“Just in time supply chains” were one big momentum trade until they ran into a situation that reinforced the need for “just in case”.

COVID was the first event to illustrate the fragility of global supply chains; then came Chinese import restrictions on critical minerals; and now we are in the midst of a shock to just-in-time energy, fertiliser and chemicals.

Some countries didn’t even trade their energy resiliency for efficiency…. they traded it for nothing at all.

Exhibit A

Yes, Taiwan are reversing it less than a year later: In Major Reversal, Taiwan Seeks To Rewire Its Energy Strategy by Restarting its Nuclear Plants.

Germany has been busy destroying its energy resiliency for a decade now, and not even the 2022 energy crisis forced it to rethink its energy policy (exiting nuclear before lignite coal plants is peak ideology/stupidity).

To illustrate:

• At one point, Germany was the largest electricity exporter in Europe (now a net importer).

• Germany added 29% to gross capacity, while generation has collapsed by 23% since 2017.

• Germany has one of, if not the most expensive, electricity prices among major economies globally.

“Engineering a slow-motion reliability crisis”

The first person I heard outline the fragility of over-dependence on intermittent renewables with just-in-time natural gas was Meredith Angwin (who wrote “Shorting the Grid”).

While Meredith was analysing the US grid, and in particular New England, I’ve seen a parallel emerging with LNG and the growth in destination flexibility driven by the US LNG expansion.

Destination-flexible LNG has reached approximately ~48% of global trade, driven by the tripling of US export capacity and the rise of portfolio players (large IOCs and a few NOCs) who intermediate 45–55% of global flows.

Just in time LNG? If you pay up, that is…

Players buy on long-term contracts (15–27 years, needed to underwrite liquefaction project finance) and resell on shorter, more flexible terms.

US LNG goes to the highest bidder; 91% of US LNG sales and purchase agreements are structured on FOB terms, meaning the buyer takes title at the loading terminal on the US Gulf Coast and controls where the ship goes.

Qatar and Australia have strict destination clauses that prohibit resale or rerouting and lock LNG into predetermined routes regardless of where the highest price exists (providing security of supply to the end user), while leaving a smaller proportion for spot/destination flexibility.

Asia is forecast to drive LNG demand

”The Asia Pacific region accounts for almost 80% of this gas additional demand out to 2030”. -IEA Gas 2025

If LNG remains structurally tight, what happens to Asian demand since LNG is a marginal luxury for most of Asia?

Yes, wealthy Asians with contracted volumes like Japan, Taiwan and South Korea will pay up, but the rest won’t.

• Pakistan, Bangladesh, and India exit spot markets first and pivot to coal.

• China pivots to domestic gas, pipelines, and coal (ramps up coal utilisation).

• Japan, Taiwan and Korea absorb losses through contracted volumes.

Add to this dynamic the fact that a number of Asian countries are heavily subsidising LNG, with the expectation that prices will converge closer to coal pricing on the back of the massive LNG build-out and glut forecasts.

It’s already unsustainable for poorer Asian countries at $12/MMBtu, let alone when JKM heads towards $20/MMBtu!

For example, Bangladesh spent more than half its full-year subsidy allocation in April…

Officials say the state-run Petrobangla has placed the subsidy demand with the Ministry of Finance (MoF), as global fuel prices spike and reserves a limited.

The April subsidy amount, as sought by the corporation, is more than 50 per cent of the entire subsidy amount worth Tk 89 billion it got from the MoF in the previous fiscal year (FY) 2024-2025.

While Pakistan Faces Extensive Blackouts as Gas Shortfall Worsens.

Qatar sits at the bottom of the LNG cost curve.

• US LNG cannot replicate Qatar’s cost advantage (delivered costs 2–3x higher than Qatar’s breakeven), so it can’t ever compete with Asian coal.

• The geographic penalty to Asia is real and permanent. US-to-Asia shipping takes nearly twice as long as Qatar-to-Asia shipping, tying up more tonnage and adding $2–3/MMBtu in freight costs. The US structural advantage lies in European markets.

• The crisis has created a two-tier buyer landscape. European and Wealthy Asian buyers with pre-existing US contracts, while the rest get priced out.

Consequences?

I’m going to skip the geopolitics insights as I don’t have any.

Your guess on how this goat rodeo of a (US only?) ceasefire blockade is going to evolve is as good as mine.

LNG (and fertiliser) are the easier elements of this whole debacle to understand since there is no bypass ability, unlike oil (and marginal SPR or dark fleet to unsanction…)

What we know.

1. Not a single (loaded) LNG carrier has transited the strait (fertiliser is similar).

2. Ras Laffan (20% of the world’s LNG) is offline (with two trains currently being restarted).

3. 17% of Ras Laffan’s capacity is now destroyed

4. Ras Laffan NFE is delayed (again).

5. Euro gas storage concerns (with no urgency to rectify).

6. The Big Switch

Not a single (loaded) LNG carrier has transited the strait to date.

We have yet to see a single loaded LNG carrier (an empty one did) transit the Strait, while Iran has halted two Qatar LNG tankers it previously cleared to transit. These were bound for China and Pakistan, which makes their being turned back a head-scratcher.

Approximately 4 empty LNG carriers and 15 laden ones remain stranded inside the Gulf as of April 9, 2026, according to Kpler vessel-tracking data (with 50 Qatari LNG tankers sitting idle across Asia).

A lot of what I’m going to describe in this piece will start from the point those 15 laden LNG carriers start transiting; everything else is noise.

Iran has almost entirely shut out vessels owned by the UAE, Qatar, Saudi Arabia, and Kuwait since February 28, 2026 (Yes, ADNOC managed two dark transits with AIS transponders switched off). They aren’t going to legitimise the toll, and there is zero chance Qatar takes any risks with its LNG carriers as they are extraordinarily valuable ($250 million per vessel, $100-200 million per cargo). The Qatari Q-Max and Q-Flex fleet is effectively irreplaceable on any reasonable timeline (which makes them pretty much uninsurable at any rational premium).

Not that this matters much currently with the blockade!

The distance they have to cover to the likes of China, South Korea, Japan and Europe creates a further lag of ~40days when they get moving again.

Fertiliser is in a similar position.

41 vessels carrying approximately 1.9 million tonnes of fertilisers are currently trapped behind the strait. Only 5–6 fertiliser vessels total have exited the Gulf since the war began on February 28, and none since March 22.

Similar to the 15 LNG carriers, all eyes are on when these fertiliser vessels will transit and reach their destinations in time for various planting seasons.

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Ras Laffan (20% of the world’s LNG) will take 4-6 weeks to fully restart

QatarEnergy prepares to resume LNG output after March attacks

Two of the three trains at QELNG North 1 (Qatargas-1), Qatar’s initial LNG project located in Ras Laffan Industrial City, have been reactivated. This facility encompasses three liquefaction trains with a total capacity of around ten million tonnes per annum (mtpa).

If the sequential restart were to go perfectly from 9th April, we would still be looking at early June for all the operating LNG trains to be online.

Why sequential restarts?

Each LNG train needs enormous power (35–85 MW per compressor string), so starting multiple trains at once would overwhelm the facility’s electrical system with surge currents and voltage instability. An 18 MTPA facility draws around 800 MW at full capacity. Beyond power, trains share infrastructure, boil-off gas compressors, refrigerant systems, and gas pretreatment units, which simply can’t serve multiple startups simultaneously. So trains must come back one at a time.

Without safe tanker passage through the Strait of Hormuz, restarted trains must be shut down again, as there are only 4 empty LNG carriers plus the storage tanks to fill.

To top things off, Cyclone Narelle knocked 30+ mtpa of Australian LNG offline, which was quite some timing!

By April 9, Wheatstone’s Train 1 had returned to full LNG production rates, bringing the facility to 50% capacity. However, Train 2 requires replacement of the damaged fin-fan coolers, a process expected to extend into late April or possibly early May.

So, with Train 2 still down, roughly 1.0% of global LNG trade remains offline for another few weeks.

17% of Ras Laffan’s capacity is now destroyed

Pretty self-explanatory…

Saad al-Kaabi said two of Qatar’s 14 LNG trains and one of its two gas-to-liquids (GTL) facilities were damaged in ​the unprecedented strikes. The repairs will sideline 12.8 million tons per year of LNG for three to five years, he said ​in an interview.

This was an insightful overview from someone deep in the weeds with LNG trains.

Ultra high-res imagery of the Ras Laffan LNG South Complex from Mar 22.

It’s also not as if Honeywell has a whole lot of spare capacity currently, with a full order-book out to 2028.

Honeywell's company-wide backlog hit a record $37 billion at end of 2025, with its Energy and Sustainability Solutions segment showing double-digit order growth. The company has acknowledged in investor materials that "growth is constrained by production capacity" and that LNG bookings extend into 2028. sec

Ras Laffan NFE delayed again…

Qatar first unveiled the NFE expansion in 2018. The plan was to build four 8‑mtpa LNG trains and bring them online sequentially starting in 2023, with a new train every six months. COVID pushed out that timeframe, with it being extended by an additional quarter, the last few quarters, with the first LNG trains 85% complete.

The timeframes kept slipping before the war broke out, with the below from February 9th 2026.

Qatar Pushes Start of Its Massive LNG Expansion to End-2026

North Field East (NFE): Four new AP-X mega-trains, adding 32 MTPA, were originally targeted for late 2026 startup, which was already pushed to Q4 2026 before the war.

Qatar Said to Push LNG Expansion to 2027 After Iran Drone Attack

In a similar way to LNG train restarts, NFE delays will undoubtedly shuffle back NFS and NFW expansions.

NFE and NFS provided energy security to countries via long-term destination fixed contracts.

However, a notable counter-trend has emerged since 2023. The IEA reports that more than 70% of newly contracted LNG volumes since 2023 are destination-fixed, with 85% carrying durations of 10+ years. This reversal is concentrated in Qatar’s massive North Field expansion: 7-year deals with Sinopec, Shell, TotalEnergies, Eni, and CNPC that are predominantly destination-restricted and oil-indexed. The post-2022 supply security panic restored seller leverage for traditional structures.

Euro Gas Storage Concerns

The 2025/26 winter laid bare the intermittency risks embedded in Europe's energy transition. A historic wind drought through the first half of 2025, a November Dunkelflaute episode, collapsing Nordic hydro reserves, and surging gas-for-power demand combined to push gas storage to record lows by March 2026

• European Utilities Rush to Hedge Against Acute Wind Drought

• Norway Faces Energy Shortage As Lack Of Winter Snow Depletes Reservoirs

Interestingly, there doesn’t seem to be any urgency to rectify this with the view that this is a short-term disruption.

This feels a bit premature, and Javier points to TTF pulling back as proof that things are fine.

In 2022, TTF spiked to $222MMbtu in February before pulling all the way back to $78MMbtu in June, then hitting a peak of $340MMbtu in August.

I’m seeing a similar dynamic to what happened in 2022, with storage operators again refusing to inject gas because backwardated forward curves guarantee losses.

While I don’t think this will be anywhere near as severe as 2022, the European complacency is quite something, especially if they end up with a cold winter or another “wind drought”.

Europe loses its grip as LNG cargoes chase higher prices in Asia

Since the outbreak of the Middle East war on February 28, the number of diverted LNG tankers has continued to grow, with the last Qatari cargoes expected to arrive in the UK and Italy by 27 March, according to data from the intelligence firm Kpler.

“We have 11 LNG cargoes that have been confirmed as diverted from Europe to Asia, plus two that have been diverted from Europe to Egypt and one from Europe to Turkey,” Laura Page, Insight manager LNG & Natural Gas at Kpler, told Euronews.

This chart reminds me of the constant premium we see in Shanghai for silver and gold.

The reluctance to refill gas storage is an EU-wide phenomenon, not a German anomaly, given the likes of Portugal, Spain and Poland are fine.

• Dutch gas storage levels hit lowest level in years

  "Current prices do not make it obvious that companies will start buying gas in time," Gasunie said, as high prices make it unattractive to buy gas and then store it.

• Gas Importer VNG Urges Germany to Intervene to Refill Storage

  “As a result, we will only start buying once these spreads have shifted back in a direction that makes economic sense for us,” Heitmüller said. VNG imports gas and is the third-largest gas storage operator in Germany.

  At a meeting of European energy ministers this week, a group of nations including Germany, the Netherlands and the Nordics urged the EU to refrain from stepping into the market when reacting to the war-related price shocks.

The Dutch find themselves in quite a pickle as per the above storage levels, and I would imagine a number of the wells they haven’t poured concrete down will be restarted in the coming months (Netherlands passes law to permanently shut Groningen gas field).

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The Big Switch

At current JKM spot prices of ~$15.8/MMBtu, Asian LNG trades three to four times above the coal-to-gas switching threshold in virtually every market. The consensus switching range sits at $6–9/MMBtu for Northeast Asia (Japan, Korea, coastal China) and just $3–5/MMBtu for emerging South and Southeast Asia, where cheap domestic or Indonesian sub-bituminous coal dominates fuel supply.

