1 00:00:03,220 --> 00:00:06,160 Sean: (Singing) Welcome to the Fear and Greed daily interview. I'm 2 00:00:06,160 --> 00:00:09,010 Sean: Sean Aylmer. When we have a question about commodities, we 3 00:00:09,010 --> 00:00:12,780 Sean: always go to Daniel Hein, senior commodity strategist at INZ. 4 00:00:13,300 --> 00:00:16,239 Sean: Oil prices are up around 40% this year after hitting 5 00:00:16,239 --> 00:00:19,130 Sean: record lows during the pandemic, gold is high as well 6 00:00:19,170 --> 00:00:22,500 Sean: though still south, the $ 2000 U. S. announced milestone it 7 00:00:22,500 --> 00:00:25,190 Sean: passed when global markets were at their most uncertain last 8 00:00:25,190 --> 00:00:28,900 Sean: year. Thermal coal prices have surged and Australia's continuing to 9 00:00:28,900 --> 00:00:31,910 Sean: benefit from very high iron ore prices. And just last 10 00:00:31,910 --> 00:00:35,510 Sean: month, copper prices considered a barometer of economic growth, hit 11 00:00:35,880 --> 00:00:38,519 Sean: a decade high. It's a busy time, if you're a 12 00:00:38,520 --> 00:00:40,920 Sean: commodity strategist. Daniel, are you busy? 13 00:00:41,659 --> 00:00:44,760 Daniel: Absolutely. But they say there's never a dull moment in 14 00:00:44,760 --> 00:00:47,480 Daniel: commodity markets. So I'm pretty used to it these days. 15 00:00:47,770 --> 00:00:50,580 Sean: Fair enough. Now there's so much happening. What is your 16 00:00:50,580 --> 00:00:52,699 Sean: pick in terms of the most exciting story? Which is 17 00:00:52,700 --> 00:00:55,090 Sean: a commodity that you are looking at and thinking, " Wow, 18 00:00:55,090 --> 00:00:56,100 Sean: that's amazing that's happening." 19 00:00:56,440 --> 00:00:59,480 Daniel: Well, you talk about copper being the barometer of the 20 00:00:59,480 --> 00:01:03,800 Daniel: economy, and that's more so the case now than ever before 21 00:01:03,800 --> 00:01:07,510 Daniel: really. It's not just the economic rebound we're seeing from 22 00:01:07,510 --> 00:01:10,480 Daniel: the pandemic and we can track what that means for 23 00:01:10,530 --> 00:01:15,560 Daniel: copper in particular, but it's really this energy transition, this 24 00:01:15,560 --> 00:01:19,450 Daniel: new economy, which is now emerging, which makes the story 25 00:01:19,940 --> 00:01:24,709 Daniel: even more exciting. How copper, it's properties around the movement 26 00:01:24,709 --> 00:01:28,800 Daniel: of electricity is going to be absolutely critical in the 27 00:01:28,800 --> 00:01:32,990 Daniel: decarbonization of the world economy and the electrification, which will 28 00:01:32,990 --> 00:01:35,959 Daniel: come with that. So, it's a (inaudible) I'm following 29 00:01:35,959 --> 00:01:36,610 Daniel: pretty closely. 30 00:01:37,250 --> 00:01:40,459 Sean: I've often wondered why copper is such a barometer and 31 00:01:40,459 --> 00:01:43,459 Sean: whether it will still be, going forward, but because of 32 00:01:43,459 --> 00:01:47,680 Sean: its properties in its ability to transmit electricity, is that 33 00:01:48,020 --> 00:01:52,270 Sean: why it will always remain demand, in fact growingly so, with 34 00:01:52,270 --> 00:01:54,070 Sean: the decarbonization of the world? 35 00:01:54,530 --> 00:01:58,470 Daniel: Yeah, I think so. It has a very broad consumptions of 36 00:01:58,520 --> 00:02:02,660 Daniel: patterns, so it touches most parts of the world economy. 