Archive for the ‘WORLD WEALTH’ Category

China’s Staggering Demand for Commodities

Sunday, March 4th, 2018

China’s Staggering Demand for Commodities

>50% of all steel, cement, nickel, and copper goes there

The Chart of the Week is a weekly Visual Capitalist feature on Fridays.

It’s said that in China, a new skyscraper is completed every five days.

China is building often, and they are building higher. In fact, just last year, China completed 77 of the world’s 144 new supertall buildings, spread through 36 different Chinese cities. These are structures with a minimum height of 656 feet (200 meters).

Just for comparison, there are only 113 buildings in New York City’s current skyline that are over 600 feet.

Unbelievable Scale

It’s always hard to put China’s size and scope in perspective – and we’ve tried before by showing you 35 Chinese cities as big as countries, or highlighting the growing prominence of the domestic tech scene.

Today’s chart also falls in that category, and it focuses in on the raw materials that are needed to make all this growth feasible & possible.

Year of data Commodity China’s % of Global Demand Source
2017 Cement 59% Statista
2016 Nickel 56% Statista
2017 Coal 50% NAB
2016 Copper 50% Global X Funds
2017 Steel 50% World Steel Association
2017 Aluminum 47% MC Group
2016 Pork 47% OECD
2017 Cotton 33% USDA
2017 Rice 31% Statista
2017 Gold 27% China Gold Association, WGC
2017 Corn 23% USDA
2016 Oil 14% Enerdata

Note: Because this data is not all in one location, it is sourced from many different industry associations, banks, and publications. Most of the data comes from 2017, but some is from 2016.

China Demand > World

There are five particularly interesting commodity categories here – and in all of them, China’s demand equals or exceeds that of the rest of the world combined.

Cement: 59%
This main ingredient in concrete is needed for roads, buildings, civil structures (bridges, dams, etc.), foundations, and in making joints for drains and pipes.

Nickel: 57%
Nickel’s primary use is in producing stainless steel, which is corrosion resistant. It also gets used in superalloys, batteries, and an array of other uses.

Steel: 50%
Steel is used for more or less everything, but demand is primarily driven by the construction, machinery, and automotive sectors.

Copper: 50%
Copper is one of the metals driving the green revolution, and it’s functional in electronics, wiring, construction, machinery, and automotive sectors, primarily.

Coal: 50%
China’s reducing coal usage – but when you have 1.4 billion people making demands for power, one has to be mindfull of how it is to be done. China has already hit peak coal, but the fossil fuel does still account for 65% of the country’s power generated by source.











Henry Sapiecha


Tuesday, February 19th, 2013

The meek shall inherit the earth,

but not its mineral rights:

Meet mining’s 40 richest billionaires

Frik Els | April 16, 2012

Billionaire_collage copy counts more than 90 billionaires involved in minerals, metals and mining on the planet with a combined wealth of well over $300 billion.

Sourced & published by Henry Sapiecha


Thursday, April 28th, 2011

Aussie dollar keeps climbing

towards 110 US cents

April 28, 2011 – 3:25PM

The Australian dollar has continued its record-breaking march towards the 110 US cent mark, charging through 109 US cents on its way to another post-float peak.

At the local close, the dollar was buying 109.09-14, after earlier touching 109.48 US cents, the highest level since February 1982, or almost two years before the dollar was floated.

The Australian dollar was also buying 89 yen, 73.5 euro cents and 65.3 pence.

The local currency had rocketed more than 2 US cents since noon yesterday because of renewed worries about the US dollar – which has sunk to its lowest in three years against a basket of currencies. The US Federal Reserve gave no indication overnight that it would raise its interest rate anytime soon.

Following the five-day Easter and Anzac Day weekend, the local unit resumed its recent rally after headline inflation figures for the March quarter came in at their highest since the June quarter of 2006.

