ASX Today — Live ASX News | XJO Opens Higher; Westpac, Lynas Feature

ASX lithium stocks ended higher on Monday after signs of recovery in the lithium price.

Piedmont Lithium, Core Lithium, Ioneer, and Pilbara all closed over 4% higher.

Lake Resources, who was hitting new 52-week lows almost weekly for the past few months, also rebounded.

LKE is up nearly 25% since April 28.

Will this rally last?

ASX lithium stocks ended higher on Monday after signs of recovery in the lithium price.

Piedmont Lithium, Core Lithium, Ioneer, and Pilbara all closed over 4% higher.

Lake Resources, who was hitting new 52-week lows almost weekly for the past few months, also rebounded.

LKE is up nearly 25% since April 28.

Will this rally last?

Insurance business Tower (ASX:TWR) is down 7% late on Monday after severe weather events in New Zealand in recent months have led to a ‘substantial volume of claims’.

TWR chief executive Blair Turnbull said:

‘Over a three-month period New Zealand has experienced record flooding in Auckland and its worst cyclone this century. There has also been two significant cyclones in Vanuatu. Tower is working efficiently to support customers while managing a substantial volume of claims. Tower remains resilient, is focused on careful risk selection and riskbased pricing, and is well placed to deliver sustainable growth and earnings.’

The surge in claims has forced Tower to downgrade its FY23 guidance.

TWR now expects FY23 underlying net profit after tax to be between $8 million and $13 million, down from a previous guidance of between $18 million and $23 million.

Tower anticipates to report a 1H23 loss after tax of ‘around $3 million’ and will likely not pay an interim dividend.

In 1H22, TWR reported a net profit of $2.9 million and an interim dividend of 2.5 cents a share.

Insurance business Tower (ASX:TWR) is down 7% late on Monday after severe weather events in New Zealand in recent months have led to a ‘substantial volume of claims’.

TWR chief executive Blair Turnbull said:

‘Over a three-month period New Zealand has experienced record flooding in Auckland and its worst cyclone this century. There has also been two significant cyclones in Vanuatu. Tower is working efficiently to support customers while managing a substantial volume of claims. Tower remains resilient, is focused on careful risk selection and riskbased pricing, and is well placed to deliver sustainable growth and earnings.’

The surge in claims has forced Tower to downgrade its FY23 guidance.

TWR now expects FY23 underlying net profit after tax to be between $8 million and $13 million, down from a previous guidance of between $18 million and $23 million.

Tower anticipates to report a 1H23 loss after tax of ‘around $3 million’ and will likely not pay an interim dividend.

In 1H22, TWR reported a net profit of $2.9 million and an interim dividend of 2.5 cents a share.

This is an excerpt from our editorial director Greg Canavan’s latest piece for The Insider.

There’s a bank crisis going on in the US…but it’s not your ordinary bank crisis.

Depositors are fleeing the (mostly regional) banks, not because they think the banks have bad assets but because they can get better returns in the money market.

A lot of this money is lent to the government (via investment in short-term treasury bills) or ends up back at the Fed via the reverse repo account.

But the key point is that it’s flowing out of the banking system, and that’s leading to an unprecedented contraction in M2 (a measure of US money supply).

As Barron’s reported in late April:

‘M2 has now contracted on an annual basis for four straight months — an unprecedented streak since the data was introduced in 1959. December was M2’s first year-over-year contraction ever.’

This is a big deal for the banks and the economy.

Deposits are a crucial source of funding for banks. When deposits flow out, it puts pressure on banks to sell assets to meet these demands. Because the Fed has raised rates so far and so fast, asset prices have declined, and so banks must sell at a loss.

Given the highly leveraged nature of the banking system, it only takes a 5–6% decline in asset values to wipe out the equity holders (shareholders).

This is why you’ve seen some banks go bust and some get very close to it.

And while the topic of US banks and the US Federal Reserve raising rates again was a feature of last week’s news flow, market sentiment wasn’t too badly impacted.

The CNN Fear & Greed Index fell back to a ‘neutral’ setting during last week’s selling but bounced back into ‘greed’ territory following Friday’s relief rally.

In other words, the market is pretty sanguine about rising rates and the recent bank jitters.

There is no doubt that the US economy is resilient. But for how long?

I mentioned before the issues around deposit flights. Another aspect of this deposit flight is that it will restrict banks’ ability to lend. As credit growth slows and/or contracts, so will the US economy.

Warren Buffett’s Berkshire Hathaway is a pretty good barometer of US economic growth, given the diverse businesses it owns. As the Financial Times reported on the weekend, he sees signs of a slowdown beginning…

‘Buffett was relatively sanguine about the prospects for the company he has led for the past 58 years, as well as the broader economy, which has powered through aggressive rate hikes from the Fed and a series of bank failures that have rattled confidence in the financial system.