37 00:02:02,660 --> 00:02:04,830 Daniel: And that's why we always talk about it as being 38 00:02:04,830 --> 00:02:08,060 Daniel: a pretty close and good barometer of how economic activity 39 00:02:08,060 --> 00:02:10,669 Daniel: is going. But I think it's definitely at the core 40 00:02:10,669 --> 00:02:15,000 Daniel: of this energy transition and there's a lot of other metals 41 00:02:15,000 --> 00:02:19,630 Daniel: which can also transmit electricity, obviously at a much lower 42 00:02:19,630 --> 00:02:22,800 Daniel: sort of rate. So you always worry about ultimately high 43 00:02:22,800 --> 00:02:26,790 Daniel: prices and how that affects the cost of using more 44 00:02:27,130 --> 00:02:30,330 Daniel: material of other metals, which may not do it as 45 00:02:30,590 --> 00:02:34,139 Daniel: efficiently. But I think copper's properties are really placed it 46 00:02:34,139 --> 00:02:37,760 Daniel: at the forefront of what the world economy is moving towards 47 00:02:37,840 --> 00:02:38,160 Daniel: at the moment. 48 00:02:38,490 --> 00:02:42,930 Sean: Okay. So let's go to oil, that's up about 40% this year. Why is that so strong? 49 00:02:43,620 --> 00:02:47,160 Daniel: When you see such a hit to demand and prices 50 00:02:47,160 --> 00:02:50,660 Daniel: did collapse, and as many of your listeners would probably 51 00:02:50,840 --> 00:02:54,740 Daniel: remember, we actually saw negative oil prices for a period 52 00:02:54,740 --> 00:02:58,639 Daniel: early in the pandemic, but as economies are starting to 53 00:02:58,639 --> 00:03:02,880 Daniel: reopen, we're seeing people move. There's not only a rebound 54 00:03:03,090 --> 00:03:07,679 Daniel: in purely that level of activity, there's pent up demand building 55 00:03:07,680 --> 00:03:11,169 Daniel: now as well. Certainly domestically in a lot of economies, 56 00:03:11,530 --> 00:03:15,240 Daniel: with international borders still close. So obviously, jet fuel or 57 00:03:15,639 --> 00:03:19,329 Daniel: fuel for air travel is subsequently weak. We're seeing a 58 00:03:19,330 --> 00:03:22,190 Daniel: huge amount of pent up demand for domestic travel, both 59 00:03:22,190 --> 00:03:24,829 Daniel: in terms of air travel, but more so the vehicles, 60 00:03:24,830 --> 00:03:29,530 Daniel: so gasoline and diesel or petrol. So, that huge pent 61 00:03:29,530 --> 00:03:33,310 Daniel: up demand is really driving growth in crude oil globally 62 00:03:33,540 --> 00:03:36,280 Daniel: and at the same time we're having the good old 63 00:03:36,550 --> 00:03:41,320 Daniel: supply side issues really impacting the market there, OPEC and 64 00:03:41,320 --> 00:03:47,250 Daniel: continuing to constrain output. And interestingly, we're finding that overall 65 00:03:47,290 --> 00:03:51,450 Daniel: oil producers are fairly reluctant now to invest in additional 66 00:03:51,450 --> 00:03:56,390 Daniel: new capacity due to this decarbonization, this climate change , environment. 67 00:03:56,640 --> 00:03:59,580 Daniel: We're finding ourselves in... they're putting more money into renew 68 00:04:00,250 --> 00:04:03,880 Daniel: energy capacity as a consequence, and that's going to keep 69 00:04:03,880 --> 00:04:06,810 Daniel: the growth in supply relatively low in the shorter term. 70 00:04:07,370 --> 00:04:10,700 Sean: So that could well put a bottom on prices because 71 00:04:10,800 --> 00:04:14,700 Sean: banks don't want to lend to fossil fuel industries. And 72 00:04:14,800 --> 00:04:18,140 Sean: while we transition, cause we've still got decades, we will 73 00:04:18,140 --> 00:04:21,960 Sean: still need oil and gas for decades, I'm guessing, but 74 00:04:22,029 --> 00:04:25,100 Sean: if it's harder for new facilities to come online and 75 00:04:25,100 --> 00:04:26,950 Sean: banks still want to lend for it. And that does that mean 76 00:04:26,950 --> 00:04:30,180 Sean: that potentially a paradigm shift in terms of the base 77 00:04:30,180 --> 00:04:32,120 Sean: rate lifts somewhat in the next few years? 