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Depression-Level Collapse In Demand: In Historic First, Glencore Shuts Coal Mines For 3 Weeks
In a historic move showing just how profound the collapse in global commodity demand and trade is, earlier today the Sydney Morning Herald reported that Australia's biggest coal exporter Glencore, which last year concluded its merger with miner Xstrata creating the world's fourth largest mining company and world's biggest commodity trader, will suspend its Australian coal business for three weeks "in a move never before seen in the Australian market, to avoid pumping tonnes into a heavily oversupplied market at depressed prices." Putting this shocking move in context, it is something that was avoided even during the depths of the global depression in the aftermath of Lehman's collapse, and takes place at a time when the punditry will have you believe that the US will decouple from the rest of the world and grow at 3% in the current quarter and in 2015.
"This is a considered management decision given the current oversupply situation and reduces the need to push incremental sales into an already weak pricing environment," the company said.
Glencore chief Ivan Glasenberg
For those who don't recall some of the more paradoxical moves in the Australian commodity space in recent months, Glencore is not only the dominant coal exporter in the global coal market, but one which has continued to raise its thermal coal output in Australia and push its coal business towards a new production record this year, even as prices for the commodity crashed to five-year lows. Thermal coal is selling for about $65 a, about half of the $120 price from three years ago.
Said oterhwise, Glencore took the first and only page out of Amazon's playbook and has been pumping excess production in hopes of crushing marginal prices to the point where its competition goes out of business.
Unfortunately, things are not working out as expected and earlier today Glencore surprised the market by saying it would shut its Australian coal business for three weeks, starting mid-December, shaving about 5 million tonnes of output.
As SMH notes, "while it is understood Glencore's overall Australian coal business is the black, the size and length of the shutdown is unprecedented and suggests a level of financial distress at some of its mines."
Glencore owns 13 coal mines in NSW and Queensland
So in a completely unshocking turn of events, rushing to create the biggest loss possible finally backfired on the company itself.
Staff will be forced to take three weeks paid annual leave as a result of the suspension. Glencore has 13 Australian mine complexes, including about 20 mines and employs about 8000 staff.
Still, in a world in which non-GAAP appearances are all that matter, Glencore was quick to put some lipstick on this historic pig:
On a tour of its Australian operations in September, Glencore told analysts that its coal output this calendar year would be 14 per cent greater than in 2012. Glencore also has a series of brownfield expansions in the pipeline. Glencore stressed its positive outlook for coal in the medium term, when it tips the "supply and demand balance will be restored".
Odd how it is always about the "medium run" where companies are optimistic, never the short run, especially when they suddenly find themselves in what can only be classified as a global depression in commodity demand.
And now that Glencore is finally facing the music, the question is whether the other two majors who also took the beggar-thy-competitor route to prosperity, BHP Billiton and Rio Tinto, who Glencore chief Ivan Glasenberg "has attacked for dramatically expanding production in the face of falling iron ore prices" will follow suit or merely double down making Glencore's pain that much more acute.
Mr Glasenberg's criticism of Rio Tinto and BHP for their massive iron ore-expansion programs raised the eyebrows of some in the market, given Glencore had been running its very own coal expansion in the face of falling prices.
Mr Glasenberg has repeatedly attacked the price impact of the expansion strategies being used by the iron ore majors, as part of his attempt to pitch a $190 billion "merger of equals" with Rio.
The rest of the story is familiar: crush the competition by flooding the market with ever cheaper commodities:
Glencore is forecasting total managed coal production of 168 million tonnes in the 2014 calendar year, beating a previous record of 157 million tonnes set last year. However, that will be lower, given the December suspension of its Australian coal operations.
Glencore's total managed production in Australia is forecast at 94 million tonnes this year, up on 81 million tonnes last year, as its new Clermont thermal coalmine, in central Queensland, comes online.
And therein lies the paradox: by adopting what is ultimately a self-destructive practice, the iron-ore majors, facing crumbling global demand, are merely accelerating the deflationary pressures facing not only iron but all other commodities, as they seek to flood the world with excess production and put producers who cost of production is below the margin price out of business.
Something which Saudi Arabia is also allegedly doing to its US shale-based competition.
The only thing that is certain is that absent some massive global reflationary spark, many companies are about to go out of business. And should it be someone as massive and prominent as Glencore, the global deflationary wave will only acclerate further, leading to an even faster slow down in global growth, until finally decades of excess capacity and production find their new equilibrium with an epic slam, one which may involve yet another round of global taxpayer-funded bailouts.
For now, however, keep a close eye on Glencore, which may just be the canary in the coalmine. No pun intended.
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"Global aggregate demand is fine."
Sincerely,
Cramer
the sierra club has shut down over 1000 coal fired poweer plants since the depression. so if you're doing "historical precedent" kind of stuff, get into context...............................
Yeah but in China!?
and germany?
and Mauritius?
Yeah it's get's really cold there from the looks of things:
http://www.bigtravelweb.com/images/mauritius_l.gif
An economic powerhouse.
