Credit deflation and the reflation cycle to come (part 2)

[jamtomorrow]

2 hours ago, Lightscribe said:

Anyway I promised I wouldn’t talk about BTC on here 

I will also take the vow, after One More Thing Ma'am ...

Seen a few comments in this discussion along the lines of "it's just 0's and 1's" or "it has no intrinsic value". If you've come to that conclusion *without* reading and understanding Satoshi's white paper, I would *really* encourage you to give it a go - it's surprisingly accessible to anyone with a modicum of engineering/scientific/technical knowledge. The intellectual accomplishment it represents is real, and it's not wild (of course, depending how BTC unfolds from here) to imagine future generations putting it in the same bracket as Einstein's annus mirabilis papers (also: surprisingly accessible).

Happily, the white paper has proliferated in recent weeks after the community responded to the arse Craig Wright's attempt to assert copyright e.g. https://www.miamigov.com/Government/City-Officials/Mayor-Francis-Suarez/Bitcoin-White-Paper

[AWW]

2 hours ago, Lightscribe said:

Havent still got the contact details of the person you sold it to? Just because you formatted the drive, it may still be recoverable. You would have to wipe the drive with multi-pass and zero it out to truly wipe the drive.

I don't.

[Harley]

51 minutes ago, jamtomorrow said:

I will also take the vow, after One More Thing Ma'am ...

Seen a few comments in this discussion along the lines of "it's just 0's and 1's" or "it has no intrinsic value". If you've come to that conclusion *without* reading and understanding Satoshi's white paper, I would *really* encourage you to give it a go - it's surprisingly accessible to anyone with a modicum of engineering/scientific/technical knowledge. The intellectual accomplishment it represents is real, and it's not wild (of course, depending how BTC unfolds from gere) to imagine future generations putting it in the same bracket as Einstein's annus mirabilis papers (also: surprisingly accessible).

Happily, the white paper has proliferated in recent weeks after the community responded to the arse Craig Wright's attempt to assert copyright e.g. https://www.miamigov.com/Government/City-Officials/Mayor-Francis-Suarez/Bitcoin-White-Paper

9 pages.  9 pages including references.  Billions and only 9 effing pages!

[arrow]

The main stream media, Telegraph, is now writing about the coming commodity supercycle, as promoted by Goldman Sachs and JP Morgan. It talks about major fiscal sepnding, infrastructure investments, commodities demand. Though, instead of crude supply no longer being able to cope with demand, the author does mistakenly believe that "oil prices have tripled since last year’s nadir with Brent crude close to $60 per barrel as demand hopes rise and Opec holds back supply".

 

