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Nickel prices soar with Indonesia ban and Russia sanctions risk

Global Economy, On the cover, Sin categoría

nickel

Nickel prices are up 33% YTD following the introduction of a ban on ore exports from Indonesia in early January.

This ban is unlikely to be lifted until 2015, according to analysts. However, the higher the Nickel price, the more likely it is to see it lifted. According to David Wilson at Citigroup “removing the Indonesian flow would be similar to removing Saudi Arabia from the oil market”.

The top nickel producers are Philippines and Indonesia both at c440,000 mt, followed by Russia.

The Ukraine crisis impacts the third largets nickel producer, Russia. Within Russia, Norilsk Nickel is “the single-largest producer of the metal, and group production of 285,000 tonnes last year accounted for more than 15% of the global total”, according to The Wall Street Journal. Therefore, the risk of sanctions on this company alone would shift the supply-demand dynamics of the market rapidly.

Although supply from Russia has not been cut, it poses new risks on a market where demand is not strong, but supply cuts can rapidly move to create a very tight situation.

Nickel demand has been poor in recent years -virtually flat, +0.6% pa 2003-2009, and up small between 2009 and 2013. Last year, stainless steel output rose 3.5%, helping improve the picture.

Growth in demand remains fully dependent on China. An expected 4.9% to 2020 pa growth is supported exclusively by Asia and considering the current revisions of Chinese GDP from +8.2% to +7.4% by the OECD, this demand growth is likely to be brought down.

Inventories, as the graph shows, have not moved drastically despite the massive price increase, which means that the physical market is comfortable despite the Indonesia ban. At the end of March 2014, China had over 20Mt of nickel ore stockpiled.

Many traders see the current $18k Nickel price as temporary because once prices increase dramatically Indonesia would lift the ban to benefit from better prices. However, the market can move from a 140kt global surplus in 2013 to a balanced market, or even a deficit in 2014. Indonesia alone moves this deficit one way or the other, but the combination of Russian sanctions risk and the Indonesia ban makes the balance extremely fragile.

The Return Of Big Oil (CNBC Interview)

Global Economy, On the cover, Sin categoría, ,

The recent outperformance of the integrated oil sector has been quite amazing. It is one of the best performing sectors year-to-date.

The past five years have been disappointing for investors, as the sector underperformed due to weak growth, Return On Capital Employed falling from 28% in 2007 to 13% in 2013 and various mega project delays. Focusing back on profitability and sustainable growth is part of the re-rating process. Continue reading The Return Of Big Oil (CNBC Interview) →

US: The Weakest Jobs Recovery On Record

Global Economy, On the cover, Sin categoría,

02/05/2014

US unemployment rate is at 6.2%…. or is it?

The US Labor Force plunged -806k to 155.421 million, up just +0.04% Y/Y (+0.73% Y/Y prior).

Most importantly, those Not in the Labor Force surged +988k to 92.018 million, which is the highest on record.

The Workforce Participation Rate fell to 62.81% in April (63.18% prior), the lowest since 1978.

The (U-6) “real” unemployment rate is 12.3%. (Source Boenning & Scattergood, US jobs data)

Additionally, according to the Bureau of Labor Statistics, 20% of all families in the United States do not have a single member that is employed.   62% of all Americans make $20 or less an hour at this point. The number of Americans receiving benefits from the federal government each month exceeds the number of full-time workers in the private sector by more than 60 million.

 

US fake unemployment

 

Nominal wage growth is also inexistent:

 

US wage growth

 

And no, the difference between unemployment and the decline of labour participation is not explained just by  “demographics” and retirements… at all:

Population participation

 

Meanwhile, debt reaches record level

Total-Debt-300x199

Interview On New Spanish Unemployment Data & Spanish Energy Sector

Global Economy, Interviews, Media, On the cover, Sin categoría,

Listen here:

http://www.thespainreport.com/5960/interview-daniel-lacalle-new-spanish-unemployment-data-spanish-energy-sector/

(The following was published in El Confidencial on 29/4/2014)

On Tuesday,   the Spanish Labour Force Survey or the first quarter of 2014 was published. The official release of the Statistical Bureau (INE) states that “the total number of unemployed has fallen by 344,900 people in a year.”

The number of unemployed decreased by 2,300 people in the quarter and stands at 5,933,300.

Unfortunately, the job participation fell by 184,600 people, although the decline is the lowest in a first quarter since 2008 .

The few positive data show fragility and weakness . These are insufficient. Taxes have to be cut. Political spending needs to be cut. The country needs to stop hindering job creation.


Labour participation fell by 195,800 people in the private sector, and increased by 11,100 and the public sector. Increasing public employment with more debt is not creating jobs.  It enlarges the hole .

Taxes have to be cut. The fiscal effort in Spain remains one of the highest in the OECD. And it’s not a race to raise revenues, as I explained in the post ” Spending is the problem . ” The policy of sustaining GDP  with bloated spending  does not reduce unemployment. It’s urgent to cut taxes.

Spain has the potential to create millions of net jobs. It is expected that the country will create 650,000 new jobs between 2014 and 2015 – (I estimate about 800000 to 2016) – but it’s not enough.

Jobs will not come from a hypertrophied Administration that consumes nearly 45% of the country’s resources and where spending on public employment represents 11.9% of GDP, higher than the average of all the developed countries, which stands at 11.3%. Not to mention advisors (one billion euro per year) or employees of public companies.

Jobs are not going to come from large companies that already have an average of 20% more employees than its European peers (employees relative to turnover in the country, according to Bloomberg). Jobs will come from self-employment and SMEs.

To reduce unemployment Spain must:

–  Encourage self-employment . Create businesses in 24 hours, as in many countries, not being one of the OECD countries where it is more expensive and slower to start a company. The time required to start a business in Spain is twice the average of the OECD. Creators of small businesses and startups can not see that the cost is unaffordable relative to the risk assumed.

–  Encourage SMEs.  We should not forget that they are the ones that create 70% of the added value of the country. Lower corporate taxes and Social Contributions to create jobs. The Spanish companies spend a total of 58.6% of their profits to pay taxes, according to World Bank data.

–  Reduce self-employed fees.  Self employed tax contributions have increased by 20%. This has to change now.

–  Reduce taxes on businesses.  New companies should not pay social security contributions and taxes until they have two years of profits, as in the UK. And drastically curtail bureaucratic obstacles and the extreme complexity of a country’s legislative system with seventeen regimes creating hundreds of rules each year. Change incentives: less foremen to “stop and control” and more facilitators.

–  Reduce income tax to increase consumption.  Yes. Save.Without savings, and later with consumption, the economy does not kickstart. Discouraging savings to keep an inflated GDP is a wrong and dangerous policy. The gross salary of a worker deducts 47.3% in taxes. Adding VAT, 67.4% of an average salary goes to the state.

–  Cut political and superfluous spending, subsidies and bubble excesses , as I said in this  post . Spain has increased government spending by 48% between 2004 and 2009 and only slightly reduced by 5% since 2010.

The solutions will not come from the same wasteful policies and interventionism that destroyed 3,000,000 jobs.

The Official Survey data shows the obvious: Not enough jobs are being created with a hypertrophied state.  Data shows recovery but it is fragile and insufficient.  Much more can be done.

We must lower taxes, and now.

 

Important Disclaimer: All of Daniel Lacalle’s views expressed in his books and this blog are strictly personal and should not be taken as buy or sell recommendations