Here's our summary of key economic events over the weekend that affect New Zealand with news sharply rising commodity prices are being caused by shortages that are undermining economic activity. Inflation with stagnation.
First up today, the price of copper is taking off again. Its price hit a record high at the end of last week as surging power prices threaten to curb supply at a time when stocks are at rock bottom. The crunch will hurt China the most, as it consumes more than all other countries combined. However, it controls little production and is on a fast hunt for supplies it can control, especially in Africa.
And the price if zinc has risen a spectacular +30% in the past ten days. This is caused by sharply rising European power prices which are forcing smelters to shut down.
Prices are in focus this week. Today the New Zealand CPI data will be released for Q3 and it is expected to show prices rising north of 4% at an annual rate, and maybe at a 5.3% annualised rate in Q3.
Then China will reveal its Q3 economic growth rate. Commodity prices, supply-chain problems, Evergrande and Delta all may have an impact on the quarter's result.
The northern hemisphere winter is approaching and every country from China to the US is struggling with high energy costs that will sharply raise the costs of winter heating this year. In the US, a new analysis shows that those using heating oil will pay more than +40% more than last year; those using propane +50% more.
Every country is hungry for fuel, and none more so than China.
Globally, future energy use will be dominated by electricity generation, and the big increases required to 2050 will come from solar, it has been forecast. The same estimates also show that while they won't grow, the use of coal and natural gas will still be a big and important fuel sources for electricity generation for the next 30 years at least. These estimates don't see nuclear making any comeback.
In China, there has been a rare public comment from Beijing on the Evergrande situation, and it was to squash fears of systemic risk. Their central bank has rebuked the company calling it "poorly managed" and wants Evergrande to step up asset disposals and resume its stalled projects. And the official said most individual financial institutions did not have highly concentrated exposures to Evergrande.
Despite these soothing comments, the Chinese Communist Party's anti-corruption unit has dispatched inspectors to 25 financial institutions, including top state-owned banks, in what appears to be a crackdown prompted by the Evergrande debt crisis.
In the US, data out over the weekend for September shows retail sales have been stronger than in earlier indications. They increased +0.7% from August, and August was revised up to a +0.9% gain, both beating market forecasts of a small fall. It is another sign of resilience from consumers despite supply constraints affecting vehicles and computers. The biggest increases were seen in sales at sporting goods, general merchandise stores, and at petrol stations.
But American shoppers aren't feeling that buoyant. The widely-watched University of Michigan survey slipped back slightly to levels that were as weak in the early stages of the pandemic. Something doesn't quite square between spending freely and feeling apprehensive.
Even though the New York Fed's Empire State survey of factories fell back to August levels, they are reporting growth above its long term trend, widespread price increases that seem to be able to be passed on, and optimism about the future.
However, American firms generally are finding it almost impossible to pass those rising costs on in their export prices, and are just having to suck it up with sharply rising import prices.
Canadian factories have the same cost pressures with producer prices up +15% year-on-year to September, although there has been a small slowing over the past few months.
The economic implications of being left out of the global economy are worrying the Australians. Their prime minister looks like he is ready to adopt some sort of soft carbon target, but not because it is the right thing to go for the global climate, but because "climate change is as much about the global economy as the environment, and Australia will be left behind if it does not respond". And it also looks like he has been shamed into going to the Glasgow COP26 climate summit.
And staying in Australia Delta cases in Victoria have risen to 1838 cases reported there yesterday, and topping out even if at a very high level. Deaths were 7 yesterday. There are now 23,376 active cases in the state and there were six deaths yesterday and taking their total to 964. In NSW there were another 301 new community cases reported yesterday. They now have 5,121 active locally acquired cases which is lower, but they had another 10 deaths yesterday taking their total to 524. Queensland is still reporting zero new cases. The ACT has 33 new cases. Overall in Australia, more than 68% of eligible Aussies are fully vaccinated, plus 17% have now had one shot so far.
The UST 10yr yield opens today down -1 bp to be now at 1.57%. The US 2-10 rate curve is marginally steeper at +118 bps. Their 1-5 curve is steeper too at +101 bps, while their 3m-10 year curve is steeper at +153 bps. The Australian Govt ten year benchmark rate is down -2 bps at 1.66%. The China Govt ten year bond is unchanged at 3.00% and its highest in 3 months. The New Zealand Govt ten year is also unchanged at 2.18%.
The price of gold has slipped by -US$1 to US$1767/oz.
And oil prices are another +50 USc higher at just on US$82/bbl in the US, while the international Brent price is now just under US$84.50/bbl. The number of new US rigs in production has now almost doubled in the past year. But despite the recent fast return, it is still only a quarter of what it was ten years ago.