"Is the world on the brink of a metals supercycle?
Major infrastructure spending and the drive for green cars and appliances could fuel a years-long boom in demand for commodities
Jetting into the richest country in the world can feel a little like arriving in the past. Visitors to America are often greeted by outdated airports, crumbling roads and poor public transport as its infrastructure is leapfrogged by big investment elsewhere.
“American infrastructure absolutely has fallen behind the stuff being built in China and certainly in the Middle East, and it’s time the West caught up, frankly,” says John Meyer, mining analyst at SP Angel. “Governments have not wanted to spend public money on infrastructure… it’s as if the West was waiting for an excuse to do this sort of thing.”
The need to upgrade the country’s ageing infrastructure has become a rare common goal on both sides of the aisle in Washington. Joe Biden has set his sights on an investment spree that he hopes can simultaneously upgrade America, fuel the recovery and drive his green ambitions. But that will need metals, and a lot of them.
Meyer and top Wall Street analysts believe a global post-Covid investment boom will herald a new commodities “supercycle” – a multi-year and even decade-long surge in prices that is well above normal trends. Others remain sceptical, believing 2021 will prove to be the peak.
The commodities market ended 2020 on the front foot after the outlook was brightened by vaccine rollouts and government stimulus nearing $20 trillion globally. China, a key driver of demand, has bounced back from Covid, and was the only major economy to grow in 2020.
The S&P/TSX Global Base Metals Index – a broad measure of metals such as copper and iron ore – climbed by almost 30pc last year, hitting its highest level since 2011.
Copper gained 25pc and steel-making ingredient iron ore jumped almost 70pc. Meanwhile, oil prices have tripled since last year’s nadir with Brent crude close to $60 per barrel as demand hopes rise and Opec holds back supply.
The rise of the BRIC economies – Brazil, Russia, India and crucially China – triggered the last commodities supercycle in the 2000s. The emergence of the metals-hungry developing economies fuelled the commodities market, with the value of copper rocketing five-fold.
The next supercycle may be driven more by the West. The two greatest threats to the global economy – Covid and climate change – could herald the arrival of a metals boom.
The response of governments to the financial crisis was to tighten belts and clamp down on public spending. Monetary rather than fiscal policy rode to the global economy’s rescue, but roles have reversed during the pandemic. With central banks now operating with depleted ammunition on monetary policy, governments have had to rely on fiscal firepower to prop up their economies.
Plans for spending on infrastructure and green investment in particular are being drawn up. Infrastructure spending is widely seen as one of the quicker and most effective ways of boosting economies.
Boris Johnson has promised an infrastructure revolution to power his climate and levelling up pledges. Meanwhile, Biden has pledged that trillions of dollars will be pumped into America’s crumbling infrastructure, particularly on green initiatives.
Goldman Sachs analyst Jeffrey Currie argues the start of a commodities bull market has many similarities to the 2000s boom.
He says green spending could be “as big as BRIC’s investment 20 years ago” with under-investment in supply of “almost all commodities” and a weak dollar also echoing the price surge of the 2000s.
Metals driving the boom in green technologies – such as nickel, cobalt, lithium, copper and rare-earth metals – were seeing rising demand even before the pandemic. But governments are now stepping up plans to combine their climate and stimulus ambitions, especially ahead of the COP26 summit.
“It’s not just the fact that we’ve got stimulus projects coming along, but we’re all converting to renewable energy and electric vehicles,” Meyer says.
“These would be massive drivers on their own... I just think the world is going to struggle to produce enough metal, particularly for the new electric economy.”
He says the demand for metals used in the electric revolution will create “deficit situations across the board” as supply fails to meet fervent appetite.
“The fact is, the world doesn’t produce enough commodities. It doesn’t produce enough copper, nickel, tin, zinc.”
Meyer expects copper, currently at just below $8,000 a tonne, to reach $10,000 in the next two years while he says nickel could breach the $20,000 a tonne mark this year, a $2,000 increase.
A man walks with a roll of copper tubing at a store in Shanghai, China
Chinese infrastructure and construction accounts for 30pc of global copper demand CREDIT: Bloomberg
Some analysts remain supercycle sceptics, however. Daniel Major from UBS expects most commodity prices to peak in 2021.
“We acknowledge that the demand base is much larger now than it was 10 years ago, but we expect demand growth to be materially lower over next one to two years than in the ‘supercycle’ years and supply is set to recover from Covid disruption.”
He says the metals used for electric batteries will “experience transformational demand growth”, but says the driver from the green push needs to be put in context.
Chinese infrastructure and construction accounts for 30pc of global copper demand but these sectors will “plateau and contract over the next 10 years”, Major argues. Electric vehicles and renewables currently account for just 5pc of demand.
If the supercycle advocates are right, demand in China will become less important to metal markets in the post-pandemic recovery. The world’s second-largest economy accounts for at least half of the consumption of key base metals, including copper, aluminium and nickel, but analysts are shifting their focus.
Citigroup’s Oliver Nugent believes “the market will pay more attention to the world ex-China demand than it has arguably done for the past decade”.
High demand for consumer goods such as washing machines and fridges outside of China will push the copper market into a deficit later this year, he argues.

 

[Democorruptcy]

Somebody PM if ever it turns back from being just another bitcoin thread, I cannot be bothered shifting through any more.

[arrow]

A second Telegraph article says quite wisely, I thought, that there may well be a lag and temporary disconnect between commodities rising and commodity companies share prices.  I don't think this applies to mining companies as such, but more to oil/gas companies. So, people looking to benefit may well have to wait a while and reinvest their dividends prior to the share prices catching up.
The second article mentions malinvestment by mining companies. They get carried away by fear of missing out and overpay for assets and takeovers. That shouldn't be the case with the big energy integrated majors, as from reading their strategies they're aiming for minimum returns from projects before considering them. Hopefully, this strategy will be applied to any takeovers.

 

 

"Britain’s FTSE 100 index has lagged global peers since the Great Financial Crisis sparked an implosion in the banking sector more than a decade ago. This underperformance was exacerbated by a fall in oil prices, hitting some of the largest components of the index.

But things may be about to improve. Wall Street investment banks Goldman Sachs and JP Morgan claim a new commodities super-cycle is under way, driven by the rush to clean energy. This should help boost the shares in an underperforming sector, but also has implications for the FTSE 100 itself as basic materials has a 13.5pc weighting in the index.

All of this is, of course, great news. The mining sector is very adept at digging itself into financial holes. The driver of the latest uplift in the commodity complex will be the greening of the world through investments in green energy and carbon reduction. The multi-year transition to an electrified, clean-energy global economy is likely to result in a monumental draw on metals and minerals from the world’s mines, the banks argue.

