Materials Risk

A pile of dry timber and twigs in the forest will just sit there, undisturbed, dormant. Unless that is, it is disturbed by some change in the environment; an especially hot day coupled with litter lout picnickers. That catalyst – the change in the environment – increases the risk of a forest fire.

Asset markets can also remain dormant for years. As the years go by, industries begin to lose their luster, commodity markets suffer decade long bear markets as over-capacity grinds away at returns, and markets disappear off the radar of even the most committed of investors.

The worlds largest container ship, the Ever Given has blocked the narrow Suez Canal this morning. Travelling from China, the giant ship was due to be travelling onwards to Rotterdam in the Netherlands. However, it appears that the ship lost power, and in windy conditions drifted sideways, blocking the canal.

According to data from the US Energy Information Administration almost 10% of total seaborne oil trade and 8% of global LNG trade passes through the Suez Canal. Although attention naturally focuses on the risk to energy supplies, the canal also provides a major route by which agricultural products (both grain and fertiliser) move between Europe and Asia. read more

Beijing and other cities are frequently plagued by some of the worst smog in the world, typically from the burning of coal. In recent weeks, pollution levels have escalated in Beijing and across other cities on the eastern seaboard. In response, authorities in China have ordered steel plants to dial back their operations. The hope being that less coal is burnt, and so the smog that has shrouded the region begins to dissipate.

Announcements ordering steel plants to curb their output tend to result in an immediate impact on iron ore and coal prices. Steel plants rely heavily on coking coal, and so restrictions on their operation also result in less demand for iron ore. read more