The focus needs to be on China right now
With Greece in the headlines it is important to pay closer attention to what is happening in China. Chris Temple brings up some good points regarding the weakness in the east and how this is impacting the commodities in general.
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It is interesting that BHP Billiton and Glencore are tracking very closely, and that Teck/Vale/Freeport-McMoran are all tracking very closely.
This kind of commodity sell-off (PMs/Oil/Base Metals) in the summer is exactly what we’ve been discussing and expecting for the June-Aug timeline. Again we are putting in the roughly 7 year low in the CRB commodity Index, so this seems right on target. Of course this could drag out until early 2016 (for the full 7 years), but this trip down in commodities, it if accelerates could be the end of the this cycle at 6 3/4 years. We’ll see how it shakes out. Good time to watch and build your shopping list of quality companies for the next wave up in commodities. It may take a few months, or if Doc is correct early 2016, but best to be prepared to take advantage when the technical indicators show we are near bottom.
http://stockcharts.com/h-sc/ui?s=%24CRB&p=D&st=2001-01-01&en=(today)&id=p31311586902
Still not seeing middle and smaller miners in Oz going bust – which is, allegedly, the aim of RIO TINTO and BHP as they do for coal/iron/copper what the Saudis are doing for oil – over-supplying an already over-saturated market.
Yes, I believe they are trying to squeeze out the smaller producers by oversupplying, but I have high hopes for some of the Australian metals miners.
Here’s an Aussie Base/Precious Metals producer that gets very little press but has a very interesting Tin/Nickle/Gold asset base, and a huge upside when things recover:
Where do Teck and Vale stand in this regard – could the go out of business if the price of coal/copper keep falling? Could they end up like Allied Nevada?
Tin is interesting.
A friend of mine writes software for steelworks in the UK and Europe. He told me something interesting a few weeks ago. He said that in recessions the UK tinplate works tend to do very well as tin can makers move from using steel to using cheaper tin. So your can of cola drink or tin of baked beans becomes made from tin rather than from steel.
I have no idea how that works with regard to mining tin but I thought it was an interesting tidbit of information.
Does not coke come in Al cans?
Yes CFS – but Al is expensive. It is a boom and bust business apparently. Al is lighter so cheaper to ship so there is some weight/cost thing going on. In times of recession the weigth/cost thing changes so tin is used apprently.
Yes CFS – most soda cans are Aluminum.
What are soda cans made of?
http://antoine.frostburg.edu/chem/senese/101/environmental/faq/soda-can-problems.shtml
Tin cans are used quite often in foods like soups and vegetables though:
“According to the Can Manufacturers Institute, over 130 billion cans are now manufactured every year just in the United States. That’s over four hundred cans per person. Of course, tin plated cans have ceded shelf space to aluminum cans, especially for beverages.”
CANNING AND THE TIN CAN
by Andrew Boyd
The reason I brought up the Australian producer “Metals X” is that besides its huge Nickel and Gold projects, it is one of the biggest players in Tin world wide:
________________________________________________________________________
Metals X – Renison Tin Project
The Renison Project is located on the west coast of Tasmania and is a world class hard rock tin deposit with mining spanning three centuries. The current Resource is 245,000 tonnes of tin metal, 78% of which is JORC measured and indicated category. Renison is held as part of a 50/50 joint venture with the largest tin producer in the world, Yunnan Tin Group. The project is targeting annualized tin production of 7-8,000 tonnes at an operating cash cost of approximately A$12-13,000/t, comparing favourably with current tin prices.
The current mining reserve estimate is 45,700 tonnes of contained tin with a resource of 153,000 tonnes of contained tin. In 2012, Metals X increased the mining reserve estimate by 23% and the mineral resource estimate by 13%.
Renison remains the only major tin project in production in Australia and one of the few publicly held tin projects in the world.”
Metals X share price seems nearer highs than lows Shad.
Belkin likes the Aussie miniers as well. I think the small and mid-size producers will survive – at lease those that have their costs under control. The problem is the big guys have so much cash and debt that will not be called that they can go on for a while.
Yes – Agreed Bob UK. Trust me, I was sick of holding it at the lows as Aussie miners just got crushed, but a number of the Australian miners had a major upswing in 2015 due to the effects of the lower energy inputs, and currency credits versus the dollar to keep costs down. Metals X also consolidated and acquired several other Australian miners over the last few years, and consolidated all these different Joint Ventures on the Central Murchison and Rover projects.
I sat on this stock for 3 years waiting for the marketplace to properly value all the Base Metal and PM assets, and only this year have Australian miners been shown any favor in the investing marketplace.
