Wednesday, 25 November 2015

Commodity Havoc.

Baltic Dry Index. 528 +12        Brent Crude 46.35

LIR Gold Target in 2019: $30,000.  Revised due to QE programs.

Short of Turkey starting World War Three with its reckless action in Syria in shooting down a Russia warplane that posed no threat to Turkey, and at best according to Turkey was in their airspace for  just 17 seconds, a deliberate set up springs to mind, but who put them up to it, the commodity markets are signalling that something more than a run of the mill global recession is arriving. The Commodity Supercycle has round tripped. A massive malinvestment bubble is still in the early stages of unwinding. Absent a war caused by Turkey, commodity oversupply will collide with falling demand in 2016, generating a widespread wave of spectacular bankruptcies among the commodity behemoths and American frackers.

Below, commodities head towards the door marked depression.

If China Killed Commodities Super Cycle, Fed Is About to Bury It

November 25, 2015 — 12:01 AM GMT Updated on November 25, 2015 — 4:37 AM GMT
For commodities, it’s like the 21st century never happened.

The last time the Bloomberg Commodity Index of investor returns was this low, Apple Inc.’s best-selling product was a desktop computer, and you could pay for it with francs and deutsche marks.

The gauge tracking the performance of 22 natural resources has plunged two-thirds from its peak, to the lowest level since 1999. That shows it’s back to square one for the so-called commodity super cycle, a hunger for coal, oil and metals from Chinese manufacturers that powered a bull market for about a decade until 2011.

“In China, you had 1.3 billion people industrializing -- something on that scale has never been seen before,” said Andrew Lapping, deputy chief investment officer at Allan Gray Ltd., a manager of $33 billion of assets in Cape Town. “But there’s just no way that can continue indefinitely. You can only consume so much.”

If slowing Chinese growth, now headed for its weakest pace in 25 years, put the first nail in the coffin of the super cycle, the Federal Reserve is about to hammer in the last.

The first U.S. interest rate increase since 2006 is expected next month by a majority of investors, helping push the dollar up by about 9 percent against a basket of 10 major currencies this year. That only adds to the woes of commodities, mostly priced in dollars, by cutting the spending power of global raw-materials buyers and making other assets that generate yields such as bonds and equities more attractive for investors.

The Bloomberg Commodity Index takes into account roll costs and gains in investing in futures markets to reflect the actual returns. By comparison, a spot index that tracks raw materials prices fell to a more than six-year low Monday, and a gauge of industry shares to the weakest since 2008 on Sept. 29. The biggest decliners in the mining index, which is down 31 percent this year, are copper producers First Quantum Minerals Ltd., Glencore Plc and Freeport-McMoran Inc.

With record demand through the 2000s, commodity producers such as Total SA, Rio Tinto Group and Anglo American Plc invested billions in long-term capital projects that have left the world awash with oil, natural gas, iron ore and copper just as Chinese growth wanes.

"Without fail, every single industrial commodity company allocated capital horrendously over the last 10 years,” Lapping said.

Iron Ore Rout Deepens as Rising Supply, Weaker Demand Feed Glut

November 25, 2015 — 3:16 AM GMT
Iron ore has taken a fresh beating, with prices sinking to the lowest level in six years as output cuts at Chinese mills hurt demand while low-cost supplies from the biggest miners expand. It may get worse.

“The key problem for iron ore is oversupply: the iron ore heavyweights have overestimated China’s appetite,” Gavin Wendt, founding director at MineLife Pty Ltd. in Sydney, said after prices dropped on Tuesday to the lowest level since daily data began in 2009. “Further price weakness is inevitable.”

The commodity has been hurt this year by increasing output from the biggest miners including BHP Billiton Ltd., Rio Tinto Group and Vale SA and faltering demand for steel in China, where mills account for half of global output. Goldman Sachs Group Inc. said last week that the global market is oversupplied, with steel consumption in China remaining weak. Mills are battling sinking prices that have eroded profit margins.

Ore with 62 percent content delivered to Qingdao fell 1.9 percent to $43.89 a dry metric ton on Tuesday, according to Metal Bulletin Ltd. The commodity is headed for a third annual retreat, and the latest fall eclipsed the previous low of $44.59 set in July.

