tv The David Rubenstein Show Peer to Peer Conversations Bloomberg October 6, 2018 10:00am-10:30am EDT
alix: milk, corn, and steel -- oh my. trade crisis averted. a big sigh of relief from commodities. it is all your fault. vladimir putin blames president trump for high oil prices. stark, andwith dan discuss how the company is planning to make money. shell goes all in in canada. they have a monster lng project in canada. the implications for the market. ♪ alix: i am alix steel.
welcome to "commodities edge." 30 minutes focused on the companies, physical assets and trading behind the hottest commodities with the smartest voices in the business. we start with spot on. our take on the big story and our spotlight is the trade deal between the u.s., canada and mexico, and what it means for commodities. we get to cover it from all angles. have a correspondent in winnipeg, chicago and onset. we start off with you, john. you covered dairy. canada has this class seven milk classifying system mean? -- what does it mean? >> what that means is the milk price made ultra filtered milk cheaper for domestic processors, that pricing mechanisms going to go away. canadian farmers are concerned. they had kind of used this as an outlet to be able to sell the left over stuff from milk. once you take out the butterfat. it was an outlet for them to definitely not have to dump their skim milk down the drain area there are a lot of question
marks across the border of what that will mean for their business. alix: what does that do in terms of u.s. dairy farmers? does it move the needle for them, particularly for msa cheese prices? >> the u.s. side of the border, american dairy groups are picking through the agreement to tease out in terms of dollar impact, what that will actually mean for u.s. farmers. class seven, presumably would be a boost for them. hadlaint, as soon as canada that pricing mechanism in place, usd rate producers were complaining that it effectively stopped their imports to canada. for canadian processors, they could buy it cheaper domestically. the rest of the agreement also includes additional market access for american fluid milk, cheese, cream. presumably they will be to shift that north of the border. alix: let's go to corn. corn prices did have a rally as well. what does the deal mean for u.s. corn farmers? >> they are in the midst of
harvesting a very large crop right now. that they havens been hoping the export markets weren't going to be disrupt ted, and it meant that hopefully, the flow of corn will continue to key markets like mexico. >> that is the positive. especially when you have exports meaning so much when it comes to corn farmers. what about hogs? what does that leave hog exports for the u.s.? >> mexico is the top in terms of volume, the largest buyer of pork. canadair is #4. we are in the midst of u.s. hog farmers are raising a record herd. their hopes are that the export markets will not be disrupted and that hopefully from what farmers tell me, the help their bottom line. alix: hope. let's turn to metal. steel and aluminum tariffs, that was missing from the deal.
where are we in that? >> that has been one of the big questions. will aluminum and steel be negotiated in that or outside of that? ultimately, it looks like it is going to be outside of that. mexico and canada are looking to get some sort of deal done before november 30 when the new nafta is supposed to be signed. as to whether or not that will happen, i think it is yet to be seen. alix: what kind of solution are we looking at? either going to be quotas? >> the big focus is quotas. president trump and everybody in his cabinet have been saying, if you want to have exceptions from -- exemptions from tariffs, you have to accept quotas. mexico and canada are not eager quotassarily, to accept but it does seem that the administration is firm on this i one. think one of the reasons that we did not see the steel and aluminum added to the new nafta is because of this sticking point. you have to accept quotas. nobody could agree to it now they are trying to figure it out separately. alix: the aluminum industry like
aluminum tariffs, but they like the steel tariffs. how is it going to play with the conversation and the lobbying pressure? >> business as usual over the past the local years on this issue, right? you're going to see everyone who is supporting it making sure the administration does stick to their word. those who are not are going to say listen, it is hurting the consumers. it is still hurting people in the rust belt. the middle of america, who voted for donald trump, believe in him. a lot of people are getting hurt on both sides of this. this is one where democrats and republicans on a lot of issues actually come on the same side of things, both supporting the tariffs and against them. it depends on where your constituency is at. alix: special thanks to our roundtable. coming up, who is to blame for oil prices hitting a four-year high? russian president vladimir putin pointing a finger at president trump. we will have the details. as we head to break, coffee prices getting a lift from the brazilian elections. brazilian reality is the
♪ alix: this is bloomberg commodities edge. time now to delve deep into the market trends of the week. first up, those oil inventory numbers. crude stockpiles were up almost 8 million barrels. a good chunk of that added in cushioning. basically exports wound up , falling and that helps boost the inventory. it has been a very bumpy week when it comes to aluminum. that is a lightweight material that is used to make aluminum. brazil closed a refiner this week that caused prices to spike , but then the government seemed to push back. prices fell. keep in mind, this is not a very
liquid market. and prices are volatile, that means there is a risk that smelters could close. there is more pain coming for canadian oil. the white line is canadian heavy crude. it is discounted with the brent and wti widened this week. in fact, november futures spread blue out to the most in almost five years. the issues, highflying bottlenecks -- pipeline bottlenecks and a slow pickup of transporting crude by rail. it's continuing to weigh on the price. let's dig deeper into oil at a four-year high. global energy bosses assembled in moscow this week. vladimir putin had a clear message to president trump. he said that he is to blame for high oil prices. the price of oil is largely the result of the current u.s. administration. expectations of sanctions against iran and problems with venezuela. donald, if you want to find the culprit for the rising price, you need to look in the mirror. our correspondent cover the event and joins us now. anne marie, at the same time, state department wants opec
