Articles in Category: Macroeconomics

slider-annualoutlook-blue2016Sourcing steel in 2016? You’ll want to know when to buy as it can be just as, if not more important, than how much you buy and where you buy it from.

When you source can make all the difference in shaving dollars and cents from your bottom line. But what about the risk? Is there more upside risk or downside risk for steel heading in 2016?

Our own Lisa Reisman recently spoke with a well-known consultant/advisor in the domestic steel industry about this very topic. He maintained that there is likely more upside risk in steel, but her stance reflected that of an industrial metal buying perspective: “Yeah? So what!”

Whether the risk is upside or downside is irrelevant unless we also see evidence of a shift in the market, which is not the case. We are firmly in a bear market and as it stands, we only care about what will make us change our buying behavior.

That’s not just for steel, however. If you’re sourcing copper, tin, lead, zinc, nickel or aluminum then take a second to download our complimentary 2016 Annual Metals Buying Outlook.


Zinc_228It’s been a bearish year for zinc prices, but last month’s Glencore announcement that 500,000 metric tons of mining cuts saw a brief glimmer of price increases… only to drop back down to a new six-year low.

According to a report from Reuters, last week, the London Metal Exchange (LME) zinc price reached a new six-year low of $1,497.50 per metric ton last week, revealing that the short-lived price increase stemming from Glencore’s announcement had run its course.

“Zinc, like copper, has been coming under sustained bear attack from China, where Shanghai Futures Exchange (SHFE) volumes and open interest have been surging even as the price has been sliding,” Reuters reported.

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!

Bears coming for other industrial metals

It’s not just zinc, however, that’s feeling downward pressure on prices. According to a report this week from the Financial Times, nearly all industrial metals are hovering near their lowest levels in years, signaling miners across the globe to cut production.

In fact, a group of 10 Chinese zinc smelters announced they would reduce output in response to low prices. However, zinc, which is used to galvanize steel, dropped earlier this week to its lowest point in six years.

“The macro headwinds remain strong and, thus, the the impact of these latest cuts is likely to be fleeting, “Daniel Hynes, senior commodity strategist at ANZ, told the Financial Times.

How will base metals fare for the remainder of 2015 and into 2016? You can find a more in-depth zinc 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:

In part one of this series, we analyzed how metal prices have fallen in three selling waves. In this section, we will analyze the current sell-off (third wave) in metal prices that a rising dollar is producing.

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Investors expect that the Federal Reserve will rise interest rates in December for the first time since 2006 while the European Central Bank plans to continue with more easing monetary policy. This, and the fact that growth prospects look brighter in US than they do overseas both add to the dollar’s attractiveness. Indeed, we suspect that the bullish move in the dollar over the past few weeks could be the beginning of a bigger move which could depress metal prices even more down the road.

Let’s take a snapshot of industrial metals to see the individual impact of a rising dollar since mid-October.


3M LME Aluminum

Three-month London Metal Exchange aluminum. Source: MetalMiner analysis of data.

Aluminum prices are trading below $1,500 per metric ton, the lowest level since 2009. Notice how prices fell sharply as the dollar surged in mid-October (red arrow). Read more

It’s been a rough month so far for lead which, along with zinc, hit multiyear lows last week while sister metal copper also suffered after an assessment of China’s factory health revealed a continuing weakness in the world’s leading metals consumer.

According to a November 11 report from Reuters, lead traded down 1.8% to $1,604.50, having reached a five-year low of $1,582.

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!

“I see some bright spots and some continued softness (in the China data) however there is a definite bearish tone from Chinese and Asian speculators. Shorting has been concentrated during Asian hours, its not entirely clear why, if anything, the supply side looks a lot shakier,” Vivienne Lloyd, analyst at Macquarie, told the news source.

In a note, Commerzbank said the Chinese government and central bank will no doubt have to lean on further stimulus activity in order to improve the economy. This possibility could lead to the support of metal prices.