The steel industry in China is reaching a critical point, according to Andy Xie, an independent economist who’s been bearish for years and sees a drop below $40 before year-end. Mills will have to cut production, said Xie, a former Asia-Pacific chief economist at Morgan Stanley.

Crude-steel output in China will drop 23 million tons to 783 million tons next year, according to the China Iron & Steel Association. Last month, the nation’s leading industry group reported wider losses and noted that while official interest rates in China have been cut, mills faced higher funding costs.

Crude Storage Tanks Nearing Their Brim Spur `Super Contango'

November 24, 2015 — 5:24 PM GMT Updated on November 25, 2015 — 5:01 AM GMT
Surging U.S. crude stockpiles that have filled storage tanks near capacity are widening the discount on immediate oil deliveries.  

Spreads between monthly oil-futures contracts are often seen as a reliable gauge of market conditions, and a discount on the earliest months -- known as contango -- typically signals that supplies exceed demand. 
 Contago isn’t "going away anytime soon," Societe Generale SA analysts said in a research note on Tuesday.

"We don’t get this kind of super contango unless there are concerns about how much spare storage capacity is available," Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone.

Front-month contracts of U.S. benchmark West Texas Intermediate closed at a $1.46 a barrel less than second-month futures on Tuesday. January futures settled at $42.87 a barrel on the New York Mercantile Exchange and February futures at $44.33. WTI Cushing spot traded at a $1.90 discount to January WTI on Nymex, the most since May 2010.

"Storage offshore becomes a viable option with these kind of spreads," Evans said. "It costs about 45 to 50 cents a barrel per month to store crude on land. It rises to the $1-to-$1.25 per barrel a month range, depending on the specific vessel, when stored on a tanker."

Nationwide, crude supplies climbed to 487.3 million barrels in the week ended Nov. 13, the highest for the time of year since 1930, Energy Information Administration data show. 

Energy Companies Risk $2.2 Trillion as Climate Goals Cut Demand

November 25, 2015 — 12:01 AM GMT
Oil, natural gas and coal producers are risking $2.2 trillion by investing in projects for which there will be no demand if the world meets a United Nations target of limiting the rise in temperature to less than 2 degrees Celsius, a non-profit think tank said.

No new coal mines are needed, oil demand will peak around 2020 and growth in gas will disappoint industry expectations, Carbon Tracker Initiative said Wednesday in a report. The U.S. has the greatest exposure with $412 billion of projects at risk up to 2025, followed by Canada with $220 billion, China $179 billion, Russia $147 billion and Australia $103 billion, according to the think tank.

“Too few energy companies recognize that they will need to reduce supply of their carbon-intensive products to avoid pushing us beyond the internationally recognized carbon budget,” James Leaton, head of research and co-author of the report, said in a statement. “Clean technology and climate policy are already reducing fossil fuel demand. Misreading these trends will destroy shareholder value.”

Policy makers, including about 140 heads of state, are scheduled to meet in Paris next month as they work toward an international agreement to reduce greenhouse gas emissions and limit global warming to 2 degrees Celsius (3.6 degrees Fahrenheit). Europe’s biggest oil companies, including Royal Dutch Shell Plc and Total SA, have come together to promote natural gas as a cleaner fuel to meet growing energy demand. 

The biggest risk is to the oil industry, with $1.3 trillion of spending on new projects and $124 billion on existing ones unlikely to be needed over the next decade because there won’t be any growth in demand, Carbon Tracker Initiative said. About $532 billion of natural gas projects and $219 billion of coal will also be left “stranded,” it said.  

At the Comex silver depositories Tuesday final figures were: Registered 43.54 Moz, Eligible 116.33 Moz, Total 159.87 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
As if the trouble between Turkey and Russia wasn’t enough, some 3 million a year Russian tourists are now likely to boycott Turkey, Russia seems about to retaliate against the Ukraine for not making any effort to repair the downed power lines to Crimea, and for their rail and freight embargo on the Crimea peninsula. Europe may soon have another wave of migrants to worry about this time streaming into Poland.