China treats LNG as the marginal, swing molecule in its gas supply stack. Contracted volumes get absorbed, but spot purchases are ruthlessly price-sensitive. With 42–50% of gas demand in the industrial sector, where dual-fuel capability is widespread, and coal remains far cheaper. China has retrofitted for flexibility 360KW of its coal fleet (30%) and when you include new coal plants, half of China’s 1200KW of coal capacity is now flexible.

Chinese industry is highly price-sensitive and simply won’t show up if prices are too high, as the 2022 energy crisis illustrated, with Chinese LNG imports falling by 20%. Chinese buyers withdrew from spot markets entirely when prices exceeded $43/MMBtu in H2 2022.

China aren’t short of coal inventories this time either.

This has been a blessing to Asian countries: China, well-positioned in a tight global market, sells record LNG volumes.

China, the world’s largest importer of LNG, reloaded between 8 and 10 cargoes during March, a record monthly total, according to analysts ICIS, Kpler, and Vortexa. Kpler data showed that China reloaded 1,31 million metric tonnes of LNG so far this year. Of these, 10 were delivered to South Korea and five to Thailand, while the rest went to Japan, India, and the Philippines.

Granted, these prices are really hurting poorer Asian countries, especially given the subsidies. Which brings me to my next point, that this is the second time they have been burned in 4 years.

Fool me once (in 2022), shame on you, fool me twice, shame on me….

The second-largest LNG demand driver in Asia Pacific, and in ASEAN, is power generation.

Vietnam, the Philippines, Indonesia and Thailand all have large proposed gas build-outs which will likely be shelved until Qatar expansions come online or get scrapped altogether in favour of coal and solar (which makes a heap of sense for Asia’s HVAC demand profile during the day).

Each successive price crisis damages Asia’s gas demand growth trajectory, as countries revert to coal and accelerate renewables and rather than building new LNG infrastructure (which is rational when they know they will be outbid/unable to source LNG supply in a crisis).

Pakistan is the case study, as in 2022, it went without a single spot cargo for over a year, completely outbid by European buyers.

Asia will max out their coal utilisation from here to help counter the LNG shortfall, granted the likes of Taiwan and India already run their plants at a high utilisation, so have less “headroom”

We are already seeing this show up in headlines;

• Taiwan Pivots to Coal Power as War Disrupts Global LNG Market

• Indian Power Ministry directs imported coal based plants to run at full capacity from April 1

• South Korea to lift coal cap, boost nuclear output amid Iran crisis

• Thailand: Coal units restarted to curb electricity costs

• Japan: Coal-fired power plant utilization rate increased as an emergency measure in response to the situation in Iran.

• Bangladesh ramps up coal-fired output on LNG shortages

Asia will push its coal utilisation to the max over the coming months as we head into their peak cooling season, with electricity consumption going vertical from here, right when their LNG storage is running dry, and no Qatar LNG transiting Hormuz (90% of Qatar LNG heads to Asia).

How am I positioning to take advantage of this?

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Equally impressive is that three cereals consume nearly half the world’s fertiliser!

Wheat, rice, and corn together absorb 79.6 million tonnes of NPK annually, roughly 46% of the total NPK produced globally.

Roughly one-third (~16m tonnes) of global seaborne fertiliser trade passes through the Strait of Hormuz. If you consider global fertiliser production made using LNG that transits the Strait of Hormuz as feedstock (overwhelmingly in India), that adds a further 3–5%.

Urea, sulphur, and ammonia have all jumped 25-35%, and are just getting warmed up if the strait isn’t opened soon.

While the Russian invasion of Ukraines effect on fertiliser seems like the obvious comparison to today, it’s quite a different scenario when you consider Russian fertiliser was rerouted rather than blocked from the market, the Hormuz closure simultaneously blocks production and transport as fertiliser (similar to LNG there are no alternative pipelines or routes to get the fertiliser out like there is with oil).

What can be compared is the beating the EU is about to take due to their fertiliser production using LNG, which is operated at just 75% utilisation in late 2025, with several permanent closures confirmed. European gas at €50/MWh makes ammonia 3-4× more expensive than Middle East and the US. So it’s no surprise they have increasingly shifted to importing fertiliser.

• Egypt is now the EU’s most important external nitrogen fertiliser supplier, accounting for roughly one-third of nitrogen imports. This is a disaster, as Israel has suspended all gas exports to Egypt and 24 Qatari pre-contracted LNG cargoes have been blocked, resulting in Egyptian fertiliser production operating at 50-55% of capacity.

• At the same time as the above are occurring, the EU has largely removed Russian fertilisers via stupdity carbon levies and tariffs.

Eight days before Iran kicked off, the EU was already in trouble.

EU restrictions on Russian fertiliser threaten to drive up global edible oil prices (20th February 2026)

Europe is making it significantly harder and more expensive to import fertiliser from Russia, through a combination of new carbon levies, escalating tariffs, and fresh sanctions. Farm groups say fertiliser imports have already collapsed by more than 80%, and warn of a repeat of the 2022 price shock, when fertiliser costs surged globally, and food prices followed.

Unlike oil and to a lesser extent, gas, G7 nations maintain no strategic fertiliser reserves.

The US is more insulated on the production side, with it producing ~75% of the fertiliser it consumes. Not that this will matter to price, as the US (like the EU) buy urea just weeks before they need it, and commercial stocks were already thin.

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The next commodity to run?

Which brings me to what I first saw Louis Gave point out: as confidence in Treasuries continues to sour, commodities are one by one catching a bid according to storage costs.

Or as Luke Gromen put it:

The world is short energy and food and long $70tn in USD paper, which it will sell aggressively for food/energy.

With precious metals having run and now energy and fertiliser, it’s not exactly rocket science to think grains are next up.

I love the Finz Futures screener to scan the markets, and for anyone who knows my style, one chart jumped out at me in the grains.

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The clock is ticking, as no amount of financial engineering will paper over the blockage of approximately 20% of global oil and LNG trade.

I’ve seen a number of posts claiming that the SPR release means problem solved.

Tracy (Chi) put it best: A Stock Is Not a Flow: The G-7 SPR Bluff: Why 300 to 400 Million Barrels Changes Nothing.

Releasing strategic reserves into a physical blockage is like using a garden hose on a house fire. The tool exists. It just does not match the scale of the problem.

The LNG situation seems more acute for a few reasons.

One being there is already a lot of oil at sea.

Total oil water in November was 1.82 billion barrels, of which crude in transit accounted for 61%, crude in storage 5%, products in transit 32% and products in storage 2%, data from S&P Global Commodities at Sea showed.

The removal of Russian sanctions for a month (what a joke…)

On March 6, 2026, the US Treasury’s Office of Foreign Assets Control (OFAC) issued a temporary 30-day license authorising the delivery and sale of Russian crude oil and petroleum products that were already loaded on vessels as of March 5, to Indian buyers only. The license expires on April 3, 2026.

Saudi Arabia and the UAE maintain pipeline bypasses capable of moving 3.5–5.5 million barrels per day around the Strait.

Qatari LNG has no such option; it’s trapped.

Lastly, there is substantially more oil in storage than LNG, with only South Korea and Japan having substantial LNG buffers.

Given the storage situation and the vulnerability of Hormuz-dependent LNG, I continue to believe thermal coal will be a massive beneficiary if this drags on. Coal utilisation will be maximised to compensate for the LNG shortfall.

These charts in the FT caught my eye, as yes, the current gas move has been smaller, but what’s coming down the pipeline will be far bigger if the blockage is not resolved immediately.

The latest tanker tracker has counted 14 AIS-visible vessels and 8 dark vessels, picked up by satellites, that transited the Strait of Hormuz in the 48 hours, against a prior average of 140 vessels a day.

Judging by the latest stream of tanker explosions, things are taking a turn for the worse.

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LNGs Concentrated Risk

It’s wild that 20% of global LNG export capacity is concentrated in a single location. Every operating LNG train in Qatar sits within Ras Laffan Industrial City.

Ras Laffan went offline on the 2nd March, so it’s been offline for 10 days now. Restarting even a single AP-X mega-train from an extended shutdown requires a minimum of 3–7 days under ideal conditions, and the sequential restart of all 14 trains at Ras Laffan would realistically take 4–8 weeks to reach full throughput, assuming no physical damage. If critical cryogenic equipment is damaged, historical precedents indicate timelines of 6–20 months and, in catastrophic scenarios, a decade.

Each AP-X is custom-built over ~24 months, weighs up to 500 tonnes, stands 55 meters tall, and can only be manufactured at one facility on Earth. Honeywell (formerly Air Products) holds an absolute monopoly on AP-X technology and equipment.

Fabrication takes approximately 24 months, with the total order-to-delivery lead time being 36–48 months when engineering, design, testing, and ocean shipping are included.

The Iranians already managed to strike Ras Laffan with drones (which is why it declared force majeure and went offline).

Now, with the successful targeting of Gulf radar systems, the risks continue to escalate: Iran Hits Key US Radar, Deepening Gulf Missile Defense Woes.

Earlier in the war, an AN/FPS-132 radar in Qatar: a fixed installation unlike the mobile THAAD system was damaged during an Iranian attack, according to research from the James Martin Center for Nonproliferation Studies in Monterey, California.

The loss of a THAAD radar system is a huge blow, as it was one of only eight globally, and I won’t hold my breath for how quickly they can be repaired, given China’s gallium restrictions ( gallium is essential for modern high‑performance radar systems, especially AESA and advanced military radars).

Iran has destroyed a key $300 million radar system used by US THAAD missile defence systems at Muwaffaq Salti Air Base in Jordan.

The US has eight THAAD systems globally, including in South Korea and Guam. The batteries cost about $1 billion each, with the radar comprising about $300 million of that.

“These are scarce strategic resources and their loss is a huge blow,” said Tom Karako, a missile defence expert with the Centre for Strategic and International Studies.

While I’ve read that Iranian precision ballistic missiles have been taken out, and that’s why they are relying heavily on cheap drones and cruise missiles.

The counterargument is that this is an exhaustion doctrine, and when US/Gulf defences have been sufficiently weakened, the Iranians will step it up with precision ballistic missiles.

I mean, it’s a logical strategy after last year’s 12-day war: US used about a quarter of its high-end missile interceptors in Israel-Iran war, exposing a supply gap 31/07/2025

I have no idea which is true, but we’ll find out in the next week or two!

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Europe

While Europe isn’t as directly exposed to LNG transiting the Hormuz Strait (bar Italy, which is really in the shit). It’s not going to make much difference. With the supply disruption so big, there is going to be a knife fight for the marginal energy molecule.

Yes, there is a 20% drop in EU coal capacity between 2022 and today, but there are 11.7GW of stand-by coal, mostly in Germany and Italy, that needs to restart before the rest of the EU coal fleet can max out utilisation to help compensate for lost LNG.

More Angles?

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Dealing with a 50% probability makes you dial in your risk vs reward and sizing if the outcome is a coin flip. A chain reaction across multiple commodities is underway, given the share that passes through the Hormuz Strait, and we are about to see all sorts of spikes and craters across the markets.

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TACOs are off the menu

Unlike tariffs and trade negotiations, Trump can’t simply TACO here as shit gets out of hand. It’s becoming increasingly clear that there is no plan B, and Iran now holds the leverage via Hormuz.

There is a clock ticking on how long this war goes on before dwindling munitions stockpiles start causing US casualties as they fail to intercept Iranian drones and missiles?

Remember this last year: US used about a quarter of its high-end missile interceptors in Israel-Iran war, exposing a supply gap 31/07/2025

It’s no secret, as recent headlines highlight.

U.S. Races to Accomplish Iran Mission Before Munitions Run Out (1/3/2026)

Iran’s Missile Barrage Tests Whether US Has Enough Interceptors (1//3/2026)

The US fired about 150 THAAD interceptors last June to defend Israel during the 12-day war against Iran, according to the Center for Strategic and International Studies. Those weapons are the highest-end ground-based missile defense system in the American inventory, with each Lockheed Martin Corp interceptor costing about $15 million.

While the cost asymmetry is crazy, considering $15m interceptors are being used to take out Shahed-136 drones, which cost an estimated $20-50k per unit. Cost is not the issue; it’s critical minerals without which you can’t make a THAAD or pretty much any high-end military munitions.

It’s this chart, over and over again: China controls a few key pinch points, which it can ban, limit, or drip-feed to the US. Grid delays are one thing, munitions running low is another.

It’s not only the munition shortage risk either. Running with the Casino Royal analogy, Trump is well aware of the danger he faces as energy prices rip and inflation with it.

The Government has been able to financially engineer its way out of recent crises, but oil is a completely different beast, and no amount of paper trading in the oil futures market will resolve this.

“It could dampen speculation with traders knowing that ​the U.S. government is taking the opposite side, which should moderate the spike in oil prices, but it does not solve the disruption to physical supply, which is significant with the closure of the Strait of Hormuz, and there is no spare capacity outside of the Gulf.

In surplus markets, paper sets the price; in deficit markets, physical sets the price, and we are currently staring at a huge deficit.

You can’t print oil…. The SPR can only release at 2-3mbpd and has already been drawn down by 42% to give Biden a few political brownie points.

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What’s the play?