‘He noted that the effects of the slowing economy were only just beginning to be felt by Berkshire, although he did not paint a dour picture of the economy. Buffett said he expected earnings to decline at the majority of its businesses this year.

‘“It isn’t that employment has fallen off a cliff or anything, but it is a different climate than it was six months ago,” he said. “A number of our managers were surprised. Some had too much inventory on order.”’

The slowdown isn’t just in the US. It’s global. Which is why you’ve seen the oil price fall by 50% over the past year.

In my view, this is a major long-term buying opportunity. I don’t know if oil has bottomed here or not. But I do know that if you take a view of one or two (or more) years, you should do very well on traditional energy investments.

They’re cheap and not at all popular. This is always a good combination for delivering future returns.

Buffett knows this too. From The Wall Street Journal…

‘After a flurry of investments over the past year, Berkshire has become both Occidental and Chevron’s biggest shareholder. Energy shares made up about 14% of Berkshire’s stock portfolio at the end of 2022—the highest share going back to at least 2000, according to an analysis of company filings.’

The Journal then asks why Berkshire has made such a big move into energy stocks over the past year…

‘The simplest answer, according to analysts and investors who have followed Mr. Buffett over the years: The investor seems to firmly believe that even as a growing number of companies set ambitious goals to reduce their carbon emissions, the world will continue to need oil. Lots of oil. That should make it a commodity that companies like Occidental and Chevron can profit from selling for years to come.’

Anyone who investigates the physics of this energy transition knows this.

Meanwhile, the Australian government is looking at the sector as a cash cow to be tapped to improve its finances.

This year’s budget, to be revealed tomorrow tonight, looks set to increase the taxes on oil and gas companies by $2.4 billion over the next four years via a change to the petroleum resources rent tax.

Of course, the ongoing commodities boom (notably coal and LNG exports) is filling up the government’s coffers via an increase in company taxes. (Not to mention state government royalties.)

But instead of saving that money and lessening the inflationary pressures throughout the economy, the government looks set to spend it back into the economy.

In tomorrow’s budget, look for the year-on-year increase in the government’s expenses. That will tell you what the spending growth is. Last year, it was more than 10%. Another year of that (or anywhere near it) will just make life that much harder for the RBA in its fight against inflation.

This is an excerpt from our editorial director Greg Canavan’s latest piece for The Insider.

There’s a bank crisis going on in the US…but it’s not your ordinary bank crisis.

Depositors are fleeing the (mostly regional) banks, not because they think the banks have bad assets but because they can get better returns in the money market.

A lot of this money is lent to the government (via investment in short-term treasury bills) or ends up back at the Fed via the reverse repo account.

But the key point is that it’s flowing out of the banking system, and that’s leading to an unprecedented contraction in M2 (a measure of US money supply).

As Barron’s reported in late April:

‘M2 has now contracted on an annual basis for four straight months — an unprecedented streak since the data was introduced in 1959. December was M2’s first year-over-year contraction ever.’

This is a big deal for the banks and the economy.

Deposits are a crucial source of funding for banks. When deposits flow out, it puts pressure on banks to sell assets to meet these demands. Because the Fed has raised rates so far and so fast, asset prices have declined, and so banks must sell at a loss.

Given the highly leveraged nature of the banking system, it only takes a 5–6% decline in asset values to wipe out the equity holders (shareholders).

This is why you’ve seen some banks go bust and some get very close to it.

And while the topic of US banks and the US Federal Reserve raising rates again was a feature of last week’s news flow, market sentiment wasn’t too badly impacted.

The CNN Fear & Greed Index fell back to a ‘neutral’ setting during last week’s selling but bounced back into ‘greed’ territory following Friday’s relief rally.

In other words, the market is pretty sanguine about rising rates and the recent bank jitters.

There is no doubt that the US economy is resilient. But for how long?

I mentioned before the issues around deposit flights. Another aspect of this deposit flight is that it will restrict banks’ ability to lend. As credit growth slows and/or contracts, so will the US economy.

Warren Buffett’s Berkshire Hathaway is a pretty good barometer of US economic growth, given the diverse businesses it owns. As the Financial Times reported on the weekend, he sees signs of a slowdown beginning…

‘Buffett was relatively sanguine about the prospects for the company he has led for the past 58 years, as well as the broader economy, which has powered through aggressive rate hikes from the Fed and a series of bank failures that have rattled confidence in the financial system.

‘He noted that the effects of the slowing economy were only just beginning to be felt by Berkshire, although he did not paint a dour picture of the economy. Buffett said he expected earnings to decline at the majority of its businesses this year.

