Articles in Category: Macroeconomics

“Where next for oil prices?” Stuart Burns had asked on Monday. In the short term, that would be downwards.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Yesterday the Organization of the Petroleum Exporting Countries (OPEC) met in Vienna and decided to extend supply cuts for another nine months, until March 2018. That is what was expected, but oil prices responded by dropping quite a bit, Reuters reported, by roughly 5%.

The price of oil has indications beyond, well, oil. “Oil prices are a proxy for energy prices, and a rising oil price can be supportive for energy intensive metals like aluminum,” Burns wrote. “A rising oil price is also taken as a proxy for rising industrial demand – a bullish indicator that global growth is strong. A falling price, on the other hand, should be good for consumer spending as it keeps more money in drivers’ pockets and lowers the cost of goods sold for companies far and wide.”

Where Next for the U.S. Dollar?

Another driver of metal prices is the dollar. This past week, Raul de Frutos looked at the movement of the U.S. dollar, which recently hit a seven-month low. What is the reason for this drop?

“First, the dollar had steadily risen for three consecutive months,” de Frutos wrote. “It’s not uncommon to see profit-taking after such an increase. But there are also some fundamental reasons behind this sell-off.” Read more

What with news of the terrorist massacre in Manchester reverberating around the world, while President Donald Trump first snuggles up to the Saudis and then to the Israelis — it is hardly surprising that news of yet a fourth Greek bailout has failed to make much headway in the headlines.

Two-Month Trial: Metal Buying Outlook

News that the International Monetary Fund (IMF) is working on a compromise with Greece’s creditors that would smooth the way for a €7 billion ($7.8 billion) disbursement of rescue cash all sounds rather calming and reassuring. But rest assured Greece is in danger of yet another default this summer as it seeks to get its hands on the latest tranche of an €86 billion rescue package to meet debt obligations this July.

According to an article in The Telegraph, Greece’s debt currently stands at nearly 180% of gross domestic product. The Greek economy fell back into recession in the first quarter of 2017, and it is an economy that is still some 27% smaller than in 2008, crushed under the EU-IMF austerity program.

According to the Associated Press, the IMF has argued that the Eurozone forecasts underpinning the Greek bailout are too rosy and that the country as a result should get substantial debt relief so it can start growing on a sustainable basis. The Greek economy has spent more time in recession than growth since the financial crisis.

The Eurozone, on the other hand, has so far ruled out any debt write-off, saying it would rather extend Greece’s repayment periods or reduce the interest rates on its loans after the bailout next year. Germany and the Netherlands are keen to avoid debt relief, probably because they do not want to set a precedent that others such as Italy could turn to later to solve their own problems. Read more

AdobeStock/FenrisWolf

It’s a story of two democratic countries and the policies they pursue vis-à-vis energy.

Two-Month Trial: Metal Buying Outlook

So while the U.S. under President Donald Trump is kind of trying to revive its coal industry, far away India is doing the opposite – embracing clean energy with a vengeance and relying on it for much of its energy needs.

That’s one of the many reasons why India has also managed to beat the U.S. to the number two position in the renewable energy investment index released recently by UK-based accountancy firm Ernst & Young. China has continued to remain on top of this list, while the U.S. is now third. This is an annual ranking of the top 40 renewable energy markets in the world.

Those who prepared the report said that industry-friendly policies laid down by the Indian government, along with increasingly attractive economics, had changed the entire climate of the renewable energy sector of India.

Under Trump, the U.S. is seeing a shift in its energy policy. The president has issued orders to roll back many of the previous administration’s climate change policies, revive the U.S. coal industry and review the Clean Power Plan. Compare this to India’s neighbor China, which has announced that it would be spending $363 billion on developing renewable power capacity by 2020. Read more

The U.S. dollar got a boost after the presidential election as markets were encouraged by prospects of lower taxes, fiscal stimulus and deregulation that would accelerate growth of the American economy.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

But this month, the dollar has fallen sharply, hitting a seven-month low. A weaker dollar gave some relief to depressing commodity markets.

Commodity index (in black) rises as Dollar index (in green) falls. Source: MetalMiner analysis of stockcharts.com

Why then is the dollar losing its luster now?

First, the dollar had steadily risen for three consecutive months. It’s not uncommon to see profit-taking after such an increase. But there are also some fundamental reasons behind this sell-off.

Selling intensified after the recent political turmoil around President Donald Trump as investors worry over political stability in the U.S. Investors also worry that under these political turbulences, the Trump administration will struggle to implement the pro-growth initiatives that markets had taken for granted. Finally, the euro appreciated against the dollar as political risks in Europe eased following the French elections.

Can This Decline Be Reversed?

US Dollar Index could bounce back up soon. Source: MetalMiner analysis of stockcharts.com data

Read more

AdobeStock/SeanPavonePhoto

Last month, China announced plans to build a new megacity from scratch. Since the city will be twice the size of New York City, analysts expect the project to require huge amounts of steel and other industrial metals such as aluminum and copper.

Two-Month Trial: Metal Buying Outlook

According to Citi Research analysts, 12-14 million tons of extra steel will be required annually to build this new development. Since the country’s current domestic demand is about 700 million tons, that would lift Chinese steel demand by 2% per year over the next 10 years.

But are the analysts correct? Should we expect a steel demand boost over the next 10-15 years?

