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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: Terminal and the Bloomberg Business app. So here's the latest
Speaker 2: this morning. The US of Iran wearing a fresh round
Speaker 2: of talks before the ceasefire ends next week, joining us
Speaker 2: now as Rachel's ZEMBA of the Center for a New
Speaker 2: American Security. Rachel, Welcome to the program. Anne, Marie and
Speaker 2: Victoria coaches. We're talking about this in the previous hour.
Speaker 2: The American strategy has changed. They've gone from lifting some
Speaker 2: sanctions on some Iranian crude to ultimately blockading all Iranian crude.
Speaker 2: What do you expect to be the outcome of this
Speaker 2: shift in strategy?
Speaker 3: Yeah, well, the US government. Thanks for having me, John.
Speaker 3: The US government is really hoping that this blockade will
Speaker 3: bring Iran to the not only back to the table,
Speaker 3: but make more concessions. I would note that the Iranian
Speaker 3: response to the US twenty year moratorium has been to
Speaker 3: come back with another five year one, which I think
Speaker 3: is similar to what they were offering back in February
Speaker 3: before this war. So we'll see how much movement we've seen.
Speaker 3: But ultimately, what this means is that oil flows, is
Speaker 3: that the oil flows from Iran, if this blockade is effective,
Speaker 3: could could fall. That could be two million barrels a
Speaker 3: day further offline that was going to China, you know,
Speaker 3: putting you know, taking you know, outages from the Gulf
Speaker 3: from ten to eleven million barrels a day to maybe
Speaker 3: thirteen or so. So it would just increase the outage
Speaker 3: that we're seeing here. But the US government is hoping
Speaker 3: that we get to a resolution. But right now we're
Speaker 3: sort of we're seeing a few sanctioned vessels making their
Speaker 3: way through the strait. Will they be stopped by US
Speaker 3: military when they get further out into the Gulf of Oman,
Speaker 3: We'll see. I think that will be one of the
Speaker 3: stories for today in the next few days.
Speaker 1: Rachel speaking of that blockade. If the United States does
Speaker 1: take over a tanker, is it clear to where exactly
Speaker 1: they would bring it.
Speaker 3: No, it's not. You know, we were in in charted territory.
Speaker 3: There was a point earlier this year, before the war
Speaker 3: where the US was I mean I called it at
Speaker 3: the time, they were using you know, kinetic force to
Speaker 3: implement financial sanctions. They did it with Venezuela a little
Speaker 3: bit with the tankers going to Cuba, couple Iranian tankers,
Speaker 3: but a lot of them just sort of spent time
Speaker 3: out at sea. Some of the Venezuelan ones eventually came
Speaker 3: to the United States or went to Caribbean ports. It's
Speaker 3: possible some of these could go to Aman, could go
Speaker 3: somewhere else and get processed, could go to friendly countries
Speaker 3: in Asia. But it's not clear to me that Scentcom
Speaker 3: has been charged to stop these vessels. It's not clear
Speaker 3: that they have a guidance about what to do with
Speaker 3: them after the fact. This is really a point of
Speaker 3: leverage that the US government is trying to impose on
Speaker 3: both Iran and China. Right China has been the buyer
Speaker 3: of first and last resort for Iran. It's also been
Speaker 3: the primary buyer of the Russia sanctions. And I know
Speaker 3: it as well that the US government let you I'm
Speaker 3: sure I've talked about this, but have let the Russia
Speaker 3: sanctions lapse within the last couple of days, largely because
Speaker 3: China was the one who was still buying most of
Speaker 3: that oil.
Speaker 1: In order for the Iranians maybe capitulate for the United States.
Speaker 1: Does the blockade need to go on for longer? Because
Speaker 1: before the blockade, and we were just discussing the sanction
Speaker 1: lift on Iranian crewed at sea, the regime brought in
Speaker 1: hundreds of millions of dollars because they were allowed to
Speaker 1: now export without the sanctions, so out of much higher premium.
