Bloomberg Markets Full Show (03/08/2022)
From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It's 30 minutes into the US trading day on Tuesday March 8th. Here are the top market stories we're following for you at this hour. Here come the embargoes. The Biden administration is set to impose a ban on Russian energy imports as soon as today with the president expected to speak later this hour. The UK is preparing to announce a similar ban on oil but not gas. Bracing for the fallout. The EU is considering issuing joint bonds at a major scale to finance energy and defense spending and blunt the impact of Russia's invasion of Ukraine.
This after the Kremlin's threat to cut off gas flows from Nord Stream 1. And like a mean stock NIKKEI spikes an unprecedented 250 percent in a massive short squeeze forcing the LME to halt trading and leaving the Chinese tycoon facing billions in losses. We'll have more on the actions in metals with Andrew Forrest of Fortescue from New York. I'm Kailey Leinz with Guy Johnson in London. Alix Steel is off today. Welcome to Bloomberg Markets Guy. Happy Tuesday. It is commodities and energy.
Front and center. Absolutely. We're going to give the president a little bit later on in the show. Ten forty 45 in theory. We'll see exactly when it happens in theory. But it's interesting Kelly that we find ourselves in a situation where parking the UK to one side and its partial potential ban on Russian energy. It is the US going it alone. Europe can't deal with this. And the second headline you read out there talking about the fact that Europe is looking maybe to issue significant numbers of joint bonds to a rearm and B deal with the consequences of this energy story I think is highly significant. Europe is in the crosshairs of this story. And the economic impact I think is at this point really hard to gauge. It's ensuring that economists at this
point are not downgrading their economic forecasts. They check the winter forecasts from the European Commission a little bit earlier on. The last one was that 2022 growth of 4 percent. What's the downside potential on that number. Is it now inevitable that Europe is going to be facing some kind of a recession. So that brings us to our Question of the Day. We're trying to analyze exactly what is happening with prices right now. Are investors correctly pricing European risk. To try and answer this question we bring in Karen Ward J.P. Morgan's chief EMEA market strategist for JP Morgan Wealth and Bloomberg's
Justin Ali. Justin let me start with you. Economists are probably racing to catch up on the implications of what is happening here for the European economy. Highly exposed to Russian gas. Gas prices energy prices going through the roof just about everything in terms of the commodity space moving up and up very sharply. Do we have a handle to economists yet have a handle on understanding and then pricing the economic downside here. I think not yet. I mean we've seen a huge reaction in equities. You know the stocks here of sex hundreds valuation is now the lowest since the depths of the pandemic. But you know we
are still looking at sell side forecasts. The GDP forecasts have only been downgraded very so slightly. And I think it's especially hard to grapple with given that shortly before the invasion the narrative was all about the recovery from Covid. And so it's really been a very sharp change from that story. It has indeed been sharp. So parent to bring you in here how has your view of Europe changed in the last two weeks. I mean significantly as you say. And if we are faced with an obsolete stop in supply of gas then for certain industries and I think that will be just technical if nothing else stop. So these are those industries steel etc that rely on these raw materials for the broader economy. The upside is we did come into this
into this crisis with consumers in very good shape high levels of savings the jobs market very good wages pushing up and the critical things to watch right now. To what degree a government's willing to absorb this cost. We've seen in the pandemic that if governments are willing to use their balance sheets that can be very significant in insulating the private sector. So the news this morning that I pointed to is very significant. I think we're going to see a swathe of action not only to try and shift energy sourcing in energy efficiency and move away from dependence on Russian imports but a whole suite of packages that will support the consumer. The other thing that Europe has is a central bank which is under no pressure with
regards to inflation and they can provide support. We're going to hear from them on Thursday. Um look you're going looking for the guy in Frankfurt to hear from Madame Legarde Karen. The ECB whose mandate is inflation and if inflation rips higher in Europe that's going to cause significant economic damage anyway. The consumer is definitely