78 00:04:32,690 --> 00:04:36,370 Daniel: Absolutely. And you can point to the thermal coal market 79 00:04:36,410 --> 00:04:39,470 Daniel: in particular, to see how that is playing out. That 80 00:04:39,470 --> 00:04:42,480 Daniel: is clearly going to be the first market which comes 81 00:04:42,480 --> 00:04:46,720 Daniel: under pressure as these new climate change policies force the 82 00:04:46,720 --> 00:04:51,680 Daniel: move towards renewables. And certainly demand has been weak, particularly 83 00:04:52,080 --> 00:04:54,619 Daniel: in some of the developed markets like the Europe and 84 00:04:54,620 --> 00:04:58,250 Daniel: the US, but there has been very little investment in 85 00:04:58,250 --> 00:05:01,810 Daniel: new capacity in that market for quite some time. Prices 86 00:05:01,810 --> 00:05:05,630 Daniel: have been on the decline over a long period, but 87 00:05:06,180 --> 00:05:09,880 Daniel: we haven't really seen new major mining in Australia really 88 00:05:09,880 --> 00:05:13,109 Daniel: come onto the market. So, when you look at these 89 00:05:13,450 --> 00:05:16,360 Daniel: commodities, some of them will be impacted certainly in the 90 00:05:16,360 --> 00:05:20,020 Daniel: fossil fuel sector by declining demand. But you also got 91 00:05:20,020 --> 00:05:23,110 Daniel: to look at how suppliers tracking as well. And if 92 00:05:23,110 --> 00:05:26,390 Daniel: you do see that fall, obviously even more so than demand 93 00:05:26,390 --> 00:05:28,500 Daniel: is then you could still have a tight market and 94 00:05:28,760 --> 00:05:30,000 Daniel: relatively good prices. 95 00:05:30,440 --> 00:05:33,650 Sean: You mentioned thermal coal last week, there were reports about 96 00:05:34,000 --> 00:05:38,830 Sean: China, Indian, Vietnam, particularly demand from those economies picking up, 97 00:05:39,170 --> 00:05:41,940 Sean: which really pushed thermal coal prices through the roof. 98 00:05:42,660 --> 00:05:47,170 Daniel: Yeah. Thermal coal is back up around $ 120 a ton. 99 00:05:47,170 --> 00:05:50,570 Daniel: That's the Newcastle free on board price. And so that's 100 00:05:51,190 --> 00:05:53,480 Daniel: pretty high compared to where we saw it last year. 101 00:05:53,480 --> 00:05:57,610 Daniel: And, when you're getting a rebound in economic activity in 102 00:05:57,610 --> 00:06:01,330 Daniel: general, you tend to see all the energy markets respond 103 00:06:01,580 --> 00:06:04,880 Daniel: as a consequence. So thermal coals being dragged up by 104 00:06:05,070 --> 00:06:09,520 Daniel: the general increased level in electricity generation and look, Asia 105 00:06:09,580 --> 00:06:13,120 Daniel: is still a fairly strong, big user of thermal coal 106 00:06:13,120 --> 00:06:16,909 Daniel: for its electricity generation. So we're seeing that really play 107 00:06:16,910 --> 00:06:19,469 Daniel: out, but there's been other factors. We had a very 108 00:06:20,029 --> 00:06:24,419 Daniel: cold Northern hemisphere winter, which really boosted demand for all 109 00:06:24,420 --> 00:06:27,839 Daniel: the energy fuels. And now we are starting to see 110 00:06:28,040 --> 00:06:31,930 Daniel: forecasts of a much warmer Northern hemisphere summer as well. 111 00:06:31,930 --> 00:06:36,240 Daniel: So, that's certainly driving a lot of utilities to restock 112 00:06:36,240 --> 00:06:40,600 Daniel: in their gas and thermal coal inventories to really buffer 113 00:06:40,600 --> 00:06:44,540 Daniel: them from that at a time when economic activity is 114 00:06:44,540 --> 00:06:47,020 Daniel: rebounding as well, as some of those restrictions start to 115 00:06:47,020 --> 00:06:47,930 Daniel: ease across the region. 