The Kiwi dollar opens today at just on 70.7 USc. Against the Australian dollar we are at 95.3 AUc. Against the euro we are at 61 euro cents. That means our TWI-5 starts the week at just on 74.4, up +130 bps since this time last week and now well over the top of the 72-74 range of the past eleven months.
The bitcoin price has firmed very slightly from this time Saturday, up +0.7% to be now at US61,771. Volatility over the past 24 hours has been modest at just under +/-1.1%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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60 Comments
Megan Woods is absolutely frothing at the chops over this idea. Not because it's any solution to our current or future energy problems, but because it's a good way to make money, and can be easily greenwashed to make it an easy sell to the public.
Not that there's anything wrong with making money, but if its at the expense of our future energy security then there's discussions which need to be had. Hydrogen production is extremely wasteful in energy terms.
What is good for reducing C02 is not always good for biodiversity. An estimated half a million birds are killed by wind turbines in the US each year. Luckily this wont be an issue for Kiwi and Kakapo. Hydrogen looks like a better long term bet than wind power, probably also better than electric in vehicles as it wont require the mining of so many rare earth metals..
Not as good as nuclear looks. It seems very clear that there is still a huge amount of antipathy to modern nuclear power plants. Both Chernobyl and Fukoshima seems to have shaken authorities to the core and they don't seem to be able to reintroduce rational thought and discussion on the topic.
I have lived near Nuclear power plants in the UK, I even went on a Primary School trip to one, they are great when nothing goes wrong. The main issues for me would be the waste disposal and the somewhat unpredictable nature of New Zealand's seismic movements.
After the Chernobyl fire a cloud drifted over northern England and Wales. The restrictions on selling lamb from affected farms lasted for 26 years.
"they are great when nothing goes wrong" That's the point isn't it? Technology has moved on. Since the 60s very little technological effort went into improving nuclear power plant design. those designs were not very efficient, used poor safety measures (although the best that could be designed at the time), and so many of them could be used to enrich uranium into weapons grade. And then along came Bill Gates and all of a sudden there he is funding a think tank that is promoting research in to the technology of nuclear power plants, developing modular, molten salt cooled designs that are viable even for small places like NZ. Much more efficient. Much less waste. Much, much safer and much more useable and useful.
'Construction of the experimental thorium reactor in Wuwei, on the outskirts of the Gobi Desert, was due to be completed by the end of August — with trial runs scheduled for this month, according to the government of Gansu province.'
Good find! I have been attempting to follow progress with development of thorium reactors for more than ten years. Progress has been disappointingly slow. But if the technology can be commercialised it will indeed be a game changer given both the much lower waste issues and control issues. The Wuwei rector does appear to be a significant step forward.
KeithW
https://www.carbonbrief.org/media/164188/nature_image.jpg
Relatively low compared to the other killers
I live on 5ha. I spend $1000 per year on Native trees and I trap rats and possums. I am only concerned about biodiversity. I think carbon trading is a rort with little or no environmental benefit to NZ. It does seem like a good way for investors to make money though.
Good on you - definitely doing your bit. Wind turbines do not necessitate carbon trading, it's just about producing our current electricity needs without spewing out too much carbon - they are currently the cheapest way to generate electricity in NZ.
I'm alright with carbon trading myself - together with the cap that NZ has this will bring down our carbon emissions as fast as the Government reduces the cap. The trading ensures that the most expensive, replaceable emissions will be removed first.
A difficult problem. I have a cat myself (rescued from the bush), but she wears a large colourful collar which means the birds get away nice easily. The rats without colour vision aren't so lucky. I don't think we'll get another cat when she dies.
I've tried to convince other cat owners that the collars really make a difference, but spending $20 and half an hour of their time seems to be too much.
Waikatohome
Hydrogen is not a source of energy. It is simply a means by which energy can be stored and transported. That energy first has to be captured from wind, solar, thermal, generation of hydro electricity, or some other means and then embedded in the hydrogen.
So yes, it is one way of getting the energy generated at Manapouri to the North Island, but it will not increase overall supply of energy available in NZ.
KeithW
I'd tell them to search 'passivehaus' and 'low hanging fruit' - the long-term gains far outweigh short-term knee-jerk actions.
Unfortunately, there has been the usual attempt to commodify, and profit from, such moves - passive solar can be very cheap, and every house can be improved.
The colder first-world Euro countries building regulations are already at or very close to Passive House (Passivhaus in German) - this includes UK/Ireland/Scandinavia/Germany/Netherlands/Belgium/Switzerland/Austria. This only applies to houses built in the last decade or so and older houses are not up to this standard.