‘“It isn’t that employment has fallen off a cliff or anything, but it is a different climate than it was six months ago,” he said. “A number of our managers were surprised. Some had too much inventory on order.”’

The slowdown isn’t just in the US. It’s global. Which is why you’ve seen the oil price fall by 50% over the past year.

In my view, this is a major long-term buying opportunity. I don’t know if oil has bottomed here or not. But I do know that if you take a view of one or two (or more) years, you should do very well on traditional energy investments.

They’re cheap and not at all popular. This is always a good combination for delivering future returns.

Buffett knows this too. From The Wall Street Journal…

‘After a flurry of investments over the past year, Berkshire has become both Occidental and Chevron’s biggest shareholder. Energy shares made up about 14% of Berkshire’s stock portfolio at the end of 2022—the highest share going back to at least 2000, according to an analysis of company filings.’

The Journal then asks why Berkshire has made such a big move into energy stocks over the past year…

‘The simplest answer, according to analysts and investors who have followed Mr. Buffett over the years: The investor seems to firmly believe that even as a growing number of companies set ambitious goals to reduce their carbon emissions, the world will continue to need oil. Lots of oil. That should make it a commodity that companies like Occidental and Chevron can profit from selling for years to come.’

Anyone who investigates the physics of this energy transition knows this.

Meanwhile, the Australian government is looking at the sector as a cash cow to be tapped to improve its finances.

This year’s budget, to be revealed tomorrow tonight, looks set to increase the taxes on oil and gas companies by $2.4 billion over the next four years via a change to the petroleum resources rent tax.

Of course, the ongoing commodities boom (notably coal and LNG exports) is filling up the government’s coffers via an increase in company taxes. (Not to mention state government royalties.)

But instead of saving that money and lessening the inflationary pressures throughout the economy, the government looks set to spend it back into the economy.

In tomorrow’s budget, look for the year-on-year increase in the government’s expenses. That will tell you what the spending growth is. Last year, it was more than 10%. Another year of that (or anywhere near it) will just make life that much harder for the RBA in its fight against inflation.

Last week, the Reserve Bank’s head of economic analysis Marion Kohler addressed the Committee for Economic Development on the ‘why, how and what of forecasting’.

In the speech, Kohler discussed what changed since three to six months ago in terms of the RBA’s forecasts.

Population growth was the biggest change.

‘One of the biggest changes in view has come from population growth, which has been stronger than was expected six months ago (Graph 8). This largely reflects faster-than-expected return of international students and working holidaymakers following the reopening of the international border, and low levels of departures. This has affected the economy in several ways. Firstly, the higher population growth increases demand for housing. Initially we expect this adjustment to come through higher rents and higher average household size as growth in the population is faster than the dwelling stock. But in the longer run, there is also a boost to dwelling investment.’

Source: RBA

How will the larger than expected population growth affect the economy?

‘In terms of the effect on the labour market, higher population growth by itself is expected to increase employment growth. Overall, the outlook for key labour market ratios – such as the unemployment rate and participation rate – are little changed by the faster population growth. There might be differences across different regions and industries, though. The recent migration has been concentrated in students and other temporary residents, such as working-holiday makers. The increase in demand for housing will therefore be concentrated in the largest cities. Similarly, the expansion in labour supply will be most evident in hospitality and other sectors that employ higher shares of temporary residents than average.

‘A second change in view comes from some policy changes affecting future energy costs. Following the very large increase in wholesale electricity costs last year, a large increase in electricity bills is due in the September quarter of this year. Regulators have announced draft determination increases to the default offers for electricity prices in the eastern states in the 2023/24 financial year of 20–30 per cent, and market offers are assumed to increase by a similar amount. This is still a significant increase, but it is smaller than what we expected six months ago. Government policies announced since then have moderated the expected increases in energy costs somewhat. We reflected that in our February forecasts, as well as in the new ones to be published on Friday.’

Last week, the Reserve Bank’s head of economic analysis Marion Kohler addressed the Committee for Economic Development on the ‘why, how and what of forecasting’.

In the speech, Kohler discussed what changed since three to six months ago in terms of the RBA’s forecasts.

Population growth was the biggest change.

‘One of the biggest changes in view has come from population growth, which has been stronger than was expected six months ago (Graph 8). This largely reflects faster-than-expected return of international students and working holidaymakers following the reopening of the international border, and low levels of departures. This has affected the economy in several ways. Firstly, the higher population growth increases demand for housing. Initially we expect this adjustment to come through higher rents and higher average household size as growth in the population is faster than the dwelling stock. But in the longer run, there is also a boost to dwelling investment.’

