The best of Materials Risk 2018

Of the 29 articles published on Materials Risk this year here are the top 10 as measured by page views and engagement.

1. Probably the best podcasts on macroeconomics, markets and geopolitics

Over the past year I have become a complete and utter convert to podcasts. Tired of spending most of my day staring at a screen they are the perfect means to keep on learning but also giving your eyes a rest. I am constantly amazed at the quality of many of the podcasts out there. Sure many of them have a team of researchers providing background information but still to produce weekly podcasts of such a high standard is amazing.

2. A long term view creates opportunities for commodity investors: Interview with Mike Alkin 

I had the opportunity to talk with Mike Alkin. Mike is the founder and Chief Investment officer of Sachem Cove Partners, a hedge fund that invests solely in uranium and nuclear fuel cycle companies, a newsletter writer and someone who has spent 20+ years in the hedge fund business as an analyst, portfolio manager and partner.  In this interview you’ll learn how to manage a commodity investment over a long cycle, factors to look for when a commodity market is turning and why the uranium market is so unusual, Mike’s views on geopolitics in the uranium market, that some uranium mines also produce a valuable by-product and finally future careers in finance.

3. Soybean prices: The top 10 most important drivers

From the weather to China and from protein demand to tariffs here are the top 10 factors affecting soybean prices.

4. A growth business: Potash market shows signs of life

As you may know I’m always on the look out for commodity markets that have fallen out of favour. Ones that are hated by investors so such that any sense of fair value is so far down the list that they start to look like there is little in the way of downside risks. This brings out the potential for asymmetric returns for us as investors where the downside is limited, but the upside is potentially (but not always) very high. In this article I highlight the potential upside for potash.

5. Positioning analysis in commodity markets: An interview with Mark Keenan

I had the opportunity to talk with Mark Keenan, Global Commodities Strategist & Head of Research Asia-Pacific at Société Générale. In this interview you will learn why it’s important to be aware of the objectives of all market participants in commodity markets and why using methods like positioning analysis offer very good insights into whose doing what, and what happens when they do too much of it and how much positioning then relates to other factors like price, curve structure and fundamentals.

6. Electric dreams: If you thought predicting oil prices was tricky, try cobalt or lithium

Implicit in any forecast of commodity prices is an assumption of how technology could evolve and how its adoption will affect commodity prices. Commodity prices provide the incentive for new technology, yet also influence commodity production and consumption. Innovations, once introduced, may lead to higher yields from agriculture, more oil being extracted from offshore wells and deeper mines to extract more metals and minerals – all of which could eventually lead to rising commodity supplies.

7. Platinum prices: The top 10 most important drivers

From the vehicle demand to emissions tests and from recycling to investment demand here are the top 10 factors affecting the price of platinum.

8. Buy the rumour: Wheat prices spike on Ukraine export ban social media post

Wheat futures spiked by almost 5% in August after comments from the Ukrainian deputy agriculture minister on Facebook of “export limits for wheat” were misinterpreted as an imminent export ban.

9. Shining a light on extractive industries: An interview with Åsa Borssén from Raw Talks

I recently had a chance to talk to Åsa Borssén from Raw Talks. In this interview you will learn more about why governments struggle so much with managing resources and what steps they are making to change things for the future. We also talk about what investors in resource companies should think about when allocating their capital to resource dependent countries, both now and in the future.

10. El Niño looks imminent – here’s what that means for commodity markets

First observed in the 19th century by Peruvian fishermen, the recurring weather phenomenon is known to affect Australasia as well South America. Its climatic effects can reach as far as West Africa triggering downpours or droughts. Previous episodes have had a significant impact on crop yields and the price of agricultural commodities as well as metal and energy prices.

More interesting things you might have missed.

  • I publish a fortnightly newsletter that includes links to the best research I’ve seen freely available on the internet. Mostly commodity related but lots of macroeconomics.
  • Check out my list of recommended books.
  • If you haven’t read them yet I’d encourage you to buy my books – Commodities: 50 Things You Really Need To Know and Crude Forecasts, Predictions, Pundits & Profits In The Commodity Casino.
  • I published a short email course on commodities on GoHighbrow.

Thank you

I really appreciate your support over the past twelve months. I’ve had the opportunity to connect with some great people through writing for Materials Risk. I hope to do more of the same in 2019.

Until then, happy New Year.


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Potash market continues recovery on tight supply

Back in July I published an article detailing the potential bull case in the potash market. Key to the observation that prices were close to a floor was evidence of supply discipline.

In late 2017 Canadian producer K+S idled two of its mines for around two months while also running production at their most profitable mine (Bethune) around 400,000 tonnes lower than what the nameplate capacity would imply.

As a result the price of potash had stabilised at around $200 per tonne – a level it was at for the previous two years. Fast forward five months and there are further signals of upward price pressure. 

The Belarusian Potash Company (the world’s largest potash producer, controlling 20% of the global market) recently signed a new contract with its Chinese buyers at a higher than expected price of $290 a tonne, up 25% from the previous year. The agreement with China, the world’s biggest potash user, provides a benchmark for the whole sector.

Longer term there is a risk that other suppliers will bring on extra output, neutralising the nascent recovery. For now at least this has been put on hold following the decision by EuroChem to delay its entry into the potash business.