Cory – Yes I completely agree with Michael Belkin on the value that was tied up in Australian miners. Many of them have popped, so if they pullback during this commodity dip, I’ll be watching to enter new positions.
Good luck to all in their investing.
Thanks for the link.
Interesting comments Bob UK
Part of closeness in tracking may be due to currency in which company is based.
That’s a good point CFS, but Teck is a Canadian company operating worldwide, Vale is a Brazilian company operating worldwide, and Freeport-McMoran is a US company operating worldwide. I’m not sure how all the currency calculations would work in each global company, but they are owned in 3 different countries but are tracking very closely.
Amazing to see Teck and Vale down so much! When they come back it will be great, just won’t be tomorrow.
Agreed. I would think over the next month or so we may see at least a temporary bottoming in the commodity sector for a August bump. Doc has mentioned it may take until 2016 for metals to finally bottom. Who knows. We are getting very close to the 7 year mark in the CRB commodity index as mentioned, so we are finally in the window of time where we’d expect a bottom to form.
Here’s a chart showing where the CRB is at:
http://stockcharts.com/h-sc/ui?s=%24CRB&p=D&st=2001-01-01&en=(today)&id=p31311586902
I made a similar statement a month ago:
_________________________________________
On June 7, 2015 at 3:23 pm,
Shad says:
“We are ending a 7 year cyclical bear market in commodities within a 30-50 year secular bull in commodities. If you have the foresight of a longer time horizon, and an understanding of the ensuing results of the global central banks money printing longer term, then it is common sense that the commodities graph will most assuredly be pointed up and to the right. This ascent in commodities over the next 7 years will be a series of ups and downs – not a straight up trajectory.
Cycles are not perfect and it may turn out to not be exactly 7 years for the CRB to bottom, and the bear market in Gold may stretch on for more than 4 years. Nobody really knows exactly when the reversal will be, but the recent gyrations in 2015 in the currency markets and bond markets and trepidation in stock market should be telling he who has the eyes to see and the ears to hear, that something is building and is going to break out in the next few months on a global scale…..
I personally think once we get the washout in commodities for the CRB 7 year lows, that some money will come back into the commodity sector (PMs, base metals, Uranium, Oil, specialty metals, fertilizers, food & Agriculture) but this will likely be in late July or August. I’d rather be a little early to the party later this year, and if it takes until 2016 to really get going then who cares?”
Here’s a good chart from the great site – Short Side of Long:
http://i2.wp.com/shortsideoflong.com/wp-content/uploads/2015/04/CRB-Index-Performance.png
Actually, There are so many great charts on the Short Side of Long that people should just check it out directly.
** Cory & Big Al – Tiho Brkanwould be a great guest for the show sometime.
** Reposting for anyone interested:
On June 30, 2015 at 7:39 pm,
Shad says:
This is a good audio that discusses 2 very interesting paths that Gold may take over the next 3 weeks, then gold miners and in particular GDXJ’s strength this year, then it gets into the strength of Agricultural Commodities, next the “triangle” pattern forming in Emerging Markets as the range has been coiling and narrowing for 5 years, and lastly he thinks the US dollar may test the 100 level again. Very insightful thoughts.
Tiho Brkan Comments on Gold, Silver & Gold Stocks
06/26/2015 | Jordan Roy-Byrne, CMT | Featured, Podcasts, TheDailyGold Podcast
http://thedailygold.com/tiho-brkan-comments-on-gold-silver-gold-stocks/
Thanks Shad
I am in the US at the moment. Does anyone know firsthand if banking customers in Greece have access to their safe deposit boxes in banks or not at this time?
This enquiry mind wants to know rather than speculate on the truth of statements on blogs that they do not.
I believe that the answer is no, they do not.
Thanks for the Armstrong link. I have three sources now saying safe deposit boxes not accessible , but two saying they are (on Crete)
Enquiring ….. My iPad self-Incorrects again.
Great perspective Chris and Cory – thank you!
Thank you Rev!
Some energy stocks, e.g. CHK & SGY, significantly up today. (Exceeded Q2 production estimates and on seekingalpha.com.)
Thanks Professor.
