oil is the poster child of the forces driving massive deflation: overcapacity / oversupply and a collapse in demand. Overcapacity / oversupply and a collapse in demand are not limited to the crude oil market; rather, they are the dominant realities in the global economy.

Yes, there are shortages in a few high-demand areas such as PPE (personal protective equipment), but across the entire spectrum of global supply and demand, there is nothing but a vast sea of overcapacity / oversupply and a systemic decline in demand as far as the eye can see.

Here’s a partial list of commodities that are in Overcapacity / oversupply:

1. Overvalued assets

2. Overpriced income streams (as income craters, so will the asset generating the income)

3. Labor: low-skill everywhere, high-skill in sectors experiencing systemic collapse in demand

4. AirBnB and other vacation rental properties

5. Overpriced flats, condos and houses

6. Overpriced rental apartments

7. Overpriced commercial office space

8. Overpriced retail space

9. Overpriced used vehicles

10. Overpriced collectibles

I think you get the idea.

Should China restart its export factories, then almost everything being manufactured will immediately be in oversupply, as the global export sector was plagued with mass overcapacity long before the Covid-19 pandemic crushed demand.

Incomes will crater as revenues and profits crash, small businesses close their doors, never to re-open, local governments tighten spending, and whatever competition still exists will relentlessly push the price of labor, goods and services lower.

Globalization has generated hyper-specialization in local and regional economies, stripping them of resilience. Fully exposed to the demand flows of a globalized class of consumers with surplus discretionary income, regions specialized in tourism, manufacturing, commodity mining, etc.

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

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