1. 36 | FORBES INDONESIA MAY 2015
RICHES FROM RESOURCES /// Commodities
hile many now give a
cold shoulder to commodities, Al-
berto Migliucci, the founder and
chief executive of Singapore-based
advisory firm Petra Commodities,
begs to differ. He is optimistic about
the sector, and his opinion counts.
Alberto has a unique background
combining geology and investment
banking, with 25 years of experi-
ence, 15 of those spent in Asia.
Before founding his own busi-
ness, he was Credit Suisse’s man-
aging director and head of metals
and mining for Asia from 2008 to
2013. While in that position, Cred-
it Suisse led all its competitors as
the number one dealmaker in met-
als and mining during that period,
with a total for the period of 38
deals, a 20% market share and net
revenues of $132.5 million, accord-
ing to Dealogic data.
Alberto played an important
role in a number of commodity-re-
lated IPOs, such as those for Berau
Coal Energy, Borneo Lumbung En-
ergi and Bumi Resources Minerals.
Previously he worked at Standard
Bank of South Africa and Societe
Generale in Hong Kong. Unlike
many other bankers, he has a solid
academic understanding of com-
modities, getting a BS in geology
(with first class honors) from the
University of New South Wales in
Australia. Here’s an edited excerpt
of Alberto’s reasons to be bullish:
Why are you confident in the
commodities sector?
The slowdown in global growth,
the European sovereign debt crisis
and a significant deceleration in
Chinese growth have resulted in a
substantial decline in commodity
prices. Moreover, mining compa- By ARDIAN WIBISONO
COMMODITIESHotAlberto Migliucci of Petra Commodities
sees a better outlook on commodities.
W
Alberto Migliucci

2. MAY 2015 FORBES INDONESIA | 37
nies have suffered from an increase
in operating costs and lower ore
grades, yet production across most
commodities remains high. Tepid
demand plus increasing supply
equals gravity, and consistent with
this, many commodity analysts
have substantially downgraded
their price forecasts, with the now
almost universal view being that
the so-called commodity super
cycle is over. While significant
challenges remain, I feel that after
a long period of disappointment,
expectations have now overshot
to the downside. The majority of
industrial commodity prices have
already returned to around long-
run averages. This, along with cost
pressures, suggests that the down-
side remains relatively limited, out-
side of a major macro downturn.
What do you feel about coal?
There are two key demand drivers
that will drive coal consumption
well into the next decade. First is
global industrial production—an
increase in the industrial produc-
tion means more demand for steel
and for power, and coal is an input
for both; and second, GDP per
capita growth—as wealth grows,
people consume more energy in-
tensive goods and services.
In Asia, about 80% of the elec-
tricity generated in China is from
coal and in India it’s 69%. China
and India rank first and third in
terms of coal consumption, and
although the world is making up
its mind which is the best energy
source to displace it, essentially
coal remains one of the lowest-cost
energy sources. This is in addition
to the traditional largest global
buyers of seaborne coal—Japan,
Korea and Taiwan. Japan remains
a key buyer of seaborne thermal
coal post Fukushima and is build-
ing new coal-fired power plants.
Indonesian, the world’s fourth
most populous country, is seeing
COMMODITY MARKETS ARE IN A PROCESS OF REBALANCE,
SUFFERING FROM A HANGOVER OF OVERSUPPLY. BUT AS
HISTORY SUGGESTS THIS OVERSUPPLY WON’T LAST FOR LONG.
power demand growing at nearly
double-digit annual percentages.
Integrated coal companies like
Adaro are strongly positioned to
sell to the domestic market to capi-
talize on the focus shift to increas-
ing domestic coal-fired capacity. It
will be an important plank of the
government’s push to increase the
level of domestic industrial pro-
duction by lifting domestic refin-
ing, smelting and manufacturing.
ASEAN has a total population of
over 600 million, of which more
than 134 million still lack access to
electricity. The expected increase
in coal demand from ASEAN
would particularly benefit Indone-
sian coal producers thanks to their
proximity to the regional market.
What should investors do?
Commodity markets are in a pro-
cess of rebalance, suffering from
a hangover of oversupply. But as
history suggests this oversupply
won’t last for long, be ready for the
upswing, hold more than one proj-
ect in and remember the upside is
quick and often unexpected.
Commodities are all about
cycles. Post Lehman’s, the theme
is really about “survival of the fit-
test.” Low costs, quality resources,
leading technology and financial
strength are requirements for the
next phase.
