China’s Conundrum and what it means for Commodities (Huw McKay)

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Right O money miners and right O
miners that want money cause

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bloody MMS will make your money
right now.

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Give them the open pit contract
Dell JV with them.

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They'll bloody front the costs
at the start.

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They'll take the cash laid up.
Not all the costs but a bit of

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it.
They'll help you out.

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It's the deal of a lifetime.
The best open pit mining

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contractor in the business.
They'll take the risk yesterday.

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They take the risk and take it
off you.

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It's bloody brilliant.
Friday boys.

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He's pulled an absolute RIP
snorter last week.

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This is a marathon of an
episode.

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For good reason.
Because of the quality.

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Maddie, I am very pumped to
share this chat.

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Hugh Mackay is someone we've
been trying to get on the

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podcast for quite some time.
I think a lot of the people, a

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lot of the money miners out
there will know him for the work

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he did at BHP.
They might not even know

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directly that it was the work he
did through their sort of

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various strategies, commodity
deep dive, thinking about steel

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markets and all these sorts of
things.

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And the the conversation well
and truly lived up to my

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expectations.
It is jam packed with info.

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You know, you want to learn
about where I know might be

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going, what's going to happen to
copper, what the steel dynamics

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mean for the Aussie economy, all
these things.

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It might sound far fetched and
all that, but he breaks it down

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this.
Is super easily, this is the guy

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that was at the forefront of the
way that EHP, you know,

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formulated and thought about its
strategy around its commodities.

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And yeah, we got to kind of tap
into that insight.

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And, you know, there's some, I
think there's some perspective

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here that you wouldn't know from
just reading PHP stuff.

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You know, he's a really
thoughtful independent thinker.

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You know, he's, he's, he's
really tuned into like the, the

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whole kind of China political
angle and really what is

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happening there, what it means,
how it might impact commodities,

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what, what and that, and that
was something that we got to

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tease out in a, in a pretty
lengthy episode.

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I'm excited.
I think with that said, let's

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RIP to it.
Get ready to learn a huge amount

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with Hugh McKay all.
Righty, Hugh McKay, thanks for

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making the time and coming on
money of mine.

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My pleasure.
Thanks for the invitation.

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We are, we are super excited for
this conversation for a number

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of reasons.
And as we were sort of just

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discussing before we started
filming that the timing has been

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quite good given everything
that's happened in China and

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global commodity markets.
So the, the logical kind of

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place to start this conversation
I think is around the stimulus

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that's just been announced in
China and perhaps digging into

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what you saw as expected versus
unexpected coming out of the the

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big announcements that we saw a
week and a half ago now.

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Yeah, no problem.
Now I I want to put this in a

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little bit of context in terms
of the history of the last

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couple of years before I divide
dive into the package itself.

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Now China has been enduring in a
deflationary phase for most of

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this decade.
It's getting up towards 3 or 4

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years now that prices in China
have been falling.

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Now, there's a good excuse for
that in the first part of the

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period, which was the COVID
shutdowns and everything that

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went with that.
But there's no real excuse for

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the last two years if you
consider what's been happening

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in the rest of the world, which
is a cost of living crisis.

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So what's going on in China and
how can the authorities fix

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that?
Well, they have a very, very

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cautious, anxious household
sector.

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That's the big one.
How do they get jolted onto a

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path where they feel more
confident deploying their

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savings into real estate, into
equities, into discretionary

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consumption of both goods and
services?

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That's really the ultimate
question which the authorities

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have to be looking at.
Elsewhere in the system they

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also have balance sheet problems
which have been piling up at the

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local government level
principally and they also have

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the housing market as a stand
alone proposition and real

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estate developers who have
extraordinarily distressed

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balance sheets on their own
behalf.

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So how do you come up with
something as the Chinese

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authorities which hits all of
those buttons successfully, gets

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the positive multipliers you
look for out of any policy

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shift, but also fits in with the
ideological framing of how the

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Chinese leadership currently see
the world?

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It's very hard to design that
policy, and China has been

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attempting to dollop out small
spoons of stimulus, if you will,

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ever since the 0 COVID policy
came to an end.

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And they're even infrastructure
stimulus while COVID was on, but

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nothing's really caught.
And that's why household sector

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confidence is still low.
The real estate market is still

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distressed and we're just not
getting the traction from

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counter cyclical policies that
you'd like to see.

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So once you get to this point
where your policies have

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underwhelmed and you just
haven't got the outcomes that

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you're looking for, you get a
little bit more urgent.

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I wouldn't say you panic, but
certainly you start to question

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incrementalism as
countercyclical policy and you

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start to say, OK, what can I do?
Which is more decisive?

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And the US Federal Reserve
cutting interest rates, I think

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took the People's Bank of China
off the leash, so to speak,

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because of the wariness which
the Chinese authorities have

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towards weakening their exchange
rate.

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And so we've now got a, a
monetary policy and macro

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prudential policy with respect
to housing purchases, which is

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probably fit for the moment.
You still need people to take up

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the offer.
And that's really where we stand

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today.
It's a very promising package in

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and of itself.
What we know, we don't know

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exactly how much fiscal policy
is going to come in behind, but

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that really needs to happen and
we're not going to know exactly

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what's what the Chinese
household sectors response to

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the real estate story will be
until state entities actually

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come in, borrow from the central
bank and accumulate property in

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their own name.
So there's a lot in that.

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I'm modestly optimistic, but I
wouldn't say I'm anything more

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than guarded given how deep the
confidence funk is and how

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dramatic a circuit breaker the
economy actually requires.

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You describe it as a a need for
a, you know, a circuit breaker

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in a lot of respects.
And because that that

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incrementalism, you know, maybe
is being an effective people

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like the households still don't
have confidence, you know,

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property where a lot of a lot a
lot of people's wealth is tied.

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The prices continue to kind of
decline there.

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But the circuit break is an
interesting point because we,

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we've heard, we've heard the,
the policy kind of communication

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that's happened in the recent
weeks described as a, as a

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draggy moment.
You know, we will do whatever it

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takes.
It was extreme in your in, in

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the way that you would kind of,
you know, draw parallels to, to

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to the, to the drag draggy
moment.

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OK.
Well, just for the benefit of

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your listeners who aren't as
familiar with the corridors of

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power.
And in Frankfurt, the Draghi

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moment was when the President of
the European Central Bank facing

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potential collapse of the common
Euro currency zone with massive

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balance sheet distress of the
Greek, Italian, Portuguese,

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Spanish sovereigns basically
said, I'll do as you said,

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literally whatever it takes.
I I don't think this is a draggy

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moment In the same context,
China isn't facing existential

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breakup.
It's got a nasty cyclical

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circumstance which is driving
deflation and it needs better

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counter cyclical policy.
So that's a challenging cyclical

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situation.
It's not an existential end to a

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60 year project of European
political and monetary

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integration, so I wouldn't make
them exactly the same.

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What?
I would say analogously is that

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there are lessons to be learnt
from the two other circumstances

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where China found itself in
pretty sticky situations.

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That was in the late 1990s into
the earlier 2000s.

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We had deeply embedded deflation
across the system and fully 50%

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of loans on the balance sheets
of Chinese banks had gone bad.

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That's one analogy.
And then what we dealt with

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2013, 2014, 2015, where the
hangover from the excessive

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stimulus of the global financial
crisis era came into roost and

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you actually needed to cut back
capacity quite aggressively to

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restore any kind of sustainable
fiscal trajectory for industries

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like coal mining, for industries
like steel making, aluminium

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smelting, glass making, you
know, the the list went on.

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And both of those circumstances
received ultimately something

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dramatic, which enabled you to
exit the regime that you'd

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entered.
Now you had three massive

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tailwinds that were starting to
come through back in the early

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2000s.
That was the most profound

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problem, if you like, in terms
of balance sheets.

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But the tailwinds that were
coming down the line were of

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course much more favourable than
what you'd expect today and also

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much more favourable than what
you'd expect in the mid twenty

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10s.
But resolving balance sheets

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have the central government
essentially carve out the bad

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assets from the banks, clean
their balance sheets up, bring

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in foreign capital into the WTO.
All of that stuff enabled you to

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grow out of the problem in the
first instance.

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In the middle twenty 10s there
was an element of growing out of

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the problem, but equally there
was a supply side adjustment

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which actually downsized
productive capacity to a point

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where it reinstated
profitability.

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And that was very important for
getting the Heavy Industries

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back on their feet.
And that was tied in with the

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Belt and Road Initiative.
And I think the Chinese

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authorities would look back on
that with then say it was was a

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success on balance, even though
not everything went right this

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time around, we've still got a
balance sheet problem.

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That's local government debt.
And why I fixate a little bit on

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the fiscal side of what is going
to happen rather than the

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monetary side of what has
already been announced.

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Is that one of the the
structural things which needs to

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shift in China is how vertical
fiscal relations are organised?

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And what I mean by vertical
fiscal relations is how the

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central government relates to
lower levels of government, who

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raises revenue, who has the
responsibilities to provide

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certain services and how all of
that balances out across the

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various levels.
Australians are very familiar

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with vertical financial
relations.

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W Australia in particular, W
Australian government has

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extracted something pretty
favourable from Canberra and

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states that don't have the same
sorts of revenue raising

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capability like Tasmania really
feel the pinch of that.

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And that is a an issue with
vertical fiscal relations.

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It's very difficult to land on
the most equitable relationship

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there.
Well, in China, it's gone way

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too far in terms of the central
government having preferential

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access to revenue and most of
the spending.

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Accountability is coming at a
local level.

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And so the way things run, there
is a triangle.

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The local government runs up a
deficit creatively.

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The central government is
looking fine in a narrow sense.

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And then you have this huge flow
of grants, which have to flow

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from Beijing out to the
provinces to make things

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roughly, roughly square up.
But they never actually roughly

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square up.
And that's where things like

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property price, revenue off
balance sheet financing vehicles

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come in.
And there's a lot of fancy

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footwork that keeps this thing
spinning every year, you know,

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every 10 years or whatever the
number is, you need to clean

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this stuff up because there's a
lot of, there's a lot of grey

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areas And we need that right
now.

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We need a very decisive
intervention.

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Hopefully it means the central
government steps up and assumes

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a lot of the liabilities that
already exist.

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That's what I call the sort of
the the Dux machiner transfer,

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IE as in great drama when the
God just sort of comes down from

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the ceiling and resolves the
story.

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But you also need to resolve
what actually happens in terms

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of tax collection and services
allocation if you don't want to

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be right back here in 10 years
time.

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So there's two speeds, if you
like, in terms of what kind of

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policy needs to be enacted
there.

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And this is the other triangle
you get back to, which is land

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sales, property developers,
local governments.

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That particular triangle isn't
working with the real estate

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00:14:23,360 --> 00:14:24,960
market where it is.
So it puts more and more

231
00:14:24,960 --> 00:14:31,440
pressure on the local level and
getting these things right at a

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00:14:31,440 --> 00:14:36,200
simple fundamental level give
you very positive multipliers

233
00:14:36,200 --> 00:14:40,000
through the system.
The obverse of that, of course,

234
00:14:40,000 --> 00:14:43,560
if you don't get them right, you
keep getting further and further

235
00:14:43,560 --> 00:14:48,240
away from where you wish to be.
And that's really what I think

236
00:14:49,120 --> 00:14:52,840
the powers that be in Beijing
will be pondering how they get

237
00:14:52,840 --> 00:14:56,360
this right.
So they're not right back where

238
00:14:58,360 --> 00:15:01,640
right back where they are today
in 10 years time because they

239
00:15:01,640 --> 00:15:04,680
tried to deal with this early in
XI's first term.

240
00:15:05,760 --> 00:15:08,920
They actually didn't take a lot
of tough decisions at the local

241
00:15:08,920 --> 00:15:11,240
government level, even though
they took them at the industrial

242
00:15:11,240 --> 00:15:13,160
level.
And here we are with them.

243
00:15:13,160 --> 00:15:16,320
Here we are again.
You know, it's there's sort of a

244
00:15:16,320 --> 00:15:20,640
rhythm to these things.
Yeah, don't, don't envy that job

245
00:15:20,880 --> 00:15:23,480
at all.
I, I'd love to learn more about

246
00:15:23,480 --> 00:15:26,960
the, the housing market because
I think there's so many tie

247
00:15:26,960 --> 00:15:30,240
insurance for commodities and,
and Australia.

248
00:15:30,240 --> 00:15:34,360
So my, my understanding is it
was quite a deliberate decision

249
00:15:34,400 --> 00:15:38,960
a few years ago to try and move
away the, I guess the amount of

250
00:15:39,160 --> 00:15:43,400
wealth that was tied up by
individual Chinese people in, in

251
00:15:43,400 --> 00:15:47,120
housing and just diversify the
economy in, in simple sort of

252
00:15:47,120 --> 00:15:49,240
terms.
Is that understanding sort of

253
00:15:49,240 --> 00:15:50,480
right?
And can, can you kind of

254
00:15:51,080 --> 00:15:53,840
elaborate on that journey that
they've been on to sort of

255
00:15:53,840 --> 00:15:57,000
deleverage the the housing
market in China?

256
00:16:00,640 --> 00:16:04,560
OK.
Now I would say this is not

257
00:16:04,560 --> 00:16:08,680
about asset allocation for
households in terms of how they

258
00:16:08,920 --> 00:16:12,600
spend their money and how they
how they allocate their savings.

259
00:16:13,280 --> 00:16:20,280
What we've seen over the last
four years or so, it is about

260
00:16:20,280 --> 00:16:23,600
deleveraging, but it's
specifically about the property

261
00:16:23,600 --> 00:16:28,280
developers themselves, the the
organisations who build the

262
00:16:28,280 --> 00:16:31,680
houses.
That was the balance sheet that

263
00:16:31,680 --> 00:16:34,320
they were focused on.
The Evergrands, The country

264
00:16:34,320 --> 00:16:40,040
roads, country gardens.
Sorry, yes, they're.

265
00:16:40,520 --> 00:16:43,440
They're the names you read the
Western media, but there are

266
00:16:43,440 --> 00:16:45,080
there are hundreds of
developers.

267
00:16:45,080 --> 00:16:49,720
This is a massive industry,
highly fragmented, very, very

268
00:16:49,720 --> 00:16:53,080
small market share for those big
listed firms.

269
00:16:54,600 --> 00:16:59,680
And you know, if you look at the
list of Chinese billionaires and

270
00:16:59,680 --> 00:17:03,680
the industry that they've been
associated with, besides a

271
00:17:03,680 --> 00:17:06,680
couple of sort of tech platform
companies, real estate tends to

272
00:17:06,680 --> 00:17:09,599
have dominated the list for the
last last 20 years or so.

273
00:17:10,760 --> 00:17:12,480
It's been a great way to get
rich in China.

274
00:17:13,839 --> 00:17:18,400
Now in terms of what the
authorities have been doing

275
00:17:18,400 --> 00:17:22,079
going back a few years, they
actually took the supply side

276
00:17:22,079 --> 00:17:27,520
reform template which they had
deployed successfully in coal

277
00:17:27,520 --> 00:17:31,480
mining and some of those other
heavy industrial industries, and

278
00:17:31,480 --> 00:17:38,920
they actually dropped it down
almost without, almost without

279
00:17:39,120 --> 00:17:46,080
modification into real estate.
Now completely inappropriate,

280
00:17:46,720 --> 00:17:48,800
wrong policy for the wrong
sector.

281
00:17:50,200 --> 00:17:52,880
So going back to what supply
side reform ultimately did in

282
00:17:52,880 --> 00:17:57,280
terms of targets, it looked at
the asset to liability ratios on

283
00:17:57,440 --> 00:18:01,440
a sectoral basis.
It basically said we want you to

284
00:18:01,440 --> 00:18:08,000
reduce your relative liabilities
by 10 percentage points over a

285
00:18:08,000 --> 00:18:13,080
certain period of time.
So for steel, it was about 60%

286
00:18:13,280 --> 00:18:16,600
asset to liability ratio.
Sorry, it's the other way

287
00:18:16,600 --> 00:18:18,040
around, liability to asset
ratio.

288
00:18:18,440 --> 00:18:20,400
And we want you to reduce that
to 50.