Travelex head of dealing Bernie Tuck said the Aussie dollar was due for a pause following the flood of economic news in Australia and the US in the past 24 hours.

“The fundamental fact is that the Aussie is incredibly strong at the moment. The US dollar is weak across the board and there is no indication that the US is going to raise rates any time soon,’’ he said.

‘‘We’re effectively in uncharted territory. The rally upwards in the course of the last few sessions has been extraordinary.”

Mr Tuck said the Aussie has also been aided by a huge amount of so-called carry trade, or borrowing in low interest rate-linked currencies, such as the US dollar or Japanese yen, for investment in the local dollar which benefits from higher interest rates.

The Reserve Bank’s 4.75 per cent interest rate is the highest in the developed world, said Mr Tuck.

Westpac senior market strategist Imre Speizer said market optimism continued to encourage traders to invest in risk assets such as the Australian dollar.

“Risk appetite remains intact globally (and) the trend for the Australian dollar continues to be upwards,” he said from Auckland.

The US central bank’s Federal Open Market Committee (FOMC) ended its two day meeting early today, after which Fed chairman Ben Bernanke said the bank would complete its $US600 billion ($556.2 billion) economic stimulus plan in June as planned.

“The FOMC gave the Australian dollar a bit of a burst by keeping the status quo intact. There were no surprises at all, so the weak US dollar story remains, Mr Speizer said.

The Reserve Bank of Australia’s trade weighted index (TWI) was at 79.1, the highest since 1985, up from 78.7 on yesterday.

AAP, with Chris Zappone, BusinessDay

Sourced & published by Henry Sapiecha


Monday, April 25th, 2011

Wealth fund design up for grabs

Clancy Yeates

April 22, 2011


SOVEREIGN wealth funds have enjoyed a meteoric rise, shrugging off the global financial crisis thanks to soaring commodity prices. The value of assets held by these government-controlled monoliths leapt 11 per cent to $US4.2 trillion last year – almost double all private equity holdings. The sector’s value is tipped to hit $US5.5 trillion next year and $US10 trillion by 2015.

Among the countries that have gone down this path there is a recurring theme – commodity wealth. From the $US38.6 billion Kazakhstan National Fund to the

$US627 billion Abu Dhabi Investment Authority, the trend was led by oil-rich states from the 1950s.With oil as its single resource, Norway’s sovereign wealth fund invests all its money overseas. Photo: Bloomberg

Resource-poor countries such as Singapore and South Korea have also used sovereign funds to pool public pensions or save their foreign exchange reserves. However, it is commodity-rich states that are most relevant to Australia.

According to the International Monetary Fund, almost all the sovereign funds established by commodity-rich countries have one of two objectives: saving the windfall from a boom or smoothing the bumpy ride of commodity cycles.

Australia’s Future Fund is a public servants’ pension fund that neither smooths the boom-and-bust cycle nor saves for the nation – and many economists say this is a major gap in our policy settings.

Former Reserve Bank governor and superannuation chief Bernie Fraser says we should be storing away the valuable ”nuts” of the current boom.

”We’re just floating by on the commodity boom, giving most of the proceeds back to the mining companies, which are not going to provide the kind of social and economic infrastructure that will sustain this country over the next 30 to 40 years,” he says.

”I despair about what happened with the resource rent tax – that should have been the big nut that was put away and used down the track for when the mines are gone and we’re looking for some way of maintaining activity and infrastructure.”

When the boom inevitably ends, Fraser says a fund could offset some of the economic pain by having ”social and infrastructure projects developed, on the shelf ready to go”.

For others, stability during the cycle should be a key objective of an Australian fund. Mining investment as a share of GDP is already approaching 5 per cent – well above levels reached in the 1960s and 1970s – leaving us more exposed to a sudden slowdown in world demand.

For instance, Chile’s $US22 billion stabilisation fund automatically receives budget surpluses of more than 1 per cent of gross domestic product. When commodities tanked during the global financial crisis, a $US4 billion injection from the fund helped limit the worst of the recession.

