Articles in Category: Macroeconomics

This week, the reality of a hard Brexit sunk in across the pond in the U.K. and Europe. The instability that might follow after elections in other European countries in the coming months could create volatility in all commodities markets, not just metals.

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Here in the U.S., President Donald J. Trump was inaugurated today and promised “America first” in all the dealings of his new administration. In metals, this means that tariffs of 251% were confirmed on Chinese cut-to-length steel plate even before Trump even got into office. So, across the globe it looks like things are getting really, really populist. Is this good for metal prices?

Weaker Dollar

One thing that Trump has already caused, again before even being president, is a weakened U.S. dollar against other global currencies. Presidents and even presidents-elect usually refrain from even talking about the value of the currency because setting its value is seen as the job of the Federal Reserve and its chairman and the nation’s chief executive talking about the value of the dollar can cause volatile swings in the currency.

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Trump, though, as everyone should know by now, does not obey convention and freely told reporters that he would like a weaker dollar. This is actually bullish for the metals we track, but our Lead Forecasting Analyst, wrote this week that the dollar’s bull run may not be over, despite Trump’s wishes.

Populism in the Far East

Indonesia tried a protectionist raw ore export policy way back in 2014 and this week finally weakened it (a little) to allow some nickel ore out of the country on certain conditions. Ironically, the country that picked up the slack as the top Chinese nickel-pig-iron raw materials supplier after the Indonesian ban, the Philippines, now has its own wildly populist leader, President Rodrigo Duterte, whose fiercely environmentalist Environment Secretary, Regina Lopez, has cancelled six mine permits.

It’s going to be an interesting few years.

Threats of a trade war intensified over the weekend, as President-elect Donald Trump said the U.S. dollar “is too strong.”

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In one day, Trump will be president and he also warned BMW that it will face a 35% tariff on imports to the U.S. from a plant it’s building in Mexico. In addition, Trump specifically called out China and its weakening currency, stating that U.S. companies can’t compete with China because the dollar is too strong.

Dollar Index Falls to a 1-Month Low

The U.S. Dollar Index Falls to 1-Month low on Trump’s talk. Source: MetalMiner analysis of @stockcharts.com data.

Trump’s words helped sink the U.S. dollar index by 1% vs. other major currencies, falling to its lowest level in a month. Previous administrations have maintained a steady policy of backing a strong dollar and presidents have tended to refrain from commenting on the currency altogether. Read more

Lead ore. Source: Adobe Stock.

The International Lead and Zinc Study Group released its initial report for 2017, which found world refined lead metal supply exceeded demand during the first 11 months of last year with total reported stock levels increasing during that same time frame.

The ILZSG report identified reduced output in China, India, Australia and the U.S. as contributing to the overall reduction in global lead mine production, to the tune of 7.5%, over the first 11 months of last year when compared to the same time frame in 2015.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

The ILZSG states: “World production of refined lead metal decreased by 1.2%. This was primarily due to a fall in Chinese production which more than balanced increases in Australia, Kazakhstan and the Republic of Korea (South Korea).”

Furthermore, the 9.1% reduction in Chinese demand was offset, in part, by a 9.5% rise in European usage.

“Chinese imports of lead contained in lead concentrates totaled 697,000 metric tons, a decline of 24.6% compared to the first eleven months of 2015,” concluded the ILZSG’s January report on lead.

Lead Buyers Saw Ample Opportunity to End 2016

Just last month, our own Raul de Frutos wrote about metal buyers finding good opportunities to time their purchases with prices pulling back following a bullish run. For lead in particular, de Frutos wrote:

“Zinc’s cousin, lead, is also retracing near an area where we should see investors coming in to support prices. If this year’s bull market is set to continue, which for now we continue to expect it to do so, lead buyers will find a good opportunity to time their purchases if prices rebound at these levels.”

How will lead and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

The Commerce Department made final determinations today in its anti-dumping and countervailing duty investigations of carbon and alloy steel cut-to-length (CTL) plate from China.

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The department said in a statement that it has set a final dumping margin of 68.27% for Jiangyin Xingcheng Special Steel Works Co. Ltd., the only respondent in the case, “for the China-wide entity’s failure to cooperate.”

In the countervailing duties investigation, Commerce calculated a final subsidy rate of 251% for mandatory respondents Jiangyin Xingcheng Special Steel Works Co. Ltd., Hunan Valin Xiangtan Iron & Steel, and Viewer Development Co., Ltd., based on the application of adverse facts available. All other producers/exporters in China were also assigned a final subsidy rate of 251%.

Chinese Province Admits Making Up GDP Figures

China’s northeastern Liaoning province, which relies on steel production as its growth engine, had inflated its GDP figures from 2011 to 2014, said province governor Chen Qiufa on Jan. 17 in his annual work report, according to the state newspaper People’s Daily (link in Chinese). It is the first time the Chinese government has publicly admitted to faking official statistics at any level.

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Fiscal revenues were inflated by at least 20% during the period, and some other economic data were also made up, the People’s Daily said.

tin-ore

S_E/Adobe Stock

Last week, tin prices on the London Mercantile Exchange increased but the real story has been overall commodity pressure to begin 2017.

According to a recent report from the Economic Calendar, tin has ebbed and flowed in a narrow range to begin the year with last week’s upward move attributed to “a slight pullback in the value of the U.S. dollar.”

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

Donald Levit wrote: “Tin experienced a positive performance in 2016 amid solid demand from China with idled domestic tin capacity resulting in the need for higher imports. However, concerns are that China will start to ramp up its idled capacity, and that will change the market.”

China’s manufacturing PMI registered higher than expected recently, adding to tin’s momentum. In November, China imported more tin ore and concentrates with refined tin imports falling off substantially, the news source stated.

How will tin and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Set of copper pipes of different diameter lying in one heap

Copper prices increased last week on the heels of Chinese data indicating inflation growth, reassuring strong demand from the world’s largest consumer of the metal.

According to a report from MarketWatch, copper for March delivery grew 2.9% on the Comex division of the New York Mercantile Exchange last Tuesday, which was the largest one-day increase in nearly two months.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

“The 2017 growth rate was supported (by) much faster than expected project ramp ups in Peru in particular, and much lower than statistically normal rates of production losses through the year,” Citi wrote, according to the news source. “We believe both of these factors will be difficult to replicate in 2017.”

Overall, a weaker dollar was supporting metals and, in the short-term, a reduction in copper stocks in LME warehouses indicates a tighter market, which could further boost prices.

Copper Bounces Back from December

Our own Raul de Frutos wrote recently that copper prices declined some in December, along with other industrial metals, but the bull narrative is still in effect:

“The recent price decline in copper prices wasn’t that dramatic. So far, it seems like the bulls are still in control. A strong dollar and a possible slowdown in Chinese demand are factors that could bring prices down. Up until now, China’s demand looks strong and the dollar hasn’t had a big impact on metal prices. Therefore, we need actual reasons to turn bearish on copper,” he wrote.

How will copper and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

The Chinese yuan weakened on Monday afternoon after its midpoint was set at its lowest level in half a year.

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China’s authorities sets the mark 0.87% or 594 points lower than last Friday, the biggest daily decline since late June in 2016. Traders are allowed to trade up to 2% either side of the reference point for the day.

The Hong Kong Interbank Offered Rate for offshore yuan, known as the CNH Hibor, plummeted to 14.05% from last Friday’s 61.33%, down 4,728 points.

The People’s Bank of China set the yuan midpoint at 6.9262, a sharp drop for the renminbi compared with Friday’s fixing at 6.8668.

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China’s central bank does not allow the currency to move more than 2% from its daily fixing in onshore trade. While policymakers cannot closely control offshore trade of the currency, it usually remains relatively close to its onshore counterpart.
Onshore, the dollar was fetching as little as 6.8679 yuan last week, compared with 6.9318 yuan at 9:54 a.m. today.

To begin 2017, aluminum prices inched higher with the U.S. dollar retreating and traders awaiting clarity on the market.

According to a recent report from the Economic Calendar, downward pressure on aluminum has been the story since December, but over the course of 2016 the metal saw a 13% increase. The reason? falling supply with the closure of capacity while demand grew as the result of China’s infrastructure initiatives.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

Donald Levit, writing for the Economic Calendar, said: “Even though it is typical for aluminum prices to retreat in late fall and winter, prices held steady through mid-December after Donald Trump won the U.S. presidential election in November. Trump made a campaign promise to move to further stimulate the U.S. economy, and that stimulus could potentially include infrastructure spending. That would boost aluminum demand.”

What does 2017 have in store for aluminum prices? Volatility could be the word with traders attempting to assess how the market will evolve as the year progresses.

The Auto Industry and Aluminum

Our own Raul de Frutos echoed the sentiments of aluminum’s struggles in December after a 2016 of growth. But what does the auto industry have to do with it? Raul writes:

“The auto industry is a key driver of aluminum demand. Auto sales in US and China (the world’s biggest car market) finished the year on a strong note. Total vehicle sales in the U.S. hit an 11-year high in December, aided by a fourth-quarter surge in demand that exceeded expectations. In China, car sales hit an all-time record in November, up 17.1% year-on-year.”

How will aluminum and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Following Russia’s military success in their support the Syrian regime, you could be excused for thinking Western sanctions, applied in 2014 in response to Russia’s annexation of Crimea, have had little or no effect on the country.

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Certainly, they seem to have had little impact in altering or encouraging a change in behavior but there are examples in which the sanctions have had quite a profound effect on the economy and particularly on certain industries.

A recent article in the Financial Times explores the challenges Gazprom Neft is facing in trying to exploit Russia’s vast shale gas reserves without the benefit of Western partners. Following the imposition of sanctions Western oil and gas companies withdrew support from any projects to exploit shale reserves requiring fracking technology, and as a result firms like Gazprom Neft, the oil division of state-controlled Gazprom, have been forced to go it alone in developing the technologies and practices necessary to exploit shale rock containing oil and gas resources.

Source: Financial Times

Progress has been slow, in spite of the huge potential. As Russia’s hydrocarbon resources dwindle from their peak in Soviet days, the country is sitting on vast shale resources rivaling the U.S. Read more

China’s Caixin manufacturing purchasing managers’ index rose to 51.9 in December from 50.9 in November and beat market expectations.

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The figure marks the sixth straight month of growth and the strongest upturn in Chinese manufacturing conditions since January 2013.

China Caixin Manufacturing PMI. Source: Tradingeconomics..com.

By now it’s pretty clear that this growth has been the main driver of higher metal prices in 2016. Industrial production in China has been on an upswing for most of the year, mainly because of the surge in infrastructure spending.

China PMI Up

However, there are concerns that the country’s demand growth rates could slow next year. The real estate and automotive sectors are the engine propelling this rapid growth. If the demand growth from these sectors slows, this could have strong repercussions on China’s demand for industrial metals. Read more