289
00:18:22,400 --> 00:18:27,280
And that was quite successful
because it basically forced the

290
00:18:27,280 --> 00:18:31,000
industry to stop thinking about
expansion and to focus on

291
00:18:31,000 --> 00:18:36,360
profitability.
In tandem with that, they came

292
00:18:36,360 --> 00:18:41,520
in with targets for how much
capacity should be reduced and

293
00:18:42,000 --> 00:18:45,080
which they've sort of brought a
lot of legal capacity sort of

294
00:18:45,080 --> 00:18:49,000
into the public spotlight.
And so there were some hard

295
00:18:49,000 --> 00:18:52,000
levers to take capacity out of
the system, but ultimately they

296
00:18:52,000 --> 00:18:55,280
were targeting a more
sustainable financial balance

297
00:18:55,280 --> 00:19:01,280
sheet for the overall sector.
Now, if you do that in a credit

298
00:19:01,280 --> 00:19:08,080
hungry industry like real
estate, then it's it's a train

299
00:19:08,080 --> 00:19:11,560
wreck waiting to happen because
real estate needs that constant

300
00:19:11,560 --> 00:19:15,240
flow of refinancing to keep
spinning.

301
00:19:16,160 --> 00:19:19,560
And so when they came out and
designed something called the

302
00:19:19,600 --> 00:19:23,560
three red line, 3 macro
Prudential red lines, which

303
00:19:23,560 --> 00:19:26,360
basically said, OK, there are
basically three ways you can

304
00:19:26,360 --> 00:19:28,400
raise finance as a property
developer.

305
00:19:28,880 --> 00:19:33,880
We're closing every loophole.
That's just is what gives you a

306
00:19:33,880 --> 00:19:38,720
sudden stop in building activity
because they even stopped sort

307
00:19:38,720 --> 00:19:44,200
of the shorter term working
capital inflows, which every

308
00:19:44,400 --> 00:19:46,640
every construction operator
would rely on.

309
00:19:47,600 --> 00:19:51,800
So they stopped activity, they
stopped land purchases and they

310
00:19:51,840 --> 00:19:53,840
sort of stopped stopped new
developments.

311
00:19:55,360 --> 00:19:58,920
So pretty abrupt.
Did China build way too many

312
00:19:58,920 --> 00:20:01,560
houses in the latter part of the
20 tens?

313
00:20:01,560 --> 00:20:02,840
Yes, of.
Course.

314
00:20:02,840 --> 00:20:06,560
They did incredible uplifting
starts.

315
00:20:08,240 --> 00:20:10,040
Was this the right way of going
about it?

316
00:20:10,800 --> 00:20:13,360
No, it wasn't.
This is not a manufacturing

317
00:20:13,360 --> 00:20:16,200
sector.
This is a sector where credit

318
00:20:16,200 --> 00:20:20,360
supply and refinancing are
critical to the model.

319
00:20:21,160 --> 00:20:24,800
You can't just say you're going
to invent some new model of

320
00:20:25,080 --> 00:20:31,760
running real estate.
So it's been a real problem ever

321
00:20:31,760 --> 00:20:34,080
since.
And.

322
00:20:34,800 --> 00:20:37,960
A lot of property developers
were caught out quickly, but

323
00:20:37,960 --> 00:20:41,360
even good property developers
were caught out slowly and

324
00:20:41,560 --> 00:20:44,360
that's just the nature of the
industry when you stop the stop

325
00:20:44,360 --> 00:20:47,560
the flow of credit.
Now, have we fallen too far?

326
00:20:49,400 --> 00:20:54,240
Probably in terms of absolute
levels of development, but that

327
00:20:54,240 --> 00:21:00,080
will ultimately depend on the
willingness of other sectors in

328
00:21:00,080 --> 00:21:03,600
the economy to move housing
stock onto their balance sheet

329
00:21:04,200 --> 00:21:06,280
and off the balance sheet of the
developers.

330
00:21:08,040 --> 00:21:13,480
And in 2015, sixteen.
Whilst it was the

331
00:21:13,480 --> 00:21:22,440
administration's preference to
to not rely on investor

332
00:21:22,440 --> 00:21:26,760
purchases from out of town to
clear the the housing inventory

333
00:21:26,760 --> 00:21:31,640
overhang, ultimately they got
pragmatic and said OK, just just

334
00:21:31,640 --> 00:21:35,040
do it.
Because there was a mismatch on

335
00:21:35,040 --> 00:21:37,440
the demand and the supply side.
There was a lot of luxury

336
00:21:37,440 --> 00:21:41,320
housing built in cities where
there just wasn't a local income

337
00:21:41,320 --> 00:21:43,720
to support a whole lot of luxury
housing.

338
00:21:44,120 --> 00:21:47,000
Who's going to buy that stuff?
People from wealthier cities.

339
00:21:47,720 --> 00:21:52,200
But if you stop that flow, once
again you get no transactions.

340
00:21:52,760 --> 00:21:56,600
And that's bad news in a in an
industry which constantly needs

341
00:21:56,600 --> 00:22:00,320
transactions to to function.
So.

342
00:22:00,360 --> 00:22:07,120
You Fast forward to today, sales
are running at a higher level

343
00:22:07,120 --> 00:22:10,360
than starts, even though sales
themselves are not looking

344
00:22:10,360 --> 00:22:12,520
particularly appealing.
So.

345
00:22:12,520 --> 00:22:16,840
Ultimately, you are eating into
that inventory overhang and the

346
00:22:16,840 --> 00:22:20,680
absolute overhang that we have
today is actually much smaller

347
00:22:21,480 --> 00:22:26,840
than what we had back in 1516.
What's different I think is that

348
00:22:26,840 --> 00:22:30,560
the backlog of prospective
purchases who would have bought

349
00:22:30,560 --> 00:22:34,520
a house if the controls were
looser, I think that backlog was

350
00:22:34,520 --> 00:22:39,560
much bigger back in 1516 versus
where we are now.

351
00:22:40,120 --> 00:22:43,160
And this is where you get back
to confidence again, how

352
00:22:43,160 --> 00:22:49,160
confident are Chinese households
in a the developer to deliver

353
00:22:50,080 --> 00:22:52,640
and to the asset price
performance which they're going

354
00:22:52,640 --> 00:22:57,840
to see out of real estate.
And that's why you need the

355
00:22:57,840 --> 00:23:01,560
circuit breaker.
Going back to the first first

356
00:23:01,560 --> 00:23:06,120
part of our conversation and
what's really novel about the

357
00:23:06,120 --> 00:23:09,920
policies we've seen this year
versus previous cycles and also

358
00:23:09,920 --> 00:23:14,640
earlier in the cycle is this
idea of state agencies or

359
00:23:14,640 --> 00:23:20,800
entities going on market and
buying houses on their in their

360
00:23:20,800 --> 00:23:22,880
own right well.
You don't go on market and buy

361
00:23:22,880 --> 00:23:24,640
mining tenements in your own
right.

362
00:23:24,640 --> 00:23:27,760
That's one thing I can tell you.
You get MMTS to do it for you.

363
00:23:28,040 --> 00:23:31,360
I'd recommend it if you run out
there, do not try and mess with

364
00:23:31,360 --> 00:23:35,280
the winning formula that is
McMahon Mining Title Services

365
00:23:35,320 --> 00:23:37,560
they.
Are the go to name in title

366
00:23:37,560 --> 00:23:40,560
service management across
Australia every single state.

367
00:23:40,960 --> 00:23:43,520
They they know more about mining
tenements than the whole of

368
00:23:43,520 --> 00:23:47,080
China's population combined in
intelligence.

369
00:23:47,320 --> 00:23:49,120
True.
True story, Shannon.

370
00:23:49,120 --> 00:23:52,240
He was quizzing his kids, his
kids on the drive down South,

371
00:23:52,520 --> 00:23:55,600
even them it's it runs in their
blood at this shop.

372
00:23:55,760 --> 00:23:56,920
His tenements will prison.
Him.

373
00:23:57,400 --> 00:23:58,120
That's it.
Because they.

374
00:23:58,320 --> 00:24:00,320
That's how much they know, yeah.
What's that tenement?

375
00:24:00,320 --> 00:24:02,120
What's that one?
These guys are all over it.

376
00:24:02,120 --> 00:24:04,320
No one else.
I'd rather have look after my

377
00:24:04,320 --> 00:24:06,480
tenements, Maddie, than MMTS,
no?

378
00:24:06,480 --> 00:24:08,080
One would rather get me a
tenement.

379
00:24:08,080 --> 00:24:10,160
You want to peg ground?
You want to pinch a tenement off

380
00:24:10,160 --> 00:24:12,560
someone that's going to let it
lapse, you get your bloody cool.

381
00:24:12,560 --> 00:24:16,360
Leave her in the team at MMTS,
get her out, get a hold of her

382
00:24:16,360 --> 00:24:18,560
and she's in the show notes.
Details are there.

383
00:24:19,520 --> 00:24:21,240
It's amazing.
That's that's pretty.

384
00:24:21,240 --> 00:24:22,280
Quirky.
That's super.

385
00:24:22,680 --> 00:24:24,640
Yeah.
You're here of central banks

386
00:24:24,640 --> 00:24:28,160
buying, you know, government
bonds, but you don't hear of you

387
00:24:28,160 --> 00:24:31,560
don't you don't.
It's like buying buying the

388
00:24:31,600 --> 00:24:34,080
buying up the housing supplies.
Yeah, something pretty

389
00:24:34,080 --> 00:24:38,600
different, but the circuit
breaker point there's like it,

390
00:24:38,680 --> 00:24:41,280
it, it seemed like with the the
policies that kind of came out

391
00:24:41,560 --> 00:24:44,160
OK.
One is 1 is basically making it

392
00:24:44,200 --> 00:24:46,800
like inviting companies to buy
back their own stock at least

393
00:24:46,800 --> 00:24:48,920
like, you know, really low
valuations, everything like

394
00:24:48,920 --> 00:24:51,880
that.
It it seemed like the measures

395
00:24:52,200 --> 00:24:56,200
were a big kind of turning point
for the Chinese equities because

396
00:24:56,200 --> 00:24:58,840
you're you can't you're
indicating and signalling that

397
00:24:59,080 --> 00:25:00,960
yeah, this is a bottom buybacks
are on their way.

398
00:25:00,960 --> 00:25:03,680
I'm going to make it really like
easy to, to, to conduct these

399
00:25:03,680 --> 00:25:06,200
buybacks, all these sort of
quirks.

400
00:25:06,840 --> 00:25:09,280
Is that all an attempt to
basically increase the

401
00:25:09,280 --> 00:25:13,200
confidence of the consumers
themselves that that you know

402
00:25:13,240 --> 00:25:15,080
that that business sentiment is
changing?

403
00:25:18,040 --> 00:25:22,920
Yeah, I think it's, it's an
attempt to to get what are

404
00:25:22,920 --> 00:25:28,080
currently immobile savings if
you're they're just sitting on

405
00:25:28,080 --> 00:25:31,200
deposit in banks, actually
getting them out into the real

406
00:25:31,200 --> 00:25:33,360
world.
And you can.

407
00:25:33,360 --> 00:25:34,880
Deploy that through the equity
market.

408
00:25:34,880 --> 00:25:37,640
You can deploy it through real
estate, hopefully both.

409
00:25:37,960 --> 00:25:38,760
Why?
Why have they?

410
00:25:38,920 --> 00:25:42,480
Why have Chinese residents
historically deployed it like in

411
00:25:42,480 --> 00:25:45,200
a much more outsized way towards
the the real estate market?

412
00:25:48,200 --> 00:25:55,640
OK.
Well, number one is that

413
00:25:55,640 --> 00:26:01,040
alternative asset classes just
haven't been very attractive and

414
00:26:01,240 --> 00:26:05,640
the two biggest stores of wealth
have been bank deposits and

415
00:26:05,640 --> 00:26:12,320
housing.
Real estate has never, sorry,

416
00:26:12,600 --> 00:26:18,200
sorry, equity markets have never
really performed in the same way

417
00:26:18,200 --> 00:26:19,840
that Western equity markets
have.

418
00:26:20,880 --> 00:26:27,120
They're very politically driven
and more so than economically

419
00:26:27,120 --> 00:26:29,960
driven.
If you want to try and line up

420
00:26:30,920 --> 00:26:33,320
good things happening in the
Chinese economy and what the

421
00:26:33,320 --> 00:26:35,880
share market has done, it's
very, very difficult to

422
00:26:36,000 --> 00:26:39,880
correlate the two.
It's really been driven by when

423
00:26:39,880 --> 00:26:44,040
the administration has sort of
put some emphasis on the share

424
00:26:44,040 --> 00:26:47,040
market, that the share market
has done well.

425
00:26:47,360 --> 00:26:50,880
It's not just a sort of broader
function of economic activity

426
00:26:50,880 --> 00:26:54,960
and profits.
Part of this is due to the mixed

427
00:26:54,960 --> 00:26:57,200
ownership of so many Chinese
companies.

428
00:26:59,000 --> 00:27:03,640
It's also the way that companies
treat shareholders in terms of

429
00:27:03,640 --> 00:27:06,040
the way they pay dividends,
which is not much.

430
00:27:07,520 --> 00:27:13,440
And so it's more of a market
which is based on small.

431
00:27:14,480 --> 00:27:17,200
Or short.
Term capital gains potential

432
00:27:18,120 --> 00:27:20,800
versus something which is
actually going to provide you a

433
00:27:20,920 --> 00:27:25,720
flow of income over time.
Now real estate doesn't provide

434
00:27:25,720 --> 00:27:30,120
you a flow of income over time,
but it is a store of value and

435
00:27:30,120 --> 00:27:35,200
it's also an inflation hedge.
Bank deposits are not an

436
00:27:35,200 --> 00:27:40,640
inflation hedge.
This is also in the context of a

437
00:27:40,640 --> 00:27:43,600
Chinese household sector which
doesn't have very good access to

438
00:27:43,600 --> 00:27:48,520
foreign asset markets.
So households have never had the

439
00:27:48,520 --> 00:27:54,720
ability to fully deploy their
capital into say USS and P500

440
00:27:55,400 --> 00:27:59,760
index trackers.
That's all been very controlled.

441
00:28:01,000 --> 00:28:08,080
And so you end up with a lot of
investable savings held

442
00:28:08,080 --> 00:28:10,960
domestically.
And most of the international

443
00:28:10,960 --> 00:28:13,800
financial relations or
international financial asset

444
00:28:13,800 --> 00:28:17,800
holdings have been either
through foreign exchange

445
00:28:17,800 --> 00:28:23,360
reserves or through the major
companies which accrue foreign,

446
00:28:24,120 --> 00:28:27,000
foreign currency assets through
their through their operations.

447
00:28:27,960 --> 00:28:31,800
It wasn't that long ago that
those foreign currency assets

448
00:28:31,800 --> 00:28:34,600
still had repatriation
requirements and surrender

449
00:28:34,600 --> 00:28:38,680
requirements.
So China is not that far into a

450
00:28:38,680 --> 00:28:43,040
reform of its capital account
regime in terms of what you're

451
00:28:43,040 --> 00:28:44,800
allowed to buy and what you're
not allowed to buy.

452
00:28:47,280 --> 00:28:53,720
Now going back a bit in my
career when I was working for

453
00:28:53,720 --> 00:29:00,160
Westpac, we actually built a
consumer sentiment survey for

454
00:29:00,160 --> 00:29:07,440
China, and this was modelled on
Westpac's experience doing

455
00:29:07,440 --> 00:29:10,040
consumer sentiment in Australia
and with the Melbourne

456
00:29:10,040 --> 00:29:11,440
Institute.
So those of you who follow

457
00:29:11,440 --> 00:29:14,200
broader financial markets in
Australia will be familiar with

458
00:29:14,200 --> 00:29:17,320
that particular release.
And that in turn is modelled on

459
00:29:17,320 --> 00:29:20,760
the University of Michigan
consumer sentiment in the United

460
00:29:20,760 --> 00:29:24,280
States.
Now I actually think the most

461
00:29:24,280 --> 00:29:27,280
important part of that survey
when we built it up was actually

462
00:29:27,280 --> 00:29:32,440
the questions about savings.
Why are you saving and what do

463
00:29:32,440 --> 00:29:34,360
you think is the best place for
your savings?

464
00:29:35,520 --> 00:29:40,360
And to understand the relatively
low risk appetite of households

465
00:29:40,360 --> 00:29:44,240
in terms of where they put their
money, you also have to

466
00:29:44,280 --> 00:29:48,680
understand why they are saving
such extraordinary amounts out

467
00:29:48,680 --> 00:29:51,080
of their income versus the
Western consumer.

