Morning Mumble: China's Sensible Mini-Me HK and Retailers...Glencore goes long Copper! (Perversely for everyone else.)

Good Morning,

Last week, Nikkei Hong Kong PMI® was released with the dramatic title, PMI falls to lowest level since April 2009. The last time the data was this negative was in 2002 and 2009. The indicators are not great, with a lowering in new orders enabling companies to complete pipeline work. This may be a swallow in the grand theme of things, but we shall watch for a continuance before we long lithium pharmaceuticals. 

One item from Li, is the factories now avidly marketing their wares (inventories) at rocket bottom prices. From some shoddy capital equipment to very decent drilling machines for oil, all are being marketed with discounts that are notable. Could the shale suppliers being under further pressure? 

We shall revisit this over the coming weeks, now the parade is over and they can continue the witch-hunt. As a simplistic recap, production down, services demand down, innovative development and investment down. China has forced a new low, companies can recommend a buy on their own company – A Chinese investment bank rates its own stock — thinks it's definitely a buy. 

Now who do you believe? Man Group China head says she was not investigated by authorities, but was merely meditating. One had to reread this to make sure there was no confusion between meditating and medicating! Of course Li Yifei "had been attending industry meetings and taken a 5-6 day trip to meditate." So for those that don't reappear, say those that worked at CITIC or similar, should we contact the Guinness Book of Records, not only for the longest meditating period but largest event of its kind? 

We had Markit France Retail PMI® that had very similar themes to the BDO High Street Sales Tracker that was reported Thursday. Although as a snapshot in time, predominantly based on weather, it's not necessarily all bad. With some sectors and retailers likely to be more resilient and / or benefit, but there is a theme, with some buying opportunities presenting. Perhaps when considered against household debt (excluding mortgages), there is a very simple answer for the decline in sales? Save for more holidays abroad.

With retail shoppers making decisions on holidays or retails sales, choices are now having to be made. Watch for those margins, as sales competition hots up, especially if there's discounting the autumn/winter season, more so than normal. 

Associated British Foods (ABF) pre-close trading update gives out the positives, save for FX and sugar. Why is ABF not split into two? The argument for a split is getting ever stronger, save for some improvements in sugar more recently on the back of El Niño (FT)

Earlier in the year retailers evidenced improvements in pricing. These benefits are likely to be offset by competitiveness due to weather (lack of punters) and the need for seasonal stock changes. ABF via Primark have shown they’re not insulated either despite lower prices. Concerning that with their pricing perception in Primark stores, customers want even cheaper clothes!?

BDO analysis suggests inventories up, sales under-pressure and weakness in the wider and or global economy it's not looking great. (The last sentence may apply to different regions).

Like the Hong Kong PMI data, it’s noted that key reports are trending with as "bad as, not since levels seen in 2009 etc...” The read across to Kingfisher and Merlin entertainment does not looking brilliant, over to BDO. 

The strength of the pound is proving somewhat detrimental to high street retailers’ revenues. Consumers are spending more on items abroad to take advantage of the exchange rate, whilst tourists – particularly from the Eurozone – are less willing to spend. The continuing political and macroeconomic uncertainty, coupled with the threat of an interest rate rise in mid-2016, is also weighing on consumers’ minds.

Kingfisher (KGF) may be insulated thanks to a growth in French housing purchases by speculators/investors, although spend is normally lower than those buying a ‘home’. We won’t have to wait too long, with the interims due on the 15 September 2015. One can barely contain the excitement with an update on KGF’s “One” and their 'sharp' decisions in September. 

The news is filled with Glencore. As the share initially shot up today on news of a rights issue that was absent entirely of pricing or indicative terms. Please remember, as per Ivan’s statement it has not been determined whether it will be a rights issue. It does appear to be 100% underwritten (so perhaps the market thinks it’s irrelevant), for now. This is in addition to Glencore’s African Copper - Operational Update.

The market, like in the Platinum Group Metals sector, needs a casualty and Glencore have come up with the answer. Putting two large projects under "Doctors Orders" (Care and Maintenance) until improvement works have finished. 

The suspension of production at Katanga and Mopani for 18 months up until the completion of the expansionary and upgrade projects. This includes the whole ore leach at Katanga and the new shafts and concentrator at Mopani. A suspension of operations will remove approximately 400,000 tonnes of copper cathode from the market. 

Glencore blamed the decline in copper prices on aggressive short-selling in their full year interim results webcast. Today's news is starting to make one think that Glencore did not have any idea of the amount of physical in the market place nor in fact much understanding of the current cycle. More so, the surplus is significantly higher that Glencore anticipated by the very cut of near 400K/t’s. If this was not the case, they would have identified suspending production at Katanga and Mopani in their interim results webcast, rather than belatedly. The copper price has improved a smidge of 4¢ since the interims, so what changed?

