The Commodity Report #77
Germany considers national metals fund // Bad time being a major food importer // Crypto implodes
Welcome to another 238 people who subscribed to the Commodity Report during the last week, bringing the total subscriber count up to 3.253.
When it all comes together
Fundamentally speaking, it was nearly a perfect week for commodities as much major news aligned during the week after China eased some Covid restrictions, raising hopes of a demand recovery in the world’s second-biggest economy.
Almost all major commodities traded higher following China’s move to reduce the time that travelers and close contacts of infected people must spend in quarantine, a significant amendment to the Covid Zero policy.
China’s loosening of restrictions strengthened a rally that began on Wall Street, with risk assets rising after US inflation slowed. Markets interpreted the data as a sign that the Federal Reserve could slowdown its aggressive interest-rate hike plans. A gauge of the dollar has fallen sharply from its 2022 high in recent days, aiding commodities priced in the currency.
Subscribe to The Commodity Report for free and receive these updates every Monday morning!
Germany considers national metals fund
Germany is considering setting up a state-backed fund to help the country secure and diversify supplies of raw materials as Russia’s invasion of Ukraine sparks a global scramble for resource security. This could be a first step to becoming less dependent on Russian supplies and more diversified. (nevertheless not self-domestic) According to Bloomberg, Germany is particularly exposed as it needs to import 39 out of 46 strategic raw materials.
Help could be given to finance purchases by issuing public guarantees and sureties and to support exploration projects at home and abroad. The proposed fund could also help companies acquire shares in exploration companies or hedge commodity risks.
Germany already offers loan guarantees to commodity trading houses to buy energy and critical metals. Trafigura Group, the world’s biggest trader of copper, has already agreed to supply German customers with non-Russian metals for the next five years.
Putting these large price drops in the crypto sector into the proper context is always important. As you can see in the graphic, the last three bear markets in crypto let the price of Bitcoin collapse by at least 81,7%. The latest collapse isn’t a big surprise but typical for the market. We only like Bitcoin because we see it as a high beta asset and a hedge against money creation, and we also like the characterization of “digital gold on steroids.” Markets always move in cycles. We expect Bitcoin to fight back once the market environment changes again and the FED starts to loosen its hawkish grip on the economy again. Once the asset becomes interesting again on the long side, subscribers of The Kuememrle Report and institutional clients will be the first to know. Meanwhile, we still see the potential for Bitcoin to fall towards 12.000 USD.
Bad time being a major food importer
The global food import bill is set to climb to a record $1.94 trillion in 2022, some $128.6 billion more than predicted in June, as production costs soar and supply chains are disrupted, according to the United Nations’ Food and Agriculture Organization.
Spending on imported foodstuffs continues to rise even as the FAO food price index fell for seven straight months, reflecting a drop in commodity prices. The FAO’s food import bill includes a broader range of items from fruit and vegetables to seafood, cocoa, tea, and spices, as well as beverages and staples like grains and meat.
Food imports will surpass last year’s all-time high by $180 billion, or 10%, with the rise driven mainly by high-income and upper-middle-income countries. The pace of the increase in that bill will slow as higher prices and a stronger dollar erode the purchasing power of importing countries, reducing volumes.
At a rally on Sunday before the midterms, someone in the crowd holding a sign that read, “5 more years of drilling is a lose-lose!” shouted a question to US President Biden. He responded: “no more [oil] drilling.”
A week earlier, Biden asked Big Oil to increase oil production.
No further comments are needed on that one.
This week look out for the following:
Chinese Economic data on Tuesday
Empire State Manufacturing Index on Tuesday
PPI data on Tuesday
Retail Sales data on Wednesday
Philly Fed Manufacturing Index on Thursday
Existing Home Sales on Friday
Subscribe to The Kuemmerle Report
Commodity Metrics, Futures Activity and Trading Opportunities
A subscription costs $
34 $29 a month, and you will receive an additional in-depth report every Sunday evening at 6:00 PM CEST. That information will only be published to members and not the general public.
Till next Monday, Lukas
(The Commodity Report is not investment advice)