I have out-of-the-money CL WTI futures, which, up until this point, were burning a hole in the corner of the portfolio. They are now very much back in the green due to oil volatility spiking alongside oil prices.

• 1% CL Nov17’2026 $110 strike calls at 0.95c per future option contract

• 1% CL Nov16’2027 $110strike calls at 0.66c per future option contract

The volatility ship has sailed for asymmetry in these, and now it is a question of how to exit well, particularly on the Nov17’2026 110 strikes.

The beauty of these trades is that I’ll get a cash injection into the portfolio right when it will be most useful. My rough plan is to exit if we get into the $150-200barrel range and plough the proceeds into the EM exchange operator(s) who’ve taken the biggest hit.

Yes a fat lot of good this does anyone unless you already had the trade on and likely suffered like I did in it for years…. it was the Pain Trade*.

*One thing I hate is the intellectual dishonesty of victory laps on a return on the option that came home while ignoring the premium that went to heaven… All up, I’ve burned ~6% in oil option premium to date, so I need a minimum of 3x on the remaining calls to break even. At 6x I’ve really only doubled my money… So, unless I nail a serious multi-bagger, the whole adventure has been a poor use of capital (as I touched on in the piece).

What has my attention is thermal coal

If something really runs US tech (QQQ), while something else gets really crushed like thermal coal, it doesn’t take a lot for the ratio to flip the trick is being able to spot the inflection which is really tough.

For example, if you have a five-bagger, then to get to a ten-bagger is really a double, for that ten-bagger to now double again becomes a really big ask vs something that’s complete roadkill, i.e. if anything at all goes right, it’s a quick double.

Which is where I believe we find ourselves with thermal coal again.

I’ve observed the cyclicality of the coal-to-gold ratio and wish I’d been smart enough to rotate from coal miners to gold miners in September 2022.

This begs the question, what if I’m staring at the peak in this ratio again?

It’s easy to make the bull case for gold here (Luke Gromen does a fantastic job of the gold bull case), and I remain a big gold bull, but I have a thing for roadkill that is showing signs of life.

Koyfin coal data only goes back to 2015, but I came across this amazing chart by @ValueSeeker that illustrates how the ratio has been highly cyclical since the 1960s.

Ultimately, I’m going to stay long both coal and gold; it’s just the weightings that will vary.

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My bread and butter set-up

When I see this set-up in a cyclical commodity that is bombed out with negative sentiment, I’ve learned to just pull the trigger (the rhodium chart was nearly identical a year ago).

That period from April 2024 to April 2025 was brutal across the entire energy sector, yet similar to oil, it’s looking like we but in a bottom on Liberation Day.

The below chart does a good job of visualising how the price dips below the high end of the cost curve for as long as it takes to shutter production or send high-cost producers bust, thereby tightening supply.

After enough time passes, we get a breakout.

Between 2023 and early 2026, roughly 80–110 million tonnes per annum (mtpa) of thermal coal production capacity has been shuttered, curtailed, or placed on a managed decline trajectory globally, with another ~190 mtpa targeted for removal via Indonesian government quotas in 2026.

It’s key to note that these aren’t ‘care and maintenance’ situations, which can be brought back online when prices improve; the majority are due to reserve depletion and planned end-of-mine-life rather than sudden, price-driven shutdowns.

Take these recent examples:

• Glencore closed four mines;

  • Newlands in Queensland’s Bowen Basin (5.5 mtpa) ceased operations in February 2023 after 40 years.

  • Liddell in the Hunter Valley (4.5 mtpa) mined its last coal in July 2023 after over a century of operations.

  • Glendell, part of the Mt Owen complex (3.7 mtpa), stopped mining after the NSW Independent Planning Commission rejected its continuation project in late 2022.

  • Integra Underground (2 mtpa) closed in mid-2024, brought forward from its December 2024 schedule due to adverse strata conditions.

• Whitehaven Coal's Werris Creek (1.5 mtpa, closed June 2024, due to reserve depletion).

• Yancoal's Stratford Coal (1.5 mtpa, closed May 2024, due to 30-year mine life exhausted).

• Peabody's Wambo Underground (~3 mtpa, closed September 2025, brought forward from 2026 due to challenging geological conditions).

• Australian Pacific Coal’s Dartbrook mine collapsed financially in July 2025 after restarting in late 2024, entering administration in NSW with over $200 million in debt.

• The single largest future closure is BHP's Mt Arthur: Australia's biggest thermal coal mine at ~15 mtpa actual production: scheduled for permanent closure by June 2030.

Then comes Indonesia, which is by far the most significant.

The Indonesian government is now targeting just 600 Mt of production in 2026 (versus 790 Mt in 2025). If enforced, this would represent the single largest supply-side intervention in seaborne thermal coal history, though enforcement remains uncertain. Roughly 300 mining companies failed to submit 2026 quota applications.

I have no idea what the probability is of this quota being enforced this year, other than to note that last year’s reduction was enforced.

When you combine this outlook with the Australian outlook, it’s hard not to get bullish, as it’s pure destruction on the supply side for seaborne thermal coal, and it accelerates from 2028 on.

The Catalyst

Thermal coal stands to benefit from 20% of the world’s LNG, or ~83 million tonnes per year, via Qatar (~93%) and the UAE (~7%) being prevented from transiting the Strait of Hormuz.

There is no viable alternative route for LNG; it’s trapped, and with Ras Laffan offline (100% Qatar LNG), even if there is a resolution tomorrow, we are looking at 2-4 weeks minimum before things are running back at full capacity.

Roughly ~83% of Hormuz-transiting LNG flows eastward to China, India, South Korea, Japan, and Taiwan. While Europe absorbs the remaining ~13% of Qatar’s LNG export

Fuel Switching

So, the base case is that we will see a knife fight between Europe and Asia as they compete for the same high-CV 6,000 kcal coal.

The impact of a halt in LNG flows through the Strait of Hormuz would be comparable in scale to the curtailment of Russian gas supplies to Europe four years ago. Then prices soared to nearly US$100/mmbtu at their peak (equivalent to almost US$600/bbl Brent) and averaged US$40/mmbtu in 2022. This time, however, the reaction will hardly be as extreme as the closure of the Strait of Hormuz is likely to be temporary.

There is no better set-up than cheap valuations combined with a catalyst and solid longer-term bull case.

Longer Term Bull case

If you grow your GDP, you use more electricity, and there is zero chance that wind and solar can keep up with the electricity demand of emerging markets.

I’ll save you the long macro thesis, which I went over here (The Big Addition), but in summary, using OPEC’s data, not IEA, which is even more bearish on thermal coal.

Assumptions

• China’s primary energy demand isn’t going to grow between now and 2050 (figure 2.2). Quite the assumption……

• China’s coal demand is going to drop 8% between 2024 and 2030 and 12% between 2030 and 2035 (figure 2.6).

• Acknowledge there is 94.5GW of new coal plants under construction and 66.7GW permitted (figure 2.5). If you’re wondering how coal demand is forecast to decrease by ~8% while China’s coal fleet expanded by ~21%, it’s due to the assumption that utilisation drops from ~50% to ~30%.

Wind and solar are assumed to replace coal over the next 26 years, as shown in the chart below.

I’ll take the other side of these projections all day long as China’s coal fleet is all but guaranteed to grow 17% by 2029, probably 23% with permitted projects and possibly 40% if planned plants are permitted.

Yes, 40%. You read that correctly.

The entire idea of coal demand dropping is based on coal plant utilisation declining, which in turn is based on China’s energy demand remaining flat over the next 24 years…

What am I buying or adding to here?

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Nice takeout premium, better management, and better liquidity, what’s not to love!

“Transocean expects its leverage ratio to drop to about 1.5 times within 24 months of closing, alongside improved liquidity and a lower cost of capital.”

-Keelan Adamson, Transocean CEO

This puts an end to the “how will Transocean weather a potential downturn” and, combined with the boost in liquidity, will open the door to big money flows. I’ve learned not to underestimate just how much this can benefit the leader when a hated sector inflects (think Cameco…)

Few would debate that Transocean management’s track record is superior to Valaris, having done a great job navigating a brutal decade for drillers.

I’ve written a few times now, I believe, that we saw oil services bottom post liberation day (and OFOS ETF delist), as they’ve traded independently of oil for the past year or so.

Short interest still sits at 6.20% for the XES ETF and is likely adding fuel to the fire for Transocean and Valaris, which both had high-teens % of their floats short last year. The last few months and the announcement of Transocean’s acquisition will have been brutal for the Valaris shorts.

Sentiment got pretty grim for oil and drillers, especially post the liberation day smash, but for those focused on the consolidation going on behind the scenes, the setup just kept getting better.

The floater fleet has been cut in half over the last decade and is now consolidating ownership.

Since 2018, 28 drillships have permanently exited the global fleet (24 recycled, 4 converted)

Consider that Transocean will be in charge of ALL the marginal cold-stacked drillships supply (bar Nobles Globetrotter II, which is held for sale). Esgian posted this at the start of 2025, and one by one, they got crossed off.

The rest of the cold-stacked supply is highly unlikely to be contracted at this point.

Seadrill still has its three 6th Gen Semisubs.

• West Aquarius — Seadrill (2008)

• West Phoenix — Seadrill (2008)

• West Eclipse — Seadrill (2011)

Mexican operators (6th Gen)

• Bicentenario — Grupo R (Mexico) 2010

• Centenario GR — Gremsa / Grupo R (Mexico) 2010

*GSP Deep Driller, a 2005-built semisubmersible owned by GSP Offshore which is almost certainly destined for recycling.

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What are the Rigs worth?

This is what Esgian is pegging their values at today.

• $316m for a 7th gen drillship.

• $184m for a 6th gen drillship.

• $330m for a HE semisub.

• $89m 6th gen semisub.

• $183m HE jackup.

• $77m premium jackup.

These values land pretty much at the announced EV of $17billion.

While the drillship orderbook is currently empty, so there is no recent newbuildvalues, but if you want a new drillship, you are looking at ~$1 billion and a 4-5year wait list before considering the deposit is now 30-40% (compare to ~10% last cycle) due to the capital destructive reputation the drillers have earned themselves the last decade.

I covered it in these pieces: Digging into Shipyards & Heading to the back of the Newbuild Queue.

The summary is essentially that shipyards are at full utilisation and that a whole line of vessels with low order books needs replenishment in the coming years.

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What would it take to order a new build drillship?

Newbuild “stimulation zone”

It’s going to have to be north of $700k dayrates before newbuilds are even considered.

Odfjell Drilling, the manager of eight such units, says that a new HE floater could take around four years from project sanction and cost $800 – $ 1,000 million. Furthermore, dayrates needed to justify a newbuild would need to exceed $720,000 with a five-year contract. It is noteworthy that HE rates have crossed the $500,000 threshold this year.

-Odfjell Drilling Management

Other reasons for this cautious approach include limited yard availability, long lead times, and the challenging economics of such an endeavour. One of the largest offshore drilling contractors, Noble Corp., believes that newbuilds are “prohibitively uneconomic.” According to Transocean, newbuilds drillships are expected to cost $1billion+, with a minimum five-year lead time.

-Why newbuild orders face high barriers despite offshore drilling upcycle

According to estimates supplied by rig owner estimates, constructing a new drillship would cost over $1 billion, with a build time of around three years. Assuming 90-95% utilization, a dayrate of $650-700,000 would be needed for a standard 12-15% return on investment over the vessel’s anticipated lifespan of ~25 years.

-No resurgence seen for newbuild rig construction (Sept 2023)

If you run a rough sensitivity table for a range from $400k to $700k dayrates, you see how ridiculous the torque is.

Scenario A roughly aligns with analysts’ current forecasts ($1.34B + $494m = $1.83B EBITDA F26) and a 6% uplift for FY 2027.

This chart from a Valaris presentation illustrates just how low offshore breakevens have got, with 60% of undeveloped reserves profitable at sub-$45/ barrel… Offshore is where the cheap, undeveloped oil is now that shale growth has stalled out.

Not to veer off into oil macro, but it never ceases to amaze how oil demand growth is chronically underestimated, particularly in developing countries.

I outlined my view on oil demand in Assessing Oil’s Risk Reward, with my favourite chart being this one.

I guess I should just be thankful the whole Net-Zero ideology exists since I can take the other side of it with my portfolio.

IEA oil forecasting is a comedy show, but I thought the IEO reports from the EIA were decent until they stopped… No IEO 2024 or 2025 has been published, with over 40% of EIA’s workforce gone. This is a disaster in itself as IEA forecasts fill the vacuum left.

We are running 5 years early on IEOs forecasts, and I believe the Asia Pacific and Africa assumptions will prove way off (The Coming Asian Boom).

Once the glut narrative has a quiet death, the OPEC spare capacity will be worked through before the end of 2027, along with the last of cold stack rigs activated or scrapped, then the party really starts.

Talking of the “glut”, you might find this little bit of history interesting….

The IEA’s 1998 “Glut Forecast”

The “missing barrels” controversy of 1997-1998 provides evidence of the IEA’s systematic forecasting problems.

