Beyond Mathematical Odds VIII - Full-bore and Into the Abyss

Truly defying mathematical odds

This post belong to a series, that I advise you to read it. Part I, Part II, Part III, Part IV, Part V, Part VI, Part VII as important is this one.

While I am one for the mimetic uses of language, either for laughs or other purposes, I am afraid to say we literally reach a point where everything defies Mathematical Odds.

You will understand it soon, and fast, expect hybrid warfare-esque approaches to escalate like never before, it looks like all trends are converging. Serendipity in these cases is not the signal you want.

Look, I am not a mathematical genius (aka math galaxy brain), I would love for one of the Chinese ones, specialized in Physics (cascade dynamics) to math this all out. Events that I expect in 2023-early 2024 are happening right now. There is an acceleration trend going on, and picking up massive steam.

László Bige’s fertilizer factory is closed due to rising energy prices and government measures

Nitrogénművek Zrt. will temporarily halt its ammonia production, the company announced on Wednesday. The move was justified by the fact that the war in Ukraine had created an emergency in the European and Hungarian economies, that natural gas prices had more than doubled and that security of energy supply was also at risk. “Government decisions that affect agricultural market fundamentals in unpredictable ways, such as restrictions on grain exports, further increase our operational risks, prompting us to temporarily halt our ammonia production. – wrote the company of László Bige.

The government announced on Sunday that all wheat, rye, barley, oat, corn, soybean and sunflower varieties to be exported from Hungary by May 1

A reader was kind enough to point this one out, and informed me that this company supplies 60% of Hungary fertilizer. As I said a few months ago, higher energy costs cause by any form of disruption would have massive consequences and cascade effects, and we are witnessing it live.

Make no mistake, government incompetence a huge part in this too. Signals were present since Q3 last year. From here.

Nitrogénművek has raised its concerns about market instability and arising risk factors, well in advance (end of September) by contacting the Ministry of Agriculture and the Hungarian Chamber of Agriculture. The company as the sole nitrogen-based fertilizer producer and major distribution company was not invited to any discussion.

As I said quite a few times the last 2 weeks, the problem of doing what I'm doing, is often repeating myself. So, repeating myself, the signs for all of this were all there, in the open, everyone was aware, but similarly to the vaccine “optimism”, I guess “experts” were hit by a mixture of normalcy bias, with a weird form of recency bias.

“Things will work, and go back to normal”, usually comes from people with low or superficial understanding of complexity.

I forecasted this for weeks, that Brazil was not going through a good crop season, with weird weather, drought plaguing parts of the country, while excessive rain in others. Grain already took a hit, and now even sugar cane is having a difficult time, and we had already experienced a sugar shortage, so sugar prices will stay high… well, food inflation will stay high for quite a while as you're about to read.

You will read this more than once in this post, but the sign were there, for a long time now.

Ukraine’s farmers stalled, fueling fears of global food shortages

The Russian invasion of Ukraine threatens millions of tiny spring-time sprouts that should emerge from stalks of dormant winter wheat in the coming weeks. If the farmers can't feed those crops soon, far fewer of the so-called tillers will spout, jeopardizing a national wheat harvest on which millions in the developing world depend.

Cómo la guerra en Ucrania amenaza al pienso español y a la cadena alimentaria de Europa

It isn’t new that the conflict between the two countries would and is affect the global market, of about everything essential for a functional society, and now rather quick, the ripple effects surface.

Ukranian farmers are expected to plant less wheat, and change their crops, they will also miss the timing for crops, influencing yield, and price down the road, one of the effects will be less feed for animals, specially pork.

Per the article in Spanish, Spain and the EU have roughly 3 to 5 weeks, if conflict persists and supply disruption are kept at current levels, this will impact the price of animal protein downstream, even more. Do not forget, the entire EU has been afflicted by African Swine Fever. The countries more affected by this are France, Portugal, Spain, Italy, Germany, Greece, Netherlands, and UK.

Stopping the exporting of grains might become a matter of national security.

Exclusive: Russia's attack on Ukraine halts half of world's neon output for chips

Ukraine's two leading suppliers of neon, which produce about half the world's supply of the key ingredient for making chips, have halted their operations as Moscow has sharpened its attack on the country, threatening to raise prices and aggravate the semiconductor shortage.