However, regular industry watchers will know that the history of the listed mining sector is littered with value destruction at times of sky-high metals prices. When the last super-cycle died around a decade ago, many mining investors were left nursing heavy losses. When share prices soar, boards can easily get dizzy with their own success and go on acquisition sprees at inflated prices that leave their businesses drowning in debt. One obvious example of the sector’s panache at value destruction was the near collapse of Rio Tinto as the financial crisis unfolded. The breakneck rise of China in the early 2000s snapped miners out of a lull that had lasted for more than a decade.

Dividends were not the number one priority for boards investing for super-cycle growth. Miners also competed for assets with rivals, bidding up prices even further. The boardrooms of the world’s major miners appeared to be hit by a serious case of FOMO – the fear of missing out.

In August 2007, when the “credit crunch” was already being discussed, Rio Tinto raised a record $40bn (£29bn) to fund its acquisition of Canadian aluminium group Alcan. It was the biggest loan ever raised by a UK-listed company at that time – and the fourth largest worldwide.

The hubris-filled Alcan acquisition brought with it a mountain of debt immediately before commodity prices slumped. The collapse in equity markets over the next year was more disastrous for Rio Tinto than many of its peers, who were simply lucky with timing. Rio’s attempt to solve the issue angered its shareholders even more.

The miner agreed a near $20bn cash injection from investor Chinalco, a move that would have resulted in the Chinese state-owned group doubling its stake in Rio to 19pc from 8pc. This was abandoned swiftly as it favoured one shareholder over another and angered much of Rio’s investor base. Chinalco trousered $200m in break fees and Tom Albanese, then the Rio chief executive, launched a $15.2bn rights issue.

The big winners from the first mining mega-merger in 2001 were, as usual, the bankers. The combination of Australia’s Broken Hill Proprietary Company and Billiton was effectively reversed in 2015 when most of the remaining assets that can be traced back to Billiton were spun off into a new company, South32. BHP Billiton became BHP once more.

Gains in commodity prices do not necessarily translate in booming profits either. In 2009, gold hit a new high just shy of $2,000 an ounce. Despite the surge in gold, gold miners underperformed significantly.

Mining is a difficult business with many political and operational challenges. The quality of ore mined can be poor, dams can break catastrophically – and these businesses are also run by flesh-and-blood employees who make mistakes and misjudgments. Decision-making in the sector is made much more difficult by the lead times involved in the projects. It is usually many, many years after the final investment decision being ratified by a company’s board until a mine is fully operational. The world will almost certainly change significantly over this period.

Of course, current management at the FTSE 100’s major miners understand this well. They have streamlined and focused their operations on quality, flagship mines in plumb sectors and have boosted returns to shareholders via dividends and buy-backs.

However, no chief executive has a crystal ball. The two major market negative events of this century were largely unpredicted – the Great Financial Crisis and the Covid-19 pandemic. They were so-called Black Swan Events. The inability to predict the future is why Tom Albanese had to spend years rebuilding Rio Tinto after agreeing to a course of action that appeared to make complete sense at the time. So, even if the rush to electrify family cars, remove gas boilers and install wind turbines boosts the price of metals, these gains – although positive – won’t necessarily translate into exploding share prices in the mining sector.

There is also the dispute between Australia and China to consider, as the biggest UK-listed miners are Australian based. Reports suggest that the political tensions have resulted in a push from Beijing to source more of their commodities from Africa.

Investors need to watch how this plays out. Although these are undoubtedly positive developments for the bottom line of these businesses, super-cycle investors need to exercise caution before getting too excited about what it means for the prospects for the mining sector – and the FTSE 100, too.

And they’ll probably need that caution in spades."

 

 

[Harley]

37 minutes ago, Democorruptcy said:

Somebody PM if ever it turns back from being just another bitcoin thread, I cannot be bothered shifting through any more.

IMO this is a macro thread ("Credit deflation and the reflation cycle to come").  I tried talking macro but some people didn't bother to understand and were rude about it and/or just wanted stock tips rather than fish in the other threads, posting glib responses to thought out and invested posts.  You could just put most on ignore, except Sancho, CattleProd, DB and co who continue to do well.  A bit of off-topic is reasonable and to be expected but rather than say too much BTC (which there is), etc I've noticed a reduction in macro, thus upsetting the balance.  But TBF "macro" is a bit nebulous and BTC has it's place in the correct context (say in discussing asset allocations and trends) but deep dives, well we have other threads for such things.  A bit of a balanced judgement call.  I for one promise to refocus on macro and post less!

PS:  Not referring your your post but in this context I'm fearful I'm beginning to notice a general change of tone across many threads, maybe mirroring the general angst out there among the population.

PPS: Home made tuna pizza tonight, but I'll leave it there!

[wherebee]

36 minutes ago, Harley said:

 

PPS: Home made tuna pizza tonight, but I'll leave it there!

how do you stop the tuna burning?  It seems to go before the cheese melts enough.

and yes, it is off topic.

