Summary comments from Commodities Investor Day presentations

A few summary comments from CS commodity day presentations:
The entire metals complex is moving lower (in price) and very little of it has to do with weak demand in China, if anything, physical demand looks decent there, particularly in precious, but even copper and ore.  It’s almost all on supply gains for these metals in 2013 and again unfortunately in 2014.  There is simply too much supply coming in. 
Further, the production that is coming on-line is all at lower and lower costs, meaning we will have stranded assets in the market, and that usually creates a negative price cycle to rationalize.  Again, this is not going to be GDP dependent/linked, and that is throwing off armchair generalists.
Steel production is bullish, thus prices are bearish.  Too much global capacity and margins are too low to sustain.  This is a part of the bear call on Iron ore as well, but really Glencore trader cited dynamics that BHP and Vale in particular want to beat the hell out of the smaller producers and get tons out of the market for 2014, they are playing a longer cycle.  Expect iron ore prices to fall 20%+ this year, in back half.
Mixed bag.  Short cycles dominate the picture, demand is structurally firm and consistent (growing 2%/yr).  Corn plantings in the US and indeed globally are epic.  If we don’t get disruption this year, corn will fall materially from current levels, but there remains great uncertainties as the year progresses.  China wheat (they are number one globally) looks robust, as does corn, don’t expect problems from China this year, unless we get big drought.  Picture much more balanced that last year.
Some concerns on Egypt, which is the world’s largest wheat importer….fell from 11m to 8m, wondering if people are starving.  Subsidies will come off soon there and expecting chaos to emerge.  Trader chat is that the government falls within 1-2 quarters.  Has implications for oil…
Oil was the stand-out bullish bet by the audience in a survey, most expected firmness and/or prices to lift a little.  Only 5% of the audience expecting oil to see a price move down next 12 months (you make of that what you want).  As usual, 99% of the discussion is counting barrels in odd places around the world, and little discussion of demand, other than ‘its growing 1-1.2 m bbl/year), with zero colour as to how/why.  Supply, people are very freaked out at the global picture, but also note findings keep surprising to the upside, and technology is helping…US shale, everyone knows the score, massive US growth…
Unquestionably the huge consensus position: gold/silver have meaningful downside.  Drivers are 1) over-crowding by financial investors in a negative rates cycle that is ending, 2) structural strength in US $ that is trade and perhaps budget balance related (both improving) (not a GDP issue), 3) technicals are awful.
A contrarian point made that retail demand exploded on lower prices recently, but everyone blowing it off.  I would throw in, its one of the few commodities where the cost curve is actually meaningfully moving higher…usually that means supply corrects more quickly.  We’ll see…

About Daniel Lacalle

Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.

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