Articles in Category: Macroeconomics

At the International Manufacturing Technology Show in Chicago, the Reshoring Initiative‘s Harry Moser laid out what he called the “reshoring roadmap” of what congress and the next president need to do to bring manufacturing jobs back to the U.S.

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Moser said that rapid job loss has been stemmed in the U.S. but more needs to be done to bring manufacturing jobs back to the U.S. The roadmap included corporate tax reform to make the U.S. more competitive with countries like Ireland, which boasts a 2% corporate tax rate. Republican presidential nominee Donald Trump has said he will lower the corporate tax rate of 39.1%. Democratic nominee Hillary Clinton has said she will raise taxes on “corporations and wealthy individuals.”

Don’t Drown in the VAT

Another part of Moser’s roadmap is a value-added tax in the U.S. A VAT is a type of general consumption tax that is collected incrementally, based on the “value added,” at each stage of production and is usually implemented as a destination-based tax, where the tax rate is based on the location of the customer. If I purchase something from the U.K, I would have to pay the vote to get it imported into the U.S.

16-RSI-0482-IndustryToday-FP.indd.pdf

Companies are reshoring jobs to the U.S. Source: The Reshoring Initiative.

Moser said the rest of the world has a VAT of about 15% whereas the U.S. has no VAT. 150 of the 193 countries in the world have a VAT.

There are two main methods of calculating VAT: the credit-invoice or invoice-based method and the subtraction or accounts-based method. Using the credit-invoice method, sales transactions are taxed, with the customer informed of the VAT on the transaction, and businesses may receive a credit for VAT paid on input materials and services. The credit-invoice method is the most widely employed method, used by all national VATs except for Japan. Using the subtraction method, at the end of a reporting period, a business calculates the value of all taxable sales then subtracts the sum of all taxable purchases and the VAT rate is applied to the difference. Read more

A couple of developments made precious metals soar in the first half of the year.

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A falling dollar was the first development that helped gold, silver and platinum group metals soar. Second, the U.K.’s Brexit referendum. Since their January’s lows, gold, silver, platinum, and palladium rose 30%, 50%, 44%, and 50% respectively.

Yes, supply/demand fundamentals differ from one metal to another. Gold has a big role in jewelry and investments. Silver has more of an industrial role, while automotive catalyst demand makes up about 40% and 75% of platinum and palladium demand. These distinct elements can cause these metals to behave differently from time to time but, overall, there are more two more critical drivers to pay attention to. The dollar and economic fears:

Gold (in yellow) vs Platinum (in Blue). Source: MetalMiner analysis of stockcharts.com data

Gold (in yellow) vs platinum (in Blue). Source: MetalMiner analysis of stockcharts.com data.

  • Back in December the U.S. dollar peaked. Weakness in the currency lasted until May and boosted the price of precious metals.
  • In May, the dollar bottomed out and started to climb, having a depressing effect on precious metals. But the effect didn’t last too long as toward the end of June, the U.K.’s Brexit referendum took place. The economic uncertainty pushed safe haven assets higher.
  • Finally, during the third quarter, the U.S. Dollar has been pretty neutral as investors wait for the Federal Reserve to take steps on raising rates at the same time as economic fears ease. The result? Investors lack reasons to push prices higher and consequently prices are retracting.

What This Mean For Metal Buyers

Unless the upcoming monetary policies cause the dollar to weaken, or new economic fears bring back the appeal for these safe haven assets, it might take a little while until we see precious metals rising like we saw in the first half.

Black lead zinc ore closeup rocky textureA recent report from the International Lead and Zinc Study Group found the global market for refined zinc was in deficit from January to July, with total reported inventories declining over the same time frame.

Global zinc mine production declined 6.1% during the same period, which mostly was due to substantial reductions in India, Australia, Ireland and Peru. Meanwhile, world refined zinc metal output fell 3.9% due to a significant drop off in Indian production and a decline in the U.S.

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The report stated: “A rise in global usage of refined zinc metal of 0.7% was driven mainly by an increase in Chinese apparent demand of 6% that more than balanced sharp declines in the United States and Taiwan (China). European usage increased by 1.9%.”

Last, Chinese zinc imports contained in zinc concentrates fell 34.5% while the Far East nation’s net imports of refined zinc metal climbed 96%.

Zinc on the Rise?

Our own Raul de Frutos recently wrote that a year ago today, zinc was anything but bullish.

“Global zinc markets were in surplus and prices were heading lower while sentiment in the mental complex was pretty bearish. But the picture quickly turned around earlier this year. For zinc buyers, the right time to hedge/buy forward was in April, when prices were still below $1,900 per metric ton, as we pointed out in our Monthly Outlook,” de Frutos wrote.