A Passive House requires 90% less heat energy than a code house. The design parameter for heating load per m2 is less than 10W so every square cm of a 200m2 house can be kept above 20 degrees on the coldest, sunless winter days for less than 2kW. Source: I own one.
Passive House also has design parameters for overheating which also consider increasing temperatures due to climate change. To meet the standard, the temperature must only go above 25 degrees 10% of the time. In practice, most designers aim for much lower - mine is 1%.
It is also very simple to drop the temperature in an airtight, super-insulated Passive House using a heat pump using very little energy.
'Had Germany spent $580 billion on nuclear instead of renewables, and the fossil plant upgrades and grid expansions they require, it would have had enough energy to both replace all fossil fuels and biomass in its electricity sector and replace all of the petroleum it uses for cars and light trucks.'
https://www.forbes.com/sites/michaelshellenberger/2018/09/11/had-they-b…
Did Germany actually decommission any reactors ahead of schedule? As I recall they announced a policy to do so but then started backpedalling on doing it.
Either way it might not be that meaningful, the French operate lots of nuclear energy and sell energy to other countries, including Germany.
France and most of Europe is notorious for dumping there nuclear waste irresponsibly. Giving it to mafia to sink ships full of nuclear waste, sending it to developing countries, now the latest is taking it to dodgy Siberian sites. Buy hey, it's not in there backyard, so who cares?
Good to see Australia trying to normalise travel. At this point there are countries in Europe that appear to have fewer cases per capita than Australia anyway so their stance on reopening borders make sense.
The Auckland internal border reopening should coincide with the international border reopening really. Why make fully vaccinated, tested people flying into NZ isolate when an Aucklander doesn't have to do either to get in the car? It wouldn't make any sense.
Yeah, quash is what they think they are doing, and the ordinary Chinese losing their shirts on apartments are who is being squashed.
ADVChina is putting out a whole series on it from China - here is one example:
"The crunch will hurt China the most" as it will the rest of us. How different is New Zealand?
This is the fourth time that they’ve attempted to slow the real estate market down, because they do know that this is going to be basically too big to deal with if it keeps growing at the rate it’s growing. But every time they’ve done it, the economy has hit stall speed very quickly, and they panicked. They went from hitting the breaks to hitting the accelerator. That’s why we’ve seen higher levels of real estate. The idea that “I can’t lose buying apartments” became ingrained with bankers, real estate speculators, and the public....we’ve long thought that residential real estate was probably 20% of GDP and that all in, real estate construction and related services was about 25%..... a study last year that said it was 29%. That’s already a huge amount....the numbers are actually much, much bigger. ... It could be a 30-40% problem, not a 20-25% problem. It’s just magnitudes bigger. We’ve never seen anything like this. And there’s no game plan, no historical analog. Maybe Tokyo in ’89? But this is worse than that. It’s worse than Spain in ’06 or Ireland in ’06. We’ve just never seen an economy this dependent .....
https://www.ineteconomics.org/perspectives/blog/jim-chanos-chinas-lever…
The CCP sending its heavies into the upper echelons of financial institutions seeking evidence of corruption, locate the enemy within with due publicity and resultant fearmongering. In itself, simply a euphemism, a vehicle to find some scapegoats. Many regimes have employed tactics of the same ilk. The Nazis and Soviets for instance preferred to invoke treason, President Lincoln preferred sedition.
Energy shortages drive some key commodity prices higher
The ‘German Disease’
Now after 20 years of foolish investment into solar and wind, Germany, the once-flagship of EU industry, is a victim of what we can call the German Disease. Like the economic Dutch Disease, the forced investment into Green Energy has resulted in the lack of reliable affordable energy. All for an unproven 1.5C claim of IPCC that is supposed to end our civilization by 2050 if we fail to reach Zero Carbon.
To advance that EU Green Energy agenda, country after country with a few exceptions have begun dismantling oil, gas and coal and even nuclear. Germany’s last remaining nuclear plants will permanently close next year. New coal plants, with latest state-of-art scrubbers, are being scrapped even before being started.
The German case gets even more absurd.
In 2011 the Merkel government took an energy model developed by Martin Faulstich and the state Advisory Council on the Environment (SRU) which claimed that Germany could attain 100% renewable electricity generation by 2050. They argued that using nuclear longer would not be necessary, nor the construction of coal-fired plants with carbon capture and storage (CCS). With that, Merkel’s catastrophic Energiewende was born. The study argued, it would work because Germany could contract to buy surplus, CO2-free, hydro-electric power from Norway and Sweden.
