Tuesday, November 1, 2016

Commodities: The Next Big Thing Is Sand

We have experience with this stuff from the fracking/oil services angle and from the time the first sand miners came public in 2012.
Unfortunately it didn't help the timing all that much. Our last post on sand was on September 22, 2015. Note that date as you look at the chart:

Signposts: The Bull Market In Sand Is Over
Ineffable, inconsolable sadness.
 stock chart

U.S. Silica Holdings, the first publicly traded vehicle
From Bloomberg:

The Surprisingly Big Market for Sand Just Collapsed...
It gets worse than calling the bottom within a few bucks of the low ticks, albeit 3-4 months early and not coming back to the stock, more after the jump but first the headline story from/via Next Big Future:

Sand Wars - China and developing countries need tens of billions tons of sand for urbanization and economic growth
Sand is one of the world’s most highly-coveted commodities and is mined extensively as a construction material. Mixed with water, cement, and gravel, sand is used as a fine aggregate in the production of concrete. Rapid economic growth in Asia drives global demand, straining supplies of a nonrenewable resource

U.S. policy towards the Asia Pacific overlooks how sand may influence regional security dynamics. Sand, an essential component of concrete, has become a highly sought-after commodity in Asia because infrastructure development is critical to economic growth. Pressures on sand resources have grown exponentially over the past three decades, especially due to rapid urbanization in China. However, finite inland resources cannot sustain China’s demand. The scarcity of sand will spark a competition for deposits in the South China Sea (SCS)

Global consumption of concrete aggregates exceeds 40 billion tons annually, which is twice the amount of sediment transported by all rivers worldwide every year. As natural sand deposits are increasingly depleted from inland rivers and lakes, the demand for fine aggregate will exceed available supply. Population growth and urbanization in China, especially, will place increased pressures on sand resources

In 2013, China’s demand for construction-grade sand reached approximately four billion metric tons. Cement and concrete can also provide proxies for aggregate demand. For example, cement consumption in China increased by 437.5 percent in the past 20 years, whereas use in the rest of the world increased by 59.8 percent. China also used more concrete over three years (2011-2013) than the United States used throughout the entirety of the twentieth century
Global cement production may reach 5 billion tons in 2030

With constraints on both traditional inland sources and regional trade, China will seek potential substitutes for fine concrete aggregate. Both natural and artificial alternatives to river and lake sand are available, but many of these are not sufficient in structural applications (see Appendix A). For example, dune sand taken from desert sources does not bind well in concrete mix and may only compose a small percentage of aggregate. Similarly, recycled sand may only be used at a ratio of 20 to 30 percent. Dredging sand from beaches is problematic due to coastal erosion and is an illegal practice in China. Crushed stone and offshore marine sand deposits present the most viable substitutes for fine aggregate, although each of these are not without limitations

Fine concrete aggregate may be produced artificially by crushing stone to a standard size. Manmade sand is expected to gain market share as the country’s inland rivers and lakes are further depleted, although natural sand remains the most highly consumed construction aggregate in China. Manufactured sand is a promising substitute for fine concrete aggregate, but has not yet gained a strong foothold in Asia. Specifically, the use of crushed stone in concrete mix is not commonly accepted in China’s construction industry for the following reason...MUCH MORE
The link that starts this piece goes to Sand Wars: Beijing’s Hidden Ambition in the South China Sea a 22 page PDF, hosted at the College of William & Mary.

Now back to my secret shame. After the jump to the Bloomberg sand story my commentary continued:

We were on the story from the publicly traded get-go (almost), going back to April 2012's "What the Frack? U.S. Silica Up 24% since Feb. 1 IPO (SLCA)". Followed by "Commodities: "Midwest Sees a Sand Rush"". In 2013 growth was so good that a little Ouroboros turnabout was fair play, "More Natural Gas Needed For Frack Sand Suppliers"

By 2014 they were fine, strapping businesses:
"Sand: The Hot New Investment Opportunity" (SLCA)
State of Sand, 2014 
What the Frac: "The Past Year’s Hottest IPO Is… " (EMES; SLCA)
From MoneyBeat:
The hottest initial public offering from 2013 isn’t a cloud technology stock, or a biotech company with a promising cancer drug.

The company behind the top-performing IPO in the past 18 months digs sand.

Through Friday, sand-mining company Emerge Energy Services LP has rallied 462% since its debut on May 8, 2013, for the biggest share-price gain since its IPO among companies that went public last year, according to Dealogic....
Having concluded that oil and gas were just a passing fad, this is what we were posting the month Emerge came public:
The Internet of Things: Huggies App Sends You a Tweet Whenever Your Kid Pees...
The Ethics of Torturing Robots
British Psychologists Bashing British Psychiatrists
Shaman               Witch Doctor
Psychologist            Psychiatrist
I so wish I were kidding.
By January of this year we knew it was ending:
What the Frack: "Good Times Run Out for Sand Producers"
with, maybe a bit of forced jollity in March:
Basic Materials: What's New In the Sand Business? (SLCA; EMES)
But there was nothing new, it's sand.

EMES Emerge Energy Services LP weekly Stock Chart
Great timing eh, posting stupid pictures of shamans and witch doctors when the hottest IPO of the year came out and then later calling the bottom, at...the...bottom, and just a few months before the group started a run to a triple,
Fortunately the stock we've been pitching, NVIDIA also a bit better than tripled but still, doing this stuff out in public can be a little embarrassing.
See also: Equities: "Being fluent at swearing is a sign of healthy verbal ability"--UPDATED" from the same British Psychological Society that supplied the Shaman/Witch Doctor pics.

Or maybe "Feeling Like You're an Expert Can Make You Closed-minded" also from the BPS and which we linked to a month after the Death of Equities Sand post.