Last night, China reported Q3 GDP of 6.9% (year-over-year), beating the 6.8% estimates.
This is the slowest pace of growth since 2009.
Furthermore, Chinese industrial production increased to 5.7%, missing estimates and slowing from 6.1% in August.
That is bad for the markets — commodity markets in particular.
Oil is down 1.95% this morning. Copper is down 1.64%.
The chart on crude oil shows a double top, with the second high lower than the first and strong support just above $44:
Wait to buy until WTI is below $44.50, and sell the bounce at $48.
Palladium Dreams
Palladium is down a bit after its massive run up on the Volkswagen emissions scandal. Gas-powered cars use palladium in catalytic converters. Diesel cars use more platinum.
I have the global low-cost producer of palladium in my Crisis and Opportunity portfolio. It is up 18% since the VW news broke — and this move from diesel to gas is just getting started.
Natural gas is up today.
For 20 years, ending in the mid-2000s, natural gas was a trader’s dream. It went up every fall like clockwork. If it was cold in Chicago and New York, traders bought natural gas futures.
It’s cold in New York today. There is frost on my garden in Maryland, and sure enough, natty gas is up 1.36% as all the other commodities are down.
Of course, natural gas is a local commodity. You sell it at the end of a pipeline. Natural gas producers don’t care if China is going to have a hard landing or not.
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China Dreams
Of course, Cheniere, with its dreams of exporting liquid natural gas to China, isn’t doing so well.
Back in February, I wrote an article in Energy and Capital titled “Cheniere Will Get Killed.”
It was trading at $80. It is now trading at $46.
I have doubts that Cheniere will ever be profitable. The company is already $14.88 billion in debt and needs to spend another $20 billion on infrastructure to be viable.
At the same time, ExxonMobil is developing the mother of all natural gas fields in Papua New Guinea. And Australia and Russia have plenty of natural gas to supply Asia.
That said, we are now six years removed from the natural gas price drop of 2009.
If we get a cold winter in the Northeast, like it is predicted, the price of natural gas could double like it did in 2014.
Even if we don’t get a cold winter, natural gas will go up anyway.
The oil research firm Platts is predicting that natural gas prices will go up for the simple reason that natural gas is an offshoot of fracking, and the rig count in the Northeast has collapsed.
Platt reports:
The rig count in the Northeast has collapsed as E&Ps focus on balance sheet demand and spend closer to internally generated cash flow. This will moderate Appalachian supply growth to roughly 2.3 Bcf/d in 2016 versus the 4 Bcf/d of annual average growth that we’ve seen over the last four years.
Companies in the natural gas space are severely undervalued after the long bear market. Any supply constraint and subsequent price jump will see shares go up as much as 500%.
Many are trading less than book. I’ll tell you more about this unique profit opportunity next week after Crisis and Opportunity readers get first crack at it.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