The world is entering a deflationary death spiral. Gold was the first clue, now energy and minerals. Real estate will be the death blow.
The Fed can print money. They can't print demand.
Everything, everywhere, all the time is manipulated to the point of complete & utter bullshit. I deal with actual business people everyday.
The Money Masters have now created a massive Matrix and Fairly Tale for the third time since 1998, and the consequences will be more catastrophic when the funhouse mirrors break this time, because the middle class in so many nations is so much smaller and weaker in terms of savings, real wealth & debt levels than in the prior Matrices.
It's a FUBAR Global eCONomy.
Enjoy the cognitive dissonance being fostered by the MSM.
Enjoy the political Kabuki Theater.
Enjoy the pretty confetti offered up by the Nightly News.
Most of all, enjoy the crash. This one will be for the generational record books given the global issues in play, reactions to them & other unique dynamics.
wow, coal industry has the good sense and the balls to do what silver miners should have done months ago
How about factoring in the 3 clean coal burning plants shut down in the U.S. by the E.P.A every week?... While the Chinese fire up 5 dirty ones.
Agenda 21, anti-human policy... neo-fuedalism
RE is gonna be passe. Get yourself a cave and some animal skins and a club.
dupe-dupe-de dupe
I believe that’s the first time I’ve seen the word “matrix” pluralized properly !
Last I checked, coal production is part of GDP....
Who might make them overproduce? Yep
So did I. But then again, I studied Latin as a youngster.
When prices fall due to overinvestment that results in oversupply, that's not deflation. And since we don't count real estate booms as inflation, why would a return to affordable prices be deflationary? Not saying you're wrong, but not convinced you're right.
I'll believe deflation when .gov officials start screaming about inflation. And, when groceries start costing less. Biflation maybe: deflation in crap you shouldn't have bought and inflation in what you need to live
Very astute comment Nick
When prices fall due to overinvestment that results in oversupply, that's not deflation. And since we don't count real estate booms as inflation, why would a return to affordable prices be deflationary? Not saying you're wrong, but not convinced you're right.
I say you're right however to the FED, and it's made up world of economics, the above would cause a market collapse and that is the only deflation they worry about.
Well, what we need are price controls.
Let's get the Attorneys General of New York and New Jersey on the job.
They can institute mandated pricing strategies, based on their experience gained during Super Storm Sandy.
For example, if gasoline is in short supply, only an idiot would let market forces take control , drive up price, enticing more supply and limiting individual hoarding.
No, no, no.... Mandate the price can't rise, so the first 20 can empty the supply, and re supply is not enticed by higher pricing.
Is the S/ really required?
The Fed will print Weimar
Certifiable.
They got rid of all the good jobs overseas and you can only borrow to maintain your lifestyle for so long.
True you can print money but when it doesnt go to the people and only to the elite why bother. I know i can speak for me and since O bummer became asshole of the USSA my income is half what it was but hey still not bad but am I spending no will I buy things I dont need NO so whats next
Its not money they print its credit a loan you have to pay back pluss interest. No more demand for that credit so, no way to rollover the previous credits and loans. Thats the deflation argument in a nut shell. When they try to fill that black hole by acctually printing then its Trillion dollar coin time.
If you want to see reality of Barry’s robust economy and the strong demand just walk through any mall or dept store and see Christmas stuff already reduced 50%-to-80% and it’s not even Thanksgiving yet !
Stores are in a panic over the ‘robust demand’ the Fed and Barry have created. I won't even get ito the thousands of Chinese/Indian/Bangladesh/other barges offshore overloaded with trillions of sweaters, shirts, skirts, doo-dads, ornaments, 'thingamajigs, and on and on...just sitting there waiting to be unloaded.
and naturalo gas used for the production of electricity?
and on Q99X2?
fuck the sierra club
i agree. i'm one of your ups. but they have had an impact.
further, zerohedge has the best first take on news, most of the time.
except i hate these blurting audio ads that keep blurting out at me.
ZH is best enjoyed on Firefox with Adblocker
Adblock is the best. These websites sometimes force its use with the audio blurt ads
Gee, I didn't know the Sierra Club owned any coal mines.
"You see what happens larry...you see what happens when you fuck a stranger in the ass?"
They have been subsidizing markets for decades if not longer for political and fuedal appeal. When it unwinds...we get to see reality. I was in Ecuador 3 months ago. The president et al seems to think that electricity prices are going sub 5 cents a KWH and that natural gas will be up 15x over the next 5 years.
Another interesting thing is that they get to mint their own coinage....and its in dollars. How funs that?
RIPS
Cannot +1 the starting quote enough.
(Aside from subsidizing markets- high levels of debt everywhere, increasing trade protectionism, politicians disrupting supply lines with proxy wars and pushing up risk [delivery insurance costs].
In short- the real economy [then the financial economy, see- debt] is heading for the abyss. End of an era gents. Been good knowing you. We'll probably be on opposing sides of a line drawn on a general's map this time in 5 years.)
