Author Archives: Stuart Burns

After rising strongly for the last month or more, copper prices now appear to be buffeted by every scrap of news that comes out.

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“Copper prices fell this week as investors cashed in gains after the previous session’s rally,” news.com in Australia reported yesterday. The gist of the argument seems to be the 23% rise in the copper price last month was a step too far. The site quoted Caroline Bain of Capital Economics saying “You only have to look at the levels of investor buying to see that quite a lot of these rallies have been based on euphoria rather than grounded in fundamentals. We think we will see some profit-taking inevitably as we end the year”

Reuters, on the other hand, took a somewhat contrary view, reporting copper prices climbing mid-week, buoyed by a pickup in U.S. manufacturing. The newspaper reported new orders for U.S. factory goods recorded their biggest increase in nearly 1-and-a-half years in October, evidence that the manufacturing sector is gradually recovering after a prolonged downturn and as demand signals from China also improve. Read more

We wrote recently about the probable impact of President-elect Trump’s forthcoming economic policy, particularly his focus on infrastructure spending, Global trade and putting U.S. manufacturing, particularly steel, at the heart of his economic policy.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

His promises have been generally well-received yet they raise an awkward question: Creating demand and limiting supply — first by rolling out steel-consuming infrastructure projects and second by taking more aggressive action against steel imports — will inevitably raise domestic steel prices.

This would be good for domestic U.S. steel producers, in as much as construction companies could pass along the costs infrastructure projects, it would incur only marginally higher input costs as a result paid the taxpayer. But it would inevitably also have a wider impact on the steel market, rising prices for steel consumers and higher prices, in turn, for the wider population buying automobiles, refrigerators and other products manufactured with any significant steel content.

How We Got Here

The U.S. steel industry has suffered grievously at the hands of cheap imports. Steel dumped by producing countries with a massive overhang of spare capacity and hidden subsidies such as China have depressed prices and pushed many major producers such as U.S. Steel into loss-making positions that resulted in downsizing and the loss of jobs. Read more

In much the same way as President-elect Donald Trump conducted his election campaign, he has kept himself very much in the headlines in the interim period until he takes charge as president in January.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Trump won by promising infrastructure investment and that he’d protect American manufacturing jobs. What’s that mean for American steel? The two were seen by many as mutually supportive. Read more

There has been a long running debate about the loss of American manufacturing jobs over the last decade. Blame for job losses is largely laid at the door of globalization, specifically China.

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The rhetoric was ramped up in the recent presidential election campaign when both candidates came out firmly against more globalization but Donald Trump in particular, strongly criticized China for stealing American jobs and vowed to return those jobs to the U.S., has placed the issue even more sharply under the spotlight.

AdobeStock_ruiponche_gllobalization_550_1201216

Is globalization really the culprit for moving jobs from the U.S. to elsewhere? Or is it merely automation and efficiency? Source: Adobe Stock/Ruiponche.

Certainly, jobs have been lost because of offshoring, but recent research suggests the extent may have been overestimated. Michael Hicks, a professor of economics at Ball State University in Muncie, Indiana, is quoted in a Financial Times article saying he could show that just 13% of the estimated 5.6 million job losses from U.S. manufacturing during 2000-10 were caused by international trade, while the rest came from that holy grail of economic progress, rising productivity!

Why Are Jobs Moving?

True, the effects have been disproportionate. Some industries have been hit hard, some hardly at all. Labor-intensive sectors relying on lower pay grades were hit much harder by international trade, Professor Hicks believes. About 40% of the job losses in the furniture industry and 45% in clothing were caused by shifts in trade, he estimated. Low wages in Asia were undoubtedly the main draw but labor costs in China have been rising rapidly of late and even China is now losing jobs to places like Vietnam and Bangladesh. Read more

Just when it all seemed to be going so well in in Europe, another potential crisis looms.

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Italy will hold a referendum on Sunday on whether or not to change the country’s constitution. The country’s center-left Prime Minister, Matteo Renzi, has promised to resign if the electorate rejects his proposals. At stake is political turmoil as Euroskeptic comedian Beppe Grillo’s Five Star Movement (M5S) is just a few percentage points behind the Democratic party in the polls.

Meanwhile, the global financial crisis saddled Italy’s banks with around $384.4 billion (€360 billion) of bad debt and there is no good solution to a growing bank crisis.

Source Independent Newspaper

Source: The Independent Newspaper

Unfortunately for Italy, new E.U. rules forbid governments from bailing out banks. Instead, they demand that shareholders and bondholders be what the Economist terms “bailed in,” forcing them to accept any losses that would otherwise be picked up by taxpayers.

Worse, in Italy bank debt worth around €170 billion is in private hands and it seems unlikely that in the current climate any Italian government, let alone M5S, would stand by while voters lost their savings. They may be tempted, therefore, to ignore the E.U.’s rules and rescue Italy’s banks, causing a split with Brussels.

Italy’s Plight

After Greece, Italy is earning the title of the sick man of Europe. Growth has not just stagnated but fallen and populist policies will not solve the economy’s long-term challenges.

Source Independent Newspaper

Source: The Independent Newspaper

Italy is far from alone in feeling the effects of the populist wave sweeping across western politics. In Italy, as in the U.S. and the U.K., the electorate is feeling empowered to vote against things they don’t like rather than necessarily voting for an uncomfortable reality.