468
00:29:52,760 --> 00:29:55,640
And the answer is the lack of a
social safety net.

469
00:29:56,960 --> 00:30:00,560
You say why are you saving?
Most of the reasons were

470
00:30:00,560 --> 00:30:04,840
precautionary reasons.
Things like putting a deposit

471
00:30:04,840 --> 00:30:09,120
down on a house were always
very, very low or to buy a car

472
00:30:09,120 --> 00:30:12,920
or to go on a holiday.
Lot of things that, you know,

473
00:30:13,240 --> 00:30:16,240
generation X, Generation Y,
millennials in Australia will

474
00:30:16,240 --> 00:30:18,640
tick.
That's not what people are

475
00:30:18,640 --> 00:30:23,760
ticking the box to do in China.
It's saving against a potential

476
00:30:23,760 --> 00:30:26,120
health problem.
It's saving against the period

477
00:30:26,120 --> 00:30:29,760
of potential unemployment.
It's saving because my parents

478
00:30:29,760 --> 00:30:34,240
are getting old.
It's saving to get my kids into

479
00:30:34,240 --> 00:30:36,840
the best school and to pay all
the tuition fees.

480
00:30:37,240 --> 00:30:42,000
These are, this is where that
very sort of thrifty Chinese

481
00:30:42,000 --> 00:30:44,960
household financial model comes
from.

482
00:30:45,640 --> 00:30:49,160
It's that you actually have to
be self reliant in so many

483
00:30:49,160 --> 00:30:55,480
things because the social safety
net is not as developed as it is

484
00:30:56,200 --> 00:30:59,600
in the West.
And part of that is due to the

485
00:30:59,600 --> 00:31:02,560
collapse of something called the
Iron Rice Bowl system of

486
00:31:02,560 --> 00:31:07,000
corporate welfare, welfare
reform which operated from the

487
00:31:07,000 --> 00:31:11,640
mid 90s and backwards.
But when a lot of SO ES were

488
00:31:12,160 --> 00:31:15,360
restructured and privatised in
the mid 1990s, that whole

489
00:31:15,360 --> 00:31:19,280
corporate welfare system fell
away with it and households had

490
00:31:19,280 --> 00:31:21,000
to become a lot more self
reliant.

491
00:31:24,240 --> 00:31:30,480
Wow, that's, that's really,
really fascinating to, to tie

492
00:31:30,480 --> 00:31:33,760
this in again with, with
Australia, something we we

493
00:31:33,760 --> 00:31:38,720
touched on when we, we spoke a
little while ago is this plateau

494
00:31:38,720 --> 00:31:42,360
of crude steel production in
China.

495
00:31:42,360 --> 00:31:45,480
And I know you've, you've done
plenty of work on this here.

496
00:31:45,480 --> 00:31:50,200
So I'm keen to just get you your
broad sort of thoughts on on

497
00:31:50,200 --> 00:31:53,480
this and where it kind of what
the trajectory is for this going

498
00:31:53,480 --> 00:31:58,160
forward and what we can kind of
infer from the trends we've seen

499
00:31:58,160 --> 00:32:01,360
in in the nearer term.
Yeah.

500
00:32:01,360 --> 00:32:05,880
OK.
So the concept of the plateau of

501
00:32:05,880 --> 00:32:09,640
crude steel production in China,
you know, it's been around for a

502
00:32:09,640 --> 00:32:13,400
while.
I would just put on the record

503
00:32:13,400 --> 00:32:17,520
here, though, that a lot of
people who are calling peak

504
00:32:17,520 --> 00:32:19,960
steel now also called it 10
years ago.

505
00:32:19,960 --> 00:32:24,040
A lot of people who are calling
the middle income trap for the

506
00:32:24,040 --> 00:32:26,200
economy now, they also called it
10 years ago.

507
00:32:26,520 --> 00:32:29,560
Yeah.
Now, if they're right this time,

508
00:32:29,560 --> 00:32:33,120
they'll presumably be right for
the wrong reasons because they

509
00:32:33,120 --> 00:32:39,880
got it wrong back in 1314.
But every country's economic

510
00:32:39,880 --> 00:32:45,320
development journey has a pretty
reliable footprint in terms of

511
00:32:45,320 --> 00:32:48,800
how much steel it needs at
various levels of living

512
00:32:48,800 --> 00:32:53,080
standards.
And if you picture this as a

513
00:32:53,080 --> 00:32:58,280
chart with the horizontal being
the timeline and the the

514
00:32:58,280 --> 00:33:06,040
vertical line being steel
production per head, essentially

515
00:33:06,040 --> 00:33:12,640
it's an upside down U shape.
And the peak of that upside down

516
00:33:12,640 --> 00:33:16,520
U is somewhere in the middle
income phase of an economy's

517
00:33:16,520 --> 00:33:18,080
life.
And.

518
00:33:18,080 --> 00:33:21,600
That's roughly where China is
now.

519
00:33:22,520 --> 00:33:25,120
Why is it a plateau, not a peak
for China?

520
00:33:25,880 --> 00:33:30,680
IE why is that upside down U
shape, which in high school

521
00:33:30,680 --> 00:33:34,200
maths you remember is a
parabola, Why is it not a very

522
00:33:34,200 --> 00:33:38,560
discreet peak and why is it a
little bit level over the top

523
00:33:38,560 --> 00:33:43,400
there?
Well, in China's situation, it's

524
00:33:43,400 --> 00:33:45,120
partly because it's
urbanisation.

525
00:33:45,120 --> 00:33:50,520
Dr has not complete, has not
concluded about 65% urbanised in

526
00:33:50,520 --> 00:33:55,120
China and we'll get to at least
81 would one would suspect.

527
00:33:55,520 --> 00:34:00,720
And so urbanisation is one of
the key underpinnings of the

528
00:34:00,720 --> 00:34:06,880
need for steel use.
But also China is much more

529
00:34:06,880 --> 00:34:10,840
internationally competitive in
steel intensive manufacturing

530
00:34:11,600 --> 00:34:14,239
than most other countries at
this stage of their economic

531
00:34:14,239 --> 00:34:18,320
life cycle.
And so even though we've seen

532
00:34:18,639 --> 00:34:24,400
the year of peak dwelling
construction in China, we the

533
00:34:24,400 --> 00:34:28,440
peak steel plateau has continued
partly because the steel has

534
00:34:28,440 --> 00:34:31,840
been diverted to manufacturing
where China is still

535
00:34:31,840 --> 00:34:35,440
internationally competitive.
So I'm going to put this into

536
00:34:35,440 --> 00:34:37,400
some sort of simple ratios for
you.

537
00:34:39,719 --> 00:34:44,040
At early stages of economic
development and early stages of

538
00:34:44,040 --> 00:34:51,600
urbanisation, construction plus
infrastructure tend to be about

539
00:34:51,600 --> 00:34:56,120
70% of use of steel inside a
system and 30% for

540
00:34:56,120 --> 00:34:58,880
manufacturing.
That's where India is today.

541
00:35:02,000 --> 00:35:06,160
Now.
Just before the pandemic, China

542
00:35:06,160 --> 00:35:12,800
was about 50 fifty, 50% for
infrastructure plus construction

543
00:35:14,000 --> 00:35:18,960
and 50% for manufacturing. 10
years before that it was more,

544
00:35:18,960 --> 00:35:22,000
554555 being the construction
site.

545
00:35:24,240 --> 00:35:31,920
Today, much lower, it's more
like 4060 and actually probably

546
00:35:31,920 --> 00:35:35,240
even slightly lower than that
because real estate has been

547
00:35:35,240 --> 00:35:38,360
contracting and manufacturing
has been rising.

548
00:35:38,360 --> 00:35:40,360
And so the relative shares are
coming through.

549
00:35:41,800 --> 00:35:45,280
So China today is starting to
look a lot more like the US,

550
00:35:45,280 --> 00:35:49,080
Japan and Germany in terms of
which industries are consuming

551
00:35:49,080 --> 00:35:54,520
the steel than it is like India.
But this has all happened in a

552
00:35:54,520 --> 00:35:58,080
rush because real estate has
come off so quickly.

553
00:35:58,640 --> 00:36:03,240
But also China has been rapidly
increasing its global export

554
00:36:03,240 --> 00:36:08,560
market share in manufacturing,
and that's enabled the steel

555
00:36:08,560 --> 00:36:11,800
production to hold up.
And then there's where net

556
00:36:11,800 --> 00:36:15,520
exports are going.
And net exports have been quite

557
00:36:15,520 --> 00:36:20,240
large up to triple digits in
terms of millions of tonnes over

558
00:36:20,240 --> 00:36:25,360
the last 18 months or so.
And so that also feeds into the

559
00:36:25,360 --> 00:36:30,400
feeds into the analysis.
That number has been as low as

560
00:36:30,400 --> 00:36:33,040
3040 within three or four years
ago.

561
00:36:33,720 --> 00:36:35,480
And so that's still a swing
factor.

562
00:36:36,280 --> 00:36:39,000
And so that's where that's where
we currently stand.

563
00:36:40,520 --> 00:36:44,680
We are going to go into demand
erosion I think before too long.

564
00:36:46,400 --> 00:36:52,000
You may hold up above a billion
tonnes next year, but by the

565
00:36:52,000 --> 00:36:58,040
skin of your teeth.
And each year it's sort of it's

566
00:36:58,040 --> 00:37:01,880
a chance that that's the year.
Probabilistically when you do go

567
00:37:01,880 --> 00:37:04,200
below 1 billion tonnes of crude
steel production, which is

568
00:37:04,200 --> 00:37:09,680
basically where you've been for
5-6 years, is that a calamity?

569
00:37:09,840 --> 00:37:17,080
No, it's not a calamity.
There's still a lot of life in

570
00:37:17,080 --> 00:37:20,160
Chinese steel intensive
manufacturing and in terms of

571
00:37:20,160 --> 00:37:24,560
Chinese urbanisation, but the
best days are in the rearview

572
00:37:24,560 --> 00:37:29,360
mirror and when the historians
come back, give or take data

573
00:37:29,360 --> 00:37:33,200
revisions, the peak steel year
will have been 2020, which is

574
00:37:33,200 --> 00:37:38,200
the one billion 65 tonnes, and
we're probably not going back

575
00:37:38,200 --> 00:37:42,480
there.
We almost got there last year on

576
00:37:42,480 --> 00:37:45,720
unofficial data, but we won't
get there this year.

577
00:37:46,320 --> 00:37:49,960
Hugh, we might actually get
there purely black based on this

578
00:37:49,960 --> 00:37:53,640
bloody Sambic Ground support
division growing at absolute

579
00:37:54,480 --> 00:37:58,640
speed of sound rights, like in
talking about steel production

580
00:37:58,640 --> 00:37:59,640
this year.
I think.

581
00:37:59,640 --> 00:38:03,360
I don't know if he's put the
Sambic Ground support division

582
00:38:03,360 --> 00:38:06,720
in his models for global steel
production, but I think it needs

583
00:38:06,720 --> 00:38:08,960
to be considered and I have
mentioned it before.

584
00:38:08,960 --> 00:38:12,680
Between the split sets, the POSI
mix bulbs, the MDX bolts, the

585
00:38:12,680 --> 00:38:15,800
mesh, the meshable strengths,
the meshable variation and

586
00:38:15,800 --> 00:38:18,360
sizes, mate Chuck it in the
model.

587
00:38:18,600 --> 00:38:22,160
Consider it in the yeah, like
tail end of the 20 tens or

588
00:38:22,160 --> 00:38:25,520
whatever it was the the
resurgence of China that lifted

589
00:38:25,520 --> 00:38:28,640
up the iron ore commodity
markets, mate, this time it's

590
00:38:28,640 --> 00:38:30,600
going to be the.
It's the surge.

591
00:38:31,680 --> 00:38:34,960
There's no resurgence, it's just
the surgeons of CNV ground

592
00:38:34,960 --> 00:38:37,440
support division bonds.
Are getting deeper, you need

593
00:38:37,440 --> 00:38:41,280
them to be safer.
So then put these DSI Bolton

594
00:38:41,280 --> 00:38:42,120
mesh in.
Yep.

595
00:38:42,120 --> 00:38:44,520
Do you got to just sorry?
Sandvik grant support.

596
00:38:44,680 --> 00:38:47,320
We've still got a bit of DSI in
this, but it is Sandvik.

597
00:38:47,320 --> 00:38:49,360
Just Sandvik the shit out of
your mind.

598
00:38:49,520 --> 00:38:51,960
Just get it in to you.
That's right, Chuck a Sandvik

599
00:38:51,960 --> 00:38:54,560
order in while you're there.
Sounds as good.

600
00:38:56,440 --> 00:39:03,640
And if my policy prescription of
supply side reform mark two were

601
00:39:03,640 --> 00:39:08,080
to be followed, well that would
take capacity out so the Chinese

602
00:39:08,080 --> 00:39:11,680
industry would produce less
steel and become more profitable

603
00:39:11,680 --> 00:39:14,480
thereby.
I think that's a better policy

604
00:39:14,480 --> 00:39:20,320
for the long term than
overproducing steel, putting

605
00:39:20,320 --> 00:39:24,080
more pressure on international
traded markets, keeping

606
00:39:24,080 --> 00:39:30,600
profitability low.
Certainly if I was running

607
00:39:30,960 --> 00:39:33,320
Chinese industrial policy,
that's what I would be doing.

608
00:39:33,880 --> 00:39:37,960
That's a that's a nervous
thought for the the major iron

609
00:39:37,960 --> 00:39:40,880
ore miners out here in
Australia.

610
00:39:40,880 --> 00:39:44,320
If, if, yeah, if if Chinese
policy makers were to adopt some

611
00:39:44,320 --> 00:39:46,720
supply side measures similar to
that 2014 period.

612
00:39:47,640 --> 00:39:51,680
It depends.
You know, it's put a lot of

613
00:39:51,680 --> 00:39:55,800
pressure on the competitors of
the major Chinese, of major

614
00:39:55,800 --> 00:39:58,760
suppliers of the Chinese market
as well, for sure.

615
00:39:59,320 --> 00:40:04,240
And when Chinese steel mills
aren't making any money, high

616
00:40:04,240 --> 00:40:08,520
quality ores don't get rewarded.
In terms of the value in use,

617
00:40:08,520 --> 00:40:12,680
calculus, which drives the
trading of different products

618
00:40:13,360 --> 00:40:17,680
and low quality products, don't
get penalised as much, but you

619
00:40:17,680 --> 00:40:19,920
do get a lot more
differentiation between

620
00:40:19,920 --> 00:40:24,360
companies.
When steel mills are profitable

621
00:40:25,000 --> 00:40:28,440
and they're seeking to boost the
productivity of their operations

622
00:40:28,440 --> 00:40:32,480
because they're making cash,
that's when they start to pay up

623
00:40:33,200 --> 00:40:37,080
for low gang iron ores and
that's when they start to

624
00:40:37,320 --> 00:40:42,920
discount heavily for the lower
grade stuff and that's when they

625
00:40:42,920 --> 00:40:48,120
start to pay up the lump.
And so this actually brings some

626
00:40:48,120 --> 00:40:52,920
differentiation, which actually
is positive for the strongest

627
00:40:52,920 --> 00:40:56,200
iron ore producers.
It's usually challenging for the

628
00:40:56,200 --> 00:41:01,080
juniors and it's challenging for
swing exporters.

629
00:41:02,360 --> 00:41:09,200
But in this?
Regard probably my my main sort

630
00:41:09,200 --> 00:41:12,200
of analytical go to thinking
about the development of the

631
00:41:12,200 --> 00:41:16,240
iron ore industry is some
analysis I did a couple of years

632
00:41:16,240 --> 00:41:20,440
ago when a group of analysts
were coming through W Australia

633
00:41:20,440 --> 00:41:23,520
and iron ore to to look at to
look at those operations.

634
00:41:24,760 --> 00:41:31,640
If you go back to late 2018,
just before the Brazilian

635
00:41:31,640 --> 00:41:34,960
producer Valet had the the
terrible accident with the

636
00:41:34,960 --> 00:41:40,160
Brumidino tailings down, the way
people thought that market was

637
00:41:40,160 --> 00:41:45,400
going to evolve had sort of five
stylized elements to it.

638
00:41:46,840 --> 00:41:48,800
No one thought demand was going
anywhere.