Glencore have pulled 266K/t's annualised basis from the market, (for 18 months/note for diary) As a result, if copper cannot sustain a comeback to near $2.50/lb and potentially $2.85/lb on the back of Glencore's news, then there is something substantially wrong in the global economy (and/or China).

Is China really sick? Or just slowing? The copper price will give a very good indication over the coming months. Not only immediately will the market react, but due to inventories, a slower appreciation is likely over the next 9 months. (Keep an eye on car sales). A complete gift to Freeport-McMoRan et al (VED, ANTO, KAZ), where any 10¢ appreciate per lb is worth between $300-500M to FCX.

Glencore have come out to state how bad it is, but of course for Glencore it’s not bad at all, Ivan Glasenberg, Chief Executive Officer, and Steven Kalmin, Chief Financial Officer, made the following statement:

"Notwithstanding our strong liquidity, positive operational free cashflow generation, lack of debt covenants, modest near-term maturities and the recent affirmation of our credit ratings, recent stakeholder engagement in response to market speculation around the sustainability of our leverage, highlights the desire to strengthen and protect our balance sheet amid the current market uncertainty.

The measures we have announced today do not affect our core business activities and overall franchise value and have been designed to sensibly accelerate the deleveraging of our balance sheet, maximise future cash flow generation in the current weak commodity price environment and substantially improve our financial and credit metrics, stability and strength, in the event of a prolonged weaker pricing environment.

We remain very positive on the long-term outlook for our business and this is reinforced by senior management's commitment to take up 22 per cent. Of the proposed equity issuance. Copper and zinc are both supply-challenged and an essential ingredient of future global growth. In seaborne thermal coal, a capex drought and low prices have helped rebalance the market. We are confident that thermal coal's position and availability as the lowest cost fuel source for many large economies will underpin its key role in the global energy mix for many years to come.

We have today an extensive portfolio of long-life, low-cost industrial assets, benefitting from the unique capabilities of our marketing business. We reiterate our 2015 full year marketing EBIT guidance of US$2.5 billion to US$2.6 billion and remain confident of our long-term guidance range of US$2.7 billion to US$3.7 billion."

Culling dividends, full year and interim for 2016, cutting production etc...All should have been conducted at the interim results where "Captain Kirk and Scotty" could pull the levers (EMC: Glencore 24th Aug 2015). Have another look at the Webcast from the 25 August 2015, re: Dividend etc...Then consider the news today. 

The fundraising suggests there was an over-confidence in Glencore's senior management at the interims in August. Did they really have sufficient flexibility in the accounting model (in the current market), with some prudence in light of current market conditions? Common-sense?

In the absence of this capital raising, the balance sheet cannot be "stress-tested." Glencore appears very desperate to be doing the fundraising without giving an indication of anything, price, timetable or whether the larger shareholders have approved of such an action. 

If Qatar Holdings, or Harris Associates had agreed to the fundraising, would there have been a need to underwrite? All this of course is allegedly in the interests of the longer-term shareholders, no strong-arming to avoid being diluted!?

What is noteworthy is the significant amount of "debt reduction" in the near-term. Why was this suddenly needed, market confidence? Or common-sense business practice that should have been identified at the interims? Estimated to be near $6B in a very short time frame. So who is next...? Anglo after the dip in diamonds?

Atb Fraser

Morning Mumble: Carry Trade Dynamics under Capital Controls: The Case of China by By:Zhang Xiao and Christopher Balding. 27 June 2015.

As promised: 

Carry Trade Dynamics under Capital Controls: The Case of China

Morning Mumble: Kenmare (KMR), Chinese car manufacturing and the Copper Giant's misguided belief about demand + SXX, Cairn (CNR) ++ ORM's spanner in the works for management!

Good Morning, 

Kenmare today confirmed the EMC view that operations should have only been nine months of the year. KMR Operations Update confirmed "the effect of the power outage will be mitigated due to the significant levels of ilmenite product inventories on hand. The Company has recently secured additional off-take volumes with a new ilmenite customer for the product that makes up the bulk of the inventories on hand at Moma." For the punts in at circa 2-3 pence, things might just be improving enough or Iluka Resources to finalise all the due diligence conducted so far. 

The FT inform us of that the fate of copper hinges on Chinese demand. The EMC ran with looking further east for copper demand, to Japan and America. What the traders are currently missing is the absence of speculation in copper for China at the moment. 

Demand and restocking is occurring post Chinese New Year and with better stock management, stocks are not being filled without consideration for the market. Li's quote of the day is, "they're learning how to trade and restock" without contracting supplies sufficiently to spike the prices. 

With China adopting a sensible approach to any stimulus and resetting market expectations by lowering the GDP to around 7%, the market cannot justify the speculation. So far, none of it has worked, with the supply of housing at all-time highs, one wonders why the prices aren't declining more. 

