tv The David Rubenstein Show Peer to Peer Conversations Bloomberg March 2, 2019 2:30am-3:00am EST
>> the turmoil call, president trump tells opec to relax while saudi's extend production cuts. mining versus gold, a hostile bid. the deal would unlock $7 billion worth of value. aramco wants to become one of the world's largest players in natural gas with an appetite to buy assets from russia to africa to the u.s.. i'm alix steel and welcome to ."oomberg "commodities edge
a focus on assets and the trading behind commodities with the smartest voices in the business. we kick it off with spot on, and investor take on our big story. joining us, the founder of energy word and the president of pk realtor joins us from denver. the spotlight is on president trump's oil call. prices sink monday after president trump tells opec to relax and the saudi's ignore it on wednesday and said they are considering a production cut agreement in the back half of the year. when you look at this and the tweet monday, how significant was it? >> very significant and it follows a series of tweets that began last april. president trump has essentially barrels outillion of the market from the long side. of hedge funds closing last year, which were taking long positions in futures and what he has done is capped it. there is an analogy that goes back to the greenspan put that
followed the 1987 flash crash. the fed kept cutting interest rates every time the equities fell, so that kept a floor under the equities. president trump has put a cap on the price of oil and pushed it down. it bounced back, but it would be much higher if trump had kept his mouth shut. alix: dan? dan: president trump is good at stirring a lot of action in the marketplace, but the traders are getting wise to him as they are getting wise to his tweets everywhere else and ignoring them more and more. he had a lot of influence, obviously, in october of last year, but that was more about the jamal khashoggi murder than his tweets. alix: the world can go higher? twicehe saudi's are going shame on me and bumped up complex -- production because of the murder.
again, theyt happen have said that will not happen again and there is a lot of reason to think the tweets will have a minimal effect. over the course of the long-term, the traders are ignoring them. alix: what we see is a pickup and volatility anywhere you look. what is the impact on the producer mindset when oil can be changed so much by a tweet? phil: i have to disagree with what dan said. i understand about the traders, but if you look at the roughly 700 million barrels of oil -- billion barrels of oil hedged by frackers and so on, in fall, the people who wrote the algorithms had to sell and there were no buyers. we should have gone from 85 to 70, we went to 50. and thethe new market traders can talk all they want, but the analytics show there is
a significant effect from this and it will keep having an effect. there will be lots of volatility, which will send prices up and pulled him down, but it is a lower trend and there will be less investment and five or 10 years from now, we are seeing get at ip week, people can't get investors to invest in oil and it will lead to higher prices in the future. alix: overshoot to the upside and downside leads to more vol. dan: volatility going up is a measure of some move downward. that is what you have been seeing in the market. there has been more protection to the downside but i point out banks have been getting all excited about derivatives again. year by went up last 45%, the first in three years revenues went up. there was a new appetite for derivatives, the old-school toetite i know from 2003 2008 when we had a huge crash and 2010 to 2014 when we had another crash. we are in for the opposite.
it is not a down market, it is the makings of a new bull run in oil and the derivatives comedy appetite for derivatives and the trading and traders are what will make all the difference. that, inquickly on some respect, you are saying the same thing longer-term. you see higher prices because of underinvestment? phil: exactly right. it may be 2022. the bank'sl limit ability to do this on like 2003 2020 2, 2023,by we will be dealing with higher prices because investment is being curtailed. frome seeing all the news the independent oil companies. they are cutting back because no one will lend them more money. dan: we don't have to wait till 2022. alix: number one pick? dan: old-school with exxon because they have the money to take care of their premium assets finally and i'm staying
away from the small premium players for now and i will give she near on the lng side because it is a clear play you have to have. alix: we will talk about gas later in the hour. , a dicker and phil verleger great conversation. toir gold launching a bid become the world's biggest miner. as we head to break, venezuela is running out of space for its oil. 16 ships holding venezuela crude worth half $1 billion. the nation can't find buyers after the u.s. implemented sanctions in january. this is "commodities edge." ♪
oil inventory numbers surprised. unexpected drop in overall crude supply by 8.6 billion barrels the part of that was the lowest level of imports since 1996. you can see the drama on the u.s. gulf coast. there is such a thing as too much coffee. look at what happened to coffee prices. arabic or coffee prices fell to the lowest prices, below one dollar a pound. a global glut putting pressure on prices. dean foods, plunging this week. the white line is the debt, trading $.75 on the dollar, the blue line, milk prices. that every giant wants to find a buyer but analysts are skeptical. challenges like weakening demand and people want to drink more things like soy and almond milk. barrick gold announcing a hostile bid for newmont before
it could complete its own merger with goal court. -- goldcorp. they traded barbs over the deal. abilityroposal has the to unlock $7 billion of value for both newmont and barrick shareholders. >> i don't know where they can think of taking on a third piece in complexity. the goldcorpelieve deal creates value for anyone. >> in my view, it is desperation on their part. >> we have been working on it for a long time and have engaged new miners -- newmont before hand. alix: joining me, danielle from toronto. what is the state of that merger now? danielle: a lot of differences of opinion. both sides claim they have reached out in the past to the other one about not having to go this route, not having to go hostile.
