A broad ranging discussion I had with the Ambassador at his office in Buenos Aires last week.
A broad ranging discussion I had with the Ambassador at his office in Buenos Aires last week.
Chile’s economic prosperity has been largely fueled by its copper mines, and since India’s demand for copper is expected to rise rapidly over the next decade, Chile’s commodity-exporting future is looking bright. From MercoPress:
COCHILCO, Chile’s copper commission, estimates that by the end of this decade, India’s demand for copper will rise from the current figure of 610,000 tons to between 2.4 million and 3.6 million tons annually.
Due to broad economic growth, India’s increased demand for copper is set to move the nation from sixth place in world consumption of copper to second, just behind China, which accounts for 34% of global copper production, or about 7 million tons.
India is expected to overtake the United States, Germany, South Korea and Japan with this increased consumption –nations whose copper demand today is greater than India’s, but still far behind China’s.
This sharp increase in demand is expected to have an effect on world copper prices.
“With India playing a growing role in the market, the price of copper in the long term would rise about 10%, which is to say, by 20 cents more for each pound,” explained COCHILCO economist Erik Heimlich.
India’s growth rate is also expected to surpass China’s in the next few years, Heimlich said. As a result, Heimlich predicts, “India should change its production structure from services toward more copper-intensive areas”.
Such a shift will allow development of both greater internal consumption, and larger manufacturing production for export.
Heimlich added that copper refinery operators in India had already begun contacting COCHILCO about establishing long-term relationships with Chilean copper producers to supply their growing needs.
Copper production, the principal driving force behind Chile’s economic strength, has brought the country high profits in recent years.
Copper prices Tuesday reached US$4.01 per pound, the highest since June 2008. The rising prices are rapidly approaching the all-time high in June 2008 of US$4.07 per pound.
So far, the average copper price for 2010 is US$3.32 per pound, with a monthly average of US$3.87 per pound.
Vale Rio Doce, which is world’s biggest iron-ore miner, is optimistic about its chances of remaining on top, and has several large new projects in the pipeline, including a $12.6 billion nickel mine in the Brazilian state of Pará. From MercoPress:
Vale, which aims to become the biggest mining company in the world, doesn’t need to compete with rivals for assets because it has the highest-quality iron ore and a pipeline of other metals projects, Chief Executive Officer Roger Agnelli told investors in New York on Monday.
“Everybody is looking for assets, they are going after acquisitions and we are not going after acquisitions,” Agnelli said in a presentation. Vale is “very well positioned” after “quietly” buying assets in 2004 through 2006, he said.
Rio de Janeiro-based Vale will start six new projects this year including its Onca Puma nickel mine in Brazil’s Para state after spending $12.6 billion, according to a regulatory filing Monday. The company’s 7.9 million metric tons of nickel reserves put it above OAO GMK Norilsk Nickel, the world’s biggest supplier, according to the presentation. Vale is also planning to expand production of minerals such as copper and fertilizers.
“We are the only mining company in the world that can double the capacity only with our own projects,” Chief Financial Officer Guilherme Cavalcanti said during the same event at the New York Stock Exchange.
as investors diversify into assets that cannot be “printed”. People like Jim Rogers and Marc Faber have been saying this for years, and Boston University econ Prof. Larry Kotlikoff says the U.S. is heading towards an Argentina 2001-like sovereign crisis.
#1 The US Fed is now the second largest owner of US Treasuries.
That’s right, this week we overtook Japan, leaving China as the only country with greater ownership of US Debt. And we’re printing money to buy it. Setting aside the fact that this is abject lunacy, this policy is trashing [the USD} which has fallen 13% since June…
#2: “There are only about $550 billion of Treasuries outstanding with a remaining maturity of greater than 10 years.”
the US has entered a debt spiral: a time in which fewer and fewer investors are willing to lend to us for any long period of time… at the exact same time that we must roll over trillions in old debt and issue an additional $100-150 billion in NEW debt per month in order to finance our massive deficit.
