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David Fuller and Eoin Treacy's Comment of the Day
Category - Precious Metals / Commodities

    Brazil Coffee Supplies Swell After Ships for Exports Dwindle

    This article by Fabiana Batista for Bloomberg may be of interest to subscribers. Here is a section:

    Brazil’s coffee growers just can’t catch a break.

    In May, a national strike by truckers stranded beans on the farm, and prices last month tumbled to a 12-year low amid a global glut. Now, a dearth of container ships at Brazil’s top ports is stalling exports of a bumper coffee crop.

    For the world’s top exporter, a shift in the global freight market means container ships arrive at ports less frequently, limiting space for less-appealing commodity cargoes including coffee, and warehouses are bulging with bean inventory.

    “Shipments have been postponed for days or weeks,” Nelson Carvalhaes, the president of export group CeCafe in Sao Paulo, said in a telephone interview.

    Luiz Alberto Azevedo Levy Jr., the superintendent director at Minas Gerais-based Dinamo, one of the largest warehouse operators, said, “If shipments won’t flow faster, we’ll see storage issues escalating in the next 30 days” at terminals scattered across the country, he said. “The harvest has been finished, but most of the beans are still being dried and prepared,” leaving a “huge volume” heading for depots in the coming months, he said in a phone interview.

     

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    Australia's Property Downturn Chalks Up One-Year Anniversary

    This article by Matthew Burgess for Bloomberg may be of interest to subscribers. Here is a section:

    Australia’s property slump has reached the one-year mark as the nation’s two major cities have become the biggest drag.

    National dwelling values dropped 0.5 percent last month, weighed by declines in Sydney and Melbourne, according to CoreLogic Inc. data released Monday. Prices in the two east coast cities, which make up more than half of the national value of housing, have fallen 6.1 percent and 3.4 percent respectively from a year earlier.

    “Sydney and Melbourne are now the primary drag on the national housing market performance,” taking over from regions that were impacted by the mining downturn, CoreLogic’s head of research Tim Lawless said. Values have fallen greatest among the most expensive properties as lenders curb their appetite for high debt to income ratio lending, he said.

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    Italy's government agrees sharply higher public spending plan

    This article by Miles Johnson and Davide Ghiglione for the Financial Times may be of interest to subscribers. Here is a section:

    Mr Di Maio hailed the agreement as a “historic day”. “We made it!,” he said as he emerged from a balcony at Rome’s Palazzo Chigi, where the meeting took place.

    “Today we have changed Italy! . . . For the first time the state is on the side of the citizens,” he said as ministers and members of parliament from his party hugged each other on the square outside.

    Matteo Salvini, leader of the hard right League, part of the coalition and deputy prime minister alongside Mr Di Maio, also welcomed the agreement on spending, saying he was “fully satisfied with the objectives achieved”, which would include his party’s pledges for tax cuts and a reversal of unpopular pension reforms dating back to 2011.

    Mr Tria, who is not affiliated with either party and was installed only after Italian president Sergio Mattarella rejected the coalition’s first choice for finance minister, had been pressing for a deficit number as low as 1.6 per cent of GDP going into the meeting.

    A 2019 deficit of 2.4 per cent of GDP would represent a significant fiscal expansion from the 1.6 per cent target for this year agreed by the last centre-left government, and would be three times the 0.8 per cent number previously planned for next year.

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    Neutral Fed Funds, Dead Ahead

    This article from Bloomberg’s economists may be of interest to subscribers. Here is a section:

    Given the lagged and variable impact of monetary policy on economic conditions -- further complicated in the current cycle by the Fed’s balance-sheet unwind -- policy makers will need to navigate with caution when in the proximity of neutral. Fed Chairman Jerome Powell, in his Jackson Hole speech, sounded dual warnings about this: First, he stressed economists’ inability to estimate the neutral level of interest rates in real-time and cautioned against the “mistake of overemphasizing imprecise estimates of the stars”; second, he invoked the Brainard principle, which advocates moving conservatively on policy when the effects of action are unknown.

    If growth is moderating toward trend and inflation appears to be centering around policy makers’ objective as the fed funds rate probes neutral territory, a significant portion of the FOMC should be willing to slow -- if not pause -- the pace of interest-rate increases in order to assess economic conditions. Policy makers may not be able to precisely identify the neutral policy rate in real time, but a continual decline in the terminal fed funds rate over the past several tightening cycles (shown below) serves as a cautionary reminder that, as Powell quipped at Jackson Hole, a “smaller dose” of normalization may prove adequate.

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    Glencore to double size of $1B share buyback program

    This article by Cecilia Jamasmie for Mining.com which may be of interest. Here is a section: 

    Glencore’s move falls in line with what an increasing number of top miners have been doing lately, that is, handing money back to shareholders. The trend follows a recovery from the commodity rout of 2015-16 and increasing pressure from investors to not buy assets that may never deliver returns.

