Articles in Category: Investing Hedging

Just one month ago we talked about the close relationship between emerging markets and commodity prices and how their stock markets were heading into trouble, which could potentially hurt commodity prices.

Free Download: July Metal Price Forecast

Weakness in emerging markets continued to spread out and Chinese stock shares plunged in June.

FXI China ishares since 2014

FXI China ishares since 2014. Graph: MetalMiner.

China’s stock market rallied in the first quarter. Then, Beijing suspended initial public offerings to tighten the supply of available stocks while the Chinese central bank helped to promote brokerages’ margin finance operations, allowing investors to borrow cash to buy stocks. Those actions helped boost stock shares in the short-term, but they have proven not to be sustainable in the long-term. Read more

For almost 3 months now, oil prices have moved in a very narrow range. However, this month prices fell 15% in a matter of days, breaking that range and stressing the bearish sentiment among commodity investors. Some analysts point out that the decline was caused by a jump in rigs drilling for oil in the US.

Oil price CME 1 year out

CME Group Oil price, one-year out. Graph: MetalMiner.

The increase in rig count came as a surprise as it was the first gain since December.

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However the increase was very small and we doubt this caused prices to decline that sharply.

Why The Plunge?

Another factor to watch is the historic Iranian nuclear agreement with the US and five other world powers. This deal might have risen the bearish sentiment as Iranian oil output is expected to increase. Oil from Iran will take time to return, and will not have a market impact before next year, but given that the global petroleum market has an oversupply of about 2.5 million barrels per day, the mere prospect of new oil doesn’t help market sentiment.

This September: SMU Steel Summit 2015

We believe, whatsoever, that the main driver of the sharp decline has been China’s stock market tumble. Base metal prices were the most impacted but commodities fell across the board and not even oil showed any resilience to the effect of China’s sell-off.

What This Means For Metal Buyers

The fact the oil prices broke below their recent price range is just another reason to expect further weakness in commodity markets, which will likely put a lid on industrial metal prices this Fall.

The Reserve Bank of India‘s 5/25 plan allows banks to extend loan repayment periods up to 25 years, with an option of refinancing the loan every five years.

Free Download: July Metal Price Forecast

India’s most indebted steel company Tata Steel Ltd., according to a Business Standard news report, also announced plans to sell its long products division in Europe, but it had not been able to close that deal because international steel prices had weakened, reducing the unit’s valuation. The company had initiated talks with lenders to reduce its interest cost by 0.9 percentage points on a $1.5 billion loan taken out last year. Tata Steel signed $1.5 billion term loan as part of a $3.1 billion refinancing plan last year.

In its financial stability report last week, the RBI warned that steel companies would not be able to service their debt as the infrastructure sector in India struggled with stalled/delayed projects.

Another report by Credit Suisse had estimated the total debt of stressed steel companies in India was about $31 billion, which was 75% of the banking system’s gross non-performing assets.

Many bankers and analysts have also pointed out that some steelmakers which had set up plants between 2008 and 2010, when land acquisition and material costs were high, had even bigger problems at hand.

At today’s price levels of $360 per ton of steel, most of their revenue was going to the servicing of their debt. Not many expected a spectacular rise in steel prices in the coming months. That coupled with the Greece and the looming Chinese stock market crisis meant that Indian steel companies were left with very few options. They had to either sell off some of their assets or infuse more cash, which means more borrowing.

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Steel and banking experts are of the view that if this situation is allowed to continue, India’s banking sector may end up with a crisis of its own. As such, borrowing could turn into bad debt. To avoid that, they suggested that the government, banking and steel sector leaders sit together and hammer out a solution to give both sectors a fresh start. The RBI’s 5/25 scheme was essentially just an offering of liquid cash to keep steelmakers afloat, It’s not a permanent solution.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

We have all heard about the Greek crisis by now.

Free Download: July Metal Price Forecast

On Wednesday, Greece formally asked for a three-year bailout. The European Union’s leaders have given a Sunday deadline on whether formal negotiations on this bailout program make sense or not.

