Commodities

Lumber is almost (!) back to pre-pandemic levels. Hopefully the opposite of a perfect storm for Brambles (BXB) given a) the great pallet shortage meets pricing power and b) the raw material input cost that ate all the cashflow coming down.

Presumably, the opposite of a perfect storm is just good weather.

For stocks like Ingham’s (ING) and United Malt (UMG), the wheat story (soft commodities story) is likely improving but only at the margin. In general, they (those prices) remain high enough to cause problems for things that are wheat/soy/barley derived, like chickens and beer.

Key, to be revealed at the result, is how cashflows and the balance sheet look. Poor cashflows and a weak looking balance sheet will be deadly in this market, I think.

A bad result (given the above) but healthy cashflows is something you can look through.

The China property/lack-of-major-FAI stimulus story should make one nervous about steel and iron ore prices, and thus SGM, BHP, RIO, FMG, BSL, to varying degrees, and depending on how bearish you are about that market looking forwards.

We’ve been bearish on China property and FAI for a long, long time, and you still can’t say with certainty if that’s what the PBOC intends (a rebalancing away from FAI and property, and to raise domestic consumption as a share of GDP).

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