[Democorruptcy]

22 minutes ago, Harley said:

IMO this is a macro thread ("Credit deflation and the reflation cycle to come").  I tried talking macro but some people didn't bother to understand and were rude about it and/or just wanted stock tips rather than fish in the other threads, posting glib responses to thought out and invested posts.  You could just put most on ignore, except Sancho, CattleProd, DB and co who continue to do well.  A bit of off-topic is reasonable and to be expected but rather than say too much BTC (which there is), etc I've noticed a reduction in macro, thus upsetting the balance.  But TBF "macro" is a bit nebulous and BTC has it's place in the correct context (say in discussing asset allocations and trends) but deep dives, well we have other threads for such things.  A bit of a balanced judgement call.  I for one promise to refocus on macro and post less!

PS:  Not referring your your post but in this context I'm fearful I'm beginning to notice a general change of tone across many threads, maybe mirroring the general angst out there among the population.

PPS: Home made tuna pizza tonight, but I'll leave it there!

When DB mentioned bitcoin a while back I posted a table of firms that had done well because of their exposure to it, thinking what might happen if a bigger firm went in. I didn't make the post I intended earlier because I couldn't be bothered after having to scroll through so much about bitcoin. Now you have drawn me back in with a quote... next Thursday 18th a few thread darlings BP, RDSB, IMB, GSK all go ex-dividend. 

[AWW]

21 minutes ago, wherebee said:

how do you stop the tuna burning?  It seems to go before the cheese melts enough.

and yes, it is off topic.

Put the tuna on before the cheese.

[Hardhat]

1 hour ago, arrow said:

And they’ll probably need that caution in spades.

Got it - buy spades.

LON:TPK

 

On a serious note, does anyone know of any miner services sectors, similar to the oil services sector, that we could look at? I'm thinking heavy plant, but also reagents etc for refining, conveyors, etc etc?

[Thorn]

36 minutes ago, Hardhat said:

Got it - buy spades.

LON:TPK

 

On a serious note, does anyone know of any miner services sectors, similar to the oil services sector, that we could look at? I'm thinking heavy plant, but also reagents etc for refining, conveyors, etc etc?

Check out Superior Industries

[JMD]

2 hours ago, arrow said:

The main stream media, Telegraph, is now writing about the coming commodity supercycle, as promoted by Goldman Sachs and JP Morgan. It talks about major fiscal sepnding, infrastructure investments, commodities demand. Though, instead of crude supply no longer being able to cope with demand, the author does mistakenly believe that "oil prices have tripled since last year’s nadir with Brent crude close to $60 per barrel as demand hopes rise and Opec holds back supply".

 

