The commodity unwind continues, in earnest, as oil, iron ore, copper, natty spiral into the black death created by the maniacs in Beijing. You have to look at this in perspective. This isn’t a normal unwind, mind you. The Chinese were seeking out raw commodities with an unbelievable appetite, until their party ended.
Ore with 62 percent content delivered to Qingdao lost 1.1 percent to $51.03 a dry ton on Monday, the lowest since July 16, according to Metal Bulletin Ltd. The raw material — which bottomed at $44.59 on July 8, a record in daily price data dating back to May 2009 — is headed for the first monthly loss since July.
The renewed decline shows that the global market has yet to reach a balance as the biggest miners boost cheap output while steel consumption contracts in China. Rio Tinto Group and Vale SA reported increases in quarterly supply this month as data from China showed slowing economic growth and a further drop in steel production. With many mills in China losing money as steel prices languish, Shanghai Baosteel Group Corp. Chairman Xu Lejiang has forecast nationwide output may eventually slump 20 percent.
Basically, Chinese demand caused incompetent and greedy execs to ramp up and leverage out their businesses in order to profit from this new, magical, customer. We all posited that somewhere in China was a warehouse with all of that fucking copper they had been buying. There was no way anyone could be so crazy, as to stockpile raw materials at the rate they were a few years ago.
Well, now that the magical customer ran out of dough, all that’s left is a bunch of retarded Aussies with their dicks in their hands, wondering where to store all the excess supply.
Like the current oil glut, this gets resolved one way, and one way alone: BANKRUPTCIES.
There are people who believe the normal business cycle cannot commence until the Fed raises rates. The theory is that once money isn’t free anymore, lots of losers will be flushed out and the winners will eat the weak, paving the way for a healthier economic environment. Admittedly, this is an appealing scenario, one where 70% of the idiot oil, copper and iron ore companies dissolve, correcting the over-supply situation, effectively establishing a firm bottom in the commodity sector.
Thoughts?
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Look at this list: https://en.wikipedia.org/wiki/List_of_government-owned_companies_of_China. Look at how many times the words energy, steel, copper, iron, resources, coal, copper, etc. show up. Do you seriously think the Chinese are going to let such great captains of their zombie industries collapse – relinquishing thousands of jobs and causing social instability on Weibo? I think not.
Base case? China will continue cracking down on corruption and let loose great credit growth in the short term before they go full Japanese in 5-10 years (after all, they have the inverted demographic pyramid from one-child).
Bear case? They lose control via either capital flight or defaults. But c’mon, how can this happen? We’re talking about China here. The command economy is strong with this one. None of that weak TARP stuff, China bailed out their banking system in the late 90s by buying out all the NPLs AT FACE VALUE.
Bull case? Commodities bottom (via the supply channel). Aussies are screwed… but they’re building houses in Sydney for the Chinese… so maybe they’re OK. China quietly hides it’s skeletons in the closet while blaming any current problems on foreign forces and US destroyers in their waters.
I do believe you posted the feds will never raise rates. If the free money ends, companies should contract and run leaner. If it doesn’t end, they can do buybacks and buyouts. I don’t see how rates get raised unless the economy is truly at a turning point. I don’t feel it as a consumer or employee yet. Feels like a gas powered rocket that if the fuel is cut off, we haven’t made it out of the atmosphere. Long way back to Earth.
Perhaps this will cleanse the market place finally. The ZIRP, however beneficial, also allowed companies that should have been tossed down the stairs to walk around like zombies.
The question is how far the commodity unwind hits other sectors i.e. banks that provided lines to the oil sector. So far, looks like baba Yellen has their backs.
Agreed. There needs to be much more pain before commodities bottom. We just have way too much capacity and way too much supply right now.
Also, we will overshoot to the downside.
The problem with being stranded on an island is, when the food is gone, the strong starve too…
Who benefits ?
Those with the cash to buy up assets cheap benefit. The Syndicate wins then redoubles by repricing gold and crashing all paper by reflating
If you study history the Kings did not fare well.
No worries. Off to beddie bye
The bull is dead? The banksters made the loans. Bankruptcy has a certain word in it. Right?
Granny could buy high yield and commodities out right. What happened with housing? Change the mark to market rules blow out mom and pop slowly to stop the mob. Then sell it to other banksters and rents skyrocket. Oil to 150 in the next 12 months?
Playing for another 2008 scenario, but just in certain sectors. Oil in the 20s ala ’99 – ’02. Fed may not choose to bail out a specific industry,but will certainly facilitate the loans to allow the strong to eat the weak
You know Fly, the Shanghai Copper Bubble watch has been my thing since early 2009. BIG UGLY UGLY BUBBLE in Commodities has been formed with all of this Global Stimulus Money. Nobody cared while it was forming. The Commodity Bubble led to the China Bond Bubble, Housing Bubble, etc….all of this is such a major mess.
In 2014 I owned some RIO and CLF and took my losses like a man.