#3: The US will Default on its Debt
… either that or experience hyperinflation. There is simply no other option. We can NEVER pay off our debts. To do so would require every US family to pay $31,000 a year for 75 years. Obviously that ain’t going to happen.So default is in the cards. Either that or hyperinflation (which occurs when investors flee a currency). Either of these will be massively US Dollar negative
Michael Burry, one of the stars of Michael Lewis’ The Big Short, labeled agriculture as one of his top trades. Burry is a noted value investor who earned strong returns as the Tech Bubble collapsed, and even more out-sized returns on his short bet against the housing market in the time preceding the subprime collapse. Burry provided this insight into his latest trade:
“I believe that agriculture land — productive agricultural land with water on site — will be very valuable in the future….I’ve put a good amount of money into that.”
This weekend on his personal blog, Jim Rogers wrote a quick little note about how “Asia will drive agriculture commodities higher“:
There`s 3 billion people in Asia and most of them have not had a very good standard of living in the past 200 years. That is changing and changing very rapidly. They are going to eat more, they are going to wear more clothes.
Opportunity for Indian private investment in building out Brazil’s rail infrastructure. Also planned regulatory reform to revive idled capacity and lower freight costs will help. In a country like Brazil, 3 times the size of India, the fact that about 75% of freight is hauled by road shows the huge opportunities. It costs an average $27 per ton to transport goods by rail, less than a third of the $117 per ton cost by road. Brazil’s competitive position in many commodity exports will dramatically improve as a result.
Investment in Brazilian ports and higher forecasts for Indian output are set to prevent a repeat of severe loading delays for the new sugar crop next year, but terminals will be pressured to meet booming demand.
A huge line-up of vessels at Brazilian ports has triggered lengthy delays in loadings of sugar cargoes, contributing to a surge in sugar futures to seven-month highs this week, above the psychological 25 cents a lb resistance level.
“The Brazilian industry is going to continue to grow sugar production, and there will be a need for logistics to match that,” said Toby Cohen, head of research at London-based sugar merchant Czarnikow.
Brazilian port officials say improvements in infrastructure and new investments in logistics will improve the capacity of Brazil to meet its increasingly onerous export commitments.
Brazil has been loading up to 2.6 million tonnes of sugar a month this year, up from 2.2 million a year ago, underlining the strength of physical demand, especially in the June-July period when Brazil is the predominant supplier of the world’s sugar.
“Brazil’s projected export growth will likely further expose the underlying inadequacies of the sector,” said Cole Martin, commodities analyst with Business Monitor International. “Steps towards private investment in the country’s ports have generally been lacking.” A big logistical problem has been transport access to major sugar ports such as Santos.
Gold: Museo de Oro, Bogota, Colombia
IBT Commodities & Futures
one has to look at the currencies of where the company is producing its gold and one has to look at what we like to call GARP, or basic “growth at a reasonable price,” in our stock selection model. As I indicated, we focus on historical and social economic cycles, applying both statistical and fundamental models, including GARP, to identify those companies with superior metrics.
TGR: Can you share with us trends in your fund today-either trends in countries, because of the currency play, or trends in companies that represent good GARP?
FH: I think the best country right now for value with government policies-and I’ve met with the ministers and the new president-is Colombia. The best performing stock last year on the Toronto Stock Exchange was Pacific Rubiales Energy Corp. (TSX:PRE; BVC:PREC), which has oil in Colombia. Government polices attracted capital. This was spectacular. It was up 600%. Even year-to-date it’s had great performance.
The Colombian government has made a real push to improve the gold mining industry too. There’s been a move away from artisanal miners towards high-quality mechanized mining. It still employs thousands and thousands of people, but you won’t see the environmental disasters that have taken place previously with a bunch of those small miners that have no compliance for quality. So I think Colombia is a country that is spectacular.
TGR: Any particular gold companies that come to mind?
FH: A big holding for us is Medoro Resources Ltd. (TSX.V:MRS). If you take a look at the size of Marmato, their gold deposit. . .it’s so inexpensive as a producer and for reserves in the ground and the whole consolidation taking place. Another one is Gran Colombia Gold Corp. (TSX.V: GCM), which just went public. Those two companies combined have a $600 million market cap, but also 16 million ounces of production. So I think the rushes going into other countries are going to start to show up in places like Colombia.
