Rob Arnott: ‘AI is transformational. And it’s a bubble’
The Research Affiliates founder believes artificial intelligence will be as important as the internet but investors should heed the lessons of the dotcom crash.
BYALEX STEGERIN NEW YORK
The advent and acceleration of artificial intelligence (AI) will be as important as the internet, but this does not justify the soaring prices of stocks deemed to be at the forefront of this development, says Research Affiliates founder and chairman Rob Arnott.
For Arnott, a quantitative investor who is known as ‘the godfather of smart beta,’ the narratives about AI are to be believed.
The earnings expectations are not. And 2023’s rally in AI stocks – semiconductor maker Nvidia’s share price is up 211% so far this year – is reminiscent of the dotcom crash of the late 90s and early 2000s.
‘I think it’s transformational. I think it’s path-breaking. And I think it’s a bubble,’ he said of AI.
‘In 1999, the narrative was… the internet is a big deal. It’ll change the way we communicate, the way we interact, the way we buy and sell goods, the way we learn things, the way we do our research. It’ll change everything. And so don’t worry about P/E ratios, the E right now is irrelevant, because the E will come.
‘And that narrative was 100% correct. And the meme was 100% correct… except on timeline. Cisco had 13% per annum growth over the last 23 years. That’s four doublings. It’s a much bigger business than it was 23 years ago. [But] the share price is lower than it was 23 years ago.
‘It’s lower because it was priced at the time as if all of this growth would happen in five to 10 years. And instead, it’s taken 23 years. AI, I think, is much the same dynamic.’
Research Affiliates, the Newport Beach-based firm that Arnott founded in 2002, manages a series of reweighted indices and asset allocation strategies – including the $14.1bn Pimco All Asset and $1.9bn Pimco All Asset All Authority funds – and runs some $130bn of assets.
In recent months many asset managers have been keen to emphasise that they are adopting AI at various levels of their businesses. Arnott applauds the enthusiasm – ‘shame on anyone for not trying to stay abreast with what tools are available on AI’ – but is sceptical about how many asset managers will be able to gain any investment edge via AI.
‘If you ask 100 investment managers, “What are you doing about AI?” 95 will say, “We’re already using it.” Five will say, “We’re looking deeply into it, and it’ll be a big part of our future.” At least 80 of the 100 are BS-ing you,’ Arnott said.
‘AI requires billions of samples to be particularly useful. If your horizon is a week, or a month or a year, how are you getting enough data for AI to be a powerful tool?
‘If you [an asset manager] think you’re going to make progress by being a path-breaker in AI, you’d better have extremely deep pockets and you’d better have access to billions of samples of data.’
Don’t write off value
The AI-inspired rally of 2023 has powered growth stocks ahead of their value counterparts so far this year. The Russell 1000 Growth index was up 33.36% at the end of July, versus the Russell 1000 Value’s 8.82% gain.
Arnott, who has long argued that the lofty valuations of US growth stocks are way above historical norms and are due to mean revert, remains confident that value will outperform over time.
‘Value, in terms of relative cheapness compared with growth stocks, reached an all-time record low in the summer of 2020. It tested those lows in the fourth quarter 2021 and is testing those lows again now,’ he said.
‘Now, as a value investor, I pay a lot of attention to whether value is underperforming because the businesses are struggling or because they’re just getting cheap. And at this stage, just like in 2020, just like in the year 2000, in the tech bubble, it’s because they’re getting cheap.
‘So I view that as a brilliant buying opportunity. Those who feel like they might be under-represented in value in their portfolio, owe it to themselves to rebalance at these prices.’
Arnott argued that the catalysts for the tech-led growth rally have been both the rise of AI and tumbling inflation, which he argued was an illusion.
Arnott said that inflation appeared to be falling when compared with prints from the first half of 2022 when prices rose sharply, but that it would also appear to be rebounding in the second half of 2023 when compared with the same period last year, when price rises began to slow.
This could lead to further rate rises from the Federal Reserve, he said, a move that could trigger a reversal in the fortunes of value and growth stocks.
‘[If, at the end of the year, inflation] is anything higher than 3.5%, which it probably will be, you’re gonna see some hand-wringing and angst,’ he said.
‘My my view is that there’s better than 50-50 chance we’re above 5% [inflation] by the end of the year. [And] that hand-wringing takes the form of “I want to invest more safely.” And speculations about the long-term future aren’t as interesting as current earnings and dividends.’
MGL Comment - Mon 21:54, Aug 14 2023Back to Top
‘If you ask 100 investment managers, “What are you doing about AI?” 95 will say, “We’re already using it.” Five will say, “We’re looking deeply into it, and it’ll be a big part of our future.” At least 80 of the 100 are BS-ing you,’ Arnott said.
‘AI requires billions of samples to be particularly useful. If your horizon is a week, or a month or a year, how are you getting enough data for AI to be a powerful tool?
Agreed. We've spent Fourteen years accumulating data at 25k stories a week. Five years with full AI. Three years with trained AI with demonstrable Alpha.
Job postings on generative AI. Salaries offered have soared to $900k.
This is Supermicro from the conference call:
. Due to the current key components supply shortages, we forecast revenue in the range of $1.9 billion to $2.2 billion for the September quarter. However, given the record high backlog, we see fiscal year 2024 revenue between $9.5 billion to $10.5 billion with room to deliver more depending on availability of supply.
The one big shortage? Nvidia high end chips, without a shadow of a doubt! We first quietly pointed this stock out to readers in October last year.
So, we should have screamed to the high heavens. This is the pure-play AI machine manufacturer; everything else we've looked at has AI exposure, but no direct path to goal. Neither is it expensive, 15x eps.
‘I think it’s transformational. I think it’s path-breaking. And I think it’s a bubble,’ he said of AI.