How does that saying go?.. "On a long enough timeline...
...bread and circuses become infinite?"
Edit: Ah well. 27 years of propaganda, bullshit education and misleading political rhetoric. Fuck it. Have been training physically because I can see what's around the corner and want to hedge against an outcome which seems increasingly likely. No objection in picking up a bayonet and getting torn up on foreign soil. Better men have done the same before me. As long as I have one last steak and someone worthy to dump my seed into before I go, I'm good.
BrosephStiglitz
Great "Dot" connecting.
And you as well, Deathrips
Get strong, get wind no better investment..
http://www.maxvelocitytactical.com/
@Bro,
After my vege patch being destroyed by chemtrails this year, might want to avoid this crap as much as possible.
http://www.youtube.com/watch?v=-Hj3LGvWWLU#t=386
Wonder how some of the US coal companies will do ? Have noticed a small bump up after the Republican wins.
Coal down here in SW Virginia is just about dead.
EPA regs killed it. I'm in Huntington and know a lot of people in coal. They purposely killed it. Big nat gas suppliers donating to campaigns? Can't see any good reason to kill coal except to make more money off other energy sources.
Bump followed by the resumed crash. Wait for a few to go bankrupt and pick up the survivors. The world still needs coal unless we go nuclear. There's not enough NG and it's difficult to ship unless turned into LNG. Even then, it's very volatile.
Look at the bright side. Some day in the future, we ( our progeny) will be gratefull all of that energy resource is still in the ground.
Same way we used Saudi oil while leaving our's more or less untouched.
Trying to find a silver lining.
Another story that will never reach CNBS.
CNN suggests National Anthem is offensive, airs warning before segment:
http://tinyurl.com/nck2bj3
And it starts, out of buisness with artificial prices.
Remember what I said in May 2013?
World will reduce world trade due to QE. Commodity suppliers will reduce/halt supplies due to QE.
Nothing to do with lack of demand.
Prediction fulfilled
Now, coal, copper, oil etc from storage must be dumped to the consumption market. Prices will collapse further
Nothing to do with lack of demand.
Enjoy your posts EKM1, but there seems to be a lack of demand. Or, is that the effect of the cause in your opinion?
Consumption Demand is infinite.
Supply is scarce.
The issue is over production due to financial demand to use commodities as collateral for derivatives, which practically gives control of prices to banks, not producers.
Until producers revolt and halt output
Thanks for the elaboration.
OK, so if we follow this through, financial demand for commodities has collapsed (due to the end of QE), dropping the price of the underlying commodity. That's the thesis?
Suppliers refuse to supply commodities for financial demand for long time because they lose control of price and can't plan out.
They will force banks now to dump all that stored stuff, same as in 2008. No point of extracting oil from underground and sending it back to undergroun in storage again for derivatives.
So, economy was starved for energy and commodities so banks could gamble on them.
Saudis etc won't allow that to occur for too long and will reduce output as they are doing, particularly now that Iran is threatening their existence
"stored stuff"
are we talking mountains of coal and lakes of oil or are we talking "paper / derivative" storage.
you really think supply side is that abundant and has produced so much excess capacities?
demand is collapsing left, right and center
you're right to tie this to the end of QE
end of QE is the end of the paper game as we know it and the collapse in PRICE is due to the selloff in paper
paper prices are catching up with demand which has collapsed over years
I think you are both right.
You're right. It's due to collapse in demand from China, the #1 consumer of coal.
All of these reasons are a part of the big picture, but the root cause is lack of demand, IMHO. This caused an initial over supply, which allowed for the derivatives game to shift into overdrive with all the QE funny money, which in turn incentivized even more production.
As emk1 noted, consumer demand is infinite, but failed to include the rest of the sentence..."over time". Consumer demand is not infinite in an immediate sense, while supply needs to go someplace right away to keep production humming.
And i'm gonna wake up next year and find that I did not prepare for the eventual end and have run out of time.
What's next? CDS for Coal, Oil, Gold? Where can I buy a Tranche for that and get it insured? /s
BTW, here's a Primer on... "Explaining Credit Default Swap" https://www.youtube.com/watch?v=Ui0u_caWAFI
Get a life a stop reading my posts
"Infinite" is kind of a hard concept to sell.
I do exaggerate for the sake of explanationn
Unending, would be more accurate
You haven't convinced me, but again, I enjoy your perspective.
Infinite like Amzn PE
Plastic bumpers, CHECK. Plastic headlights, CHECK.
:-)
ELI5:
What do you mean by "financial demand". I'm confused about this and hell I majored in economics (30 years ago though).
http://www.zerohedge.com/news/2013-05-23/bronze-swan-arrives-end-copper-...
Well, that explains it. There have been a lot of financial "inventions" since you and I went to B-school, mostly in the past 15 years.
Hell, I was even taught about a social contract between business and society, and corporations weren't even people back then, although they were granted certain privileges.
It has nothing to do with QE, although that certainly doesn't help, It has to do with overcapacity issues in every sector of the eCONomy that has not been allowed to flush out of the system. How many more empty cities can China build? Or how many more retailers can we build in the era of Amazon?.... None.
has everything to do with QE !!!!!!!!!!!!
QE gave the elite their financial weapons of mass destruction
QE was elite liquidity sloshing around from one sector to another chasing yield
QE pumped up every commodity paper with no regard for fundamentals such as real demand
QE encouraged building of ghost cities, has encouraged exploration and setting up new mines
QE WAS A COMPLETE DESASTER AND IS RESPONSIBLE FOR THE DESTRUCTION OF THE GLOBAL ECONOMY
The economy was destroyed long before QE thanks to the extensive build out using cheap debt from 2001 until 2008. QE was just a last ditch effort to keep the system on life support while wealth continued its flow upwards.
I think you are both right.
QE was the elite giving the elite the means to prepare and dig in for the most destructive financial crash and reset ever to be experienced by man. If they are showing signs they are ready, beware and hunker down may death pass us all.
The beginning of the end was the bailouts. The easy credit up to that point lead to the crises, QE yes was a last ditch effort to maintain status quo. But the elimination of risk, the backstopping of losses, the complete and total manipulation and disregard for price discovery has lead to this point.
I think of the fun and damage I could do if, I were allowed to enter a poker tournament with my own supply of chips and just play with abandon.
Excellent analogy.
Eventually, everyone at the table would come to realize how stupid they were to continue playing with you. Hmmmm.
Coal demand will pick up as soon as Chevy finally fixes the spontaneous combustion problem with the VOLTS...
Yeah but count on Tesla to keep the fires going strong
You mean the 2015 Tesla model will burn thermal coal?
With these electric cars, you have to plug them into a wall to recharge them. Well, how to do you think the power is generated to juice up the said plug?
A coal-fired plant perhaps?
Thus the joke is that electric cars are effectively coal powered cars, because coal needs to be burned in order to recharge them.
Thus we re-visit to the carbon exchange gimmick of polluting somewhere else. An electric vehicle is "clean burning" where it is driven, but the lefties don't realize that a coal plant hundreds of miles away with transmission towers cutting across the landscape is powering up these "clean" cars. Out of sight, out of mind!
The thrust of your point is true today.
Less so going forward. We are looking to buy an electric car and solar panels to recharge it. Our numbers show that we should get almost our normal weeks driving on a single full charge done each weekend at our home.
Do all the numbers add up to make this a good dollar decision?.... not yet sure.... depends on assumptions of future in the next 5 years.
Is this the way of the future?..... probably not... more likely the few that are produced will end up as green-houses.... or homes for wildlife....
Great plan.
Do you live in Death Valley or there abouts?
Maybe you only drive a few miles during the week?
Live in town and can walk or take mass transit?
What ever works for you.
The point being, there are not many who can do what you are planning.
But good on ya, mate!
The rest of of us will have to slog thru with lower oil prices until there isn't any.
Not to mention loss in transmission and battery storage. Big advantage of electric cars is they don't idle at stoplights and left turns.
Here in Colorado, the electric plug-ins are charged with about 50 percent coal, 30 percent natural gas and 20 percent renewables like wind and solar. As the utility adds more renewables the ENTIRE fleet of plug-ins will use less coal etc.
Yes, at first they will use less coal, but at a logarithmic decreasing rate. Once the demand is saturated, then adding more renewables will not make any difference and more coal will be needed.
That's because for every MGW of renewables, there needs to be a MGW of hot standby power available as the electric grid will collapse if the sun don't shine or the wind don't blow.
This will change in the future as new tech enables storage of power generated by renewables. But it's going to be more than a few years.
A few decades at least. In the meantime you better hope that this country makes an Apollo like push towards fusion and or thorium reactors or it will be game over for life as we know it.
That's because Moron Number one has shut down the coal burning power plants of America. Pray the winter's not too bad. We'll freeze in the dark.
It will be a bad winter and it's not even official yet.
That's cause they want all the weak and old farts to die off faster
So Obolacare can work for the illegals getting amnesty
Which raises the point of just wait and see all these illegals running back across the border when they get a nasty case of frost bite!
Cheap coal. Another bad thing for the CONsumer. Cheap =bad, expensive= good. Got that CONsumer?
new normal - cheap assets bad for banksters.
If coal stoves weren't so expensive, I'd buy one (in place of a wood stove). Per my post of 2 months ago...
Fri, 09/19/2014 - 14:14 | 5235096 Kirk2NCC1701
Calorie density, Cost/Cal (Cost/BTU or Cost/W). Coal is attractive on both counts, as I posted yesterday 5230846
Wood, Corn and Wood Pellets, are Biofuels you can cook with. Wood is the cheapest on a $/BTU basis, and you pay 33% more for Corn or Wood Pellets than wood.
Of the Fossil Fuels: Coal is by FAR the cheapest, Nat Gas is cheaper than wood and far more convenient. For most people (unless you're way out of town), it is the way to heat. Electricity is the Worst for heating, costing 2.2x more than Wood, 2.4x more than NatGas, and a whopping 4.2x more than Coal.