The Russian controlled company initially expected to make 500,000-600,000 tonnes of potash this year from its new Usolskiy plant, near Russia’s Ural mountains. It now expects to produce about 300,000 tonnes. Meanwhile, the start up of EuroChem’s second plant, VolgaKaliy, that was previously scheduled for this year is now expected to take place in the first half of 2019.

The demand side of the equation has also been strong. Agricultural commodity prices have remained high relative to levels seen over the past couple years; in turn this has incentivised farmers to purchase more fertiliser.

Related article: A growth business: Potash market shows signs of life

Image courtesy of Belarusian Potash Company (BPC), the trading division of Belaruskali )

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Nickel prices: The top 10 most important drivers

1) Stainless steel

Stainless steel currently accounts for around 70% of nickel demand. Nickel is used as an alloying input in its production. Whenever there is growth in car sales, increasing activity in the construction sector and higher consumer spending on household appliances then it follows that nickel demand also increases.

Photo by Adam Dachis on Unsplash

2) Chinese demand

Nickel is a commodity that typically sees demand increase once infrastructure is in place. As families furnish their homes with large appliances the demand for nickel typically increases. The price of nickel typically reacts in advance to signs of faster or slower growth in Chinese demand.

3) Supply

There is a two-tier market for nickel. The first is for high-purity nickel delivered by the conventional route of nickel ore processing and refining. Some of the major producing countries include Russia, Canada and Australia.

The second tier has grown up from the increasing role of nickel pig iron (NPI) production. Nickel ore is shipped from mines in the Philippines and Indonesia to China to create cheaper nickel units in NPI.

4) Innovation

As with all commodities high prices encourage innovation and the commercial use of technologies previously thought to be uneconomical. Nickel is no different.

In early 2007 Chinese stainless steel producers (the production of which requires nickel and iron ore) were up against the wall as supplies were dominated by western companies operating in places where nickel reserves were being depleted.

There were plenty of lower-grade laterite deposits in Indonesia and elsewhere which could be refined into nickel pig iron. But processing the laterite ore required lots of energy and created lots of pollution. After encouraging early trials, Tsingshan (one of China’s major stainless steel producers) tried rotary kiln electric furnaces, which use around 40% less energy than blast furnaces and can extract more nickel from the ore.

5) Batteries

While lithium may have captured the attention of battery producers looking to supply into the automotive sector, it is nickel that could help bring electric vehicles into wider adoption. the switch to NMC and NCA batteries means battery cells contain more nickel (in the region of 20%-50%). Meanwhile as battery packs become bigger to increase the range of vehicles between charging then there is likely to be greater use of nickel. Batteries currently represent around 4%-5% of global nickel demand.

As of now, the EV-battery market wants tier 1 (class 1) material, sourced from mined nickel sulfide ores. The high-quality nickel metal produced from those is used to make the nickel sulfate needed for batteries. The problem is that none of the NPI produced by Indonesia and the Philippines is suited for production of the nickel sulphate powder desired by battery makers.

6) The weather

Perhaps surprisingly the commodity that has typically seen the biggest price impact from the weather phenomenon known as El Niño during the 20 year period to 2015 has been nickel. This has been because dry weather in Indonesia lowered water levels in canals, preventing the metal from being exported.

7) Political uncertainty

Political uncertainty is one of the main factors affecting the nickel market. After Indonesia introduced an export ban on nickel ore in early 2014 nickel prices promptly surged by over 50% reaching a high of just over £21,000 per tonne five months later. Prices were also buoyed by geopolitical concerns elsewhere, namely the risk of sanctions on the worlds biggest nickel producer, the Russian company Norilsk Nickel. Meanwhile, geopolitical concerns resurfaced in the nickel market after the Us imposed sanctions on Russian oligarchs.

8) Stock levels

In theory rising nickel stock levels should be indicative of a weak market, as supply exceeds demand. It is normal for prices and inventory levels to generally move in opposite directions. When nickel producers don’t like the market price and think that they can get a better one by waiting, they put their production into warehouse storage and wait for better times. When prices rise up to or above a price level that the producers like, nickel starts coming back out of inventory and onto the market. So watching nickel inventory levels can give us insights about where the producers think a fair price is. Both the LME and the Shanghai metals exchange report nickel stocks.

9) US Dollar

Like most internationally traded commodities nickel is priced in US dollars. At its most basic a decrease in the value of the US dollar relative to a commodity buyer’s currency means that the purchaser will need to spend less of their own currency to buy a given amount of the commodity. As the commodity becomes less expensive demand for the commodity rises, resulting in an increase in the price and vice versa.

A weaker dollar can also act as a disincentive to producers to increase output. For example, a depreciation of the US dollar against the Indonesian Rupiah can reduce profit margins for a nickel miner in Indonesia. All of the miner’s revenues will be received in US dollars, which will now buy less Rupiahs, but some proportion of the costs will be denominated in Rupiahs and will remain constant (at least in the short term). Therefore, the prospect of a lower profit margin acts as an incentive to decrease the supply of nickel.

10) Scrap availability

Stainless steel scrap is another important source of supply for the stainless steel industry. In the future the recycling of batteries from electric vehicles is likely to become an important source of supply for the nickel sulfide used in those battery packs.

Related article: Copper prices: The top 10 most important drivers

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