Grattan Institute economist Saul Eslake says Australia should also adopt a fund to accumulate large budget surpluses, as the task can’t be left to politicians.

Both the Howard and Rudd governments struggled to justify surpluses of more than 1 per cent of GDP, he says, so they gave the wealth back as unnecessary tax cuts. The budget is forecast to reach a surplus of 1 per cent of GDP by about 2016, he says, and Labor would probably follow the same approach.

”That would be no more appropriate than it was when Howard and Costello and Rudd and Swan did it. It would put upward pressure on inflation and interest rates,” says Eslake, who has been arguing for a fund since 2005.

Besides economists, many non-resources businesses are also keen on a fund to shield them from the ”resources curse”, a hollowing out in other parts of the economy as mining expands its share.

The Australian Industry Group, for instance, is investigating whether a fund can help protect manufacturing exporters from the higher dollar, which erodes export earnings.

AI Group’s public policy director, Peter Burn, points to Norway’s fund, which has a mandate to buy overseas assets with oil revenue as a way of dampening the effect of a soaring exchange rate.

”A sovereign wealth fund financed from the boost in revenue at times of high commodity prices would assist in stabilising the macro economy and, if the fund purchased offshore assets, could also dampen the exchange-rate impacts of booming commodity prices,” Burn says.

Top executives have also weighed into the debate. Chief executives from Commonwealth Bank, ANZ Bank, Tabcorp, Foster’s, CSL and Coca-Cola Amatil and Orica and chairmen from Mirvac, Gloucester Coal and Pacific Brands have also backed a fund with the objective of saving or stabilisation.

The idea is also grabbing attention in Canberra, after the Liberals’ Malcolm Turnbull recently backed calls for a national fund. He thought the stabilisation goal of Chile’s fund was probably appropriate, but said the fund could also earmark funds for ”very long-term savings”.

”All of us know the value of savings targets, whether it is a child’s money box or a family’s super funds,” he said in a speech this month. ”A national savings fund of this kind would become a matter of real national pride, evidence that we have the discipline and vision to recognise that good times don’t last forever, that demographic changes will place greater demands on future budgets and that thrift is both virtuous and prudent.”

Support for a fund is not universal – former Treasury secretary Ken Henry said last year that greater saving and smoothing the boom-bust cycle could be achieved ”within the overall budget strategy”. Free-market think tanks such as the Institute for Public Affairs say the government should return commodity wealth to the people through lower taxes.

But supporters of a fund appear to outnumber the strident opponents.

Reserve Bank governor Glenn Stevens has raised the prospect of a ”stabilisation fund” without supporting the idea, and Treasurer Wayne Swan has not ruled it out.

”If we were in the position of not only coming back to surplus but coming back to a position where we had no debt, then maybe that would be an option,” Swan said in December.

Despite this growing support for a fund, public debate has largely steered clear of how one might be designed.

What type of assets would it hold? How and when would it spend the money? And how to make sure politicians did not raid it, leaving the cupboard bare.

Treasury documents released under freedom of information suggest the government is lukewarm on a Norway-style fund, which invests all of its $US560 billion overseas.

A previously secret Treasury briefing from last year highlighted Australia’s different circumstances, saying: ”Norway has a single finite resource in its interest in North Sea oil. Australia has more diversified and longer-lived resources. So it doesn’t necessarily follow that what is appropriate for Norway should necessarily be followed in Australia.”

Private-sector economists agree an Australian fund would have less need to invest all the assets overseas, as the potential damage from price swings is less here than in Norway. However, a fund could not avoid being a significant investor overseas.

”Australia is a very small part of the global financial market, so inevitably investing overseas is going to be a very important part of the strategy,” says Gordon Clark, an Oxford University professor who specialises in sovereign wealth funds.

”In designing these institutions you have to be very conscious that given the volume of assets, you don’t overwhelm domestic financial markets.”