Source: RBA

How will the larger than expected population growth affect the economy?

‘In terms of the effect on the labour market, higher population growth by itself is expected to increase employment growth. Overall, the outlook for key labour market ratios – such as the unemployment rate and participation rate – are little changed by the faster population growth. There might be differences across different regions and industries, though. The recent migration has been concentrated in students and other temporary residents, such as working-holiday makers. The increase in demand for housing will therefore be concentrated in the largest cities. Similarly, the expansion in labour supply will be most evident in hospitality and other sectors that employ higher shares of temporary residents than average.

‘A second change in view comes from some policy changes affecting future energy costs. Following the very large increase in wholesale electricity costs last year, a large increase in electricity bills is due in the September quarter of this year. Regulators have announced draft determination increases to the default offers for electricity prices in the eastern states in the 2023/24 financial year of 20–30 per cent, and market offers are assumed to increase by a similar amount. This is still a significant increase, but it is smaller than what we expected six months ago. Government policies announced since then have moderated the expected increases in energy costs somewhat. We reflected that in our February forecasts, as well as in the new ones to be published on Friday.’

The US labour market continued to add jobs in April, despite rising interest rates and persistent inflation.

Employers added 253,000 jobs in April with the unemployment rate falling to 3.4%, the lowest reading since 1969.

Jobs data continues to surprise forecasters, who continue to undershoot their estimates.

Forecasters have now underestimated the labour market for thirteen straight months.

Forecasters have systematically underestimated the labor market 13 months in a row. This *should* be pretty close to statistically impossible (a 0.5^13 = 1 in 8192 chance).

Their mistake: Focusing on the vibe rather than the data.

The vibe is wrong, man.https://t.co/ljTnj32QkR

— Justin Wolfers (@JustinWolfers) May 5, 2023

A strong jobs market is great news, isn’t? An unemployment rate so low suggests the US is far from recession.

But it may be bad news for those expecting interest rates to fall this year.

Dallas Fed President Lorie Logan can help us understand why in a speech she gave all the way back in February (my emphasis added):

‘The labor market is important in its own right for monetary policy, given the FOMC’s mandate to achieve both price stability and maximum employment. But in addition, because services prices depend substantially on labor costs, the outlook for sustainably returning inflation to 2 percent hinges in large part on what happens in the labor market.

‘The job market today is incredibly strong. Last month [January], the U.S. economy added 517,000 jobs. By most estimates, that’s more than five times what’s needed to keep pace with the growth of the labor force. We shouldn’t put too much weight on a single report, which can be driven by one-off factors. But on average over the past half-year, the economy has added 350,000 jobs a month, which is still very high.

‘Another sign of strength in the labor market is that as of December, there were 1.9 job openings for every unemployed person in the United States. That is down only slightly from the all-time high of two openings per unemployed person last March. And it is well above the ratio of 1.2 openings per unemployed person in 2019—which was thought at the time to be a very strong labor market.

‘The strong labor market has been driving up wages, which have been growing at an annual rate of about 4.5 to 5 percent by a variety of measures.

‘Now, your first thought may be that rising wages are a good thing.

‘If workers are earning 5 percent more, aren’t they better off? But rising wages make workers better off only if workers can buy more goods and services with those wages. Most workers’ wages have not risen as fast as prices. So even though workers are taking home more dollars, their budgets are stretched thinner and thinner.

‘Over time, to be able to buy more goods and services with their wages, workers taken together must produce more goods and services. In other words, labor productivity must rise.

‘Absent a dramatic rise in productivity, it seems likely that sustainably returning inflation to 2 percent will require substantially lower wage growth. That may take time.

‘To achieve better balance, labor supply will have to increase, or labor demand will have to decrease.’

The US labour market continued to add jobs in April, despite rising interest rates and persistent inflation.

Employers added 253,000 jobs in April with the unemployment rate falling to 3.4%, the lowest reading since 1969.

Jobs data continues to surprise forecasters, who continue to undershoot their estimates.

Forecasters have now underestimated the labour market for thirteen straight months.

Forecasters have systematically underestimated the labor market 13 months in a row. This *should* be pretty close to statistically impossible (a 0.5^13 = 1 in 8192 chance).

Their mistake: Focusing on the vibe rather than the data.

The vibe is wrong, man.https://t.co/ljTnj32QkR

— Justin Wolfers (@JustinWolfers) May 5, 2023

A strong jobs market is great news, isn’t? An unemployment rate so low suggests the US is far from recession.

But it may be bad news for those expecting interest rates to fall this year.

Dallas Fed President Lorie Logan can help us understand why in a speech she gave all the way back in February (my emphasis added):

‘The labor market is important in its own right for monetary policy, given the FOMC’s mandate to achieve both price stability and maximum employment. But in addition, because services prices depend substantially on labor costs, the outlook for sustainably returning inflation to 2 percent hinges in large part on what happens in the labor market.

‘The job market today is incredibly strong. Last month [January], the U.S. economy added 517,000 jobs. By most estimates, that’s more than five times what’s needed to keep pace with the growth of the labor force. We shouldn’t put too much weight on a single report, which can be driven by one-off factors. But on average over the past half-year, the economy has added 350,000 jobs a month, which is still very high.

‘Another sign of strength in the labor market is that as of December, there were 1.9 job openings for every unemployed person in the United States. That is down only slightly from the all-time high of two openings per unemployed person last March. And it is well above the ratio of 1.2 openings per unemployed person in 2019—which was thought at the time to be a very strong labor market.

‘The strong labor market has been driving up wages, which have been growing at an annual rate of about 4.5 to 5 percent by a variety of measures.

‘Now, your first thought may be that rising wages are a good thing.

‘If workers are earning 5 percent more, aren’t they better off? But rising wages make workers better off only if workers can buy more goods and services with those wages. Most workers’ wages have not risen as fast as prices. So even though workers are taking home more dollars, their budgets are stretched thinner and thinner.

‘Over time, to be able to buy more goods and services with their wages, workers taken together must produce more goods and services. In other words, labor productivity must rise.

‘Absent a dramatic rise in productivity, it seems likely that sustainably returning inflation to 2 percent will require substantially lower wage growth. That may take time.

‘To achieve better balance, labor supply will have to increase, or labor demand will have to decrease.’

Turn your mind back to early 2023 and copper was a dominating theme in financial markets.

China’s reopening sparked a flurry of interest.

After a disappointing year, producers were setting up for a major surge as the global economy suddenly hit the panic button on supply.

Overnight, financial commentators had become expert copper analysts, giving their take on why the metal was set to hit new highs.

Headlines were suddenly hit with copper supply tightness and soaring demand outlooks.

But as rapidly as these stories emerged, just as quickly, they evaporated from the mainstream press.

The copper hype was short lived.

Revised growth forecasts in China to just 5% GDP, the lowest in a quarter of a century, meant copper interest faded to the background.

No doubt, a banking collapse in the US didn’t help either!

But lack of mainstream interest should not dissuade you from the potential opportunity.

In fact, it’s a key reason you should be looking at this critical metal.

As readers of my Diggers and Drillers publication would know, copper has been a longstanding theme.

We remain on the hunt for quality opportunities and rare buying opportunities.

The reason?

It all boils down to future SUPPLY.

As the Canadian billionaire mining magnate and CEO of the Ivanhoe Mines [TSE:IVN] puts it, the outlook for copper rests on one-third demand and two-thirds supply.

Supply (or lack of it) will be the primary driving force behind what I believe will be a new copper boom, one that could rival perhaps the largest ever recorded…

That was way back during the US Civil War, more than 160 years ago, when copper reached a staggering $8 a pound!

What could drive copper price past its all-time high?

South America is the backbone for global production.

However, threats continue to emerge, which are dampening the production outlook for key mines across the region.

Neglect to invest in new projects, including exploration, means ageing mines are being pushed past their use-by date.

Large miners have focused more on shoving low grade marginal ore and waste material through processing plants, rather than spend capital on finding new high-grade deposits.

The effects of the last commodity cycle — from extreme peak to low — continue to play on the minds of mining executives who remain averse to risk.

But that will come at a major cost…mines are a depleting asset.

As commodity prices rise and decade old mines finally expire, mining giants will be forced into a fierce bidding war to secure the next generation of deposits.

Except these deposits are yet to be discovered.

Given there is a 15–20-year time lag from discovery to production, a critical supply gap looms.

The coming crisis has been fuelled by LACK of investment in new discovery.

This is a global problem.

Yet Chilean based producers are also being hit with another major issue…nationalisation.

The country’s left-wing government recently reformed its constitution, paving the way for its major copper mines to come under State control.

The constitutional groundwork has been put in place…major multinational miners fear what could come next.

It presents as a major problem for the world’s biggest copper miners…including Australia’s BHP Group [ASX:BHP].

The company co-owns the world’s largest copper mine Escondida.

With these threats looming large, future development projects will be shelved indefinitely.

That poses enormous challenges for future global copper supplies.

But Chile’s copper producing neighbour, Peru, has big problems of its own.

Following a controversial election late last year, riots and violent protests erupted across the world’s SECOND-largest copper producing nation.

It caused a shutdown of some of the world’s largest copper mines…including Glencore’s Antapaccay project and MMG’s Las Bambas mine.

