reports
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Commodity snapSHOT - China's seasonality, illustrated
‘Sell in May and go away’. Is there a fundamental basis for this old trade expression in Commodity World? We think so, at least for China’s 1Bnt/yr steel & iron ore trades. For many years now, we’ve been flagging China-related upside risk in steel/ore trade flows and prices, in the early months of every calendar. It’s that country’s post-northern winter competitive restock, to secure its 80%-share of seaborne ore supply. This seasonal kick almost always reports across China’s trade/conversion/de...
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Restocking Indicator stays on SELL - Demand deteoriates sharp...
The Restocking Indicator is having a bearish year. The signal has reported a SELL, or very close to it, since late January. This month saw the sharpest new orders contraction since last July. Mills remain firmly in destock mode; China’s reopening trade continues to disappoint; confidence in real estate is weak. We still expect market signals to define floors in H2, with upside risk building later in the year – most likely on 2024’s industrial restock.
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Commodity redEYE - Cold War's critical commodities
Has a new Cold War begun? Based solely on the evolving commodity supply strategies of major economic powers, we think so. Key players of the last Cold War – the US, EU & Japan – have already identified commodities which they regard as ‘critical’ inputs for stable economic growth. Now, they’re moving to secure the supply chains of these inputs, mainly by activating old trade alliances. Here, we explain the catalyst for policy change + offer one definition for ‘critical’ + flag S/D/price risks for...
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Commodity snapSHOT - What value, Commodity World?
What are global commodity markets worth? About US$6.5tn – Metals, Steels and Energy. While this figure’s down a massive 20%YoY, it’s still the 3rd-highest on record. Why did it fall? Dominant driver’s the passing of 2022’s war-prompted inflation, partly a response to a US Fed-led rate hikes. Curiously, commodity supply/demand/trade shifts over the past year have been quite modest, with most markets expanding in-line with broader economic growth, while shouldering extreme price trend-shifts and v...
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Commodity redEYE - China’s short coal, again
Coal prices are languishing at shoulder season-lows + industry feedback suggests coal inventories across Asia/Europe are high/rising …so why has China just officially terminated its self-imposed ban on Australian coal imports? Is it a charm-offensive, to engage Australia’s still-new federal government? Perhaps. But a review of China’s power industry signals suggests that a fundamental reason to restore this 80Mtpa trade link may also exist…
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Commodity snapSHOT - Left-field bear factors
For over a year now, we’ve flagged 3 x bear factors for Commodity World: 1. US Fed’s inflation-rates; 2. China’s growth challenges; 3. Russia’s war. Happily for our big call, most commodity prices have been capped since mid-January, even sliding a bit over recent days/weeks. Just between us, though – the dominant price drags right now seem to be left-field ones we never saw coming: 1. US govt. debt ceiling drama; 2. on-going bank sector anxieties (SVB, SB, FRB, CS). News flow on these two themes...
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Commodity snapSHOT - Speculators vs. Commodities
‘Dude, you’re forever going on about US Fed rate hikes and exiting speculators, all dragging on your commodity price outlook. Got any numbers to back that view?’ True, we regard the Fed’s rate hike as central to our short-term bear call for Commodity World. Why? Because since early 2022, most changes in Metal/Energy prices can be explained in terms of the Fed’s rate hikes. Prices are more sensitive to these events than to lockdowns in China, Russia’s war or even to big changes in industry/trade ...
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Commodity snapSHOT - Chile’s govt. ambushes Lithium World
‘...the state will participate in the whole [lithium] production cycle and create a national lithium company to do so’ - Gabriel Boric, President of Chile Last week, Chile’s government surprised the global lithium market by announcing its plan to partly nationalise its local mining industry. While it still needs Congressional approval, the political push alone may be sufficient to undermine the longer-term investment rate in Chile’s lithium supply growth. Why? Investors are likely to divert mor...
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Commodity snapSHOT - The trouble with Cobalt
A year ago, Glencore loved cobalt. Why? Well, every mobile/laptop/top-quality EV battery contains cobalt + cobalt is not thermal coal + being the world’s largest cobalt miner, Glencore can lift cobalt’s price simply by shutting one of its DRC mines. A year later, and the love has clearly soured. Is this because cobalt’s price has halved? Nope. Easily fixed, with another mine closure. It’s the co-ordinated cut in cobalt-use by EV World that troubles Glencore. It’s a bad thing, because all sensibl...