639
00:41:50,200 --> 00:41:52,920
Everyone thought the major
producers were going to increase

640
00:41:52,920 --> 00:41:56,560
their production.
Everyone thought the cost curve

641
00:41:56,560 --> 00:42:00,600
was going to flatten, everyone
thought the smaller producers

642
00:42:00,600 --> 00:42:03,640
were going to be squeezed out,
and everyone thought the price

643
00:42:03,640 --> 00:42:07,320
was going to fall.
You know, pretty bleak, right?

644
00:42:07,920 --> 00:42:10,000
Totally.
That was consensus.

645
00:42:11,760 --> 00:42:14,080
So the people who wanted to
position themselves as extra

646
00:42:14,080 --> 00:42:16,760
bearish, you know, like had to
really amplify that narrative.

647
00:42:16,760 --> 00:42:19,800
But the the consensus itself was
not optimistic.

648
00:42:21,280 --> 00:42:24,880
Now from my perspective, I
agreed with all of those things

649
00:42:24,880 --> 00:42:28,600
except the demand side.
I thought the demand was going

650
00:42:28,600 --> 00:42:31,160
to be much stronger than people
thought.

651
00:42:31,920 --> 00:42:36,600
If you Fast forward five years
to 2023, so the last calendar

652
00:42:36,600 --> 00:42:40,320
year for which we have complete
data, you know demand was more

653
00:42:40,320 --> 00:42:46,400
than 100 million tonnes higher.
But what didn't happen was you

654
00:42:46,400 --> 00:42:49,840
didn't get increasing tonnes
from low cost producers.

655
00:42:52,000 --> 00:42:56,080
So you didn't squeeze out the
little guys, the high cost, the

656
00:42:56,080 --> 00:42:58,720
lower grade.
So the cost curve didn't

657
00:42:58,720 --> 00:43:00,200
flatten.
In fact it's steepened.

658
00:43:01,360 --> 00:43:05,640
And instead of a cost support
regime which was operating

659
00:43:05,640 --> 00:43:13,480
around $60.00 in 2018, you wake
up in 2023 and your cost support

660
00:43:13,480 --> 00:43:16,120
has gone to a range from 80 to
$100.

661
00:43:16,560 --> 00:43:21,160
And throughout 23 in the early
parts of 24, the way that range

662
00:43:21,160 --> 00:43:25,640
operated is 100 actually was was
almost binding on the price

663
00:43:26,400 --> 00:43:29,640
because of how quickly some of
those swing exports came out of

664
00:43:29,640 --> 00:43:32,560
the market when 100 was breached
in ACFR basis.

665
00:43:34,480 --> 00:43:39,560
So the market didn't expect to
be where it got to in 2023.

666
00:43:42,280 --> 00:43:45,640
Were the iron ore majors quaking
in their boots at the outlook we

667
00:43:45,640 --> 00:43:48,560
saw in 2018?
Well, no, not really.

668
00:43:49,080 --> 00:43:50,840
What was your no regrets
strategy there?

669
00:43:50,840 --> 00:43:56,680
It was tilt to quality and be as
efficient as possible.

670
00:43:58,640 --> 00:44:01,640
Pretty simple Stuff that's
mining is quite simple when you

671
00:44:01,640 --> 00:44:06,680
boil it down.
Have an efficient operation in

672
00:44:06,680 --> 00:44:09,600
the first quartile of the cost
curve and devil take the high

673
00:44:09,600 --> 00:44:12,640
most.
That's really bulk mining and

674
00:44:12,640 --> 00:44:15,440
that's why the best Australian
miners are so successful in that

675
00:44:15,440 --> 00:44:20,800
market because they can prosper
at prices well below those that

676
00:44:20,800 --> 00:44:22,720
we've seen in the last couple of
years.

677
00:44:23,640 --> 00:44:25,920
And in the fullness of time, we
are going to see prices much

678
00:44:25,920 --> 00:44:30,080
below that range right now, like
in the next six weeks.

679
00:44:30,080 --> 00:44:35,480
Well, probably not.
The 80 to 100 CFR range is still

680
00:44:35,480 --> 00:44:41,560
binding on the industry.
And I think some of the

681
00:44:41,560 --> 00:44:46,360
commentary you see in the media
in terms of the magnitude of

682
00:44:46,360 --> 00:44:51,880
shifts in this market, it's a
little alarmist because when you

683
00:44:52,560 --> 00:44:58,600
when you go from $110 to 100, so
you got a 10% move.

684
00:44:59,800 --> 00:45:04,400
Well, the average volatility of
the iron ore price is above 40%

685
00:45:04,400 --> 00:45:09,600
annually.
So 10 is just is just white

686
00:45:09,600 --> 00:45:17,040
noise from week to week and that
isn't something that would be

687
00:45:17,040 --> 00:45:20,600
seen as material inside a
company in terms of budgeting

688
00:45:21,480 --> 00:45:23,440
and the like, because we
understand the what the

689
00:45:23,440 --> 00:45:25,040
volatility of these commodities
are.

690
00:45:26,080 --> 00:45:29,160
You can't treat commodity price
volatility the same way you

691
00:45:29,160 --> 00:45:33,800
treat share price volatility or
currency volatility or bond

692
00:45:33,800 --> 00:45:36,200
market volatility because they
just have completely different

693
00:45:36,200 --> 00:45:40,280
characteristics in terms of
transaction density, intra year

694
00:45:40,280 --> 00:45:45,480
seasonality and the like.
And so you know if we go from

695
00:45:45,480 --> 00:45:51,920
100 to 85 over the next few
months, yes, 15%, but it's still

696
00:45:51,920 --> 00:45:54,720
well within the boundaries of
regular volatility in these

697
00:45:54,720 --> 00:46:01,680
markets.
What is the more useful sort of

698
00:46:01,680 --> 00:46:06,120
analysis is running a lot of
scenarios to actually think

699
00:46:06,120 --> 00:46:10,160
about when you hit those key
pressure points in a market when

700
00:46:10,160 --> 00:46:12,960
you go from one shelf on a cost
curve to another shelf.

701
00:46:14,960 --> 00:46:22,080
Now that could be downwards, but
as the 2018 to 2023 episode told

702
00:46:22,080 --> 00:46:24,880
us, sometimes you actually end
up on a shelf you didn't expect

703
00:46:24,880 --> 00:46:26,080
to be on, which is the higher
shelf.

704
00:46:27,280 --> 00:46:32,440
And that was that was a
tremendous sweet spot for the

705
00:46:32,440 --> 00:46:36,440
Australian mining industry, not
least because the Australian

706
00:46:36,440 --> 00:46:39,360
dollar didn't actually follow
commodity prices through that

707
00:46:39,360 --> 00:46:42,560
period.
So you got a double kicker.

708
00:46:43,160 --> 00:46:46,720
The US dollar commodity price
went up and the US dollar costs,

709
00:46:47,040 --> 00:46:50,920
we're actually being favoured by
a lower exchange rate.

710
00:46:51,600 --> 00:46:57,000
And I don't think everyone is
sort of quite twigged to how

711
00:46:57,000 --> 00:47:02,480
powerful that disconnect between
commodity prices and the

712
00:47:02,480 --> 00:47:07,200
exchange rate was for the
Australian dollar profitability

713
00:47:07,480 --> 00:47:09,600
that actually funds the federal
treasury.

714
00:47:11,040 --> 00:47:15,320
And one of the questions I'm
looking at at the moment is how

715
00:47:15,320 --> 00:47:17,280
does that disconnect ultimately
resolve I'm.

716
00:47:19,440 --> 00:47:23,520
I'm really curious you, you talk
about going from one step on the

717
00:47:23,520 --> 00:47:27,000
cost curve to to another one.
I mean, you know, like some of

718
00:47:27,000 --> 00:47:30,080
the bearish commentary you hear
about the the iron ore market is

719
00:47:30,080 --> 00:47:31,440
all to do with the supply side,
right?

720
00:47:32,040 --> 00:47:35,440
People have to talk about, you
know, the, the SIM and do supply

721
00:47:35,440 --> 00:47:38,040
coming online.
You know, valet is kind of

722
00:47:38,040 --> 00:47:41,200
increasing their production back
up and and then throw in the mix

723
00:47:41,200 --> 00:47:45,360
sort of, you know, the likes of
of of men raised going from sort

724
00:47:45,400 --> 00:47:48,440
of well, aiming to go from zero
to 50 million tonnes per annum

725
00:47:48,680 --> 00:47:52,200
kind of out of out of Onslow in
a shortage period of time.

726
00:47:53,080 --> 00:47:55,720
So then you've got the higher
cost producers sort of ramping

727
00:47:55,720 --> 00:47:58,160
in an environment where you've
got lower cost production also

728
00:47:58,160 --> 00:48:03,160
coming on and as you described
it, a potential kind of demand

729
00:48:03,160 --> 00:48:07,360
plateau in some regards as well.
Does that is that enough to to

730
00:48:07,360 --> 00:48:10,920
knock to knock us from one one
pick on the on the cost curve to

731
00:48:10,920 --> 00:48:14,920
another?
Oh, look, anyone in the high

732
00:48:14,920 --> 00:48:20,080
cost bracket I don't think has a
compelling case to be financed

733
00:48:20,080 --> 00:48:27,440
right now.
That would be one way I think

734
00:48:27,480 --> 00:48:30,120
about it.
Look, if you haven't had Simon

735
00:48:30,120 --> 00:48:35,160
do in your numbers for about 6
years, you know, that's, that's

736
00:48:35,160 --> 00:48:39,200
just poor analysis, I think.
So everyone should have been

737
00:48:39,200 --> 00:48:43,440
planning both tactically and
strategically for the entry of

738
00:48:43,440 --> 00:48:46,840
Simon Do and seeing how
everything looked strategically

739
00:48:46,840 --> 00:48:51,600
on that basis.
Now the only real debate there

740
00:48:51,600 --> 00:48:56,880
is a timing of first tonnes and
B ramp up schedule.

741
00:48:58,280 --> 00:48:59,520
Oh, actually there is a third
one.

742
00:48:59,520 --> 00:49:04,960
It's ultimate nameplate and
that's something I think people

743
00:49:04,960 --> 00:49:12,000
are still looking at in terms of
the ability to transship versus

744
00:49:12,200 --> 00:49:15,600
the ability to dredge a port and
how much whether that's

745
00:49:15,600 --> 00:49:20,360
physically feasible or
financially feasible, etcetera.

746
00:49:21,040 --> 00:49:24,480
But for the period between now
and 2030, we know we're going to

747
00:49:24,480 --> 00:49:27,400
get first tonnes and we know
we're going to face a ramp up.

748
00:49:32,280 --> 00:49:36,480
Well, yeah, that will displace
tonnes that are currently in the

749
00:49:36,480 --> 00:49:39,360
market.
Absolutely.

750
00:49:39,840 --> 00:49:44,680
Will it displace enough tonnes
to get you out of this price

751
00:49:44,680 --> 00:49:48,040
regime?
In some scenarios, no.

752
00:49:48,840 --> 00:49:52,600
In some scenarios, yes.
And that's where you have to

753
00:49:52,600 --> 00:49:56,200
look at this on a probabilistic
basis and a scenario basis.

754
00:49:57,120 --> 00:50:03,520
It will depend on the demand
side as you say, but also the

755
00:50:03,520 --> 00:50:10,040
ability of those producers who
are currently providing the cost

756
00:50:10,040 --> 00:50:15,360
support in the market and should
just say there's roughly 180

757
00:50:15,360 --> 00:50:18,320
million tonnes in the cost
support bracket at the moment.

758
00:50:18,320 --> 00:50:27,800
It's not trivial how how they
respond and also some other

759
00:50:27,800 --> 00:50:30,720
things like in terms of how we
go with profitability and value

760
00:50:30,720 --> 00:50:33,760
and use differentials as well as
freight rates to actually see

761
00:50:33,760 --> 00:50:37,360
how things move around.
Because Simandu tonnes coming

762
00:50:37,360 --> 00:50:41,560
into East Asia obviously are at
a freight disadvantage.

763
00:50:44,360 --> 00:50:48,360
Yeah, it also depend on how well
the Brazilians go in terms of

764
00:50:48,840 --> 00:50:52,160
increasing production there,
particularly Bali.

765
00:50:52,160 --> 00:50:54,360
So there's still a lot of
permutations.

766
00:50:55,040 --> 00:51:01,640
And if you look at the numbers,
the tonnages which people

767
00:51:01,640 --> 00:51:05,560
generally ascribe to Simandu and
the 180 million tonnes that I've

768
00:51:05,560 --> 00:51:10,040
told you is unexpected supply
which is in the market to keep

769
00:51:10,040 --> 00:51:13,280
it balanced today, which
basically describes this new

770
00:51:13,280 --> 00:51:17,240
shelf.
The cylinder numbers are smaller

771
00:51:17,640 --> 00:51:21,200
than the tonnes that are in the
shelf now.

772
00:51:23,160 --> 00:51:25,120
So that's why you need other
things to happen.

773
00:51:25,120 --> 00:51:32,080
You need a relatively complex
scenario and not just a binary

774
00:51:32,080 --> 00:51:36,240
one to think about how Simon Do
will influence the market.

775
00:51:39,280 --> 00:51:44,600
What, what are the sort of key
takeaways or lessons that you,

776
00:51:44,600 --> 00:51:48,120
you would give someone just
trying to understand how to

777
00:51:48,120 --> 00:51:50,880
forecast commodity prices?
You know, we, we talk about it

778
00:51:50,880 --> 00:51:53,360
all the time.
It's notoriously hard and you've

779
00:51:53,360 --> 00:51:56,440
studied these, these markets
for, for years and years and

780
00:51:56,440 --> 00:51:58,280
years.
Is it, does it always just come

781
00:51:58,280 --> 00:52:03,080
back to the cost curve and
understanding supply and demand

782
00:52:03,080 --> 00:52:06,520
or they're sort of left field,
you know, points of view, not

783
00:52:06,520 --> 00:52:08,720
really focusing on the shorter
term commodity prices because

784
00:52:08,720 --> 00:52:11,840
it's just so, so challenging.
But if you're looking at medium

785
00:52:11,840 --> 00:52:16,200
to longer term forecasts, is it
just getting your hands on, on

786
00:52:16,200 --> 00:52:17,760
better data, understanding it
better?

787
00:52:17,760 --> 00:52:21,200
What do you what do you kind of
ascribe better forecasting

788
00:52:21,320 --> 00:52:27,960
analysis to?
Well, look, there's, there's a

789
00:52:27,960 --> 00:52:35,200
lot that goes into it as you
say, and there's a lot of

790
00:52:35,200 --> 00:52:40,760
different methodologies which
which exist now.

791
00:52:40,760 --> 00:52:44,880
I think most mining companies
pride themselves on doing what

792
00:52:44,880 --> 00:52:49,720
is called bottom up forecasting,
IE they actually try and

793
00:52:49,720 --> 00:52:54,240
assemble as much as they can
from the bottom in terms of

794
00:52:54,240 --> 00:52:57,440
making assumptions about
individual companies, so on and

795
00:52:57,440 --> 00:53:00,280
so forth to get them to their to
their final answer.

796
00:53:01,640 --> 00:53:03,920
And that's got a lot of validity
because you know that once

797
00:53:03,920 --> 00:53:06,360
you've made all your bottom up
assumptions that that will add

798
00:53:06,360 --> 00:53:08,840
up to the answer.
The problem is you have to make

799
00:53:08,840 --> 00:53:12,160
far too many decisions along the
way to do a bottom up forecast.

800
00:53:13,000 --> 00:53:18,320
And there's only so much fact
that you can feed into a model

801
00:53:18,320 --> 00:53:23,360
as you start to roll it forward.
So what do I think the industry

802
00:53:23,360 --> 00:53:26,160
currently does quite well and
what do I think the industry

803
00:53:26,160 --> 00:53:30,120
does quite poorly?
I.

804
00:53:30,120 --> 00:53:32,320
Think on the.
Demand side, I don't think the

805
00:53:32,320 --> 00:53:39,520
industry in general has very
sophisticated methodologies for

806
00:53:39,520 --> 00:53:41,880
going from the short to the
medium to the long term.