"Is the world on the brink of a metals supercycle?
Major infrastructure spending and the drive for green cars and appliances could fuel a years-long boom in demand for commodities
Jetting into the richest country in the world can feel a little like arriving in the past. Visitors to America are often greeted by outdated airports, crumbling roads and poor public transport as its infrastructure is leapfrogged by big investment elsewhere.
“American infrastructure absolutely has fallen behind the stuff being built in China and certainly in the Middle East, and it’s time the West caught up, frankly,” says John Meyer, mining analyst at SP Angel. “Governments have not wanted to spend public money on infrastructure… it’s as if the West was waiting for an excuse to do this sort of thing.”
The need to upgrade the country’s ageing infrastructure has become a rare common goal on both sides of the aisle in Washington. Joe Biden has set his sights on an investment spree that he hopes can simultaneously upgrade America, fuel the recovery and drive his green ambitions. But that will need metals, and a lot of them.
Meyer and top Wall Street analysts believe a global post-Covid investment boom will herald a new commodities “supercycle” – a multi-year and even decade-long surge in prices that is well above normal trends. Others remain sceptical, believing 2021 will prove to be the peak.
The commodities market ended 2020 on the front foot after the outlook was brightened by vaccine rollouts and government stimulus nearing $20 trillion globally. China, a key driver of demand, has bounced back from Covid, and was the only major economy to grow in 2020.
The S&P/TSX Global Base Metals Index – a broad measure of metals such as copper and iron ore – climbed by almost 30pc last year, hitting its highest level since 2011.
Copper gained 25pc and steel-making ingredient iron ore jumped almost 70pc. Meanwhile, oil prices have tripled since last year’s nadir with Brent crude close to $60 per barrel as demand hopes rise and Opec holds back supply.
The rise of the BRIC economies – Brazil, Russia, India and crucially China – triggered the last commodities supercycle in the 2000s. The emergence of the metals-hungry developing economies fuelled the commodities market, with the value of copper rocketing five-fold.
The next supercycle may be driven more by the West. The two greatest threats to the global economy – Covid and climate change – could herald the arrival of a metals boom.
The response of governments to the financial crisis was to tighten belts and clamp down on public spending. Monetary rather than fiscal policy rode to the global economy’s rescue, but roles have reversed during the pandemic. With central banks now operating with depleted ammunition on monetary policy, governments have had to rely on fiscal firepower to prop up their economies.
Plans for spending on infrastructure and green investment in particular are being drawn up. Infrastructure spending is widely seen as one of the quicker and most effective ways of boosting economies.
Boris Johnson has promised an infrastructure revolution to power his climate and levelling up pledges. Meanwhile, Biden has pledged that trillions of dollars will be pumped into America’s crumbling infrastructure, particularly on green initiatives.
Goldman Sachs analyst Jeffrey Currie argues the start of a commodities bull market has many similarities to the 2000s boom.
He says green spending could be “as big as BRIC’s investment 20 years ago” with under-investment in supply of “almost all commodities” and a weak dollar also echoing the price surge of the 2000s.
Metals driving the boom in green technologies – such as nickel, cobalt, lithium, copper and rare-earth metals – were seeing rising demand even before the pandemic. But governments are now stepping up plans to combine their climate and stimulus ambitions, especially ahead of the COP26 summit.
“It’s not just the fact that we’ve got stimulus projects coming along, but we’re all converting to renewable energy and electric vehicles,” Meyer says.
“These would be massive drivers on their own... I just think the world is going to struggle to produce enough metal, particularly for the new electric economy.”
He says the demand for metals used in the electric revolution will create “deficit situations across the board” as supply fails to meet fervent appetite.
“The fact is, the world doesn’t produce enough commodities. It doesn’t produce enough copper, nickel, tin, zinc.”
Meyer expects copper, currently at just below $8,000 a tonne, to reach $10,000 in the next two years while he says nickel could breach the $20,000 a tonne mark this year, a $2,000 increase.
A man walks with a roll of copper tubing at a store in Shanghai, China
Chinese infrastructure and construction accounts for 30pc of global copper demand CREDIT: Bloomberg
Some analysts remain supercycle sceptics, however. Daniel Major from UBS expects most commodity prices to peak in 2021.
“We acknowledge that the demand base is much larger now than it was 10 years ago, but we expect demand growth to be materially lower over next one to two years than in the ‘supercycle’ years and supply is set to recover from Covid disruption.”
He says the metals used for electric batteries will “experience transformational demand growth”, but says the driver from the green push needs to be put in context.
Chinese infrastructure and construction accounts for 30pc of global copper demand but these sectors will “plateau and contract over the next 10 years”, Major argues. Electric vehicles and renewables currently account for just 5pc of demand.
If the supercycle advocates are right, demand in China will become less important to metal markets in the post-pandemic recovery. The world’s second-largest economy accounts for at least half of the consumption of key base metals, including copper, aluminium and nickel, but analysts are shifting their focus.
Citigroup’s Oliver Nugent believes “the market will pay more attention to the world ex-China demand than it has arguably done for the past decade”.
High demand for consumer goods such as washing machines and fridges outside of China will push the copper market into a deficit later this year, he argues.

 

Thanks for posting. Great confirmation article for this thread, could almost have been written by our own Durhamborn!! ...Was it?!                                                                                                                                                    But what's with the weird article line(can't highlight unfortunately): 'A man walks with a roll of copper tubing at a store in Shanghai, China....' sounds like the start of an old 1970's joke?!?                                         NB. Thinking about this further, I would really like to discover the punchline - perhaps it may even reveal how all this macro stuff ends! (though very inscrutable I've heard, those Chinese)

[Thorn]

54 minutes ago, Thorn said:

Check out Superior Industries

And Weir Group

[jamtomorrow]

Interesting take on DXY:

 

[dnb24]

As part of our hospital re-build I’ve just been informed that a number of departments will be smaller than planned due to foreseeable reduction in the birth rate in the East of London. Interesting statement to make, and Could well influence macro decisions for investment.

It does seem to fly in the face of the huge amount of building from Finsbury Park down to Canning Town- with huge tower blocks of flats being put up.

 

[arrow]

The western Oil/gas majors are under a lot of pressure/blackmail to reduce their hydrocarbon production and change to renewables. Perhaps, they should move their headquarters and registered offices to Singapore. Trafigura, privately owned and registered in Singapore, put out press releases about how concerned it was about the environment and emissions. But, it puts billions into Rosneft's Vostok Oil Arctic project. It's been the main news story for the bbc/cnbc/etc. Oh, that's right, it's never been mentioned. Apparently, it's ok for Singapore to finance the supply of Russian oil to China. Perhaps, I should increase my holdings in Gazprom.
 