Whether a fund should deliberately try to restrain the surging dollar to help certain industries, however, is more contentious.

A former deputy governor of the Reserve Bank, Stephen Grenville, has cited sovereign wealth funds as one way of tackling the hollowing out of manufacturing caused by the dollar. Dr Grenville has argued that if this is the goal the investments would indeed have to be in foreign assets.

The Australian Industry Group has also found that Norway’s manufacturers have fared better than others in Europe.

But HSBC’s chief economist, Paul Bloxham, says suggestions that we follow Norway by trying to ”ring fence” commodity earnings are ”radical”.

”We floated the exchange rate in 1983 and we have gradually gotten used to the idea that the Australian dollar is freely floating and quite volatile,” says Bloxham, who supports a fund. ”If you put it outside the rest of the economy, the exchange rate would start to operate in a very different way.”

Fraser also warns against trying to manipulate or manage currencies through a fund. ”The magnitude of any sovereign wealth fund are peanuts to the volumes of money that float around on the foreign exchanges,” he says.

Wherever its assets were held, an Australian fund would be under pressure to adopt a conservative investment strategy, given that key sovereign funds suffered heavily in the global financial crisis.

Singapore’s Temasek fund and Norway’s long-term savings fund – both of which invest heavily in shares – lost more than 20 per cent in 2008. Shorter-term stabilisation funds of Chile and East Timor, which hold mostly bonds, held up positive returns throughout the financial crisis.

How to spend the money is also up for debate, but an early favourite is infrastructure.

ANZ’s chief executive, Mike Smith, echoed the thoughts of many economists when he said funnelling a fund’s earnings into the nation’s creaking infrastructure would be a ”sensible idea”.

The Grattan Institute’s Eslake adds that a fund could support spending on social infrastructure that politicians tend to ignore, such as aged care or indigenous affairs. However, he says that strict rules would be needed to ensure the money was spent at the right time.”You structure it so that the government can access the income produced by this fund but not the capital until such time as when the mining boom is ‘over’,” he says.

Turnbull also concedes that politicians have a ”very strong temptation to splash money around” – often with tax cuts at the peak of the boom, when they are needed least.

Any fund would also need a healthy degree of separation between the fund and the elected government.

According to Oxford’s Professor Clark, the worst performers tend to be those governed by people too close to their political masters.

”You can’t have these entities subject to the flux and flow of federal elections. That’s going to be very, very damaging to any sovereign wealth fund’s capacity to invest for the long term.”

In a sector that is notorious for being opaque, most agree the Future Fund has set the bar high for independence under the outgoing chairman and frequent government critic, David Murray.

Shielding Australia from the commodity bust-and-boom cycle is a worthy goal – most agree on that. Saving more for future generations also has widespread support. Interest rates and budgets will probably remain the main policy ”levers” for these tasks, but there is also growing support for some sort of sovereign fund, as has occurred overseas.

After observing other countries’ experiences, however, a key lesson seems to be that Australia’s situation is distinct, given our wide range of natural resources and their long lifespans.

Eslake says this means we should be flexible in designing a fund that suits us, not simply copying resource-rich countries.

”Although our circumstances are in some ways similar to Chile and Norway, the fund itself is more like the Chinese one,” referring to the $US330 billion China Investment Corporation, which has a wide-ranging portfolio of bonds, shares, and strategic stakes.

For all the interest in a sovereign wealth fund from business leaders, however, they have artfully ignored an elephant in the room.

As Bernie Fraser points out, a government is unlikely to embark on this path until it is confident that it can extract more tax from a booming economy, and last year’s mining tax brawl showed just how hard this is.

”You can’t really talk about company tax reductions and sovereign wealth funds in the same breath, I don’t think,” Fraser says. ”It’s not going to happen if that’s the sort of philosophy or ideology that’s driving the debate.”

Sourced & published by Henry Sapiecha