Here is a Table of Relative Cost (Dollars per Million BTU), using Wood as Reference:
HEAT SOURCE COST COMMENTS
Wood $1,000 (Full Chord)
Nat Gas $ 909 (cheapest mainstream fuel. Can even get NatGas Electricity Generator for power outages)
Electricity $2,166 (the Worst for heating, even though it's 100% efficient)
Coal (bulk) $ 513 (Short Ton, 2000 lbs. Assumes Anthracite/Black Coal, not filthy Brown Coal or unbearable Lignite)
Coal (50 lb bags) $ 898 (40 bags = 2000 lbs)
Butane $1,500 (lighter fluid)
Propane $1,686 (BBQ fuel)
Kerosene $1,771 (aka Jet Fuel, and used in Kerosone space heaters)
Reference: http://nepacrossroads.com/fuel-comparison-calculator.php
The ideal (heating) stove will burn Coal, Corn, Pellets and Wood. Good luck in finding one - at reasonable prices. For most people, the most practical overall solution is: Light with Electricity, use NatGas for cooking, heating water and heating, and augment winter heating with either a Wood or Coal stove.
If you can afford Solar Panels, hurray for you, as it will cut your energy costs and give you more flexibility and independence, but the Breakeven Time (to recover your Capital investment) is not pretty in most cases. By the same token, a Coal/Pellet/Wood stove costs serious money also ($1000-$4000, depending on type and model), which also needs to be amortized. Each case varies. DYH (do your homework), crunch the numbers. Make www and Excel your BFF.
Where do you pay $1000.00 for a cord of wood? $250.00 a cord here delivered and that would be Larch!
he's referring to Teak, FedExed in from Thailand.
Cost in dollars per million BTUs - clearly stated.
Still, would vary around the US. Electricity is close to free, where I live, and wood can be had for the cost of driving to pick it up.
I wasn't referring to anything other than the article, as Spastica Rex points out.
Here's some additional info that might be useful. In our area (Pac NW), firewood prices are as follows
Fir = Doug Fir = $200.00 a cord
Mixed = Fir, Alder & Maple =$225.00 a cord
Hardwood = Alder & Maple =$250.00 a cord
Premium = Oak & Cherry =$350.00 a cord
Found the following site that has additional info as to BTU for different kinds of wood: http://www.firewoodportland.com/firewood_101.php
Note also that I suggested (at the end) that you make Excel your BFF, after doing research for Coal vs Firewood vs Gas vs Electricity in YOUR area. Be cool, stay warm. ;-)
Frankly anyone considering a pellet or corn stove is a maroon... The purpose of an alternative fuel stove is somewhat defeated by necessitating the use of a manufactured PRODUCT to heat your home or better yet burn some food... I knew the end was near when people actually bought wood pellets to heat their home, I started digging a bunker when retail got idiots to buy stoves that burn food
a Maroon?
Strange typo.
The Maroons were pretty good survivalists...and a good history lesson.
http://en.wikipedia.org/wiki/Jamaican_Maroons
.deleted.
check out 'rocket stoves' and 'thermal mass heating'
also 'passive solar heating'
there is also 'biogas' - but i haven't yet got my head around how it is done properly/reliably.
(for some reason my comment keeps appearing under Rex's comment - apologies - fuck it - i leave it here.)
Rocket stoves with massive heat sinks, clay, cement, fieldstone can heat 2000 sq. ft with twigs literally twigs, plus you can cook and purify water.
http://www.richsoil.com/rocket-stove-mass-heater.jsp
a full chord of firewood can still be had for 75 dollars a face cord or 300 dollars/cord depending upon the wood, burner and home insulation, wood is by far the cheapest way to go especially if you buy your own wood lot and get your summer exercise.
BTUs aren't the only consideration.
It's hard to efficiently use all the 24,000 Watts generated by a coal/wood burner located in one room of your house.
You are often better off flicking a switch.
BS, a few fans powered by a solar charged battery bank will keep you and the plumbing warm in MN, ask me how I know..
How do you know?
Can't tell you its a secret.. I'm a stealth wood heater, thats between you and me of course..
Where are you that wood is $1000 per cord?
Is that hardwood?
Is there some tax,regulations or other that drive the price?
cos North OK hardwood is $150-200
on our OK property is maybe $20 gas/mix and take two Solo saws with one day labor invested
Englander 13 is best low cost stove by far for the money marketed as Timberline and Summerheat also at
Lowes and Home Depot only model with external air intake forget the other brands
BlazeKing King is best big stove $2500 up
neither is pretty, but best
Hearth.com
Lopi.
Had one for 30 yrs.
Have you ever personally used coal for your heat source? If you have, I can't imagine wanting to go back to it. Dirty, smelly, unhealthy, it was a common heat source in my youth, and there were good reasons so many in rural areas switched to propane as soon as they could. Even the process of delivering coal to the bin caused a filthy dust to settle around the area, and on you and in you as you breathed the dust. Coal sure has it's place, but I want nothing to do with it as a source for home heating.