116 00:06:48,650 --> 00:06:50,150 Sean: OK. So what's your outlook for gold? 117 00:06:50,940 --> 00:06:53,430 Daniel: Well, gold is in a bit of a sweet spot 118 00:06:53,430 --> 00:06:55,779 Daniel: in the moment and it has gone a bit unnoticed 119 00:06:55,779 --> 00:07:00,560 Daniel: really, we saw prices saw rally into the end of 120 00:07:00,560 --> 00:07:03,440 Daniel: last year, nearly threatening to sort of break through $ 2, 121 00:07:03,440 --> 00:07:08,720 Daniel: 000 an ounce. That risk appetite in markets increased and 122 00:07:08,720 --> 00:07:12,530 Daniel: we saw some fairly strong growth numbers come through. Gold 123 00:07:12,550 --> 00:07:16,730 Daniel: was bartered lower, in fact fell to about 1700. But 124 00:07:17,050 --> 00:07:20,940 Daniel: since then sort late March, we've seen it steadily increase. 125 00:07:20,940 --> 00:07:24,580 Daniel: And it's been those inflation expectations which have really been 126 00:07:24,580 --> 00:07:27,900 Daniel: driving prices higher. Now people may have heard this before, 127 00:07:27,900 --> 00:07:31,240 Daniel: but gold has always been seen as a hedge against 128 00:07:31,240 --> 00:07:34,960 Daniel: inflation. And so we find when periods of high inflation 129 00:07:34,960 --> 00:07:38,410 Daniel: are around, we get a strong level of invested demand 130 00:07:38,410 --> 00:07:41,930 Daniel: come through. And, we saw a fairly strong number come 131 00:07:41,930 --> 00:07:45,260 Daniel: out of the US last month around... well, just over 4%, I 132 00:07:46,510 --> 00:07:49,020 Daniel: think it was. And that did sort of spark a 133 00:07:49,020 --> 00:07:52,980 Daniel: bit of buying in the sector and at the same time, 134 00:07:53,590 --> 00:07:56,620 Daniel: the (inaudible) has continue to ease concerns about those 135 00:07:56,620 --> 00:08:00,170 Daniel: types of spikes happening for a sustained period of time. 136 00:08:00,170 --> 00:08:04,670 Daniel: They think they'll remain fairly transitory and short lived. So, 137 00:08:05,070 --> 00:08:08,520 Daniel: there is a window we think now where with a 138 00:08:08,520 --> 00:08:12,850 Daniel: weaker us dollar as that economic activity broadens across the 139 00:08:12,850 --> 00:08:18,000 Daniel: globe, we see rising inflation and subsequently lower bond yields. 140 00:08:18,000 --> 00:08:21,960 Daniel: Then gold has got a very conducive sort backdrop to 141 00:08:21,960 --> 00:08:25,890 Daniel: continued inflows from the investor sector. So look, we think it 142 00:08:26,210 --> 00:08:28,940 Daniel: can push back above $ 2, 000 an ounce, which had 143 00:08:28,940 --> 00:08:30,790 Daniel: hit at the peak of the pandemic last year. 144 00:08:31,250 --> 00:08:33,020 Sean: Stay with me Daniel, we'll be back in a minute.