15x eps a bubble?
Our patch is 'stuff'; the real world, actual commodities, and the supply chains. This is what we are watching, and like a hawk:
The Impact of AI on RFID Data Analytics
Blog
In an age of digitization and connected technologies, businesses are increasingly leveraging data-driven insights to refine their operations, decision-making processes, and strategic planning. Two critical technologies stand out in this context: Radio Frequency Identification (RFID) and Artificial Intelligence (AI). While RFID has been instrumental in capturing real-time data across various industry verticals, AI’s role in decoding these vast data sets into actionable insights cannot be overstated. This article delves into the significant impact of AI on RFID data analytics.
We now know of a 'pig in the python', a bolus of excess inventory passing through the system like poison. If you face the consumer, life is fine. Demand is strong. Here, for example, Skyscanner on Google trends:
Airline demand has fully recovered.
But if you are below the bolus, it's just not fun. The supermarket just told you they only need 10 packets of cornflakes a week, not 11, so demand just fell 10% from your perspective. We've seen these reports from the likes of Croda, Lanxess, Zebra, Impinj and others. We have seen the macro data; ships in Shenzhen plunged from 70 at year-end 2022, to 20 now.
Commodity demand, with one significant exception, is below the pig, and that is just no fun.
You cannot put an RFID chip on a gallon of gasoline.
Here's the surprise factor:
What does Japan excel at? High-end machinery, robots, industrial equipment, and traditional gasoline automobiles:
We're seeing a veritable boom in industrial capex OUTSIDE of China. That's more stuff. As a result, CPI ex-services is going negative.
Now we have highly indebted economies in the OECD, (and please stop pointing at the US, go look at the OECD data, it's a developed world sickness.), and deflation in stuff, so we should expect stressed-out indebted companies to start going bankrupt:
Here, we go, US bankruptcies are rising, the US data is timely, and we don't yet have the rest of the OECD.
The 'mayor of Houston's' economics is in view now.
U.S. oil and gas rigs are down by 14% over the last year, a showing of supplies tightening as oil prices climb higher as demand soars.
The United States lost five rigs from last week’s count, with four regions losing one to two rigs per area, according to Baker Hughes’s rig count. But in comparison to last year’s count, the U.S. is down 109 rigs.
This comes as oil prices edged higher on Friday. U.S. West Texas Intermediate closed at $83.04, up from $82.89 a week before and a significant increase from $75.75 last month.
The International Energy Agency forecasted increasing global demand and tightening supplies, pushing prices into the seventh straight week of gains, the longest streak since 2022.
"Crude prices are resuming their bullish ascent as energy traders remain overly confident the oil market will remain tight," said Ed Moya, a senior market analyst with Foreign Exchange Corporation Oanda. "The oil rally is poise for a seventh straight week of gains and it doesn’t seem like exhaustion is settling in yet. When the market gets complacent, sometimes that is when you get a decent pullback, but for now, it seems any oil dips will be bought."
This comes as output cuts from Saudi Arabia and Russia set the foundation for a sharp decline in inventories, which the IEA projected could raise prices even higher.
MGL Comment - Tue 09:40, Aug 15 2023Back to Top
The Rig count has stopped falling.
A federal appeals court on Friday granted a motion to dismiss a challenge to construction permits for a controversial natural gas pipeline in Virginia and West Virginia after Congress mandated that the project move forward.
The 4th U.S. Circuit Court of Appeals in Richmond, Virginia, sided with lawyers from Mountain Valley Pipeline in dismissing challenges to the project by environmental groups over concerns about the pipeline’s impact on endangered species, erosion and stream sedimentation.
The U.S. Supreme Court last month allowed construction to resume. Work had been blocked by the 4th Circuit, even after Congress ordered the project’s approval as part of the bipartisan bill to increase the debt ceiling. President Joe Biden signed the bill into law in June.
Lawyers for the company building the 300-mile (500-kilometer) pipeline argued before the appeals court two weeks ago that Congress was within its rights to strip the 4th Circuit from jurisdiction over the case. They also said that any debate over the law’s constitutionality should be heard not by the 4th Circuit but by an appellate court in Washington, because the law passed by Congress spells out that precise scenario.
“Armed with this new legislation enacted specifically in their favor, Respondents — the federal agencies and the Mountain Valley Pipeline — moved in this Court for the dismissal of the petitions,” appeals judge James Wynn wrote. “Upon consideration of the matters before us, we must grant Respondents’ motions to dismiss.”
Environmental groups have opposed the the $6.6 billion project, designed to meet growing energy demands in the South and Mid-Atlantic by transporting gas from the Marcellus and Utica fields in Pennsylvania and Ohio.
“Mountain Valley Pipeline is a dangerous, destructive project that repeatedly failed in attempts to obtain federal authorizations that could withstand legal scrutiny until it convinced its friends in Congress to intervene,” said Jessica Sims, the Virginia field coordinator for Appalachian Voices, an environmental organization. “We will not give up our efforts to protect the communities suffering the consequences of this unnecessary project.”
MGL Comment - Tue 08:42, Aug 15 2023Back to Top
Armed with this new legislation enacted specifically in their favor, Respondents — the federal agencies and the Mountain Valley Pipeline — moved in this Court for the dismissal of the petitions,” appeals judge James Wynn wrote. “Upon consideration of the matters before us, we must grant Respondents’ motions to dismiss.”
Joe Manchin win here.
He demanded this clause in return for his vote, and won. Then of course, the media pilloried him. But the courts see fit to approve.
We building the Mountain Valley gas pipe, and that's yet more evidence of the Netzero bust. More gas supply.
Crude pricing could rise further into autumn as deeper OPEC+ production cuts coincide with consumption highs and a slight uptick to macroeconomic conditions, but demand growth could slow dramatically next year, according to the International Energy Agency (IEA).