From the FT,

 

"              Western companies know partnering with Russia’s state-backed oil and gas producers carries political and reputational risks that must be weighed against gaining access to the country’s bounty of natural resources.

But for Trafigura, becoming Rosneft’s go-to commodity trader has a more concrete expense: €1.5bn of its own cash, injected into a €7.3bn deal for a 10 per cent stake in a gargantuan Arctic oil project backed by President Vladimir Putin.

The full extent of Trafigura’s investment in Vostok Oil, its largest ever, illustrates the lengths to which it will go to cement its relationship with Rosneft and secure millions of barrels of crude for its huge trading business.

As US sanctions have squeezed the Russian group’s access to credit, Trafigura has vied with rival Glencore to become the favoured partner of the world’s second-largest oil producer and win prized supply agreements.

But investing in a vast project in an environmentally sensitive area, at a time when Trafigura faces pressure to adapt its business model as developed economies start the long transition away from fossil fuels, has raised questions.

It comes as the company, which is owned by 850 employee shareholders, is planning a multibillion-dollar push into renewable energy with an Australian partner and has just announced its first emissions targets. But it is far from turning its back on the oil trade.

“When traders look to buy equity in a project it’s normally to create a degree of ‘stickiness’ with the commodities it produces and the partner,” said Roland Rechtsteiner at consultancy Oliver Wyman. He added that there had been “a growing trend of buying into assets” to secure “offtake” supply deals and “long-term relationships with the largest oil producers”.

“The offtake is where the money is,” said one senior commodity banker, noting that while Trafigura’s investment was “a big number . . . the deal washes its face on profit from the offtake volumes”.

Vostok Oil will develop a new oil-producing region on Siberia’s Taymyr Peninsula to rival the US Permian Basin and Saudi Arabia’s Ghawar oilfield. It will pull together existing production of about 370,000 barrels per day and exploration assets and link them to markets in Europe and Asia via the Northern Sea Route, a fair-weather shipping lane between the Atlantic and Pacific oceans.

“This is a long-term investment for the group in an exciting oil and gas company with a resource base for liquid hydrocarbons of 6bn tonnes, including confident recoverable reserves of about 3bn tonnes,” a Trafigura spokesperson said. “The oil production potential of the project's open and promising deposits is comparable to the largest projects in the Middle East.”

The project, which will cost up to $150bn to develop, includes the construction of 15 towns to house the thousands of workers needed to drill the oil wells and operate the infrastructure.

But it is expected by analysts to produce 1m barrels of oil per day by 2028 and more than 2m b/d by 2035 — the equivalent of roughly 2 per cent of global supply — while favourable tax conditions should boost returns.

Trafigura is the first investor but Rosneft is also expected to seek support from China and India at a time when US sanctions have restricted its access to western financing. Having a large international trader such as Trafigura onboard is seen as one step to boost the project’s appeal. Other trading houses approached by Rosneft have been cautious about investing.

Trafigura already has a strong relationship with Rosneft, which has been the subject of US financial sanctions since 2014, having helped it raise funds through permitted short-term prepayment oil deals. It was also part of the Rosneft-led consortium that in 2017 took control of Nayara, formerly Essar Oil, including a big refinery in India.

Data from Petro-Logistics SA, a consultancy that monitors oil flows, show that Trafigura shipped roughly 400,000 barrels a day of Rosneft’s crude in 2019 and 250,000 b/d last year, compared with 280,000 b/d and 140,000 b/d respectively for Glencore. Trafigura declined to comment on the numbers.

While the investment in Vostok Oil is permitted under existing US sanctions Jason Hungerford, a partner at law firm Mayer Brown, said there was a risk that the incoming US administration of Joe Biden could take a more hawkish stance towards Russia.

“The US has always avoided directly sanctioning Rosneft's oil exports because of the disruption it could cause in global energy markets,” Mr Hungerford said. “But the direction of travel suggests that stricter sanctions in the future are possible.”

He added that “it might only take one incident — like the arrest of [Alexei] Navalny this week — to raise the temperature between Washington and Moscow, and Rosneft is clearly seen by the US as a pressure point it can target”.

Trafigura made its investment through a Singapore-registered special purpose vehicle called CB Enterprises, financing the deal with debt and equity.

Corporate filings in Singapore show the €5.775bn syndicated loan facility was organised by Credit Bank of Moscow, a fast-growing lender with ties to Rosneft and its chief executive Igor Sechin — one of Mr Putin’s closest allies.

The loans, which are non recourse, have a maturity of 13 years and have a five-year grace period on repayments. They would be paid back through the dividends generated by Vostok Oil, Credit Bank of Moscow said in a statement.