That was a great segment Chris. All eyes need to be on China now. The advent of a stock market crash there should have our attention and not least because of the impact this will have on China’s GDP. As you are no doubt aware, financial investments and speculations are not counted in GDP calculations. And yet that activity now represents a sizeable portion of the economy, for better or for worse. At this time, savings (financial investments including stock speculation) would actually deduct from net GDP where capital is being leveraged and then siphoned off from the regular consumption economy and thus reducing contributions to bottom line final consumption expenditures (Y = C + I + G + (X − M). This in combination with this years relatively serious declines in real estate prices effectively neuters any wealth effect that has been enjoyed there until now. And given that the majority of investors must always be wrong where speculations are concerned (referring to stock markets in this case) we should infer that the lost capital of the majority has accrued to fewer hands during the recent declines (zero sum game) and thus GDP will experience a steeper decline had the market not spiked and fallen so sharply in the first place. My conclusion is that China will have difficulty posting even a lowly 5 or 6% growth figure in the coming year as citizens there retrench against the dual onslaught of falling home prices and a stock market that appears to be crashing. The conclusion is we that we should be prepared for a GDP figure that comes in a point or more lower in the next reporting period that will further damage commodity pricing in international markets and further disrupt confidence in the global growth outlook. As it stands, Chinese GDP growth has been in decline for many years already and that trend looks like it could accelerate abruptly unless this current stock carnage reverses course.
To put the above idea in better perspective we need to consider that consumption in China now represents more than 50% of its GDP number (source: National Bureau of Statistics as reported by China Daily). The effects of an economic retrenchment amongst consumers and the public can become a significant drag on economic growth as we witnessed following the Global Credit Crisis when savings rose, investment fell and deleveraging got underway in America. McKinsey Global reported as part of a study that each percentage point increase in the US savings rate would reduce estimated spending by more than $100 billion in the absence of incomes rising. That is a big number and the shift would be perceptible if a similar effect occurs over a short time frame in China. This same formula might also thus be applied to Chinese consumption estimates despite their much smaller consumption economy but with more serious repercussions due to the smaller share of the economy consumption currently occupies. This is especially true in the instance where the Peoples leadership has been working hard to shift the Asian giants model from one primarily reliant on exports to one of domestic private expenditures (AKA consumption). So in a nutshell, if savings rates in China rise as a reaction to falling real estate prices, if sudden deleveraging of debt ensues (margin accounts com to mind) and a crashing stock market suddenly hurt public confidence then the damage will materialize almost immediately on private balance sheets. Which means in the fewest words possible that consumption will fall sharply and eviscerate a chunk of GDP that might otherwise have been projected by the record keeping authorities. Chinese growth is therefore set to decline (not recover despite government interventions) and commodities are the likeliest target to be hurt since China is overwhelmingly the largest consumer of resources on the planet. I believe they are about to experience their long overdue hard landing and the facts will be borne out by the Chinese public reaction to a sudden loss of wealth on two fronts simultaneously; real estate and stock markets. The rest of us are going to be roadkill on the way to an Asian bust driven by the emotion of China’s speculative frenzy as it finally unwinds.
http://www.chinadaily.com.cn/business/2015-06/04/content_20907900.htm
Bob UK.
Regarding your comment of small/mid Aussie Iron Ore companies not going bust yet despite the alleged squeeze put on by BHP & RIO.
Some already have gone bust…the others who are still around have had their share price shredded…look them up !
Its NOT just about the price of Iron Ore….you need to look at the grades of it for each individual miner.
Due to lower quality grades many of these Aussie juniors & mids have to sell at a large discount to the market….far below the QUANTITY discounts both RIO & BHP can still make a profit at & will accept presently.
Many of these juniors/mids are currently dead men walking….just watch….personally I wouldn’t invest a brass razoo into any of them currently !.
Gina Rinehart’s mine (part of the Hancock dynasty) is soon to be online too….further adding to supply of Iron Ore.
The commodity market will eventually turn bullish.
But NOT all commodities will immediately increase dramatically.
Those that have excess supply (like Iron Ore) will IMO lag others that are shorter in stockpile (I’m looking more at zinc, nickel etc).
Shad also mentioned Aussie miner MLX, Shad I also think they are a good company, but I believe their Tin division down in Tassie will be a drag on their share price somewhat when the commodity bull returns. The tin market doesn’t look promising to me in the next year or two.
Anyhoo….just my thoughts.
Cheers to all.
To Chris & Cory’s discussion on commodites – here is a nice composite chart of some of the major Base Metals and Commodity players:
Featured companies: Teck Resources, Vale, BHP Billiton, Rio Tinto, Freeport-McMoran, Antofagasta, Glencore Xstrata, and First Quantum.
http://stockcharts.com/freecharts/perf.php?TCK,VALE,BHP,RIO,FCX,ANTO.L,GLCNF,FM.TO#