So, How Will a Resolution Impact Metal Prices?

First, let’s start with: Greece is not China. Greece is not a major producer or consumer of metals. Therefore, its economic situation doesn’t have that big of an impact in the supply and demand balance of any base metal.

Some argue that a Greek exit could worsen the European economy. That, in theory, could deteriorate global demand for metals, driving metal prices down. Nonetheless, others (including me) think that a Greek exit would be beneficial for both Greece and Europe.

Austerity measures have already proven to be painful for the country over the past few years, leading to its economy slowing further, making its deficit even worse. A Grexit, however, would leave Greece with the ability to print money, which would increase inflation but allow Greece to meet its national obligations in a potentially more viable way than raising taxes and reducing pensions.

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While everyone has focused on Greece, the falling Chinese stock market might be the bigger threat to commodities. Also, a major US rare earths producer has been granted interim funding.

Chinese Stock Market Dragging Down Commodities

China’s falling stock market is injecting more stress into a global commodity sector already reeling from the Greek debt crisis. Prices of copper, coal, natural gas and iron ore are all falling toward their 2015 lows.

July Metal Price Forecast

The Chinese economy is growing at its slowest pace in a generation. The country’s ongoing stock market turmoil – which has seen a 30% plunge in the benchmark CSI300 index since mid-June – is threatening to pull the entire commodity complex into the red. Stronger performers such as oil and solar are now being dragged down by the lack of Chinese demand, as well.

Molycorp, US Bankruptcy Court Agree on Interim Financing

Molycorp, Inc., a producer of rare earth products, recently received approval from US Bankruptcy Court on $22 million in interim debtor-in-possession (DIP) financing provided by an affiliate of Oaktree Capital Management. The new funds will support operations going forward for an interim period while Molycorp continues to negotiate with Oaktree and a group representing its secured 10% noteholders, both of which represent secured creditors that have presented competing DIP lending proposals.

This September: SMU Steel Summit 2015

Screen Shot 2015-07-01 at 11.56.49 AMIt’s been a wild ride, but after three months of adding, subtracting, nip/tucking and perfecting, we are finally at the July metal buying outlook – the third and final complimentary MetalMiner™ Monthly Metal Buying Outlook – the only July metal price forecast and market commentary you will ever need.

Lisa Reisman, CEO, Azul Partners and executive editor, MetalMiner, is back with her tool kit and expert insight into the industrial metals aluminum, copper, nickel, lead, zinc, tin and steel (HRC, CRC, HDG, Plate) so you can formulate your short- and long-term buying strategy.

While this is the last complimentary Monthly Metal Buying Outlook, we are excited to announce the launch of the commercial product on Aug. 1.

Beginning in August, we will offer the Monthly Metal Buying Outlook for $899/year. That’s less than $75/month for 12 reports, or an annual subscription.

Check out the complimentary July report!

More About Lisa

A third-generation metals enthusiast, Lisa Reisman founded MetalMiner in 2007 – 13 years after she began trading semi-finished aluminum metals and 3 years after she was tasked by the CEO of a Tier 1 automotive company to save his company some money on their direct material spend. Lisa is an ex-big 5 consultant who built MetalMiner into the largest online publication for metal-buying organizations, and has the experience and depth of insight to produce this one-of-a-kind invaluable monthly report to impact your industrial metals purchasing strategy.

Recently we wrote about how zinc and lead were struggling to rally. Just three weeks later, both these metals are testing new lows.

Free Download: Latest Metal Price Trends in the June MMI Report

June was an even worse month for base metals but this pair fell particularly hard.

3M LME Zinc Price 1 year out

3-month London Metal Exchange Zinc price, one year. Source: MetalMiner.

Zinc fell 9% in June, or 15% since May and just hit a 14-month low, driven by the bearish sentiment afflicting industrial metals.

3M LME Lead 1 year out

3-month London Metal Exchange lead price, one year. Source: MetalMiner.

Similarly, lead fell 7% in June and 16% since May, sending the metal near its lowest level in five years.

What This Means For Metal Buyers

Two of the best performers among base metals got hit hard and are now hovering now near multi-year lows. Meanwhile, other industrial metals are nosediving. Things are simply not looking good for metal producers this year…

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We recently wrote about platinum prices sinking. Well, palladium seems to be following its sister metal.

In April we noticed that palladium was heading into trouble and it certainly was, only this month the metal dropped 15%, falling to its lowest level in two years.

Palladium spot price since 2012

Palladium spot price since 2012. Source: MetalMiner.

Unlike platinum, palladium finds more application in gasoline engines and is, therefore, more exposed to the Chinese and US markets than to European markets.

Automotive Demand Stalls

Slowing growth in Chinese auto sales may have scared investors away from this precious metal.

Free Webinar: Are You Speculating When You Buy Spot Metals?

Another bearish factor is that supply concerns eased amid signs of recovering mining output this year. Although, there are different opinions on this and some experts are still saying there will be a continuing deficit.

Palladium Follows Platinum

As with platinum, we believe that a main driver has been a stronger dollar which puts pressure on commodities and gives South Africa’s miners an incentive to keep producing as their currency depreciates against the dollar. Meanwhile, it is clear that investors are not pouring money into precious metals and this trend is hurting palladium as well.

Free Download: Latest Metal Price Trends in the June MMI Report

Today, the Greek debt crisis touched all markets, including commodities, and a bipartisan group of US Senators unveiled the long-term highway bill that the construction industry has long clamored for.

Greek Debt Crisis Roils Markets

Commodities could not escape the market turmoil caused by Greece’s capital controls and a hefty drop in Chinese equities, with the stronger dollar and risk aversion hitting raw materials led by oil and metals.

Webinar TODAY! Are You Speculating When You Buy Spot Metals?

On the London Metal Exchange, amid a sea of red for industrial metals prices, nickel plumbed a six-year low. The metal, an ingredient for stainless steel, fell 4.6% to $11,855 a metric ton, while aluminum was off 1.5%, copper fell 0.5% and tin dropped 2.5%.

Senators Unveil Long-Term Highway Bill

A bipartisan coalition of senators on Tuesday introduced a six-year bill that would boost overall spending on US roads and bridges.

Working against a July 31 deadline, the senators acknowledged that it will be an uphill effort to corral their Senate colleagues and the House to pass a bill.

The six-year bill would increase highway spending by almost 13% over the current level, bumping it up by more than $2 billion each year. It includes a new program to spread more than $2 billion a year among states to invest in improvements for freight facilities that move goods and products.

It further streamlines project approval, cutting federal red tape that state officials say has slowed projects down. It holds flat at $819 million the money for pedestrian and cycling improvements and for roadway landscaping. Senator Barbara Boxer (D.-Calif.) joined Sen. James Inhofe (R-Okla.), the committee’s chairman, and Sens. David Vitter (R-La.) and Thomas R. Carper (D-Del.) in writing the bill. The cost of the bill is estimated to be about $350 billion and would require new funding if it is passed.

Free Download: Latest Metal Price Trends in the June MMI Report

What are your spot buying habits?

Check out our 30-minute debate this morning at 11AM Central (12 PM Eastern) between the husband-wife team of Jason Busch, Executive Editor of Spend Matters and Lisa Reisman, Executive Editor of MetalMiner, who promise to cover the following topics:

– Why sourcing on the spot market is actually speculative behavior and therefore risky

– Why using indexes when sourcing commodities is often just plain bad strategy

– Whether or not sourcing optimization actually creates benefits – it seems like a software led “problem” to create demand for technology

What’s In it for You?

– An interesting argument against conventional wisdom – turn some unconventional practices into profit

– An alternative viewpoint on your direct material commodity spend

– How to wring out every possible bit of value from some well-accepted “best practices”