Articles in Category: Macroeconomics

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India’s move to a Goods and Services Tax (GST) last month has been generally heralded as a good thing.

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Unifying tax codes across states and allowing the free movement of goods between states will speed up internal trade and simplify companies’ reporting — that is, if the government had resisted the temptation to meddle with multiple tax rates.

The introduction of the GST in India creates complexity out of simplicity. Whereas markets like the U.K. that have a similar VAT system have one main rate of 20%, with a reduced rate for home power of 5% and zero on a very limited range of goods like food and children’s clothes, India has five rates (0%, 5%, 12%, 18% and 28%), with many very similar products falling into a lower or higher bracket – encouraging distortions in the market as producers switch ingredients, product focus or labeling to try and circumvent higher bands.

Still, the benefits are expected to be significant even if reality doesn’t live up to expectation. The metals industry is predicting savings of 40-45% in the time taken to move goods as border tax points to collect state taxes and hence lengthy delays of up to 10 hours will become unnecessary.

For metals producers, it will come down to what rates apply to inputs and outputs for the industry — and there does appear to be some good news on that front.

Steel producers, at least, will face lower input tariffs, as raw materials like iron ore and coking coal will attract one of the lowest rates at 5%. Of course, like all GST systems, firms can either claim back what they pay to suppliers and collect for the Treasury what they raise — such that GST becomes net neutral for processors — but there remains a cash-flow implication. If producers are only paying out 5% but collecting 18%, it is beneficial for them from a cash-flow perspective.

Maybe not surprisingly, power costs are exempt from GST (that is not the case in other countries), but for an emerging economy and one with a large contingent of poor people, exempting energy costs from the taxation system has some logic.

A pre-GST Clean Energy Tax of Rs 400 per ton is not recoverable but was previously, so its exemption now represents a minor cost to steel producers that they will not be able to reclaim. Likewise, a state royalty of 15% on iron ore is another tax outside of GST, as are various Forest Development Fees and contributions to the District Mineral Foundation and National Mineral Exploration Trust, which are considered to in effect be taxes that steel producers cannot reclaim, according to the Indian Express.

Steel producers’ input costs for natural gas — a fuel source increasingly becoming the preferred choice for steel producers switching to intermediate sponge iron or hot briquetted iron — will face some impairments as a result of these taxes being unreclaimable (either partially or completely).

Like the old swings and roundabouts, there will be some opportunities to win and some that will lose, but in general the industry sees it as positive – not least because it will encourage the unregulated end of the market to join the mainstream and take part in the tax system.

For firms that are not operating within the tax system, there will be significant cost implications and no opportunity to reclaim.

More than anything, that is probably the underlying purpose of India’s GST: to bring all enterprises into the tax system, speeding up boarding crossings and eventually simplifying tax collection and transparency are welcome benefits.

But getting everyone to pay their fair share will, in the long run, be the biggest win.

Free Download: The July 2017 MMI Report

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Tin prices strengthened on the non-ferrous metals market this week as a result of stockist purchases due to firm demand from alloy industries.

According to a report from the Business Standard, tin joined copper cable scrap, zinc and copper wire bar as having also moved up due to growing demand from their industrial bases.

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!

This growth may only be temporary, as our own Irene Martinez Canorea wrote just last month that the outlook remains bearish for the tin metal market.

She wrote that, similar to its sister metals, tin prices declined starting from the beginning of June. A market analysis of tin prices and trading activity indicates a more bearish outcome for the metal.

Canorea wrote: “According to the International Tin Research Institute (ITRI), the fluctuation of tin stocks has varied based upon tin prices in the market. Indonesian exports remain robust, with an increase of 10% in May compared to April. However, Myanmar tin exports decreased slightly again in May. This reduction of Myanmar output is expected to continue until the end of this year, as analyzed in detail in our monthly forecast reports.”

China Influencing Tin Prices

Canorea also noted that tin prices may also be impacted by the approval of a new Chinese policy that will directly affect the largest tin-producing company in China.

She added: “This policy consists of the removal of the valued-added tax (VAT) structure, which taxes imports of tin concentrates and was supposed to provide a tax rebate of 17% on exports. The catch? Exporters were never able to collect the rebate, so they ended up buying tin exclusively from domestic sources.”

How will tin and base metals fare in 2017? You can find a more in-depth tin 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:

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What is already a global copper deficit could worsen this year with more mines expected to be affected by worker strikes in the coming months.

According to a report by Reuters, South American copper mines are bracing for additional strikes, but polls indicate price movements have already been taken this information into account.

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“We will mostly likely see more disruptions later this year … but they are not to be as severe, and the price impacts should be largely priced in,” economist Amy Li at National Australia Bank in Melbourne, told Reuters.