Global oil demand is at all-time highs at present on the back of summer air travel, increasing China petrochemicals production activity and a higher proportion of oil in the power generation fuel mix, the IEA said.
Consumption is expected to have increased by 2.2 million bbl/day this year to record demand of 102.2 million bbl/day, with China accounting for 70% of that growth, according to the IEA. Demand averaged 103 million bbl/day in July and August could see further highs, the agency added.
The picture could be different for 2024 as the post-pandemic economic rebound momentum slows, exacerbating ongoing macroeconomic torpor. The growth of the electric vehicle market and stricter energy efficiency standards are also expected to slow the rate of crude demand growth, according to the IEA, forecasting demand growth of around 1m bbl/day next year.
“With the post-pandemic recovery having largely run its course and as the energy transition gathers pace, growth will slow to 1 million bbl/day in 2024,” the IEA said in its monthly oil market report.
Despite cooler conditions in the mid-term, the heat of growth at present, combined with outages and reduced capacity on the back of extreme weather has left refiners struggling to keep up demand.
“While naphtha remains under pressure, due to competition from cheap LPG and weak petrochemical activity outside of China, high-sulfur fuel oil has tightened significantly as refiners replace lost OPEC+ crude with lighter and sweeter grades,” the IEA said.
Brent crude pricing is trading close to the highest levels of the year at around US$87/bbl, with futures values increasing US$11/bbl over the course of July.
OPEC+ supplies fell to the lowest level in two years as voluntary additional cuts by Saudi Arabia came into play, with bloc production down 2 million bbl/day from the start of the year, partially balanced by 1.6 million bbl/day in new non-OPEC supplies but limited additional gains expected the rest of 2023.
Crude inventories have fallen sharply as a result of tighter supply and demand highs, with OECD stocks currently over 100 million barrels below five-year average levels. Expectations that Russia and Saudi Arabia cuts will continue through September expected to tighten balances further.
The OPEC bloc has substantial capacity to increase supplies but, if current production targets are kept to, drawdowns on inventories could continue through the rest of the year, tightening supplies and raising prices.
MGL Comment - Tue 08:30, Aug 15 2023Back to Top
record demand
For a year we've been fighting a stern rearguard action here, saying oil demand is strong, every day seeing bearish headlines on the market.
The big surprise has been supply. OPEC has gone from 'sold out' to a surplus capacity of 9mbpd in a year. Partly the shale, partly Libya, and partly Russian desperation.
Just look at the Ruble.
RIYADH: Oil prices declined more than 1 percent on Monday as concerns about China’s faltering economic recovery and a stronger dollar weighed against seven weeks of gains on tightening supply from output cuts by the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+.
Brent crude futures fell $1.07, or 1.2 percent, to $85.74 a barrel at 9:31 a.m. Saudi time, while US West Texas Intermediate crude was at $82.12 a barrel, down 1.3 percent.
Prices retreated as the US dollar index extended gains after a slightly bigger increase in US producer prices in July lifted Treasury yields despite expectations the Federal Reserve is at the end of hiking interest rates.
A stronger dollar pressures oil demand by making the commodity more expensive for buyers holding other currencies.
“Crude has been in overbought territory for some time now, defying expectations of a correction. It has been singularly focused on US economic optimism, to the exclusion of the increasingly stronger headwinds blowing in the eurozone and China,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.
“A rebalancing is overdue but it may need a reality check in the markets stateside,” Hari said.
Oil may be range-bound this week as China’s sluggish economic recovery and a stronger US dollar could depress prices, but OPEC+ has indicated it would do whatever it takes to tighten supply and stabilize markets, CMC Markets analyst Tina Teng said.
Supply cuts by Saudi Arabia and Russia are expected to erode oil inventories over the rest of this year, potentially driving prices even higher, the International Energy Agency said in its monthly report on Friday.
Reflecting tightening supply, the price spread between first- and second-month Brent held steady on Monday after settling at 67 cents on Friday, the widest since March.
Meanwhile, a Russian warship fired warning shots at a cargo ship in the Black Sea on Sunday, ratcheting up tensions in a key area for commodities exports from Ukraine and Russia.
In the US, the number of operating oil rigs held steady at 525 last week, after falling for eight weeks in a row, according to Baker Hughes weekly report.
MGL Comment - Tue 08:25, Aug 15 2023Back to Top
China’s sluggish economic recovery
The China bulls are spitting mad. All year we've had rosy recovery stories demolished by the day. Consensus has been dragged, kicking and screaming, into a surly admission that the China growth story is broken.
Alibaba reported good numbers last week, the stock rallied and was promptly hammered by a wall of sellers.
A 3D printed oil barrels and oil pump jack are seen in front of displayed Chesapeake Energy logo in this illustration taken January 25, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
Aug 14 (Reuters) - U.S. natural gas producer Chesapeake Energy (CHK.O) said on Monday it would sell its remaining Eagle Ford assets to SilverBow Resources (SBOW.N) for $700 million, completing its exit from the south Texas basin.
The company's asset sales in the basin has generated total proceeds of more than $3.5 billion, including Monday's deal.
Chesapeake said last year it viewed the Eagle Ford acreage as no longer core to its strategy and would focus on the gas-rich Marcellus and Haynesville shale formations.
It had sold parts of its operations in Eagle Ford to WildFire Energy for $1.43 billion in January and some positions to chemical maker INEOS for $1.4 billion the following month.
The Oklahoma City-based energy producer also faced pressure from activist investment firm Kimmeridge Energy Management, which has urged a shift toward solely natural gas production.
Chesapeake has agreed to offload about 42,000 net acres and about 540 wells of its Eagle Ford asset located in Dimmit and Webb counties, along with related property, plant and equipment.