During this period, critics accused the IEA of over-estimating supply and under-estimating demand, contributing to perceptions of a market glut that depressed prices. This issue became so controversial that Senator Pete Domenici requested a U.S. Government Accountability Office investigation into the IEA’s statistics.

Asian demand unexpectedly surged back, and the market shifted from significant oversupply to tightness. By the end of 1999, the oil market was experiencing excess demand, and prices had recovered substantially.

So what changes am I making?

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Exchange operators sit in the same tier as payment networks and dominant software platforms, characterised by network effects, high switching costs, and structural barriers.​

While I was aware of exchanges’ outperformance, I didn’t fully appreciate their track record of outperformance against their underlying exchanges.

The securities exchange model is so powerful that nearly every exchange with a 20-year public track record has outperformed its respective regional stock index, in most cases by a wide margin. It’s a global phenomenon: The U.S., Japan, Hong Kong, the UK, Singapore, you can see the list in the accompanying schedule. The business model provides global exposure to a wide variety of assets, many of them either absent from or only marginally available in the indexes themselves. It allows them to maintain their favourable financial characteristics regardless of where it is implemented or the economic variables of each specific region.

-Horizon Kinetics 3Q commentary 2025

Exchanges are quasi-monopolies in their respective regions, essentially toll roads on old highways that recovered their cost years ago. Minimum overheads/capex, and every additional toll is straight to the bottom line.

The operator’s success largely depends on traffic/liquidity.

Liquidity begets liquidity: flows tighten spreads, improve execution, and kick off a self-reinforcing flywheel that is extremely difficult to compete with.

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Which brings me to why I see a number of global exchanges having huge tailwinds for the next decade as traffic picks up.

Today, investors are sleeping on them outside the Western Exchanges, due to two massive headwinds over the past decade.

• The giant capital vacuum that has been the US sharemarket (US tech in particular)

• The strength of the US dollar.

This chart illustrates the dynamic, yet DXY, being a basket of developed countries, understates how bad it has been for many emerging markets currencies.

DXY rallied ~50% over the 15-year period, while a basket of developing countries faired significantly worse (excluding the likes of Nigerian Naira, at 811% , Turkish Lira at 2161%, and Argentine Peso at 37,000% or 99.7% depreciation vs USD, depending on how you prefer to state it!)

Over the past 12 months, the US dollar index has lost 10% while we have seen strong performance from a number of developing countries.

Global investors’ overweight to USD-denominated assets leaves room to rebalance away from the currency. Foreign ownership of USD-denominated investments is near an all-time high. In fact, more foreigners invest in US assets than Americans invest overseas, as indicated by the –26% of GDP for the US net international investment position. Since a weak USD shrinks the value of US assets in non-US currency terms, we think this may prompt more foreign investors to allocate away from US-denominated assets, potentially toward EM opportunities.

For all the talk of the US reshoring, the reality is foreigners are already stuffed to the gills with US assets, which will increasingly be liquidated for their domestic needs and investment (Read, The End of The Beginning by James Aitken).

South Korea’s attempt to please Trump with its trade deal is a case study of promises vs hard economic realities.

• South Korea eyes non-binding deal to steer $350 bln U.S. investments.

• Korea to delay $20bn US investment on currency pressure.

• South Korea offers tax breaks on overseas stock sales to stem currency’s slide.

• Trump Vows to Raise Tariffs to 25% on South Korean Goods.

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Exchange Operators are Inflation Beneficiaries

I didn’t appreciate this until I read Horizon Kinetics’ work on exchange operators and how they do well in both high-growth, low-inflation and high-growth, high-inflation environments (which blends well with my portfolio, where I’m not short of precious metals or energy exposure).

Trading volume rises with nominal economic growth in most environments, and have leverage to higher volume during volatility events. This gives exchanges a somewhat anti-fragile model, as in 2008, when trading jumped by 25% while most businesses experienced a 20.7% hit to profits.

An example of this was NDAQ outperforming the NASDAQ 100 in inflationary episodes while still outperforming the index from the day it was listed in July 2002.

Risks?

Regulatory and Political Risk.

The main case study of what can go very wrong is Chile’s Santiago Exchange.

Capital exodus occurred in response to Boric’s leftist government. Bloomberg reported approximately $50 billion in capital pulled from Chile between 2021 and 2023 amid political uncertainty. Foreign direct investment declined by 32% from $17.8 billion to $11.4 billion between 2023 and 2024.

While the Chilean stock market recovered, the exchange operator collapsed.

• Reduced liquidity damaged the exchange’s business model.

• Investors moved to trade Chilean stocks on international exchanges or through ADRs

The earnings collapsed in 2023, and the company performed a reverse stock split (1:4500 ratio) in May 2023 before the public merger announcement with Colombia and Peru was formalised on August 31, 2023. I’ll touch on this more below.

Technology and disintermediation risk

It pays to keep an eye on technological advances in the sector. For now, it is largely the exchanges themselves implementing it.

With notable failures to date, such as ASX Ltd’s attempt to move its software to the blockchain.

Australian stock exchange’s blockchain failure burns market trust

“Ninety-six percent of the software is currently in an operating-and-test environment. That 96% of that software is working,” Hogben told a Stockbrokers and Investment Advisers Association conference, in footage seen by Reuters. “If it wasn’t working, you’d be hearing about it, let me tell you.”

In November, ASX abandoned the project, citing dysfunctional management, concerns about the product’s complexity and scalability, and difficulty finding experts to support it. The axing came after new CEO Helen Lofthouse commissioned an Accenture review that found the rebuild was just 63% delivered and almost half the code needed to be rewritten.

Competition

While most exchange operators are quasi-monopolies, it’s still possible for new exchanges to launch, as we are seeing with the recent IPO of MIAX.

Exchange Operator Miami International Raises $345 Million in IPO

As an options exchange operator, MIAX competes with Cboe Global Markets Inc., Intercontinental Exchange Inc., Nasdaq Inc. and others. There are 18 options exchanges in the US and MIAX operates four of them.

If you study exchange history, it’s pretty clear they quickly swallow/merge with competitors to everyone’s benefit, i.e., to pursue greater economies of scale. Exchanges have high fixed costs, and increased volumes can easily reduce operating costs per transaction.

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Exchanges’ Role in an Income Portfolio

As you’ve probably guessed, exchange operators will make up a substantial part of my income portfolio I’m building for my parents and for Hugo.

As a few key aims of the portfolio are:

• Decent yield 5%+

• Solid capital gains potential.

• Currency diversified (minimise USD, EUR and GBP exposure).

• Inflation protection

• Quantity businesses (be ok with being locked out of the account for 10 years).

Using exchange operators to capture my expectation of the outperformance of emerging markets and their currencies.

“Every exchange with a 20-year public track record has outperformed its respective regional stock index, in most cases by a wide margin.”

At its core, I’m creating a 60/40 portfolio of exchange operators to build a higher-quality, higher-yielding version of the MSCI ACWI ex USA index and “Global dividend aristocrats,” which I wrote about in The Position of F#@K you.

The non-exchange allocation won’t be bonds, of course; it will be high-yielding, boring banks, energy, chemicals, agriculture, and machinery companies, which I believe will deliver solid capital gains before considering their currency tailwinds.

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I’ve been reading Morgan Housel’s latest book, “The Art of Spending Money”, and loved this quote:

"Columnist David Brooks once made the distinction between 'resume virtues' and 'eulogy virtues.' Resume virtues are things like salary, job title, net worth, and how fancy your possessions are. Eulogy virtues can be boiled down to how much people actually respect and admire you. I've always thought it to be a profound point when choosing what to pursue in life, and thinking about that reverse obituary."

Using this measuring stick, I’d label 2025 a success.

Wedding

Getting everyone together from all over the world was amazing. It was the first time our families had met, and it was so much fun showing everyone we care about the life we have built in Bali.

Hugo

I know I probably harp on about it too much, but being a Dad is awesome.

I love the idea of “Fuck you family” I touched on in this Ferg’s Finds.

Maybe it’s just the stage of life I’m in, but this observation hit the nail on the head for me. The only time I feel a pang of envy isn’t seeing the flash car or the big house, it’s when the happy family with four kids sits across from us in our local cafe.

They just make life so fun and fulfilling.

I want lots more…

Talking of Dad

This was my all-time favourite thread I did on Twitter/X.

Dad sold his rally car in 1986 to make ends meet when I was born. Mid-last year, I bought him an AMG C63S, which he then entered in the Tasmania Targa.

Every photo has been ear-to-ear smiles, which is easily the best ROI I’ve ever achieved!

For those petrol heads among you, put on some headphones: Targa Tasmania 2025 (Tour) - Mercedes-AMG C63, Pure Sound (yes, it’s the V8 Biturbo, not the new 2024 AMG 2L hybrid, which is comedy if you read the comments).

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Mia

My amazing wife went from bedridden for months with severe back pain to finishing the year strong, being worn by Jennifer Lopez and expanding her fashion label from online and wholesale to brick and mortar. She also organised the entire wedding and made a strong case that I have ‘weaponised incompetence’ when it comes to any admin-heavy task (or photography, for that matter…).

BJJ/Grappling

My passion outside of family and markets.

I like to torture myself physically on the mats in the morning, before the market usually tortures me mentally in the afternoon/evenings.

I had 8 grappling matches in 2025, with 6 wins (all via submission) and 2 losses (both via decision). I also got my brown belt.

This was my favourite submission after getting smooshed for the first half of the match.

Hugo has had his first BJJ class, though the biggest motivation right now is the post-class ice-cream run.

Markets

I finished the year up 48%, which was mainly down to PGMs, GDXJ, MLX, UBSG, and Nam Cheong all running hard, while my heavy energy exposure continued to be a handbrake.

I firmly believe energy, be it uranium, oil & gas, or coal, is where the asymmetry will be if you have a 2-3 year timeframe from today.

You just need to be ready with the mallet!

Selling stuff ready to buy some new stuff

This was one of the very first trades I put on when I launched this Substack in July 2023.

The trade was pretty simple: the Swiss National Bank backstopped the deal, and UBS got a fire-sale bargain on Credit Suisse.

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As you’ve probably guessed from the title, I’m seeing events in the futures markets that can’t be “papered over”.

Every now and then, I read a piece that helps me connect the dots. This was one such piece: The Return of Matter: Western Democracies’ material impairment

While most are aware that China dominates global refining/processing, the extent of it when you factor in indirect control via financing and off-takes is pretty shocking.

Since 2000, Chinese policy banks have channelled heavily subsidised credit into overseas projects, with roughly 83% of mining finance in developing countries flowing to operations where Chinese firms already hold equity, effectively locking in long-term off-take.

I mashed together processing and financing datasets in Perplexity (so take it with a pinch of salt) and came up with the chart below, which illustrates the extent of Chinese control over processing.

One mineral (labeled critical by the Chinese) that is absent from this chart and for which they don’t control any processing at all is platinum.

This is where the jigsaw pieces came together for me: South African PGM producers, who represent one of the largest vertically integrated mining and processing operations globally and remain substantially outside Chinese control through ownership, financing, or off-take agreements.

For comparison, Rio Tinto, BHP, and Freeport-McMoRan collectively control approximately 5.1% of global refined copper production through their fully integrated operations spanning mining through smelting and refining.

Between South Africa and Zimbabwe, you are looking at 81% of global platinum refining (84% for rhodium).

Also, while Impala/Zimplats has a significant smelting operation in Zimbabwe, it still relies on its South African operation for final separation.

Impala Triples Platinum Smelting in Zimbabwe With New Plant

Despite this expansion, Zimplats does not refine precious metals to their final separated form. The facility produces converter matte (an intermediate containing mixed PGMs and base metals), which is then shipped to Impala Refining Services (IRS) at Springs, South Africa, for final separation into pure platinum, palladium, rhodium, and other PGMs.

China has cornered refining of South African commodities like chrome (SA = 46% global production) and manganese (SA = 37% global production), the ore is relatively high grade, i.e., ~40%, which makes it economic to ship millions of tonnes of raw rock to China.

This doesn’t work with PGM ore as it is ultra-low grade and measured in grams per tonne. This means you cannot ship the raw ore to China since it would mean shipping 99.9% waste rock.

The economics, combined with the BEE (Black Economic Empowerment) hurdles, meant the Chinese never got any control over South African PGM refining.

Chinese interests (Zijin Mining & Jinchuan Group) do control 2-4% SA PGMs on an operational basis (4-5% once all committed projects reach full capacity). Although this is mostly processed by South African refiners.

The South African PGM refining sector remains highly consolidated among four major operators:

• Anglo American Platinum (Amplats): 40-45% market share.It operates three smelters (Polokwane, Mortimer, Waterval) and two refineries (Precious Metals Refinery, Base Metals Refinery)

• Impala Platinum (Implats): 30-35% market share (Springs refinery with IRS operations)​

• Sibanye-Stillwater: 15-20% market share (Marikana operations with integrated smelting and refining)​

• Northam Platinum: 10-15% market share (Zondereinde smelter with external refining partners)

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What about Palladium?

Geopolitically, palladium isn’t a concern for China as it’s in bed with Russia; platinum is the significant risk, with its extreme concentration and vertically integrated SA miners.

