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tv   The David Rubenstein Show Peer to Peer Conversations  Bloomberg  September 1, 2018 2:30am-3:00am EDT

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alix: aluminum and steel relief. president trump lowers tariffs from south korea, brazil, and argentina to protect u.s. producers. farmers helped by new nafta, still hurt by china. a new potential trade deal with mexico and canada gives farmers a sigh of relief, but the china battle still looms. we speak to a ceo on his outlook. help, i am melting. the arctic melting faster, opening up new shipping routes. how climate change can help global trade. i'm alix steel, and welcome to
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"bloomberg commodities edge," 30 minutes focused on the companies, the physical assets and trading of physical assets with the smartest voices in the business. let's kick it off with spot on, the analyst and technical take on our big story. joining me is a commodity strategist, and head of metals generale.t societe our spotlight is on metal tariffs, the president lowering steel and aluminum tariffs from south korea, brazil, and argentina because of this chart. this is the premium to aluminum, rising most in the u.s., which is the yellow bar. if some of that premium goes away, does that eliminate aluminum upside? >> no, i don't think it does. this exemption is for smaller producing countries. the bigger producers, like canada, eu, have not been exempt. the u.s. market will still be in
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a deficit situation. alix: if you look at the fundamentals of aluminum, what's interesting is demand relative to supply has been falling, you would think it would be a different story with aluminum being one of the outperformers. >> we take that with a grain of salt. the way i look at aluminum is we established the range for the year in april. we retested the lower end of the range. so it is probably just rotating up to the upper range. why did it get down there? because of trade issues. it looks like we are having some alleviation. alix: if you broaden this out to industrial metals, we have a chart that shows the industrial gas down that we have seen, and we are testing some support levels we haven't seen since lehman. is that an oversold signal? >> the key thing i see is that gap is selling extreme. the last time we had a similar gap was when lehman collapsed. that month between september and october 2008. and here we are.
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we have gapped again. we are at the same levels, but it is a selling extreme in a bull market with favorable conditions that is probably priced too much the other way. my suspicion is find the trend and buy the dip. alix: do you agree? let's look at some short versus long-term fundamentals. the reason why we saw that gap down has to do with china and the yuan. if you look at the correlation between copper and the you in, it is quite high. talk about the macro picture for these metals, in particular copper. >> the macro picture is fairly negative as the market would see it. it is negative because there are fears that global growth, chinese growth is going to be undermined by trade tensions and the fact that growth looks to have peaked a few months ago. the market is worried about growth, about demand.
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at the same time, with a stronger dollar, you've got producing countries with weaker currencies seeing production being boosted, and at the very worst, sustained by the fact that copper is being produced in peruvian, aussie dollars, chilean pesos, and so on. it is weak and helping to boost supply at a time when there is fears about demand. alix: that's the longer-term macro. shorter-term, you look at things like canceled warrants, those taking metals out of warehouses. it tends to be a bullish sign. that has popped up, supporting your thesis. >> that in addition to we have near record shorts in copper positions. not record, but at the same levels during the bear market at the end of 2016. things like that are indications
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that people are getting it. dollar is a key factor, but look at the macro. the market has priced about the worst. now it has to get it. we have already discounted a global economic slowdown. what if that doesn't happen? it likely won't happen. alix: if you look at the technicals, it looks like a five and it whereas cash a buy the buy the dip -- a whereas the longer-term you are more cautious. what is the play for copper? >> i think the trade is short-term look to buy the debt. but longer-term, headwinds from global growth slowdown, trade tensions, more likely to impact in 2019. i think between now and the end of 2018, we have the fourth quarter, seasonal strength, copper oversold. you have positioning on the extreme side of things. metal withdrawals are picking up. i think you have a recipe for a rebound in the short-term. but be careful.