$1K for a cord?
WTH u burning, teak?
Obviously the Fed needs to start buying coal.
Yes the Fed needs to buy as much coal as possible, because filling the Christmas stockings of all the bankers and oligarchs and politicians and other various grifters should be done in proper fashion and great quantitative amounts will need to be eased into those "stock"-ings. They've earned their coal, for their cruel and brutal treatment of the Tiny "Timothy Cratchits " of this world.
i bet the ceo'll still get a fat christmas bonus....
Paging Mr. Keen...
these people or should i say algo's buying aud here are out of their minds.... this thing is in real trouble,
Yeah ...but just think of the environmental benefits!
Aha, my list of questions was not in vain.
If Oil deflates, commodities deflate and the kings of commodities, like Glencore, have to shut down their mines.
Overcapacity is a BITCH for the Oligarchs who love to think that the economy is Jack's beanstalk with a growth that never ends.
Those scions of the bond market from Pimco got out at the RIGHT time, with their golden parachutes!
You know, we will never have another depression, or recession, or economic slump, again.
I eagerly await the future rhetoric and propaganda that will show this to be true.
all of these commodities have been thru a huge consolidation of ownership for 20 years without anti-trust interference since the politicians are paid for protection as the commodity prices are inflated by control not by demand for the product
The price points reached with monopoly or oligopoly cartel pricing have created downstream cost levels that cant be cleared - system is collapsing for iron / steel / coal / aluminum / oil / and many other products and the transit systems as well that support these lines of business.
The US actions against Russia and China have made it all much worse than the normal cyclical downturn since supplier / customer - systems are being changed for global realignment of suppliers away from all those countries controlled by USA as much as possible.
this is a mess and many people see the source of the problem...USA
We Americans have a God-given, blessed, non-negotiable way of life we have to defend. Cut us some slack.
edit: Can you imagine what we Americans might do, if we didn't have Black Friday to look forward to every year?
Good news for me, I just bought a Alaska Gnome 40 coal stove in Sept. I have been running it since Nov 1 my house in Long Island is a nice and toasty 70ish degrees and 920 bucks will likely heat it for about 2 winters. I calculate a 1.5 year Roi.
Very cool, very Charles-Dickenson-Christmas-Carol-y.
Nicely done, 2 Husquvarna's 455, 435, one stihl keep me about 75 degrees in MN.. Of course I have arms reminiscent of a silverback.
That's what happens when corporations 'invest' in their own share buy backs and not in developing the company itself
Somebody should set up a committe to draw up plans for regulating that.
Might need some new laws, too.
These companies in many ways have no choice but to buy back their shares. And no government intervention or regulations required it will come back and bite them in the ass eventually.
slash capex ---> layoffs
coming to an industry near you
Nah. It's Saudi.
The gold miners need to follow this Glasenberg fellow and shut down gold mining operations for a couple of weeks and see what happens.
Cheap Coal equal Cheap electricity - cold weather coming up. I see a tax cut not a crisis.
Goods to get cheaper also. Gas and Nat gas low. Consumers benefit.
Elect will not be cheaper
The whirpool cycle down the toilet is beginning to accelerate and QE is one of the primary reasons why. In an ironic twist, QE provided both cheap and easy capital to all types of industries. Oil fracking in the US, coal mining in Austrailia, ship building and transport throughout the world, and the list goes on and on. Basically, it provided an incentive to over invest and produce with extremely cheap if not free capital. But with no real demand present, the over capacity issue combined with the use of commodities in the derivative world has now produced a major excess supply problem. On top of that, QE allowed weak companies to continue to operate which normally should have failed (if the real cost of capital was built into their business models).
So what's a company to do, well that's easy - turn it over to the bean counters and make sure that prices are set to cover at least the marginal or cash production costs (as everything else is a sunk cost that can be recovered well down the road, at least in theory). This type of business strategy will drive prices lower and the weak companies that are overly leveraged, out of business. It might take a while but eventually, this trend will take hold as the weak get picked off one by one. This is business 101 and based in the laws of supply, demand, pricing, and financial strenght. Unless of course the CBs step in again and decide to bail out energy companies this time around which really means the CBs are bailing out the financing industry as they are the ones holding all of the paper collateralized by coal, oil, ships, etc.
But this gets worse as now, once economically viable alternative energy projects and companies will have even more competition from the old fossil fuel industry. Coal, gas, and oil falling will mean that using these sources of energy are now more competitive than say solar. This trend will ultimately drive solar pricing down and render projects uneconomical to undertake (thus taking solar companies down as well).
Combining over capacity in the energy industry (whether it be in fossil fuels, solar, or other sources) with at best, flat demand will drive prices down and represents the ultimate double edge sword. Great for consumers and businesses looking for lower costs but horrible for probably the most important and largest industry on the planet, energy.