The Chinese have aggressively stockpiled platinum because they couldn’t gain sufficient control over the supply chain of a critical mineral.

Platinum Shadow Stockpile

While it’s all guesswork about where China’s above-ground inventories stand today (China isn’t going to disclose them), Chinese imports have ramped substantially since Dr David Davis published his 2023 report and have hit a record in recent months.

My calculations indicate that by 2022 China’s AGI had grown to around ~12moz, which represents ~57% of the apparent global platinum AGI of 21.2moz.

While the WPIC had China at 80% of AGI in mid-2023!

The World Platinum Investment Council (WPIC) estimates that more than 80% of all global above-ground platinum stocks are now concentrated in China

- WPIC How to solve an almost 1 Moz platinum market deficit (May 2023)

Tracking Chinese platinum imports in excess of demand has them stacking a further ~3million ounces on top of Dr Davis’ ~12 million ounce estimate in 2022. This brings their holdings to ~15moz (~83% global AGI) against WPIC-tracked platinum AGI, which stands at 2.978 moz (~17% global AGI) total above-ground inventory tracked by the WPIC, which includes all vaulted platinum holdings globally—excluding ETFs, exchange stocks (like CME), and working inventories of producers/fabricators/end-users.

Side note: The U.S. largely sold off its strategic platinum reserves decades ago. In the 1990s and early 2000s, the government determined that platinum was sufficiently available from diverse global sources and no longer required a massive strategic reserve for defense purposes.

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The One-Way Valve into China

Both the SHFE silver futures contracts and, more recently, GFEX Platinum & Palladium contracts have distinct purity specifications, creating two markets.

Touching on silver first:

• COMEX silver requires a minimum fineness of 99.9%

• SHFE silver requires 99.99% fineness

That 0.09% matters as SHFE silver cannot freely substitute for COMEX-grade silver (99.9%). The two markets cannot serve as pressure-relief valves for each other.

Chinese industrial demand pulls physical silver out of London and COMEX vaults into SHFE delivery. SHFE is experiencing severe backwardation, yet COMEX paper markets continue to “operate nominally”. Behind the scenes is a different story: In the first four trading days of December 2025, more than 60% of COMEX's registered silver inventory (47.6 million ounces) was claimed for delivery—an unprecedented drain in less than a week.

This obviously benefits Chinese domestic producers and manufacturers: they can export lower-purity silver to COMEX markets when needed, but ensure that SHFE deliveries represent 99.99% silver locked within China’s industrial ecosystem.

The paper market has become hostage to the physical market, as purity specifications create two distinct markets rather than a continuous one.

China also controls ~70% of silver processing (40% directly and a further 30% indirectly), so it is in a far stronger position than with platinum (Chris Tindale touches on this in The Return of Matter).

The Derivative Mineral Trap: Silver as a Host-Metal Prisoner

Silver’s vulnerability is compounded by a geological reality that Western planners frequently overlook: it is a host-metal prisoner. Unlike iron or copper, which are mined for their own sake, approximately 70% of global silver supply is produced as a byproduct of lead, zinc, copper, and gold mining. Primary silver mines are rare. Consequently, the global supply of silver is inelastic; it is constrained by the mine plans and cap-ex cycles of these base metals, not by the price signal of silver itself. If the price of silver doubles but copper demand softens, copper miners will not ramp up production just to harvest the “hitchhiker” silver, leaving the market in structural deficit regardless of price action.

Crucially, the control of these derivative flows is determined not by where the ore is mined, but by the geographic location of the smelter. When copper or zinc concentrates are refined, silver is captured in the anode slimes and residues—the “waste” streams of the refining process. It is only at this midstream stage that the silver is separated and purified.

Sponge Delivery: A World First

The key point of the new GFEX platinum and palladium contracts is that they allow ingot or sponge delivery, a world first (they began trading on November 28, 2025).

• COMEX Platinum & Palladium require 99.95% Ingot

• GFEX Platinum 99.9% Sponge or Ingot

• GFEX Palladium 99.95% Sponge or Ingot

The GFEX platinum sponge contract specifies a minimum fineness exceeding 99.9%, which is notably lower than COMEX’s 99.95% standard.

So it’s the opposite of SHFE silver’s higher purity requirement (solar and semis). A 0.05% lower purity reflects the different industrial requirements of Chinese automotive catalyst manufacturers, who typically work with sponge form material and may tolerate slightly lower purity.

It’s a significant advantage for Chinese domestic users, who can take physical delivery of sponge directly without conversion costs (COMEX delivery of ingots requires melting and refining).

Regardless of the reasoning, it’s the same point I made with silver in: “The paper market has become hostage to the physical market due to the purity specification creating two distinct markets rather than one continuous market.”

Setting Fire to Paper Markets

China has long complained that Western markets suppress commodity prices via “paper shorts” (unbacked derivatives). By holding the physical inventory and offering a deliverable futures contract, China can discipline the paper market to align with its physical reality.

You could potentially even see two prices emerge: a “China Sponge Price” (lower, stable, China making its strategic stockpile available internally on GFEX) and a “World Price” (scarcity-driven on COMEX).

The rest of the world’s industrial users are highly vulnerable to a supply squeeze, as they hold only ~2.16 million ounces (roughly 6 weeks of demand cover), which industrial and investment demand will have to fight over.

Western automotive companies cannot currently access physical platinum via GFEX platinum contracts for delivery. The Guangzhou Futures Exchange platinum and palladium contracts launched on November 27, 2025, are presently restricted to domestic Chinese participants only.​

QFI Access Limitations; While China has been expanding its Qualified Foreign Institutional Investor (QFI) program to allow foreign access to various commodity futures, platinum and palladium contracts are notably absent from the QFI-eligible products list

Western banks and industrials are now naked short against a physical supply locked in China.

This is why the platinum lease rates are telling investors, as they force immediate hand-to-mouth buyers to access the spot market at any cost.

How I’m repositioning to make money off this?

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Tin

Following this Ferg’s Finds (Tin Special) not much has changed in the tin space other than the tin price that is (H/T OG Tin Baron for the meme).

Myanmar and Indonesia continue to disappoint on the tin production. Prabowo continues to make questionable moves following the seizure of tin and nickel mines and palm oil plantations followed by the issuance of Patriot Bonds with a 2% yield (when their functional equivalent bond has a yield of 6.7% aka buy my bonds or I’ll seize your shit).

I don’t see where the supply is going to come from, except for Africa, which is already compensating for lost Myanmar production. The “probable new producers” in red below are a long way off.

This brings me back to inventories, with Shanghai Futures Exchange tin warehouse stock continuing to draw down. I also drew a head-and-shoulders on the chart to help my confirmation bias…

Takeaway: While I’m tempted to add a bit of Alphamin here, especially with it sitting on a 17% forward yield! I sleep better having no exposure to the DRC, and Metals X is doing just fine.

For anyone that missed it, this Money Of mine interview with Brett Smith was insightful: No Spin, Just Tin. Brett Smith on MetalsX and Every Tin Project (I see a lot of optionality in there $230m of cash between the ongoing attempt to get control of the other half of Rension, stakes in tin juniors and potentially buybacks.)

The company is silly cheap anyway you screen it with forward P/E 9x, EV/EBITDA 4.9x, 27% of market cap is cash…. The two analysts who follow the company are negative, which I’m happy to take the other side of all day long.

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Platinum and Rhodium

I continue to see a repeat of the early 2000s bull market in platinum (whether or not it includes the 2001 dust up, your guess is as good as mine), which is why I’ll touch on the vol trade again.

The WPIC PLATINUM QUARTERLY Q3 2025 has been released, forecasting a small 20 koz surplus for 2026f.

The 112Koz mine supply addition makes sense given Ivanhoe Mines’ Platreef ramping up, Implats processing its inventory from the 2025 maintenance period, and Sibanye increasing production 15% YOY.

The bigger picture for me is South African PGM input costs rocketing as the mining intensity is ramping.

Over the last 10 years, input costs for PGM miners have doubled. While South African inflation averaged ~5% annually, mining input inflation averaged 10–15% annually, driven primarily by electricity tariffs and above-inflation wage settlements.

Total Unit Cost Rise: The cost to produce an ounce of PGM basket (4E or 6E) has risen from approximately R8,500–R10,000/oz in 2015 to over R19,000–R21,000/oz in 2024/2025.

While other South African commodities are harder hit by rising electricity costs, none have the same global production share as South African platinum and rhodium. It’s still very under-appreciated that 75% of global platinum resources and 90% rhodium reserves are in the Bushveld in South Africa (find me another commodity with this level of concentration).

Recycling

The report forecasts recycling will come to the rescue on the supply side, with there being a lot of solid logic for why autocatalyst recycling should ramp. This is a worthwhile read on the topic: Platinum Group Metals – Automotive Recycling Supply

Supply from recycling is set for growth of 10% year-on-year as higher prices incentivise processing of spent autocatalysts and more selling of jewellery scrap.

That said, I’ve been reading these forecasts since 2022, and the below chart tells the tale. Logically, recycling should have ramped up when PGM prices went vertical in 2022, yet it didn’t.

WPIC demand forecasts

The assumption that jumps out at me is investment demand halving in 2026F which was accompanied by headlines like this: Platinum to be in balance next year as investors flee ETFs.

Total platinum demand will decrease by 6% year-on-year largely due to an approximate halving of investment demand – a reduction dependent upon an easing of tariff fears, allowing an outflow from stocks held on exchange, and a higher platinum price prompting ETF profit taking.

For starters, total investment demand (742 koz) was over half Chinese buying bars and coins, not ETFs. It also doesn’t track with what I’m seeing with the launch of China’s first derivatives market for platinum and palladium futures.

Platinum Jumps With New Chinese Futures Seen Aiding Demand

The point that has me thinking platinum could chop wood for a while now is that China Platinum Co. undoubtedly maximised its monopoly position before its tax rebate was removed.

Before the launch, China imported 10.2 tons of platinum in October, more than double the volume a year earlier. In addition to the new contract, flows were also lifted ahead of the Nov. 1 removal of a long-standing tax rebate enjoyed by China Platinum Co., a state-owned trading house.

Rhodium is a simpler market with limited investment demand and largely autocatalyst demand vs supply.

Lastly, with the Chinese having largely cornered the Global Platinum Inventory, the WPIC assumes that at a certain price, it will become liquid for global demand outside China.

However, it is not known what platinum price will be necessary to attract the portion of above ground stocks required to meet the shortfall or indeed what impact having almost 80% of those above ground stocks locked-up in China will have on metal flows and price.

-WPIC Platinum Perspectives May 2023

This doesn’t happen, as it’s obviously a strategic metal China can’t produce, with 75% of platinum located in a Geopolitically unstable country. China has never exported raw platinum, and will continue to make it available for domestic manufacturers only.

Foreigners can participate in the new Guangzhou Futures Exchange (GFEX) platinum and palladium contracts indirectly via qualified channels, but physical delivery is in practice, reserved for onshore entities.

A great read on the whole subject is: The Platinum Stock Supply Crisis by Dr. David Davis.

Takeaway: I’m happy to keep riding my physical platinum and rhodium for years to come and PGM miners for now.

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Getting Long Vol

I recently went over this trade in Premature Extrapolation. Granted, volatility jumped, which killed the payoff of the options.

Volatility is declining rapidly, so hopefully some of my limit orders will start getting filled (and I’ll notify everyone).

I’m keen to get this trade on as it feels like there is a awful lot of “dry tinder” around be it Private Credit, AI bubble, US debt situation, recession risks, having 3-4% of the portfolio allocated to long volatility strategy is feels like a non-brainer (the trick is just buying alot of time when vol is dirt cheap!)

For far more articulate views on why we are heading into a more volatile environment, I highly recommend watching/listening to these three interviews with Steven Diggle, who has recently reopened his volatility fund.

• Listen: Grant Williams’ Interview with Steve Diggle

• Hedgeye Investing: Steve Diggle, Founder & CEO, Vulpes Investment Management

• 2025 Will Shock Markets, Volatility Surging | Stephen Diggle

Takeaway: Sticking to the Premature Extrapolation game plan.

The GSCI Commodity Index

While I’m a crappy technical analyst, I’ve seen this compression pattern enough to know a big move is coming.

Yes, other commodities indexes have already broken higher due to lighter weighting to energy, of which the GSCI is the heaviest when compared to the CRB Commodity index (39%) and the Bloomberg Commodity index (30%).

Commodities, particularly energy, heading higher will throw a wrench into market expectations for the Fed to deliver 2-4 rate cuts in 2026.

Takeaway: Next year should be fun as this chart illustrates so well.

Oil Services vs Oil

Theres no getting around it oil services haven’t been the place to be the last two years.

Sector bottoms are obvious in hindsight, while at the time we keep extrapolating the negative.

Often, the absence of a bullish narrative in a cyclical sector is actually bullish, and vice versa: when everyone and their dog has bought into a bullish narrative, that’s bearish.

Oil services are strongly suggesting the bottom is in, as weakness in the oil is no longer dragging services down with it. I can’t even use the Range Global Offshore Oil Services Index ETF as they liquidated the ETF on the 23rd May 2025…

Put another way, sectors often turn before a bullish narrative can take hold.