In addition to the loan, Trafigura said it was investing €1.5bn of its own cash,

That makes it the largest acquisition in Trafigura’s 27-year history and values Vostok Oil at almost €73bn. To put those figures in perspective, Trafigura’s group equity was $7.8bn (€6.4bn) at the end of September while Rosneft’s market capitalisation is $70bn (€55bn).

The investment follows a blockbuster year for Trafigura, which cashed in on the market chaos unleashed by the coronavirus pandemic to report record earnings before interest, tax, depreciation and amortisation of $6bn, up from $2.1bn in 2019.

That cut Trafigura’s adjusted total debt to $2.76bn from $5.3bn, giving it the confidence to push ahead with the deal, according to people with knowledge of the deal.

The transaction has some similarities with the 2016 deal in which Glencore and Qatar’s sovereign wealth fund joined forces to buy an $11bn stake in Rosneft. But while Glencore disposed of its interest in the special purpose vehicle used to make the purchase after 20 months, holding on to a five-year, 220,000 barrel per day supply agreement, Trafigura has no plans to flip its stake in Vostok Oil.

The key prize will be increased access to Rosneft’s crude, including low-cost barrels from the Arctic development. This would be a light, sweet crude with a relatively low carbon footprint that will not require any domestic blending, analysts said.

Trafigura declined to comment on the size of the supply deals but bankers think the volumes are significant — an initial 10m barrels of oil per month (about 330,000 barrels per day) and more once production from Vostok Oil ramps up. That would cement Trafigura’s position as the dominant exporter of Rosneft’s crude.

Trafigura sees Vostok Oil as an important project for an industry that has been starved of investment because of low prices and the pivot to renewables by western oil majors.

“We expect that new, low-cost sources of oil will continue to be required to support essential human needs for some time,” Jeremy Weir, Trafigura’s chief executive, said this month.

 

Trafigura is the biggest handler of Rosneft supplied oil

 

Vostok Oil’s estimated output for Taymyr Peninsula

[arrow]

1 hour ago, JMD said:

                                                                                                                              But what's with the weird article line(can't highlight unfortunately): 'A man walks with a roll of copper tubing at a store in Shanghai, China....'

Picture of someone carrying copper into a store in Shanghai that I omitted from the post

[leonardratso]

is it this guy?

Think it might some illegitimate son of @Yellow_Reduced_Sticker from his navy days

[JMD]

1 hour ago, Democorruptcy said:

When DB mentioned bitcoin a while back I posted a table of firms that had done well because of their exposure to it, thinking what might happen if a bigger firm went in. I didn't make the post I intended earlier because I couldn't be bothered after having to scroll through so much about bitcoin. Now you have drawn me back in with a quote... next Thursday 18th a few thread darlings BP, RDSB, IMB, GSK all go ex-dividend. 

Thanks Democorruptcy, for reminding me (not your intention, I know!) of DurhamBorn's BTC posts and subsequent discussion had here, mid last year I believe it was. (For BTC sceptics, please read 'bonkers tulip craze', as I do not seek to offend anyone!). Anyway I believe those initial BTC posts actually piqued some readers interest here, given coming from our host - certainly did for me, so I for one am thankful. Its one of the great characteristics of this thread that it airs expansive/important ideas (from the specific 'oil sector', to the diverse 'macro', mentioning no names so not to cause embarrasment!) and allows topics that might get shouted down on other forums. However, I have noticed a new sarcastic, not to mention 'tin ear' nature of recent discussions, that is disapointing... Just my thoughts, could be wrong, I often am.

[arrow]

11 minutes ago, leonardratso said:

is it this guy?

Think it might some illegitimate son of @Yellow_Reduced_Sticker from his navy days

Yes. He's a communist party surveillance expert.

Unfortunately, his disguises never work due to his easily recognisable abnormally large left forearm

[C-gull]

Does anyone have a view on Royal Mail and where they are valued currently? My reason for asking is that I've learned some figures around projected volumes required to enable the governments latest corona scheme involving mail order testing for the whole country. They're estimating circa ten times the volumes they handle every Christmas. And this is for something that we keep hearing will be required for years. I know Amazon logistics are involved in delivering kits too but that capacity number really stunned me and I thought it may be of interest here. If the previous statements are true then it could be looking very cheap

[DurhamBorn]

4 hours ago, Harley said:

IMO this is a macro thread ("Credit deflation and the reflation cycle to come").  I tried talking macro but some people didn't bother to understand and were rude about it and/or just wanted stock tips rather than fish in the other threads, posting glib responses to thought out and invested posts.  You could just put most on ignore, except Sancho, CattleProd, DB and co who continue to do well.  A bit of off-topic is reasonable and to be expected but rather than say too much BTC (which there is), etc I've noticed a reduction in macro, thus upsetting the balance.  But TBF "macro" is a bit nebulous and BTC has it's place in the correct context (say in discussing asset allocations and trends) but deep dives, well we have other threads for such things.  A bit of a balanced judgement call.  I for one promise to refocus on macro and post less!