both sides deny that is true. it is coming down to personalities. both sides are reaching out, trying to get their big investors on side. i spoke to both companies. mark bristow tells me he has spoken to most of the top investors in derek -- barrick. me the same. for the most part, they are the --e investors so which deal the guys with blackrock having a lot of the power -- will decide on an part of that will come down to personalities. they are really different teams. gary goldberg is a very understated guy. you can tell us got under his skin. mark, no one would accuse him of being understated. alix: danielle, some of the oddities of the deal, bristow said there could be $7 billion of synergies but they belong timeframe. there was no premium. how does that make sense? danielle: barrick is arguing the
synergies are the premium and are sticking to the $7 billion pretax prediction. newmont, kerry goldberg -- gary goldberg says he has no idea where they came up with that number. he says it has to be lower. the idea of this started with john thorton's bid. that was the no premium deal that kind of captured in the market's attention and both thorton and bristow are committed to that. they see themselves as restoring value and are sticking to their guns. investors who don't like the deal are already saying they need to pay up. alix: both stocks, down when the rumor broke. great reporting, danille bochove . industrial crushed it, their best year in over a decade. all of this rally, led by copper, zinc, nickel.
does it last? gordon: we don't think so. there is slowing in china and debt service in china is 1.5 trillion a month. in 2015, we had a great commodity scare, debt service in china was 800 billion a month. china needs to issue a lot more credit to run in the same space and that is the problem. alix: looking at the china pmi versus copper and there is a gap that makes no sense, you think the manufacturing data is telling this for -- the truth despite stimulus? gordon: what china wants to do is provide stimulus -- liquidity and not stimulate. important, think is if you look at net exports of steel out of china in january 2019, up 44%. levelst time we had that of growth, the great commodity scare. alix: which of the metals is the
most vulnerable to this? gordon: iron ore is important. it has been robust because of the issue with valet, but you 16.5 inping this year, tons. brazil is supposed to be disappointing. through february 18, exports were up 18th -- 18%. through february, exports are up 19% year-over-year. if that becomes consensus in the market, iron ore comes down. incident vale hasn't impacted it yet? 30 million tons, the big disaster, same thing that happened with valet recently. everyone thought iron ore exports would be down, they were up 25% year-over-year. rio tinto said that this
morning. that, they said they would be shorting vale going rio tinto and glencore. gordon: we would be short iron ore produces in general and u.s. steel because there has been a false up in iron ore prices. infrastructure, weak, pmi under 50, the credit numbers, the defaults happening. china has a real problem right now across a number of data points. everyone is expecting stimulus and we think the psf number, the credit number in february will disappoint. we would be shorting the commodities sector on weakness in china. china consumes have to roll -- half the world's commodities. pg&e's 8-k, they say although the cause of the 2018 camp fire is still under investigation, pg&e believes it
is probable the utility's equipment will be determined to be an exit -- ignition point of the 2018 camp fire. more liabilities coming their way. betting the farm on fish food. i'll talk to the ceo of greens plans energy about growth to the ethanol producer. we discussed that on bloomberg "commodities edge."
