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Andy: You Can’t Print More Commodities

Andy discusses how everything in markets comes down to supply and demand. Logistics, contracts, and shipping are all essential factors in trade. Markets are complex and risk mitigation is important especially with the fluctuating prices of commodities. Sometimes margins are tight, and companies can easily lose money particularly if they’re not hedged accordingly.

Andy explains the mechanisms for hedging ,which gives both parties security around price. It’s a matter of balancing a hedge versus the exposure to the commodity being sold.

The recent activity in the nickel market is important for steel producers. He discusses some of the causes for the recent action in these markets. Banks are now heavily involved speculating in these markets, and we’re seeing disconnects between what is physically available compared to what is promised. Paper is traded by speculators but physical supply is often entirely different.

He explains what backwardation and contango are in commodity markets.

Natural gas was supposed to be a transitionary energy supply for the green movement. Andy explains how the energy markets are badly functioning in Europe. Europe is now looking for alternative energy supplies but many of these ‘solutions’ bring their own problems. Russia will increase pipelines to China and China will continue to compete in the global markets. Russia may end up losing because they will only have a few customers.

He discusses the models around green energy and why their won’t be enough commodities to meet these goals. Alternatives will come as some metals become too expensive. People can become creative when commodities become over priced. We may see some producers become directly involved in the mining of key metals. Recycling will become increasingly important.

Stocks will need to realize the impact of inflation. The Fed has tools but there not producing anything but disasters. Inflation will continue and the Fed is not the solution to fix our economy.

Time Stamp References:
0:00 – Introduction
0:58 – Commodities & Logistics
9:23 – Nickel Problems
13:20 – Backwardation & Contango
16:39 – Money as a Commodity
22:03 – Measuring Risk – VAR
28:44 – Exchanges & Inventories
32:55 – Pricing Shipping
37:19 – Market Makers
39:20 – Energy Market Volatility
42:42 – Developing World
47:04 – Green Energy Future
50:40 – System is Broken
53:42 – Wrap Up

Talking Points From This Episode

  • Why supply and demand are the ultimate drivers of commodities.
  • The importance of hedging mechanisms in business.
  • Green energy and why technology will have to find alternatives to certain commodities.
  • Impacts of green energy in Europe and why Russia may be isolated as Europe finds alternatives.

Andy has nearly 30 years experience. Nineteen years experience working at Glencore and nine years for LaFarge a large cement company in shipping and trading.

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