Li, has had a couple of dinners recently, despite piling on the pounds post Chinese New Year has found Chinese property prices are declining further. His opportunity surveys of up and coming professionals is threefold, wage to loan ratios (affordability), wage stagnation (and unemployment risks) and most importantly of all, delayed purchases on the basis there's too much of an offering and limited bargains. 

The FT copper article suggests the funds short on copper on the "Shanghai Futures Exchange show that the same funds have not reduced their short positions following the end of the new year holiday." With growing speculation in Japan and America, one would be unwise to take the foot off the pedal in Shanghai until your full game has been unwound. Apologies for the lack of city speak of the hedges in the purchase of physical metal (the longs) that the same funds are making at the moment. 

What the city and those sent musketeer-like to ascertain the demand for copper is the planned "build out of the electricity grid" isn't on the scales that have previously been guided nor is it likely to be. China is accepting growth and over-capacity. The grid was in part dependent on the growth in housing and 'urbanisation'. If housing is stalling, with factories demand erratic and exports under-pressure slightly (via shipping figures), the outlook for growth in copper demand is going to be down on the current expectations. 

The outlook is for growth, however, limited on the expectations of the likes of Glencore and Rio. With a high-users finding demand visibility harder to predict, most are electing to avoid longer-term contracts where they have been previously punished or locked in at a significant higher prices. Just in time...

Car factories, one might be wise to check the number of car factories in China and the absolute over-capacity in car manufacturing. For those simple like myself, a brief statistic is there were 125 car factories (plants) in China 2014 running at 90% capacity and by 2017 there will be 148 factories (EMC:Li based on current intended use). So with over-capacity, car manufacturers would be wise to factor in a significant pressure on margins. With every manufacturer hugging the same space of Chinese growth, over-supply, margin contraction and dwindling growth in sales are going to be a common news item. 

Sirius Minerals (SXX), placing and warrant extension, SXX would be wise to attempt to cover near £28M to avoid the need for further funds in the short-term. The placing is likely to be the cap now until such time as the approvals are in place. Ten percent discount to the price in light of the potential is somewhat of an insult, then again, it's not selling a placing nowadays it’s called giving away. 

Thanks to Roger, Allied Nevada Gold Files for Chapter 11 Bankruptcy Protection. and Ormonde Mining (ORM) watch, Canada-based Almonty Industries proposes to acquire Ormonde Mining, has to be better than the other?!?! Over to the shareholders but putting a spanner in the works of certain management?

Limited time to cover the aluminium (AL) woes (testing significant levels of support), EMC considers the weakness in AL as a contradiction to some sectors of growth.. The gossip of Nevsun's (TSX: ANV), most recent potential acquisition. Cairn speculation upon us as the market digs in to the realities of the tax demands, orphans and widows need not apply. One hopes the speculators with some waterproof shorts managed to lump in on the short! 

Atb Fraser

Atlas Iron didn't drop overnight and is still 15 Aussie cents. 

Morning Mumble: All that Glitters Au Ag, Amara's placing, Weatherly, GLIF & JD Wetherspoon.

Good Morning, 

A pleasure when the smaller boys make a decent packet out of the market in comparison to the houses of grandeur such as the high fees for M&A or the odd take private element. 

Having traded long on gold on the back of CHF and China, yes China gave gold a leg up plus Asian trading and NY. China's data created yet more demand on gold risk, so this morning its time to take the majority of profits (perhaps earlier buy but yet again solid profits). It’s not so long ago a few savvy investors picked up some significant low cost gold bets (EMC). It would appear the corporate gold traders were caught napping by the move and very few have profited from the appreciation of gold. Kudos to the few, with a not so paltry pay cheque either.

With gold and silver in fashion at the moment, it is wise to buy exposure into those leveraged plays such as the once upon a time short, HOC (Hochschild) who has appreciated near 30% since the change in sentiment and trend for Ag circa $18.30/oz. HOC's now making a profit again! With HOC's Q4 production update being a lot better than most (includingmyself thought). 

The HOC holders can breathe a sigh of relief with HOC completing a decent hedging programme to lock in some transparency over cashflow even if prices appreciate. With HOC signing agreements to hedge the sale of 6,000,000 ounces of silver at $17.75 per ounce for 2015. This is in addition to the previous agreement to hedge 38,000 ounces of gold for 2015 at $1,300 per ounce.

We'll side step Petropavlovsk (POG) purely on the basis of unnecessary appreciation over Christmas and without justification. 

Copper appears to be looking for a floor / support in the price at the moment, although the deals being done and stocks increasing at LME certainly leave a lot for the interpretation. The guessing for copper will continue as two dominant warrant holders sit on their hands (maybe slightly singed). 