Las Bambas alone accounts for around 2% of global supply.

While the geopolitical situation has faded from the headlines, riots continue to erupt.

On 6 March 2023, the UN issued a statement calling an end to the widespread violence.

But the situation here will have long lasting effects…mining giants are not nimble.

Operators are being forced to pull the pin on future development, including exploration.

Investment is trickling away from these important copper regions.

Together, Peru and Chile account for a staggering 40% of global supply.

There’s enormous, concentrated risk for this critically important metal…just as the world demands more of it as it attempts to build out the renewable energy infrastructure.

Finding alternative supplies won’t come quickly…new mine development takes anywhere from 15–20 years.

As an investor, the looming copper shortage is an opportunity you should be paying attention to.

But where should you turn given the few pure copper plays on the ASX?

https://commodities.fattail.com.au/the-looming-copper-shortage-is-an-opportunity-you-should-be-paying-attention-to/2023/04/06/?utm_source=rss&utm_medium=Sendible&utm_campaign=RSS

Turn your mind back to early 2023 and copper was a dominating theme in financial markets.

China’s reopening sparked a flurry of interest.

After a disappointing year, producers were setting up for a major surge as the global economy suddenly hit the panic button on supply.

Overnight, financial commentators had become expert copper analysts, giving their take on why the metal was set to hit new highs.

Headlines were suddenly hit with copper supply tightness and soaring demand outlooks.

But as rapidly as these stories emerged, just as quickly, they evaporated from the mainstream press.

The copper hype was short lived.

Revised growth forecasts in China to just 5% GDP, the lowest in a quarter of a century, meant copper interest faded to the background.

No doubt, a banking collapse in the US didn’t help either!

But lack of mainstream interest should not dissuade you from the potential opportunity.

In fact, it’s a key reason you should be looking at this critical metal.

As readers of my Diggers and Drillers publication would know, copper has been a longstanding theme.

We remain on the hunt for quality opportunities and rare buying opportunities.

The reason?

It all boils down to future SUPPLY.

As the Canadian billionaire mining magnate and CEO of the Ivanhoe Mines [TSE:IVN] puts it, the outlook for copper rests on one-third demand and two-thirds supply.

Supply (or lack of it) will be the primary driving force behind what I believe will be a new copper boom, one that could rival perhaps the largest ever recorded…

That was way back during the US Civil War, more than 160 years ago, when copper reached a staggering $8 a pound!

What could drive copper price past its all-time high?

South America is the backbone for global production.

However, threats continue to emerge, which are dampening the production outlook for key mines across the region.

Neglect to invest in new projects, including exploration, means ageing mines are being pushed past their use-by date.

Large miners have focused more on shoving low grade marginal ore and waste material through processing plants, rather than spend capital on finding new high-grade deposits.

The effects of the last commodity cycle — from extreme peak to low — continue to play on the minds of mining executives who remain averse to risk.

But that will come at a major cost…mines are a depleting asset.

As commodity prices rise and decade old mines finally expire, mining giants will be forced into a fierce bidding war to secure the next generation of deposits.

Except these deposits are yet to be discovered.

Given there is a 15–20-year time lag from discovery to production, a critical supply gap looms.

The coming crisis has been fuelled by LACK of investment in new discovery.

This is a global problem.

Yet Chilean based producers are also being hit with another major issue…nationalisation.

The country’s left-wing government recently reformed its constitution, paving the way for its major copper mines to come under State control.

The constitutional groundwork has been put in place…major multinational miners fear what could come next.

It presents as a major problem for the world’s biggest copper miners…including Australia’s BHP Group [ASX:BHP].

The company co-owns the world’s largest copper mine Escondida.

With these threats looming large, future development projects will be shelved indefinitely.

That poses enormous challenges for future global copper supplies.

But Chile’s copper producing neighbour, Peru, has big problems of its own.

Following a controversial election late last year, riots and violent protests erupted across the world’s SECOND-largest copper producing nation.

It caused a shutdown of some of the world’s largest copper mines…including Glencore’s Antapaccay project and MMG’s Las Bambas mine.

Las Bambas alone accounts for around 2% of global supply.

While the geopolitical situation has faded from the headlines, riots continue to erupt.

On 6 March 2023, the UN issued a statement calling an end to the widespread violence.

But the situation here will have long lasting effects…mining giants are not nimble.

Operators are being forced to pull the pin on future development, including exploration.

Investment is trickling away from these important copper regions.

Together, Peru and Chile account for a staggering 40% of global supply.

There’s enormous, concentrated risk for this critically important metal…just as the world demands more of it as it attempts to build out the renewable energy infrastructure.

