Investor Jim Chanos, founder of short-biased hedge fund Kynikos Associates, laid out his bearish view of the commodities space on Bloomberg TV on Monday.
To Chanos, and investors like Paul Tudor Jones, the world is witnessing the end of a decade-plus long commodities cycle, in which China’s entrance to the WTO in 2001 created a seemingly insatiable demand for raw materials that impacted prices across the pl anent.
But now that China is going through a painful economic transition, it’s hunger for commodities is waning.
It happened before some investors realised what was going on, according to Chanos, especially when it comes to natural gas.
“All this capacity is coming on in Asia. To meet Asian demand that has actually been flat for the last three years,” Chanos said. “And we think we have a looming oversupply problem in LNG.”
He said this did not relate to Cheniere, the natural gas company he is shorting.
“But primarily in Australia and elsewhere in the Pacific basin, production is basically about to double in the next handful of years on flat demand. And that doesn’t sound good to us.”
It doesn’t sound good to Chevron’s Australia head either, who back in May warned that the industry would have to become more competitive in the face of falling oil prices. Chevron has $US80 billion invested in LNG projects in Western Australia.
After $US180 billion worth of investment in the LNG sector, Australia is about to increase its number or LNG producing units from 7 to 21.
Now, there is an industry counter-argument to Chanos’ thesis. Industry executives have argued that projects are simply too expensive to exceed demand — that the industry wouldn’t dare overbuild without contracts from buyers.
It’s a nice thought.
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