in the firing line here. Sure. The government spending may sort of blunt that but but this is a short term near term impact that consumers are going to feel it's food prices. Is is the government going to support those. It's energy prices. Well we may see some action there but is it going to be complete. The consumer in Europe looks like it is facing a number of different
really difficult problems at the moment. And I'm wondering whether or not that's enough to bring down growth forecasts of circa 4 percent now down to zero or potentially below that. I definitely think focusing on growth is not going to happen as you say. Those forecasts are now too old. They forget the market. There's a real distinction between economists
forecasting the market. I think the European markets now down 14 15 percent are already pricing a mild recession. So whatever happens to the economists forecasts I think they actual stock markets. So already that you know I agree. I don't think governments are going to absorb the full cost of that. But I think they will insulate lower income households. The bottom
half of the income spectrum and then the upper half of the income spectrum have been savings. They haven't been allowed out for the last years because of the pandemic. So I do think that this is a real wage catastrophe. I also think that we have to remember because there's so much reflection on the 1970s that we've been through many periods in the past where real wages have been squeezed by falling and it hasn't given us a recession was given us a recession is when the central banks worry about inflation slam on the brakes. I don't think we're going to hear that from the ECB. I think they're going to say we can't bring down energy prices by raising rates. That's going to slow the economy. We're not going to compound the problem. Reassurance from them and they'll be supportive. OK. Well Justine I'm taking a look right now at oil prices reacting to all of this news up more than 7 percent on both Brent and WTI. Brent at 130 to oil at 128. Clearly all of this
kind of fueling the inflation or stagflation narrative wherein the market does the greatest repricing need to happen for a kind of recession scenario or is that already starting to be priced in. I think Goodell is starting to see that you know in equities and and obviously you know after such a sharp move in commodities I was reading kind of a note from Bernstein just then and it pointed out something really interesting which is that we haven't really seen a drastic flattening in the European yield curve yet whereas we've actually seen that in the US and that would seem to indicate that. For whatever reason in terms of the yield curve the expectations are not that pessimistic just yet. Is the yield curve a real reflection of reality here in Europe given the involvement of the ECB at such a high level. Yeah I mean that that is a great point because like I guess in the US what we've seen is you know people were expecting the Fed to raise. And so the the short end kind of went up but the line didn't go up as much and hence
there was a lot of flattening. But in Europe we kind of haven't seen that yet. And maybe some of that has to do with you know different expectations for the ECB. Clearly Karen when we came into this year we thought the picture was going to look a lot different in one of the consensus calls was Europe over us. Those value trades over overgrowth. Does this situation present potentially now the reverse of that where Europe may underperform in growth actually could play a role again. Right now but I do think we need to be careful about getting whipsawed here because if there is some degree of resolution or at least a moderate de-escalation we're going to be in a position where many of those early narratives could actually be accelerated. We've got more inflationary pressure into the system. We've potentially got the central banks having to
therefore tighten buy more. If the recovery then gets going and this is not a recession and a growth risk. And it was really the race story that was driving that rotation. It was the prospect of higher interest rates steeper curves supporting the financials perhaps being a detriment to some of the growth here. The attack areas of the market where rising rates have not produced a supports it has been headwinds to those valuations. So I think we should be really careful about today given the
moves that we've already seen getting whipsawed by actually shifting positions materially. You know throw us over Europe for example because if we do get to a point in six weeks two months time we could be right back to discussing you know all of the central banks going to catch up. But how much damage could still be done Karen. Let's go back to the starting question. Are we realistically pricing the risk of what is happening here. Are markets functioning properly as a
balancing mechanism risk reward. We have so much uncertainty. It strikes me as that that is incredibly difficult at the moment. How much damage can be done done between now and then. What's the strategy between now and then in terms of managing a portfolio. Do you just sit tight. Do you just not do anything or do you actively have to reposition around this.
