“We are absolutely going to have a tradable low in gold, silver and the vast majority of other commodities. They could go lower but we have everything in place for a tradable low. My opinion and it’s only my opinion is that we are going to have a barnburner of a rally across the commodity spectrum.” …..continue reading HERE

The Chinese stock market recently saw its biggest selloff in 8 years as the dramatic 8.5% fall in Shanghai “A” shares also rattled markets around the world.

For the past few weeks China has been balancing its desire to keep the equity market from a complete meltdown, while still courting the international investment community with hopes of being a dominant player in the capital and currency markets.

But recently The International Monetary Fund (IMF) warned China’s government about its concern over limiting investors’ freedom to take equity out of financial markets. These concerns were raised when the IMF met with officials in to discuss the chances of including the yuan in the fund’s basket of currencies, also known as Special Drawing Rights (SDR).

As China tries to balance the demise of its equity bubble while still keeping the illusion of free markets intact, two delusional narratives have started to circulate around Wall Street.

The first such Wall Street inspired delusion is that the collapsing Shanghai stock market will have no effect on the underlying Chinese economy. However, even though China’s 260 million trading accounts may be a relatively small percentage of its total population, it’s also the richest and most productive portion of its citizenry, which also happens to be equal to the entire U.S. population in 1993. And Chinese GDP growth accounts for 1/3 of total global growth. Therefore, we can already find the manifestation of slowing Chinese growth from the nascent fall in equity prices.

For example, the profit of China’s industrial firms dropped 0.3% in June from a year earlier, that reversed a 0.6% rise in May and 2.6% gain in April. For the first six months of 2015, industrial profits were 0.7% lower than a year earlier.

In June, China’s producer price index fell 4.8% on an annual basis, its 39th straight month of declines. In fact, the economy is headed for its poorest overall performance in a quarter of a century.

The second fallacy is Wall Street believes in the TV commercial that claims what happens in Las Vegas stays in Vegas. Or, in this case, what happens to the Chinese economy stays in China.

But the truth is the meltdown in China is already spreading all around the Asia Pacific region. For example, Taiwan’s year over year export growth has hit multi-year lows due to collapsing trade with China.

But perhaps the biggest indicator of the magnitude of China’s slowdown can be found in the global commodities market. Most pundits are trying to link the recent selloff in commodities strictly to the rising dollar as measured by the Dollar Index (DXY). But that Index is actually down about 3% since March. During which time the rout in precious and base metals, energy and agriculture has greatly accelerated.

We see the Bloomberg Commodities index now at a thirteen year low. Copper is down 28% for the year, tin is down 30%, and nickel is down 44%. And then we have gold. Last week China dumped 4 tons on the market, causing the price of the precious metal to fall almost 4% within a matter of seconds. This had little to do with the value of the dollar on the DXY, but it was rather mostly about the waning demand in China from its imploding economy and the need to sell what you can when capital controls are in place.

Indeed, these commodity prices began to plunge concurrently with China’s steep drop in officially reported GDP growth from 12% in 2010, to just 7% today — the real current growth rate in China is closer to 4% when measured by private data. It is no coincidence that the price of copper dropped from $4.52, to $2.37 during this same timeframe.

The true message of plunging commodity markets is that the Chinese government wasted $20 trillion worth of credit digging holes to mollify the fallout from the Great Recession of 2007; primarily creating a huge fixed asset bubble with little economic viability. And then forced another $1.2 trillion in margin debt to engender a consumption-based economy; primarily by creating a stock market bubble after the fixed asset bubble strategy began to fail miserably.

So where does this leave the global economy now? US GDP is growing at a meager 1.5% for the first half of 2015. And the second half looks even worse, as an organic U.S. slowdown meets cascading global trade. Adding to this malaise, it appears as though the handful of U.S. stocks that have led the rally are finally starting to join the hangover party. For instance, social media stocks are now crashing harder than commodity prices, with Yelp recently falling 27% in one day after dropping 60% YOY; Twitter has also tumbled 45% in the last 52 weeks; and Facebook recently dropping nearly 5% after reporting a miss in the number of eyeballs staring at their cellphones checking the like box.

But here is the most important take; the arrogance that led the Fed to believe it could save the world in 2008 by manipulating markets is causing Ms. Yellen and co. to promulgate the idea that it can now raise rates into a global slow down without negative repercussions — thereby, demonstrating its success in rescuing the economy from the Great Recession by proving interest rates can now rise with impunity.

However, the truth is the Fed hasn’t raised interest rates in a decade and will probably never be able to move much off the zero bound range without totally collapsing markets and the economy. I think the Fed is aware of this and that’s why it is continually finding excuses not to start a rate hiking cycle — just like it did yet again in the July meeting. Therefore, the real money to be made is in fading the massively overcrowded trade that believes U.S. stocks are immune from the worldwide economic slowdown and that the U.S. dollar will be in a secular bull market.