807
00:53:42,840 --> 00:53:50,200
That's number one.
On the supply side, I think far

808
00:53:50,200 --> 00:53:54,760
too little effort goes into
deeply understanding the cost

809
00:53:54,760 --> 00:54:02,920
base and how the cost base is
influenced by cycles to actually

810
00:54:02,920 --> 00:54:06,560
run through what the long run
cost curve is genuinely going to

811
00:54:06,560 --> 00:54:11,800
look like.
That's a really big issue and I

812
00:54:11,800 --> 00:54:16,680
think it's most pronounced at
the bottom of the cycle and at

813
00:54:16,680 --> 00:54:20,400
the top of the cycle in terms of
industry costs.

814
00:54:21,920 --> 00:54:27,480
So my suspicion is that long
term costs are probably being

815
00:54:27,480 --> 00:54:31,160
overestimated at the moment
because the starting point is so

816
00:54:31,160 --> 00:54:35,440
high and I know for a fact that
long run costs were

817
00:54:35,440 --> 00:54:38,560
underestimated when we're at the
bottom of the commodity price

818
00:54:38,560 --> 00:54:40,560
cycle.
Is the intuition here, here just

819
00:54:40,560 --> 00:54:44,440
that like when prices are
elevated, you know, we, we, we,

820
00:54:44,440 --> 00:54:46,880
we, we, we're, we're a bit less
efficient.

821
00:54:46,880 --> 00:54:49,280
We put more through the mill if
it's not talking, I don't

822
00:54:49,520 --> 00:54:53,920
necessarily, but there's a bit
more fact to to things and it's

823
00:54:53,920 --> 00:54:56,800
in the, it's in the in the
troughs where we get more cost

824
00:54:56,800 --> 00:54:58,720
efficiencies out of it because
we run things way leaner and

825
00:54:58,720 --> 00:55:01,280
we're much more conscious about
oversupplying the market in

826
00:55:01,280 --> 00:55:04,320
those times too.
Well, yeah, there's there's a

827
00:55:04,320 --> 00:55:06,320
pro cyclicality to decision
making.

828
00:55:06,320 --> 00:55:07,760
That's what you've just
described.

829
00:55:08,200 --> 00:55:11,040
I think there's a pro
cyclicality to decision making

830
00:55:11,040 --> 00:55:14,680
that you need to understand the
psychology of the the layperson

831
00:55:15,200 --> 00:55:17,840
and the people who run mining
companies in some instances are

832
00:55:17,840 --> 00:55:20,680
lay people in the sense that
they're an accountant or they're

833
00:55:20,680 --> 00:55:24,800
an engineer or they're a
business development person and

834
00:55:24,800 --> 00:55:31,720
suddenly they find themselves
trying to deal with 30 year

835
00:55:31,880 --> 00:55:37,000
megatrends.
So you have to recognise that

836
00:55:37,000 --> 00:55:41,560
pro cyclicality will be there.
Then it interacts with something

837
00:55:41,560 --> 00:55:46,200
called recency bias.
You have pro cyclicality because

838
00:55:46,520 --> 00:55:52,680
your recency bias, and I think
really good long term

839
00:55:52,680 --> 00:55:57,800
forecasting requires both
courage and imagination.

840
00:55:59,640 --> 00:56:04,080
Courage in the sense that you
have to be willing to

841
00:56:04,080 --> 00:56:07,680
countenance very, very large
changes occurring within the

842
00:56:07,680 --> 00:56:14,160
forecast period, an imagination
to actually think through what

843
00:56:14,160 --> 00:56:16,400
those really, really big changes
could be.

844
00:56:19,160 --> 00:56:22,720
Now there's an anchoring effect
where people don't want to

845
00:56:23,160 --> 00:56:26,160
produce things which are
difficult to explain or might be

846
00:56:26,160 --> 00:56:28,560
controversial.
And that often means very timid

847
00:56:28,560 --> 00:56:31,040
long term forecasts when not
much actually changes.

848
00:56:32,600 --> 00:56:35,120
But that is exactly where you
bake in the conditions of the

849
00:56:35,120 --> 00:56:38,280
day for too long.
Even though this industry has

850
00:56:38,280 --> 00:56:42,800
massive amplitude, so 40% in
your average year, that's

851
00:56:42,800 --> 00:56:46,280
different to the peak to through
for the cycle.

852
00:56:47,400 --> 00:56:53,760
And there's another point here
where.

853
00:56:53,760 --> 00:56:56,240
I saw this is really.
Pronounced on the cost side,

854
00:56:56,360 --> 00:57:03,280
like I remember in the middle of
the pandemic when oil demands

855
00:57:03,600 --> 00:57:09,800
halved overnight and you just
had this enormous crunch on the

856
00:57:10,480 --> 00:57:16,560
on the upstream supply chain.
One of the best consultants in

857
00:57:16,560 --> 00:57:20,240
that particular industry
released a new long term

858
00:57:20,240 --> 00:57:24,920
forecast of deep water capital
costs.

859
00:57:26,360 --> 00:57:29,280
And basically what they've done
once you sort of stripped it

860
00:57:29,280 --> 00:57:34,760
back is they go on to this new
through to the pandemic, and

861
00:57:34,760 --> 00:57:37,560
then they'd applied exactly the
same Kegar that they had

862
00:57:37,560 --> 00:57:41,120
previously before the shock to
the new starting point.

863
00:57:43,240 --> 00:57:45,640
So you know what that looks like
in terms of the long run

864
00:57:45,640 --> 00:57:48,920
forecast.
It's 2 lines parallel to each

865
00:57:48,920 --> 00:57:50,640
other with very, very different
starting points.

866
00:57:52,120 --> 00:57:54,400
So you're not saying anything
controversial at the rate of

867
00:57:54,400 --> 00:57:59,960
change at any given time, but
you're miles apart at the end

868
00:57:59,960 --> 00:58:03,160
point.
So I call that a windscreen

869
00:58:03,160 --> 00:58:09,360
wiper forecast because you go,
you use the end of the

870
00:58:09,360 --> 00:58:11,480
windscreen wiper is just
flicking around like you

871
00:58:11,480 --> 00:58:16,640
wouldn't believe because the the
rate of change in any given year

872
00:58:17,920 --> 00:58:22,760
hasn't really been altered.
And that's where the short term

873
00:58:22,760 --> 00:58:24,400
and the long term just don't
talk to each other.

874
00:58:24,800 --> 00:58:27,800
And you have to recognise that
and have different methodologies

875
00:58:27,800 --> 00:58:33,760
for for looking at them.
Now one final thing about

876
00:58:33,760 --> 00:58:41,520
commodity price forecasting is
that commodity price formation

877
00:58:42,960 --> 00:58:48,880
is much more prone to non linear
jumps than economy wide

878
00:58:48,880 --> 00:58:53,720
inflation.
That's because supply and demand

879
00:58:53,720 --> 00:59:00,640
are both more fragile.
In.

880
00:59:00,640 --> 00:59:05,680
Macroeconomics when they're
trying to forecast ACPI, they

881
00:59:05,680 --> 00:59:09,080
basically assume that the
aggregate supply curve is just a

882
00:59:09,080 --> 00:59:16,320
straight line, whereas if you
compare that to the cost curve

883
00:59:16,400 --> 00:59:18,560
in mining, it's not a straight
line.

884
00:59:20,000 --> 00:59:23,480
It.
Often has it's very steep tail

885
00:59:24,200 --> 00:59:28,400
sort of between the 90th and say
105th percentile on the curve.

886
00:59:29,080 --> 00:59:33,240
And small permutations one way
or the other can give you very,

887
00:59:33,240 --> 00:59:38,360
very big changes in the price.
And one of the reasons why

888
00:59:38,360 --> 00:59:42,920
central banks completely misread
the pandemic is that the

889
00:59:43,040 --> 00:59:49,760
aggregate system was under such
distress that there was you'd

890
00:59:49,760 --> 00:59:52,560
actually got to a situation
where aggregate supply had a

891
00:59:52,560 --> 00:59:56,960
kink in it or a new shelf as
we've discussed earlier in terms

892
00:59:56,960 --> 01:00:00,200
of the supply curve.
But if you look if your.

893
01:00:00,680 --> 01:00:02,720
Main.
World is commodities.

894
01:00:02,720 --> 01:00:05,640
You're, you're thinking about
these shifting from one shelf to

895
01:00:05,640 --> 01:00:09,640
the other all the time and
you're thinking about non

896
01:00:09,640 --> 01:00:13,960
linearities and kinks in supply
curves all the time because it's

897
01:00:13,960 --> 01:00:21,040
just a way of life and actually
forecasting aggregate economy

898
01:00:21,040 --> 01:00:23,720
wide inflation, which is
something everyone should do as

899
01:00:23,720 --> 01:00:26,480
they try and understand the cost
side of their balance sheet as a

900
01:00:26,480 --> 01:00:30,400
minor.
There's actually an advantage

901
01:00:30,400 --> 01:00:34,480
coming from a world where non
linear pricing was was a very

902
01:00:34,480 --> 01:00:38,600
real thing.
And where do I think non linear

903
01:00:38,600 --> 01:00:41,880
pricing is going to come next in
the positive sense for miners?

904
01:00:41,880 --> 01:00:45,120
Well, it's absolutely coming in
copper.

905
01:00:46,320 --> 01:00:53,440
And you can look at these
markets and you can identify

906
01:00:53,440 --> 01:00:57,760
thresholds where the price is
just going to go vertical.

907
01:00:59,920 --> 01:01:02,840
I think one of those moments is
coming in copper before the end

908
01:01:02,840 --> 01:01:06,960
of the decade because
historically you can identify

909
01:01:07,760 --> 01:01:14,280
when the stock level gets so
thin that you are going to get

910
01:01:14,280 --> 01:01:17,280
into a thread of a stock out
which becomes self fulfilling

911
01:01:17,280 --> 01:01:20,240
and you get a vertical price by
development.

912
01:01:20,960 --> 01:01:24,880
The freight market is another
one where these where these

913
01:01:24,880 --> 01:01:31,560
thresholds are very real.
Copper's the one because of how

914
01:01:31,560 --> 01:01:34,920
actively traded it is by hedge
funds globally.

915
01:01:34,920 --> 01:01:37,280
There's a lot of speculative
money that's finding its way

916
01:01:37,280 --> 01:01:41,240
into that industry.
It's got the energy transition

917
01:01:41,240 --> 01:01:44,400
tailwinds, it's got the supply
headwinds.

918
01:01:45,040 --> 01:01:51,200
It's all coming together for
that market and understanding

919
01:01:51,200 --> 01:01:54,880
those historical episodes.
Looking.

920
01:01:54,880 --> 01:01:58,880
Out for nonlinearities rather
than abstracting away from them,

921
01:02:00,920 --> 01:02:03,600
I think will help help people
make better decisions in that

922
01:02:03,600 --> 01:02:06,960
sort of three to five year
window, which is sort of very

923
01:02:06,960 --> 01:02:09,760
underdone because the banks
don't care.

924
01:02:10,440 --> 01:02:14,320
Banks are interested in the year
they're in and maybe the maybe

925
01:02:14,320 --> 01:02:18,480
the one after.
Everyone budgets for year one

926
01:02:18,480 --> 01:02:21,960
and maybe year 2, that three to
five year window, a lot of stuff

927
01:02:21,960 --> 01:02:26,160
has to happen in that window,
but it's almost unoccupied in

928
01:02:26,160 --> 01:02:30,920
terms of forecasting effort.
So how do you, how do you think

929
01:02:30,920 --> 01:02:34,840
about a company taking advantage
of that then, because there's

930
01:02:34,840 --> 01:02:39,080
not too many that really can you
kind of have to be at the, the

931
01:02:39,080 --> 01:02:41,840
bigger end.
We've you've got a bit of, you

932
01:02:41,840 --> 01:02:45,200
know, financing capability if
you're just an individual, you

933
01:02:45,200 --> 01:02:49,120
know, junior here in, in Perth
trying to get a, a copper mine.

934
01:02:49,440 --> 01:02:52,640
And and a couple of projects
that you can buy a a priced like

935
01:02:53,080 --> 01:02:55,240
that, you know you have to pay
10 times EBITDA for a producing

936
01:02:55,240 --> 01:02:56,760
copper mine.
Yeah.

937
01:02:56,760 --> 01:02:59,680
So I mean, how do you kind of
think about that in, in greater

938
01:02:59,680 --> 01:03:01,720
detail?
How do you think about a, a

939
01:03:01,720 --> 01:03:05,120
supply response?
I guess in, in terms of timing

940
01:03:05,120 --> 01:03:07,840
it would take because it's an
issue we talk about all the

941
01:03:07,840 --> 01:03:11,160
time, just how long it takes to
get these things online.

942
01:03:11,160 --> 01:03:14,160
I'm just keen to go go a lot
deeper on on the Copper Point.

943
01:03:16,840 --> 01:03:19,880
Yeah.
Well, look one.

944
01:03:19,880 --> 01:03:24,640
Of the things that you can do
now, maybe this isn't is

945
01:03:24,640 --> 01:03:27,720
applicable to a junior and I've
never worked in a junior and

946
01:03:27,720 --> 01:03:32,320
have no plans to, so I can
really just speculate on these

947
01:03:32,320 --> 01:03:33,200
points go.
For it.

948
01:03:35,080 --> 01:03:38,760
Look.
If you are in any way in the in

949
01:03:38,760 --> 01:03:47,240
the game of acquiring your
competitors, then not so much

950
01:03:47,240 --> 01:03:52,400
looking for the discontinuity
up, the discontinuity down and

951
01:03:52,400 --> 01:03:55,560
planning for that and getting
all your ducks in a row.

952
01:03:56,320 --> 01:04:01,040
Waiting for the best buying
circumstances you're likely to

953
01:04:01,040 --> 01:04:05,080
get in a particular decade is a
pretty good way of running your

954
01:04:05,080 --> 01:04:10,400
operation.
And certainly there was a moment

955
01:04:10,400 --> 01:04:15,880
that we'd identified would be a
pretty decent time to go out and

956
01:04:15,920 --> 01:04:19,040
look at copper.
Acknowledging your point that

957
01:04:19,040 --> 01:04:23,880
copper is generally expensive,
you may not get many good times

958
01:04:23,880 --> 01:04:27,840
to transact and therefore
planning ahead for when the dips

959
01:04:27,840 --> 01:04:30,160
are going to come.
Because even if you're a

960
01:04:30,160 --> 01:04:34,040
superstar with a Halo effect
like copper, you're not aloof to

961
01:04:34,040 --> 01:04:37,440
the economic cycle, so there
will be times when you can

962
01:04:37,440 --> 01:04:41,720
transact.
As.

963
01:04:41,720 --> 01:04:46,000
Someone running a very lean
operation and trying to create

964
01:04:46,000 --> 01:04:51,680
value in a junior.
One of the places I think that

965
01:04:52,360 --> 01:04:56,920
mining companies don't spend
enough time, mainly because it's

966
01:04:56,920 --> 01:05:00,960
not glamorous, but huge value is
at stake, is actually the

967
01:05:00,960 --> 01:05:02,680
procurement side of their
businesses.

968
01:05:03,880 --> 01:05:07,320
There's enormous value to be
gleaned from being smarter at

969
01:05:07,320 --> 01:05:12,680
procuring than your competitors,
which ultimately means being at

970
01:05:12,680 --> 01:05:16,280
least as smart in their area of
expertise as the person you're

971
01:05:16,280 --> 01:05:21,680
procuring from.
And so I'd really encourage any

972
01:05:21,720 --> 01:05:27,120
company to invest as much
efforts in trying to predict

973
01:05:27,200 --> 01:05:30,320
what's going to happen to the
stuff that they buy as a mining

974
01:05:30,320 --> 01:05:34,000
company as the stuff that
they're going to sell as a

975
01:05:34,000 --> 01:05:37,520
mining company.
And if you're a junior who's in

976
01:05:37,520 --> 01:05:40,680
it to win it in whichever
commodity you happen to have a

977
01:05:40,680 --> 01:05:44,840
prospect in, you don't have to
worry too much about the price

978
01:05:44,840 --> 01:05:46,800
of it because you can't do
anything about it.

979
01:05:47,440 --> 01:05:51,680
But you can worry a lot about
all the stuff that you procure.

980
01:05:52,960 --> 01:05:57,240
And doing a little bit better
there and being able to be

981
01:05:57,360 --> 01:06:03,600
counter cyclical on your
procurement can actually can

982
01:06:03,600 --> 01:06:06,840
actually create a much more
resilient company in the long

983
01:06:06,840 --> 01:06:09,720
run.
And not one which is going to be

984
01:06:12,000 --> 01:06:15,360
going to have an uneconomic cost
base when prices turn.