You will know you will a moderate risk position. Absolutely. I mean as we say the beginning narrative was these economies are so strong the central banks behind the curve. Government bonds in that environment you want it to be heavily overweight equities and short government bonds. There's no way you want to be today. You definitely want a more moderate opposition. You
want to be thinking about your balance. Would you be thinking about dollar gold treasuries at the moment. For all the while central banks are doing what I suspect which is offering supportive comments to supporting gold. They are getting screwed. Ruth the ballot. So you did you definitely want to be thinking but I just think given the moves that have already happened. If you were to today think about okay when I was position pro Europe and over an underweight the US switching today and today's prices may not then be the right thing given the prospects of that return of the earlier narrative of inflation and rising rates. In which case you know as I say that rotation was very much about financials value growth and that was driving the regional rotation well and obviously part of the rotation as well as about relative earnings performance. Just
Tina and I was reading out of city of earlier earnings revisions. Net earnings revisions are actually negative now for the first time since September 20 20. Is this market prepared for a potential rollover as well in corporate profits and that support going away. Right. I think you really have to think about the shock that's come from this invasion because on one hand you have companies whose input prices might dependent commodities and on the other you know for a lot of consumer discretionary companies. I mean the hit to consumer spending really could be a hit to that bottom line. And that's why we're kind of seeing valuations come down so rapidly already. Yeah. One area that we're certainly not seeing profitability proving to be a problem is the energy sector. Currently the ESG
is stopping people investing in the energy sector right now. It is having a huge impact on people's performance. Portfolio managers performance. Do you think that is a factor at the moment. And to your earlier point about A has the move already happened. It wouldn't be dangerous at this point given the potential for huge amounts of volatility going forward to invest in the energy sector. I read that two different questions there. I mean let's put
these people aside for just one moment and just think we do have to be very careful when we get to a very elevated commodity prices on its energy stocks have done terribly well. We have to remember that at some point high energy prices themselves destroy their own demand. And therefore as recession risk rise. That's why you tend to see in historical cycles big pick up in energy prices. But then big declines. So as we get higher 130 now I think actually allocating more to energy doesn't look an obvious trait to me. You want to be thinking as you're talking about that demand destruction really becoming the dominant
theme. And I think on the broader ESG front to me the one thing we can say with absolute conviction today is the momentum behind transitioning our energy policies to different sources and dramatically different energy efficiency. That was a 2050 ambition. It's now a winter 2022 ambition. The game has changed completely. The resources that will be thrown at this will be
tremendous. That's an area where I think we should have absolute conviction about deploying capital. All right Karen Ward of J.P. Morgan Asset Management thank you so much for joining us and thanks as well to Bloomberg's Justine Lee. And coming up we're going to talk more about that transition that Karen was just talking about the implications of an oil embargo on products it imports coming from Russia. What that may mean for whether or not that transition needs to be accelerated
as well here in the U.S.. Of course we're waiting to hear from President Biden preparing to take the next step in punishing Moscow for the invasion of Ukraine by banning those Russian oil imports. It's a story Bloomberg's Annmarie Horden broke last week. Details next. This is Bloomberg. Not long from now the Biden administration is set to ban imports of Russian oil and other forms of energy we are expecting to hear from the president later on this hour. Annmarie Horden was one of the Bloomberg reporters who broke this story and she joins us now from Washington. So Anne-Marie we understand that the UK is moving to make a similar ban on oil imports from Russia. The EU though it looks like the administration may be acting if not in defiance not in coordination with the Biden
administration assuming that the rest of Europe will follow its lead. What the moment they've been talking to the European Union. But I spoke to an EU official very early this morning who said Europe's just not there yet. I don't think the world expects Europe to be there. I mean if you just look at Germany alone
they are heavily heavily reliant on Russian fossil fuels. Now all of Schultz said yesterday they want to loosen that dependence on Moscow but it's not going to happen overnight. So you do see movements in Europe to try to move to renewables building morel LNG facilities. But it just cannot happen right away.
But what we do know is that the administration has been consulting the euro their European allies. So while they are making this decision unilaterally without them and it comes on the heels of Canada we have reporting that the U.K. will be next. Europe will not be alongside them in this van. MH What is going to replace this oil. I'm always surprised at how much the United States does import Vicki Hollow just been
talking over the last few minutes. The Oxy CEO saying that U.S. oil drillers cannot significantly expand output. What fills the gap. Well over the weekend we did have U.S. officials in Venezuela. Potentially they can fill this gap especially look at the grades of crude. What comes from Russia's a very heavy thick high
sulfur vis gas grade. Potentially Venezuela could fill that gap. Now there's an embargo on Venezuelan crude. Venezuela has the most proven oil reserves in the world. Potentially this is an opening. Then of course there's talks of an Iranian nuclear agreement. Hossein Tom Keene billion. The foreign minister of Iran has been very
optimistic in Iranian press coming out of Tehran that there could be an agreement potentially Iran could fill some of this. And then of course there's the US's ally in the Gulf. That's the kingdom of Saudi Arabia. So far they have not been willing to act potentially. Does that change. I would say these are the three countries that could
potentially have a little bit more of an immediate impact on the crude market. Speaking of things that could fill the gap. Anne-Marie what about renewables and how does this potentially relate to spending out of Washington. I noticed you on Hatzius over at Goldman Sachs Publishing earlier today. This is part of what he said. You said the odds of some form of renewable legislation passing has risen. The impact on energy prices from recent events and the importance of energy considerations and sanctions discussions could motivate lawmakers on both sides of the Atlantic to accelerate the shift to renewable energy. Amari is this in some
backwards way a way of the president getting more of his climate agenda and the spending agenda and the spending that comes with it through Congress. It's a great point. I imagine the president when he takes the podium today at ten forty five a.m. scheduled to set to that this is what he will lean into. He ran as a climate president. He wanted to transform the grid of America and where and how we heat our homes fuel our cars etc. So this would likely be something the administration and they have already been talking about this more money toward towards renewables. And when you looked at his build back better legislation climate was actually one of the issues that Senator Joe Manchin who came out and said that that bill was dead but that he can get on board with some of these climate initiatives. So potentially this could put the
impetus on Congress to move more money to some of those renewable agenda. Great reporting AMH. Fantastic work. Thank you very much indeed for joining us to update us. Bloomberg's Emory Hall joining us out of Washington D.C. As we've been indicating President Biden set to announce that those actions that Amiri has been discussing. We think that's going to happen later this hour. Time was a little bit flexible when it comes to these sort of events. But when they do happen and the president speaks the remarks of Rush that he's going to deliver. We will bring them to you. I just want to update you on some headlines that are coming out right now. The UK is to produce a ban on Russian oil.