Average net daily production from these properties was about 29,000 barrels of oil equivalent (boe) during the second quarter.
SilverBow said the deal, expected to close by the end of this year, would make it the largest public pure-play Eagle Ford operator and would immediately add to key financial and operating metrics.
The deal consists of a $650 million upfront cash payment due at closing and an additional $50 million deferred cash payment 12 months after close.
Chesapeake is also eligible to receive up to $50 million in additional contingent cash based on future commodity prices.
MGL Comment - Tue 09:47, Aug 15 2023Back to Top
A 3D printed oil barrels and oil pump jack are seen in front of displayed Chesapeake Energy logo
Fortunately, it's a model and not the real thing.
If we start 3D printing capital equipment in scale you can tear up all your assumptions on cost. Fortunately, this horror story is not yet true.
What we are doing with 3D printing is cool, but not yet important.
Boeing increases use of 3D printing to speed up production of WGS military satellite. WASHINGTON — Manufacturing components with 3D printing is one way Boeing is shortening the production cycle of the U.S. military's Wideband Global Satcom (WGS) communications satellite, the company said March 1 in a news release.
Still worth watching.
The logo of car manufacturer Tesla is seen at a branch office in Bern, Switzerland October 28, 2020. REUTERS/Arnd Wiegmann/File Photo
Companies Tesla Inc Follow
JAKARTA, Aug 14 (Reuters) - Indonesia said on Monday that U.S. electric carmaker Tesla plans to invest in the manufacturing of battery materials in the Southeast Asian country and will make an announcement in the next few months.
Indonesia has for years been wooing Tesla to invest in battery making and car manufacturing in the country, trying to leverage its rich reserves of nickel, which can be processed for use in electric vehicle (EV) batteries.
Senior minister Luhut Pandjaitan in a post on Instagram said he led an Indonesian delegate that held a meeting with Tesla's Chief Executive Elon Musk during a recent trip to San Francisco, when Musk told him about the investment plan.
"He wants to invest in the manufacturing of materials for lithium batteries," Luhut said, though he noted Tesla was not looking to build a car factory in Indonesia.
"The investment will be quite big. Let's wait for Elon to come here around the end of September or October this year," he said.
Musk will also bring the internet to some remote corners of Indonesia with Starlink, his satellite communications service, Luhut said.
Tesla did not immediately respond to a request for comment. Starlink could not be contacted.
Indonesia said last week that it would give automakers two more years to qualify for EV incentives, trying to attract more investment as it races with Thailand and India to build an EV industry as an alternative to China, the world's largest producer.
President Joko Widodo in an interview with Reuters in February expressed confidence that Tesla will invest in his country. However, no announcement from the car company so far has raised doubts.
MGL Comment - Tue 09:07, Aug 15 2023Back to Top
"He wants to invest in the manufacturing of materials for lithium batteries,
Indonesia is desperate for a battery factory. (They just make raw materials right now).
Musk will also bring the internet to some remote corners of Indonesia with Starlink, his satellite communications service, Luhut said.
Musk is desperate for Starlink to succeed.
We have a deal!
(Note to readers that our technical support contractor now recommends Starlink as more reliable than BT for the internet. I smell a monopoly being broken here).
EV charging station (Courtesy of Getty Images)
South Korean battery materials makers are likely to report worsened profitability in the third quarter of this year following the latest quarter as prices of lithium hydroxide and nickel, key battery cell components, see a steeper decline this month. The prices continue to fall as battery inventories increase amid sluggish demand for global electric vehicles, experts say.Lithium hydroxide’s one-month futures contract to expire on Aug. 31 reached $36,652 per ton last Friday, plunging 14.9% from July 30, according to the London Metal Exchange (LME). The one-month future price fell 5.3% in July and is dropping at a quicker rate so far this month.The three-month futures price of Nickel to expire on Nov. 10 closed at $20,241 per ton last Friday, down 9.5% from the first day of this month. The drop offset a 9.5% rise in the whole month of July.Korean battery makers’ main products are lithium-ion battery cells that employ cathodes with greater than 90% nickel. The fall in nickel and lithium hydroxide prices will lower the cell materials maker’s profitability as the companies reflect the cost fluctuations in their delivery prices for battery makers.Some battery components makers are likely to see losses for two consecutive quarters in the July-September period as they bought the materials at high prices early this year.L&F Co., global EV leader Tesla Inc.’s battery materials supplier, missed earnings estimates in the second quarter on sluggish product prices. EcoPro Co. the world’s leading cathodes maker, also lagged second-quarter earnings estimate due to falling battery materials prices.The price of lithium carbonate, a battery component mainly used by Chinese EVs, declined 13.9% to 252 yuan ($34.7) per kilogram between July 20 and Aug. 11 as EV sales growth has slowed in China and globally.The plunges in lithium carbonate and lithium hydroxide prices are driven by oversupply from around 50 Chinese battery materials makers, experts say. According to Chinese media outlet Gelonghui, the local battery component companies aim for a combined 4,800 gigawatt-hour of yearly battery production capacity in 2025, four times the country’s demand.(Updated with lithium carbonate price)Hyung-Kyu Kim at khk@hankyung.com Jihyun Kim edited this article.
https://www.kedglobal.com/batteries/newsView/ked202308140008
MGL Comment - Tue 07:57, Aug 15 2023Back to Top
amid sluggish demand for global electric vehicles,
Here's an interesting observation. All the bloggers who usually provide us with data on EV sales have gone quiet. The 20 worst-performing car values on Autotrader are ALL EVs. I will pick one, deliberately:
The reason I have chosen the Golf is that it is a small car, high volume market, and the model which consistently over the years maintains it's value. Yet the e-Golf is sagging: 33% in six months!