985
01:06:16,960 --> 01:06:20,880
Start building resilient economy
from a resilient company from

986
01:06:20,880 --> 01:06:23,080
day one, I think would be the
answer.

987
01:06:23,080 --> 01:06:26,400
And that might be doing
something unconventional.

988
01:06:26,400 --> 01:06:30,920
Instead of studying the price of
what you want to sell, look at

989
01:06:30,920 --> 01:06:32,240
the other side of the balance
sheet.

990
01:06:34,080 --> 01:06:36,120
Here, I'd love to.
I'd love to know as well.

991
01:06:36,120 --> 01:06:43,040
I know your time at BHP was
probably focused largely on to

992
01:06:43,040 --> 01:06:45,400
the extent you look specifically
at the commodities that the

993
01:06:45,400 --> 01:06:48,560
commodities that they play in
and maybe a fair bit of work on

994
01:06:49,000 --> 01:06:50,600
on the rationale and everything
like that.

995
01:06:53,200 --> 01:06:55,720
When you, when I remember
hearing like, you know, Mike

996
01:06:55,720 --> 01:06:58,680
Henry speak about why, why VHP
didn't, didn't play in lithium

997
01:06:58,680 --> 01:07:01,280
And it was, it was to do with
the view that in the long run

998
01:07:01,280 --> 01:07:05,280
the, the cost curve would be,
wouldn't be steep enough to, to

999
01:07:05,280 --> 01:07:08,960
warrant that.
Do you like are there any other

1000
01:07:08,960 --> 01:07:11,680
commodities other than the the
the ones BHP is playing in

1001
01:07:11,680 --> 01:07:14,800
today, like maybe even more
niche ones where you actually

1002
01:07:14,800 --> 01:07:17,440
are kind of interested that
because you think there are

1003
01:07:17,440 --> 01:07:21,440
there, there is potential for
there to be kind of steep cost

1004
01:07:21,440 --> 01:07:23,680
curves in a on a medium term
outlook?

1005
01:07:26,080 --> 01:07:29,600
Well, look, I I think.
The way you've stylized the BHP

1006
01:07:29,600 --> 01:07:36,160
position on lithium, certainly
cost curve shape, current and

1007
01:07:36,160 --> 01:07:39,920
projected is a element of our
attractive of the attractiveness

1008
01:07:39,920 --> 01:07:43,280
framework that BHP use, but it's
certainly not the only element.

1009
01:07:45,560 --> 01:07:49,880
I would suspect that the
executive team at BHP are

1010
01:07:49,880 --> 01:07:52,720
getting a few less questions
about why we're not in lithium

1011
01:07:52,720 --> 01:08:01,040
today, three or four years ago.
But you know this is a cycle

1012
01:08:01,040 --> 01:08:04,000
industry.
It's got a, it's got a stunning

1013
01:08:04,000 --> 01:08:08,000
demand side trajectory, as does
nickel.

1014
01:08:09,880 --> 01:08:11,920
As.
Does any battery commodity, as

1015
01:08:11,920 --> 01:08:15,400
does any energy transition
leverage mineral?

1016
01:08:17,240 --> 01:08:18,920
But yeah, it comes back to all
the other things.

1017
01:08:20,279 --> 01:08:23,200
So no, I'm not going to throw a
new commodity at you today.

1018
01:08:24,640 --> 01:08:29,279
Are there some things which I
think are quite interesting and

1019
01:08:29,399 --> 01:08:34,080
offer some more differentiated
leverage to the world we are

1020
01:08:34,080 --> 01:08:41,399
potentially moving into?
Yeah, I do, but I don't think

1021
01:08:41,399 --> 01:08:43,479
I'm going to throw them out
there today.

1022
01:08:46,840 --> 01:08:54,800
What I would say is that for a
big company like BHP, it's got

1023
01:08:54,800 --> 01:08:57,680
to be a big enough value chain
for you to want to play in.

1024
01:08:59,479 --> 01:09:03,760
And whenever you put the niche
in front of something, you

1025
01:09:03,760 --> 01:09:08,319
probably have answered your own
question by saying what's your

1026
01:09:08,319 --> 01:09:14,520
interest level.
However, the most attractive

1027
01:09:14,520 --> 01:09:22,800
assets in the mining industry
often have a very favourable by

1028
01:09:22,800 --> 01:09:27,200
product slash Co product revenue
stream to go with the core

1029
01:09:27,200 --> 01:09:35,120
commodity.
And if you happen to have

1030
01:09:35,120 --> 01:09:38,479
something with a commodity
you're interested in and the

1031
01:09:38,479 --> 01:09:43,640
value chain is big enough and
you potentially got something

1032
01:09:43,640 --> 01:09:48,080
interesting on the niche mineral
side, that probably makes the

1033
01:09:48,240 --> 01:09:50,359
other prospect a lot more
interesting.

1034
01:09:50,359 --> 01:09:56,320
But that's probably the way to
think about think about those

1035
01:09:56,320 --> 01:10:01,960
smaller markets from the point
of view of really big market cap

1036
01:10:01,960 --> 01:10:12,240
organisations because you having
a stand alone business that is

1037
01:10:12,440 --> 01:10:15,560
substantial enough for a big
market cap miner.

1038
01:10:17,880 --> 01:10:23,840
The share of that actual market
you would require is probably

1039
01:10:23,840 --> 01:10:28,520
prohibitive in terms of what a
competition authority would look

1040
01:10:28,520 --> 01:10:32,480
at and say is sensible.
So you can't say I want to be in

1041
01:10:32,480 --> 01:10:38,920
commodity X, but to hit my size
threshold I need to have 60% of

1042
01:10:38,920 --> 01:10:41,240
the tonnes.
That's not going to work really.

1043
01:10:41,920 --> 01:10:46,240
And so you run into some
logistical constraints there as

1044
01:10:46,240 --> 01:10:50,160
well.
Something we again say with sort

1045
01:10:50,160 --> 01:10:53,600
of smaller to medium sized
businesses in exactly what you

1046
01:10:53,600 --> 01:10:57,360
said, they're going after
projects with byproducts is that

1047
01:10:57,360 --> 01:11:02,400
they, they ultimately stream out
the the byproduct in order to

1048
01:11:02,400 --> 01:11:04,440
help finance the thing.
Again, not something you might

1049
01:11:04,440 --> 01:11:09,240
see with the the real majors
around the world, but is your

1050
01:11:09,880 --> 01:11:13,720
gut feel toward that?
That's a, you know somewhat bad

1051
01:11:13,720 --> 01:11:17,600
decision in a sense and that you
should be attracted to the the

1052
01:11:17,600 --> 01:11:22,000
two minerals and not forego the
potential benefits by by

1053
01:11:22,000 --> 01:11:25,080
streaming it out to help bring
the the operation online.

1054
01:11:28,200 --> 01:11:30,160
Well, I think the answer is
you've got to do what you've got

1055
01:11:30,160 --> 01:11:36,800
to do at the time.
Now, if you go back over the

1056
01:11:36,960 --> 01:11:44,000
history of decision making, when
companies go into joint venture

1057
01:11:44,000 --> 01:11:48,520
arrangements because they're
looking to share risk on

1058
01:11:48,520 --> 01:11:53,280
something that they're not
absolutely certain on, they

1059
01:11:53,280 --> 01:11:55,600
often end up as regret
decisions.

1060
01:11:56,600 --> 01:11:59,640
Because if it ends up being a
good idea, you then begrudge

1061
01:12:00,320 --> 01:12:04,680
whatever share of the asset that
you that you sold obviously too

1062
01:12:04,680 --> 01:12:09,560
cheaply at the beginning.
But that's the quandary of

1063
01:12:10,720 --> 01:12:14,200
resources industry investments.
And it goes for petroleum just

1064
01:12:14,200 --> 01:12:16,560
as much as it goes for for the
mineral sector.

1065
01:12:18,120 --> 01:12:20,400
And it's particularly pertinent
when you're going into new

1066
01:12:20,400 --> 01:12:25,280
jurisdictions as well.
So with a new jurisdiction,

1067
01:12:26,080 --> 01:12:30,360
you're not just looking at the
assets, you're looking at the

1068
01:12:30,360 --> 01:12:32,680
operating environment.
You're looking at the above

1069
01:12:32,680 --> 01:12:38,080
ground risk in addition to the
below ground risk.

1070
01:12:38,960 --> 01:12:44,040
And you're also basically taking
a call on the governance and at

1071
01:12:44,040 --> 01:12:50,720
what point am I actually going
to be able to assume regime

1072
01:12:50,720 --> 01:12:56,680
stability in terms of fiscal out
the, the, the fiscal obligations

1073
01:12:56,680 --> 01:13:00,360
and the like.
And under those circumstances,

1074
01:13:00,360 --> 01:13:03,520
risk sharing with joint venture
partners is very, very common.

1075
01:13:05,840 --> 01:13:08,000
But.
You can never actually devise

1076
01:13:08,000 --> 01:13:11,600
the right right shares of the
pie.

1077
01:13:12,800 --> 01:13:14,960
So let me just give you a
hypothetical example.

1078
01:13:17,520 --> 01:13:22,040
If a new mineral jurisdiction is
opening itself up under a new

1079
01:13:22,040 --> 01:13:24,960
market friendly regime, having
been with a regime which just

1080
01:13:24,960 --> 01:13:30,360
isn't that friendly, they still
need to get some runs on the

1081
01:13:30,360 --> 01:13:33,600
board to bring the foreign
investors in.

1082
01:13:33,880 --> 01:13:36,920
So they will need to offer big
discounts on the fiscal regime

1083
01:13:36,920 --> 01:13:39,760
to get anyone to come in to
defray the risk that they're

1084
01:13:39,760 --> 01:13:43,880
dealing with.
But if they turn out to be

1085
01:13:43,880 --> 01:13:46,720
market friendly, not just in the
short term but also in the

1086
01:13:46,720 --> 01:13:51,920
medium term, the company that
has come in is going to be

1087
01:13:51,920 --> 01:13:55,160
enjoying incredibly attractive
returns because of that upfront

1088
01:13:55,160 --> 01:13:58,120
discount.
At which point the host

1089
01:13:58,120 --> 01:13:59,920
jurisdiction says this is not
fair.

1090
01:14:00,840 --> 01:14:03,960
We've been really well behaved,
but you've got this great deal

1091
01:14:04,920 --> 01:14:08,560
and the community then gets
involved and says this is

1092
01:14:08,560 --> 01:14:11,680
unfair.
You know, we've been taken for a

1093
01:14:11,680 --> 01:14:15,880
ride by this, by this slick
international operation.

1094
01:14:15,880 --> 01:14:23,080
We we need to renegotiate.
And before you know it, it's

1095
01:14:23,080 --> 01:14:27,160
almost like a conflicted virtue
in terms of the regime.

1096
01:14:27,160 --> 01:14:30,760
They end up becoming
expropriatory because they

1097
01:14:30,760 --> 01:14:34,160
weren't expropriatory, but
because the regime before them

1098
01:14:34,160 --> 01:14:36,720
was.
And you just get yourself in

1099
01:14:36,720 --> 01:14:44,200
this interesting sort of phase.
And Chile used to be like that

1100
01:14:46,600 --> 01:14:52,920
and lot of those tax stability
agreements are going to expire

1101
01:14:52,920 --> 01:15:00,160
in the twenty 20s.
And so as we think about all the

1102
01:15:00,320 --> 01:15:06,160
potential operations that could
come out of the copper belts

1103
01:15:06,160 --> 01:15:08,440
with new infrastructure and that
sort of thing, it's still the

1104
01:15:08,440 --> 01:15:13,560
kind of thing you have to bounce
around in your head in terms of

1105
01:15:15,720 --> 01:15:18,800
where you end up going.
Now I know your question was

1106
01:15:18,800 --> 01:15:24,720
about streaming out by product
credits, but I think there's an

1107
01:15:24,720 --> 01:15:30,800
element of, you know, what does,
what does a young mining company

1108
01:15:32,800 --> 01:15:34,800
have to think about at the
outset?

1109
01:15:35,360 --> 01:15:41,280
And ideally you retain as much
control as you can and you

1110
01:15:41,280 --> 01:15:44,600
finance sort of on a de minimus
basis.

1111
01:15:45,080 --> 01:15:48,520
But the reality is you can get
unlucky if you have to refinance

1112
01:15:48,520 --> 01:15:51,040
at just the wrong time.
And that even happens to big

1113
01:15:51,040 --> 01:15:55,680
companies.
And so you kind of end up trying

1114
01:15:55,680 --> 01:15:59,320
to over finance.
You turned up trying to over,

1115
01:16:00,520 --> 01:16:03,920
over insure the the future of
the project.

1116
01:16:03,920 --> 01:16:07,040
And one of the things you do is
you can stream stream revenue.

1117
01:16:11,000 --> 01:16:13,360
Yeah.
But if it ends up being a as

1118
01:16:13,360 --> 01:16:15,800
good a project as you think it
is at the outset, generally

1119
01:16:15,800 --> 01:16:19,280
there are great decisions, but
they're not necessarily things

1120
01:16:19,280 --> 01:16:22,040
that the company had the
discretion to look past at the

1121
01:16:22,040 --> 01:16:28,520
time.
And you have to qualify any sort

1122
01:16:28,520 --> 01:16:33,600
of into the future critique by
the realities of the moment when

1123
01:16:33,600 --> 01:16:35,040
that decision might have been
made.

1124
01:16:38,880 --> 01:16:42,200
If you would have point to one
thing that you know, consensus

1125
01:16:42,200 --> 01:16:46,160
or or the general public or mass
media kind of gets wrong and

1126
01:16:46,160 --> 01:16:52,000
mass in relation to, you know,
the, the interplay of China and

1127
01:16:52,000 --> 01:16:54,400
commodity markets, what, what
would it be?

1128
01:17:03,280 --> 01:17:07,840
Well, I'd say one thing I've
always scratched my head about

1129
01:17:08,360 --> 01:17:17,680
is why people pay much attention
to monthly trade data into China

1130
01:17:19,880 --> 01:17:26,320
in the bulk commodities.
Because basically the imports

1131
01:17:26,320 --> 01:17:30,480
into China on a monthly basis
are sort of a function of what

1132
01:17:30,480 --> 01:17:36,960
was happening a couple of weeks
ago in WA and six weeks before

1133
01:17:36,960 --> 01:17:39,760
that in Brazil.
It's actually more of a short

1134
01:17:39,760 --> 01:17:42,120
term measure of supply that
there's a measure of demand.

1135
01:17:42,120 --> 01:17:45,960
But I think because economists
are so used to looking at trade

1136
01:17:45,960 --> 01:17:48,960
data from statistical agencies
rather than sort of bespoke

1137
01:17:48,960 --> 01:17:51,320
consultancies who measure what
actually matters in commodity

1138
01:17:51,320 --> 01:17:54,840
markets, they kind of make a big
deal over the monthly trade

1139
01:17:54,840 --> 01:17:57,800
figures in China.
I don't think the monthly trade

1140
01:17:57,800 --> 01:18:00,400
figures are a big deal.
If you're actually looking at

1141
01:18:00,400 --> 01:18:03,040
these markets in the short term,
you're getting much better data

1142
01:18:03,040 --> 01:18:07,920
than that on at worst a weekly
basis.

1143
01:18:09,000 --> 01:18:16,160
And you can track these markets
without any reference at all to

1144
01:18:16,160 --> 01:18:21,600
official customs data.
And by the time that that data

1145
01:18:21,600 --> 01:18:26,360
is available, I think insiders
in the industry have moved on.

1146
01:18:27,280 --> 01:18:31,000
So I think I wouldn't emphasise
them too much.

1147
01:18:32,360 --> 01:18:33,000
Yeah.
Yeah.

1148
01:18:33,000 --> 01:18:35,200
I just think you have like a
pretty fascinating view.

1149
01:18:35,320 --> 01:18:38,440
I mean, kind of given that the
extent you, you really looked

1150
01:18:38,440 --> 01:18:43,480
at, at, at the interplay of, of
everything and, and no matter

1151
01:18:43,480 --> 01:18:46,240
who you speak to, who is a,
who's done a lot of work in, in

1152
01:18:46,240 --> 01:18:48,080
China, they're quick to tell you
that everyone else's view is

1153
01:18:48,080 --> 01:18:54,440
wrong.
Oh look, when I.

