SEB Commodity Research

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Παναγιώτης Μιχαλολιάκος
7 χρόνια πριν
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1 SEB Commodity Research Bergforsk, Bjarne Schieldrop Chief Analyst Commodities SEB

2 SEB and Commodities Commodities an asset class Hedging of risk, securing margins Capital solutions, funding Access to instruments and markets Market insight 2

3 The big drama 3x in 100 years Global population Population and population growth rate World population (bil.) Growth rate (%) 1963 Great Leap Forward Bn Source: US Census Bureau, IMF, USDA 3

4 World Population 2030 Most dramatic in Asia Latam 8% Japan US 1% 4% EU-27 6% CIS 3% ROW 3% China 18% MENA 6% SS Africa 16% India 18% Asia ex-cij 17% Source: UN 4

5 Emerging market middle class Households with income > $ /year (in millions) Developing Developed Households with income > $ /year (in millions) Source: US Census Bureau, IMF, USDA 5

6 Growth in Urbanisation and Middle class 2010 to Billion people Middle class Growth Urbanisation Growth (One London a month or one Oslo every 3 days) 6

7 Emerging Markets Industrialization, Infrastructure, Urbanization, Consumption 7

8 Crude Steel Production (Monthly)..and all other metals grow proportiaonaly China EU USA Japan World (RHS) m etric tonnes

9 Global steel production growth Industrialisation of US Post war Saturation China & 8% and parts of Europe rebuild Em Mkt 7% 6% 5% 4% 3% 2% 1% 0% -1%

10 The exponential nature of commodity prices COPPER CASH OPERATING COST NO CREDITS c/lb Paid Cu Total Royalty In the short to medium term TC/RC & Ship Milling Cost Mining Cost Maximum supply is usually very inelastic Consumers must cover their needs Long lead times to invest and expand production capacity Example: Copper supply stack $/t Paid Cu Price (marginal cost): $/t Supply Cum Cu kt (Production from all installations sorted from lowest to highest marginal cost) 10

11 Huge swings in Metals prices Higher risk profiles for commodity related companies This will be the norm in the years to come Source: Bloomberg CMIMPI Metals Index Source: CMIMPI Ajdusted with USD Index

12 Supply & Demand unsynchronized Strong demand growth Stepwise supply growth Consumption & Production volumes Production Consumption Time Super cycle accelerating demand growth Commodities likely to experience more frequent high volatility periods 12

13 Profit splitt in Value Chain Rappid changes, unpredictable future 100% 80% 60% 40% Iron Ore Coal Steel Iron Ore Coal 20% 0% Steel Source: Eurometal 13

14 China is not Crash proof Per cent, % More consumption in new 5 year plan 14

15 Chinese fx reserves = USD 3 Trillion Will capital exports eventually turn?

16 A Chinese property bubble? Worrying, for more than just industrial metals KANGBASHI 16

17 Capex Upstream Oil and Gas More money, but less bang per USD USD Bn Deeper Hotter More complex More regulations New regions IOC/NOC Cost adjusted Capex * Capex Source: IHS, IEA, Morgan Stanley *Adjusted with HIS upstream cost index, Yr 2000 =

18 Global Mining Capex Cost adjusted Capex * Capex USD Bn f Source: IHS, Source: McKinsey, Xstrata * Adjusted Canadian Mine Cost Index MCS, Yr 2003 =

19 Commodity Capex per Year Mining is the little one Billion USD / Year Power 450 Distribution Transmission Generation Oil & Gas upstream 425 Mining

20 Low borrowing rates coming to an end 10Y US Tresury yields heading down since 1980 End of post war rebuild super cycle Sluggish global growth China & EM Super cycle Strong global economic growth in the decades to come with strong demand for capital Higher interest rates? 20

21 Harder fight for capital Higher risk profiles for commodity companies Declining ore grades More complex technology Deeper, hotter, new geographies Rising costs Environmental regulations End of long term prising agreements Huge price swings Chainging margin splits in value chain Higher risk, more uncertain returns Credit rating? Banks reaching sector lending limits Unstable sources of supply Necessary to access new sources of capital 1 is best and 4 is worst Source: World Bank 2009, Governance Measures 21

22 High Yield bonds on of many sources - Financing brown/greenfield development 900 Higher spreads than bank loans... S p r e a d o v e r S ti b o r/l i b o r (b p ) Bond Bank Maturity Later repayment of cashflows yield higher returns More flexible documentation Less strict covenants Higher loan-to-value More flexible drawdown A kind of subsitute for equity But bonds facilitate better cashflow than banks 22

23 Strategic roadmap Sub-trend return for stocks, bonds Above-trend return for both bonds and stocks Cyclical bull market for stocks, rising yields Above-trend returns for commodities, stocks Rate peak, inv curve Rate cuts, steeper curve Rate trough, curve peak Rate hikes, flatter curve Very high volatility Above-trend volatility Very low volatility Sub-trend volatility Defensive, large cap Early cyclical, small cap Late cyclical, all cap Yield sensitive, large cap Early recession Late recession Early expansion Late expansion Transition to "late recession" Transition to "early expansion" Transition to "late expansion" Start of next recession?

