May 162012
 May 16, 2012  Posted by at 2:06 pm Finance

Earlier this week, I ranted a bit on how countries like Australia and Canada have only been able to keep their housing/banking sectors over-inflated throughout this whole global mess by the good graces of artificially high commodity prices. These high prices keep their mining industries profitably expanding and producing jobs, bringing in overseas capital investment, supporting the export sector, generating tax revenues, and, of course, propping up a very fragile banking system. The latter occurs indirectly through the buffering of otherwise saturated demand in property markets, as well as directly through investments in the mining sector.

Sites like TAE, aided by the insights of analysts like Australian economist Dr. Steve Keen, have said that these trends cannot last for much longer. In an era of systemic credit contraction, every industry will eventually suffer, no matter how resilient it has seemed to be in the past. It now seems like the world’s largest mining company, BHP Billiton (based in Australia), also agrees that the ever-important mining industry will come under a lot of pressure in the near future as commodity prices bounce off against their peaks, due to plummeting demand in Europe and slightly-less plummeting demand in China (the largest source of demand).

What that implies for the fate of the massive housing bubble in Australia and associated banks/businesses/households is, in short, NOT good. Without all those jobs, investment capital, revenues and taxes flowing in and through the economy, there is nothing left to insulate the Australians from the Big Bad Credit Monster. And if you don’t trust the word of a megalithic corporation such as BHP, I don’t really blame you, but you can still see these concerns clearly reflected in their actions. James Regan reports for Reuters:

BHP warns commodity markets to cool further


BHP Billiton (BHP.AX) (BLT.L) said it expects commodity markets to cool further and that investors have lost confidence in the longer-term health of the global economy, in the most cautious comments yet from the world’s biggest miner.


BHP also put the brakes on a plan announced by Chief Executive Marius Kloppers in 2011 to spend $80 billion over five years to expand its iron ore, coal, energy and base metals divisions, banking on continuing high demand from its main market, China.


“It is all about appropriate allocation of capital. When Marius (Kloppers) talked about the $80 billion, the environment was different,” Chairman Jacques Nasser told reporters after a Sydney business lunch on Wednesday.


“We should pause, take a deep breath and wait and see where the pieces fall around the world,” he said, stopping short of announcing a spending cut.


The company was re-thinking its expansion plans “every day,” Nasser said.


Asked if BHP would spend $80 billion over five years, he replied: “No.”


“It’s a sign that their view is that commodity prices are not going to go up from here, and in that sort of scenario, you can’t be spending $24 billion to $25 billion a year,” said Hayden Bairstow, an analyst at CLSA.


BHP shares tumbled 4 percent to the lowest since July 2009, while the broader market .AXJO fell 2.2 percent. The Australian dollar slid to its lowest since December.




“Now that commodity prices have plateaued in the medium term, there is pressure on companies with the costs going up,” said Ric Ronge, fund manager at Pengana Global resources Fund, which owns BHP shares.


“We are seeing a cycle within a super cycle largely because of the macro events in Europe and to a lesser degree in China.”


The Reuters-Jefferies CRB index .CRB, a closely followed indicator for commodities, has slumped more than 11 percent since hitting a five-month peak in late February amid a broader sell-off in financial markets.


“The tail winds of high commodity prices have contributed to record growth in the sector. Now we have a period where those tail winds are moderating and we expect further easing over time,” said Nasser, a former president of Ford Motor Co. (F.N).


Much of BHP’s earnings hinges on demand growth in China, the biggest importer of iron ore, copper, nickel and other industrial staples needed to support mass urbanization underway in the world’s No. 2 economy.


Chinese data last week showed the country’s economic expansion was cooling more than expected. Industrial output growth slowed sharply in April and fixed asset investment, a key driver of the economy, hit its lowest level in nearly a decade.


A Reuters poll after the data showed economists expect economic expansion in the second quarter to slip to 7.9 percent, which would mark the sixth consecutive quarter of weakening growth.


In March, BHP said it saw signs demand for iron ore in China was flattening, though a longer-term outlook was upbeat.

Home Forums Canaries in the Coal Mines (Among Others)

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    Earlier this week, I ranted a bit on how countries like Australia and Canada have only been able to keep their housing/banking sectors over-inflated t
    [See the full post at: Canaries in the Coal Mines (Among Others)]


    What is wrong with your website? I haven’t been able to access it for days?


    The industrial revolution made mining a seed corn eater of the ecosphere. It’s taken a couple of centuries but this NIMBY poisoning has reached the point where even the most greedy corporation lover blinded by technology resource extraction ‘profits’ is realizing that THEIR IS NO ‘AWAY’.