With metal warranted against the January 2015 date becoming prompt this week supplies are likely to up-tick contradicting the narrow bands of supply and demand. One certainly to keep your eye on if trading, especially if the physical market becomes tighter (allegedly) again. (Circa 19th April 2015). One suspects that Standard Bank's Aug/Sept notes on copper might need a slight revision. 

The question over the short-term is will the Chinese smelter excess still be managed appropriately (drip feeding back in to the market) with some losses stacking up or is there likely to be a very short-term swell in physical to meet obligations? The market I suspect will wait till factory restarts before taking an opinion. With factory gate prices lower there's pressure on the market to maintain a competitive (read as cheaper) attractiveness.

We see the results of Amara Mining's (AMA) placing which shaves certain assumptions off the target or take out price, down around 10% of previous estimates (Approximate 25.2 - 28 pence now.) The positives are any suitor is wise to acknowledge AMA is now far from vulnerable to speculative approaches being funded to an investment project decision and is supported. If the book-build was so well supported why is there a discount to market of 15% or thereabouts? 

In-between AMA's announcement of its intentionto conduct a placing (worth a read) and today the costs of the BFS and completion apparently appreciated 10% or should it be the needs appreciated 10%. It’s acknowledged that with a prevailing wind for gold it was wise to press the button on cash. The disappointment being, if Peel Hunt and GMP Securities Europe had to offer a discount on the price, it does not bode well for other entities looking for cash. So in the absence of Randgold (EMC May 2014) news or Samsung, Q4 2015 looks to be the date in mind, one hopes financing can be encouraged in the current gold climate sooner rather than later. 

Stating the obvious award goes to J D Wetherspoon(JDW) with increased competition from the supermarkets. JDW more recent declines I thought were obvious, with landlords’ holidays often taken post-Christmas? With calls for equality in treatment stating the obvious bad news in the sector etc...if JDW don't like the sector why are they operating in it? Expanding yet claiming discriminatory pressures is never a good thing with increased LFL sales and margins, albeit under pressure from their wage increases are healthy. JDW's update will be taken as well as Majestic Wine's (MJW)! The hangover should have been taken post-Christmas. 

Its the day for the GLIF  (GLI Finance ) dividend announcement (see: EMC GLIF April 2014) and only two days ago Inspired Capital (INSC) (the old Renovo aka Ultimate Finance Group) trading update.

Bowleven (BLVN) informed the market of the two well exploration drilling programme on the Bomono Permit, with fingers cross for the company (no position), they'll need it! WTI (Weatherly International) quarterly operations and production update does not bode well! From EMC, will it stop the rot!, we had our answer sooner than expected! 

Little time to discuss the BLT (BHP Billiton) Operational Review Half Year Ended 31 Dec 2014 shale being an obvious candidate for some tighter cost controls and copper even performing well (grades?), Anglo Pacific's update on the Kestrel royalty, seeming like desperation to maintain the SP. Afren's update hasn't gone down well re: amortisation payment.

Atb Fraser

Evening Bolt on par deux: Or converse morning Mumble...AFR, gold,

Good afternoon, 

Having been in meetings this morning, it’s refreshing to be out in the big wide world. With some sensibility about the place and the FX issues becoming more transparent with huge kicking to those whom were long GBP Vs...pre-the-Swiss-roll (WHY!?!?!?!) Seems some banking updates might need a little clarification post their most recent results. A not uncommon situation where analysis of your market always pays off. 

There's still a lot more to come with commodities in terms of volatility it won't be the last we hear of the situation. Once again, it’s with disappointment that another shorting fund has been outed, long may the press not break the status quo. 

Speculation about the PUSU (put up shut up) takeover requirements for Afren expiring on Monday (Jan 19, 2015), with 3 other suitors its rather irrelevant because they would only be exempt until another offer materialises; who wants to make the move first offer (poker faces required). 

With a rumoured three suitors, one of an opaque entity allegedly Chinese (ZhenHua Oil albeit owned by China North Industries Corporation (NORINCO)) but actually on behalf of Liberian businessmen Bert Cooper. Perhaps we could as Mr Yuan at Forte energy! As reported by Agence Ecofin - Le nigérian Seplat Petroleum confirme son appétit pour Afren last Friday (Jan 09, 2015) and SEPLAT (SEPL) (although I am preferring Seplay!). The question is how much...with limited skin in the AFR its not something worry about too much until trading opportunities present (deal on or off)

With gold now heading above the crucial $1268/oz. support (approx.), its looking more probable on three very savvy investors set to make circa $117m EMC See: larger bets going in on NY and Asia for a material tick up some $100+/oz. This could just be the lowest cost trade of the year. 

Final thoughts for the weekend goes to oil predictably appreciating but what is the read through for Unilever, Nestle, Proctor & Gamble, surely an improvement in production and operating costs? Over to the analysts. 