Some 45 per cent to 54 per cent of the world’s semiconductor-grade neon, critical for the lasers used to make chips, comes from two Ukrainian companies, Ingas and Cryoin

“If stockpiles are depleted by April and chipmakers don’t have orders locked up in other regions of the world, it likely means further constraints for the broader supply chain and inability to manufacture the end-product for many key customers,” he said.

Companies elsewhere could initiate neon production but it would take nine months to two years to ramp up, according to Richard Barnett, chief marketing officer of Supplyframe

There is a huge discrepancy between some experts in the semiconductor/chip field, some say the neon stocks the big companies have are for 1 year, others a few months.

Nevertheless, as previously outline, conflict in Ukraine would severely impact semiconductor manufacturing, which was already strained, and sanctions on Russia won’t be doing any favor, sourcing from other places have other problems. As you are about to read below.

Chip Supplier to Apple, Intel Warns of Tight Capacity Till 2027

• Existing clients have locked in the firm’s long-term capacity

• AB substrate equipment lead time is as long as three years

Unimicron Technology Corp., an obscure but critical player in making semiconductors, said that demand for high-performance computing chips is so strong that its production capacity will be strained for the next five years. 

The Taiwanese company makes Ajinomoto build-up film (ABF) substrate, a key part required for the packaging that protects the handful of chips needed to power computers or servers. Its customers include Intel Corp., Apple Inc., Advanced Micro Devices Inc. and Nvidia Corp. and its materials go into CPUs and GPUs for computers, servers and gaming consoles.

Not new btw, as I mentioned before, signs were all there. This came before China announcing new, massive lockdowns on its critical tech hub, which consequently have a few major ports.

I have covered before about ABS, the market experienced a shortage last year, factories can’t keep up with the demand, there are disruptions in said market. Bear in mind, this substrate is a critical component, and favored by most manufacturers.

I often sounded arrogant, because while not an expert on these fields, quite a few of my readers can vouch for my interdisciplinary approach, often beating a entire team of analysts. Maybe “experts” are frequently misguided by optimism. A disruption, in any form, in this ABS manufacturing would push timeframes further, and the market is already strained.

The fabs themselves are investing in new factories, new locations, but they will probably be up 2024, but… with current market conditions in both commodities and energy, it is safe to deduce, by probabilistic analysis, slowly, but surely, this will be pushed little further.

Europe’s Plan to Quit Russian Fuel Starts a Global Fight for Gas

The liquefied natural gas market is primed for a global battle for supply with far-reaching repercussions as the threat of Russia cutting off Europe sends the continent scrambling for alternatives.

Russia pumps enough gas into Europe every day to cover a third of the continent’s consumption. To replace most of that supply by the end of the year, the bloc drew up a plan that requires new sources of LNG nearly equivalent to annual deliveries to South Korea, the market’s third-largest buyer.

Stephen Stapczynski @SStapczynski

Europe’s plan to boost LNG imports will come at the cost of demand destruction in the emerging world The biggest losers are poised to be nations in South Asia, like Pakistan & Bangladesh, which are much more price sensitive and are unable to procure spot supply at current rates

Remember what I said about linguistic analysis ? Start taking mental, or physical notes of specific terms, and words, you don’t need a massive sample size to forecast, if you're using common sense and frequency analysis (how many times you see that word within X timeframe).

Read the thread below if you want to have an idea how stretched most people are, add this to factories, that can’t keep up with the energy costs.

Looks like the LNG market will be chaotic for the foreseeable , with prices swing to make your head hurt, and poor countries being hit harder. Asian markets will also not be happy, because they will have to go toe to toe with the entire EU for LNG, not sourced from Russia, maybe China will gobble up the Russian gas, and supply to other Asian countries. This will also affect coal prices for months to come.

Sam Freedman @Samfr

The current estimate for the October energy price rise is another 50% on top of April. FT report says this would mean, across 2022, energy price increase would be the equivalent of a 6p rise in income tax.

I recommend reading that thread, to understand how the current market prices are already putting massive financial cost upon even middle class families.

Global diesel shortage raises risk of oil price spike

Global stocks of diesel and other middle distillates have fallen to the lowest seasonal level since 2008, when similar shortages of these transport and industrial fuels helped to propel oil prices to a record high.