That will include refined products and crude. So we'll get some more details on that coming out of Whitehall. I would expect over the last next few minutes the last few minutes. You've also got the national intelligence director in the United States. He's speaking at a hearing right now talking about Russian forces are acting with disregard for civilian lives. Russia is loosening the rules of engagement. Russia encountering serious military shortcomings. You've also got and this is another story that's worth referencing. For instance two
of the European Commission. He's the European Green Deal European vice vice commissioner vice president. He's holding a press conference right now. He is indicating that actually the EU has no plans to sell debt to finance the energy issues that we are encountering right now. So a number of different headlines breaking at the moment. We'll continue to keep you updated. We'll move towards those presidential comments that are coming up very shortly. In the
meantime let's check in with the Bloomberg First World News here with that Bloomberg Quicktake. Ready. Good. Thanks guy. The European Union is set to propose a new round of sanctions that would target a total of 14 individuals including a number of wealthy Russians and their family members. But Bloomberg has learned the measures will stop short of more far reaching steps like penalizing ports. The E.U. package being considered also includes cutting off the Belarus banks from the swift international payment system. And the price of wheat fluctuated near an all time high after exceeding levels seen during the global food crisis back in 2008. Traders are assessing the impact of Russia's war in Ukraine.
That's effectively cut off more than a quarter of the world's wheat exports. Revenues 24 hours down out on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than a hundred and twenty countries which could get them back killing. Fredricka thank you. Well still ahead we'll talk clean aviation. Fortescue and Airbus are teaming up. We'll talk with the company's chairman of Fortescue. That is Andrew Forrest. This is Bloomberg. So Frans Timmermans who is the European vice presidents at the European Commission for the European Green deals a lot of Europeans in their on there is holding a press conference right now. Some possibility we may get to talk to him a little bit
later on. Asked about this Bloomberg report which we put out a little bit earlier on talking about the fact the EU is looking at the possibility of using joint debt once again this time to raise money for financing a the energy costs of what is happening with the Ukraine war and the impacts on Europe. And then the rearmament story Tim was talking about this basically saying at the moment there are no plans to sell debt to finance this energy story. So what you're seeing now is a reaction in the BGP bond spread. You're seeing bond yields coming down a little bit. They were very elevated a little bit earlier on a
reaction to this. So hopefully we'll get an opportunity to catch up with Timmermans very very shortly. Kelly we'll see what happens there. But certainly a market reaction to these headlines over the last few minutes just as there was a market reaction to the headlines on the initial Bloomberg report. And of course this follows the Russian threat to potentially cut off
gas flows to Europe. Now the U.S. and U.K. looking at banning Russian oil imports. We're to talk more about the energy implications. The International Energy Agency is ready to recommend another release from emergency oil stockpiles if it's needed. We'll have more of our interview with the director Fatih Birol next. This is Glenda. We're about an hour into the U.S. trading session. Bloomberg's Abigail Doolittle is watching the moves. Abigail you got some action in stocks but a lot more in bonds and commodities much more selling bonds commodities. And here's the commodity side of
a killer. But up top stocks some volatility. There is of course the S&P 500 of the Nasdaq 100 earlier higher now down about seven tenths of one percent and nine tenths of 1 percent respectively. Having everything to do with the continued surge in commodities that Kelly was talking about in particular oil of course the U.K. banning oil imports from Russia. That hitting or I should say sending oil a higher hitting it to the upside. And of course the expectation the Bloomberg exclusive earlier that
President Biden expected to announce a ban a U.S. ban on Russian imports of oil as well. So oil higher stocks lower. It shows sector wise too if we go into the Bloomberg News the eye map. We are going to see that most sectors are lower on bottom health care information technology and consumer staples. Now we are off the lows. At the lows more sectors are down 1 percent. But there's one clear winner that is energy up three point nine percent heading to another big up year. Of course the top sector last year up more than 45 percent up in a big way. And if we take a look at oil guy it's just incredible. How long can this