Tonight is legalised gambling which will result on my counter-party gaining all my offerings, I suspect I shall require a Gift Aid contribution judging past-performance. 

Atb Fraser

Evening Bolt On: Afren & MPI + Alleged CU Chaos (Investments)

Good Evening Morning, (forgot to press publish as well)

It was going to post this last night but after a long day and out most of the day don't expect much more. Hopefully copper won't CU you asleep!

Afren Plc (AFR) we know are being pursued by SEPLAT Petroleum Development Company plc (AFR share price movement statement 22nd December 2014). If we think back to EMC over to MPI the curve ball. It would appear the word (city street speak ha ha) in Nigeria (via Ian who is showing discontent and going to Indaba!) is MPI (Significant shareholder in SEPLAT) wanting to maintain its interest in SEPLAT by providing the cash element of any deal. 

What the AFR deal is valued at is down to conjecture and significant speculation. Investors can argue any case of valuation between 6 pence and 85 pence in share valuation, Save for today's close on longs and letting capital equity risk the end game, AFR is will be limited within my trading agenda for the foreseeable future or until a deal is or is not announced finalised.

Yesterday we had the FT China funds bring Chaos to metals markets Henry Sanderson and Neil Hume. This was known about around the time Red Kite's holdings were circa 60% of the LME (London Metals Exchange) copper in October 2014. Not only did it distort the futures market but create the equivalent of a raid effect on a stock commodity that's tightly held and without any natural principles of trading to derive a true market price. 

Investors would be wise to consider the impact not only of Shanghai Chaos Investment Co but 3 major trading houses betting on a long trend from January 2013 with copper bucking all the other commodity trends. Chaos Investment was not the distortion in the market it was the reality, the likes of RK Capital Management (Red Kite), Glencore (GLEN) and Trafigura Beheer BV (Trafigura) were the distortion.

The categorical absence of speculation in copper and the hoarding of undisclosed stores of Red Kite, GLEN and Trafigura have in essence created a false market (the three). Aided in part by the closure of Clive Capital (Circa $5B under management) in late 2013, Armajaro and Astenbeck performing below par and China not pushing forward their economies of scale that would make for the three being largely immaterial in price controls.

From 2013, LME warehouse owners were having to pay premiums to obtain physical deliveries of copper (the same as the other day when EMC commentated on Outcry pricing). For a considerable part of 2013 and most of 2014, the commodities traders forced industrial consumers to speculate rather than take the spot price. This unwound just after Christmas this year including the Chinese premium or risk within pricing (See Codelco EMC comments 12th December 2014)

What is known is there is nowhere near a deficit in copper, supplies and delivery are flowing with limited Chinese speculation. With Chinese speculation until December/January being absent, save for the larger boys funded by the Government for use, limited speculation and smaller funds including Chaos Investments the main elements were physical. The contraction was largely brought on by the Qingdao copper scandal and the three trading houses hoarding/limiting supply. Qingdao had a three pronged effect on the market, copper imports contracted notably, speculation reduced as a result of a contraction in financing and a realism returned to the health of the economy and market in pricing.

So with an alleged tightening of copper yet again (read as pricing controls, limitations and price premiums on immediate physical delivery), copper in the absence of Chaos et al with more to the trade than just Chaos see: EMC posts on main demand in China etc...), copper is likely to appreciate until of course a swelling of supply yet again is formally evidenced. So we are reminded of despite copper fall, Las Bambas construction continues, which if I'm correct is set for production end of Q1 2016 (circa 14 months away)

We will leave the discussion for another day on the mines at Sierra Gorda (Owner: KGHM International; Location Chile), Toromocho (Owner Chinalco, Peru), Oyu Tolgoi (Owner Rio Tinto with Turquoise Hill Mongolia) and Minas Ministro Hales (Codelco Chile) all on the ramp up or coming on stream copper supplies won’t be an issue even towards the critical stage of 2018. What is at risk is the clarity in pricing… (Old data so may need ownership structure changing from January 2014.)

Considering the flow of money with higher discretionary spending, we have JD Sports (I can't use fashion in the title apologies) performance following the Christmas trading period. Over to Sports Direct with the investment arm (my view). No time for the obvious CHF Gold benefits nor silver, nor platinum. The Oil technical trading suggests a movement towards $55/bbl in the short-term (and subject to change). 

Atb Fraser

Gossip: Seems IGG weren't the only one caught off-side by the Swiss Roll! 

Morning Mumble: Food Prices (partial), CU lower soon + Market Items

Good Morning,

Apologises for the delay, Game Digital (GMD) stating the obvious sentiment in margin and bundles in the Christmas trading update. Many thanks to the GMD IPO (although a repeat listing) aiding 2015. Along with KAZ Minerals the short benefiting today's market joys with Credit Suisse yesterday commencing the kicking. 