The demand for electric vehicles (EVs) has brought attention to the use of rare earth elements in modern technology. In 2022, 82% of the electric car market used electric motors based on rare earth permanent magnets. This reliance on rare earths is a concern as China controls the majority of the world’s supply, leading to price volatility.
However, there are several methods available to eliminate the use of rare earths in electric motors. One such option is the induction motor, which uses copper or aluminum bars on the rotor. These motors have been common in the EV market, although they typically have lower efficiency than permanent magnet (PM) motors.
Another option is the wound rotor motor, which replaces magnets on the rotor with coil windings. This allows for better control of both the stator and rotor field. Modern versions of this motor are comparable to PM motors in terms of power and torque density.
Switched reluctance motors (SRMs) are a simpler option, with the rotor primarily made of steel. However, SRMs have historically had poorer power and torque density, as well as torque ripple and acoustic noise issues. Efforts are underway to overcome these challenges and develop SRMs for EVs.
As for alternative magnetic materials, Tesla is working on a next-generation drive system that uses PM magnets without rare earths. Other companies are developing magnets with comparable magnetic performance, but these materials still have a long way to go before commercialization.
There are also efforts to optimize motor design features in order to minimize the impact of using alternative materials. For example, Australian company Ultimate Transmissions has patented a ferrite motor design that uses larger ferrite magnets and higher speeds to achieve comparable power to a rare earth PM motor.
In conclusion, the rise of rare earth-free electric motor technologies is promising for the EV market. While there are challenges to overcome, such as the availability of alternative magnetic materials, the development of these technologies will reduce reliance on rare earth elements and ensure a more sustainable future for electric vehicles.
MGL Comment - Tue 07:46, Aug 15 2023Back to Top
ferrite
Ferrite, being iron ore, is as common as muck. There's considerable activity developing various high magnetic formulations of ferrite to replace REEs in motors. We're not seeing anything decisive right now, but progress is happening.
The Agriculture Department today released its August World Agricultural Supply and Demand Estimates, a much-anticipated report because it is expected to have an impact on markets, especially for corn and soybeans.
The Foreign Agricultural Service also released a series of explanatory reports.
Farm Progress said the reports of smaller corn and soybean production were what the markets expected.
Here are the WASDE highlights:
This month’s 2023/24 U.S. corn outlook is for reduced supplies, lower domestic use, smaller exports, and tighter ending stocks. Corn production for 2023/24 is forecast at 15.1 billion bushels, down 209 million from the July projection and if realized, would be the second highest on record behind 2016/17.
The season’s first survey-based corn yield forecast, at 175.1 bushels per acre, is 2.4 bushels lower than last month’s projection. Today’s Crop Production report indicates that among the major producing states, yields are forecast above a year ago in Indiana, Iowa, Nebraska, Ohio, and South Dakota. Yields in Illinois, Minnesota, and Missouri are forecast below a year ago.
U.S. soybean supply and use changes for 2023/24 include higher beginning stocks and lower production and exports. Beginning stocks are raised on higher 2022/23 imports. Soybean production for 2023/24 is forecast at 4.2 billion bushels, down 95 million on lower yields. Harvested area is forecast at 82.7 million acres, unchanged from July. The first survey-based soybean yield forecast of 50.9 bushels per acre is reduced 1.1 bushels from last month.
Mexico sugar supply for 2022/23 is increased by 125,000 metric tons (MT) to 6,388,512 on an increase in imports. Sugar stocks have decreased substantially in both May and June driving domestic prices to historically high levels and incentivizing high-tier tariff imports.
U.S. sugar supply for 2022/23 is raised by 148,289 short tons, raw value (STRV) on increased imports only partially offset by lower beet sugar production while use is lowered 25,000. The resulting 173,289-STRV stock increase pushes the total to 2,013,900 for an ending stocks-to-use.
The outlook for 2023/24 U.S. wheat this month is for decreased supplies, slightly lower domestic use, reduced exports, and higher stocks. The global wheat outlook for 2023/24 is for reduced supplies, lower consumption, decreased trade, and lower stocks
The outlook for U.S. rice in 2023/24 is for increased supplies and ending stocks compared with last month and no other changes.
In this month’s 2023/24 U.S. cotton projections, beginning stocks are larger, and a 2.5-million-bale decrease in production results in lower exports, domestic use, and ending stocks. Beginning stocks are larger as this month’s 2022/23 ending stocks are increased 450,000 bales
The forecast for 2023 red meat and poultry production is reduced from last month on lowered beef, pork, and broiler forecasts.
https://www.thefencepost.com/news/usda-releases-much-anticipated-wasde-report/
MGL Comment - Tue 07:44, Aug 15 2023Back to Top
Nothing here, yet much read.
Eyeballs are desperate for inflation.
Chicago wheat bounced back on Monday as a Russian warship's firing of warning shots at a cargo ship in the Black Sea region heightened concerns over world supplies.
Soybeans also rose, recouping some of the last session's losses, while corn eased.
"There is growing risk to Black Sea supplies, which has not been fully factored into the market," said one Singapore-based trader. "Prices are likely to rise further if there is disruption to Russian supplies."
The most-active wheat contract on the Chicago Board of Trade added 0.2% to $6.28 a bushel, as of 0348 GMT, and corn lost 0.2% to $4.86-1/4 a bushel. Soybeans rose 0.4% to $13.12-1/4 a bushel.
Merchant Shipping
A Russian warship on Sunday fired warning shots at a cargo ship in the southwestern Black Sea as it made its way northwards, the first time Russia has fired on merchant shipping beyond Ukraine since exiting a landmark UN-brokered grain deal last month.
Firing on a merchant vessel will ratchet up already acute concerns among shipowners, insurers and commodity traders about the potential dangers of getting ensnared in the Black Sea - the main route that both Ukraine and Russia use to get their agricultural produce to market.
Earlier, Ukraine, which is seeking to form safe shipping routes in the Black Sea, had started registering ships willing to use the corridor it announced earlier last week, a local news agency said on Saturday.
Lower US Output
The agricultural markets are likely to be supported by expectations of lower output in the United States.
U.S. corn and soybean harvests will be smaller than previously expected as dry conditions early in the growing season robbed the crops of yield potential, the government said on Friday.
Both forecasts fell below market expectations, but the corn crop, if realised, would still be the second biggest on record due to large acreage and as growing conditions improved during the key development month of July.
The government forecast corn production of 15.111 billion bushels, based on an average yield of 175.1 bushels per acre, according to the U.S. Agriculture Department's monthly World Agricultural Supply and Demand Estimates report. Soybean production was seen at 4.205 billion bushels, with yields pegged at 50.9 bushels per acre.
Large speculators increased their net short position in CBOT corn futures in the week to Aug. 8, regulatory data released on Friday showed.
The Commodity Futures Trading Commission's weekly commitments of traders report also showed that noncommercial traders, a category that includes hedge funds, increased their net short position in CBOT wheat and cut their net long position in soybeans.
MGL Comment - Tue 07:37, Aug 15 2023Back to Top
Wheat testing the lows now, and this is just classic, everytime there's a bullish story the eyeballs are all over it.
Market participants are desparate for inflation.
Barrick Gold Corporation (NYSE:GOLD) is one of the largest gold-producing companies in the world. It was founded in 1983 and is headquartered in Ontario Canada. The company posted its preliminary Q2 production on July 13. Barrick Gold Corporation (NYSE:GOLD) said that it is on track to achieve a production target of 1.01 million ounces of gold and 107 million pounds of copper in the second quarter. The company added that its production is expected to increase throughout the year and expects better production in the second half of 2023 compared to the first half.
On July 6, Barrick Gold Corporation (NYSE:GOLD) announced that its Tongon mine in Ivory Coast, which was expected to close in 2020, will continue operating till 2030. In 2021 and 2022, four new pits were discovered around the mine. In 2023, the mine is expected to produce over 200,000 ounces of gold and the production is expected to increase further till 2026.
Barrick Gold Corporation (NYSE:GOLD) is one of Credit Suisse’s top 10 Canadian stock picks. The analysts covering the company are quite bullish and their average price target represents a 42.68% upside to the company’s stock price of $16.54 on August 2. Out of 11 analysts, 9 maintain a Buy or Outperform rating on Barrick Gold Corporation (NYSE:GOLD)’s stock.
Old West Management made the following comment about Barrick Gold Corporation (NYSE:GOLD) in its Q4 2022 investor letter:
“Barrick Gold Corporation (NYSE:GOLD) is the second largest gold miner in the world, with operations in the U.S., Canada, Africa, South America and more. Barrick is also a major copper producer. Former Goldman Sachs executive John Thornton took control of the company in 2012 and quickly realized he wanted someone with a mining background to run the company. Mark Bristow, at that time CEO of Randgold, was considered one of the best gold mining executives in the world. Thornton wanted Bristow so badly Barrick bought Randgold in 2018. Bristow who is South African, had extensive experience operating mines throughout Africa, and in fact would fly his own single engine plane to visit mines. He has his PhD in Geology, and he has flourished running Barrick the past five years. Barrick is estimated to have $1.6 billion of net income this year on $11.5 billion of revenue. Net Income has been growing 15% per year. The stock trades at $19.00 per share which is 16 times forward earnings, and the stock has a 3.15% dividend yield. Barrick has a fortress balance sheet with $5.7 billion in cash and $5 billion of long term debt, which is only one time EBITDA”
https://www.insidermonkey.com/blog/5-cheap-gold-stocks-to-buy-according-to-analysts-1177250/
MGL Comment - Tue 09:13, Aug 15 2023Back to Top
Barrick, Agnico, SSR, Wheaton, Newmont, Osisko, Wheaton, Sandstorm.
Nothing surprising in this list.
Why are these stocks cheap?
Answer: They are not. Barrick and Newmont sport 27-28x eps for zero volume growth.
That doesn't mean we should not buy them.
I am, again, watching the slow-motion crash in real estate.
Investing.com -- Gold and copper prices fell to their weakest levels in a month on Monday, coming under pressure from a stronger dollar as rising U.S. inflation pushed up concerns over higher interest rates.
Data from last week showed that U.S. inflation edged higher in July after declining steadily this year, pushing up concerns that the Federal Reserve will be forced into raising interest rates further to curb price pressures.
This notion pushed up the , with the greenback hitting an over one-month high against a basket of currencies on Monday. Strength in the dollar weighed on most commodities priced in the greenback.
fell 0.1% to $1,911.69 an ounce, while expiring in December fell 0.2% to $1,943.55 an ounce by 20:23 ET (00:23 GMT). Both instruments were at their weakest levels since early-July.
Dollar supported by higher inflation, metals under pressure
Data released on Friday showed that U.S. (PPI) inflation grew more than expected in July. The reading came just a day after data showed inflation also rose in July.
The readings showed that inflation was once again trending higher after easing substantially earlier this year, and drove concerns that the Fed will have to raise rates further.
This notion boosted the dollar, with the prospect of higher rates also pointing to more pressure on non-yielding assets such as metals. Rising interest rates increase the opportunity cost of investing in non-yielding assets, with gold having logged steep losses in the past year as U.S. interest rates grew.
The yellow metal is also set for little relief this year, with U.S. rates set to remain at 22-year highs for at least the remainder of 2023.
Copper sinks as China concerns weigh
Among industrial metals, copper prices fell to an over one-month low on Monday, as concerns over slowing economic growth in major importer China added to pressure on the red metal.
fell 0.3% to $3.7077 a pound- their weakest level since late-June.
