Tuesday, 11 November 2014

How do you know when the bottom is in for commodities?

Basically we never do until we are far enough above the base to recognise it as one, but the cynic in me is starting to see some signs that we are close to a pause if not a bounce -

ANZ sharply reduces its 2015 target for iron ore from $101/tonne to $78 after prices move down from $101 to $76 in the last 6 months.

Citi sharply reduce theirs further to $65 in a leap-frogging motion. On the comparison between the two banks I do wonder how much influence  'not wanting to upset your local client base' has on published price forecasts. And anyway, if  their forecasting has such swing errors should we be bothering with them in the first place?

China is cited as bearish and not buying inventory (so when demand does kick in they will have no buffer and will have to buy fast).

BDIY ( Baltic Dry Shipping Index), the chart that only seems to be wheeled out in disasters, puts on a quiet 65% rally in the last three weeks without anyone mentioning it leaving it 100% up from July.

Tullow Oil stock starts going up again despite oil not bouncing.

Folks sell the whole of their High Yield portfolios because of the impact the energy sector has had on them, without caring that they are throwing babies out with the bathwater.

UK newspapers speculate about sub £1/litre fuel.

'We Buy Gold' shops sell up (courtesy of @BasonAsset twitter)

Thieves stop stealing copper wire and start replacing the lead on the church roofs. Ok not there yet, but at least the number of phone and train failures in the UK due to copper theft has dropped dramatically.

Winter comes to Europe.


One last call before I go, and it's a bubble call related to corn. Not to corn itself but to a derivative - It is pretty clear that there is a bubble in popcorn making when there are more popcorn making startup companies run by ex-private schoolboys than farmers growing it and producing it in more flavours than there are zinging hipster tempting retro marketing slogans framed in pastel colours on the packaging. In the UK the market is estimated to be worth £55m a year so by my my rough calculations that's only enough to support 12 Tarquins and three red trousers.

When popcorn pops, don't say I didn't warn you. Where's the regulator?


JohnL said...

is this what you had in mind, re: the pop corn? http://stockcharts.com/c-sc/sc?s=CAG&p=D&b=1&g=0&i=t35862702394&r=1415673474456

Anonymous said...

Regarding iron ore and future Chinese demand professor Pettis has some thoughts on the subject.


Polemic said...

He's a clever man that Prof Pettis but I have to say most of the thoughts expressed in that piece are looking back and explaining, in a valedictory way, why he was right to think prices would get to here, with very little reference as to what next other than his 'lower bound' was $50/tonne.

As ANZ point out in their research, sub $70 and 300m tonnes of production a year become unprofitable and with the market balance only predicted to be 56m tonnes surplus for 2015 thats a sizeable chunk of supply. Of course not all supply is switched off as prices fall through 'unprofitable' and there will be lagging hedges to buy time too for those who weren't too greedy. And of course these guys have had some healthy profits in the past and 'should' have some cash in the coffers if they didn't go and spend it all on new infrastructure (you did? oh silly you).

So yes. $50 is possible ( as is any price) in shorter term but unlikely to hold in the long term as closures would inevitably hit supply.

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