Look at companies like Apple,
GM, Lego, Starbucks—all had
come really close to the edge at
some point in time, yet now have
made great comebacks. Against
what seems almost a Dickensian
backdrop, markets are beginning to
find a new equilibrium. This sug-
gests that the opportunities in the
future will be more about cycli-
cal moves in individual commod-
ity prices and divergences among
commodities, rather than follow-
ing strong and persistent trends.
What kind of policies could help
the sector?
Reform in the mining sector
should be positive, yet it is having
negative side effects as seen with
recent experiences in Australia,
Indonesia and Mongolia. Austra-
lia has learned from its mistake of
the previous Labor government’s
poorly thought and ill-timed
MRRT and carbon taxes in 2012,
which have been recently repealed
by the current government.
In Indonesia, much of its suc-
cess was the result of the rock-solid
fundamentals of its mining and oil
and gas framework: the CoW [con-
tract of work] and PSC [production
sharing contract] regimes. Globally,
everybody pointed to the CoWs
and PSCs as good examples of how
the industry should operate, and
Indonesia led the way and was be-
coming one of the world’s top min-
ing investment destinations.
Unfortunately in the last four
years, these have been greatly
eroded. The recent moves re-
garding the renegotiating of the
CoWs, the Indonesian export ban
on unprocessed minerals, in par-
ticular nickel and bauxite, and
the increasing of the IUP [min-
ing business permit] divestiture
requirement from 20% to 51% will
substantially reduce the attractive-

3. 38 | FORBES INDONESIA MAY 2015
ness of Indonesia. From a regional
perspective, countries like Japan
have established multi-billion dol-
lar industries built around refiner-
ies and smelters, so it is seeking
raw materials not processed mate-
rials. Look at the Philippines now,
its nickel industry is booming as a
direct result of the Indonesian ban
on unprocessed ore, and Austra-
lian bauxite has also seen higher
demand too since the ban.
The learning curve for all
new governments is quite steep,
post-election 2014, the state of
affairs in Indonesia is starting to
stabilize and the new government
looks set to bring in foreign funds
and good tax incentives. It also
appears to be relaxing some of the
more stringent aspects of the new
mining law by moving policy to be
more pro-business, which in turn
will add revenues not only to the
Indonesian government but also
supporting foreign investment.
Is it a good timing for M&A?
Equity markets aren’t excessively
cheap, but they’re also not over-
extended. However, access to new
resources is becoming more dif-
ficult, and combined with com-
paratively low valuations of assets,
there are opportunities for cashed
up buyers to consolidate their po-
sitions and grow through acqui-
sitions. It is clear that companies
at the high end of the cost curve,
with high leverage, and with little
or no foreseeable cash flow are
those most likely to fail in this en-
vironment. As a result, we see two
fundamental outcomes develop-
ing—one, cost reductions; and,
two, asset divestments.
Asset divestments will remain
a key theme for global diversified
miners in the next few years, and
the commodity asset class could
provide good opportunities for
investors, just as it did in the years
prior to 2002-2008 and the rapid
increases in prices. Existing play-
ers with stronger balance sheets
and operational capability will
also benefit from being able to par-
ticipate in merger and acquisitions
in the current depressed market.
What is your outlook on gold?
Likewise, the factors that drove
gold up from 2002 to 2008—in-
cluding shrinking mine supply,
central bank shifts from selling to
buying, and Asian demand, have
taken a back seat. If we look be-
yond this, there is a rebalancing of
investment demand Gold is often
seen as “protection” against “pa-
per”—bankers and governments
issue paper. Many of the world’s
central banks are buying gold, not
selling. The Chinese government
is buying and the Russian govern-
ment is buying too as a reflection
RICHES FROM RESOURCES /// Commodities
Against a backdrop of muted, but
volatile, demand growth and relativity
constant supply, cycles are likely to be
short and sharp. I view the market much
like a supercar, constantly needing to
update and improve performance and
efficiency, with the changes likely to be
fast and sharp.
Enter the bull, the moniker for the
supercar Lamborghini, specifically La
Superleggera (translated from Italian as
“super light”). In the 1950’s self-made
millionaire Ferruccio Lamborghini
made his fortune by building tractors in
Italy and then set out to build a more
powerful, lighter weight, quieter, V12
powered car than anything available
from the likes of Ferrari. The use of
new materials enabled Lamborghini to
create his first Superleggera made from
lightweight aluminum in the 1960s.
Almost all cars globally were and still
are made from virgin steel.