Citizens in a a huge arc of countries ranging from West Africa – Angola, Nigeria to North Africa – Egypt to the Middle East – Iran and the Indian subcontinent, and China will suffer the most during the next food crisis. As I’ve spoken before, food exporting countries in Latin America, specifically in the Mercosur – Argentina, Brazil, Uruguay, Paraguay should profit from this. Still waiting for an Indian company to capitalize on this scenario that will most likely unfold in the near future.
One of the observations that goaded me on the path to promote Agriculture Outsourcing in Latin America, was the fact that many cooks, drivers, maids, cleaning ladies in urban South India suffer from diabetes, and are proud of it – a stark difference from a couple of decades ago. This Nomura paper speaks to that demographic in a section titled “the <$3000 sweet spot” -
“Unlike other commodities, the sensitivity of the demand for food to an increase in income is much greater for low-income earners. In economists’ parlance, the highest income elasticity of the demand for food is in the low-income bracket. For example, in low-income countries (defined by the World Bank as those with an average Gross National Income (GNI) per capita of below USD1,000), demand for grains rises quickly as income increases – a 10% increase in incomes is associated with a 6% increase in demand for grain
via Business Insider and Nomura Research
GDP per capita in USD: $1,017
Food as a percentage of total household consumption: 49.5%
Net food exports (as percentage of GDP): 0.3%
From the executive summary of Nomura Research paper:
The surge in commodity prices in 2003-08 was the largest, longest and most broad-based of any commodity boom since 1900. The prices of energy and metals surged the most, but it was the agricultural market that saw the most fundamental change. It may not take much of a disruption in food supply to trigger another surge in prices given that the dynamics have become a whole lot more uncertain as a result of new and some increasingly powerful influences acting on both sides of the food supply-demand equation. Indeed, droughts this year in Russia and Kazakhstan and severe flooding in Pakistan and China have sent global wheat prices higher, while meat and sugar prices have hit 20-year highs, despite lacklustre growth in many of the advanced economies.
We expect another multi-year food price rise, partly because of burgeoning demand from the world’s rapidly developing – and most populated – economies, where diets are changing towards a higher calorie intake. We believe that most models significantly underestimate future food demand as they fail to take into account the wide income inequality in developing economies. The supply side of the food equation is being constrained by diminishing agricultural productivity gains and competing use of available land due to rising trends of urbanization and industrialization, while supply has also become more uncertain due to greater use of biofuels, global warming and increasing water scarcity.
The fall in agricultural prices from their H1 2008 highs was caused more by the global recession and the tumble of oil prices than by an expansion in food availability. In most developing countries, despite burgeoning demand, supply did not respond significantly to high food prices (FAO, 2009a, p.4). It may not take much of a disruption in food supply to trigger another surge in prices given that the dynamics have become a lot more uncertain as a result of new influences acting on both sides of the food supply-demand equation. Furthermore, based on the historical pattern of the Southern Oscillation Index, the world is due for another severe El Niño event, which will likely cause big global weather disruptions.
Nomura Global Economics Strategy Sep2010
Colombia, producer of the world’s largest emeralds, expects to boost export sales by about half this year as buyers in India spur a recovery in demand.
Exports of the gems mined mainly in the mountains of central Colombia will rise to about $120 million this year, from $80 million in 2009, Oscar Baquero, president of the nation’s Emerald Federation, said in an interview yesterday in Bogota.
“The market now is Asia,” he said from an office above downtown streets crowded with stores showcasing the gems. “They are getting rich quickly. They want things that show status.” Asian economies are buying more Colombian gems, coal and oil, increasing exports from the South American nation while demand in traditional markets such as the U.S. falters.
Incidents of theft of copper cable in the UK are on the rise as the world prepares itself for a shortage of the very useful metal.
Copper (periodic ticker number 29) is a ductile metal with high thermal and electrical conductivity. According to a study by Yale University two years ago, all of the copper in ore and all the copper currently in use are likely to be exhausted to bring the developing nations to a level the advanced nations currently enjoy.
That means that the extremely useful Cu may turn out to be more valuable than the not-so-useful Gold (Au).
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