VED (Vedanta) ( as EMC'd yesterday) was known to be closed early, it had hit the target price for a long term short circa 7 months. It does need a revisit for intra-trading but one has to take money off the markets with strict discipline. Its a muppets disease not to bank significant profits and that includes the institutional readers whom think the trend is forever, yes you too can be a Muppet. Glencore, my short on the basis GLEN's (Glencore) copper beliefs were out of touch with the market nevermind their "tear" of assets (poor I know). 

The herd shall follow in due course, but its wise to consider their coverage if they cannot get the obvious right. With coal getting a kicking again...GLEN's earnings are looking that great with greater capital intensity. Kudos to Liberum Capital whom I suspect didn't expect 240 pence, Investec might need to review their switch from Rio to GLEN

Below are some brief out-takes for something I did in June 2013/Jan 2014 and July 2014, for which I've adapted this morning. For those that know about Pork Riblets, Semi-Meaty (I'm trying to make it sound luxurious)...December has been the hit by a quadruple whammy that has continued unabated, positive for the pocket and for retail sales and more so if the trend continues. Retail will see cheaper goods (consumer durables/white goods) and higher demand as well (see  EMC thoughts on shipping costs) with greater disposable income. Global deflation/zero inflation is a risk to western economies more so than developing countries. Save for the developing nations weakness in currency (about time I must say) eroding a good 50% of any price price reductions.

So with oil now mirroring a lot of commodities with speculation being stripped out to leave a realistic market (over supply) even in the short-term, copper as the indicator of growth has fallen back. Readers cannot say they were not given the warning  in November/December. So the indicator (Dr Copper as most refer to it) of global health is pricing in more realistic growth patterns (see Chinese trade growth) nearly bang on my estimates at CampAlpha). Even with the EU's intentions of Economic stimulus etc...America's demand may however support China (perversely). 

So with the decline in commodities positively impacting on food prices for the consumer both in agriculture (inc fertilisers and other associated harvest costs), supply chain logistics (in its entirety) and point of sale costs (including energy and staff costs re: recent hourly rate declines in the US), there's only one likely beneficiary. This theme will continue for some time, with the FAO (Food & Agriculture Organisation of the United Nations) indices mirroring (to a degree) iron ore and belatedly copper. Other sources but limited time so apologies.

See FAO Food Commodity Price Indices (left), showing significant drops in prices there's a real risk of further drops as bio-fuels are awash in the market and with limited / static demand creating a surplus in animal feed as well the alternative demand does not look positive either (grain feed/food ingredients). Plus a significant pressure on the fertilisers likely to drive costs/prices lower as producers hold out for better deals and the market being in oversupply (although recently tightening). 

With record harvests across feed grains, soya and meats (if one is allowed to call them a harvest), save for coffee(long), Cocoa (only short-term) and citrus fruits (Florida Harvest issues inferring one of the worst crop every. Prices are set in trend for the next 12 months save for any major issues. We have Soybeans dropping 3.6% After USDA Supply Report (WSJ) So for the dinner party live enthusiasts you will finally not have to pretend to substitute meat for your vegetarian guests. 

The global super-cycle is moving through commodities to food and is taking hold . With commodities the first to give, then food prices, forcing the factory gate prices in decline. (Simplified version). When considering the below, also consider the global impact both to Grocers but also to the consumer. 

Just a summarised bit on what I'm able to share in terms of food prices, please feel free to ignore or digest (I know).

Today we saw the risks presenting in copper with the tank, EMC copper's real risk could not have summed it up better, taking larger positions on the way down...in the absence of any support $2/lb. is the next station. 

Limited time for the other items. Its worth commenting on the iron ore price for those thinking the summer would last longer. All the majors were down, save for Atlas Iron the second coming, with massive volume, it would be wise to pause and plan (you vultures!). With the energy crisis of over supply (Energy rout I think CitiGroup called it) guess what's happening with Coal. With a few changes to increase the liquidity in LME coming into force on the 19th of this month, traders would be wise to read the manual:-).

Risk off? Gold on? hitting the support line of $1239/oz and retreating quickly. Cost deflation is going to impact gold, its only a matter of time!

Atb Fraser

It would have been respectful for certain individuals to acknowledge the source of their information in emails, reports and articles rather than just copying and pasting.

Morning Mumble: Contrarian Gold & CU were told...+ Ahhh'fren + AO. World + SHFT

Good Morning, a fab weekend thank you!

Delays because of an earlier than planned phone conference as people appear to not know the UK is in a different time zone than Switzerland. You are forgiven, this once!