    The hypocrisiy of those nice orderly neighborhoods with their landscaping and gardening beauty while those that live in these privileged (mostly white) households invest in mining ecosphere destroying corporations is breathtaking.

    The capacity for self delusion in humans is enough to make one believe we are genetically programmed to seek self destruction while we label it “economic growth”.

    The ‘seed corn’ (a viable and productive soil) is almost gone.



    “The capacity for self delusion in humans is enough to make one believe we are genetically programmed to seek self destruction while we label it “economic growth”.”

    That is just the physical expression of our Dominant Paradigm. As Derrick Jensen says, “If you see a tree as a source of profit, you’ll treat it one way. If you see a tree as a tree, you’ll treat it another way. If you see a particular tree as a particular tree you’ll treat it another way still.”

    How we see the world and understand our relationship to it and to one another is not genetically hardwired, but rather culturally programmed. It is our “operating software” if you like. But our operating software, whatever it may be will inevitably lead to what are effectively preordained outcomes. As long as we all continue to believe T.I.N.A. (There Is No Alternative), we’ll continue to attempt, to paraphrase Einstein, to solve problems with the same level of thinking that created them. A society organized around an economic system based on short-term individual self-interest, mediated primarily by transactional exchanges will invariably cannabalize itself. It’s only a matter of time.

    Peter Lyon

    New Zealand is in the same boat, just a smaller one. As Australia relies on minerals, NZ relies on primary exports (meat, wool, dairy etc) and is facing the same issues. The latest Fonterra auction of dairy products was down 6%, making a 41% since the peak last year. This is what happened in 2008/9 as the world economy tanked, and now it could be worse. It hurt NZ then, and it will do it again, but most people here don’t get the big picture. They think what happens is Europe, China and the US is “over there” and don’t see the connection. I suspect it is the same sort of story in Australia.


    Yay! TAE is BACK, at least for now on my Laptop. So I’ll try to get in a reply here before it goes to the Great Beyond again.

    All the Commodities are set up to get hit HARD here again in this next go-round of Credit Collapse.

    In the intervening period here, the Chinese have been supporting the Commodities trade, particularly in mining as the best place to recycle trade surplus, rather than invest in furthe FSofA Debt Toilet Paper. Buying up Gold, Iron, Coal and of course also FOOD products and Futures.

    What happens to the Chinese investments in these things when the End Konsumers cannot afford to buy them at the Inflated Prices they pruchased them in Bulk at? Generally speaking, Buy HIGH, Sell LOW is not a good Investment Strategy.

    Effectively here, the Chinese have put a “Basket” of goods into the Basement Safe, but unloading them at a PROFIT is not going to be possible here because Credit is beign withdrawn from the End Konsumers.

    Coupled together with low returns on the Value Added goods the Chinese produce with their Leveraged to Beat the Band manufacturing infrastructure, they are going to be in a world of Hurt here pretty soon. OK, really they ALREADY are in a world of Hurt, but it is not going to get any better, that is for sure.

    Still semi-Slow Motion in the Collapse, but an Acceleration Phase now seems imminent. The CB crowd will have to be VERY creative this time round to support the monetary structure. A coordinated Printing Action seems the most likely scenario, but they can’t mess around this time with small potatoes. They’ll need to spit the Fiat out with a FIREHOSE, and not just to the TBTF Banksters. They need to get the money to Goobermints that are all teetering on Collapse now, from Greece to Spain to the rest of the PIIGS AND to the various States and Municipalities in the FSofA.

    I do not think they have the CHUTZPAH to do this in the quantity necessary to extend and pretend out this phase of the debt deflation. The Bankruptcies of Nation States and smaller “Sovereigns” are coming now over the ridge, and its a long way down to go once they cross the Great Divide.


    PS: Note to Ashvin, Ilargi and Stoneleigh. If you continue to have issues on site visibility by some readers of TAE, I will repost all TAE Blog Articles on the Diner Blog.

    Golden Oxen

    There is a slowdown in world economies no doubt and demand for most commodities is falling from it as well as their recent prices. Would like to point out that in a world of rigged currency markets and central bank money printing prices can turn up rapidly from currency events having nothing to do with underlying supply and demand issues. Keep in mind that the major commodities of the world are priced in US dollars which has been very strong lately due to Euro problems and declines in the commodities currencies of Canada and Australia. that situation could change dramatically if the dollar were to weaken due to our own problems or the fed were to announce another major reflation gimmick. Prices, as always, are a two way street.

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