Takeaway: Probably confirmation bias, as I’ve got little to show for the last two years in offshore oil services.

A False Narrative

IEA Boosts Forecast of Record Oil Glut for a Sixth Month

World oil supplies will exceed demand in 2026 by just over 4 million barrels a day, the IEA said a monthly report on Thursday, a slight increase from last month.

The IEA forecast for 2026 oil demand growth is now half of OPEC’s 1.4m bpd and two thirds of EIA 1.1m bpd.

The reality is that the IEA can be relied upon to label developing-market demand growth as “missing barrels,” then quietly revise its numbers, often years after the fact.

A little bit of history on how far back the IEA’s “Missing Barrels” goes.

In the 1997-98 episode, the divergence between supply and demand estimates reached 1.5-1.7 million barrels per day in certain quarters, leaving hundreds of millions of barrels unaccounted for.

The International Energy Agency (IEA) reconciled the 1.5–1.7 million barrels per day (mb/d) divergence from the 1997–1998 episode primarily by identifying unreported stock builds in non-OECD countries and, to a lesser extent, by revising historical demand estimates upward.

Goehring & Rozencwajg hit the nail on the head with this piece in their 2023 commentary of which I’ve taken the liberty to add IEA’s latest upward revision(page 58) of 350 million barrels for 2022, 2023 and 2024.

What’s funnier is that the IEA currently are unable to locate 1.5m bpd of the 4m bpd glut they see coming next year.

MISSING BARRELS

The murky crude picture got even muddier on Tuesday when the IEA report also noted that it was unable to account for 1.47 million bpd of oil in its global balances for August, the equivalent of 1.4% of annual demand. By comparison, the IEA “unaccounted for balance” figure for July was 850,000 bpd, or 370,000 bpd for the second quarter overall.

Takeaway: While there is unquestionably an oil surplus currently, I see it being worked through in the second half of 2026 and with the way oil and, in particular, offshore oil services are priced, I see it as one of the best risk-reward opportunities in the market right now.

New Income Portfolio

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This is especially true with shorting, as I’m bearish on all sorts of assets, yet 99% of the time it ends up in the too-hard basket.

There is a crowded graveyard of traders who had the correct view but were carried out by the markets, before the view came to fruition.

Leverage and volatility are the common culprits, but what is rarely mentioned is losing patience combined with FOMO (abandoning the thing that is about to work to chase what has been working).

“What is inevitable is not necessarily imminent.”

-Rick Rule

Being short has been akin to swimming against the current, with passive flows.

This has seen the likes of legendary short seller Jim Chano’s close shop in December 2023, and Michael Burry threw in the towel with his fund last week.

How can there be price discovery when active management is experiencing an extinction event, as the chart below illustrates so well.

Mike Greens’ observation was the light bulb moment for me.

Passive being ‘buy and hold’ is misleading as they are actually systematic active investors at any price.

Positive flows = buy at any price

Negative flows = sell at any price

While I couldn’t find the assumptions behind the above chart, in trying to do so, I was surprised that speculative trading wasn’t retail traders YOLOing weekly options on Robinhood as much as it was high-frequency traders.

Studies show HFT represents 40-50% of US equity trading volume, with 29-41% of HFT activity being speculative (versus market-making). In 2009, HFT firms represented only 2% of firms but 73% of equity order volume.

HFT market-making isn’t the market-making of pre-2009 in HFT, just step back when markets get too volatile i.e. the 2010 Flash Crash, where rapid HFT withdrawal caused volatility to spike.

Mean Expansion until something blows up?

I’m guilty of arguing for price discovery with companies like Nvidia.

It’s premature extrapolation at its finest: how does Nvidia meet the average analyst estimate that it will grow its sales from $165B to $208B next year and $364B the year after, when it’s been kicked out of China’s market and its US deals are increasingly circle jerks financially creative?

Reality is, positive flows are in the driver’s seat for now, and Nvidia gets the lion’s share.

It’s how we have ended up here with the worst breadth ever…

Or to explain via meme.

This dynamic has led to aggressive buying of any dips and increasingly adding leverage wherever possible, options, levered ETFs or margin; it’s all hitting records.

Observing this all is one thing, taking the other side of it is another, or as Michael Burry noted:

Sometimes, we see bubbles.
Sometimes, there is something to do about it.
Sometimes, the only winning move is not to play.

Or as Luke Gromen stated here:

In fiscal dominance, long gold is a better way to be short stocks.

Which I agree with having 15% of my portfolio in physical metals and a further 15% in miners directly leveraged to them.

Tesla is the prime example where, no matter how silly the valuation, the right decision was simply not to play.

Even with shorts all but abandoning the trade, a quick calculation of the longest-dated at-the-money put option illustrates the nonexistent payoff. In you literally need the company to go bust to achieve a 2.5x payoff buying at the money puts (the payoffs on Nvidia and Palantir are all equally bad).

While individual stock puts options make little sense, long-dated put options on indexes are a different story if (and big IF) I can get volatility cheap enough.

Having watched a number of Mike Greens’ interviews recently, I’d simplify his view as passive flows drive index returns “will keep going up until a volatile enough event breaks it.”

So the trade is getting long-dated put options to play a spike in volatility first, while hedging downside at the same time (the beauty of these trades is you get an injection of cash right when it’s the most valuable to put to work in the market).

This isn’t a play for a long grinding bear market, it’s purely to catch a big volatility event, then exit, as Fed/Treasury intervention is a given and stocks will continue to rip in nominal terms, as Luke Gromen outlines:

The fact that a modest sustained stock market decline would quickly force the US into a “Print or Default” choice on Entitlements or USTs by driving “True Interest Expense” > 100% of Federal receipts means the Fed and/or Treasury will continue to intervene in markets any time they fall, just to keep the wheels on the “unworkable” fiscal cart.

If I’m going to play this game, I want really long-dated exposure and to get it at the bottom of the below-volatility band, say 20 or cheaper, as this makes a monster of a difference when you go out of the money with put options.

Which brings me to this observation by Variant perception that the correlations between individual stocks and indexes are at record lows, while individual stock vol is expensive (see above), while index vol is cheap (or was until the recent jump).

Which is crazy, since the Mag7 are the heaviest and driving the indexes…

Why is this happening?

My guess is it’s an extension of positive flows = buy at any price, but with leveraged ETFs i.e. positive flows buy more derivatives…. Derivatives have ramped on the back of SEC Rule 18f-4 on October 28, 2020 which made it easier to use derivatives in ETFs.

I mean, there are eight Micro Strategy ETFS, which is itself a levered bet on bitcoin…

What am I doing about this?

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If you’re not getting uncomfortable watching margin debt match Feb 2022/July 2007 levels while 5x levered ETFs get launched on crypto and meme stocks, then you’re not paying attention.

Granted, observing this is one thing; knowing when it will end is another.

The dial will get spun to the opposite extreme at some point….

This brings me to my three buckets with which I’m viewing my portfolio.

• Precious Metals/Debasement Trade (Gold, platinum, rhodium and associated miners).

• Bottlenecks/supply constraints (Uranium, tin, oil, coal and derivatives in miners, producers, services, rigs, OSVs etc).

• Asian Boom (Chinese tech, small cap asian equities).

Yes, it’s an oversimplification, as there is a ton of overlap between the buckets (I could easily put platinum/rhodium in bottlenecks due to their industrial demand drivers, and coal could go in the Asian Boom bucket).

This is all a mental exercise in assessing the relative value of the three buckets and at what point I should reconsider rebalancing.

If you run performance over the past year in the PM/debasement bucket whether you were in gold, silver, platinum, rhodium (or even bitcoin), you’ve done just fine even with the recent pullback. Assets with leverage to these, i.e., miners, have experienced solid outperformance.

The current pullback in gold, silver, and platinum is healthy; nothing goes up in a linear fashion (except Ponzi’s, for a while anyway). Observing something is overextended or overbought is one thing; the more important questions are:

• Overbought relative to what?

• What’s your timeframe?

• Sell it to buy what?

There are no riskless options; it’s a paradox in what has historically been considered low risk, i.e, a 60/40 portfolio is high risk in my eyes, as I don’t like the long-term risk-reward for the S&P500 or long-dated treasuries.

Howard Marks summed up the outlook for the S&P500 is in The Calculus of Value.

At the time, J.P. Morgan published a graph showing that if you bought the S&P 500 index at 23 times the coming year’s earnings per share in the period 1987-2014 (the only period for which there’s data on forward-looking p/e ratios and resulting ten-year returns), your average annual return over the subsequent ten years was between plus 2% and minus 2% every time. To the extent this p/e ratio history is relevant, it bodes pretty poorly for the S&P 500.

I see long-dated Treasury holders getting even more brutalised on a real basis.

Yes, selling something to sit in cash gives you optionality, but it also comes with a high opportunity cost, especially when there is a lot of value around.

I’m all for trimming/selling your gold or platinum if what you plan to buy looks cheap in gold/platinum terms and provides a superior risk/reward.

The wildest example I’m aware of is the gold-to-coal ratio. I mean, who would be crazy enough to sell some gold to buy coal companies here?

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What’s your timeframe?

I love the chart below, as we are in a structural bull market for precious metals, with platinum set to repeat its performance in the early 2000s.

With this view any pull-back is a buying opportunity.

Sure, if you are a great trader, you can dodge some of the drawdowns along the way. I’m under no illusions I can time them, so I’m going to stomach the volatility and hope I have a bit of cash to deploy if we do see a sizeable drawdown (like November 2001 in platinum).

Similar to the passive mantra of you dollar-cost average and buy every dip, I feel we are in that regime for platinum and gold.

Things are running hot on the sentiment side, even with the pullback, which means gold and platinum are the last buckets I’d add incremental capital to here.

How about the miners?

My gold and PGM miners have been the best-performing corner of the portfolio, and I’m happy to stomach the recent volatility as this PM bull market is only just getting underway. At the same time, it’s likely a while before it matters, a lesson from past mining cycles to be careful about extrapolating miners’ margins.

This is a great case study on the topic PWC Mine: The growing disconnect.

1. Structural cost base transformation (underwritten by rising production costs and declining ore grades)

2. Declining ore grades drive costs higher (classic high grading).

3. Operating expenses outpaced revenue growth (In 2011 cost growth exceeded revenue growth despite surging commodity prices).​

4. Contractor costs surged due to skilled labour shortages.

5. Fuel costs jumped 39%​

6. Margins remained flat despite record profits.

7. CEOs believe rising costs are permanent: Mining industry CEOs expressed the view that the trend of rising costs is structural and permanent rather than cyclical.

8. Cost inflation sets higher commodity price floor: As cost bases continue to increase across the industry due to lower grades, labour shortages, and input cost pressures, the floor for commodity prices will continue to rise, fundamentally changing the economics of mining operations going forward.

The takeaway is that there’s a window to own miners —just don’t overstay your welcome.

I see history rhythming with a combination of skilled labour shortages, high-grading, and rising fuel costs, impacting margins.

A recent example is Cameco, citing limited access to skilled labour, yet dozens of aspiring uranium producers don’t seem to see it as an issue…

Understanding the above can help you rotate capital from a sector where margins are peaking to the very sector that stands to benefit from margins peaking (energy prices running).

I’ll start trimming to rotate the capital from an area where investors are popping champagne to one where they are holding their nose at the mention of the road-kill, such as with the seismic space.

The Bottlenecks/Supply Constraints

(Uranium, tin, oil, coal and their derivatives in miners, producers, services, rigs, osvs etc).

While oil & seismic exploration still take the crown, for the most hated, Chinese equities aren’t too far behind.

I started writing about oil, but decided this piece is long enough, and I really want to focus on the bucket that is severely underweight. Yes, it’s not that clean-cut: coal, PGMs, tin, oil, and uranium are all tied to the Asian boom thesis, but even with that rationalisation, this weighting feels silly.

• PM/debasement 20%

• Bottlenecks 75%

• Asian Boom 5%

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The Asian Boom Bucket

I laid out the thesis here, The Coming Asian Boom and my positioning in these two pieces (Hated Tech? and Hated Tech 2.0).

I want to touch on a few more points I didn’t cover adequately in my previous pieces:

• Don’t Fight the FED PBOC

• Energy + AI + Robots

• Asian Boom thesis

• Chinese Buyback Support

• Everyones Underweight

• Risks overstated

• Correlations to the rest of the portfolio

• Positioning

Don’t Fight the FED PBOC

I loved the parallel Louis Gave drew to the US in 2009 in this interview (time stamped).

“China’s now in an environment where there is no inflation. The constraint to stimulus is always inflation, right? There is no inflation in China.

China is not that far off where the US was in 2009/2010, you know, inflation collapsing, low real estate prices, very low confidence. So you can follow very loose monetary policy, and if you choose to, very loose fiscal policy, and this is where China is today.

China right now this year will probably be running budget deficits of around 10% of GDP, give or take, China’s never run budget deficits this big. This is this is absolutely massive. They’re doing this at a time when monetary policy has never been this easy.