Copper hit a past low, pending one whom you listen to this is a 4 1/2 to 5 1/2 years. All "blamed" on the lack of Chinese Stimulus and Strong U$D. Read in conjunction with EMC Friday is here...Oil will be grateful & Copper lowering demand higher levels of "fire sale" inventory and China’s factory-gate prices tanked. The leverage or lack of, save for the provision by what the Chinese (Government) banks wish to provide now, is impacting on the copper market. 

The issues aside of this, as reported by most being that the German industrial production fell unexpectedly. If it was an unforeseen event, then the consensus should have read the August figures for Germany Industrial Production (GRIPIMOM) in August weren't these an indicator of a cycle? Blomberg ran: German Industrial Output Drops Most Since 2009. 

With futures dropping to $2.755/lb and the absence of positive speculation the trend is set. Historically if oil is setting news lows and tests historic support levels then perhaps copper's chances of Circa $2.5/lb are becoming a real risk. 

The oil cycle, inconsistent data from America in terms of wage growth (or lack of) and lack of new stimulus from China is creating inconsistent moves in Gold. Gold ran up to $1230/oz. slipping a tad to circa $1224/oz. In the absence of any change in the news global there is no reason for Gold to be trending so high. All deflationary indicators are kicking in (the above) with oil being the start of the cycle of lower costs (exc. for OPEC intervention).

Afren (AFR) today came back with a kicking for shareholders with the update on Barda Rash, Kurdistan region of Iraq far from the news the market was expecting. It doesn't bode well for any negotiations for the business as there was a belief of significant upside in Barda Rash. Will this impact on the offer? Hmmm...In fact save for a significantly discounted offer, will there be one! At the current SP its hard to find little value above the current price for equity holders and if oil deteriorates further, there's a potential default (nil value for shareholders). 

AO World (AO.) third quarter trading statement pleased the market today...one shall bide my time there for the next run! At a silly level of future earnings (even today) there's little room for mistakes from AO. 

The leaky ship award goes to Quindell (QPP) and the its only a moment of time award goes to shaft sinkers (SHFT). There's some rumours out of South Africa that certain mining companies are going to provide finance. Over to Impala, ENRC (Via KazChrome) and a few others to decide on the fate...shareholders shouldn't expect too much. From 2012 the writing on the wall has not been good for Shaft Sinkers, a casualty where the equitable risks to projects should have been considered in greater depth (I know bad pun). One will expect a nice apology from a certain group regarding the outcome for Shaft Sinkers. For a quote from a "professional"...your view of shft is misguided if it ever hits 5 pence there will be something very wrong. I wonder what said person thinks to tuppence give or take a few?

With Brent at $48.84/bbl...expect some carnage in the sector. With a timely reminder that Iron Ore dropping subs $70/t, there were no surprises to the casualties. On the Atlas Iron (ASX:AGO) front they were being punished as a result. One hopes they banked significant profits...

Atb Fraser

(Edited/Proof-read as I had a little more time to correct basic errors this mornings was in a significant rush apologies.) Original here: Unedited 

Evening Bolt On: Afren (THE gossip), housebuilders, Oi'l (spelling correct) & CU Monday!

Good Evening with a manic day and meetings rudely interrupting work this afternoon...

Gossip in Nigeria and France where its suggested there's an announcement or offer being made next week. Significant caveats applied of course...could just be an echo, more importantly the offer even at these levels is low ball. Over to MPI Energy...there's a curve ball.

Interesting that the Housebuilders (Reuters) are under the cosh today Persimmon trigger (EMC). 

Those traders positioning themselves for intra-day gains got torched today with Brent circa $49.84/bbl. You (know who you are) were warned (EMC) yet for some reason gambling seems assured on a Friday. If a reader has $99.6M going spare there's a paltry $15m to be had by putting the cash to work for a few months. 

We shall ignore the obvious happenings in Copper / Comex Coper / Futures. Investors bet on copper price fall By Henry Sanderson (FT) only a month or so late! EMC (Copper),  years round up EMC Copper,  China data yet again (EMC) Copper, EMC Copper the indicator and CU any surprises (EMC)

With drinks tomorrow night do not expect too much!

Atb Fraser

Chinese afterthoughts & GKP (The pundits favourite)

The reliance on state bail outs is coming to an end in China. The excuses are many fold from "utilising this time to improve quality, lower pollution, improve economics." It’s our view China has to stop investing such a large percentage of GDP into capital investments; whether that be roads, railways or redeveloping towns.

The weighting of lenders towards specific sectors is not the only issue specifically where there has been the most defaults: Solar, Coal, Real Estate and potentially Steel Mills (two are rumoured to be looking for aid). There are number of bonds due this year in China, with the market exceeding the official figures.

The Chinese bond market should be a likened to the larger platinum producers raising capital for expansion, but unsurprisingly this has to be transferred to OPEX - a prime example being Aquarius Platinum and Lonmin. What parties should be concerned with is the "amount of cash raised compared to what is available to pay these coupons." In such a short-period of time the cash has all but disappeared. 