1154
01:18:54,480 --> 01:18:59,360
First started looking at China
20 plus years ago.

1155
01:19:00,840 --> 01:19:04,080
I think it really was something
where there was a handful of

1156
01:19:04,080 --> 01:19:11,680
experts and then everybody else.
People have had 20 years to get

1157
01:19:11,680 --> 01:19:14,520
their heads around a few things
with respect to China.

1158
01:19:17,040 --> 01:19:22,080
And so I think that there's
there's more people who will say

1159
01:19:22,600 --> 01:19:27,720
sensible and similar things,
even though they haven't, you

1160
01:19:27,720 --> 01:19:31,120
know, done their done their PhDs
on the Chinese economy, you

1161
01:19:31,120 --> 01:19:34,200
know, so I think it's probably
better now than it used to be.

1162
01:19:38,240 --> 01:19:43,840
But one thing that people I
think do miss a little bit is

1163
01:19:43,920 --> 01:19:47,320
trying to use the equity market
as a proxy for how the economy

1164
01:19:47,320 --> 01:19:51,000
is performing.
That's that's not even a

1165
01:19:51,000 --> 01:19:56,120
mistake, that's just ignorance.
So, but you do sometimes still

1166
01:19:56,120 --> 01:19:59,760
get that, but that's because
analysts are entering the market

1167
01:19:59,760 --> 01:20:03,280
all the time and quite often
people don't know what they

1168
01:20:03,280 --> 01:20:07,280
don't know.
And they will try to use

1169
01:20:07,280 --> 01:20:10,520
whatever framework they've
developed in their short time in

1170
01:20:10,520 --> 01:20:14,840
the industry.
And they have to sort of make

1171
01:20:14,840 --> 01:20:17,480
those mistakes before they work
out what they don't know.

1172
01:20:18,080 --> 01:20:20,880
So the link between the economy
and the equity market is is

1173
01:20:20,880 --> 01:20:26,760
useful.
I do find that the the UK media

1174
01:20:26,960 --> 01:20:32,280
is quite biassed against China.
This is the general confirmation

1175
01:20:32,280 --> 01:20:40,640
bias that they will leap on any
bad news and find a bad news

1176
01:20:40,640 --> 01:20:46,720
undertone any good news.
But that's also a bit like the

1177
01:20:46,720 --> 01:20:52,240
fact that everyone called the
end of the the end of the year

1178
01:20:52,240 --> 01:20:54,960
or back in 131415.
And it wasn't the end of the

1179
01:20:54,960 --> 01:20:56,840
year.
It was yet another cyclical

1180
01:20:56,840 --> 01:21:03,840
phase where an economy struggled
for a while as opposed to making

1181
01:21:03,840 --> 01:21:07,360
very bold pronouncements about
that's the end.

1182
01:21:09,720 --> 01:21:13,560
So I, I do sometimes find that
there's some, there's some

1183
01:21:13,560 --> 01:21:18,200
weaker stuff there in terms of
the editorial overlay on China

1184
01:21:18,200 --> 01:21:21,960
can be just quite pessimistic as
a, as a general sense.

1185
01:21:24,640 --> 01:21:27,840
How much stock do you do you put
in the, the sort of French

1186
01:21:27,840 --> 01:21:31,320
horing, ray shoring, what
whatever you might call it,

1187
01:21:32,200 --> 01:21:36,600
phenomena that we've started to
see and hear, you know, a lot of

1188
01:21:36,600 --> 01:21:38,840
since since COVID.
This is something that

1189
01:21:40,040 --> 01:21:44,560
seriously, you know, alters the
the growth that the Chinese

1190
01:21:44,680 --> 01:21:47,120
economy might have had.
And how does this kind of play

1191
01:21:47,120 --> 01:21:50,280
into inflation around the world
in your view?

1192
01:21:52,880 --> 01:21:56,680
Oh look, if it occurs.
As per political rhetoric, yes

1193
01:21:56,680 --> 01:21:58,760
it's definitely inflationary for
the world.

1194
01:22:01,280 --> 01:22:04,640
Deflationary for China though,
because that would give China

1195
01:22:04,640 --> 01:22:10,360
even more excess capacity.
One thing you should be aware of

1196
01:22:10,360 --> 01:22:13,160
though, China's also trying to
de risk from the rest of the

1197
01:22:13,160 --> 01:22:20,320
world.
So if China decides to do

1198
01:22:20,320 --> 01:22:23,560
something as a national economic
priority, they tend to get it

1199
01:22:23,560 --> 01:22:27,400
done a little bit quicker than
other countries I have.

1200
01:22:27,440 --> 01:22:30,280
Noticed that.
So it's a lot.

1201
01:22:30,280 --> 01:22:33,640
Quicker I've noticed.
So that's the that's the

1202
01:22:33,640 --> 01:22:36,120
challenge in this in this
context.

1203
01:22:37,920 --> 01:22:40,880
If you look at where the growth
in the copper industry is coming

1204
01:22:40,880 --> 01:22:46,440
from at the moment, well, it's
Chinese firms working in Africa

1205
01:22:47,600 --> 01:22:51,680
because they can see a serious
problem here in the way this

1206
01:22:51,680 --> 01:22:56,040
demand supply balance in this
core commodity is evolving.

1207
01:22:57,160 --> 01:23:00,640
And they could sit there and
wring their hands about it or

1208
01:23:00,640 --> 01:23:05,400
they could overpay for some
copper prospects and get going.

1209
01:23:06,800 --> 01:23:11,360
And so there is going to be an
attempt by China to de risk and

1210
01:23:11,360 --> 01:23:17,080
onshore as well, particularly in
particularly in technology.

1211
01:23:17,880 --> 01:23:21,160
So onshoring, offshoring,
etcetera.

1212
01:23:21,560 --> 01:23:24,800
It's very big in the
semiconductor manufacturing

1213
01:23:24,960 --> 01:23:30,680
space and Australia is only sort
of obliquely related to that

1214
01:23:30,680 --> 01:23:33,400
value chain.
And so we don't really get a

1215
01:23:33,400 --> 01:23:35,680
sense of that.
I mean, it'd be easy to sit here

1216
01:23:35,680 --> 01:23:38,840
in Australia and say this is all
talk, but there's a lot of stuff

1217
01:23:38,840 --> 01:23:44,280
going on in semiconductors.
China's trying to de risk the US

1218
01:23:44,280 --> 01:23:49,000
is putting huge subsidies under
its CHIPS Act and you know,

1219
01:23:49,000 --> 01:23:51,400
there's there's steel on the
ground there in terms of new

1220
01:23:51,400 --> 01:23:55,920
projects into the US Europe is
also attempting to act, Japan is

1221
01:23:55,920 --> 01:24:01,640
acting, Korea is acting.
It's that is probably one of the

1222
01:24:01,640 --> 01:24:05,000
more fragmented supply chains in
the global system in terms of

1223
01:24:05,000 --> 01:24:07,440
the value chains that it's
serviced.

1224
01:24:09,920 --> 01:24:14,400
But it's actually becoming more,
more localised again.

1225
01:24:15,680 --> 01:24:21,840
And that is probably the place
where it's becoming a little

1226
01:24:21,840 --> 01:24:25,800
more pronounced.
But you still have incredible

1227
01:24:25,800 --> 01:24:33,960
focal points like TSMC who are
still irreplaceable as the core,

1228
01:24:35,080 --> 01:24:39,200
core contract manufacturer.
You still have, you know, a

1229
01:24:39,200 --> 01:24:45,760
Dutch firm AM SLADSLI, forget
the exact acronym, which has a

1230
01:24:45,760 --> 01:24:49,200
particular bespoke piece of
equipment to actually

1231
01:24:49,200 --> 01:24:53,120
manufacture.
That is still a critical point

1232
01:24:53,120 --> 01:25:00,320
of failure in the supply chain.
And so it's not it's a long way

1233
01:25:00,320 --> 01:25:04,520
from fruition, but the intent
and early actions are definitely

1234
01:25:04,520 --> 01:25:06,080
there.
In.

1235
01:25:06,080 --> 01:25:15,160
More generic manufacturing.
You have seen a major increase

1236
01:25:15,160 --> 01:25:19,880
in trade flows into the US
through Mexico, through

1237
01:25:19,880 --> 01:25:24,320
Southeast Asia, which is clearly
displacing Chinese trade.

1238
01:25:25,720 --> 01:25:27,880
But this is not on shoring as
such.

1239
01:25:28,160 --> 01:25:32,640
It's more about redirecting and
I'd call that de risking rather

1240
01:25:32,640 --> 01:25:37,120
than decoupling.
And if you peel the numbers back

1241
01:25:37,120 --> 01:25:40,160
a little bit, you'll actually
find that it's, there's a lot of

1242
01:25:40,160 --> 01:25:44,760
round tripping involved as well.
Round tripping being where you

1243
01:25:44,760 --> 01:25:48,600
produce something somewhere,
you've sent it somewhere else,

1244
01:25:48,600 --> 01:25:52,040
get a, get some kind of origin
certificate and then you want to

1245
01:25:52,040 --> 01:25:55,320
send it.
So you go China, Southeast Asia,

1246
01:25:55,320 --> 01:26:02,480
Mexico, US, and you're also
seeing China start to invest a

1247
01:26:02,480 --> 01:26:07,640
little bit behind tariff walls.
If you go back to the period

1248
01:26:07,640 --> 01:26:12,200
before Bretton Woods broke down
in the early 1970s, so between,

1249
01:26:12,480 --> 01:26:20,240
say, 1971 and the end of World
War 2, the global system that we

1250
01:26:20,240 --> 01:26:24,320
inherited from the interwar
period came with very, very high

1251
01:26:24,320 --> 01:26:28,440
rates of protection.
It also had very, very high

1252
01:26:28,440 --> 01:26:35,560
rates of income tax because of
the way governments skew the

1253
01:26:35,560 --> 01:26:41,560
savings superstructure inside
society when they go to war and

1254
01:26:42,440 --> 01:26:44,840
capital controls were very
pronounced.

1255
01:26:45,120 --> 01:26:48,400
So there wasn't a lot of
portfolio flow when I had global

1256
01:26:48,400 --> 01:26:54,560
hedge funds in 1946.
And so it was a different world.

1257
01:26:54,560 --> 01:26:56,600
It was a clunkier world in a
sense.

1258
01:26:58,120 --> 01:27:02,360
But at at that stage there was
still a lot of international

1259
01:27:02,360 --> 01:27:07,960
investment, but it was from
America basically exporting

1260
01:27:07,960 --> 01:27:10,920
their manufacturing behind
tariff walls by building things

1261
01:27:10,920 --> 01:27:15,240
like General Motors Holden in
Australia or going to Europe and

1262
01:27:15,240 --> 01:27:20,560
building Opel in Germany.
And it was this outward foreign

1263
01:27:20,560 --> 01:27:26,160
direct investment to go behind
the protection which was a key

1264
01:27:26,160 --> 01:27:28,320
driver of globalisation in that
period.

1265
01:27:28,320 --> 01:27:32,600
It was very different to the
globalisation we think of, which

1266
01:27:32,600 --> 01:27:38,360
was more about labour arbitrage.
The globalisation in those days

1267
01:27:38,360 --> 01:27:42,280
was about jumping the tariff
wall.

1268
01:27:43,720 --> 01:27:46,960
It took a long time to move
through that, that style of

1269
01:27:46,960 --> 01:27:50,360
globalisation to the labour
arbitrage style of

1270
01:27:50,360 --> 01:27:53,160
globalisation.
That also comes with a lot of

1271
01:27:53,160 --> 01:27:55,800
hot money flowing around the
place and floating exchange

1272
01:27:55,800 --> 01:27:58,520
rates, because exchange rates
were fixed back then too.

1273
01:28:00,520 --> 01:28:03,640
And it was a much more regulated
world.

1274
01:28:04,640 --> 01:28:11,240
And it sort of took the shock of
the 1970s to tilt the world onto

1275
01:28:11,240 --> 01:28:13,400
a different path.
And then we sort of entered into

1276
01:28:13,400 --> 01:28:18,640
the deregulation of finance,
hyper globalisation, Washington

1277
01:28:18,640 --> 01:28:21,080
consensus world, which is now
fracturing.

1278
01:28:23,480 --> 01:28:26,280
And you know, we used to get
trade liberalisation in those

1279
01:28:26,280 --> 01:28:30,000
days too, because the World
Trade Organisation and its

1280
01:28:30,000 --> 01:28:34,520
predecessor actually did some
really good stuff between 1950

1281
01:28:34,520 --> 01:28:40,640
and say, 1990 ish.
It's just kind of fallen into

1282
01:28:40,640 --> 01:28:45,120
disuse now.
So yes, it's inflationary if it

1283
01:28:45,120 --> 01:28:47,000
happens.
Is it happening everywhere?

1284
01:28:47,000 --> 01:28:49,080
No.
Is it happening in some places?

1285
01:28:49,080 --> 01:28:52,160
Yes.
But East and West are both

1286
01:28:52,160 --> 01:28:54,760
attempting it.
Don't think the West is doing it

1287
01:28:54,760 --> 01:28:59,160
alone.
And if China does do this

1288
01:28:59,160 --> 01:29:02,520
aggressively, it could happen
quicker than we think.

1289
01:29:03,680 --> 01:29:05,520
Hugh, one, I've got a couple
thoughts.

1290
01:29:05,520 --> 01:29:08,680
It's just sort of come to mind
as you mentioned the dollar gold

1291
01:29:08,680 --> 01:29:11,720
kind of system, a lot of people
in our neck of the woods had

1292
01:29:11,720 --> 01:29:17,240
made a lot of the central bank
buying of gold following the,

1293
01:29:17,480 --> 01:29:20,240
you know, events that transpired
between Russia and Ukraine and

1294
01:29:20,280 --> 01:29:24,400
other sort of geopolitical
conflicts in on the China point.

1295
01:29:24,400 --> 01:29:27,600
It's sort of been put on ice a
bit for the the last few months

1296
01:29:27,600 --> 01:29:29,840
the the central bank buying of
gold.

1297
01:29:29,840 --> 01:29:32,560
But is that something you've
studied at all?

1298
01:29:32,560 --> 01:29:34,920
Spent much time looking into or
thinking about.

1299
01:29:38,160 --> 01:29:41,600
Yeah, I think the ramifications
of the way Russia has been

1300
01:29:41,600 --> 01:29:48,880
treated will will run for a
very, very long time.

1301
01:29:50,560 --> 01:29:58,280
And shutting Russia out of SWIFT
and seizing their reserves,

1302
01:29:58,280 --> 01:30:01,720
which are essentially held in
custody for them in various

1303
01:30:02,200 --> 01:30:06,000
global central banks was a very,
very aggressive thing to do.

1304
01:30:07,200 --> 01:30:11,520
Now very risky thing to do as
well.

1305
01:30:15,560 --> 01:30:19,760
So I I do feel that that has
contributed to the move towards

1306
01:30:19,760 --> 01:30:23,800
gold, but it's still very much
at the margin.

1307
01:30:24,000 --> 01:30:27,080
You actually think which central
banks hold the most gold around

1308
01:30:27,080 --> 01:30:29,760
the world?
It's actually central banks who

1309
01:30:29,760 --> 01:30:34,480
issue a reserve currency at
home, the Fed and the ECB.

1310
01:30:35,480 --> 01:30:37,840
If you've already got a reserve
currency, why would you bother

1311
01:30:37,840 --> 01:30:39,280
holding another reserve
currency?

1312
01:30:40,040 --> 01:30:45,840
Yeah, hold some gold.
So yeah, it's it's a moderate

1313
01:30:45,840 --> 01:30:53,680
factor.
I think gold is hard to talk

1314
01:30:53,680 --> 01:30:59,120
about from a forecasting point
of view, partly because it's a

1315
01:30:59,120 --> 01:31:06,000
chameleon in that what drives
the gold price changes depending

1316
01:31:06,000 --> 01:31:09,560
on what sort of macro financial
regime you happen to find

1317
01:31:09,560 --> 01:31:13,200
yourself in.
So sometimes it can serve as an

1318
01:31:13,200 --> 01:31:16,280
inflation hedge.
Sometimes it just trades in line

1319
01:31:16,280 --> 01:31:18,120
with the broader commodity
complex.