( 145 00:08:33,020 --> 00:08:40,809 Sean: singing) My guest this morning is Daniel Hein senior commodity 146 00:08:40,809 --> 00:08:43,760 Sean: strategist at INZ. Okay. So the big one for Australia, 147 00:08:43,760 --> 00:08:46,170 Sean: of course, that is iron ore and Elizabeth Gaines, who's 148 00:08:46,170 --> 00:08:49,280 Sean: the boss of Fortescue Metals, last week said she was 149 00:08:49,280 --> 00:08:52,710 Sean: confident that the industry would continue to thrive, not withstanding 150 00:08:53,030 --> 00:08:57,001 Sean: recent comments out of China. And also the revival of (inaudible) 151 00:08:57,001 --> 00:08:59,790 Sean: out of Brazil probably wouldn't hurt Fortescue, she said. 152 00:09:00,120 --> 00:09:02,530 Sean: And she wasn't even that worried about China going into 153 00:09:02,530 --> 00:09:06,830 Sean: West Africa and developing mines there. Either clearly there's still 154 00:09:06,830 --> 00:09:08,080 Sean: a lot of demand for iron ore. 155 00:09:08,720 --> 00:09:12,720 Daniel: Absolutely. It's been phenomenal to be honest, I think the 156 00:09:12,720 --> 00:09:17,320 Daniel: Chinese market, the economy there has certainly reverted back to 157 00:09:17,320 --> 00:09:20,580 Daniel: some of their old ways. And in terms of growing 158 00:09:20,580 --> 00:09:24,689 Daniel: the economy there with investment led spending in infrastructure in 159 00:09:24,690 --> 00:09:28,870 Daniel: particular, really driving growth for steel and iron ores as a consequence 160 00:09:28,870 --> 00:09:33,980 Daniel: and you can't dismiss. The impact that these new climate 161 00:09:33,980 --> 00:09:37,700 Daniel: change policies and the like really will have on demand. 162 00:09:37,700 --> 00:09:42,120 Daniel: Certainly infrastructure for renewable energy systems is really starting to 163 00:09:42,210 --> 00:09:44,690 Daniel: make a difference now rather than being a bit of 164 00:09:44,690 --> 00:09:49,220 Daniel: a single line in our models. So, the demand backdrop 165 00:09:49,220 --> 00:09:53,140 Daniel: is certainly very conducive in China, but even more also 166 00:09:53,140 --> 00:09:56,820 Daniel: broadly in some of the developed markets. But I do 167 00:09:56,820 --> 00:10:00,579 Daniel: worry a little bit about supply. In some of those 168 00:10:00,580 --> 00:10:04,400 Daniel: markets we were just previously talking about, there is a lack 169 00:10:04,400 --> 00:10:07,000 Daniel: of investment really in new capacity, but iron ore is 170 00:10:07,000 --> 00:10:10,300 Daniel: one where we haven't really seen that. Their margins are 171 00:10:10,300 --> 00:10:14,689 Daniel: exceptional. (inaudible) produce it around $ 20 a ton and 172 00:10:14,740 --> 00:10:17,870 Daniel: they're selling it for 200 at the moment. So pretty 173 00:10:17,870 --> 00:10:18,650 Daniel: good margins. 174 00:10:18,660 --> 00:10:19,620 Sean: Yeah. It's not bad. 175 00:10:19,710 --> 00:10:24,001 Daniel: And that's certainly going to introduce some additional supply, but it's (inaudible) 176 00:10:24,001 --> 00:10:28,530 Daniel: who is still recovering from both the disaster a 177 00:10:28,530 --> 00:10:31,070 Daniel: couple of years ago and obviously the impact of the 178 00:10:31,070 --> 00:10:34,650 Daniel: pandemic last year. And it does look like they'll finally 179 00:10:34,650 --> 00:10:38,579 Daniel: be able to really boost supply later this year and 180 00:10:38,580 --> 00:10:43,080 Daniel: into 2022, which will clearly weigh on the market in 181 00:10:43,480 --> 00:10:46,100 Daniel: the short to medium terms. So we're a little less 182 00:10:46,100 --> 00:10:48,840 Daniel: positive on that side of things, but I still think 183 00:10:48,840 --> 00:10:51,829 Daniel: prices will hold up relatively well. And those prices will 184 00:10:51,830 --> 00:10:54,120 Daniel: be at relatively good levels. 