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The five-star movement has said it would hold a referendum to decide whether Italy should leave the Eurozone, looking at what the E.U. has done to Greece, who could blame them? After the U.K.’s decision to leave, should another large and economically important economy like Italy decide the same it could herald the breakup of the single currency. Read more

The world is not short of tin yet tin prices are still rising. Not short in the total-percent-present-in-the-earth’s crust kind of way, anyway.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

It is also relatively well distributed: the five largest producing countries are China 35%, Russia 12%, Australia 8%, Indonesia 7% and Brazil 6%, according to Platts. These mines are not in unstable or war-torn regimes. Some mines in places such as Myanmar and the Democratic Republic of the Congo are less savory, sure, but as a percentage of the whole they are not mission critical to global ore supply.

Yet, ore grades are falling and much of what is left will require a progressively higher price to be economically extractable. Falling London Metal Exchange and Shanghai Futures Exchange inventories are signalling that real or apparent demand remains strong and the rise by tin to become the second-most actively traded metal on the LME this year as the price has surged underlies strong investor interest.

After falling to the lowest level since 2009 to $13,085 a metric ton in January, tin is now trading at $21,400 per mt. Investor appetite has been insatiable, particularly in China, driven in part by a perception that demand is outstripping supply. BMI Research is forecasting the global tin market will see a supply shortfall deepen to 9,400 mt in 2020.

“This is mainly due to higher average tin consumption than production, as a result of depleting ore reserves,” the research group is quoted by the FT as saying.

But before we all get too carried away, the industry is getting twitchy about the price and that should ring alarm bells. Although the FT says “visible” stocks held in LME or SHFE warehouses are at their lowest level since at least 2000, there is a “high level of under-reported stocks in China.”

Yunnan Tin, suppliers of over one-quarter of global refined tin output, called for a “sustainable recovery” in the market, “rather than volatility caused by hot money or speculation in futures markets.”

While ITRI warned that “…money flows from the investment funds, could be the determining factor in metals price.”

A warning from both that supply-demand is not currently driving prices and therein lies an inherent risk.

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That doesn’t mean to say the price hasn’t got further to go. There is no shortage of liquidity in the Chinese investment market and speculators this year have pushed not just tin but copper and other metals to annual highs. Tin’s fundamentals aren’t bad by any means but the FT reports that nearly 30% of Chinese smelter capacity sits idle today, a warning sign that high prices may not be matched by downstream demand.

Driven by the same dynamics pushing steel prices higher in North America, the Asian market has seen price announcements this week suggesting that the trend will remain upward for the rest of this year.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Tokyo Steel Manufacturing Company limited announced this week it would raise the prices of all its products by $45.12 per metric ton  (¥5,000 per mt) for December delivery. According to Reuters, the flat increase means product prices of Japan’s top electric arc furnace steelmaker will rise by about 7 to 11% in December, depending on the product. Read more

Once investors got over the shock of a Donald Trump victory, it didn’t take them long to realize promises and pledges made in the run-up to the presidential election, if implemented, would translate into a significant stimulus to the U.S. economy.

Such levels of investment in infrastructure, if supported with Buy America and some level of protectionist support for domestic producers, further coupled with significant reductions in corporate and personal taxation, would add up to a rather inflationary repackage. Not surprisingly, last week all four of the main U.S. equity indexes closed at new record highs on Monday.

According to the Financial Times, The S&P 500, the Dow Jones Industrial Average, the NASDAQ Composite and the Russell 2000 closed up 0.8%, 0.5%, 0.9% and 0.5% respectively, breaching their respective records as investors remain optimistic about a U.S. economic stimulus package next year. In their wake, European, Japanese and Chinese indexes all rose as well. Read more

Could uranium demand and prices be set to take off over the next few years?

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Currently prices are languishing at 13-year lows due to excess raw material supply and the after effects of Japan’s Fukushima disaster which resulted in the mass idling of Japan’s nuclear reactors.

Nuclear may be thought of as yesterday's technology, but its emission-less power generation makes it attractive. Source: Adobe Stock/mandritoiou.

Nuclear may be thought of as yesterday’s technology, but its emission-less power generation makes it attractive. Source: Adobe Stock/mandritoiou.

According to a London Telegraph article, the resulting low prices have encouraged utilities to become “uncovered,” meaning with a low spot price they have resisted locking themselves into long-term contracts. Read more

It’s not the first time, but the United States of America and Europe seem to be heading in opposite directions.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

In this case, it’s their currencies that are going opposite directions. The U.S. dollar’s rise and the euro’s fall are being driven by policies and perceptions of what those policies mean for growth and prosperity next year. The big questions for firms with business interests in both camps is does this mean we could see parity between the dollar and euro next year?

Source Analysis UK Ltd

Source: Analysis UK Ltd.

The euro was last at parity with the dollar in late 2002, but the first half of the decade saw expectations for strong growth in Europe after the financial crisis followed by a flight to safety that maintained a relatively strong euro relative to other currencies.

How the US Dollar Got its Groove Back

While the recovery of the U.S. economy has been somewhat unspectacular, it has at least been steady and heading in the right direction for the last few years. Europe, on the other hand, has been plagued with banking fears, political unrest and slow if not stagnant growth. Read more