surge go. Because of course oil right now at its highest level since 2008. So you can see over the last roughly five years oil had sort of flatlined let's call it. There had been that volatility of course in 2020. But it looks like nothing relative to the upside volatility that we have now. Here is a true parabolic uptrend. Take a look at this. It is straight up as in a needle higher physics and 90 degree angle cannot hold to a point. Some point this is going to collapse. But Steve Sosnik
over at Interactive Brokers he makes a great point that markets can stay irrational longer than some investors can stay solvent. So it's hard to know when this will collapse but that cannot hold guy. At some point we're going to see all of this move back to the downside. Stay tuned for more volatility ahead. Yeah. Where does it come down to I guess is the question are we going to be in a situation where we're gonna have to live with more elevated oil prices going forward. You take a look at the
contract table. You look at the curve where 100 bucks plus for quite some time in terms of the way that the curve is structured right now the price of crude Abigail looks certainly to be a huge factor going forward from here in terms of the global economy. The Bank of America Bank of America now warning that we are in what it calls an ugly scenario. Brent potentially could be peaking at one hundred seventy five bucks a barrel. Think of Abigail's kind of vertical line here. The IEA saying it's ready
to recommend that member countries do really small crude from emergency stockpiles if needed. Are we at that point already. Here's what some people on Bloomberg have been saying to us about this story. The amount of stocks we release as of last week was only 4 percent of our stock reserves. There's a lot of oil there and it will be at the disposal of the markets in order to help to stabilize the markets. But I should tell you that the I am really disappointed with the several producing countries who did not take the necessary measures to comfort the market. Those critics those countries who said they are there to stabilize the markets we have not seen debt recently. And I would say this was really disappointing from my
perspective. Why is the IEA not pressuring Saudi Arabia more to increase production or is that happening behind the scenes. So we are talking with all the countries around the world to we are reminding them that the if the markets did turmoil continues. It is not in the benefit of anybody. As I see now.
But it is of course up to them to decide. I think your previous credit could talk with you seeing that there was not enough spare production capacity. This is not right. There is a significant amount of spare production capacity and one may take some of them bring it to the markets. And I would also tell you that we are very soon we are going to come up with some suggestions how to reduce the oil demand in a hurry. What we can do on the demand side is some regulatory voluntary measures that the governments can take to consuming countries to reduce the demand. In addition to the possible impact of high oil prices
and do math growth. That was ISE executive director Fatih Birol speaking with Bloomberg's Francine Lacqua earlier. And Guy while we were listening to that interview interestingly we're starting to get some headlines out from the universe. CEO Clouds Dieter Michael Barr is speaking in an interview and he says that they're following German government guidance to avoid a supply crisis. And Germany has told the company it can buy more Russian gas
into me. Guy this gets to the root of the question is Germany and then therefore the rest of Europe going to get on board with a potential embargo of Russian oil and gas as we're seeing the U.S. and the U.K. set to make those moves. You go into the the tables of the exposure that European countries have to Russian gas in places like Bulgaria. It's a hundred percent Germany's at around 50 percent. Some of the Scandinavian countries are a little bit higher. Changing that on a dime really not possible and yes there are reserves and unit was talking about that but we need continued flow of Russian gas into these economies. It's interesting that Gazprom is also out within the last few minutes or we have had confirmation within the last few minutes. The Gazprom is puts extra Yama link capacity into Germany for Tuesday i.e. it is
more Russian gas Cayley coming into Europe right now the flow has not stopped really difficult. We were talking earlier on in the program about the impact that that gas flow stoppages would cause to the European economy where circa 4 percent in terms of the numbers of the European Commission is expecting for growth this year that number would be massively lower. Already is probably going to be massively low. As a result of what is happening. But you cut the cuts you cut the price and you cut
the gas off then we may have a much much worse situation. Yeah absolutely. Because while Europe is trying to transition to renewables it is a transition and thereby it takes some time. Coming up we're going to talk more about that. The European Union is warned that it must speed up its green transition so that it can rely less on Russian energy. We'll be talking with the EU Commission first vice president Frans Timmermans next. This is Bloomberg. This is Bloomberg Markets ISE could get down you're looking at a live shot of the principal room coming up the five in.