BTW I refer to using "ironic twist" as in theory, QE, by flooding the system with cash should have produced inflation but it now is driving deflation as too much capacity is present and not enough demand (driving prices ever lower). Until this equation rebalances and real demand is created along with pricing power by suppliers (meaning weak competitors have been cleansed from the system), problems will continue to fester and spread through the entire financial system.
The only question is will the CBs attempt to save the day again by artificially propping up another industry that needs to be cleansed or do they finally take their medicine and let the free market clear the inefficiencies to lay the groundwork for real growth to begin again. My bet is on continued CB intervention as these egomaniacs just can't, don't, and will never get "it".
You are taking the words right out of my mouth. There is literally an over supply of everything on the planet which begins and ends with too much currency. Printing, "risk free" lending, manipulated interest rates which would never cover risks involved without a government or CB put.
What all of this should lead to is a crash in profit margins. This is what I am waiting for. Buybacks, low rates, guarantees only work on the way up. Ultimately the cash used for buybacks or dividends gets recycled back in the form of additional competition to existing businesses. Or, at the very least, when opportunities dry up debt gets paid down. Highly deflationary.
Does printing more currency really help in this scenario, or do bank reserves continue to balloon? To me it's kind of like lowering rates on mortgages, eventually rates are so low there is no additional impact.
Excellent analysis!
I agree with what you have said, but I think you are too kind to the alternate energy businesses, which have feasted on government subsidies and inflated feed in tariffs that made otherwise uneconomic projects possible. As a result, the public will live with the inflated cost of electricity for years to come. Many countries in Europe have been madly scaling back their subsidies for alternate energy projects lately, as the governments realized what a financial black hole they created. The UK is even paying subsidies to fossil-fuel electricity generators to keep them in business for reliable base load power after it was realized that the alternate energy producers could not be relied upon for energy on cloudy, low-wind winter days. The UK had compounded their madness by levying penalties on carbon fuels used in power plants, helping to drive old power plants out of business. German businesses are threatening to leave because of increased electricity prices, and the gov has announced a major expansion of electricity plants to be fueld by domestic brown coal.
The story of Glencore brings echoes of many other business leaders who expanded wildly and bought out competitors at the peak of the market, then saw the new business empire crater when markets went soft. It illustrates, again, the danger in building overcapacity - witness the overcapacity in China's steel mills, the Australian iron ore producers' stuffing the market while the price of iron ore has fallen, the overcapacity in ocean shipping (as you noted, see the Baltic Dry Index), etc.
The lesson given by Henry Ford (when he increased his employee's wages so they could afford mass-produced goods) has been forgotten. Businesses have moved their factories to low-wage, low-regulation jurisdictions and moved their profits offshore to esccape taxes, and even got Congress to subsidize their moves (thanks to bought politicians). International trade agreements like NAFTA, GATT, and WTO allowed this while ensuring free access to US and EU customers to sell the cheaply-produced goods. Now the Developed World working class/former middle class are being starved of earnings and consumer demand is falling (surprise, surprise). The middle class continued to live the American Dream in the 1990s and on through easy credit and increasing debt, but they are now tapped out. In addition to the lack of pricing power in the producers, we now have a lack of buying power in the public.
The fundmental rot in the system was evident from the 1970s on, but the Central Banks and governments covered it up with huge injections of liquidity and generous social benefits, respectively, whenever there was a financial crisis. The easy credit and liquidity greased the wheels for a while, until the game got too crazy and crashed under its own corruption in 2007-2008. There has been no fundamental reform of the system since 2008 - rather the central banks have just repeated the liquidity injections and low interest rate policies that led to the problem - while financial manipulation and Wall Street corruption are the main business in the US and London. I think the central banks do not dare stop propping up more and more "too big to fail" corporations since the rot is so advanced and pervasive that they risk a repeat of the "Dirty Thirties". QE obviously does not fix Main Street, but it is the last tool in the Keynesian tool box, so they will continue to repeat it.
Nations are embarking on a race to the bottom of currency exchange rates in a search for competitiveness and economic growth - witness Japan's race to depress the Yen. China and S. Korea are expected to follow to maintain competitiveness. Russia is being punished by Westen sanctions, but ironically may be handed the gift of an ultra-comptitive low exchange rate. Australia's dollar is falling. Deflation looks like the new normal.
Speaking of Australia, it has run a trade deficit and current account deficit chronically, except for a few recent years when commodity prices spiked. Those few years saw the governments of Australia bulk up on civil service payrolls and social programs, and their silly domestic carbon taxes that were going to stop climate change (while they exported millions of tons of carbon to China to be burned). The new Abbott government has repealed the carbon tax but increased fuel taxes (note the difference?), while increasing their budget deficit from about $20 Billion a year to $38 Billion or so. Plus ca change..... In the last 2 years, Ford and GM announced the closing of their Oz manufacturing plants, as too costly to be competitive internationally, and the Oz market too small to support them. But good, patriotic Ozzies continue to drink the Kool Aid and pretend that economic realities can be ignored. Ignorance is bliss, for a while longer?