1320
01:31:18,880 --> 01:31:23,520
Sometimes it can trade as the
obverse of US Federal Reserve

1321
01:31:23,520 --> 01:31:27,480
policy.
And you have to basically

1322
01:31:27,720 --> 01:31:31,960
identify which regime you're in
and then do your gold price

1323
01:31:31,960 --> 01:31:33,560
forecast.
You can't just do it in

1324
01:31:33,560 --> 01:31:39,720
isolation.
What's going to be interesting I

1325
01:31:39,720 --> 01:31:44,040
guess is if you look at the
marginal cost of extracting

1326
01:31:44,040 --> 01:31:50,960
gold, it doesn't start with A2,
which is where the spot price

1327
01:31:50,960 --> 01:31:56,240
starts.
And so whether or not the

1328
01:31:56,240 --> 01:32:00,240
extraction cost of gold will
ever be a binding criteria for

1329
01:32:00,240 --> 01:32:07,160
the gold price or is gold just
doing what Bitcoin claimed it

1330
01:32:07,160 --> 01:32:14,720
was going to do, which is
questioned question the the

1331
01:32:14,720 --> 01:32:17,600
hierarchy which puts Fiat
currencies at the top of the

1332
01:32:17,600 --> 01:32:20,040
global international financial
architecture.

1333
01:32:20,040 --> 01:32:21,560
I'm just being a bit silly about
that.

1334
01:32:21,560 --> 01:32:26,440
I'm, I'm with, I'm with JP
Morgan CEO and that I think

1335
01:32:26,480 --> 01:32:33,440
cryptocurrencies are pet rocks,
but doesn't, doesn't, doesn't,

1336
01:32:33,440 --> 01:32:35,560
doesn't mean other people don't
make money off them.

1337
01:32:37,480 --> 01:32:41,120
They certainly don't advise my
my mother to put her pension in

1338
01:32:41,120 --> 01:32:48,680
them.
So yeah, gold's presumably.

1339
01:32:49,400 --> 01:32:55,520
If all people care about is the
Fed and lower US interest rates,

1340
01:32:55,520 --> 01:32:58,560
then generally that's a gold
positive circumstance.

1341
01:33:04,120 --> 01:33:08,800
But at what point do central
banks get to the point where

1342
01:33:08,800 --> 01:33:10,440
they're comfortable with their
gold holdings?

1343
01:33:10,440 --> 01:33:13,240
They're not going to be
perpetual flow purchases.

1344
01:33:13,680 --> 01:33:16,560
This is the thing.
Let me sort of tell you how

1345
01:33:16,560 --> 01:33:18,280
central banks think about
reserve management.

1346
01:33:20,080 --> 01:33:23,640
They will make a strategic
decision internally after

1347
01:33:24,840 --> 01:33:30,720
extraordinarily detailed and
sophisticated deliberations, and

1348
01:33:30,720 --> 01:33:33,520
they would have made a choice to
increase their allocation to

1349
01:33:33,520 --> 01:33:37,600
gold.
They'll be pricing sensitive

1350
01:33:37,600 --> 01:33:41,040
purchases until they hit
whatever allocation they decided

1351
01:33:41,040 --> 01:33:47,320
upon and then they will stop.
The call produces stop where.

1352
01:33:47,320 --> 01:33:48,920
That.
Stop producing at that point.

1353
01:33:49,040 --> 01:33:50,400
They keep.
They keep producing.

1354
01:33:51,680 --> 01:33:53,160
Yeah.
So that's basically how it

1355
01:33:53,160 --> 01:33:54,960
works.
The other thing about foreign

1356
01:33:54,960 --> 01:33:59,080
exchange reserves, and this is
truly something that I think is

1357
01:34:00,160 --> 01:34:04,880
not understood by many.
Foreign.

1358
01:34:04,880 --> 01:34:10,280
Exchange reserves are basically
a residual of a country's

1359
01:34:10,280 --> 01:34:16,560
balance of payments.
So once all of the inflows

1360
01:34:17,600 --> 01:34:23,680
associated with export or
credits and all of the outflows

1361
01:34:23,720 --> 01:34:28,160
come through the financial
shadow of that in terms of

1362
01:34:28,160 --> 01:34:33,280
lending and portfolio activity
errors and emissions, which

1363
01:34:33,280 --> 01:34:36,800
often means sort of elicit flow
which they don't want the tax,

1364
01:34:36,880 --> 01:34:40,040
tax authorities to see.
It's a final number which is the

1365
01:34:40,040 --> 01:34:44,600
change in reserves.
So this is basically whether or

1366
01:34:44,600 --> 01:34:50,080
not more money came in or more
money left in the period and

1367
01:34:50,080 --> 01:34:52,880
ultimately that is your FX
reserve position as a country

1368
01:34:53,160 --> 01:34:55,560
and that accumulates into a
stock of reserves.

1369
01:34:56,720 --> 01:35:04,440
Now, I often read something
like, you know, China sold $100

1370
01:35:04,440 --> 01:35:09,440
million worth of U.S. dollar
securities last year or

1371
01:35:09,440 --> 01:35:11,000
something.
Just picking a number out of the

1372
01:35:11,000 --> 01:35:14,800
air.
You go back and you say, OK, how

1373
01:35:14,800 --> 01:35:17,840
much did Chinese foreign
exchange reserves change in that

1374
01:35:17,840 --> 01:35:23,360
period?
Well, let's say it changed 200

1375
01:35:23,360 --> 01:35:27,560
million in the same direction.
It means part of that change

1376
01:35:27,560 --> 01:35:31,440
meant that assets the country
held, they no longer hold.

1377
01:35:32,040 --> 01:35:34,560
How discretionary is the
decision to sell treasuries

1378
01:35:34,560 --> 01:35:37,040
versus do something else?
Yes, at the margin.

1379
01:35:38,320 --> 01:35:41,320
But ultimately the treasuries
are held in something.

1380
01:35:41,360 --> 01:35:44,520
They have flows, which are
happening continuously.

1381
01:35:45,520 --> 01:35:50,320
And arguably the most passive
thing that could have happened

1382
01:35:50,320 --> 01:35:51,640
is that the treasury position
ran down.

1383
01:35:51,640 --> 01:35:57,880
If it goes up 100 because
reserves went up 150, well,

1384
01:35:58,000 --> 01:36:01,800
that's also sort of a passive
response to the fact that.

1385
01:36:02,240 --> 01:36:08,200
So just as a residual outcome of
what occurred in the period,

1386
01:36:09,680 --> 01:36:13,160
it's only when the country is
systematically intervening in

1387
01:36:13,160 --> 01:36:19,000
its foreign exchange markets
that it will accrue or run down

1388
01:36:19,000 --> 01:36:24,360
reserves through choice.
And there aren't that many major

1389
01:36:24,360 --> 01:36:26,080
economies where that occurs
anymore.

1390
01:36:27,520 --> 01:36:35,320
So it's a very misunderstood
thing and generally badly

1391
01:36:35,320 --> 01:36:38,600
reported.
I've got one more question for

1392
01:36:38,640 --> 01:36:43,080
you.
You, You recently wrote that

1393
01:36:43,680 --> 01:36:46,800
letting the Chinese yuan find
its own own level, but also kind

1394
01:36:46,800 --> 01:36:51,640
of help the the current
situation in, in in China.

1395
01:36:52,520 --> 01:36:54,200
How likely would this actually
be?

1396
01:36:54,200 --> 01:36:56,600
Kind of, you know, given the
competing, the competing

1397
01:36:56,600 --> 01:37:00,040
priorities of of Chinese policy
setters.

1398
01:37:02,200 --> 01:37:03,880
Well.
Yeah, I think part of the answer

1399
01:37:03,880 --> 01:37:07,520
here is the fact that the
People's Bank of China came with

1400
01:37:07,520 --> 01:37:12,360
their policy package after the
US Federal Reserve lowered

1401
01:37:12,360 --> 01:37:18,520
interest rates and not before.
So that indicates that there's

1402
01:37:18,520 --> 01:37:25,200
still at least half an eye on
the exchange rate in terms of

1403
01:37:25,200 --> 01:37:28,240
how the monetary policy is being
run.

1404
01:37:29,200 --> 01:37:34,480
So let me just explain sort of
as quickly as I can sort of how

1405
01:37:34,480 --> 01:37:41,280
this particular issue works.
China has a managed exchange

1406
01:37:41,280 --> 01:37:43,880
rate, not a fixed one, but a
managed exchange rate.

1407
01:37:43,880 --> 01:37:46,120
It doesn't want the volatility
to be too great.

1408
01:37:47,360 --> 01:37:53,320
And it also, in an attempt to
simplify that task, it also

1409
01:37:53,320 --> 01:37:55,560
controls flows of capital across
the border.

1410
01:37:58,080 --> 01:38:03,800
Letting the exchange rate find
its own level essentially is

1411
01:38:04,760 --> 01:38:12,280
foregoing either letting the
capital flow more or the the

1412
01:38:12,400 --> 01:38:16,040
lower levels of volatility.
But whilst you want to keep the

1413
01:38:16,040 --> 01:38:20,560
low levels of volatility, you
can't allow the relative

1414
01:38:20,560 --> 01:38:24,280
interest rate differential with
the currency you're measuring

1415
01:38:24,280 --> 01:38:26,760
against to get too far out of
whack.

1416
01:38:28,080 --> 01:38:30,960
And while the US Federal Reserve
has been running a high interest

1417
01:38:30,960 --> 01:38:35,320
rate policy, that creates
capital outflow pressure in

1418
01:38:35,320 --> 01:38:43,160
China because there's better
returns available in in U.S.

1419
01:38:43,160 --> 01:38:45,640
dollars than in China because
the interest rate level is set

1420
01:38:45,640 --> 01:38:48,480
lower.
If they had gone and lowered

1421
01:38:48,480 --> 01:38:50,840
interest rates before the Fed
had moved, they would have

1422
01:38:50,840 --> 01:38:53,920
increased that backlog of
depreciation pressure.

1423
01:38:55,400 --> 01:38:59,600
But once the Fed actually gave
them a licence, if you will, to

1424
01:38:59,600 --> 01:39:02,960
come up with that, that's when
they delivered the package

1425
01:39:04,000 --> 01:39:07,560
because they basically wanted
the air cover to prevent there

1426
01:39:07,560 --> 01:39:12,560
being too much pressure on
capital outflow, which is

1427
01:39:12,560 --> 01:39:16,680
something they don't want.
And they certainly don't want

1428
01:39:17,440 --> 01:39:22,160
what we would see as a.
An.

1429
01:39:22,160 --> 01:39:26,680
Unwieldy or uncontrolled
depreciation, because we let the

1430
01:39:26,680 --> 01:39:32,360
Australian dollar do that
frequently when when things look

1431
01:39:32,360 --> 01:39:36,200
bad in the global economy, the
Australian dollar falls without

1432
01:39:36,760 --> 01:39:39,840
a thought for its dignity.
It falls fast.

1433
01:39:41,240 --> 01:39:45,280
That would be not something that
Chinese authorities want to see,

1434
01:39:47,360 --> 01:39:53,240
and that's why I think they're
somewhat locked in to the kind

1435
01:39:53,240 --> 01:40:00,880
of policies that would not bring
that lever fully to bear.

1436
01:40:02,440 --> 01:40:04,440
Part of that is geopolitical as
well.

1437
01:40:05,960 --> 01:40:08,880
I don't know if you're in
financial markets.

1438
01:40:09,040 --> 01:40:10,920
Sort of.
When was it?

1439
01:40:11,760 --> 01:40:14,800
Maybe seven or eight years ago,
they overnight they sort of

1440
01:40:14,800 --> 01:40:19,680
announced that the currency
would be 2% lower and there was

1441
01:40:19,680 --> 01:40:23,560
panic.
You know, 2% is, you know, it's

1442
01:40:23,560 --> 01:40:26,360
a big day for the Australian
dollar, but you know, the next

1443
01:40:26,360 --> 01:40:27,760
day people would just deal with
it.

1444
01:40:28,360 --> 01:40:32,000
And it was, it moved all global
financial markets and the sense

1445
01:40:32,000 --> 01:40:34,480
that China might actually
devalue the exchange rate a lot

1446
01:40:36,280 --> 01:40:39,920
now.
Now the geopolitical rivalry is

1447
01:40:39,920 --> 01:40:44,040
where it is, though.
How nice will China continue to

1448
01:40:44,040 --> 01:40:47,720
play on the exchange rate?
How nice will China continue to

1449
01:40:47,720 --> 01:40:55,120
play on its exports of steel?
Chinese excess capacity, Chinese

1450
01:40:55,120 --> 01:40:58,800
exchange rate depreciation could
do considerable damage to the

1451
01:40:58,800 --> 01:41:02,480
global system if they came with
a rush.

1452
01:41:03,800 --> 01:41:05,920
China doesn't want to do that
for its own reasons.

1453
01:41:07,960 --> 01:41:13,720
But at some point, perhaps
relationships deteriorate and

1454
01:41:13,800 --> 01:41:16,400
the exchange rate is sort of on
the table, if you will.

1455
01:41:17,600 --> 01:41:20,720
But right now it'd be good
policy because when you've got

1456
01:41:20,720 --> 01:41:24,240
deflation, it means your
exchange rate is too strong.

1457
01:41:25,720 --> 01:41:28,440
Your exchange rate should be
weaker to get some inflation

1458
01:41:28,440 --> 01:41:32,640
into the system.
Beautiful here.

1459
01:41:33,040 --> 01:41:35,960
I think we've taken more than
enough of your your time today,

1460
01:41:35,960 --> 01:41:39,160
but massively appreciate you
making yourself available and

1461
01:41:39,400 --> 01:41:41,240
coming on the show and sharing
your wisdom with us.

1462
01:41:43,320 --> 01:41:47,880
OK, no problem.
So thanks for the invitation.

1463
01:41:48,000 --> 01:41:50,320
Thank you very much.
Good.

1464
01:41:50,320 --> 01:41:53,160
Luck with the audits.
Thank you very much too.

1465
01:41:53,160 --> 01:41:55,560
We greatly appreciate it.
That was wicked.

1466
01:41:55,600 --> 01:41:56,640
We learned.
We learned heaps.

1467
01:41:56,640 --> 01:41:59,400
And yeah, we super appreciative
of the generosity of your time.

1468
01:41:59,640 --> 01:42:01,320
Yeah.
I learned a phenomenal amount.

1469
01:42:01,320 --> 01:42:04,360
I'm keen to listen to the back
to that one already.

1470
01:42:04,360 --> 01:42:05,960
So yeah, can't, can't thank you
enough.

1471
01:42:06,960 --> 01:42:09,200
Alright, no problem, right?
I said say should've work lads.

1472
01:42:09,200 --> 01:42:11,920
That was, I can't say I'll
listen to the full thing yet but

1473
01:42:11,920 --> 01:42:15,480
I'm so going to that.
That was good energy from the

1474
01:42:15,480 --> 01:42:18,280
big fella it.
Was cracking and to all the

1475
01:42:18,280 --> 01:42:21,080
money miners out there, we've
taken a lot of your time this

1476
01:42:21,080 --> 01:42:24,040
weekend so we all hope you have
a a cracking rest of the weekend

1477
01:42:24,040 --> 01:42:26,600
and we'll say a big thank you to
our partners as well Oh.

1478
01:42:26,600 --> 01:42:30,360
MMS Grounded, Cross Boundary
energy, CMB Ground support

1479
01:42:30,400 --> 01:42:33,600
division, CRE insurance,
Greenlands equipment, K drill,

1480
01:42:33,840 --> 01:42:37,280
MMTS, Australian earth moving
and all that.

1481
01:42:37,280 --> 01:42:39,120
You can get a spark chart up ya.
Peter, right.

1482
01:42:39,200 --> 01:42:42,000
Peter, right?
Information contained in this

1483
01:42:42,000 --> 01:42:44,760
episode of Money of Mine is of
general nature only and does not

1484
01:42:44,760 --> 01:42:47,400
take into account the
objectives, financial situation

1485
01:42:47,440 --> 01:42:49,480
or needs of any particular
person.

1486
01:42:49,760 --> 01:42:52,800
Before making any investment
decision, you should consult

1487
01:42:52,800 --> 01:42:55,840
with your financial advisor and
consider how appropriate the

1488
01:42:55,840 --> 01:42:59,560
advice is to your objectives,
financial situation and needs.