    Less than a week ago, world’s second largest miner Rio Tinto (ASX, LON:RIO) unveiled a $3.2 billion share buyback following an asset-sale spree. Previously, BHP paid out a record dividend and promised it would give its shareholders most of the $10.5 billion it obtained from the sale of its US shale oil and gas assets.

    Glencore said it has almost completed its first buyback, acquiring $940 million of its own stock after the shares fell to a 14-month low in September as part of a wider commodity sell off.

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    Gold Is Cheap. Inflation Is Coming. You Do the Math

    Thanks to a subscriber for this article from Barron’s which may be of interest. Here is a section:

    Compared with stocks and other financial assets, gold looks inexpensive. More important, inflation is starting to pick up in the U.S. and in much of the world as central banks shrink their enormous balance sheets. And gold has represented a good defense against inflation eroding the value of a stock or bond portfolio. Over time, it has held its value against the dollar. Gold was $20.67 an ounce 100 years ago and that bought a good men’s suit. At $1,200 an ounce, the same is true today.

    “Gold is rare, and it’s hard to rapidly increase the supply of it,” says Keith Trauner, co-portfolio manager of the GoodHaven (ticker: GOODX) mutual fund, which holds Barrick Gold(ABX), a leading mining company. “People have historically viewed it as a hedge against government depreciation of local currency.”

    There are an estimated six billion ounces of gold in the world, worth more than $7 trillion, about 30% of the value of the S&P 500. Annual new mined supply adds less than 2% to the global total.

    “Virtually every government in the world is trying to promote inflation partly because there is so much sovereign debt,” Trauner says. When there is so much debt, he contends, governments have three choices: default, restructure, or inflate the currency. “Politicians, when given the chance, will choose the latter.”

    Naysayers point to higher interest rates as a negative for gold because it increases the allure of holding cash. But gold had one of its best decades during the inflationary 1970s, when rates soared.

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    Commodities Set for Best Week Since April, Fueled by Copper, Oil

    This article by Rupert Rowling and Mark Burton for Bloomberg may be of interest to subscribers. Here is a section:

    After a months-long rout, commodities are starting to show signs of life.

    The Bloomberg Commodities Index has climbed 2.1 percent this week, on track for the best performance since April. Copper, oil, soybeans and silver are all poised set to end the week higher, helped by a combination of tight supplies, speculation that recent losses are overdone and a weaker dollar.

    The gains are small, but it’s clear that the selloff that started in May has dissipated and sentiment is turning bullish. Barclays Plc said in a report today that copper has bottomed. Commodity bull Goldman Sachs Group Inc. predicted gains in raw materials through the end of the year.

    “The two main factors behind commodities rising are the end of the dollar strength, with the dollar seeming to have peaked, and risk appetite rising,” said Carsten Fritsch, commodity analyst at Commerzbank AG.

    It’s a shift from earlier this year, when the Bloomberg Commodities Index plunged about 10 percent over three months. Copper entered a bear market in August, and assets like arabica coffee and platinum are still near decade-lows.

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    Public Policy Key Predictions: Election 2018

    Thanks to a subscriber for this report from Credit Suisse which may be of interest. Here is a section:

    How an Aussie miner and American tech company plan to extract lithium quickly in Argentina

    This article by Valentina Ruiz Leotaud may be of interest to subscribers. Here is a section:

    What sets this partnership apart is that both the miner and the techie claim they can produce lithium carbonate or lithium chloride more rapidly and at a lower cost than others. According to Lilac, this is possible because its system eliminates the need for sprawling evaporation ponds, which are expensive to build, slow to ramp up, and vulnerable to weather fluctuations.

    “Even for the world's best lithium reserves in the Atacama desert, conventional evaporation ponds take many years to ramp up and remain vulnerable to weather volatility. Lilac's projects will run at full capacity from year one of commissioning and maintain that output regardless of weather or brine chemistry. We have done benchtop testing in other brines and we saw recoveries over 95% in less than 2 hours versus 9-24 months in evaporation ponds,” the company’s CEO, Dave Snydacker, told MINING.com.

    Snydacker explained that the reason why the processes run by his company are so fast is that his engineers have developed ion exchange beads that absorb lithium directly from the brine. Once they do that, the beads are then loaded into ion exchange columns and brine is flowed through such columns. As the brine contacts the beads, the beads absorb the lithium out of the brine. Once the beads are saturated with lithium, the alkali metal is recovered from them as a lithium solution, which is later on processed into battery-grade lithium carbonate or lithium hydroxide using streamlined plant designs.

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