Distillate fuel oil inventories in the United States are 30 million barrels (21%) below the pre-pandemic five-year seasonal average and at the lowest level since 2005, the U.S. Energy Information Administration said.

Stocks in Europe are 35 million barrels (8%) below the pre-pandemic five-year average at the lowest level since 2008, Euroilstock, which compiles inventory data on behalf of the European Union, found.

Demand for diesel and other middle distillates is highly geared to the economic cycle since they are mainly used in freight transportation, manufacturing, farming, mining and oil and gas extraction.

Either the oil industry must find a way to boost crude and distillate supplies or the economic expansion must slow to ease diesel demand.

The world runs, and functions on diesel, and this isn’t the first signal we will face a diesel shortage. A shortage of the fuel will have an enormous impact in the entire complex system. It’s like removing an entire food source from nature, or locusts consuming every food source in a large area.

What is the point of sharing all this so far ? The system, which was already pressured, with signs of fracture, and spread very thin, now clearly shows signs of contagion, which each failure literally“infects” other parts of the system, and sets off further failure.

Failure cascades are usually contained, the system itself sometimes absorb the impact, contagion (in my opinion, using my framework) is akin to viral infection, an endless cascade that defies mathematical odds.

I found that, before the news below, and now I will show you how one wage Hybrid War with finesse, and intellectual elegance.

Shanghai to Shenzhen, Chinese cities rush to contain Covid-19 wave as new cases cross 1,000 for second day

• Surge in local asymptomatic cases sparks rumours of citywide lockdown in Shanghai

• Shenzhen orders selective lockdown for 11 districts, with mass testing and movement restrictions

From here.

The southern tech hub of Shenzhen told all residents to stay at home as the city struggles to eradicate an Omicron flare-up linked to neighbouring virus-ravaged Hong Kong.

Shipping’s Russian Nightmare is Becoming a Reality

Container Rates Climb On China Lockdowns

The number of container ships waiting off Qingdao, one of China’s biggest ports, is continuing to rise as the country doubles down on its Covid Zero policy, adding more delays to a strained global supply chain.

And here we have it, if things were not bad enough prior to everything else inside this series of posts, or even in my Substack since the start, covering the Nova Swan, maritime logistics is about to get another massive disruption from multiple sides. From one side Russia-Ukraine, the other China Hybrid War, also known as Covid 0, possible diesel shortage, higher fuel costs, we are about to see that massive freight costs parabolic graph. Again

By what I have been reading and analyzing, the Chinese that came back from Hong Kong (being severely disrupted and hitted by Omicron) brought the new, fast spreading variant to home. You can expect other regions close to Shenzhen to also experience these Draconian, multipurpose lockdowns.

This will severely affect the supply chain of electronics, and these cities are in a “bay” area, with some of the most important ports in the planet. The current shock into the system is already severe enough, give all the previous events, that this cemented years of supply chain problems.

I know a lot of people pushing relying on AI, yeah, you do that, that is why I use mostly paper lol. When state and non-state actors leverage these automated, AI based “solutions”, what type of mess they will create ?

We will live to see it, is my point.

Container Freight Rates Set to Rise on More China Lockdowns

• Ship queue at Qingdao rises to highest in at least 11 months

• Shenzhen, Shandong clamp down on rising virus infections

The lack of containers will also comeback (I reminder, in case you didn’t know, China is the country that builds most containers in the world). No end to the disruptions.

Lack of ‘Plan B’ Puts Zimbabwe Staple Crop at Risk as War Rages

• Nitrate fertilizer from Russia unlikely to be available

• Corn farmers in Zimbabwe will struggle to absorb higher costs

France Weighs Fresh Move to Nationalize $30 Billion Power Giant EDF

• Government officials hold early talks with potential advisers

• Energy market chaos amid Ukraine war brings renewed impetus

China Spot Coal Prices Soar to Near Double Government-Set Cap

Spot coal prices in China surged this week amid fears of a tightening global market, nearly doubling a government-set cap for long-term supply to power plants.