Speaker 3: You're spot on, Anne, Marie. Iran has been earning more
Speaker 3: in the last couple of months. They got more vessels
Speaker 3: out ahead of the war compared to what they were
Speaker 3: normally doing. It's pretty volatile oil flows out of Iran,
Speaker 3: I must admit, and they've been able to sell at
Speaker 3: much higher prices now. The sanctions relief that well hasn't
Speaker 3: yet expired, but has been converted into this military blockade,
Speaker 3: did not lift any of the sanctions on what Iran
Speaker 3: could buy, how they could spend there their resources. That's
Speaker 3: one of the reasons they want to be paid in
Speaker 3: crypto or Redmond b or assets that don't touch the
Speaker 3: US treasury. But undeniably, you know, Iran's military led government
Speaker 3: has been able to support itself, and you know it's
Speaker 3: sitting on more cash now even as more cash is
Speaker 3: locked up. Now, that's not going to be enough for
Speaker 3: rebuilding Iran, but it could be enough for the regime
Speaker 3: to remain in place. And so I think that's where
Speaker 3: the US government's view that this could be just a
Speaker 3: couple more weeks of pain. The timelines might not line
Speaker 3: up in my view.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this,
Speaker 2: we understand this morning. According to headlines, the fronts of
Speaker 2: the UK is co hosting a summit this weekend to
Speaker 2: discuss safeguarding international shipping. I'm very pleased to say we
Speaker 2: can have that conversation right now around this table because
Speaker 2: joining us is roll on the skill. The French Minister
Speaker 2: for the Economy and Finance Minister, good morning, it's good
Speaker 2: to see you. Good morning, Thank you for having welcome
Speaker 2: to New York City. Let's talk about the objectives for
Speaker 2: this meeting. What can we hope for over the next week.
Speaker 4: Well, we can hope for the escalation. I mean, you
Speaker 4: know that France wasn't part of the conflict, as we're
Speaker 4: not a belligerent, we're not even warned that it was
Speaker 4: going to happen. But now we are where we are
Speaker 4: and we feel with others, the UK and others, we
Speaker 4: can be part of the solution. We need the escalation first,
Speaker 4: we need those talks that are happening and which hopefully
Speaker 4: we'll keep on happening between a Run and the US
Speaker 4: to move towards some kind of solution. But if we
Speaker 4: do have the escalation, we feel that a coalition of
Speaker 4: the winning countries from all over the place that have
Speaker 4: a part in the problem, because as you know, this
Speaker 4: straight over most story is affecting a soul economically in
Speaker 4: Asia dramatically and in Europe as well, that we can
Speaker 4: help pacify the strait. That straight is the notot of
Speaker 4: the economic impact of that conflict. If we can undo
Speaker 4: that not we know that we don't be in a
Speaker 4: better place. So whatever we can do once that's the
Speaker 4: escalation that's important to help make the straight up our
Speaker 4: moves more freed. We will do and that's what's happening
Speaker 4: on Friday.
Speaker 2: Does that actually mean in reality whatever we can do,
Speaker 2: does that mean you'd have a military presence in the
Speaker 2: straight up?
Speaker 4: Foremost?
Speaker 2: What does that actually mean?
Speaker 4: What's happening in the Red Sea? And it has happened
Speaker 4: for a while. You know, there was hooties there that
Speaker 4: were making passage dangerous for ships, and we have, we
Speaker 4: had and we still have coalition of partners that are
Speaker 4: just making it safe, just preventing deterring attacks from the hooties.
Speaker 4: And you know we are in there. There's Spanish in there,
Speaker 4: and there's a few countries in there. Obviously the straight
Speaker 4: up our moose would be probably a bigger deal to do,
Speaker 4: but we can do it provided again that we have
Speaker 4: the escalation, we have some path to lasting seas fire
Speaker 4: that will require I mador headway on nuclear on ballistic
Speaker 4: capabilities of Iran that have to be gone. But once
Speaker 4: we have that, there's a case for non beligerent country
Speaker 4: to be part of the solution to pacify the stretch,
Speaker 4: which again is the not of the economic impact.
Speaker 2: We have to talk about consequences as well. I'm not
Speaker 2: sure how well understood the energy mixed story is in France.
Speaker 2: At the European level, it's been a bit of a
Speaker 2: mess in places like Germany, particularly the UK that's been
Speaker 2: highlighted so many times. Could you briefly describe the energy
Speaker 2: mix in France, how different it is and how insulated
Speaker 2: you might be.
Speaker 4: You know, I remember Ram Manuel when Barack Obama came
Speaker 4: into office, that said you should never let a good
Speaker 4: economic crisis go to waste. Well, this is what Frans
Speaker 4: did in the seventies when we had an old shot.
Speaker 4: Then France decided to embark on a major nuclear program
Speaker 4: that allowed us to go down from ninety percent hydro
Speaker 4: camber you know, energy mix to sixty, so forty percent
Speaker 4: of our energy now it's coming from nuclear, it's carbon free,
Speaker 4: it's cheap, and it's completely sovereign. It doesn't depend on
Speaker 4: anyone else. And because we don't want these economic crisis
Speaker 4: good to ways, we've just announced that we're doubling down.
Speaker 4: So we're going to bring that energy mix from ninety
Speaker 4: to sixty to thirty five by investing again in nuclear
Speaker 4: as well as hydro as well as renewables. At the
Speaker 4: end of the day, we have a convengen star of
Speaker 4: three major driving forces that we haven't interested in investing
Speaker 4: geopolitical issues. We have to be sovereign, We have to
Speaker 4: be more independent of what's happening againstwhere the environment. You know,
Speaker 4: I think climate is coming back because it's been on
Speaker 4: a bit of a back burner for a while, but
Speaker 4: because we see we're depending way too much of one
Speaker 4: region of the Gulf and of hydro camebra, it's coming back.
Speaker 4: But also jobs. By doing this, we're going to create
Speaker 4: hundreds of thousands of jobs because building a little barre station,
Speaker 4: you know, building wind farms and solo farms are helpful
Speaker 4: for the jobs on the ground.
Speaker 5: This is all expensive and it takes money to time
Speaker 5: where the amount of debt globally has reached record highs
Speaker 5: has surged dramatically since the pandemic. How much fiscal headroom
Speaker 5: do you have, Well.
Speaker 4: It's all going to be about priorities. You know, we
Speaker 4: can't have it all. And today we have one priority,
Speaker 4: which is seigny, which has two pinness, defense sovereignty. We
Speaker 4: will have doubled defense spending in France between twenty seventeen
Speaker 4: and twenty twenty seven. By the time we get there
Speaker 4: next year, an energy seventy so that means we have
Speaker 4: to save and swhere. You know, we have to save
Speaker 4: on our spending. We have to seven and retirement spending,
Speaker 4: and you know, it's a big debate in France. We've
Speaker 4: done so, We've managed to get a budget through and
Speaker 4: I can tell you it wasn't easy with Congress that looks,
Speaker 4: you know, as I said to my Italian colleague, a
Speaker 4: bit like an Italian Congress, you know, lots of different
Speaker 4: groups having to discuss and model through. But we did
Speaker 4: and we're going to have to do it again. But
Speaker 4: most importantly, I think that's a presidential election taking place
Speaker 4: next year and the condidates are going to have to
Speaker 4: make that choice. Two they one priority on soverignty, defense
Speaker 4: and electricity and energy to make France and at the
Speaker 4: end of the day, Europe a stronger place. Do we
Speaker 4: still want to be stuck in the past of things
Speaker 4: we have to change and reform.
Speaker 5: Do you expect growth to have to go down because
Speaker 5: you're saving in these other areas to preserve the sovereignty
Speaker 5: in respect with respect to energy, with respect to defense.
Speaker 4: Well, we entered that crisis on quite strong footing. I
Speaker 4: heard Jimmy Diamond saying that the US academy is resilient.
Speaker 4: So it's the French economy. It was pretty strong getting
Speaker 4: into that crisis. So we we have a slow down
Speaker 4: in the short run, but again what we're doing is investment.
Speaker 4: At the moment, when someone wants to put a data
Speaker 4: center somewhere not in the US, they look at France
Speaker 4: because we have carbon free ample and cheap electricity and
Speaker 4: they need that. So at the end of the day,
Speaker 4: this is investment in the French economy, in the europe
Speaker 4: and economy, but it is attracting investments, including from the
Speaker 4: part of US investors. We want to diversify. We're having
Speaker 4: you know, the Magnificent Seven looking at Frants to invest.
Speaker 4: We're having US banks looking to invest, and we have
Speaker 4: French and European companies also looking to invest.
Speaker 2: THO.
Speaker 4: Again, short term resilience, but a bit of a risk.
