united nations conference on trade and developmentthe (lost?) bet of the so-called « super-cycle »...
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United Nations Conference on Trade and Development
9th MULTI-YEAR EXPERT MEETING ON COMMODITIES AND DEVELOPMENT
12-13 October 2017, Geneva
Recent trends and outlook of Commodity Markets
By
Mr. Yves Jégourel
Deputy head, CyclOpe
Associate Professor, Université de Bordeaux
The views expressed are those of the author and do not necessarily reflect the views of UNCTAD.
The rebound in ores and metals prices:
separating the wheat from the chaff
Yves Jégourel
Deputy head, CyclOpe
Associate Professor, Université de Bordeaux
UNCTAD multi-year expert meeting 12-13 October 2017
3
Two basic realities of commodity markets
A series of trends (increasing demand for raw materials from emerging
countries, the steel/aluminium eras, the emergence of electric cars, the
domination of the Chinese metal industries) and profound disruptions which
can be: - Technological (from shale gas revolution to the blockchain tech)
- Logistical (LNG)
- Political and economical (QE, Trump, OBOR)
- Financial (LME aluminium future contract in 1978, DCE iron ore
futures contracts, alumina…)
A necessary arbitrage for industrial players between short time, i.e. the one
that prevails in financial markets (stock & derivatives) and long time on
which investment decision should be made
2016-2017: two fundamental years with one main question: should
rising ores and metal prices be considered as a temporary rebound
or as a trend reversal?
4
The (lost?) bet of the so-called « super-cycle »
0
20
40
60
80
100
120
140
160
180
200
2000
M01
2000
M07
2001
M01
2001
M07
2002
M01
2002
M07
2003
M01
2003
M07
2004
M01
2004
M07
2005
M01
2005
M07
2006
M01
2006
M07
2007
M01
2007
M07
2008
M01
2008
M07
2009
M01
2009
M07
2010
M01
2010
M07
2011
M01
2011
M07
2012
M01
2012
M07
2013
M01
2013
M07
2014
M01
2014
M07
2015
M01
2015
M07
2016
M01
2016
M07
2017
M01
2017
M07
Energie Agriculture Métaux de base Métaux précieux
US$ nominal, 2010=100
Financial crisisChinese letdwon, USD
appreciation, price war
and speculation
5
Aluminium
1400
1500
1600
1700
1800
1900
2000
2100
2200
2300
2400
Source: LME
6
Lead
1500
1700
1900
2100
2300
2500
2700
Source: LME
7
Tin
Source: LME
12000
14000
16000
18000
20000
22000
24000
26000
28000
8
Zinc on the rise
Source: LME
1400
1600
1800
2000
2200
2400
2600
2800
3000
3200
3400
9
Shanghai, deliverable stocks Comex, total inventoryLME, on-warrant stocks
The collapse of zinc inventories
Zinc on the rise
10
Buoyant cobalt
Source: LME
20000
25000
30000
35000
40000
45000
50000
55000
60000
65000
11
Uncertainties over the nickel market
7000
9000
11000
13000
15000
17000
19000
21000
23000
Source: LME
12
Copper bouncing back
4000
4500
5000
5500
6000
6500
7000
7500
8000
8500
9000
Source: LME
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Speculative bets in the copper market (1)
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Speculative bets in the copper market (2)
15
Iron ore
0
20
40
60
80
100
120
140
160
180
Fe65% BR CIF China
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0
200
400
600
800
1000
1200
0
20
40
60
80
100
120
140
160
03/01/2012 03/01/2013 03/01/2014 03/01/2015 03/01/2016 03/01/2017
Switching from platinium to palladium
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Precious metals at a glance
12
17
22
27
32
37
42
03/01/2012 03/01/2013 03/01/2014 03/01/2015 03/01/2016 03/01/2017
1000
1100
1200
1300
1400
1500
1600
1700
1800
1900
03/01/2012 03/01/2013 03/01/2014 03/01/2015 03/01/2016 03/01/2017
400
500
600
700
800
900
1000
1100
03/01/2012 03/01/2013 03/01/2014 03/01/2015 03/01/2016 03/01/2017
Silver Gold
Palladium
800
900
1000
1100
1200
1300
1400
1500
1600
1700
1800
2012-01-03 2013-01-03 2014-01-03 2015-01-03 2016-01-03 2017-01-03
Platinium
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The main explanations for this upward momentum
An improved macroeconomic environment in China, the US, and in the euro area
Profound changes in the automotive sector (lithium, cobalt but also copper & nickel)
1. Favorable winds on the demand side
4. And return of “long” speculators
Reduction in production capacity (altough with ambiguous effects on ores demand)
Tighter environmental and (unprocessed ores) export regulations (China, Philippines,
Indonesia)
Depletion of existing mines (zinc), lower ore grades (copper)
2. …An increasingly restricted supply
3. The collapse of inventories
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appreciation of mining
companies stock market
price and investment
Supply < Demand
Bullish speculation
Bearsih speculation Investment recovery
Bullish speculation
Collapse of stock market values and
deleveredging
Supply > Demand
Increasing production and
decrease in inventories
Increase in inventories
Commodity prices
Temps
Betting on price cyclicity
Price war and
increasing in
supply Decreasing supply
Improved market fundamentals for ores and metals markets in 2017 but
20
In conclusion
- How will the Chinese economic model evolve in the coming years?
- What would be the next sources of global economic growth (India? Africa?)
- How will the USD behave in response to the tightening of the US monetary policy?
- What will be the future of Trump economic and geopolitical policies?
1. Major questions remain
2. Some personal thoughts
- An underestimation of the economic consequences of geopolitical realities
- An overvaluation of commodity prices based on the « soon to come shortage »
rhetoric which mainly benefits to commodity investment funds
- A financialization phenomenon which gets stronger