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Restocking Indicator stays on hold - Mills lack confidence on...
The Restocking Indicator stays on HOLD, and so matches up with our short-term expectation that iron ore prices will be range bound for the next couple of months. There has been an improvement in domestic demand, but no post-lockdown ‘fireworks’ in play. Certainly not enough to get China’s steel mills, or us, excited on the short-term steel/ore outlook. Worth keeping an eye on rising pollution levels, for this could prompt policy action and lift lump/pellet/high grade premiums – bullish for AAL/F...
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Commodity snapSHOT - Power inputs – price floors forming
Global prices for two key fuels used in base load power generation – Thermal Coal and Natural Gas – have now fallen by 40-70% from their early Dec-23 peaks. The pullback is on the demand-hit of an abating northern winter – compounded this year by other mainly Europe-centric factors. Highly, positively correlated coal/gas price performances themselves reflect efficient, mutual fuel substitution by major coal-/gas-fired power-gen industries of Europe-Asia-Americas. It follows that we expect key pr...
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Restocking Indicator back to Hold - Demand improves, but inve...
The Restocking Indicator has upgraded to HOLD, after reporting a sell last month. Domestic demand has improved, although it is still being outpaced by the expansion in finished inventories. We believe a neutral sector call is sensible, ahead of China’s National People’s Congress this weekend. This annual event typically features the central government’s growth strategy for the year. Note, we do not expect stimulus fireworks, given the demand recovery reported over recent months. Statements on po...
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Commodity redEYE - Glencore’s cobalt outlook, quizzed
Last week, another GLEN annual earnings report = another record-high. This year, EBITDA’s up by an astounding 60%YoY to $34bn – delivered on the back of 2022’s record-high prices for commodities in which this company is a global mining major: thermal coal + copper + zinc + nickel + cobalt. Hot investor topics? GLEN’s ballooning working capital requirements + plunging coal prices. And for us? Got to be how the CEO glossed over the halving of cobalt’s price in 2022. Here, we focus on the Miner’s t...
- Liberum Research Team
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Commodity redEYE - Copper’s mine supply grief, illustrated
This past year, copper’s global mining industry reported a spike in war-/energy-related costs, asset closures, project delays, geo-political constraints – across all key sources of exported metal/concentrates – particularly Chile + Peru + Panama. Popular investor requests right now? Data on size/scale of copper’s industry + state of trade flows + our forecast refined supply/demand/prices. Most are just trying to get some perspective on frequent media/industry reports on mine failures/closures. H...
- Liberum Research Team
- Ben Davis
- Tom Price
- Yuen Low
LIBERUM: Restocking Indicator down to SELL - Inventories grow fastest ...
The sharp market bounce in January would suggest that a strong fundamental lift is coming. Problem is, China’s steel mills haven’t seen it yet. Domestic demand has slightly improved, typical for this time of year, but inventories are rising at their fastest rate since Feb 2020. Possible timing issue for the Restocking Indicator, given the earlier Chinese New Year, but the signals move from Hold to SELL anyway. So, we tell investors to be cautious chasing this rally.
- Roger Bade
Millennial Lithium (ML-TSX-V) - My PEA's better than yours
The compliant Preliminary Economic Assessment (PEA) on their Pastos Grandes lithium brine project in Argentina is encouraging, although they are using a fancy average lithium carbonate equivalent (LCE) price assumption of US$13,500 per tonne ($/t). For a 25,000 tonnes per annum of LCE over 25 years, with a 3 year ramp up period, the up-front cost is $410m. Using $13,500/t for LCE, they estimate an after-tax Internal Rate of Return (IRR) of 23.4% and an after-tax Net Present Value (NPV) of $607...
- Roger Bade
Glencore (GLEN) - Best placed large cap resources company for EV revol...
One will have to go on waiting, as the long awaited update doesn’t include the details and these will be provided in this afternoon’s presentation. Hence, the zinc restart news and whether the whole ore leach in the Democratic Republic of Congo will deliver this year, will have to be revealed later.
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