Russia says to halt gas supplies to Ukraine, mulling coal cut off over Crimea

Tue Nov 24, 2015 7:17am EST
Russian Energy Minister Alexander Novak said Moscow would cut gas supplies to Ukraine on Tuesday or Wednesday because Kiev had not paid up front for more gas and might also halt coal supplies to Ukraine in retaliation for a power blackout of Crimea.
Alexander Novak, in comments to Vesti FM radio station, was speaking as Russian-annexed Crimea continued to rely on emergency generators to meet its basic power needs after unknown saboteurs blew up electricity pylons supplying the peninsula with electricity over the weekend.
Pro-Ukrainian activists have so far prevented repairs to the damaged pylons and associated power lines.
"Today or tomorrow gas deliveries will be stopped because of lack of advance payment," said Novak, saying Ukraine was in any case using very little Russian gas.

He complained that Ukrainian authorities were not doing what they needed to allow repair crews to restore power to Crimea "out of some kind of political motivation", calling their inaction a crime.

"There are different options, political ones, economic ones," said Novak, when asked how Russia could retaliate.
"Russia delivers coal to the Ukrainian energy sector. We could, and maybe in this situation we need to, take a decision about halting deliveries of coal by our commercial organizations which deliver coal to Ukrainian power stations."

Main French opposition calls for end to EU embargo on Russia

Tue Nov 24, 2015 7:17am EST
France's main opposition party, The Republicans, on Tuesday called on President Francois Hollande to push for an end to the European Union sanctions on Russia over its activities in Ukraine.
"That's the sensible position," said Christian Jacob, president of former French president Nicolas Sarkozy's The Republicans party, ahead of a visit by Hollande to meet Russian counterpart Vladimir Putin in Moscow later this week.
Sarkozy has long pushed for a more conciliatory approach toward Russia.

Solar  & Related Update.

With events happening fast in the development of solar power and graphene, I’ve added this new section. Updates as they get reported. Is converting sunlight to usable cheap AC or DC energy mankind’s future from the 21st century onwards? DC? A quantum computer next?

Posted: Nov 23, 2015

International Graphene Centre launches in Beijing

(Nanowerk News) The China-UK collaborative effort to support the development an international graphene standards and testing centre was officially launched at Zhongguancun Fengtai Science Park, Beijing, China, in October 2015. As the demand for international standards for testing graphene increases, the Centre in Beijing will lay the foundation for the development of graphene industry and high-end applications in China.
A China-UK graphene conference was held as part of the launch activities on the 24 October 2015 and graphene experts from China and the UK's National Physical Laboratory (NPL) discussed graphene R&D progress and the development of graphene international standards; the discussions included NPL's work in this area and the related testing methods.
The graphene conference was part of a programme of activities between NPL, Beijing Zhongguancun Fengtai Science Park and the associated Beijing Fengtai New Materials Inspection Institute (BFM) agreed in a Memorandum of Understanding signed in Spring 2015, to support the development of standards and testing in China. Efforts are being made to promote the implementation of standards in China and to introduce new methods of measurement by establishing non-contact and contact-type testing facilities for electrical and structural properties of graphene and other 2D materials at the centre. During the conference, the Chinese Association for Promoting Cooperation between Universities and Industries agreed a strategic cooperation for the centre, which will enable the integration and utilisation of the resources of universities and research institutes. This will lead to knowledge transfer and dissemination of testing standards for the establishment of China's graphene characterisation platform and applications platform.
The Vice Mayor of Fengtai District, and Fengtai Park director, Jie Zhang, said that the Zhongguancun Fengtai Park is now actively building an international graphene centre, and that the cooperation of NPL and other international research teams will be instrumental to the success of the centre. NPL's Principal Research Scientist, Ling Hao, added that the partnership with Fengtai Science Park, BFM and other Chinese organisations will be "a win-win collaboration" for graphene research, development and application for both the UK and China.

The monthly Coppock Indicators finished October

DJIA: +31 Down. NASDAQ: +125 Down. SP500: +53 Down. 

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