The previous strikes Li is referring to were earlier this year in the world’s largest copper mine at Chile’s Escondida and the No. 2 Grasberg mine in Indonesia.

Reuters also reported copper traded on the London Metal Exchange increased 8% this year, ranking fourth of the six main LME-traded metals.

Copper Prices to Fall?

Despite a perceived shortage in global production of the metal, numerous reports have copper at risk for a price shortfall. The reason? Slow Chinese economic growth, which could take 10% or more off copper prices in the next several months.

“We expect several of the recent drivers of industrial metals — especially stronger economic growth in China — to slow going into the second half of the year,” Seth Rosenfeld, senior research analyst at Jefferies told Fox Business.

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:

A major shake-up in the global aluminum industry as Norwegian firm Norsk Hydro will fully own aluminum products maker Sapa after buying a 50% stake from conglomerate Orkla.

According to a recent report from Reuters, this transaction values Sapa at $3.24 billion on a debt-free basis.

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!

Hydro produces primary aluminum from scratch, but by combining with Sapa, enhances its capabilities to become an integral supplier for automotive firms, aircraft makers and the construction sector.

“Sapa will enable us to assume global leadership, establish a platform for growth, and provide responsible operations and sustainable solutions for the future low-carbon economy,” Hydro Chief Executive Svein Richard Brandtzaeg told the news source.

He added: “The combination will make Hydro the only global company in the aluminum industry that is fully integrated across the value chain and markets.”

Automotive MMI Grows in June

The aluminum component remains a significant one for the automotive industry. According to recent analysis from our own Fouad Egbaria, the Automotive Monthly Metals Index rebounded from a reverse in May to move forward in June.

Egbaria wrote: “Although the increase was small, the one-point jump is an encouraging sign, as it marked the first increase for the sub-index since early this year, when it jumped from 82 to the February reading of 92. After that 92 mark, the sub-index posted four straight months of decreases.”

How will aluminum and base metals fare in 2017? You can find a more in-depth aluminum 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:

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While we read presidential tweets, or worse, listen to megalomaniacs gloat about successful missile launches, a quiet shift has been going on in the financial markets.

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Political risks as a driver of exchange rates have either faded into the background or have already been fully priced into non-dollar currencies. Meanwhile, the driver in currency markets has shifted back to central bank actions and the macroeconomic factors that drive them.

You only have to see the sharp reaction in Europe to recent comments made by Mario Draghi, president of the European Central Bank, concerning “reflationary pressures” at work, causing an immediate 2% spike in the Euro, to see the market’s focus is firmly back on inflation-related indicators, with wage growth in the different currency areas taking on a particularly critical role.

The Associated Press reported last month that inflation across the 19-country Eurozone held up better than anticipated in the face of waning energy prices — a sign that the region’s economic recovery is reverberating across the single-currency bloc.

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Steel stocks rose earlier this week following reports that President Donald Trump could soon place tariffs on foreign steel companies.

According to a report from CNBC, U.S. Steel climbed more than 2% while AK Steel and Nucor each traded at 3% and 1% higher, respectively.

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!

Meanwhile, steel companies from around the would wait with bated breath on the Department of Commerce’s findings into its Section 232 investigation, which will determine whether foreign-made steel imports impact U.S. national security.

“There is a lot of anticipation that there is going to be a statement by the Commerce Department today or later this week that suggests Trump impose something like the 232 tariffs,” Macquarie managing director Aldo Mazzaferro told CNBC.

Impacting Steel Stocks

Citing sources speaking to Reuters, Trump is impatient with China and is looking to impose tariffs on steel imports from the Far East nation. This is impacting steel stocks in a major way.

“Supportive trade policy actions such as Section 232, could be a catalyst to change investor perception,” research analyst Jorge Beristain wrote. “We now have Buys on all Steels & Service Center names as they should benefit from stronger U.S. economic growth and rising trade protectionism.”

Beristain added steel demand in the first five months of 2017 is up 4% compared to the same time frame last year. In addition, Trump’s proposed $1 trillion infrastructure plan will likely also increase demand for steel.

How will steel and base metals fare in 2017? You can find a more in-depth steel 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:

Nickel has been in the throes of a long bear market, but there are reasons to be optimistic about a price bounceback for this industrial metal.

According to a recent report from the Financial Times, demand from China and the electric car battery market heating up could spur a nickel price boost in the coming months.

However, investors should still exercise caution.

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!

“True, there are plenty of negatives out there,” writes Alan Livsey for the Financial Times. “Supply growth from smelters in China and Indonesia has yet to abate. Forced destocking from end users and traders has made matters worse. Goldman Sachs expects net supply growth will nearly triple in 2018 from the estimated 37,000 tonnes this year.”