to pump an additional 1.4 million barrels a day. how does that go over? >> that's right. last night, they urged opec to reach in and go with full capacity. i asked the saudi oil minister about this today and he said, we are already pumping at 10.7 million barrels a day. the last year and a half, to have been pumping under 10 million barrels per day. on top of that, he said look at global inventories worldwide. eia data came out yesterday and he said the demand is not there. they are meeting all of the customer needs, so there is no need to do it right now. but then of course, if you look at the price they say they have , rising demand, but brent goes up. there is a cloud of anxiety around the market. that's what they were describing on the panel today. to do with it, venezuela, libya and security shocks. a good point was made, saying that fundamentally, the market is stable and the demand is there. he said it is more of an emotional reason why we are
seeing the frenzy in the brent price. alix: also, the russia energy minister has been on radio saying that prices could hit 100 this fall. you spoke to him about prices, what did he say? anne-marie: he reiterated what the price is that president putin said yesterday would be a healthy range. somewhere between $65 and $75. russian companies are doing very well. listen to what he had to say. at 86, 80 seven dollars a barrel. this is about a healthy raise or -- at $86 or $87 a barrel. russian companies are doing very well. listen to what he had to say. this is about a healthy raise or producers and consumers. current levels may be high. what we think the markets would be striving is to reach a balance which would be stable and acceptable to producers and consumers. a bit lower than what we see today. if you listen to the main panel, the president has spoken about a range of $65 to $75, which seems to be an acceptable level for consumers and producers.
,nnmarie: as you know, ali the top oil traders are expecting $90 by christmas, and forecasting $100 by the new year. what they said to me today is that the big unknown is the iran 's exports to china. whether or not china will bow to the president and stop iranian imports from being able to continue. today marks a month until those sanctions hit iran. alix: thank you, great reporting. now let's get into the ring, three key charts of the week. gold had its biggest one-day rally in over a month this week. on government turmoil in italy. ceo of greenwich shares, a low-cost etf provider that specializes in commodities is here with us. thank you for joining me. will: good to see you. alix: you did have the italy safe haven a little bit, but you're looking at three straight quarterly losses. what did you notice in terms of
flows? >> the big trend is people looking at the price weakness and using it as an opportunity to switch into lower-cost etf's. i am not sure we are ready to see full-blown reallocation of the market right now. even though the italy news was quite positive. i think people are looking to rebalance portfolios and it's more a function of moving from higher price to lower price gold products. alix: what is confusing is, the oil to gold ratio. you have not seen that blowout 2014. basically, gold is so cheap. in theory, it doesn't make sense. if energy prices go up, that should lead to inflation and should lead to higher gold prices. why is this chart confusing me? well: the reason is the dollar. we have a situation where we have really strong for the prices come are reaching highs over the last four weeks, but you still have that strong dollar, which is holding down gold and holding down the rest of the commodities. what we are looking for is a bit
of a softening of the dollar to enable gold prices to move higher along with the other commodity complex. alix: there's also been a lot of conversation the last weeks about the destabilization of the dollar as the global reserve currency. if you wind up having russia, europe and china trading in local currencies with iran, that would offset the dollar. dollar reserves are falling -- does this lay a role in the conversation? >> it is more market chatter at this stage. longer-term, there is a bigger question to be answered about that. at the moment, the dollar is the world's reserve currency, something that is a huge benefit to the u.s. globally, and something that all commodities, including gold, are priced in dollars and have been a long time. alix: let's move to platinum. take a look to the platinum-gold ratio, platinum cannot catch a break. are we overdone here on the bearishness on platinum? >> if we are not overdone, we are close to it. lowest price for platinum for decades, if you look at it with
all-time highs in all of the other physical markets periodic you have equities, bonds, real estate gold and platinum are , hurting at this stage. i think that fears, or the reason why platinum has sold off over the last couple of years is largely around diesel and the decline in market share for diesel cars. i think that is overblown. what is not being talked about is the future for platinum. and the future demand sources for clean technology, particularly in vehicles. that is from hydrogen fuel cells. hydrogen fuel cells are now getting good traction in china and the rest of asia. the world is not going to go one way or the other. it is not going to go battery or hybrid, it will be a mix of both. i think fuel cells and batteries are the future. and platinum plays a big role in that. alix: the other part is palladium. can that really be sustained? thatn that rally --can
rally that we have seen be sustained? : it is tough. palladium has been incredibly strong. for good reason, there is a lot of talk about the strength in the auto market and demand for suvs in the states. demand for gasoline vehicles and asia. that has helped palladium. supplies have been constrained. but the price is very high at the moment. alix: let's get your takeaway. gold is undervalued. under on versus equity and bonds and potentially platinum's , future could be misunderstood. the question, is palladium overvalued? thank you so much, will whind. great to see you. alix: coming up, the president of continental resources joins us to talk about how his company's acquisition can monetize mineral rights. we discuss that next on bloomberg commodities edge. ♪
alix: this is bloomberg "commodities edge." it is time for the brief. joining me is our guest. the story, royal dutch shell and its partners announcing an agreement to invest 31 billion dollars in lng projects in western canada. they did it without long-term offtake agreement. anna, why is that so significant to this? >> it is significant that a , but it is sort of a patch for this project.