How will zinc and base metals fare for the remainder of 2016 and into 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:

Macro photo of a piece of lead ore

Macro photo of a piece of lead ore

New data from the International Lead and Zinc Study Group finds that world refined lead metal supply exceeded demand during the first seven months this year. Over the same time frame, total reported stock levels increased, as well.

The ILZSG report also found that global lead mine production decreased 5.6% when compared to the same time period in 2015, mainly due to reduced production in the U.S., India and Australia.

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Meanwhile, a boost in world refined lead metal output of 0.7% was mostly due to growth in Canada, the Republic of Korea and Kazakhstan, which partly offset the reduction seen in China.

The report stated: “European usage of refined lead metal increased by 9.4% mainly due to increased demand in Germany, Poland and the United Kingdom. In contrast apparent usage in China fell by 6.4% and in the United States, was at the same level as during the first seven months of 2015.”

Last, Chinese imports of lead in lead concentrates fell 13.3% year-over-year.

Lead, Pher Base Metals to Fall Next Year?

Our own Raul de Frutos wrote this week that since metal prices bottomed out earlier this year, we’ve seen rising prices. But was what we saw the result of five years of a bear market, and are metal prices primed to continue their ascent in 2017?

de Frutos cites three critical factors to watch for in 2017 that will determine the sustainability of this year’s bull market. They are:

  1. Supply cuts
  2. Chinese stimulus measures
  3. The U.S. dollar

How will lead and base metals fare for the remainder of 2016 and into 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:

China’s steel industry will see demand drop even further in 2017 and the Federal Reserve left rates unchanged yesterday.

CISA: Chinese Steel Demand Will Fall More

China’s steel demand is likely to drop for a third year in a row, an industry official said on Thursday, as mills in the world’s top producer focus on reducing capacity.

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China’s crude steel consumption slipped 1.9% from January to July and there may be a slight drop for the year, said Wang Liqun, vice chairman of the China Iron and Steel Association (CISA).

Fed Leaves Rates Unchanged Again

U.S. stocks marched higher on Thursday, with the Nasdaq hitting a record intraday high, as investors cheered the Federal Reserve‘s decision to not raise interest rates yesterday.

While the Fed said the risks to economic outlook were roughly “balanced”, it left rates unchanged for want of “further evidence of continued progress”. Inflation remains below the central bank’s target of 2 percent and members saw room for improvement in the labor market.

Two-Month Trial: Metal Buying Outlook

Even if the Fed raises rates at its last meeting of the year in December, many are worried that Central Banks toolkit for hitting inflation targets is ineffective.

Metal prices bottomed out earlier this year and ever since we are seeing rising prices. However, was that the ultimate bottom after a five years of a bear market? Are metal prices set to continue running higher in 2017?

Industrial metals ETF flattens in Q3

The industrial metals ETF flattens in Q3. An end to rising prices? Source: MetalMiner analysis of @StockCharts.com data.

These are questions we can’t answer, but they will be answered moving forward. Although industrial metals entered a bull market this year, we have yet to see how long this rising market will last. In Q3 we already witnessed some weaknesses with many base metals struggling to build on this year’s gains.

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

We see three critical factors to watch as we move in 2017. These factors will determine the sustainability of this year’s bull market:

Supply Cuts

Some production capacity was closed this year to fight low prices and the market now seems more balanced than last year. These supply cuts helped push metal prices higher, but the problem is producers might now have enough incentives to restart production. A good example is the zinc market. Zinc prices rose sharply this year thanks to supply cuts, but now markets wonder if Glencore and China’s zinc miners will start upping their production to reap the rewards of higher prices. Read more

There have been many among the advocates of Brexit and even more than a few among those opposed to it who have pointed out the relative stability in both U.K. GDP growth and the reaction of the stock markets to say that it wasn’t such a disaster after all, was it? Where is the economic collapse so many forecast?

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

Of course, we all like reassurance that all in the world is well but the reality is we are living in a phony war. The armies are massing but little engagement has taken place yet. The initial shots have been fired. The British pound dropped 10-20% against most currencies, notably the U.S. dollar and the euro. Japan sent an uncharacteristically strongly worded 15-page memo to the British government warning them of the consequences should negotiations lead to Britain leaving the single market. Jean-Claude Juncker, president of the European Commission with a long history of bitter antagonism towards the U.K., has uttered countless dire warnings as to life for the U.K. post-Brexit. But so far, in spite of these initial salvos, little has changed. Read more

Tin cans. Cans are used for packing all sorts of goods - conserved food, chemical products such as paint, etc

Tin cans. Cans are used for packing all sorts of goods – conserved food, chemical products such as paint, etc

Earlier this month saw tin futures reach their highest price in nearly 18 months due in part to a weakened dollar and stronger than anticipated Chinese manufacturing PMI.

