Comment of the Day
Video commentary for March 30th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: copper and steel commonality supports infrastructure theme, bond yields ease, stocks pause, Dollar eases, yen firms, gold and gold miners firm, tight yield curve inhibits rate hike bets.
Gold Climbs From One-Month Low After Strong U.S. Jobs Data
This article from Bloomberg may be of interest to subscribers. Here is a section:
Gold climbed from its lowest in a month as real yields declined following a strong U.S. jobs report that underlined inflationary pressures in the economy.
ADP Research Institute data indicated higher wages are helping fill a near-record number of vacancies in America, potentially stoking price pressures. Market-based measures of inflation expectations climbed after the report, trimming real bond yields and supporting gold.
The Federal Reserve’s increasingly aggressive approach to curbing inflation is still weighing on the non-interest bearing precious metal. Philadelphia Fed Bank President Patrick Harker said Tuesday that he expects a series of “deliberate, methodical” rate increases this year, but is open to a half-point move in May if inflation accelerates.
My view - The yield curve inverted during yesterday’s trading session. That started the clock on the beginning of the next recession. It’s a reliable lead indicator for future trouble with anything from a six to eighteen-month timeframe.
Taliban eye investment by Chinese
Thanks to a subscriber for this article from the Chicago Tribune which may be of interest. Here is a section:
But the project got tied up in logistical and contract problems, and it never got past some initial test shafts before it ground to a halt when Chinese staff left in 2014 because of continued violence.
Months after the Taliban seized Kabul in August, consolidating power over the country, the group’s newly installed acting Minister for Mining and Petroleum Shahbuddin Dilawar urged his staff to re-engage Chinese state-run companies.
Ziad Rashidi, the ministry’s director of foreign relations, approached the consortium made up by MCC, China Metallurgical Group Corporation and Jiangxi Copper Ltd. Dilawar has had two virtual meetings with MCC in the last six months, according to company and ministry officials. He urged them to return to the mine, terms unchanged from the 2008 contract.
A technical committee from MCC is due in Kabul in the coming weeks to address the remaining obstacles. Relocating the artifacts is key. But MCC is also seeking to renegotiate terms, particularly to reduce taxes and slash the 19.5% royalty rate by nearly half, the percentage owed to the government per ton of copper sold.
“Chinese companies see the current situation as ideal for them. There is a lack of international competitors and a lot of support from the government side,” Rashidi said.
China’s ambassador to Afghanistan has said talks are ongoing, but nothing more. Acquiring rare minerals is key for Beijing to maintain its standing as a global manufacturing powerhouse. While stopping short of recognizing the Taliban government, China has stood out from the international community by calling for the unfreezing of Afghan assets and has kept its diplomatic mission running in Kabul.
For Afghanistan, the contract at Mes Aynak could bring in $250 to $300 million per year to state revenues, a 17% increase, as well as $800 million in fees over the length of the contract, according to government and company officials. That’s a significant sum as the country grapples with widespread poverty, exacerbated by financial shortfalls after the Biden administration froze Afghan assets and international organizations halted donor funds. Some have since resumed.
My view - The Taliban needs cash and China needs resources. That suggests there is room for an agreement. China’s treatment of the Uighur minority is unlikely to get in the way of real politik. China has the capital, market and will to do what is necessary to get projects done.
Tesla Dodges Nickel Crisis With Secret Deal to Get Supplies
This article from Bloomberg may be of interest to subscribers. Here is a section:
“What Tesla has done with nickel is a hidden competitive advantage,” said Gene Munster, managing partner of Loup Ventures. “Tesla continues to be a couple of steps ahead of the rest.”
Musk has repeatedly flagged nickel supply as the company’s biggest concern as it boosts output, and the metal’s availability is a source of anxiety throughout the EV sector.
Battery-sector demand for nickel is expected to jump to about 1.5 million tons in 2030 from 400,745 tons this year, according to Bloomberg NEF.
“Please mine more nickel,” Musk urged producers on an earnings call two years ago. “Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way.”
My view - Tesla’s management deserves credit for ensuring they have access to the resources needed to make production targets. Tesla’s vertically integrated business model is what the conventional auto sector used to do. Ford closed its last steel plant nearly thirty years ago. Selling steel to the major US automakers now represents the bulk of Cleveland Cliffs’ revenue.
As the geopolitical environment grows progressively more complicated, and competition for access to supply of copper, nickel, lithium, manganese and cobalt intensify, inventory management is going to become more important for major industrial companies.
The Chart Seminar June 6th & 7th in London
Now in its 53rd year, the first venue for The Chart Seminar in the post pandemic era will be in London on June 6th and 7th at the Army & Navy Club.
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Eoin's personal portfolio: equity index long closed at a small loss March 1st
One of the questions subscribers as most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.