A Tale of Two Eras for Lead

It’s been an interesting 2015 for lead and other industrial metals, but prior to this year lead was one of the most stable metals around, thanks, in part, to a surplus combined with consistent production versus usage. But 2015 has proven itself to be the year of the bear for all industrial metals, including lead.

How will base metals fare for the remainder of 2015 and into 2016? You can find a more in-depth lead 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:


More evidence pointed toward a December hike in interest rates and the Senate bought congress more time to work out the details of a long-term highway/transit funding bill.

Fed Rate Hike Highly Expected

Data showed fewer Americans filed for unemployment benefits last week, further supporting the view that the Federal Reserve will raise interest rates in December after seven years near zero.

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Commodity markets should brace for another sell-off and lower prices if, as is widely expected, the Fed tightens policy in December and the dollar strengthens further. One reason is production, much of it in non-dollar countries such as Chile and Russia, where a higher dollar means rising revenues in pesos and rubles, respectively. It also means lower wage costs, paid in local currencies, allowing non-US producers to cope with falling prices.

Highway Trust Fund Extended Two Weeks

As the House and Senate continue to iron out differences on a multiyear highway bill, the Senate gave negotiators breathing room by extending the fund that pays for federal highway projects. The Highway Trust Fund would have lapsed today but now will last through Dec. 4.

Free Download: The November MMI Report

The chambers differ over funding levels for the highway bill, with the House proposing a status quo $325 billion bill and the Senate supporting an increase with an estimated $355 billion.

Industrial metals are in a bear market that has lasted 5 years so far. However, the decline in prices has steepened since summer 2014.

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Ever since then, three major events have contributed to the slump in prices.

DBB Industrial Metals ETF

The DBB Industrial Metals ETF has fallen consistently over the last year. Source: MetalMiner analysis of data.

As we can see in the chart above, these events helped to create three major selling waves:

Event 1: The Dollar Soars

The US dollar enters a bull market: In the summer of 2014 the dollar index (which measures the performance of the dollar against a basket of foreign currencies) rose 25% over the next nine months, hitting an 11-year high. A strong dollar is bearish for metal prices as it makes metals more expensive, as they are priced in dollars, limiting demand as they become more expensive overseas. Read more

More anti-dumping investigations were announced this week, including one covering mechanical elevator parts and pulley systems. The number of US construction projects is up significantly over the same time last year.

Commerce Seeks Duties on Elevator Parts from China and Canada

The Commerce Dept. has initiated anti-dumping duty and countervailing duty investigations of imports of certain iron mechanical transfer drive components, mostly for use in elevators and pulley systems, from China and an anti-dumping investigation of imports of the same iron mechanical transfer drive components from Canada.

Free Download: The November MMI Report

Dumping occurs when a foreign company sells a product in the US at less than its fair value. For the purpose of countervailing duties investigations, countervailable subsidies are financial assistance from foreign governments that benefit the production of goods from foreign companies and are limited to specific enterprises or industries, or are contingent either upon export performance or upon the use of domestic goods over imported goods.

The petitioner for these investigations is TB Wood’s Incorporated.

US Construction Continues to Outpace 2014

New construction rose by 21,000 projects in the third quarter of 2015 compared to 2014’s third quarter. According to the BidClerk Construction Index, Q3 2015 had more than 76,000 new projects valued at over $200 billion nationally ($35 billion more compared to 2014).

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Texas led the way with a 10% increase in actively bidding projects followed by:

  • Florida (5%)
  • Washington, D.C. 95%)
  • Pennsylvania (3%)

Part of the reason China’s economy has slowed is as a result of deliberate policy actions taken by Beijing to steer it from investment-led, export-orientated manufacturing toward a model based much more on domestic consumption.

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The result has not been great for resource companies or economies around the world, but it will, in the long run, be a more sustainable model for China, and indeed for the world. China’s super-cycle was unsustainable in the medium- to longer-term, the sooner it was curtailed the lower the long-term fallout was likely to be.