Oil prices are likely to bounce back from six-month lows to end this year higher and climb further in 2016 thanks to rising demand from emerging markets, a monthly Reuters poll showed on Thursday.

But the survey of 30 industry and bank analysts said a global supply glut and strong dollar should cap price gains and keep fuel costs well below recent averages over the next couple of years.

“Prices are at unsustainable lows after an exaggerated selloff,” said Carsten Fritsch, analyst at Commerzbank in Frankfurt…. CLICK HERE to read the complete article

A rising middle class in Asia and elsewhere means an increasing demand for food. Paradigm Capital Analyst Spencer Churchill uses the stock-to-use ratio to predict grain prices, and that methodology leads him to predict price support/appreciation for a handful of major crops in 2015–2016. In this interview Churchill examines agricultural trends and discusses companies that can benefit from the world’s increasing appetite, including one company with a streaming model unique in the ag sector. – The Energy Report

“So, who will reap the benefits of the low prices?”

The undisputed king of oil and gas is making some moves that could change the face of the global refining sector.

In June 2015, Saudi Arabia pumped a record 10.564 million barrels a day, a record level. As if being the world’s biggest exporter of oil was not enough, the desert kingdom is now looking to conquer the refining sector as it has quickly become the fourth largest refiner in the world.

“Saudis have moved into the product business in a big way,” said Fereidun Fesharaki of FGE Energy. With Saudi Arabia’s refined fuel contributing to the global supply glut, what will be its impact on the refining markets especially those in Asia?

How will Saudi Arabia Capture Market Share Downstream?

A refinery’s success is measured by its ‘gross refining margins’. The gross refining margin is nothing but the difference between the value of the refined products and price of the crude oil. In case of Saudi Arabia, the price of crude oil would be extremely low. “The crude is so cheap it’s pretty much free for them, the margins are going to be massive. It makes trade flows in products very different,” said Amrita Sen of Energy Aspects.

There is little doubt then as to why the Saudis are shifting their focus to domestic refining. Along with acquiring a controlling stake in Korea’s S- Oil, the desert kingdom is commissioning a new refinery in Jizan which would have a capacity of around 400,000 barrels per day when it begins operations in 2017. Jizan will come on top of Saudi Arabia’s two other 400,000 bpd- refineries at Yasref and Yanbu, and will turn the country into a major global player in the downstream sector, expanding its campaign for market share beyond just crude oil.

Is Saudi Arabia likely to win a potential price war against Asian producers of diesel?

By offering almost 2.8 million barrels of low-sulphur diesel to Asian and European markets, the Saudis are directly competing with Asian

refiners, potentially sparking a price war. In fact, at $5.60 the Asian refining margins have fallen by almost 50 percent from June this year and are expected to drop by a further 30 percent.

“We see refining margins weakening on worsening diesel fundamentals, particularly east of Suez, though gasoline should be supportive. A lot of diesel will be trapped in the Far East and this will lead to run cuts in places like Japan and South Korea as the arbitrage to the west will be closed by growing Middle Eastern supplies” said Robert Campbell of Energy Aspects.

On the other hand, it won’t be easy for Saudi Arabia – Chinese refiners are also producing more gasoline, for which demand is still strong. Moreover, Indian refiners are now moving away from Saudi Arabia which was previously India’s largest crude oil supplier. Indian refiners are now buying more crude oil from Nigeria, Iraq, Venezuela and Mexico. As a result, Saudi Arabia was forced to offer discounts on its heavy and sour grade of crude oil to its Asian customers.

Still, Saudi Arabia can likely wait out the competition. Just as they have kept their crude oil production levels intact, it is possible that the Saudis will maintain their current refining output in spite of falling refining margins and eventually end up winning the price war against Asian producers.

However, one cannot easily neglect the Indian and Chinese refiners. Let us consider the case of Indian private refiners Essar and Reliance, which are among the most complex refineries in the world (refineries which are capable of processing heavier and cheaper crude). These two refineries have seen great success recently, following the recent dip in oil prices after a deal was reached between the P5+1 and Iran, and are likely to build upon their already impressive refining margins (Gross refining margin for Essar refinery was $9.04 per barrel while that of Reliance was $8.70 per barrel in first quarter of 2015).

So, who will reap the benefits of the low prices?

Given current market conditions, the Asian demand for diesel has reduced mainly due to the weakening Chinese market, while demand for gasoline is increasing in India, Pakistan, Thailand, the Philippines and Vietnam. The price for diesel is expected to fall, and gasoline prices will also continue to fall if there are no run cuts in the Asian refineries.

This all translates into lower prices of refined fuels will eventually benefit Asian customers who will pay less for transportation, basic commodities and essential services.