Finding alternative supplies won’t come quickly…new mine development takes anywhere from 15–20 years.

As an investor, the looming copper shortage is an opportunity you should be paying attention to.

But where should you turn given the few pure copper plays on the ASX?

https://commodities.fattail.com.au/the-looming-copper-shortage-is-an-opportunity-you-should-be-paying-attention-to/2023/04/06/?utm_source=rss&utm_medium=Sendible&utm_campaign=RSS

The future is green. The future is electrified. The future is EVs.

We’ve heard all this for months, even years.

That future will require digging up more ore — like lithium, copper, nickel, and graphite.

But which critical material has the higher upside?

It’s a tricky question because the answer depends just as much on projected demand as on projected supply.

Which #ASX commodity stocks have the better long-term upside? #lithium #copper #nickel #graphite

— Fat Tail Daily (@FatTailDaily) May 5, 2023

The future is green. The future is electrified. The future is EVs.

We’ve heard all this for months, even years.

That future will require digging up more ore — like lithium, copper, nickel, and graphite.

But which critical material has the higher upside?

It’s a tricky question because the answer depends just as much on projected demand as on projected supply.

Which #ASX commodity stocks have the better long-term upside? #lithium #copper #nickel #graphite

— Fat Tail Daily (@FatTailDaily) May 5, 2023

With First Republic now gone, everyone is looking to see which US bank fails next.

There are more than a few contenders.

Check out the stock market action last Thursday:

Source: Kobeissi Letter

The regional banks staged something of a recovery on Friday. Mainly due to rumours the US government would ban short selling of them in an effort to halt the savage share price slides.

So a bunch of traders who were betting on prices going lower had to buy back in to lock in their profits — just in case.

But I expect this move higher to be a short-term thing, because the issues aren’t going away any time soon.

Indeed, one of the Federal Reserve’s own internal reports noted that 722 banks had unrealised losses exceeding 50% of their capital:

Source: Federal Reserve

The potential value destruction coming is enormous.

And PacWest looks odds on to be the next bank to go under. That bank was worth US$5 billion earlier this year and is now worth just US$400 million.

Incidentally, I came across a tweet that once again shows how rigged this game is:

Source: Twitter

As per usual, the connected elite never pay the bill when the financial system crumbles.

Now, some are saying that the failure of small banks is actually part of a wider plan. The idea is that a US banking system with just a few big banks is a lot easier to control.

Here’s the thing…

While they go around pretending to be bastions of capitalism, big banks are usually the biggest political cronies out there.

And it was none other than the Godfather of communism, Soviet leader Vladimir Lenin who said:

‘Without big banks, socialism would be impossible. The big banks are the “state apparatus” which we need to bring about socialism.’

Maybe this is ‘conspiracy’ thinking.

But whether it’s the intention or just an unexpected outcome, it’s a dangerous situation nonetheless.

Anyway, as this regional banking bloodbath plays out, the big question is if the Fed steps in before it becomes a rout?

The bond market thinks they will have to.

And very soon…

https://www.moneymorning.com.au/20230508/bonds-say-run-stocks-say-dont.html

With First Republic now gone, everyone is looking to see which US bank fails next.

There are more than a few contenders.

Check out the stock market action last Thursday:

Source: Kobeissi Letter

The regional banks staged something of a recovery on Friday. Mainly due to rumours the US government would ban short selling of them in an effort to halt the savage share price slides.

So a bunch of traders who were betting on prices going lower had to buy back in to lock in their profits — just in case.

But I expect this move higher to be a short-term thing, because the issues aren’t going away any time soon.

Indeed, one of the Federal Reserve’s own internal reports noted that 722 banks had unrealised losses exceeding 50% of their capital:

Source: Federal Reserve

The potential value destruction coming is enormous.

And PacWest looks odds on to be the next bank to go under. That bank was worth US$5 billion earlier this year and is now worth just US$400 million.

Incidentally, I came across a tweet that once again shows how rigged this game is:

Source: Twitter

As per usual, the connected elite never pay the bill when the financial system crumbles.

Now, some are saying that the failure of small banks is actually part of a wider plan. The idea is that a US banking system with just a few big banks is a lot easier to control.

Here’s the thing…

While they go around pretending to be bastions of capitalism, big banks are usually the biggest political cronies out there.

And it was none other than the Godfather of communism, Soviet leader Vladimir Lenin who said:

‘Without big banks, socialism would be impossible. The big banks are the “state apparatus” which we need to bring about socialism.’

Maybe this is ‘conspiracy’ thinking.

But whether it’s the intention or just an unexpected outcome, it’s a dangerous situation nonetheless.

Anyway, as this regional banking bloodbath plays out, the big question is if the Fed steps in before it becomes a rout?