can theyuestion is, get enough offtake for financing to come? this project did not need that kind of scenario, because of the people who are building it. you have shell, the largest lng trader in the world petrochina , and mitsubishi representing the largest buyers of lng. buyers ande largest also, they are putting it entirely on their balance sheet they don't need the financing edge for them. alix: fair point. a pie chart we have of how many lng projects have been planned in canada and how many have actually come through. why is it hard to get done in canada? >> because of the huge infrastructure cost. they have a large capital cost. you mentioned this project is $31 billion, that is the largest private sector investment in canada's history. they have to build a 400 mile lifeline and of the lng terminal, which is very expensive. alix: compare that to the u.s. we have a map showing the circles of where lng terminals
are in the u.s. opposed to canada. the deeper the blue, the more expensive the cost at the end of the day. is this going to be it for canada? >> it might be. there are a few projects that are trying to move forward. one of them- on the west coast has a conditional sid are ready. there are some of the east coast that are looking to markets in europe. on the whole, u.s. projects have a lower cost. they don't have as much infrastructure needed to build them. alix: thank you. let's turn to commodity in chief. today we talked to jack start. president of continental resources. first, we take a closer look at how some companies are trying to unlock more value on assets where they operate. ♪ alix: an oil company wants to make more money, try a royal -- royalty investment trust. here is how they work. an oil company leases mineral and service rights from a farmer. basically a small land plot for oil and anything below the surface. it pays out 4%-8% of production
revenue to the farmer. over time, the oil company winds up owning the land. either they buy it outright, or it is passed down to them to acquisitions. the oil company basically pays itself that revenue stream. so let's monetize it. they take the royalties from land ownership and wrap it into a trust. go right intoues the trust, then, an ipo and, boom. instant money. for investors, the upside is you have exposure to production growth without the headache of rising cost. who cares if the drill cost 10,000 or $200,000? the royalties stay the same. the downside is you still have operational and oil price risk. if the well doesn't produce, the royalty stream is now worth less. diamondback energy did this in 2014 and created viper energy partners. the stock more than doubled in the year. now, it is continental's turn. it is teaming up with franco nevada. the trust will focus mineral
rights to land continental wants to drill asap, which means more money from the 8% production revenue stream. so just how big can a trust get, and is it a good investment? i recently caught up with the president of continental resources and he revealed how the company moves from a geological idea to collecting mineral leases to unlocking more value. jack: you go into a play, you have a geological idea and you elease it come -- you lease it but there comes a point . where you cannot by any more leases. the next way is to buy was proprietary knowledge of the geology is to buy the minerals. that is what we have done. we are acquiring minerals, and this is what is key, strategically in areas where we know the geology, obviously, and where we plan on drilling. what we did is we brought franco nevada. they joined us and we have
formed a venture that will proceed ahead here, to continue to buy minerals. the intent is to continue to buy the minerals and build up a portfolio of minerals that ultimately, when you get down to it, could be put out there is an ipo. you have seen that model on the market. this one would be more fine-tuned in that it focuses on minerals that we know we are going to operate. so from a company standpoint, we received about a $220 million in proceeds. for a portion of minerals from -- francoada area nevada. going forward, were going to be investing 20%, franco nevada 80%. we will acquire additional minerals. alix: how big do you expect that to get when you send that off? look at it from an industry model that we have seen out there and now, you could expect as much as four
times your initial investment, and we expect to have upwards of $600 million invested over the next three years. so that gets you up to $2.4 billion. it is multiple billions of dollars. it could potentially turn into an ipo. if we were successful in buying the mineral center for it and take it to an ipo. it is a vehicle of growth for the company. bakkene scope stack, bac and now we have the minerals package. it is another with frost to bring value to our shareholders. alix: what is the timing for that? >> over the next three years we expect to invest a total of $600 million. as we go along, if the timing is right, we could do it earlier or we could not do it at all. at this point our vision is that we will put together a package that will look pretty attractive . it could be a special ipo, when you have the operator controlling development of the minerals, could be a very attractive deal. alix: if the prices go all over the map for the volatility? if volatility swings off a
cliff, how does that filter through considering your the operator? >> minerals sit and wait. they are not going anywhere. we can always create value from them. if we are in a lower cycle, we could pull back on the throttle and in a better cycle, we could push down on the throttle a little bit. alix: that was my interview with jack stark. continental resources stock is up 31% this year. here is what is on my commodity radar. sunday, the brazilian election, this is a first round. what does it mean for infrastructure and commodities like soybeans? lus, lme week is gathering in london. the place to be when it comes to the metal world. what it means for steel and aluminum tariffs. don't want to miss that. and, there are lots of parties that draw in traders and gossip. i wish i was going. that lasts through tuesday. the us monday. on tuesday, london's oil and gas conference with senior
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