Although building this city from scratch will indeed require a lot of steel, analysts are making the mistake of missing the forest for the trees. The key driver for steel demand in China is the net migration from the countryside to cities. It doesn’t really matter whether China builds a new megacity or it expands its city limits. The key measure is the rate of urbanization in the country at a national level.

Urban and rural population in China. Source: China’s Economy book by Arthur R.Kroeber

China’s urban share has grown quickly over the past two decades since its rural population peaked in 1995. Last year, China’s urban population share reached 57.9%. The share, however, is still small given the country’s income level. Read more

Looks like the tide has finally turned.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Extending that metaphor is easier now than it’s ever been for us writing on this topic: the reshoring of American manufacturing from abroad — and specifically, the net gains in jobs that we’ve been seeing in 2016 and early 2017 as compared with the trends in the early 2000s.

(I envision the emigrating jobs huddled together for warmth on a seaworthy vessel, with Shanghai getting smaller in the distance as the Pacific waves toss the boat ever closer toward Long Beach… if only it were that poetic.)

Back to reality. The Reshoring Initiative has just released its 2016 Data Report, and the numbers seem to tell a rosy story. According to the report press release, “in comparison to 2000-2003, when the United States lost, net, about 220,000 manufacturing jobs per year to offshoring, 2016 achieved a net gain of 27,000.”

“The numbers demonstrate that reshoring and FDI are important contributing factors to the country’s rebounding manufacturing sector,” the release concluded.

But of course, it’s not that easy. Major policy changes will have to be made or improved to continue the reshoring trend (which is still in its early stages), according to Harry Moser, founder of the Reshoring Initiative.

In a way, the U.S. should aspire to host conditions like those in Germany, Moser told me, including a supportive government, VAT, low healthcare costs, and an appreciation of the benefit of local sourcing. Read more

Macro photo of a piece of lead ore

The International Lead and Zinc Study Group released its Spring 2017 Meetings/Forecasts, which found that global demand for refined lead metal will increase 2.3% this year to 11.39 million tons.

The main reason? Further development in Chinese usage, which is projected to grow 4.3%.

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 report states: “After increasing by a robust 9.8% in 2016, usage of lead metal in Europe is expected to remain unchanged in 2017. A stable outlook is also foreseen in Japan and the Republic of Korea. In both India and the United States modest growth of 1.5% is predicted.”

Lead Supply Update

Furthermore, the ILZSG report states that global lead mine production is projected to increase 4.3% to 4.92 million tons this year, due in part to growth in China and increases in Canada, Mexico, India, Greece and Kazakhstan. Read more

AdobeStock/kalafoto

This morning in metals news, we have the latest rankings of promising renewables markets from EY, a continued decline in U.S. oil supply, and a weaker U.S. dollar.

The Renewables Race

China and India took the top spots on consultancy EY’s 2017 Renewable Energy Country Attractiveness Index (RECAI), edging past the United States, which had fallen from first to third place. The downward shift for the U.S. is largely due to the expected demise of the Clean Power Plan.

Free Download: The May 2017 MMI Report

Since taking office in 2014, India’s prime minister Narendra Modi has been nothing but ambitious in his plans to reduce the country’s dependency on coal and ramp up renewable energy capacity. India’s current renewables capacity stands at 57 GW, and Modi’s plan is to reach 175 GW by 2022, including 100 GW of solar. Read more

Tin supply is tight on the London Metal Exchange, but is this an isolated issue or just one example of a more far-reaching dilemma?

Writing for Reuters, Andy Home cites LME tin at its lowest level in 20 years, but it’s important to look closer as any comparison to two decades in the past is null and void as the global metals market and LME’s place in it are so different now.

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!

Home writes: “Unsurprisingly, low inventory is once again generating tightness across short-dated time-spreads, extending a pattern that has been running for a couple of years now.”

He adds that tin price is underperforming as well, currently trading just under $20,000 per ton. This is a 5% decrease when compared to the start of the year, placing it with nickel as the worst performer among significant LME metals.

However, Home writes that there is now more tin inventory in Shanghai Futures Exchange warehouses than in the LME system. Read more

Set of copper pipes of different diameter lying in one heap

Copper on the Shanghai market traded lower this week with investors choosing equities and oil, an area where a domestic rally was overflowing into Asian markets.

According to a report from Reuters, three-month copper on the London Metal Exchange did find some support, trading 1.1% higher, which offset losses from the previous session.

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!

However, the Reuters report also stated that LME copper stayed close to the four-month lows reached earlier this week as the market suffered from weak demand stemming from China and falling imports.

The most popular copper contract on the Shanghai Futures Exchange slipped to $6,558 a ton, Reuters reported, a decline of 0.71%.

Copper Bears Take Over

Just this week our own Raul de Frutos wrote of the commodity outlook shifting for copper buyers, as well as buyers of aluminum, steel and tin, and that the bears are taking over:

de Frutos wrote: “About a month ago I noted that while industrial metals were on the rise, commodities were range-bound, a sign of sluggish global demand. As I had written, ‘a healthy bull market in base metals should be accompanied by a bull market in other commodity markets.’ Commodities not only have struggled to make new headway but in the past few days they weakened significantly. Recent moves in China have caused a significant shift of sentiment in financial markets.”

de Frutos cited several issues, including oil prices taking a dip and China curbing its credit, to signal that the bull market for commodities might be coming to an end.

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: