Articles in Category: Investing Hedging

In recent weeks the Dalian and Zhengzhou commodity exchanges and the Shanghai Futures Exchange have all toughened trading requirements several times.

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

The measures imposed include raising trading margins, hiking transaction fees and imposing trading limits in attempt to tamp down speculative trading. Reuters’ Clyde Russell referred to the situation as China having “thrown the world’s commodity producers and traders a massive party.”

HRC and CRC prices in China continue to rise. Source: MetalMinerIndex

HRC and CRC prices in China rising through November. Source: MetalMinerIndX.

This year saw most analysts surprised by the strength of both China’s coal and iron ore imports, which led to rallies in the prices of both commodities. Chinese imports of iron ore jumped to the third-highest on record in November with 91.98 million metric tons up 13.8% from the previous month, taking the year-to-date gain to 9.2% compared with the same period in 2015, according to Reuters. Read more

Many economists and market observers have been warning for some time that with cheap cash sloshing through the Chinese economy, and attractive investments in the real economy remaining scarce, investors had plowed too much money into China’s bond market.

Two-Month Trial: Metal Buying Outlook

The Financial Times reports China’s 10-year government bond yield fell from 4.6% in January 2014 to 2.65% by late October. Banks borrow overnight and buy longer dated bonds in what appears a clear carry trade but, to work, the market requires stable and low market rates. Read more

While this year’s spectacular rebound in iron ore prices has been a godsend for the world’s biggest miners, it has not gone high enough for smaller, less-efficient producers that still have pits shuttered and equipment idle.

Two-Month Trial: Metal Buying Outlook

The price of the steelmaking material has nearly doubled in 2016 to above $80 a metric ton, a boon for miners such as Vale, BHP Billiton and Rio Tinto which extract the material at a cost of less than $20 per mt.

ABI Limps Out of 2016

Coming off a modest increase after two consecutive months of contraction, the Architecture Billings Index recorded another small increase in demand for design services. As an economic indicator of construction activity, the ABI reflects an approximate nine to 12 month lead time between architecture billings and construction spending.

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

The American Institute of Architects (AIA) reported the November ABI score was 50.6, essentially unchanged from the mark of 50.8 in the previous month. This score reflects a slight increase in design services (any score above 50 indicates an increase in billings).

It seems like a bizarre question when iron ore has been on a bull run this year and coking coal producer Glencore has just agreed first-quarter contract prices with Nippon Steel that are the highest since 2011.

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

But Morgan Stanley, in its 2017 Outlook, takes a bullish stance on base metals but forecasts bulk commodities such as iron ore and coking coal will do no more than tread water next year. Trying to call a peak in any market is, at best, a stab in the dark, but coking coal spot prices appeared to be easing just as contract prices set a new near-term record. Read more

Scenario: Within the next two months you need to go to your supplier and buy metal. Let’s say you are thinking about placing an order that will meet your metal needs for the next six months. Let’s say you correctly identify that you are in a bull market (you read us).

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

Therefore, as you expect prices to keep moving up, you quickly grab the phone and call your supplier to place the order ASAP.

Is that the right way to do it? Nope. Read more

Many of our readers are wondering what’s going on with the U.S. dollar and industrial metals.

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

The dollar and commodities tend to move in opposite directions. Why, then, is the dollar trading at a 14-year high at the same time as industrial metals are on a tear? For how long can these two continue to move together?

Which is the real bull and which one is just imitating?

Industrial metals ETF (in black) vs dollar index (in green)

The industrial metals ETF in black vs. the U.S. dollar index in green. Source: @StockCharts.com.

To answer these questions we need to look at history. The dollar and industrial metals have risen in tandem since September. Even oil prices are making multiyear highs. But this is not such a strange development. Read more

MetalMiner’s Global Precious Metals MMI dropped two points this month to 79, from 81 in November; a 2.5% decrease. But that’s less the story than what happened within this precious metals sub-index.

The PGM Story

As we said last month, longer-term structural concerns remain for the platinum-group metals (PGMs), especially platinum and palladium. However, in the short term, one of those two precious metals that are instrumental in automotive catalytic converters kept the Global Precious MMI from falling even further for December.

Global-Precious-Metals_Chart_December-2016_FNL

Indeed, with gold and silver falling across all four geographic markets (see below), our U.S palladium bar price jumped to an 18-month high, rising a whopping 24% month-over-month. Japanese palladium also rose appreciably.

The platinum bar price, however, did the reverse. Our U.S. platinum bar price hit a 10-month low, dropping 7% since Nov. 1.

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

Crossing like ships in the night, one heading north, one heading south, what should buyers make of the platinum/palladium divergence?

According to HSBC senior analyst James Steel, talking to Platts, “the platinum-palladium spread has narrowed substantially, from $375/ounce before the U.S. election. This reflects clearly tighter underlying fundamentals for palladium.”

With car sales in the U.S. and China continuing to be robust, and with Johnson Matthey predicting another supply deficit in 2017, palladium could continue its buoyancy for the near future.

The Dollar –> Infrastructure –> Gold

Raul de Frutos gave MetalMiner readers this helpful rundown in late November:

A rising dollar depresses commodity prices, especially precious metals. It does have less of an effect on more economically-sensitive groups like energy and industrial metals. Indeed, industrial metals are on the rise despite a strong dollar. This is because the dollar is rising on expectations of higher rates down the road but, at the same time, metal prices are getting an additional boost because of Trump’s plans to spend big on the nation’s infrastructure. However, gold’s demand won’t be affected by infrastructure spending. As a result, investors are left without reasons to buy gold at this moment.

That still appears to be the case here in early December, as the US gold price on our MetalMiner IndX hit its lowest point in 10 months, falling to $1,173/oz on Dec. 1 — just over an 8% drop from Nov. 1.

(Silver prices followed suit across 4 markets globally, all dropping from November to December.)

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Zinc, lead and tin all hit multiyear highs this week and the Organization of Petroleum Exporting Countries finally agreed on a production — with its own members and Russia — to cut back production so oil prices are up, too.

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

We were already in a metals and commodities bull market before the beginning of the week but it’s now more like a bull stampede. They’re even running in India. Lead Forecasting Analyst Raul de Frutos notes that this bull market is particularly unusual because it coincides with a strong U.S. dollar. Since commodities are valued in dollars it’s odd that they’re both up — and rising — at the same time.

MetalMiner co-founder and editor-at-large Stuart Burns also chimed in with vexing information, noting that tin is up while there seems to be abundant to robust supply of the stuff in the Earth’s crust with stable nations and reliable companies set to mine it.

Bulls stampeding in a Madrid sculpture

Don’t get stuck under these guys in the rush to get into this market. Source: Adobe Stock/Kyrien.

So, supply and demand aren’t fueling tin’s rise and that’s likely true for other metals as well. “New money,” as they say, is flowing into metal markets as investors are excited about Chinese construction demand and the prospect of a still nebulous $1 trillion infrastructure plan here in the U.S. China is, once again, driving the demand boat as the U.S. consumes only about 8% of commodities worldwide and the People’s Republic consumes the most. Read more

Remember when Barack Obama defeated republican presidential nominee Senator John McCain? Or Usain Bolt’s first appearance in the Olympic games? Well… that’s how far back you need to go if you want to see zinc prices as high as they are now.

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

Last week, zinc closed just short of $2,300 per metric ton on the London Metal Exchange, the highest level since early 2008. Zinc is the first industrial metal we can say that about (and possibly not the last one).

Zinc Hits an eight-year high. Source: MetalMiner analysis of fastmarkets.com data

Zinc hits an 8-year high. Source: MetalMiner analysis of Fastmarkets.com data.

Zinc markets moved into deficit this year following the shutdown of some big mines. The International Lead and Zinc Study Group (ILZSG) anticipates that global usage in 2016 will exceed production by 349,000 mt. In 2017, the market is expected to remain in deficit with the extent of the shortage forecast at 248,000 mt.

How our subscribers bought zinc this year

How our subscribers bought zinc this year. Source: MetalMiner analysis of Fastmarkets.com data.

Whether fundamentals justify zinc’s spectacular rally or not is debatable. What’s not debatable is that there is no way you can time your purchases by just looking at the fundamentals. You need to understand how prices move, or have someone do it for you. 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