The much-hyped commodity super cycle could be dead before it even really started. After a bright start to the year that saw commodities and metals such as copper, nickel, aluminum, zinc and tin reach all-time highs, commodity markets suffered a sharp correction that erased almost all of their previous earnings. The phenomenon has been linked to investors reversing bullish bets on everything from oil and copper to corn and wheat in the latest sign of recession fears gripping financial markets. Despite historic low inventories at 700kt from 2.4m tonnes a year ago, industrial metals continue to be hammered, with the Financial Times claiming that hedge funds are largely responsible for the continued decline in prices in selling long or positive positions. in certain commodities and replacing them with bearish bets.
Indeed, FT reported that Capital Aspect, which manages $10.6 billion in assets, has been betting on commodities such as iron ore, steel, copper and silver since around early May as prices fell in anticipation of a global economic slowdown. The portfolio manager has also been selling sugar and cocoa for some time and recently took small short positions in wheat.
All of these bets against commodities have dampened a furious rally.
Copper is currently trading at its lowest since november, as iron ore prices rise dangerously close to double digits after climbing above $200 a year ago.
The war in Ukraine lit a fire under Platinum Group Metals (PGM), only to forfeit those gains and more.
Meanwhile, nickel price are back to where they started the year at $21,249 per tonne.
Last March, a historic short nickel squeeze sent nickel prices soaring to a stunning $100,000 a ton – doubling the previous all-time high in one morning – and plunged the London Metals Exchange in an existential crisis. The LME then closed trading and took the dramatic step of retroactively removing $3.9 billion in trades made before the suspension, pointing out that the nickel market had become disorderly, with prices no longer reflecting the underlying physical market.
Related: French industry switches from oil to gas amid uncertainty over Russian supply
Russia is one of the largest producers in the world nickel. When the country invaded Ukraine, fear of supply disruptions sent the price of nickel into a frenzy, so much so that on March 8, the London Metal Exchange decided to suspend nickel trading. Never mind the fact that Russian metals had not been sanctioned. Some traders were willing to bet the farm that the wild nickel rally would collapse like a house of cards and opened huge short positions – but they got the timing wrong and were forced to hedge. Much like the famous copper crunch of more than a century ago, the nickel market mayhem was sparked by huge short positions held by one man: Chinese metals trader Xiang Guangda, the founder of chinese society Tsingshan Miningworld’s largest producer of nickel.
However, lithium price were able to hold, with lithium carbonate trading near its recent all-time high of CNY500,000/T ($74,470/T).
Unfortunately, the same cannot be said for lithium stocks.
Source: The Financial Times
It’s no surprise that mining stocks have sold off strongly, with many now in the red year-to-date.
According to Mining.com, the world’s 50 most valuable miners lost $383 billion and are now worth $1.37 trillion, down from a high of $1.75 trillion at the end of March this year. while top mining stocks lost $1.26 trillion.
Top 10 mining companies lost $600 billion, mining giants BHP Billiton (NYSE: BHP) and Rio Tinto (OTCPK:RTPPF) among the worst performers.
Lithium miners have not been spared, with Albermarle (NYSE:ALB) and M² (NYSE: SQM) seeing their valuations fall 1.2% and 2.5%, respectively, in the second quarter.
Ironically, Russian miners have been the exception here, with many posting strong returns since trading resumed on the Moscow Exchange. Indeed, producer of palladium, nickel and copper Norilsk Nickel and the diamond giant Alrosa saw their valuations increase by 23.2% and 8.4%, respectively, during the second quarter.
By Alex Kimani for Oilprice.com
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