Weak trade and inflation data from the country for July, coupled with scant details on new stimulus measures from Beijing saw investor sentiment sour substantially towards China. This also weighed on copper prices, given that the country is the world’s largest importer of the red metal.
Focus this week is squarely on and data, due on Tuesday. Both readings are expected to show an extended decline in July amid worsening economic conditions in the country.
MGL Comment - Tue 08:51, Aug 15 2023Back to Top
Gold and copper prices fell to their weakest levels in a month on Monday,
Gold AND copper weak together. Unusual, normally they move in opposite directions.
A direct reduction plant for the production of iron using green hydrogen has been launched at the site of RWE AG's (ETR:RWE) power plant in Lingen, Lower Saxony province.
As part of the "GEiSt: Green iron for the steel industry" project, more than a tonne of green iron per hour is to be produced with the help of green hydrogen. Instead of conventional energy sources such as coking coal or natural gas, green hydrogen is used to reduce iron ore and produce sponge iron, also known as direct reduced iron (DRI). Thus, the only by-product of iron production is water vapour which is collected and reused during the electrolysis process in green hydrogen production. Sponge iron is then further processed to make steel.
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The green hydrogen is produced in an electrolyser on the site and fed into the DRI plant.
The steel industry is the sector with the highest share of greenhouse gas emissions in the German industry, accounting for about 30% of industrial emissions. Therefore, decarbonising iron ore production plays a key role, as it holds the greatest potential for reducing emissions, commented Lower Saxony's energy minister Christian Meyer at the opening of the DRI pilot plant.
In addition to RWE, the demonstration project involves also start-up company CO2GRAB, LSF and steel maker BENTELER Steel/Tube. It is worth EUR 5 million (USD 5.5m) and the Lower Saxony Environment Ministry is funding the project with EUR 3 million.
MGL Comment - Tue 09:05, Aug 15 2023Back to Top
Tiny. Stick to pink nail polish, it is more consequential.
By Carman Chew
SINGAPORE, Aug 14 (Reuters) - Singapore iron ore futures again threatened to breach the $100 per metric ton support level on Monday, while Dalian edged lower, as market talk of steel output cuts resurfaced and a weak property segment continued to weigh on trader sentiment.
The most-traded January iron ore on China's Dalian Commodity Exchange DCIOcv1 dipped 0.4% to 725 yuan ($99.88) per metric ton as of 0330 GMT.
On the Singapore Exchange, the benchmark September iron ore SZZFU3 slumped 2.1% at $100.6 a metric ton, paring gains from the previous session. The benchmark contract fell to as low as 100.1 yuan earlier.
Expectations of crude steel cuts have weighed on sentiment.
"[Citi's] industry discussions suggest that crude steel control targets will likely be finalised by August 15th, and local governments and mills could make their own production control plans thereafter," the bank said in a note.
Two weeks earlier, steel mills in China's southwestern Yunnan province had been asked to prepare to cut back production in order to meet a government mandate on capping 2023 output at last year's levels.
"This is supportive of steel margins, but likely has negative implications for iron ore. However, the actual impact will still depend on how local governments enforce cuts amid the weak macro environment," the analysts added.
China's tumbled in July and other key credit gauges also weakened, even after policymakers cut interest rates and promised to roll out more support for the faltering economy.
Steel benchmarks on the Shanghai Futures Exchange mostly fell. The most-active rebar contract SRBcv1 dropped 0.8%, hot-rolled coil SHHCcv1 lost 1%, wire rod SWRcv1 slid 0.6%, but stainless steel SHSScv1 rose 1.7%.
Steelmaking ingredient Dalian coking coal DJMcv1 and coke DCJcv1 fell 1.5% and 1.4%, respectively.
Meanwhile, property sector concerns also dented risk appetite.
Shares of China's Country Garden 2007.HKplunged more than 12% on Monday morning after the real estate company suspended trading in 11 of its onshore bonds from Monday.
MGL Comment - Tue 08:38, Aug 15 2023Back to Top
Singapore iron ore futures again threatened to breach the $100 per metric ton support level on Monday,
Speculation: BHP, Vale and Rio's are defending $100, and sacrificing volumes to keep the market in equilibrium.
Indonesian thermal coal prices witnessed a drop in majority of grades for the week. Prices for high-calorific value (CV) (5800 GAR) Indonesian coal have edged up to $87.02/t, while low-CV coal (3400 GAR) prices dropped to $31.27/t. Prices of 6500 GAR also edged down to INR 114.89/t.
Asian markets saw declining power demand and low industrial activities during the week leaving scope for further drop in prices.
Chinese conclusion of summer season is leading drop in power demand in the country. Additionally, the expectation that typhoon would enhance domestic prices has not materialised. Also, the coal inventory at Chinese mills is sufficiently high despite supply concerns arising out of typhoon. It is expected to post weaker demand ahead in September-October, when power demand eases after end of summer season.
In the Indian market too buying has been on the lower side. However, stock position is heard to be falling, following which it is anticipated that buyers will turn to spot market to book September and October loading cargoes.
On the supply side, Indonesian offers continue to be on the higher side to compensate for high royalties and higher cost of production. The availability of spot cargoes in central and eastern parts of Kalimantan region is under pressure due to barging issues due to low water level. This has led to deferring of cargoes loading.
Indonesian coal exports up in July'23
Indonesia's thermal coal exports rose by 9% m-o-m to 30.37 million tonnes (mnt) in July as against 27.86 mnt in June, data from Statistics Indonesia shows. China was Indonesia's largest thermal coal export destination, with 8.42 mnt of coal being shipped to it, up 22% m-o-m as against 6.93 mnt in June. Shipments to India rose by 13% to 6.90 mnt as against 7.89 mnt in June.