24 Interest rate hikes are coming ECB s dilemma: one size does not fit all (%) Jan Ap r Jul Oct Jan 10 Bank of England ECB Ap r Jul O ct Jan 11 Federal Reserve Norges Bank Ap r Jul O ct Jan Riksba nk 0.0 Source: SEB Economic Research 24

25 Outlook 0-3M 4-6M 7-12M OVERALL CRUDE OIL INDUSTRIAL METALS PRECIOUS METALS ARICULTURE High prices, long specs and uncertainty Correction lower appears unavoidable Risk skewed to the upside of $120/b in Q2 So far only limited demand destruction Chinese soft vs. hard landing central Short term risk skewed to the downside Broad range of supportive factors for gold Silver has rallied in retail hype Low inventories short term supportive Demand destruction limiting upside 25

26 Disclaimer & Confidentiality notice Τηε ινφορµατιον ιν τηισ δοχυµεντ ηασ βεεν χοµπιλεδ βψ ΣΕΒ Μερχηαντ Βανκινγ, α διϖισιον ωιτηιν Σκανδιναϖισκα Ενσκιλδα Βανκεν ΑΒ (πυβλ ( πυβλ) ) ( ΣΕΒ ). Οπινιονσ χονταινεδ ιν τηισ ρεπορτ ρεπρεσεντ τηε βανκ σ πρεσεντ οπινιον ο ονλψ ανδ αρε συβϕεχτ το χηανγε ωιτηουτ νοτιχε. Αλλ ινφορµατιον χονταινεδ ιν τηισ ρεπορτ ηασ βεεν χοµπιλεδ ιν γοοδ οδ φαιτη φροµ σουρχεσ βελιεϖεδ το βε ρελιαβλε. Ηοωεϖερ, νο ρεπρεσεντατιον ορ ωαρραντψ, εξπρεσσεδ ορ ιµπλιεδ, ισ µαδε ωιτη ρεσπεχτ το τηε χοµπλετενεσσ ορ αχχυραχψ οφ ιτσ χοντεντσ ανδ τηε ινφορµατιον ισ νοτ το βε ρελιεδ υπον ασ αυτηοριτατιϖε. Ανψονε χονσιδερινγ τακινγ αχτιονσ βασεδ υπον τηε χοντεντ οφ τηισ δοχυµεντ ισ υργεδ το βασε ηισ ορ ηερ ινϖεστµεντ δεχισιονσ υπον συχη ινϖεστιγατιονσ ασ ηε ορ σηε δεεµσ νεχεσσαρψ. Τηισ δοχυµεντ ισ βεινγ προϖιδεδ ασ ινφορµατιον ιον ονλψ, ανδ νο σπεχιφιχ αχτιονσ αρε βεινγ σολιχιτεδ ασ α ρεσυλτ οφ ιτ; το τηε εξτεντ περµιττεδ βψ λαω, νο λιαβιλιτψ ωηατσοεϖερ ισ αχχεπτεδ φορ ανψ διρεχτ ορ χονσεθυεντιαλ λοσσ αρισινγ φροµ υσε οφ τηισ δοχυµεντ ορ ιτσ χοντεντσ. ΣΕΒ ισ α πυβλιχ χοµπανψ ινχορπορατεδ ιν Στοχκηολµ, Σωεδεν, ωιτη λιµιτεδ λιαβιλιτψ. Ιτ ισ α παρτιχιπαντ ατ µαϕορ Νορδιχ ανδ οτηερ Ευροπεαν Ρεγυλατεδ Μαρκετσ ανδ Μυλτιλατεραλ Τραδινγ Φαχιλιτιεσ (ασ ωελλ ασ σοµε νον Ευροπεαν εθυιϖαλεντ µαρκετσ) φορ τραδινγ ιν φινανχιαλ ινστρυµεντσ, συχη ασ α µαρκετσ οπερατεδ βψ ΝΑΣ ΑΘ ΟΜΞ, ΝΨΣΕ Ευρονεξτ,, Λονδον Στοχκ Εξχηανγε, ευτσχηε Β ρσε ρσε,, Σωισσ Εξχηανγεσ, Τυρθυοισε ανδ Χηι Ξ. ΣΕΒ ισ αυτηοριζεδ ανδ ρεγυλατεδ βψ Φινανσινσπεκτιονεν ιν Σωεδεν; ιτ ισ αυτηοριζεδ ανδ συβϕεχτ το λιµιτεδ ρεγυλατιον βψ β τηε Φινανχιαλ Σερϖιχεσ Αυτηοριτψ φορ τηε χονδυχτ οφ δεσιγνατεδ ινϖεστµεντ βυσινεσσ ιν τηε ΥΚ, ανδ ισ συβϕεχτ το τηε προϖισιονσ οφ ρελεϖαντ ρεγυλατορσ ιν αλλ οτηερ ϕυρισδιχτιονσ ωηερε ΣΕΒ χονδυχτσ οπερατιονσ. ΣΕΒ Μερχηαντ Βανκινγ. Αλλ ριγητσ ρεσερϖεδ. 26

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