Chairman and CEO Albert Ball joins Bloomberg TV at noon New York time. This is Bloomberg. Let's check in on the Bloomberg Markets where these answers could get to. The Iran nuclear talks have been thrown into confusion by a demand from Russia. Moscow wants a US guarantee that sanctions over the invasion of Ukraine won't affect its
work with Iran. Last week diplomats from both sides were saying a deal was just days away. Hong Kong reportedly may drop mass testing as a coronavirus priority. The newspaper meanwhile says that instead the priority may be placed on reducing deaths from Covid. According to the report the potential shift comes after the leader of China's Covid response team visited China and the London Metal Exchange halted trading in its NIKKEI market after an unprecedented price spike. NIKKEI rising by as much as two hundred and fifty percent over the past two days alone to hit record highs about one hundred thousand dollars a tonne. That
left brokers struggling to buy margin calls against some deeply unprofitable short positions. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in more than 120 countries. I'm Richard CAC death. This has been bad guy. Thank you very much indeed. Let's get more on the unprecedented spike that we are seeing in the NIKKEI market bucks. Joe Doe who covers metals and agriculture for us joins us now. Joe do we
know when this market is going to reopen. Do we know how long it is going to take to sort out what has happened with the short position the margin calls that go with it and whether ultimately they do get paid. Yeah I think the short answer is we don't know exactly when this market might open. Earlier today having a blast one of my colleagues was saying that his sources were
telling him you know it could be exchanged for nickel will probably be closed tomorrow. It's uncertain after that. It could it could extend that long. I mean we're really in uncharted territory here. I hate to use the words but that's really what we're talking about. I mean waking up excuse me at 1:00 in the morning seeing prices going from 60 to 80 to than one hundred thousand dollars a tonne was unbelievable. And now that the market's trying to unwind and figure out what's going on here
and I think that's really the most important thing at the moment. Well Joe actually what I am is about the time I was waking up. So that was indeed true for me. Obviously what we're seeing in nickel is pretty detached from the fundamentals here. But for some of the other metals we have also seen really incredible rallies. And I'm wondering if that is actually more reflective of reality. Yeah I mean Nicole I think you nailed the point here which you're hearing from
everybody from analysts to traders it's not a fundamental move right. This is a large short squeeze. And we have reporting from my colleagues our song and Jack Farty who according to sources were saying that this was sanctioned the largest nickel producer on the planet. They had a massive number of short positions that they're trying to cover with other metals. You know this is very much getting back to the fundamental play when Russia is no longer a normal actor in the world for financial markets. The questions become well can we continue to do business with them. I mean they are a massive producer of nickel. They are a massive producer of
aluminum. They are in every bit of this. And for traders right now trying to determine if business that they've just expected to flow through Russia like literally flow through Russia can no longer be a part of their plan. I mean that's really what you've been seeing now for the past two weeks. Joe commodities are often used as collateral is the market functioning properly. Is there a collateral problem here. Some of these assets are very hard to value right now and they're used as collateral therefore needs to be questioned. Is that a liquidity problem that could ultimately flow from this.