Livsey added if supply can be curtailed and demand grows as projected, nickel’s once low reputation with investors could see a significant change in direction.

Are Commodities as a Whole ‘Losing their Roar’?

Our own Irene Martinez Canorea recently wrote how June has not been particularly kind to metal producers, beginning with the U.S. Federal Reserve spiking interest rates up by 0.25%.

She writes: “The most recent Fed rate hike breathed a little life into the dollar, which has fallen for most of this year. We believe this could have a direct impact on the metals industry — namely, causing prices to fall.”

How will nickel and base metals fare in 2017? 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:

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The International Lead and Zinc Study Group (ILZSG) released preliminary data for this year, which showed the global market for refined zinc metal was in deficit during the first four months of the year. Total reported zinc inventories also declined during that time.

The ILZSG report stated that world zinc mine production grew 7.3% for the first four months of 2017 compared to the same time last year, mostly due to increased output in China, India, Peru, Turkey and Eritrea.

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!

Furthermore, growth in refined zinc metal production in France, Kazakhstan and India were offset by reductions in Peru, Canada and the Republic of Korea, leading to an overall worldwide increase of 1.6%.

Worldwide refined zinc metal demand grew 3.7% during this time frame, mostly due to a 42.9% recovery in apparent usage in the U.S.

China’s Effect on Zinc Prices

The ILZSG report stated: “China imported a total of 385kt of zinc contained in zinc concentrates, an increase of 58kt compared to the same period of 2016. Chinese net imports of refined zinc metal amounted to 99kt, a decrease of 114kt.”

How will zinc and base metals fare in 2017? 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:

Macro photo of a piece of lead ore

The International Lead and Zinc Study Group (ILZSG) released its findings for June, showing global refined lead metal demand exceeded supply during the first four months of the year.

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!

In addition, the ILZSG report revealed total reported stock levels increased during that same time frame. An increase in worldwide lead mine production, to the tune of 13% year-over-year (compared to the first four months of 2016), is primarily the result of increased production in China.

Furthermore, a global refined lead metal output increase of 8.4% can be attributed to India, China and the United States.

The ILZSG report states: “A sharp rise in net imports was the main influence on an increase in US apparent demand of 22.8%. There was also a strong rise in Chinese apparent usage of 16.4%. European demand increased by a more modest 1.5% with overall global demand up by 11.15%.”

How will lead and base metals fare in 2017? 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:

Before we head into the weekend, let’s take a look back at a few of this week’s stories:

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

A Surprise in the U.K.

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Our Stuart Burns wrote about the U.K. parliamentary elections, which surprised many and saw Labour outperform expectations against Prime Minister Theresa May’s Conservative Party.

What does the election result mean for business? Well, that will partially be determined by which path to Brexit the U.K. ultimately takes. Burns writes there is likely to be compromise and a search for alternate solutions — that is, a softer Brexit.

The 411 on 232

White House spokesman Sean Spicer announced Monday the findings of the administration’s Section 232 investigation into steel imports could be released as early this week.

Although the findings have yet to be released, our Lisa Reisman laid out the potential outcomes and impacts of the investigation on Wednesday.

How will the recommendations affect steel prices domestically? No one knows for sure, of course, but Reisman wrote we shouldn’t jump to conclusions about potential price increases.

“Some have speculated that the forthcoming recommendations would force prices higher, however, we would not necessarily rush to that same conclusion,” Reisman wrote.

Markets showing pessimistic side

Burns also wrote this week about commodities markets — and not just metals, but oil, too — which have seen a drop in optimism of late.

What’s the downtrend all about? Many reasons, Burns argues, including: oversupply, the Chinese government “squeezing investors by increasing shadow banking borrowing costs,” and waning optimism with respect to the Trump administration delivering on campaign promises regarding massive infrastructure projects.

But not to send you into your weekend on a down note — it’s not all cloudy skies.

“With that said, that doesn’t mean the U.S. or global economies are about to tank,” Burns writes. “European growth has been much better this year and Japan is expected to improve further, while the World Bank is predicting an unchanged 2.7% global growth this year in its latest report.”

June MMI Report Released This Week

In case you missed it, our monthly MMI Report was released this week; as always, it’s jam-packed with information.

The report covers markets trends in our 10 sub-indexes: Automotive, Aluminum, Construction, Copper, Global Precious, GOES (grain-oriented electrical steel), Rare Earths, Raw Steel, Renewables and Stainless Steel.

Want to know what’s happening in any of these categories? Get yourself up to speed by checking out the June report, which you can access by visiting the link below.

Free Download: The June 2017 MMI Report