The bond market thinks they will have to.

And very soon…

https://www.moneymorning.com.au/20230508/bonds-say-run-stocks-say-dont.html

Rare earths miner Lynas Rare Earths (ASX:LYC) — the biggest producer of rare earths outside China — is rallying on Monday after its Malaysian subsidiary was told its operating licence to import and process lanthanide concentrate is now valid until 1 January 2024.

Earlier this year, LYC’s Lynas Malaysia operating licence was renewed for three years from March 3, 2023 but with strict conditions prohibiting the import and processing of the concentrate after July 2023.

The prohibition was made to prevent the production of radioactive waste from cracking and leaching.

Lynas said the six-month extension removes the need to shut down the Lynas Malaysia plant prior to the start of next year.

The licence extension comes after several appeals made by Lynas to the Malaysian Minister of the Ministry of Science, Technology, and Innovation (MOSTI) Chang Lih Kang.

In February, Chang Lih Kang said, “We understand the importance of the rare earth industry. However, no party has the right to continuously produce radioactive waste in our homeland.”

“Lynas had applied to the MOSTI Minister for the removal of the conditions which limit operations at the Lynas Malaysia facility as they represent a significant variation from the conditions under which Lynas made the initial decision to invest in Malaysia. Further, the conditions do not follow the recommendations of the Malaysian Government’s 2018 Executive Review Committee report on Lynas Malaysia’s operations, the Atomic Energy Licencing Board’s own audits of Lynas Malaysia’s operations or any of the 3 prior independent expert scientific reviews of Lynas Malaysia’s operations,” said LYC in a statement.

Malaysia’s English-language publication The Star reported earlier today that Malaysian Prime Minister Anwar Ibrahim confirmed the government provided Lynas with a six-month extension.

In a brief statement, the prime minister said:

‘I think the Science, Technology and Innovation Minister Chang Lih Kang will give a detailed explanation but from our understanding, the extension is contingent upon conditions and will strictly be observed.’

Vmoto (ASX:VMT) is targeting Asia and South America after declining sales in Europe, its key market.

‘Due to increasingly volatile macro-economic conditions, including rising interest rates and higher cost-of-living pressures that have dampened consumer spending, particularly in Europe, the Company is undertaking several initiatives to mitigate these impacts including targeting Asia and South America markets, actively pursuing B2B deals from new B2B customers, and stringent cost control,’ said Vmoto.

 

Vmoto (ASX:VMT), manufacturer of electric two-wheel vehicles (scooters, basically), is down over 15% at the open after a 1Q23 market update.

Vmoto sold 7,391 units in the quarter, down 8% on 1Q22 but up 26% on 1Q21.

International unit sales fared worst, down 23% on 1Q22 due to an ‘increasingly volatile macroeconomic environment, especially in Europe’.

International sales are Vmoto’s biggest segment, accounting for 80% of the manufacturers total sales. A downbeat 0utlook there is bad overall for Vmoto’s top line.

“The increasingly volatile macro-economic environment including rising interest rates and higher cost-of-living pressures have dampened consumer spending and impacted the Company’s B2C and B2B sales, especially in Europe. With tightening investments and funding available in the sector, the Company’s customers and distributors relying on external financing are generally taking a more conservative approach to placing firm orders and providing advanced deposits, although are continuing to place orders on an ongoing basis,” explained Vmoto.

Vmoto said it had ‘firm international orders’ for 5,019 units as at 31st March, 2023. These orders are expected to be delivered in the upcoming quarter, with ‘part’ of the order book comprising ‘orders previously expected to be delivered in 1Q23’.

In the March quarter, Vmoto delivered 5,924 international units.

While international sales sagged, Vmoto announced a $2.9 million purchase of state-owned land in China, close to its current manufacturing facilities, to ‘expand its manufacturing facilities to meet growing demand for Vmoto products’.

Beaten down ASX lithium stocks are rallying early on Monday after the price of the white metal rose last week for the first time in five months.

• Ioneer (ASX:INR) is currently up 8.7%
• Piedmont (ASX:PLL) is up 7%
• Pilbara Materials (ASX:PLS) is up 6.7%
• Lake Resources (ASX:LKE) is up 6%
• Core Lithium (ASX:CXO) is up 5.2%
• Global Lithium (ASX:GL1) is up 5%

A global lithium deficit is expected for the rest of this year with supply surpluses likely from 2024 before entering another supply deficit from 2029, according to research from Benchmark Mineral Intelligence.

Source: Reuters

“There will be a few years when there should be enough supply, and that’s a function of some of the investments that have happened in the last few years,” said Benchmark’s Caspar Rawles.