This looks political not economic. If it was economic they would just take out more financeing and roll it over. Commodities need to be nearly free if you want to print money cheaply without political blowback.
Why 3 weeks, could it have something to do with the swiss gold movement? NO never...
Remember they are heavly hedged and to big to fail.
Three weeks "from mid-December" equals Christmas & New Years with the kiddies, on the beach. Shrimp meets barbie.
I will personally fix this coal problem very soon, so stay tuned !
Baltic Dry spike is done and doner then
http://www.dryships.com/pages/report.php
We are in the poo now (if we weren't already)
From the Independent mai 2011:
"It is certainly the biggest and perhaps the most controversial flotation in the history of the London Stock Exchange, and it might just have produced the fattest document ever submitted for investors' perusal: a digest of a global business and all its risks which runs to 1,637 pages."
What Glencore controls
60% of global zinc trade
3% of global oil trade
28% of global coal trade
50% of global copper trade
These guys dont like to be taken to the woodshed by petty bankers, capisce
another cartel bytes the dust. people have thought a thousand times over the years that a cartel, oligopoly, monopoly has a long life. they never do because they create way too much vacuum space. the saudis will find the same outcome and this is several times for them. the saudis are slow learners.
Here's another perspective on the last depression (awkward translation)
http://english.pravda.ru/world/americas/19-05-2008/105255-famine-0/
Famine killed 7 million people in USAAt the same time, the US government tried to get rid of redundant foodstuffs, which vendors could not sell. Market rules were observed strictly: unsold goods should always be categorized as redundant and they could not be given away to the poor because it could cause damage to businesses. A variety of methods was used to destroy redundant food. They burnt crops, drowned them in the ocean or plowed 10 million hectares of harvesting fields. “About 6.5 million pigs were killed at that time,” the researcher wrote.
(Was the WPA & CWA simply slave labor???)
So-called public works introduced by President Roosevelt became a salvation for a huge number of jobless and landless Americans. However, the salvation was only a phantom, Boris Borisov wrote. The works conducted under the aegis of the Public Works Administration and the Civil Works Administration were about building channels, roads or bridges in remote, wild and dangerous territories. Up to 3.3 million people were involved in those works at a time, whereas the total number of people amounted to 8.5 million, not to count prisoners.
“Conditions and death rate at those works are to be studied separately. A member of public works would make $30, and pay $25 of taxes from this amount. So a person could make only $5 for a month of hard work in malarial swamps.”
The conditions, under which people were working for food, could be compared to Stalin’s GULAG camp.
Miss Expectorations; that is an utmost crock of shit. To compare the CCC et al. to the gulags is idiocy.
1931 to 1940.... Eight Million Americans DEAD!!!!
That's like, um, 6% of the US population. In a decade.
IOW that's normal.
Hopefully, you realize this article is total BS, and comes from someone defending the Gulags. Pravda is interesting, and often a good place to find info our mainstream media doesn't cover, but you still have to realize all these major news organizations are dispensing their own brand of propaganda.
Ask anyone who lived through the mass starvation in Russia about that experience, then interview people who were employed by the WPA, and compare what they have to say. The WPA brought salvation to many in the 1930's, and those programs are still respected by survivors and their families today. Educate yourself. One system caused starvation, while the other brought salvation. On top of that, the WPA programs had lasting positive results when those roads, canals, bridges, dams, and electrification projects came on line.
If we had applied intelligence in government today, we would have spent the billions wasted on banks in some other big public projects that are so badly needed by this country's crumbling infrastructure today. Those jobs would have provided the base to begin increasing demand again, and the end results would be tangible benefits that improved the quality of life for all.
But, silly me. If demand were allowed to percolate up, how could the elite control where the masses would direct their spending? I forgot, only trickle down works politically in America, where a run for a Senate seat may cost $100,000,000.
How long before the gov't steps in and forces them back into production?
I give it 7-10 days
They can't afford to let the gears of slavery grind to a halt when the global economy is supposedly improving and panic the herd. They aren't ready to start the collapse yet
The new vogue is to clear cut forest and call it BIOMASS...for your Carbon Burning...CO2 producers. Name sounds a lot cooler...so what if it kill millions of animals...Al & Co endorsed it. The Climate Crazies have declared the 2000's as century of the crazies where up is down and burning wood doesn't produce CO2...only coal(which is wood from a while ago) produces CO2.
Well, if we start burning $100 bills we could melt both polar icecaps and still have $trillions left over....
Three Kings Wild .
https://www.academia.edu/9204956/Slingshot_Atmospheric_Rivers
https://www.academia.edu/9306394/Optimal_Lightning_
https://www.academia.edu/9304658/Optimal_Deserts
I can see why he would be pissed off with BHP and Rio Tinto, this strategy actually works for their iron ore businesses. Their costs are about half the current price, while their smaller competitors are currently bleeding.
This information makes Obama's day. Coal industry is failing! But it is not the preferred nation.
"Now", Barry thinks to himself, "how can I get West Virginia and Pennsylvania to follow suit?