India: Portside prices down marginally
Thermal coal prices of 4200 GAR coal at Kandla port recorded drop of INR 100/t at INR 5,700/t. Prices remained largely stable on low buying interest.
Outlook
Indonesian thermal coal prices may fall further on reduced buying by Indian and Chinese utilities. Buying from Chinese market may remain dull, pressured by bearish sentiments brought about by end of high summer temperatures.
MGL Comment - Tue 09:03, Aug 15 2023Back to Top
while low-CV coal (3400 GAR) prices dropped to $31.27/t.
Immediate reaction: Aluminium demand is weak.
This grade of coal is used in China and India to make Aluminium.
JSPL slides after Q1 PAT drops 79% YoY to Rs 1,399 cr Aug 14, 2023 09:48 AM | Source: capitalmarket.com Jindal Steel & Power (JSPL) slumped 4.13% to Rs 669.55 after the company's standalone net profit tumbled 78.9% to Rs 1,399.52 crore in Q1 FY24 as compared with Rs 6,623.08 crore in Q1 FY23.
Total revenue from operations fell 4.2% to Rs 12,310.57 crore in Q1 FY24 as compared with Rs 12,848.52 crore in Q1 FY23. Gross revenue (including GST and other income) declined 2.34% to Rs 14,220 crore in Q1 FY24 as compared with Rs 14,561 crore in Q1 FY23. Adjusted EBITDA stood at Rs 2,665 crore during the quarter, was down 4.69% as compared with Rs 2,796 crore posted in same quarter last year. Adjustment were on account of FX loss of Rs 12 crore in Q1FY24. In Q1 FY24, the steel maker reported sales of steel (including pig iron) at 1.84 mt (up 5.75% YoY). The company reported production of steel (including pig iron) at 2.04 Mt during the quarter, which was 2.51% higher YoY.
In Q1 FY24 pellet production stood at 1.72 mt (down 10.42% YoY). External pellets sales declined 66.67% to 0.01 mt (as compared with 0.03 mt in Q1 FY23).
Chirodzi mine in Mozambique produced 1.12mt in Q1 FY24 vs 0.98mt ROM in Q4FY23 (up 14% qoq) during the quarter. Coking coal sales stood at 142kt versus 160kt in Q4FY23. Thermal coal sales stood at 105kt vs 158kt in Q4FY23.
During the quarter, Kiepersol mine in South Africa has produced 116kt as against 115kt ROM in Q4FY23. The mine reported prime product sales of 87kt versus 90 kt in 4QFY23.
During the quarter, Russel Vale mine's in Australia ROM production stood at 132kt vs 157 kt in Q4FY23. Dispatches for the quarter were 91kt vs 123 kt in Q4FY23. Wongawilli colliery continues to remain under care and maintenance.
Jindal Steel Odisha (JSO), a wholly owned subsidiary of JSP, successfully commissioned its state-of-the-art pellet plant at Angul. This is a first in a series of units that will be commissioned over the next two years as JSP moves forward to double the steel production capacity at Angul.
Bimlendra Jha, managing director, said, “We have now achieved a significant milestone of successfully commissioning our state-of-the-art pellet plant at Angul. We have also signed mining lease for two thermal coal mines - Gare Palma IV/6 and Utkal C, which will lead to consistent availability of coal for our thermal coal requirements in DRI Kilns, Coal Gasification and Power Plants at lower costs.”
Jindal Steel & Power (JSPL) is a leading Indian infrastructure conglomerate with a presence in the steel, power, and mining sectors.
MGL Comment - Tue 09:42, Aug 15 2023Back to Top
The company reported production of steel (including pig iron) at 2.04 Mt during the quarter, which was 2.51% higher YoY.
More steel at lower prices.
Q1 PAT drops 79% YoY
Profit collapse.
Stanmore Coal, an Indonesian-backed coal producer, is optimistic about the future growth of the coking coal industry. CEO Marcelo Matos believes that India, in particular, will be a major driver of this growth. Matos expects steel production in India to continue rising, as the country invests in new build basic oxygen furnaces and expands blast furnace construction. Despite concerns that China’s steel output may have peaked, Matos remains bullish on the outlook for global steel producers. He predicts that steel production outside of China will continue to grow, with India leading the way.
India plans to add 42 million tonnes of blast furnace steelmaking capacity by 2027. Stanmore Coal, which recently integrated the South Walker Creek and Poitrel mines formerly owned by BHP and Mitsui, reported record revenue and profits for the first half of 2023. The company generated US$1.493 billion in revenue, up from US$1.096 billion in the previous year. Profit after tax increased from US$233 million to US$340 million, and EBITDA rose from US$435 million to US$650 million.
However, underlying EBITDA was lower due to a decrease in average prices and an increase in costs. Despite this, Stanmore Coal expects costs to normalize in the second half of the year. The company also anticipates a full-year saleable production of 12.3-13 million tonnes. Matos acknowledged the challenges of inflation and rising labor costs but believes that the worst of the cost increases have already been seen.
Despite hitting a net cash position of US$70 million, Stanmore Coal has decided not to pay a dividend. The company is rumored to be considering acquiring BHP’s Daunia and Blackwater mines but declined to comment on the speculation.
On another note, the mining sector faced a tough day, with Stanmore Coal’s share price falling more than 3%. The materials sector as a whole experienced a 1.28% decline. This drop was led by falling lithium prices in China, which affected companies such as Pilbara Minerals, Allkem, and MinRes.
MGL Comment - Tue 08:46, Aug 15 2023Back to Top
When Stanmore bought BHP coking coal operation, we pointed out the likely mark to market PE was below <1.
We're out now, and sold in October, too early of course. It's dirt cheap at <3x eps.
Coking coal trying to rally here.