PS:  Not referring your your post but in this context I'm fearful I'm beginning to notice a general change of tone across many threads, maybe mirroring the general angst out there among the population.

PPS: Home made tuna pizza tonight, but I'll leave it there!

I think your right Harley that we are not putting much of use on the thread at the minute.Im actually struggling myself to do much work,and everywhere i look seems to be sending signals we are in a holding pattern.Lots of people have come to the thread late as well when we have been positioning a long time.Bitcoin of course sends a macro message.Its that people are losing faith in Fiat.Life itself is a road map and you could argue is what the macro plays off.

If we take a 21 year old.If they earn £12 an hour,and houses are £80k and interest rates 5% then they see a roadmap to owning a house.They see their savings increase with the interest,they see the deposit build,they dont rush or gamble because the goal is always in reach.Its doable without consuming your life.

When a house is £200k and the jobs are temporary and savings get no interest the goal seems ever out of reach,not doable.

So the likes of Bitcoin have two drivers.First CBs are losing (and so Fiat) the trust of the people,and 2nd people are gambling to try to make enough to do what should be normal things.

So for me Bitcoin is another signal that printing is so high inflation must arrive,and that real assets are going to be coming into their own.

[DoINeedOne]

RUSSELL NAPIER: GROWING WEALTH IN AN INFLATION AVALANCHE

Took this from the comments on RealVision its a good interview to which i want to listen to it again

This was an amazing interview, definitely worth a second watch. Just some random points:

Russell Napier introduces an important real world concept that Nassim Taleb has also talked about...cause and effect.

Do unions cause wage inflation or does inflation create a union movement which causes wages to rise?

Russell Napier sees a 3 pronged investment boom in the years ahead.

1)Green/ESG revolution

2)Buying stuff not made in China

3)Shorter distribution chains The ESG movement is bullish for above ground gold because more gold will stay in the ground.

 

The history of inflation is a history of commodity inflation. When the public realizes their savings are better off in consumables that is a major turning point, especially for food inflation.

Weimar Republic...farmers were the big winners because their debts were paid off by inflation and they could sell their produce at inflation adjusted prices. (I am sure all on here realize how many wealthy people are buying agricultural land) Also, look at the interview Max Wiethe did with Shawn Hackett last fall to see how weather could be nitroglycerine for food prices in the years ahead.

Politicians make the same mistake over and over but give it a different name. That communist Richard Nixon (sarcasm) instituted wage and price controls, and in Canada, Fidel Castro lover Pierre Trudeau did the same thing....message here, political ideologies do not matter, politicians will do what they have to do whether left or right of the spectrum. In the last few minutes Russell Napier explains how the yield cap will be implemented and it may not be pretty for stocks.

Also Russell Napier recommended a novel for the literary out there by Graeme Greene ...'Travels With My Aunt'. Finally, google a 1970s article by Warren Buffett 'How Inflation Swindles the Equity Investor'

Uploaded the downloaded audio here enjoy

https://www.dropbox.com/s/c1ie7lic79rqcrc/russellnapiergrowingwealthinan.mp3?dl=0

[working woman]

1 hour ago, dnb24 said:

As part of our hospital re-build I’ve just been informed that a number of departments will be smaller than planned due to foreseeable reduction in the birth rate in the East of London. Interesting statement to make, and Could well influence macro decisions for investment.

It does seem to fly in the face of the huge amount of building from Finsbury Park down to Canning Town- with huge tower blocks of flats being put up.

 

My Brother-in-Law works in regeneration in East London and a couple of years ago he was telling me about a huge project planned along the banks of the Thames, involving the building of thousands of houses. I've seen the plans and it looks interesting. No idea if it will really go ahead.

Maybe your bosses know about the plans for this and think people will move out of the old East End into these new areas to raise families and commute into London for work.

"The Thames Gateway is Europe’s largest regeneration project, stretching 40 miles along the Thames estuary from Canary Wharf in London to Southend in Essex and Sittingbourne in Kent. The area includes the largest designated brownfield site in the south of England, which is intended to become a leading eco-region".

The government anticipates the Thames Gateway will provide environmental jobs and lead the way with a greater use of renewables and new technologies. Carbon neutral improvements to both new and existing homes and buildings will aim to create a leading eco-region for the rest of the country to follow.

Regenerating existing towns and creating new carbon-neutral urban developments is intended to transform the Thames Gateway region and relieve the huge demand for housing in the south east region.

The Thames Gateway is a cluster of cities, towns and villages around the Thames estuary. Each is different and individual, but networked together".