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i think longer-term, those headwinds will be difficult to challenge. alix: thank you so much. let's get to your takeaways. industrial metal selling looks extreme, copper could bottom and you don't see a global slowdown. check out options to play in nickel copper trade. and short-term copper can bounce. long-term, those macro headwinds in capital rallies, looking long nickel or aluminum versus copper. thanks so much to both of you. coming up, arctic ice caps are in the midst of one of their largest retreats on record. we will tell you how that is reshaping global shipping routes. and as we head to break, a big mover for me of the week, midland after a pipeline carrying permian oil to oklahoma shut down on tuesday. this is "commodities edge." ♪
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alix: this is "commodities edge." time now for the data dig. oilt up, inventory numbers bullish on the surface, bearish underneath. the stock grew for a second week, but they actually grew in pad 2 and pad 3. this week, california approved a measure mandating that all electricity come from alternative energy by 2045. here is the current power mix. the state gets 44% power from renewables and large hydro deals. the mandate could mean the end for natural gas plants, where the state currently gets a third of its electricity. the solution, batteries. a 100% target would require 36.3 million megawatt hours of energy storage. and as global warming melts the
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ice across the arctic, shipping routes open up. tankers can travel across the bering sea between alaska and russia for the first time without icebreakers after the region lost half of its ice two weeks in february. this is the normal route. this is the route shipping tankers have been able to take recently. here to talk about why the route is so significant and the economic ramifications, reid lamberg, good to see you. why is this trade routes of significant? >> it's a big deal in the energy industry because there's so much gas locked up in siberia. to get the gas out, it has to come by pipeline to europe or you can put it on a tanker and send it as liquefied natural gas. but those tankers are locked in ice half the year. melting ice means more tankers. alix: if you have more tankers, shorter routes, it means cheaper
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shipping costs. can you walk us through some of the economics? >> absolutely. the more tankers you have shipping on a shorter route, the more money you save. on this one route that you can move natural gas to asia from the top of siberia, you can save a week or two, maybe, on shipping time. so from that one project, the yamal, they could be saving $20 billion a year by 2025. that's big money. alix: huge money. how does this wind up playing out? we have a great dual map that shows the potential trade routes for opening up versus what typically had been icebreaker only routes. all caps through the transition we could see in the next 50 years. us through the transition we could see in the next 50 years. >> i think it is really anybody's guess what happens up there.
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it means that more shipping will be possible over the north pole. look at how close japan becomes and north korea becomes to northern europe. instead of going around the horn of africa through the suez canal, you can go directly over the pole. that's a lot of shipping time saved. the potential is enormous. maersk is sending container ships over the pole right now, you've got lng terminals shipping more to asian markets and european markets through that route. you are having some cruise liners talking about running cruises up there, even to the north pole. the potential is absolutely enormous. alix: good perspective. thank you. let's get into the ring, three charts, three trades of the week. i am joined by alan in washington. he covers agricultural products for bloomberg. the u.s. may be close to solving its trade problem with mexico and canada, but farmers can no longer depend on china. we have a chart that shows shipments to china will plunge 37% to $12 billion next year.
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walk us through the damage we could see. >> this is an interesting case of the market working out a political problem. you saw the usda make its first quarterly export forecast for the next year yesterday. they said that overall agriculture exports would go up billion, $5004.5 million more dollars than the current fiscal year. china does have that big drop, but what you saw was a little bit of canada, a little bit of mexico, little bit of gains in trade in asia, everything goes up a little bit as lower prices make u.s. farm goods more competitive, mitigating some of the damage we've been hearing about. alix: that is a good point. the question becomes, what does that wind up doing to farmer incomes, the farmer profit? give us the latest read on what farm profits look to be doing. >> the plot thickens on this. the usda released its first forecast for farm income this year since february. they actually raise the forecast for farmer profits.
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the idea being that commodity prices for crops and livestock are pretty stable. what is interesting is the data in this report forecast this increase even before the government announced on monday that it was giving $4.7 billion of direct payments to farmers. when you see this forecast sort of improving on its own, you start to ask yourself, what is that $4.7 billion necessary for? alix: that is a good point. usually many say we have not seen the effects yet, but they are yet to come. but this is a projection for it 2019. how do you explain these conflicting reports? >> the reports are consistent when you look at the theory that competitive advantage will send u.s. goods somewhere. for example, we are now seeing the x ago is becoming the -- seeing that mexico is becoming the biggest u.s. soybean customer. nobody is going to make of china, but you start making things up. it is like trade macrame when you look at it.
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alix: that's the quote of the day. the other chart i want to look at is hog prices. how does this come out now with a deal? >> you saw a big jump in hog prices monday when the news came through of an agreement with mexico. mexico is a hugely important destination, even more so with the loss of china. you are sensing markets go back a little bit because we have some supply issues. everyone is watching the swine fever issue in china. how might that affect any sort of trade negotiations with the united states? alix: thank you so much. coming up, the ceo of farming equipment giant adco will talk about how trade tariffs and incomes are affecting his company's bottom line. ♪
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alix: this is "commodities edge." now, what you need to know the world of alternative energy. today, we look at natural gas. storage is tight. we are 20% below the five-year seasonal average. that is the white line. the average is the blue line. you can see the high and low as well. joining me now to discuss is anna of bloomberg nef. why are stocks so tight heading into a winter that will potentially be very cold? >> it is surprising. usually gas storage is the way
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we get through winter. it is our secret bullet. traditionally, we have about 3 trillion cubic feet of gas in storage by this time of year. this year we only have 2.5. markets don't seem to be bothered by this. the big reason is production. production is up 8%. we have hit over 80 billion cubic feet of gas produced per day. alix: looking at prices versus storage, when storage is tight, prices pop. they are trading in line with each other. how quickly can production be brought online when there are takeaway capacity issues? >> that's the catch. the two big areas of growth for gas production at the moment are out of pennsylvania and ohio and the marcellus shale, and also out of the permian in west texas. it is produced along with oil. both of those have pipeline constraints. to get more gas out of those regions, we need to build more pipes. those pipes are coming online, but they are facing setbacks. everyone is watching them closely. alix: is the market discounting this incorrectly?