So you’re seeing massive, massive liquidity injections and for now, because economic growth isn’t that strong, you’re in an environment not that dissimilar to what you had again in the US 2009/2010 where you’re pushing excess liquidity in and the default mode is for that excess liquidity to find its way into asset prices, most notably equity prices.”

Most commentary I read on Chinese equities questions the sustainability of the rally, “another false dawn”, or quickly dismisses it on the basis that you’ll get rug pulled in a similar way to Russian equities (a point I’ll get to).

Western investors are well versed in the effect of money supply growth on equities. What is going to happen now that China has shifted from being a drag on money supply growth to a driver of it?

Energy + AI + Robots

This section in the Electric slide caught my attention, and when you consider China’s vastly superior position in electricity generation and manufacturing/robotics, they look to benefit from AI to a far greater extent than the US.

“There are only really three pillars to anything around us, as far as consumable goods. We’ve got energy, intelligence, and dexterity.”

I would generalize “dexterity” to “action.” Everything we see around us, and will see around us in the future, is the result of the potential to do work (energy), the capacity to decide what to do and how (intelligence), and the ability to manipulate matter (action).

In economic terms, energy, intelligence, and action are strong complements in the production of anything.

And in the immortal words of Joel Spolsky, “Smart companies try to commoditize their products’ complements.”

America is, implicitly or explicitly, making a bet that whoever wins intelligence, in the form of AI, wins the future.

China is making a different bet: that for intelligence to truly matter, it needs energy and action.

If you control energy and action, making intelligence abundant strengthens your position.

China has 55% of global robots (Asia has 76.5%), and has grown from the same generation as the US in 2010, to now generating 150% more than the US.

These figures don’t do justice to China’s dominance in robotics either, as its domestic robotics production is now at 47% and robotic use across industries is quite broad-based.

Compared to the US, where installations are a fraction (14% in 2023) of China and highly concentrated in automotive, where they can’t compete with Chinese autos globally anyway!

Since the US focused on winning intelligence, they face a double-edged sword: if intelligence delivers massive productivity gains, it will damage employment in the US’s service-heavy economy, while if it doesn’t deliver, the resulting AI CAPEX bombfire will do serious damage to US tech-heavy markets.

When I’ve mentioned Cathie Woods, it’s usually to dig into the assumptions behind her “exponential growth opportunities.”

Technology Convergence Creating Explosive Growth: Wood emphasizes that the convergence between AI, robotics, and energy storage is creating exponential growth opportunities, particularly in autonomous mobility and humanoid robotics where “one S-curve feeds another S-curve”.

-Cathie Woods

While Cathie is talking her book with US companies in the quote, the “one-S curve feeds another S-curve” statement is more fitting with where Asia finds itself.

Asian Boom thesis

Since writing The Coming Asian Boom, I have continued to see the evidence mount.

I mean this month alone we have seen these two announcements.

• October 2025 India-Russia: Yuan for Oil Value: ~$5B annually

• October 2025 BHP-China: Iron Ore Yuan Settlement Value: ~$9B annually

This is a tailwind you want to ride for the next decade.

The removal of the US dollar handbrake

The other side of the US running large deficits and over-consuming has been Asian countries running surpluses to ensure they have the US dollars to buy the commodities/energy they need.

Asia’s oil import dependency is ~81% so increasingly being able to purchase their energy needs in their own currency takes the handbrake off their ability to grow more rapidly (boosting consumption and trade with each other).

Chinese Buyback Support

It’s always a good idea to pay attention to what Chinese banks get behind: Chinese Banks Can Now Lend Up to 90% for Stock Buybacks via Relending Facility, Sources Say.

As sure it’s a fraction of US buybacks, but it’s the trend that matters, and it’s just getting warmed up! Buybacks have played no small part in tech’s outperformance, with Apple having brought back a third of its shares outstanding and Meta and Alphabet both having brought back 11-12% the last 5 years.

Everyones Underweight

There is an awful lot of dry powder on the sidelines in China.

The Untapped Potential of Chinese Household Savings as a Catalyst for Sustained Stock Market Growth

The allocation of these savings has historically been skewed: 60% in real estate, 25% in deposits, and a mere 5% in equities.

Yes, I fact-checked that: only 5% of Chinese Households own equities vs. 38% for US Households (depending how its calculated).

Whether you look at Chinese citizens’ allocation or global equity allocations, all are massively underweight China.

I mean the MSCI ACWI, which “captures large and mid cap representation across Developed Markets (DM) and Emerging Markets (EM) countries”, has 3.3% weight to China and 20.4% MAG7.

Risks are overstated

The knee-jerk response to a heavy weighting of Chinese equities is the risk of a rug pull, similar to what happened with Russian equities following the sanctions.

The scenarios couldn’t be more different: ~1% of US companies were in some way integrated with Russian companies at the time of sanctions. With China, roughly 45–55% of S&P500 by company count rely in some way on Chinese manufacturing capacity. I mean, take Apple, where Trump couldn’t maintain tariffs, let alone full sanctions: Trump exempts tariffs on iPhones, computers and chips.

“De-risk but not decouple”

The extent of the US military complex’s entanglement with China was the most telling.

Greg Hayes, chief executive of Raytheon, said the company had “several thousand suppliers in China and decoupling . . . is impossible”. “We can de-risk but not decouple,” Hayes told the Financial Times in an interview, adding that he believed this to be the case “for everybody”.

Making matters worse, a lot of EM manufacturing is final-assembly but core inputs still come from China. Companies list “Asia” or “EM supply chain” rather than naming China directly.

Legally, if 51%+ of value-add is outside China, it ceases to be reported as “Chinese-origin,” but precursors still come from China — especially in batteries, rare earths, pharma precursors, semicon packaging.

A similar point was made in this piece on how US GDP doesn’t take into account foreign parts: How GDP Hides Industrial Decline

Current Manufacturing Statistics Don’t Track What Actually Matters - Existing metrics fail to measure the percentage of components actually made in America versus assembled from foreign parts. A Dell server “assembled” in North Carolina with Korean, Chinese, and Taiwanese components counts as 100% American output, masking the true extent of industrial hollowing-out.​

I view it as a “mutually assured value destruction” if you will.

Chen, the PBOC researcher, considered the “nuclear” option of China’s exclusion from SWIFT, and concluded that increasing cooperation with the US was the best way to shield China.

“The mutual penetration of the Chinese and American economies will inevitably weaken the willingness to impose financial sanctions.”

Correlations to rest of the portfolio

A big attraction of Chinese tech for me is the lack of correlation to the rest of my portfolio. It is fascinating to see how the correlation with US tech was very tight (0.7-0.8) until 2021, when it broke down and bottomed at 0.21 in March this year. Chinese tech runs a similarly low correlation to energy (XLE) and miners (XME).

*I’m using CQQQ in place of the Hang Seng Tech as the index was only created in July 2020.

Enough waffle, what am I doing about it?

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Once you’ve narrowed your search to a handful of names, the Snapshot function is awesome for quickly assessing if the company is worth researching further.

Clicking Snapshot, then Overview, followed by Description and hovering the mouse over metrics such as shares-outstanding, debt, cash, enterprise value, and sales gives you a quick overview of how the metrics are trending over the last 10 years. The dividend tab is great for a quick look at shareholder yield. Lastly, I use Analyst estimates (then estimate trends) as a sentiment reading in terms of whether there are even analysts following the company, and if there are, how bullish are they on earnings growth (something I touched on in my recent Ferg’s Finds).

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From here, I touch on just how useful I’m finding Perplexity Pro (it’s $20/month) and, in particular, the Comet Browser. I’d used Perplexity a few times previously, but only realised how powerful it is more recently.

• You can select where it searches: Web, Academic, Social and Finance (SEC filings). It significantly reduces “hallucinations” when you can purely select SEC filings, then add Web if necessary. While purely selecting social is great for sentiment-based queries, for example.

• The sources/citations tabs make it easy to verify the quality of the info, as you can see exactly where it’s pulling the information from.

• You can select your preferred model, be it ChatGPT, Grok, Claude, Gemini or simply let their model decide which is the best suited.

• Tasks is awesome and a way more powerful version of Google Alerts.

• In Spaces, the Finance and Research function is excellent (junior analysts are in trouble!)

• Lastly, Comet(Perplexities Browser) has rapidly replaced my Google Chrome usage, which surprised me. It’s crazy good as you can query your search history and avoid all the promoted crap in standard Google searches).

Rather than trying to explain it with screenshots, I’ve just recorded my screen, walking through everything I find super useful and how I use it.

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House, car and a pile of capital that pays you 3-5%:

“Thats your base, your fortress of f#cking solitude.”

Leaving the house and car aside I’m going to discuss the requirements to put you in a position of f#ck you…

Or as Buffet said:

"Don't risk what you have and need to get what you don't have and don't need."

I'll base it on a target income of $100k per year. If you live cheap, you can cut the require down; if you live somewhere expensive and the tax man takes a big bite, multiply it by your actual requirement.

Similar to how I use a hurdle rate to evaluate my capital gains investments (currently physical platinum), I'll discuss my hurdle rate for income, focusing on the best income-producing asset with the best long-term risk-reward ratio (protection against inflation being a huge part, remember “the first casualty of sustained inflation is valuations”).

When it comes to stable income, most people think of an index with a dividend and bonds, such as the 60/40 with S&P500 and 10-year treasuries. However, the current indicated dividend yield is 1.22%, and I believe you get killed on a real return basis in long dated Treasuries.

While just four companies account for over 25.32% of the SP500 as I touched on in my last piece.

The first 10 minutes of this interview are well worth watching as few bring more experience to the game than Howard Marks.

"JP Morgan published a chart around the end of 2024 it showed that historically, if you bought the S&P500 when the PE ratio was 23 in every case, there were no exceptions. In every case, your annualized return over the next 10 years was between 2 and minus 2."

Not really a promising 10 year outlook for the S&P500 is it!

Whats a good alternative?

I've talked about the Dividend Aristocrats in the past, which selects for quality companies within the S&P 500.

The S&P 500 Dividend Aristocrats is a stock market index composed of the companies in the S&P 500 index that have increased their dividends in each of the past 25 consecutive years.

Granted, it is surprisingly more expensive than the S&P500 on a P/E basis, 26.79 vs 25.9. It does have roughly twice the dividend, which, when you run total return, kept up with the S&P500 until the last year and a half.

This brings me to my hurdle rate for income, which is the Global Dividend Aristocrats. If my time were cut short, I'd be happy to invest it in a forever portfolio for my toddler, Hugo.

The S&P Global Dividend Aristocrats is designed to measure the performance of the highest dividend yielding companies within the S&P Global Broad Market Index (BMI) that have followed a policy of increasing or stable dividends for at least 10 consecutive years.

It's trading at close to half the PE ratio of S&P 500 Dividend Aristocrats and over twice the dividend ("theoretical yield" which doesn't include withholding tax and management fees).

If you check price return between the S&P 500 Dividend Aristocrats and Global Dividend Aristocrats you’d wouldn’t be blamed for calling this a crappy index at 2.53% return the last 10 years.

Run total return and you get up to 7.86% for 10 years vs 10.86% S&P 500 Dividend Aristocrats and 14.68% for S&P500.

The last 5 years, Global Dividend Aristocrats and S&P 500 Dividend Aristocrats have been neck and neck until recently.

Things have really started to diverge year to date, with Global Dividend Aristocrat sitting on 21.61% YTD against 11.44% for S&P500 and 6.23% for S&P500 Dividend Aristocrats.

It consists of 96 holdings, of which the largest is 2.5% and the weight of the top 10 is 17.5% of which, if you are similar to me, you probably only recognise the likes of Altria and LG; the rest are companies I'm not familiar with or looked at (compare this to Mag 7 darling on magazine covers…)

Financials 24.9%, materials 4.6% and energy 3.6% total a third of the portfolio, while 0.8% is in information technology (compared to 33.5% in the S&P500).

Net Yield

The S&P 500 Dividend Aristocrats is an index, which means the Index Dividend Yield 5.15% is a theoretical yield based on the weighted average dividend yields of the constituents, assuming perfect reinvestment and no costs. In reality, you have withholding taxes on dividends in certain countries and management fees/expense ratios eating into the yield.

For the best ETF: WDIV SPDR S&P Global Dividend Aristocrats UCITS ETF (USD) (0.40% p.a management fees).

The Fund Distribution Yield is 4.06% is the sum of the distributions within the past 365 days divided by Net Asset Value per share.

30 Day SEC Yield is 4.47% an annualised yield that is calculated by dividing the net investment income earned by the fund over the most recent 30-day period

This is my huddle rate for income, for (pre-tax) $100k per annum for my fortress of solitude to sit on a beach and drink coconuts, I'd need $2.5m (SEC yield - management fee) before considering "a house with a 25 year roof and indestructible jap shitbox."

Now, what if I want to be more active in generating income, on a biannual, monthly, or weekly basis?

What is are the potential income levels that are achievable?

Passive Income, Dividends Semi-active or Active.

I’m going to split this into four sections:

• Buying Global Dividend Aristocrats and letting it do its thing is about as passive as you get (It’s easily my number one multi-decade hold).