185 00:10:54,330 --> 00:10:57,179 Sean: Just before I let you go Daniel, Robyn Denholm the Chair 186 00:10:57,179 --> 00:11:00,940 Sean: of Tesla last week was speaking. I think it was 187 00:11:01,059 --> 00:11:04,429 Sean: about a billion dollars annually out of Australia. She thought 188 00:11:04,429 --> 00:11:07,390 Sean: would be spent buying things like lithium and rare rocks 189 00:11:07,700 --> 00:11:11,880 Sean: and minerals. They're interesting those commodities because we know less 190 00:11:11,880 --> 00:11:14,210 Sean: about them, but they're obviously commodities of the future. 191 00:11:14,840 --> 00:11:18,030 Daniel: Yeah. And I think the developed economies have to be quite 192 00:11:18,030 --> 00:11:23,220 Daniel: careful that they, secure enough supply really to drive some 193 00:11:23,220 --> 00:11:26,520 Daniel: of these sectors. China obviously dominates in some of the 194 00:11:26,590 --> 00:11:30,920 Daniel: rare rocks in particular and there's some concern about them 195 00:11:31,380 --> 00:11:35,500 Daniel: really controlling that supply for their own purposes. So, the 196 00:11:35,500 --> 00:11:39,260 Daniel: US and Europe will need to encourage us by its 197 00:11:39,390 --> 00:11:43,970 Daniel: investment in some of those sectors to supply what could 198 00:11:44,080 --> 00:11:48,350 Daniel: be potentially very strong levels of growth. So Australia's really 199 00:11:48,350 --> 00:11:52,969 Daniel: key there a large producer of lithium in particular and 200 00:11:53,040 --> 00:11:57,820 Daniel: other more esoteric metals which go into some of these 201 00:11:57,820 --> 00:12:00,240 Daniel: new technologies that we're seeing come through at the moment. 202 00:12:00,240 --> 00:12:03,270 Daniel: So, it'll be very important for us to focus on the 203 00:12:03,270 --> 00:12:05,880 Daniel: development of those industries to meet the needs that we 204 00:12:06,020 --> 00:12:08,130 Daniel: see occurring over the next decade or two. 205 00:12:08,510 --> 00:12:10,450 Sean: Daniel, when you were a kid at high school, did you actually know the 206 00:12:10,880 --> 00:12:12,020 Sean: periodic table or not? 207 00:12:13,010 --> 00:12:15,959 Daniel: I did, yes. I had a periodic table on my 208 00:12:15,960 --> 00:12:19,120 Daniel: wall amongst all the football posters and things like that. 209 00:12:19,120 --> 00:12:22,670 Sean: Right, I was wondering you become a commodity strategist if you like 210 00:12:22,670 --> 00:12:24,540 Sean: periodic tables and football, probably. 211 00:12:24,540 --> 00:12:29,380 Daniel: Yeah, probably. They're a good mix. I do enjoy them. I 212 00:12:29,380 --> 00:12:32,400 Daniel: was obviously a bit more about blowing things up to 213 00:12:32,400 --> 00:12:35,530 Daniel: be honest, (crosstalk) engineering in my days, but is 214 00:12:35,530 --> 00:12:36,449 Daniel: a fascinating topic. 215 00:12:36,809 --> 00:12:38,810 Sean: Yeah. Daniel, thanks for talking to Fear and Greed. 216 00:12:39,110 --> 00:12:39,770 Daniel: My pleasure Sean. 217 00:12:39,890 --> 00:12:43,290 Sean: That was Daniel Hein, senior commodity strategist at INZ. This 218 00:12:43,290 --> 00:12:45,510 Sean: is the Fear and Greed daily interview. Join me every 219 00:12:45,510 --> 00:12:47,689 Sean: morning for the full Fear and Greed podcast. With all 220 00:12:47,690 --> 00:12:50,250 Sean: the business news. You need to know I'm Sean Aylmer, 221 00:12:50,660 --> 00:12:51,390 Sean: enjoy your day( singing).