The contemporary Lamborghini like
a Gallardo SuperLeggera (pictured),
has an estimated 40% weight saving
from its modern predecessors. Today’s
supercars are made of superlight
materials like the high-tech carbon
fiber, which is extremely light and
strong, five times stronger than steel,
two times as rigid, yet weighs about
THE BULL RUN
two-thirds less. Aluminum is also used,
and has similar strength to steel but
it is much lighter. Petroleum-based
products (plastics and vinyl) have
come to represent an increasingly large
percentage of automotive components.
The rear windscreen and rear windows
are also plastic to reduce weight. These
lightweight materials derived from
petroleum have helped to lighten some
models by as much as 30%. These
materials help improve fuel economy
and increase performance.
The North American vehicle industry
is back in full swing, making 17 million
cars a year. Demand for aluminum for
vehicles is surging as some car bodies
(most notably the Ford F150) switch
from steel to aluminum. Bauxite is the
raw material used to make aluminum,
and Indonesia and Australia are big
global suppliers of bauxite.
Stainless steel is often a material of
choice due its properties of corrosion
and temperature resistance, and high
strength—and nickel is the major
alloying element. Indonesia supplies
about 30% of the world’s nickel. Often
the wheel rims are made of magnesium
(“mag wheels”), which are 33% lighter
than aluminum and 75% lighter than
steel/cast-iron components. Because
of its too-low mechanical strength,
pure magnesium must be alloyed with
other elements, which confer improved
properties, and these alloys can contain
aluminum, manganese and zinc. All
these materials are mined in Indonesia.
As the pressure on fossil fuels continues
to rise, the preference for lighter, more
fuel efficient vehicles will become
more pronounced. Commodities across
the board, like supercars, will need to
rapidly adjust to the keep pace with
IS THE COMMODITY SUPER
CYCLE OVER?
By Alberto Migliucci
AHMADZAMRONI/FORBESINDONESIA(2)

4. MAY 2015 FORBES INDONESIA | 39
EXOTIC COMMODITIES
a changing world. It is the commodities
linked to evolving technologies and
efficiencies that will outperform in this
market. Opportunities in the future will be
more about cyclical moves in individual
commodity prices and divergences among
commodities, rather than following strong
and persistent trends.
We are seeing more of a return to
normal transmission, with individual
fundamentals likely to reassert
themselves. Regardless of their exact
beginnings and ends, bull markets
typically have several phases. Analysts
spend thousands of hours trying to
determine what will trigger the next bull
market and how long it will last. One
thing is certain, the first phase is always
tough (building tractors from spare parts
during war time Italy), and like today’s
commodities, prices are low, investor
sentiment is low, and investors are
pessimistic about future prices, these are
the early signs of a bull market.
of diversification, rather than to
seek stability.
Furthermore, I see mine pro-
duction levels curtailing over the
next several years. There have been
only a handful of viable new discov-
eries this past cycle and these de-
posits are simply replacing old mine
depletion. I forecast we will have a
global gold market deficit by 2016.
China and India will continue
to be the key drivers of gold de-
mand. Reasons for this include
increasing wealth, cultural tradi-
tions and lack of investment op-
tions. Additionally, the recent re-
moval of the 80:20 import:export
restriction for gold in India is a
positive for demand in the region.
In China, authorities continue
to look to increase the influence
of the Shanghai Gold Exchange
within the global market.
Gold is all about Asia. China is
the world’s largest producer and
Australia has regained its status
as a premier gold investment des-
tination and the second largest
gold producer globally. From a
supply point of view, Indonesia is
well positioned. It has the largest
gold mine in the world, the Gras-
berg mine, in Papua. The geol-
ogy in this area is extraordinary
and Petra Commodities is valuing
some noteworthy gold prospects
in this region. If you go elephant
hunting, you must go where the
elephants are. F
THE MODERN SUPERCAR DEPENDS ON MANY COMMODITIES TO GET MADE. THE LAMBORGHINI LA SUPERLEGGERA
HAS MANY OF THEM IN ORDER TO ACHIEVE ITS LIGHT WEIGHT AND PERFORMANCE SPECS.
Carbon Fiber
Aluminium
Chassis
Plastics
(petrochemicals)
Rare Earth Elements
(electronics)
Glass
Copper
(electrical)
Titanium Dioxide
(paint pigments)
Midas Gold
(Lamborghini
color)
MagnesiumCeramics (brakes)Steel (iron ore),
chassis for most cars
Oil
Titanium
Metal Alloys
eg Stainless
Steel (nickel)
Alberto with his Lamborghini.