alix: i'm alix steel and this is bloomberg "commodities edge." an in-depth analysis on clean energy, advanced transport technology and emerging technologies. saudis are betting on gas. said gasmco in london is a major market and we want to be one of the largest players. there is appetite to invest in natural gas and lng. from london, anastasia dion us. what did that comment meeting? -- mean? >> this is an ambitious target for saudi aramco. they want to be a world leader in global gas and lng markets. saudi arabia is a big oil producer but not a big gas producer. they have the reserves and are hoping to increase their domestic production, but they will only produce about 1/5 of the what the u.s. produces, so
the way they are hoping to become a gas player is buying their way in. they are looking to invest in gas and lng projects from russia to the united states to australia to west africa. alix: what by gains are most realistic -- buy ins our most realistic? how much are they willing to spend? anastacia: my guess, quite a lot and they probably can. it would be fairly easy for them to invest in stakes in some of these projects. and u.s. in russia producers are looking for the extra capital and support to get these projects off the ground. they probably have a lot of projects, export projects pursuing them for investment. >> what i found interesting in his speech is he sounded like a victim. he said we should remind stakeholders oil and gas is responsible for much of today's economic growth and future growth. really coming out against the anti-oil -- shareholders have
really abandoned them. what do you make of that kind of comment? interestingt is because this moving to gas is emblematic of what a lot of the big integrated companies are doing. companies like exxon and shell and chevron and total who are already investing heavily in gas. those companies are also investing quite a lot in itewables, as well, be renewable energy or electric vehicle chargers and infrastructure. they are diversifying their assets. this is a step for saudi aramco to at least diverse away -- diversified away against oil. it is a big step for them, baby step for market. , thanknastacia dialynas you. now, we focus on the commodity world and today, it is todd becker of green plains.
first, a look at his company. ethanol producers have it rough right now. margins are negative and there is no relief in sight. like is too much supply, three to four days too much and producers aren't shutting down output fast enough. exports to china have dried up after the country levied a 70% tariff on u.s. imports. lending is on track for issuance in march and the industry still has doubts. must bellon of gasoline 15% ethanol. sliding oil and gas prices makes ethanol less competitive. isen plains energy shaking things up. the company sold three plants last year to valero and shut down one. it strategy is to transform itself into a protein producer. think of it as food for cows and chickens. it is the fourth-largest feeder in the u.s..
the company can process 11 million tons of corn, 3 million tons of livestock feed and 275 million pounds of industrial corn. after an operating loss from q want to q3 of last year of its ethanol business, it hopes for better revenue, a boost to margins and quick return to capital. will it work? the company recently missed revenue estimates for the fourth quarter and todd said the industry could have burned through about $1 billion in cash last year. i asked how much he would need to spend to diversify into that protein. somewhere between $350 million and 500 million dollars to retrofit our platform and we are coming up with a plan to do that. we have one that will come online in the fourth quarter of this year. once we see that and see that it is working, we will move quickly to retrofit our platform. we have to get the money for it, but we could raise the capital we need. alix: equity market, debt market? todd: probably a little bit of
both in the future caret hopefully it comes out a free cash flows. the industry recovers, we want to accelerate it and get someplace within two and a half years from now and ultimately, we will not be subject to the swings of government, volatility, commodity volatility. we will be subject to the world demand for protein, which is good. even in today's margin environment, which is negative, if we had this we would be profitable as a company. alix: even though your ethanol margins are negative? in four to five years, you would be profitable? todd: yeah, the economics is basically this product would sell somewhere between 50 and $100 over high-protein soy meal, a hedge of all commodity. over could sell it at $300 distillers grains, that adds $.18 a gallon margin. margins are negative five to $.10 in the industry because of what is going on. if you had $.18 a gallon and
three four cents on the oil, we would be profitable today as a company. ethanol would be a byproduct. alix: you look at the protein you are doing now, what percentage is your revenue and what do you expect it to be once you record that these plants? todd: to feed cattle, it takes six pounds of feed for every one pound of gain. in fish, one pound of feed for one pound of gain. the inefficiency in feeding fish and species around the world is so good that efficiency is so good. to growth in the next five 10 years, we saw the last 20 years in chicken and meat, we will see in the next 10 years in aquaculture and fish around the world. alix: 20% now to the low value 20%? todd: low value protein is 20% of our revenue. alix: what does that get to? todd: another 10%, but that will be the margin. toyou can get another 150 $200 million on the same revenue, that take you from
being unprofitable to profitable. alix: that was my interview with tom becker, ceo of green plains energy. now, americans are increasingly bellying up to the table for nontraditional cuts of meat. while the rest of the world has been doing this centuries, u.s. diners are just catching up when it comes to nose to tail eating. opponents say it is a good way to cut waste and productive -- restaurant see it as a way to cut cost. on my commodity radar for next week, tuesday china's national people's conference that congress will begin in beijing. chevron's investor day. how much growth will they see out of the korean basin this year. wednesday, exxon's analysts in new york, development. friday, we are back on track. the usta monthly report on crops
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