Now with extreme drought and a hot summer, the hydropower reserves of Sweden and Norway are dangerously low coming into winter, only 52% of capacity. That means the electric power cables to Denmark, Germany and now UK are in danger. And to make it worse, Sweden is split on shutting its own nuclear plants which give it 40% of electricity. And France is debating cutting as much as one-third of its clear nuclear plants meaning that source for Germany will also not be sure.
Already on January 1, 2021 because of a German government mandated coal phase-out, 11 coal-fired power plants with a total capacity of 4.7 GW were shut down. It lasted only 8 days when several of the coal plants had to be reconnected to the grid due to a prolonged low-wind period. In 2022 the last German nuclear plant will shut and more coal plants will permanently close, all for the green nirvana. In 2002 German nuclear power was source for 31% of power, carbon-free electric power.
As for wind power making up the deficit in Germany, in 2022 some 6000 wind turbines with an installed capacity of 16 GW will be dismantled due to the expiration of feed-in subsidies for older turbines. The rate of new wind farm approvals is being blocked by growing citizen rebellion and legal challenges to the noise pollution and other factors. An avoidable catastrophe is in the making.
The response from the EU Commission in Brussels, rather than admit the glaring flaws in their Green Energy agenda, has been to double down on it as if the problem were natural gas and coal. EU Climate Czar Frans Timmermans absurdly declared, “Had we had the green deal five years earlier, we would not be in this position because then we would have less dependency on fossil fuels and natural gas.”
If the EU continues with that suicidal agenda, it will find itself in a deindustrialized wasteland in a few short years. The problem is not gas, coal or nuclear. It is the inefficient Green Energy from solar and wind that will never be able to offer stable, reliable power.
The Green Energy Agenda of the EU, US and other governments along with the Davos-promoted ESG investing will only guarantee that as we go forward there will be even less gas or coal or nuclear to fall back on when the wind stops, there is a drought in hydroelectric dams or lack of sunshine. It doesn’t take a rocket scientist to realize this is a road to economic destruction. But that’s in fact the goal of the UN 2030 “sustainable” energy or the Davos Great Reset: population reduction on a massive scale. We humans are the frogs being slowly boiled. And now the Powers That Be are really turning the heat up. - Link
This sentence; "it will find itself in a deindustrialized wasteland in a few short years. The problem is not gas, coal or nuclear. It is the inefficient Green Energy from solar and wind that will never be able to offer stable, reliable power." is the one every country should pay heed to. while solar and wind might look appealing on paper we all know there are times when the wind doesn't blow and the sun doesn't shine. People need to lose their ideological blinkers, and start being more rational about these matters or the world they gift to their grandchildren will be increasingly uninhabitable.
there is an active fault line that runs through lake onslow
Globally, future energy use will be dominated by electricity generation, and the big increases required to 2050 will come from solar, it has been forecast.
Renewable energy through converting sunlight into electricity—either by using solar cells and concentrating solar power or indirectly through biofuel, wind and hydroelectric power. There is no known way for human civilization to use the equivalent of the Earth's total absorbed solar energy without completely coating the surface with human-made structures, which is not feasible with current technology. However, if a civilization constructed very large space-based solar power satellites, Type I power levels might become achievable—these could convert sunlight to microwave power and beam that to collectors on Earth.- Link
At present if I install solar on a rental. The tenant gets the benefit whilst I get all the cost. Not enough tenants will work out the power savings from solar and or be able to shift energy usage to daylight hours to make it viable to increase rent by enough to cover the cost of installing solar.
For my personal home solar only works if I consume power during the day, otherwise selling power at between 8.5 - 15 cents per kw/h and buying at 23 -26 cents makes the ROI tragically poor. It wouldn’t take much to tip me over the edge into the “let’s install solar” camp. At present I’ve heard that the underlying technology improvements means the price per watt is continuing to drop but short term material shortages are temporarily pushing panel prices up, this means that if I wait a year or 2 I should get much better value.
why would you do that when you are majority owner of most of the power generation companies in NZ
i agree they should make it better when you build, to put in solar, small wind turbines and use of grey water for toilet and watering systems
but that would be cutting off income streams for both central government and local government
forward thinking businesses like mainfreight already do this for new warehouses because of the long term savings and reliance
Yes! I have already complained about this to various ministers, we should have solar and battery subsidies, much like Aus. Yeah, there's going to be issues about selling it back etc, but as others have said, pumped hydro or some other form of peak storage (like heating up a big body of salt/water, for instance to smooth out the peaks) will need to be built. No reason it can't though, other than "political will".
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