What was not so surprising: Tin’s continued impressive performance as the metal has fared particularly well thus far in 2016.

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!

According to a report from Economic Calendar earlier this month, the U.S. dollar retreated after the Labor Department reported the domestic economy added fewer jobs than expected in August, which — compounded with news from China of increased manufacturing activity — bodes well for tin prices.

“Tin prices have climbed in 2016 amid a background o declining supplies,” wrote Donald Levit for Economic Calendar. “Chinese tin supply has decreased after environmental inspections resulted in the temporary closure of domestic smelters. Four smelters, accounting for 18% of China’s output, will remain closed for just over a month, and this should further tighten the market and contribute to lower supplies for the months ahead.”

Myanmar Tin Production Peaking?

Just last month, our own Raul de Frutos wrote that tin production in Myanmar may have reached its nadir. “Tin production in Myanmar has surged more than 10-fold over the past four years, accounting for more than 10% of global tin mine supply and helping to make up for falling Indonesian tin exports. However, according to a recent study released by the International Tin Research Institute, it appears that Myanmar tin production is peaking at some 50,000 mt per year, although there is still significant potential for the discovery of new ore resources.”

How will tin and base metals fare for the remainder of 2016 and into 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:

 

There are conflicting messages out there.

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Last month, Business Insider ran a piece saying “Recent movements in copper inventories highlight the lack of significant demand for the metal, particularly in the ever-important Chinese market.”

Shanghai Futures Exchange inventories are falling while, London Metal Exchange inventories are rising, suggesting metal is flowing out of Shanghai bonded warehouses into local Asian LME sheds. The contango has grown, allowing traders to store and hedge metal on the LME supporting the move but the fact that refined metal is flowing out China suggests industrial demand is weak. BMI calls the move a red flag and says it expects imports of refined metal to fall in the coming months.

Copper_Chart_September-2016_FNL

Copper supply in LME sheds might be up, but our copper MMI is down.

Yet, just last week, better-than-expected official industrial PMI numbers unexpectedly rose to the highest level since 2014, according to Bloomberg, resulting in a bounce in copper prices, share prices in Hong Kong  and London and a fall in bond prices.

What’s Up With Copper?

So, what does this mean for copper? Was the export surge a temporary phenomenon prompted by the market moving into contango? Or is this truly a sign of an underlying weakness in demand?

China imported a record amount of refined copper in the second half of 2015, partly fueled by a relaxation of credit controls and encouraged by Beijing’s stimulus plans. Domestic refined production also increased significantly, but refiners are now cutting back and appear well supplied with concentrate in what remains an oversupplied market. Read more

The facade of the Federal Reserve Bank.

The facade of the Federal Reserve Bank.

Copper prices dipped this week with a stronger U.S. dollar hindering foreign demand for the metal.

According to a report from Nasdaq, copper for December delivery fell 0.2% at $2.0960 a pound on the Comex division of the New York Mercantile Exchange, after trading higher earlier.

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!

Debate on whether or not the Federal Reserve will raise interest rates this year, as well as fluctuating signs on China’s economic strength have influenced copper prices of late, keeping the metal trading in a narrow range.

“(It’s) a go-nowhere-fast-market,” Bill O’Neill, CEO, noted investor, told the news source. “But every time it appears set to break one way or another, it doesn’t happen.”

China, the world’s largest copper consumer, is looking at an improved outlook with annual growth in industrial output growing to 6.3% in August compared to a flat 6% in July, according to the National Bureau of Statistics.

As for interest rates, the Fed is scheduled to meet next week.

“‘Jittery’ does not even begin to describe the current market,” wrote analysts at Marex Spectron. “Expect traders to continue to trade on a three-hour time horizon awaiting the next headline about what the Fed may or may not do with rates in September.”

Copper MMI Drops in September

Our own Raul de Frutos recently wrote that copper’s dive in September is of no surprise:

“Any price rally could continue to be limited this year, especially if Chinese demand does not pick up and we see the supply increase that some banks are forecasting. On the other hand, an improving sentiment in the metal complex this year should support and keep copper prices from experiencing significant declines.”

How will copper and base metals fare for the remainder of 2016 and into 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: