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

    Anti-Corruption Crusader Is Eyeing Brazil Presidential Bid, Sources Say

    This article by Simone Preissler Iglesias and Samy Adghirni for Bloomberg may be of interest to subscribers. Here is a section:

    Barbosa, a 63 year-old black man raised in poverty, became a household name in Brazil during the Supreme Court’s handling of the so-called "mensalao" corruption scandal in the government of President Luiz Inacio Lula da Silva. Of all the potential candidates for October’s presidential elections, Barbosa has one of the lowest rejection ratings, at just 14 percent, according to Datafolha polling company. That compares with 60 percent for President Michel Temer and 40 percent for Lula.

    The former judge is a presidential candidate "with potentially the best profile in the field," according to a note published by Eurasia Group on March 29, adding that he has a good mix of experience, anti-corruption credentials, and credibility on social issues.

    "It’s a huge movement on the electoral chess board," said Richard Back, a political analyst at XP Investimentos.

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    Fear of trade war between US and China

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

    Policy focus shifted to sustainability from stability

    Thanks to a subscriber for this note from Deutsche Bank which may be of interest. Here is a section:

    Precious Metals Review

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

    Capital allocation: We are nearing 5 years since the significant gold price (~$1,600/oz down to $1,360/oz) correction in early April 2013. The period since has largely been characterized by cost cutting, capex reduction and de-leveraging of Balance Sheets. With an average ND/2018E EBITDA ratio of 0.5x for Precious stocks under coverage, companies are largely finished with debt reduction and must now decide on the right mix of project capex (brownfield and greenfield) /exploration /dividends/buybacks/further debt reduction/M&A opportunities. Management decisions to define companies will likely diverge over the coming years and we believe this is a key consideration for investors, particularly for a sector that does not have a good record of deploying capital. In terms of dividends, companies will need to define policies that are both sustainable but also representative of variation in cash flow through the cycle, e.g., a base dividend with a supplementary dividend is most likely.

    Cost pressure starting to come back: A number of companies on recent conference calls mentioned cost pressure that is entering the industry either through macro factors or through mining sector specific areas.

    Examples include the increase in energy costs (mainly due to higher diesel/gas prices), some currency moves, consumables, equipment and contracting. It does not appear to be significant at this stage but the opportunities for cost-cutting initiatives seem to have largely ended (with the potential exception of technology impacts, e.g., Barrick's initiatives medium- to long-term). As an example of cost pressure, Barrick's nearterm All-In Sustaining Costs (AISC) are expected to be ~$765-815/oz for 2018, ~$50/oz higher than previous guidance of $740-760/oz. Longer term, Barrick has alluded to the fact that its target of $700/oz is going to be more difficult to achieve.

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    New study rips into cobalt, lithium price bulls

    This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

    Prominent commodities research house Wood Mackenzie this week released a report on battery materials that forecasts a decline in the price of cobalt and lithium this year which would turn into a rout from 2019 onwards.

    Woodmac is not lowballing demand growth for lithium and the authors expect demand to grow from 233 kilotonnes (kt) in 2017 to 330kt of lithium carbonate equivalent in 2020 and 405kt in 2022, but:

    … the supply response is under way. Yet it will take some time for this new capacity to materialise as battery-grade chemicals. As such, we expect relatively high price levels to be maintained over 2018. However, for 2019 and beyond, supply will start to outpace demand more aggressively and price levels will decline in turn.

    According to Woodmac data, spot lithium carbonate prices on the domestic market in China are already down 6% from December levels to around $24,500 a tonne while international market prices have remained robust rising to $16,000 at the end of February.

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    Deep Thaw Below Arctic Circle Risks $30 Billion Nordic Industry

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

    The forest floors below the Arctic Circle are usually frozen solid this time of year, hard enough to support the giant timber machines needed to harvest their wood.

    But that’s changing, according to the foresters who work the land in Finland and Sweden. Unusually mild winters are turning once icy grounds into thick layers of mud capable of swallowing up the 25-ton vehicles used to gather the materials that go into pulp, paper and packaging.

    “We will see more and more of these difficult conditions,”

    Uno Brinnen, head of forestry at Sweden’s BillerudKorsnas AB, said in an interview. “It will always shift between warm and cold winters, but the long-term trend seems clear.”

    Temperatures across large swathes of Sweden were as much as 3 degrees Celsius (5.4 degrees Fahrenheit) higher than normal in December and January, according to the Swedish Meteorological and Hydrological Institute. That warming forms part of a trend that’s likely to persist, according to SMHI, whose scientists expect temperatures to continue rising over the next six decades because of climate change.

    The travails increasingly experienced by Nordic foresters underscore the economic impacts of climate change. Even as warming temperatures in and around the Arctic Circle frees waterways and reveals new paths to exploit natural resources, countries and companies in the region are being forced to adopt new ways of conducting traditional business.

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    Commodities Daily

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

    The cocoa price has soared by 33% in New York and by 28% in London since the beginning of the year. Thus cocoa has achieved the best price performance of all the commodities we track this year – with the exception of carbon. The Coffee and Cocoa Council (CCC) of Ivory Coast, the world’s largest cocoa producer, apparently wishes to curtail its cocoa production. The first step is to count the plantations. Depending on the result, the distribution of higher-quality seeds and plants for the 2018/19 season is then to be temporarily suspended. The aim is to combat the overproduction that saw cocoa prices forced to multi-year lows at the end of last year. According to the International Cocoa Organization, global supply exceeded demand by 300,000 tons in the 2016/17 crop year. The surplus is set to decline to a good 100,000 tons in the current crop year 2017/18. Deficits are needed to reduce the cumulative surplus, as was the case on the oil market a good year ago. OPEC brought this about by cutting production, and Ivory Coast appears to want to follow a similar strategy for cocoa. If the CCC has its way, Ivorian cocoa production will be lowered from 2 million tons now to 1.7-1.8 million tons within two years. Ivory Coast has a good 40% share of the cocoa market, which is even somewhat higher than OPEC’s share of the oil market.

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    Volkswagen Steps Up Tesla Rivalry in $25 Billion Battery Buy

    This article by Chris Reiter and Christoph Rauwald for Bloomberg may be of interest to subscribers. Here is a section:

     

    Volkswagen AG secured 20 billion euros ($25 billion) in battery supplies to underpin an aggressive push into electric cars in the coming years, ramping up pressure on Tesla Inc. as it struggles with production issues for the mainstream Model 3.

    The world’s largest carmaker will equip 16 factories to produce electric vehicles by the end of 2022, compared with three currently, Volkswagen said Tuesday in Berlin. The German manufacturer’s plans to build as many as 3 million of the cars a year by 2025 is backstopped by deals with suppliers including Samsung SDI Co., LG Chem Ltd. and Contemporary Amperex Technology Ltd. for batteries in Europe and China.

    With the powerpack deliveries secured for its two biggest markets, a deal for North America will follow shortly, Volkswagen said. In total, the Wolfsburg-based automaker has said it plans to purchase about 50 billion euros in batteries as part of its electric-car push, which includes three new models in 2018 with dozens more following. 

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    Diesel ban approved for German cities to cut pollution

    This article from the BBC may be of interest to subscribers. Here is a section:

    The likelihood now is that the German government will rush to introduce some sort of national policy, to ensure at least some level of consistency across the country.

    It's not just about Germany either - cities across Europe are struggling to meet EU air quality standards, and may well see the German ruling as setting a precedent.

    New diesel cars won't be affected, but that's not really the point. Consumers are already moving away from the technology - and the prospect of city bans will only accelerate that process.

    So diesel's decline is likely to gather momentum.

    That's a problem for the industry, because while diesels produce high levels of nitrogen oxide - a major urban pollutant - they emit relatively low levels of carbon dioxide, a greenhouse gas.

    So moves to control one environmental problem may end up undermining efforts to combat another - unless we all start driving electric cars very soon.

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