It's not quite time to run up the red flags, but some recent developments in commodity markets suggest it may be time to start looking for them in the locker.
The are two main factors that appear to be emerging that may threaten an end to the current quite rosy picture surrounding demand for commodities such as iron ore, steel and the metals most exposed to the battery boom, cobalt, lithium and nickel.
On the supply side, there is a renewed rush of optimism that may set off another round of mining companies over-paying for assets or sinking way too much capital into projects approved on the back of too bullish forecasts.
On the demand side, the drums of a US-China trade war are starting to beat a little louder, with Beijing announcing duties on up to $3 billion of US imports on March 23.
That came after the Trump administration announced plans for tariffs on $60bn of Chinese goods, in addition to import taxes on steel and aluminium.
While equity markets take the first hit in the opening salvoes of what markets fear may become a full-scale trade war, it is most likely that commodities will suffer longer and harder if the worst does come to pass.
Commodities are generally seen as more exposed to the global growth outlook, and a trade conflict will almost certainly result in economic growth being downgraded.
This is especially important for commodities, as they also tend to be the top performers when an economic cycle is mature, as is the case with the current global recovery in the decade since the 2008 financial crisis.
However, there is still a chance that trade wars remain mainly in the sphere of rhetoric rather than sustained damaging actions.
Whether the seeming optimism among major mining companies about the future results in a return to the bad old days of over-investment and poor deals remains to be seen.
Certainly, the company bosses seem at their most bullish in recent years, with the world's biggest miner, BHP, talking up prospects for demand for minerals.
Andrew Mackenzie, BHP's chief executive, told a conference in Switzerland on March 20 that the world may have to spend $3.7 trillion annually to develop and upgrade its infrastructure.
"If we look at China's Belt and Road Initiative, demand for steel is expected to increase by an additional 150 million tonnes over the next decade," Mr Mackenzie said.
These figures were echoed by BHP's president of iron ore, Edgar Basto, at last week's Global Iron Ore and Steel Forecast Conference in Perth, in a presentation that went a long way toward justifying the company's planned $3.6bn South Flank iron ore project in Western Australia.
While the new mine is mainly planned as replacement for depleting existing operations, BHP is far from alone in planning new operations, with rivals Rio Tinto and Fortescue Metals Group also looking at signing off on developments.
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The industry is still a long way from undertaking the same sort of massive expansion it did in the years from 2010 in the flush of optimism over China's demand for steel-making ingredients.
But there are some similarities emerging, with Chinese demand once again at the forefront.
Both Mr Mackenzie and Mr Basto made much of China's Belt and Road Initiative (BRI), the government plan to build infrastructure and energy projects across Asia and Africa as part of a new Silk Road promoting trade and development.
The problem is that, for now, much of the BRI remains at the vision stage, and very little at the implementation phase.
If China was really undertaking vast infrastructure projects across South and Central Asia, as well as in Africa, it would be logical to expect that it was exporting significantly more capital, machinery and semi-finished materials such as steel.
Instead, foreign investment fell 2.7 per cent in 2017 from the year earlier, and this accelerated in January with a drop of 3.1 per cent in the prior 12 months, according to official figures.
Steel exports slumped 30.5 per cent last year, and were down 27.1 per cent in the first two months of 2018 compared to the same period last year.
Exports of cement and clinker dropped 27.9 per cent in 2017 from the prior year, and while vehicle shipments did jump 43.1 per cent last year, this was mainly because of an 83.6 per cent surge in car exports, which is most likely not related to BRI spending.
BHP, Rio Tinto, Brazil's Vale and Fortescue all had sunk billions into expanding iron ore capacity, resulting in a collapse of the material's price.
It has since recovered, with Argus Media quoting benchmark 62 per cent iron ore delivered to China at $64.15 a tonne on March 23, down from $74 at the end of last year, but still almost double the low of $37.30, hit in December 2015.
It took the price slump for BHP and Rio to somewhat reluctantly back away from their long-held forecasts that Chinese steel output would rise to 1 billion tonnes, and the risk is now once again the BRI reality may be somewhat less rosy than the current optimism.
More positive for miners looking to enter the battery metals space was the 8 per cent increase in China's exports of storage batteries.
But as some mining executives have pointed out, doing deals at the right price in sectors the market sees as hot is challenging.
"There's probably about 5 per cent of those opportunities out there that you can really add value with, " Mark Cutifani, chief executive of Anglo American, told the FT Commodities Global Summit in Switzerland this month.
"But in most cases you are going to pay high prices for assets so it's a hard way to make money," he added.
It's too early to say that the major miners are about to leap headlong into the old boom-bust cycle of expanding supply to meet overly-bullish forecasts, but the cash generated from the recovery in commodity prices over the past two years may be starting to burn holes in their pockets.
Reuters
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
Top tips
Create and maintain a strong bond between yourself and your child, through sensitivity, responsiveness, touch, talk and play. “The bond you have with your kids is the blueprint for the relationships they will have later on in life,” says Dr Sarah Rasmi, a psychologist.
Set a good example. Practise what you preach, so if you want to raise kind children, they need to see you being kind and hear you explaining to them what kindness is. So, “narrate your behaviour”.
Praise the positive rather than focusing on the negative. Catch them when they’re being good and acknowledge it.
Show empathy towards your child’s needs as well as your own. Take care of yourself so that you can be calm, loving and respectful, rather than angry and frustrated.
Be open to communication, goal-setting and problem-solving, says Dr Thoraiya Kanafani. “It is important to recognise that there is a fine line between positive parenting and becoming parents who overanalyse their children and provide more emotional context than what is in the child’s emotional development to understand.”
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
RESULT
Argentina 0 Croatia 3
Croatia: Rebic (53'), Modric (80'), Rakitic (90' 1)
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
Test
Director: S Sashikanth
Cast: Nayanthara, Siddharth, Meera Jasmine, R Madhavan
Star rating: 2/5
The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
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Anghami
Started: December 2011
Co-founders: Elie Habib, Eddy Maroun
Based: Beirut and Dubai
Sector: Entertainment
Size: 85 employees
Stage: Series C
Investors: MEVP, du, Mobily, MBC, Samena Capital
Don't get fined
The UAE FTA requires following to be kept:
- Records of all supplies and imports of goods and services
- All tax invoices and tax credit notes
- Alternative documents related to receiving goods or services
- All tax invoices and tax credit notes
- Alternative documents issued
- Records of goods and services that have been disposed of or used for matters not related to business
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Results
Stage 4
1. Dylan Groenewegen (NED) Jumbo-Visma 04:16:13
2. Gaviria (COL) UAE Team Emirates
3. Pascal Ackermann (GER) Bora-Hansgrohe
4. Sam Bennett (IRL) Deceuninck-QuickStep
5. Caleb Ewan (AUS) Lotto Soudal
General Classification:
1. Adam Yates (GBR) Mitchelton-Scott 16:46:15
2. Tadej Pogacar (SLO) UAE Team Emirates 0:01:07
3. Alexey Lutsenko (KAZ) Astana Pro Team 0:01:35
4. David Gaudu (FRA) Groupama-FDJ 0:01:40
5. Rafal Majka (POL) Bora-Hansgrohe
UAE currency: the story behind the money in your pockets