But there is another reason investment growth has slowed, not just in China but in virtually all emerging markets and that is because the US and other mature economies have on the whole reined in quantitative easing.

An article in the Financial Times states that as the Federal Reserve has purchased US treasuries, driving up bond prices and driving down yields, banks and pension funds have taken low-cost loans from recipients of those treasury sales — the banks — and invested them in higher-yielding assets, mostly corporate emerging market debt.

Emerging Markets

By some measures, the article says $7 trillion of quantitative easing dollars have flowed into emerging markets since the Fed began buying bonds in 2008, and that is before adding in QE from the UK, Japan and, more latterly, the European Central Bank. The FT quotes Andrew Hunt of Andrew Hunt Economics when it seeks to explain where those funds have gone and the impact all that loose money has had on emerging market debt levels, and I quote in part as follows.

Source: Financial Times

Source: Financial Times

How QE Money Gets To Emerging Markets

There are two main routes by which QE money reached emerging markets. One involved the Fed buying US treasury bonds, as outlined above, which results in savers going in search of higher yields — such as in mutual funds buying corporate and emerging market debt. Read more

stainless-nickel-L1It’s been a rough month for nickel prices following a brief glimmer-of-hope rally.

The base metal has slumped over the past four weeks with the nickel futures contract traded on the Multi Commodity Exchange (MCX) down more than 10% from its peak in October, according to a report from The Hindu Business Line. Additionally, global nickel spot prices have declined over the same time span, bringing domestic futures contracts down with them.

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!

We must look east for a cause of this decline in nickel over the past year. Weak demand from major consumer China continues to be a major contributing factor to nickel’s struggles. According to the news source, industrial production, trade data and inflation have all been on a downward swing, bringing nickel down as well.

With both the short- and medium-term outlooks of nickel grim, it’s difficult to predict a strong rally at this point.

Metals Round-Up

Taking a closer look at the other base metals we cover, zinc and lead recently showed some promising price gains, but our own Raul de Frutos threw cold water on that development. As it stands, all industrial metals are reaching new lows with commodities falling across the board with no end in sight for these price collapses.

Any rally should be perceived to be short-lived with a sharp decline pending. “Metal buyers may want to think twice before committing to large volumes in this kind of market,” de Frutos cautioned.

How will base metals fare for the remainder of 2015 and into 2016? You can find a more in-depth nickel 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:


Fallout from the Samarco mine disaster in Brazil continues, and construction input prices are at their lowest cost, overall, since 2011.

Insurance Caps Already Exceeded

The cost of a deadly dual dam burst at an iron ore mine in Brazil run by Samarco has already exceeded the insurance cap for civil damages, co-owner Vale SA said on Monday.

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Samarco, owned by Vale and BHP Billiton has been fined 250 million Brazilian reals ($65.5 million) and forced to pay for accommodations for the dispossessed, after two dams burst earlier this month, killing at least seven people, with 15 still missing.

Construction Materials/Inputs Fall in Price Again

The Producer Price Index for inputs to construction industries declined for a fourth consecutive month in October, according to an analysis of the Bureau of Labor Statistics data by the Associated Builders and Contractors (ABC) of America.

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The index stands at its lowest level since the first quarter of 2011 as prices for construction inputs declined 0.2% on a monthly basis and 4.6% on a year-ago basis. Nonresidential construction input prices exhibit a similar pattern, falling 0.3% since last month and 5.1% over the past 12 months. Nine of 11 key input prices are down on a year-over-year basis.

Some key takeaways for metal purchasers:

  • Steel mill product prices fell 1.7% in October and are 16.1% lower than one year ago.
  • Natural gas prices shrank 1.8% on a monthly basis and 36% on a yearly basis.
  • Iron and steel prices lost 4.4% month-over-month and 21.2% year-over-year.

ABC_ producerpriceindex_construction_111715