• Dividend investing targeting a balance of income and capital gains.

• Semi-active, focusing on slightly out-of-the-money monthly covered calls with a preference, where possible, for dividend payers.

• Active with the purpose of the account being purely to generate income (the opportunity cost of capital gains is to be banished from your mind).

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"We can make excellent investment decisions on the basis of present observations with no need to make guesses about the future.

We never know where we’re going, but we sure as hell should know where we are."

This chart is my favourite on the folly of forecasting (I also could have used the IEA oil demand forecast history…)

Observing where the US Government finds itself presently has massive ramifications for investors moving forward.

Income/Receipts

Total tax receipts (income) are at record highs and are highly economically sensitive.

It gets crazier when you realise how narrow the driver of this growth is.

In a similar way to a few companies holding up the U.S. Indexes, the U.S. AI data center spending surpassed consumer spending as the top GDP growth driver in 2025.

AI spend is propping up the tax receipts side of the equation while increasingly attacking the employment side…

While I doubt AI causes mass unemployment as some pundits predict, due to a combination of regulatory capture (healthcare & education) and poor accessibility of data/information (MIT report: 95% of generative AI pilots at companies are failing).

AI is going to massacre entry level white collar service jobs (tech, legal, accounting, consulting, etc) on a scale similar to what China did to U.S. blue-collar workers. (Goodbye, $165,000 tech jobs. Student coders seek work at Chipotle).

It's cyclicality at its finest: young talent is chasing the safe jobs of the last decade, not those jobs that will pay for the next decade.

What's scary is that the U.S. is already at a level of deficit that occurs following a spike in unemployment….

Total Outlays

Social security, Medicare, health, national defence, income security, and veterans' benefits are untouchable/political dynamite.

This leaves reducing net interest expense as the only possible lever which Trump is fighting tooth and nail to pull: Trump says he’ll have a Fed ‘majority’ soon to push rates lower after firing Cook.

This move is completely precedented…

Goehring & Rozencwajg do a great job going over the history of Presidents pressuring Fed Chairs and how its now a matter of cut rates or step aside for someone who will.

The strain now being applied to Jerome Powell bears an uncomfortable resemblance to the pressure once exerted on Martin and Burns. The tools may be more modern—press conferences and social media rather than ranch house shoving matches or planted newspaper stories—but the intention is unmistakably familiar. If history is any guide, Powell will be faced with the same grim choice: accommodate the president’s wishes by cutting rates, or step aside in favor of someone more compliant. One way or another, the outcome looks poised to rhyme with the past.

Risks be damned.

“In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation,”

-Powell

It's a matter of time before these risks, be it inflation, unemployment or a reduction in AI spending, materialise.

Or as Goehring & Rozencwajg outlined so well, the outcome looks poised to rhyme with the past.

Equities as an Inflation Hedge?

There seems to be a wide spread view that indexes do fine in inflation. While its true equities act as a inflation hedge if you have depressed valuations, inflation slaughters high valuations or as John Hussman put it:

The first casualty of sustained inflation is valuations. Once you get valuations depressed, yes. The effect of inflation on nominal cash flows, overwhelms any further downward pressure on valuations. And, you finally get stocks doing well.

Or as Kuppy worded it in his recent letter you don’t go straight to Zimbabwification you must first suffer Brazilian phase…

Part of me thinks that we’re into “Project Zimbabwe” and part of me realizes that on the path to the Zimbabwification of equities, you must first suffer through a Brazilian phase where interest rates rise, equity multiples compress, and most businesses can barely cover their debt service costs, much less reinvest for growth. This is then followed by the Turkification of equities where they then trade at low single digit multiples, but the collapse of the currency propels them higher in nominal terms. Only then can equity markets truly hyperinflate.

Or to explain via meme

Adding dynamite to this whole set-up is passive flows.

What the hell happens when just four companies account for over 25.32% of the SP500, and it needs to rebalance or flows turn negative (as I went over here)?

Active management has had an extinction-level event, as the chart below illustrates.

Speculative trading is close to double active management, which shouldn't come as a surprise, given that we now have more US-ETFs than actual U.S. companies…

How the hell to position for the above?

For starters, I'm under zero illusions that I can time when things might come unstuck, as it is the nature of momentum. You won't catch me shorting or thinking I can time when to go majority cash.

I don't feel the need to time the market anyway, as I'm finding lots of interesting sub $100m companies doing great things, which have never benefited from a dollar of passive flows.

I'm buying these sorts of micro cap companies where anyone who is going to sell, already has, and the company's share price is moving higher on the incremental buyer seeing the business fundamentals improve.

I’m also putting a heavy emphasis on owning physical commodities. Mining is tough and is likely going to get even tougher with rising input costs and geopolitical risks.

Portfolio speed run

I’m going to comb through the portfolio sector by sector, asking myself, would I be happy owning this asset if I knew there is a coin flip chance of things getting super hairy (March 2020 hairy) or we enter a full Brazilian phase?

Housekeeping: I’ve shifted my Substack payments from my personal Stripe to my company Stripe called Fordell LLC for billing (so there is a chance your bank will flag it on renewal).

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In chart form it's this below (which is a company I'm going over today).

I'm ok with the occasional position that blows up in my face, as that's what position sizing is for. The real tormentor is the great set-ups that I understood, but for whatever reason, I didn't buy, and I have to grimace as I see where they now trade periodically.

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One sector I’m trying to minimise my future regret is seismic companies.

I've laid out my reasoning for believing the high-demand energy/oil scenario will prove conservative (Coming Asian Boom).

Net-Zero isn't happening yet, capital continues to be allocated like it is, which is creating massive asymmetry if you have the patience to position for when reality will bite.

In terms of capital starvation, I'm not aware of a sector that's had a rougher time than marine seismic companies (yes, even worse than offshore drillers).

There were an estimated ~50 seismic companies around 2012–13, the attrition over the next decade was enormous. By 2023, well over half of those firms had disappeared or fundamentally changed: 30 companies exited the seismic business via bankruptcy, mergers, or shutdowns. This includes virtually all the new entrants from the boom years and many long-standing mid-tier players. The marine seismic segment saw the steepest consolidation.

I already own the two bottom crawlers in the sector, which, much to my surprise, have started to run.

I’m now buying another (in blue).

I'd previously passed on this company, but it has been cut in half over the last year due to entirely reversible screw-ups, which management is in the process of rectifying.

I'd argue all three of these businesses are high quality, they have just been in a sector devoid of any incremental capital for the last decade… Two of the businesses have a heavy technology focus, and I can easily see them fetching higher multiples as the spotlight comes on the sector.

It’s also my longer term aim to reduce my exposure to miners, to increase my quality of life and sleep if nothing else…

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• Weak USD

• Ability for developing countries to increasingly trade in their own currencies.

• Cheap energy

• China stimulus

• Access to highly competitive Chinese goods and services, with 0% finance.

There are 3.5 billion consumers rapidly climbing their S-curves in ASEAN, China and India, who stand to benefit in a big way.

The removal of the US dollar handbrake

The other side of the US running large deficits and overconsuming has been Asian countries running surpluses to ensure they have the US dollars to buy the commodities/energy they need.

Asia's oil import dependency is ~81% so increasingly being able to purchase their energy needs in their own currency takes the handbrake off their ability to grow more rapidly (boosting consumption and trade with each other).

Louis-Vincent Gave was the first I heard describe this as a “Reverse Asian crisis”:

"To me, it has a very sort of Asian-crisis-in-reverse feel to it," said Louis-Vincent Gave, founding partner of Gavekal Research, in a podcast, due to the speed of the currency moves.

In 1997 and 1998, capital flight sank currencies from Thailand to Indonesia and South Korea and left the region determined to accumulate dollars in the aftermath.

"Since the Asian crisis, Asian savings have not only been massive, but they've had this tendency to be redeployed into U.S. Treasuries. And now, all of a sudden, that trade no longer looks like the one-way slam dunk that it had been for so long," said Gavekal's Gave.

Those surpluses are going to be used to ramp trade between themselves without the USD bottleneck.

While Western media often highlight Yuans tiny share of SWIFT payments, this is short sighted, given that SWIFT was weaponised by the US and Europe, thereby incentivising China and Russia to develop workarounds.

Alternative trade methods, such as settling trade in Yuan and local currencies, as well as China's alternative to SWIFT, CIPS (Cross-Border Interbank Payment System), are growing rapidly.

Russia's exports are a clear example of this trend, which accelerated post-2022 with their USD/Euro assets being frozen.

Russia has rapidly moved its exports away from the US dollar with three-quarters now settled in currencies Yuan and Ruble.

Luke Gromen has been all over this trend (happy Tree-Ring subscriber) as trade is being increasingly net settled in gold.

These gold flows continue to break western financial media brains. This is not “Russia selling gold and silver to China”, this is Russia and China net settling CNY- and RUB-denominated trade in gold and silver.

China’s exports to the US were roughly double those of the ASEAN countries for the last decade.

This has recently flipped…

While everyone is focused on the new terms to access the US 340 million consumers, China is targeting billions of consumers in the developing world with highly competitive goods combined with 0% financing packages.

I've started to notice these billboards around Bali with 0% interest finance packages on goods that are already dirt cheap.

Take the BYD Atto, which is priced at USD 12,400 before financing for 3 years interest-free.

Westerners are (or were) accustomed to cheap finance, and how 0% interest finance was offered to pull forward demand.

What will be the effect on consumption when 0% finance packages are offered to billions in Asia?

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The Effect on Energy Demand?

Cheap energy combined with the ability to purchase it in their own currencies is going to ramp economic growth as the two go hand in hand.

"To discuss energy and the economy is tautology" -Vaclav Smil

Asia now consumes 48% of global primary energy and has represented 77% of the growth in energy since 1990.

3.5 billion Asian consumers are at the start of their S-curves in ASEAN, China and India.

Yes, Africa will be important in the long term, but for now, it's still in the infancy phase, with 43% of the population having no access to electricity, compared to ASEAN, where 90% have electricity but only 15% have air conditioning, for example.

When it comes to growth (real) and energy demand, the West will be irrelevant compared to developing markets.

To illustrate this consider:

• Developed countries (1.2 billion people) consume ~13 barrels per person per year.

  • Population growth is anemic.

  • They are in the maturity phase of their S-curve with marginal increases in consumption.

• Developing countries (6.9 billion people) consume ~3 barrels per person per year.

  • Population growth of ~2 billion people by 2050 will increase demand by ~50% based on the status quo.

  • Then consider half of the 6.9 billion are at the expansion point of the S-curve, wanting to improve their standard of living, which increases energy consumption.

When you compare this reality to what both IEA and OPEC are forecasting, it is clear their models are way off, particularly the IEA’s.

I’m not referencing the IEA’s Net Zero Scenarios either, just their Stated Policies Scenario (prevailing direction of energy system progression).

The IEA World Energy Outlook 2024 expects energy demand growth to be 0.5% per annum.

IEA’s forecast of 0.5% per annum over 12 years gives 6% growth in global energy demand by 2035.

To illustrate how bad this forecast is, consider we are currently averaging 2.2% growth per annum, so we will hit the IEA’s 2035 target at the end of this year!

The IEA is notorious for underestimating developing countries demand growth (this sector of Goehring & Rozencwajg commentary highlights it beautifully).

I believe we are in for another decade of large upward demand revisions as the IEA emboldened by having the most accurate forecast last year they are now extrapolating weak demand energy growth.

End of the Oil Age Beckons for Top Forecaster

But overall, the agency seems to have been emboldened by the success of its forecasts for this year. The prediction of a sharp deceleration in demand growth to barely 1% is looking far more accurate than those made by others such as the OPEC cartel.

What's surprising is OPEC’s forecasts aren’t much better…

Even OPEC has dialled back its long-term oil demand forecast to 0.7% growth per annum, so almost half of the long-term average.

They've also copied and pasted the IEA's coal forecast and renewable growth rates.

It’s easy to see how silly this is, with India and other parts of Asia being the largest growth drivers in primary energy between now and 2050.

If wind and solar are to dominate growth in energy demand for India and Asia, why is there so little planned?

This is all from the Global Energy Monitor if you want to have a play.

In India, there is a total of 19,646MW of wind in the pipeline (or ~4% of the current grid). The rest of Asia doesn’t have much wind in the pipeline either bar China.

In India, there is a total of 34,946MW of solar in the pipeline (or ~7% of the current grid)

And if coal is in decline in India, why are there 27,570MW under construction and 92,180MW Announced + Pre-permit + Permitted? (or ~25% of the current grid).

Putting this in context India’s operating coal fleet is 245,083 MW, so +11% under construction and +38% planned…

China’s coal growth is nuts with 1,189,041 MW operating, +19% under construction, and +22% planned.

Asia's coal fleet is young and growing rapidly, contrary to the forecasts of both the IEA and OPEC.

Ok, enough rambling…

How am I planning to make money on this?

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Robert always comes packing insight with over two decades of experience managing money in the commodity space. He’s unique in that he manages a resource-based fund with a focus on income while also running a short book.

Cheers,

Ferg