Speaker 4: Long term, we need to invest in the future and
Speaker 4: that's the only ad. Growth is the way ad.
Speaker 1: When you look at the long term, when will France
Speaker 1: finally stop buying Russian fossil fuels, Well, you.
Speaker 4: Know we're committed to that. We already committed to stopping
Speaker 4: gas import. There's no new contracts. This has been decided
Speaker 4: that the open avount this year and any gas impot
Speaker 4: is going to be stopped by January. So we are
Speaker 4: on the past. The only thing we wanted to do
Speaker 4: is to make sure that this was done respecting international laws.
Speaker 4: We are a low binding country and EU is a
Speaker 4: low binding country, so we did it respecting some contracts
Speaker 4: that we're still in the go, respecting European decisions, the
Speaker 4: sanctions decision as well, and this is all taking place
Speaker 4: the way it should be, respecting international law.
Speaker 2: Russia doesn't a final question an important one. You've used
Speaker 2: the word perlligerans to describe others. The US might be
Speaker 2: in that group in your mind. You can confirm that
Speaker 2: if you want to. The other question, and the other
Speaker 2: answer you've offered is the word solvereign. This is important
Speaker 2: with regards to the future of a relationship with the US.
Speaker 2: Just what is the transatlantic relationship given the way the
Speaker 2: discourse has evolved over the last month.
Speaker 4: We've been friends for two hundred and fifty years, you know,
Speaker 4: and this is going to go beyond the ups and downs,
Speaker 4: and there are some of the somewhat interpersonal relationship or
Speaker 4: some somewhat disagreement on the short term way of dealing
Speaker 4: with such and such problem. What gets us together. It's
Speaker 4: much stronger than what divides us. And I can see
Speaker 4: it every day when I talk to us and French
Speaker 4: and Europen companies. We need those companies to keep on
Speaker 4: working together to give us the right example of what
Speaker 4: we need to do when we disagree. I'm going to
Speaker 4: chair a G seven meeting this week. Sometimes we don't
Speaker 4: agree on everything with our finance colleagues. We address it.
Speaker 4: We address it in close rooms. We are allies and friends,
Speaker 4: and this needs to go beyond what's going on in
Speaker 4: the ground. We have the solutions to the problem together
Speaker 4: and we need to make sure that everyone understands this.
Speaker 4: We are stronger together than divided. Despite sometimes the somewhat
Speaker 4: short term disagreement. We need to look beyond that and
Speaker 4: make sure.
Speaker 2: We do stay with us. More Bloomberg surveillance coming up
Speaker 2: after this. Let's talk about the shaken and the commodity market,
Speaker 2: and not include go snapping a two day losing stream
Speaker 2: with inflation concerns easing on, renewed optimism for a peace
Speaker 2: deal with the ram Amy G. Morgan Stanley right, The
Speaker 2: longer term effects of current events in the Middle East,
Speaker 2: the more bullish than bearish for metals if they bring
Speaker 2: more stock pilot. Amy joins us now for more Amy,
Speaker 2: good Mornich, and welcome to New York as well. Let's
Speaker 2: talk about the degree of disruption you've seen in your
Speaker 2: space over the last six weeks. How things changed.
Speaker 6: Yeah, so, look, the big change we've seen is really
Speaker 6: the aluminium market. This has been the most physically disrupted
Speaker 6: from the conflict so far. First of all, it was
Speaker 6: a question of we couldn't ship anything out. The region
Speaker 6: is about nine percent of global aluminium production. Then we
Speaker 6: started worrying about getting those raw materials into the aluminum
Speaker 6: box site, and then we actually had some strikes on
Speaker 6: facilities and on energy infrastructure, and so we've lost about
Speaker 6: four percent of global aluminium production. And bear in mind
Speaker 6: and commodities, we care about those very small imbalances. It's
Speaker 6: the price is set at the margin. So aluminium has
Speaker 6: been one of the standout performers so far. And what
Speaker 6: you typically see is when these disruptions happen, you're looking
Speaker 6: at twelve months to fix them. So that's been the
Speaker 6: big disrupted one. And then of course we've had some
Speaker 6: changes in these macro factors that have been a big
Speaker 6: driver for metals, so things like the dollar. The dollar
Speaker 6: weakness had been a big tailwind that reversed briefly. Obviously,
Speaker 6: coming back towards weakness again changes an interest rate expectation,
Speaker 6: so that has taken a bit of the wind out
Speaker 6: of the sales.