I think this is a real discussion happening in various circles throughout the market globally. I think a niggle obviously this is the big question right. I mean nothing Nicholas is like in a totally different stratosphere. I mean second one aluminum trader just yesterday said listen with aluminum we've seen it go to record. But a lot of people had at least put on some hedges
that a crisis could happen maybe not to this level but they expected maybe something bad could happen. So I think you know again to be clear when you're talking about liquidity a market this is some very serious stuff. I think with nickel we obviously have a problem that needs to be sorted out with many of the other metals. I'm not so sure that we're quite there. And I don't know if that's something that the traders are as worried about. Well Joe this may be an unfair question but how was the
LME not prepared for this kind of scenario. I mean literally how did this happen. Yeah I think a lot more reporting is going to have to be done to figure out you know really what was what behind all of this. I mean people have been referring to the tense scenario that happened back in the 1980s which was kind of the enemy's darkest moment. You know I think there's just so much there's so little clarity as to what happened and why it happened so quickly and to finally get down to you know how the LME acted or did not act. I think there's more to see to come on that one. Joe Brilliance Finger Reporting ISE. We've been all glued to their story over the last 24 hours. Filibuster. Thank you very
much indeed. This is Bloomberg. So let's talk about the energy transition from a different perspective. Clearly high energy costs are forcing a rethink of a number of different strategies moving forward in terms of energy transitions. Fortescue the mining giants and Airbus the aviation giants teaming up to help decarbonise aviation. The companies have announced today that they were working together
on a plan to use green hydrogen based aircraft. The plan to be in place by 2035. Joining us now is Andrew Forrest Fortescue Metals Group chairman. Andrew thank you very much indeed for your time today. The events of the last few days have in many ways changed a lot of people's perception of the energy transition. Natural gas prices in Europe going through the roof. We're seeing metals prices going through the roof as well. We've just been talking about what's been happening in the nickel
market. How much does a plan like the one you proposed today change continue to stack up as a result of the shifting prices that we're seeing for these key components that are go in the going to go into this energy transition. That's a great question. Great. Hotch in creative mind you green electricity was really competitive before but there was resistance. We're finding that resistance now falling away. As everybody now understands. We have to get off fossil fuel. We have to become energy independent in Europe North America or Australia. You have the opportunity now to become fully energy
independent because you have green energy on your doorstep over your head all around you. Now is the time to tap it. OK. Mr. Forest and that's obviously a very admirable goal. But at the same time when it comes to green hydrogen in particular it takes a lot of energy and a lot of capital in order to produce that. I've read estimates that an eleven trillion dollar investment in production and storage worldwide would be needed through 2050 and more electricity than the world generates. Now to have green hydrogen meet a quarter of the world's energy needs. Do we literally have enough energy to produce this alternative form of energy. Yes. So we need to we need to break through that thinking. Green
energy is easily the cheapest and getting much cheaper form of electricity or energy than the world has ever seen. So we're going to be up fresh fresh produce way way more energy than we ever have in the past. And we're going to do it without a molecule of carbon or it's big ugly brother methane into the atmosphere. This this. These are great points you're making. But
put it in the frame that the abundance of energy which is great and commercially is thousands of times more than humanity will ever need. But in order to get there and in order to get there quickly Andrew we are going to have to build a lot of wind turbines. We can have to do a lot of things that are going to be incredibly expensive. The price tag for for producing this energy is going up and up and up. Ultimately once built the energy is very very cheap and has has a very low carbon footprint. But to get to that point appears day by day to becoming more and more expensive. I listen to the Vestas CEO talking about the input cost issues that he's facing in terms of building with turbines.
The problems are mounting. Other timelines and the cost estimates currently realistic. Well look I could not move there earlier. They did disagree. If you're looking at time and money then I can tell you. Green energy so much simpler than building a great oil and gas refinery or trying to put in a nuclear power plant. Hey I'd rather put a few solar panels and wind turbines than those honking great smelly things. We're getting approvals fast. We're getting capital fast. And just think of this. We have one company one company. We've committed to 15 million tons of green Honda. And by 2030 that
would take out all of Germany's reliance on Russia today. We've started work on this two years ago. We're full steam ahead and we're just one company. Yeah obviously that partnership with Airbus really focused on research and development. I'd want to get to the heart of what Fortescue's original business was though and that was metals. We were just talking about what we saw with nickel today the LME actually having to close the market due to that short squeeze. Obviously those prices going up dramatically. Nicholas crucial when we think about electric vehicles when we
think about lithium ion batteries how does the metal supply factor in to the ability of this green transition and maybe the inability to accelerate it at the current moment. Recycling we have in Fortescue Future Industries where a wholly owned part of Fortescue Metals Group as you pointed out where already Australia's top performing company for shareholder returns by several times in the last 20 years. We're going to continue that energy that talent growth. We're putting it all into renewable energy. We will be the world's first fully fully integrated resources and renewable energy company. So when you talk about lithium when you talk an iron when you talk nickel we expect to be a one stop shop for that and your hygiene and your ammonia and Ukraine electricity. So we don't see it as the challenge you do. We have we have these expiration targets. We have these