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taking a look at the curve, now the national gas curve versus what it was a year ago. is that the correct way to look at it, the orange line? >> it's a bit of a gamble. it seems that so long as production is high, we are at 80 billion cubic feet, and if winter is not too crazy, we can probably see it happen. we have a lot of lng coming online this winter. it is a matter of maintaining the amount of production we have versus the amount of demand. the big question is the weather. if we have a big storm or polar vortex, we probably cannot get production ramped up quick enough to meet that demand. so we have to rely on the smaller storage volumes in order to get us through and compensate. alix: the orange line is where the natural gas curve is now, as opposed to a year ago with the green. clearly seasonality, but clearly regraded. the other wildcard for me is uncompleted wells in a natural gas area. how can that be a type of storage in this environment? >> it could be. the other thing is it takes a while for gas to come on once
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you drill a well. even once you have completed the well and started producing, it takes a while to get it to market. we realize there is a cold front coming to new england next week. we could pull gas out of storage and get it there, but we probably could not complete a new well and get the gas on market in time to meet demand. alix: thank you so much. now i want to turn to commodity in chief, where we focus on one executive in the commodity world. today, it is the ceo of agco. let's take a closer look at one issue impacting his company. it is hot. no, seriously. it is really hot. fires erupted from sweden to california. dry spells raged in germany and australia. wheat is struggling with the crop heading to its first deficit in six years. germany had such a hot summer that the farmers association asked for a billion euros in emergency relief. in the u.s., farmers in the southwest also dealt with a
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struggling soybean crop. those in other parts of the country witnessed one of the best plantings in history just as china slapped 25% tariffs on beans. the result? farmers are freaking out. they either don't have a crop to sell, or they can sell it, but at low prices. u.s. farm export prices fall and the usda says income could fall almost 7% this year. this should have been a time of big demand for ag machinery, like tractors and combines. but will the reality leave farmers high and dry and the ag companies out in the cold? i recently caught up with the ceo of agco and asked him how massive heat wave affected his business. >> it is nothing unusual. our business is outdoors. we have weather and it can be good or bad, wet or dry.
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that depends. get wasn't only bad in europe. we had some very dry conditions in the eastern part of europe, eastern germany and areas like this. but the drought also had very positive side effects on other farmers, like everybody with fruit and olives and so forth. it was not very good for the crop farmers, for the wheat farmers mainly, but i think they are used to that. hopefully, the climate doesn't get completely volatile in the future. that is a certain threat we are seeing. climate is a little bit more complicated right now than what we are used to. alix: you forecasted north america industry sales to be 0% to 5% for 2018. do you think you need crop
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prices to stabilize? do you need continued product offerings? what will lure even more spending in the back half and next year? >> the industry would like to see better crop prices. that's what helps everybody. also, some of our competitors were a little bit more optimistic on the growth this year. overall, i think we are heading in the right direction. stronger prices would help. hopefully, with a deal with china and china coming back to the market, that would help big-time. alix: what is the sentiment? >> our farmers like what they see in general. they are more on the conservative side, as we are. we are not so much concerned about north america or the u.s., canada, and mexico. we are more concerned about brazil. brazil is not in very good shape.
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we hope they come back in the last quarter, in the last two quarters of the year, which they should. europe is very stable. china is fine. that means overall, globally -- we are a very global company, which is good. you can balance things out if one market doesn't do so well. you'll hopefully have other markets that are doing better. 2019 is a little early to talk about it, but i am optimistic we will also see the markets going up again in 2019. alix: when you look at where the demand is coming from, a lot will be replacement demand. do you feel like it will just be replacement demand, or is this going to be new demand? >> i think that depends on the manufacturer for us. there will be some new demand created by new products. alix: what about other issues, like steel and aluminum costs?
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how is that affecting your business? >> this does have a negative impact on our business. we have to price for it. we do that. that means we have to increase our prices a little bit more than normal to get that steel problem fixed. but our customers understand what is going on. everybody in the industry is doing that. alix: that was my interview with the agco ceo. we taped that before president trump lowered the tariffs on steel and aluminum imports from particular countries. here is what is on my radar. wednesday, september 5, i will be at the barclays energy power ceo conference interviewing some very heavy hitters like apache, devon, and pioneer, to get their take on the state of the industry as well as that famous takeaway capacity and development. it seems like there could be a lots of risk now for u.s. e&p's.
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on friday, the dallas fed is having a one-day energy conference. what they say about prices and unemployment. that does it for "bloomberg commodities edge." be sure to catch us each thursday at 1:00 p.m. new york time. ♪
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carol: welcome to business -- bloomberg businessweek. jason: we're here inside headquarters in new york. home, 10 years since the 2008 financial crisis, a learned -- look at the long-term political effects. carol: we a


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