The most recent Baoding Tianwei Electric default is a prime example. With $328 million raised 2-3 ish years ago and it barely has enough cash to make a $500K part payment that was due on the 7th March 2014.

Chinese Bonds replaced the Development Grants that the Chinese awarded to the likes of the Solar, Coal and Steel Mills for stimulus. The investors mistook these grants for a bottom line operational profit, but someone forgot to ask how much development grant has the company had and how much less will it be receiving.

If major companies are defaulting on repayments within 2 to 3 years of the issue of Bonds, it raises a significant question about how bad the balance in the economy is or is not. The latter has caused the deleveraging of positions in the Copper and Iron Ore, with consequences being felt in the product pricing such as steel with oversupply as an additional problem. 

Ironically, if one is to look at the Rusal IPO and listing in Hong Kong, the figures rather glaringly stated what was going on not only in China but Russia. The Russian state bank is alleged to be looking at bailing Rusal out. From one perspective, bailing out international lenders at this time with the Crimean issues is very unlikely. "Lenders" are likely to compromise on a deals albeit at the last minute.

The property bonds, are not only pricing risk in on Copper, but also on the entire over-cooked/leveraged sector. With Zhejiang Xingrun Properties clearly unable to pay its $500+M bond's what next?

Well my view is simple, in order to meet growth targets etc...China ironically has to let these defaults occur to avoid further over-cooking in other sectors. 

First China had Coal Defaults (albeit bailed out), then Solar defaults, then Buildings and/or Real Estate. Its only time before these positions unwind so must the leverage in Copper, Steel (the most heavily leveraged one way steam locomotive that's running out of track!), Iron ore, and Oil. This will be a short-term correction but more pronounced.

With Iron ore likely to be 61-65 a tonne 12-18 month average and that is slightly higher than our revised consensus of 55-57$. I acknowledge it’s bounced a little, but I put that down to speculators doing the same as I and buying back their short positions.

The knock on is that aim market will suffer with economies of scale not being to a magnitude to become more efficient. The prime example being the Gulf Keystone, which was it really a surprise?

Some idiots, had a belief that two Chinese chaps in the Gallery at the trial meant a buyout. Correct me if I am wrong but the best time to sell Gulf keystone was when they raised the bonds Pricingof Convertible Bonds but more importantly when one of the head honchos sold ten million. 

Its acknowledged that it was a transfer under a financing agreement but let’s face it, it’s still a corporate activity between two parties (aka a sell). Namely, that corporate activity involved a person whom was meant to be enhancing shareholder value but strangely was not maintaining any exposure. 

As a thought, with the Bonds under significant stress, higher cash burn, and limited production, what's the odds of it going forward? But strangely, why has the market been so slow to react and will GKP be able to raise monies at a level that is affordable for the development. It’s looking more likely that a stressed farm in deal or massively discounted Rights Issue will occur perhaps a SEDA just to cheer the holders up some more.

Genel are funded, have cash and are certainly a cheaper option in terms of director salaries than say, GKP. However, any deal would have been done long ago, and with the risks GKP have, any suitor would surely be wise to wait to see how poorly the company is before approaching.

Interesting times, but its worth consideration with a spat of corporate bonds being inked over recent months, will there be defaults? Hmmm, these 5-6% high returns in a bond are not really worth the risks of companies whom have not got the prowess nor history to back up their assertions off repayment.

GKP have not defaulted, but it will certainly have some stress and or costs attached to make payment. I would not be surprised if equity was exchanged for the repayment at a discount to market for parties to load them off to cover their own liabilities. 

It’s nice to see blogger comments working properly, I'm aware it’s been a non-goer for some time. I can read them merely not publish most of them despite trying. Even those negative ones, extolling positives about my character and shorting actions (I think everyone knows there haven't been any of those!).

Perhaps shorters should be called realisers of true value, it sounds more acceptable. This is from someone that disagreed with the shorting principles of negative betting only 4-5 short years ago. It was a realisation that people were more likely to back a dog and hold it tighter, that I realised shorting was easier to start, realise and assess companies than longing. 

There are benefits though, trading is more exciting, and shorters have a mind-set that is ironically positive, don't moan about taking a hit, but most importantly of all have to make their own decisions.

I would go as far to say it’s addictive, what better validation than making money when the majority think the price will appreciate? The underdog of the market, the contender for the most abuse.

As a final thought for those thinking about all things trading wise, I will not be sharing my data, but what percentage of AIM companies have missed their self-reported targets? Doesn't bode well for the longs out there if there's so few companies where targets are being met. 

Just a thought...

All the best, Fraser (Sat outside in the UK in March without thermals)