projects and we're just getting on with it. We will be up to meet the world demand. Yes. Commodities go up and down in price but consistency of supply just continues to grow on a very solid path and we'll be helping that path along strongly. Andrew what a day like today. I'm really happy to hear your optimism because certainly we are in need of such optimism. Andrew Forrest Fortescue Metals Group chairman. Sir thank you very much indeed for your time. Let's talk a little bit about what is happening over the next few minutes. In theory we should currently be listening to President Biden talking about an energy embargo on Russia. I suspect that the president will be speaking probably in the next
hour. The EU though is not going along with the US and to a certain extent the UK's decision to limit Russian energy supplies into its economy. Let's talk a little bit about that right now and the plans maybe to lessen the impact of Russian energy into Europe. Frans Timmermans joins us from the European Commission. He's effectively in charge of the European green deal. Is a European a vice president at the commission. Commissioner thank you very much indeed for taking some time to talk with us. I know you've had an incredibly busy day in the next few minutes. President Biden is going to announce a ban on
Russian energy into the US economy. Is the European. Is the EU in a position to be able to replicate such a ban. Would such a ban be possible. I have just announced in the last hour that we will reduce our gas imports from Russia by two thirds before the end of this year. So I think that's a substantial contribution to increasing our energy sovereignty. We will still be looking into the oil markets. That is something that's still on the table. The
possibility of sanctions there. This is something that will be discussed by our leaders next Thursday and Friday in Versailles near Paris. Nothing is off off the table but we're not taking the same decision as President Biden apparently is taking today. But we have announced today that we will reduce our natural gas imports by two thirds before the end of this year. I'm wondering
about the funding to do so. Mr. Tim Timmermans you said earlier when asked about the Bloomberg report about potential joint debt issuance from the European Union to finance energy and defense you said that the EU had no plans to do so to sell debt to finance energy. How then do you make this transition and shift away from that dependency on Russia. First of all a lot of what we're doing is already in our plans that we've presented in our recovery and resilience plans that we've discussed with our member states. But I'm sure that our leaders will come back to the issue of financing. Also next Thursday and Friday because it is clear to me that this enhanced energy transition that we will now be going through the need to revisit some strategic choices we need to make. You know the world has changed on the 24th of February. And we need to bear the consequences of that. And that will also have financial consequences. But this is something typically for our leaders to
discuss later this week. So you are not seeing that this is off the table. It potentially could be discussed some sort of joint financing to deal with. The current energy crisis that Europe is facing could potentially be discussed in Versailles. You're not saying that that is not going to happen. Well depends on on what the French presidency will bring to the table. But let me let me be very clear. We don't have the luxury anymore to say that anything is off the table. As of the 24th of February we're confronted with a Russian leader who has invaded a neighboring country a democratic country a country that shares our values. This is a threat to our collective
security. And you know I'm really really happy that we've found such common ground with our transatlantic allies and that we've been working. You know Putin tried for 20 years to create division in Europe to create division between the US and Europe. And he's failed completely. We're more united than ever before. And which also means that we don't have the luxury to say that some issues would be off the table. We need to be able to confront everything. And there should be no taboos. Also in terms of finances OK so nothing is off the table. Let's talk about realistic timelines for European energy
independence at least from Russia. When do you think you could reach that in entirety. Well two thirds less gas is already quite something by the end of this year and then the years after that we will step by step reduce our gas supports from much a two to zero. But also we have to watch very carefully what's going to happen in Russia. Are they going to change a stance. Are they going to return or
come to the same values we share. I don't know. It doesn't look it doesn't look very promising. It looks like we're set for a long period of of also ideological confrontation. And to face that period. We need to be more resilient. And the only way to become more resilient in the energy sector is by producing your own energy. And the only energy we can produce ourselves in Europe basically is renewable energy solar wind bio gas. That's where we need to invest now and rapidly. Francine Lacqua. Does this mean that European consumers European industry will in the short to medium term be paying higher prices for energy. And is that a price that you think is worth paying. Well I think there's always a price worth paying for liberty for
freedom and democracy and I think there is a huge understanding with our citizens that now we're defending our basic freedoms and we're defending that collectively with the United States and Canada. And I believe we need to make sure that we increase the resilience of our industry. There will be a cost of that but I think that's an investment worth making. And at the end of the day you know there is no cheaper energy than renewable energy. There's absolutely hands down the cheapest energy humanity has ever had. And you were saying earlier in the previous conversation that you need massive investment. We've never heard anybody complain about the massive investment that's still ongoing in fossil fuels. Only part of that level of investment will get us to energy sovereignty in Europe through renewable energy. So I
think we we need to get cracking with this and we need to move on very rapidly. The clock certainly is ticking and I know it's ticking for you. So thank you for giving us some of your valuable time. Frans Timmermans EU Commission for US vice president appreciate it. Bloomberg European Clothes is next.
2022-03-11 00:24