Speaker 2: For some of the others. Let's just stick on that line.
Speaker 2: Twelve months to fix, twelve months to fix the production,
Speaker 2: to get back to where we were pre war. What
Speaker 2: does it mean for the demand story over the next year.
Speaker 2: How do you we anticipate that's going to change.
Speaker 6: Yeah, look at we anticipate there'll be about a two
Speaker 6: million ton seplus in the aliminium market, which is a
Speaker 6: lot of demand to try and destroy. I think what
Speaker 6: we're seeing at the moment, similar to oil, we've got
Speaker 6: a very steep backuidation, so downward slope in the aluminium curve.
Speaker 6: What that's trying to do is disincentivize holding excess infantry
Speaker 6: end users at the moment, So we're sort of trying
Speaker 6: to incentivize everyone holds as little as possible for now
Speaker 6: while we try and figure out where we can get
Speaker 6: a bit more supply, and we might also start to
Speaker 6: see a bit of switching, So could you see perhaps
Speaker 6: some substitution towards things like steel in the auto sector.
Speaker 6: But I think it's going to stay a very very
Speaker 6: tight market.
Speaker 5: How much have you seen different regions pull up the
Speaker 5: slack given the fact that the Middle Easter there has
Speaker 5: been a destruction to facilities and a destruction to suppliers,
Speaker 5: So you're seeing, for example, South America start to ramp
Speaker 5: up production, Australia. How much do you see sort of
Speaker 5: a shifting to different parts of the world.
Speaker 6: Yeah, Look, the challenge with aluminium is it's really all
Speaker 6: about electricity supply. And if we think about everything that's
Speaker 6: going on in the world with data centers and AI,
Speaker 6: the one thing that we're struggling with is electricity supply.
Speaker 6: The two regions where really you would think you could
Speaker 6: have a bit of response is China and Indonesia. Now
Speaker 6: China is actually capped on its capacity and potentially there's
Speaker 6: a room to increase slightly your amperage and get a
Speaker 6: little bit more out of it, but that there's not
Speaker 6: that much that China can do. And then Indonesia has
Speaker 6: a good pipeline. But we kind of knew that that
Speaker 6: was coming already. They can't really do much quickly, and
Speaker 6: again takes twelve months to fix a smelter, also takes
Speaker 6: time to ramp one up, and power costs just becoming
Speaker 6: very very difficult. I mean, even in the US we've
Speaker 6: had smelters being sold to data centers, even where in
Speaker 6: the US you've not just got aluminium prices, but you've
Speaker 6: got this record Midwest premium. So the all in price
Speaker 6: here is about six thousand dollars and that's still not
Speaker 6: been enough.
Speaker 5: So this sounds really problematic. This sounds like it should
Speaker 5: be moving markets more. It seems like a shortage, seems
Speaker 5: like something that's going to cause inflation. Are you as
Speaker 5: seguin as the rest of markets that seem to be
Speaker 5: just sort of declaring that all clear mission accomplished.
Speaker 6: I think, look, there's a clearly an element of positioning
Speaker 6: and flows here. Aluminium was already a very very long
Speaker 6: market coming into this, so I would say it's not
Speaker 6: like the market was caught short and had to suddenly cover,
Speaker 6: And I think that explains partly it. Some of this
Speaker 6: is playing out also in the physical premiums in different regions.
Speaker 6: So for example, in Europe, used to pay about three
Speaker 6: hundred dollars on top of the aliminium price to get metal.
Speaker 6: We're now paying six hundred, so that's doubled in the
Speaker 6: Midwest as well, keeps rising japan premiums. So I think
Speaker 6: we are seeing it, but I would say the physical
Speaker 6: realities of this are going to be hung clear as
Speaker 6: time goes on.
Speaker 1: I mean, this is just the latest shark when it
Speaker 1: comes to sky in the Middle East. A lot of
Speaker 1: importers were also dealing with the on and off potential
Speaker 1: of what was going on with Donald Trump's tariff policies.
Speaker 1: Are you seeing more countries stockpile base metals?
Speaker 6: So I think we're seeing more countries, definitely talk about it.
Speaker 6: At the moment, we haven't seen too much in terms
Speaker 6: of what we could say extra buying. But what we
Speaker 6: see is, first of all, this started off with the
Speaker 6: US Project Vaults talking about, you know, we need to
Speaker 6: have stockpiles, we need to make sure we've got security
Speaker 6: of supply chains. We're now seeing the EU, the UK, Australia,
Speaker 6: South Korea, everyone's starting to bring up that word stockpiling,
Speaker 6: and so I think as we've had enough supply shocks
Speaker 6: now we had this in COVID that definitely drove increased
Speaker 6: inventries at the company level. But this time governments are
Speaker 6: paying attention to so I think this is going to
Speaker 6: be a theme for the next few years. That's actually
Speaker 6: going to be pretty bullish for the complex.
Speaker 1: How much of a premium is that aiding to prices?
Speaker 6: So I think this will probably keep your prices well
Speaker 6: above sort of Typically we would say a prices should
Speaker 6: be anchored around cost support or incentive price what you
Speaker 6: need to bring on for a new mine. But if
Speaker 6: you think about inventory building, it's essentially demand. So that
Speaker 6: allows us to trade at a premium. So for example,
Speaker 6: in copper, we would say that kind of incentive price
Speaker 6: is more like ten thousand dollars a ton to bring
Speaker 6: on a new mine, but we forecast price is staying
Speaker 6: well above that sort of twelve thousand dollars through the
Speaker 6: medium term. Just to take into a count that stockpiling.
Speaker 2: Can we finish on gold save the five K what's
Speaker 2: going to happen to demand for gold now? And how
Speaker 2: has that shifted? How has that changed? We've talked so
Speaker 2: much about this massive tail wind of central bank buying.
Speaker 2: Is that still going to be the story was that ended.
Speaker 6: So I think the central bank buying has been the
Speaker 6: sort of stable level of gold demand under the surface,
Speaker 6: although what we did see in March was Turkey's selling
Speaker 6: gold to underpin the lira. In contrast, though we had
Speaker 6: China actually buying the most gold they had bought since
Speaker 6: January twenty twenty five, so a bit of a reaction
Speaker 6: to that pullback in prices. I think the bigger factor
Speaker 6: that's going to swing around is what the exchange traded
Speaker 6: funds are doing. So last year they bought nearly as
Speaker 6: much gold as the central banks, having bought zero the
Speaker 6: year before, so they are the ones that really swing
Speaker 6: their behavior. That's much more dependent on interest rates. So
Speaker 6: again they have been selling, and I think also there
Speaker 6: was quite a lot of buying that was just related
Speaker 6: to how well gold was doing. So I think the
Speaker 6: fact that has come off we've sort of reconnected with
Speaker 6: that real yield story as well. I think maybe that
Speaker 6: stops a bit of the near term upside and just
Speaker 6: keeps it a little bit more to do with fundamental.
Speaker 2: Jo this morning, slightly zero point eight percent, Just one
Speaker 2: final question, slightly outside of your remit, but trying and
Speaker 2: indulge me in this market, particularly in equities, they've taken
Speaker 2: a lot of comfort from the shape of the future's
Speaker 2: curve in crude. At the very front, you've got these
Speaker 2: very elevated prices. The closer you get to the physical
Speaker 2: spot price, you've got a lift in the price. Further
Speaker 2: out you've got a massive decline. That's the banquidation people
Speaker 2: have been talking about now for weeks, six weeks, more
Speaker 2: than a month. People in equity see that as a
Speaker 2: market implied bet on the future price of crude. Is
Speaker 2: that the right way of looking at things when you
Speaker 2: look at a future's curve.
Speaker 6: Yeah, so, look, I think the way we would think
Speaker 6: about the future's curve is more a reflection of inventories
Speaker 6: and flows rather than a forecast for the price. And
Speaker 6: there's a place to metals as well. Typically, when you
Speaker 6: have that downward slope, spot price is higher than futures.
Speaker 6: That's telling people when we need to clear everything out
Speaker 6: of inventory, we need as much oil as you can
Speaker 6: give us at the moment. So, if anything, that downward
Speaker 6: slope is usually a bullish signal for commodity is rather
Speaker 6: than a bearish one.
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