The price of physical thermal coal at mines in the hub of Yulin rose to as high as 1,400 yuan ($221) a ton this week, Chinese consultant Fenwei Energy Information Services Co. said on a Friday webinar. The National Development and Reform Commission last month announced medium- and long-term contracts should trade in a 570 to 770 yuan range, while pithead prices in Yulin’s Shaanxi province will be capped at 520 yuan starting May 1.

This was days ago, before current market disruptions and announcements, you can expect a realignment in the region, besides resource nationalism start playing a bigger part. Europe is now looking at coal with intensity, to get off Russian gas as soon as possible.

In my opinion, this is one of the multiple reasons, with multiple purposes, to lockdown specific (energy intensive) regions of their country in the guise of Covid 0. Curbing energy prices via factories closing down, since they can’t keep the prices in check by whatever mechanism they try.

Another Black Swan Could Swoop into the Fertilizer Market

Last week, roughly 3,000 Canadian Pacific Railway Ltd. (CP Rail) workers voted 96.7% in favor of going on strike starting March 16 if a collective bargaining agreement is not penned, according to CP Teamsters.

“Nutrien relies on rail and a CP Teamsters strike could impact our ability to move potash, nitrogen, and crop inputs to our retail locations across Canada ahead of the upcoming spring application season, potentially reducing crop yields later in the year,” the company says. “The global food supply is already stretched and cannot afford further negative impacts at this time.”

I mentioned not only this one, but this angle before, worker strike in critical hours. The USA is kinda insulate from the current mess for the short term, because of Canada, which could easily supply their needs of fertilizer, but this would affect prices globally.

Regardless, the problem in the US is not purely the supply, but the logistics, they can’t get what they require, where they require, when the producers need, and now with the inbound traffic from China’s ports coming out from the Chinese holidays, and the lockdown (which holds the cargos, and they come out all together again), you can guess what will happen the next quarter.

This is how China is waging its hybrid war under everybody’s nose. They are timing with precision, when, how long, and to what extent they lock down certain regions, to create immense pressure in the system, and keep other countries from fully recovering. Specially when companies attempt to decouple from China.

Three states report more avian flu outbreaks in poultry

Delaware, Maryland, and Missouri reported more highly pathogenic avian flu outbreaks at commercial poultry farms, part of ongoing activity over the past several weeks that has led to the loss of nearly 3 million chickens and turkeys.

The avian flu continues to spread all over the US…

These screenshots came from this (direct PDF link) United Nation analysis, and you should read it, because it is a fair, broad assessement of the impact.

Sudan is already experiencing riots, a lot of other Middle Eastern countries will experience food riots in the coming months, the ME will go into full destabilization, the mass exodus of migrants I expect later on, will probably happen within 12 months, by the current cascade dynamics, would not be surprised if way sooner.

One comment I often get, is that I do not connect the dots enough, I live a good portion of you, which is true, I want people to learn how to see the entire system, to be generalists at a minor level, to connect the dots by sheer common sense, but reading the entire series, you could connect the dots.

The events this past 2 weeks alone have a similar impact, with similar second and third order effects as the early pandemic. As a matter of fact projections from Ukraine alone estimate 50% crop yield, and loss of 30% of farm land, this will have a huge impact on countries who rely on Ukraine for staples (mostly middle eastern ones), countries will try to source from other places, which will affect domestic prices in said places.

No country will sell their own grain, on the threat of causing even more inflation in their homes, just to feed another country.

Semiconductor disruption, which will impact production Q3 (when whatever stock factories have run out, and they can’t source it fast enough), there will be less supply of finished product.

Basically everything I covered in this series of posts, not only came to pass, but is now getting exponentially worse, and pushing the entire planet into global war (a different concept from WORLD war).

Whatever strategies, reshoring, or otherwise countries did, specially espoused by governments or nationalistic types is a pipe dream, a lie. On a GOOD DAY without disruption that takes 3 years at a minimum, with current dynamics, 7 is a conservative estimate.

Go read the end of my last post, you should prepare accordingly, this will be a rough year, and we will experience different levels of a Everything Shortage. I often said there would not be a recovery by 2022. Now I can safely tell you, no recovery at all till 2024.

I can’t, alone, map the entire effects of the current energy woes in the EU, but as you can tell by the first article, it will have a disproportional impact on industry, and per other posts, it will affect the supply of many, many metals. Even gold and silver.

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