Articles in Category: Macroeconomics

The Federal Reserve is hinting at multiple short-term interest rate increases this year, a sign that the central bank expects the recent economic surge to continue and wants to limit the possible impact of inflation.

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Minutes from the Fed’s two-day meeting Jan. 31-Feb. 1 show that the tax cuts and spending proposals floated by the Trump administration continue to loom large over the central bank’s decisions. While the Fed chose to leave its interest rates unchanged at the meeting three weeks ago, investors widely expect two to three more rate hikes this year, perhaps as early as March, as the Fed continues on its path of gradually raising interest rates to combat gathering inflation.

Yet the central bank emphasized that it would adjust the pace of rate increases in line with the economy’s performance.

Fortescue Reports $1.2 Billion Profit

Australia’s Fortescue Metals Group Ltd. reported yesterday a 383% rise in interim net profit to $1.2 billion, surpassing the $319 million in the year-earlier period on the back of a surprise surge in iron ore prices… somehow this still fell short of market expectations.

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Analysts had forecast profit for the six months to Dec. 31 of about $1.5 billion, according to Thomson Reuters data.

Reuters reported that U.S. stock index futures rose to record intraday highs on Tuesday as oil prices surged and investors assessed earnings from top U.S. retailers.

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The theory is share prices are being driven higher by a strong oil price and retailers who are reporting better than expected store sales. Wal-Mart Stores, Inc., Macy’s, and Home Depot sales are all up on robust consumer demand. If stock prices were supported on consumer confidence alone, we could see an argument for this bull run in share prices to continue.

Stocks are up

Stock prices continue to rise thanks to strong retail sales and oil prices. Source Adobe Stock/Tiagozr.

There is plenty of optimism around. Donald Trump’s much-vaunted infrastructure projects are expected to create significant demand and have an inflationary impact on the economy… when they eventually see the light of day. 2018 At the earliest is our expectation since few are shovel-ready and all will have to get past Congress first. Meanwhile, though, the economy is adding jobs at a steady rate and unemployment is low.

Oil Supply

However, if Reuters is right and shares are being driven higher in part due to the oil price, we have a few concerns. The oil price was driven higher by the Organization of Petroleum Exporting Countries‘ production cap agreement last year, an agreement to which both major OPEC producers and 11 non-OPEC countries like Russia signed up to in an effort to reduce excess production and bring the market into balance by the summer. Read more

Macro photo of a piece of lead ore

The International Lead and Zinc Study Group released its initial lead findings for February, and found that in 2016, supply exceeded demand in the global market for the refined metal.

Furthermore, lead inventories reported by the London Metal Exchange, Shanghai Futures Exchange and consumers and producers during that same period of time increased, as well.

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The ILZSG report elaborated: “There was a sharp decrease in Australian lead mine output mainly as a consequence of the closure of the Century mine in 2015 and cutbacks in output at some Glencore operations. Production was also lower in India and Mexico. However, these reductions were partially balanced by a rise in China resulting in an overall global decline of 1.3%.”

However, world refined lead metal production actually increased 2.4% in 2016. This was mostly attributed to the Republic of Korea (South Korea) commissioning a new primary lead plant in 2015.

Lead Price Momentum on High in 2017

According to a recent piece from our own Raul de Frutos, after a strong run in 2016, lead prices pulled back to close the year. However, prices have since recovered and Raul predicts they will trade at $2,800 by the end of this year.

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“(Lead prices) are currently below $20 per metric ton, from $80 just three months ago. In this respect, lead is playing catch-up with its cousin zinc, in which the deficit for refined metal is more obvious. In 2017 investors will be closely monitoring China’s numbers. The slump in treatment charges and the fact that China must get serious about controlling industrial metals output to solve its pollution problem could result in lower lead refined output this year.”

How will lead and base metals fare this year? 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:

Donald Trump’s November victory ignited the steepest stock market rally from election day to inauguration for a first-term president since John F. Kennedy won the White House in 1960.

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The S&P 500 index, a broad measure of the performance of large U.S. companies, climbed 6% since election day. Wall Street has not posted such a strong run from a president’s first-term election win in more than half a century, when the S&P 500 climbed more than 8% after JFK beat then vice-president Richard Nixon.

Stock market performance since election of a new US president. Source: Financial Times.

Over the same time frame, only the advance following Bill Clinton’s second election stands with JFK in topping the Trump run. Additionally, Wednesday’s fifth-straight record-high close for each of the major U.S. equity indexes matches a streak last seen in January 1992. The Philadelphia Federal Reserve Bank even said its manufacturing index soared in February to a 33-year high, in another indication of improving business sentiment in the wake of the Republican election sweep. Read more

A lighted underground tunnel in a nickel mine

Nickel prices increased early in February with hedge funds and speculators hurrying to close bets against the metal with the Philippines moving ahead with regulations on its mining industry.

According to a recent report from the Financial Times, nickel’s climb was directly attributed to the closure of 21 mines along with the suspension of another six pits, including the nation’s largest gold mine.

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The Philippines is the world’s most significant source of unprocessed nickel ore, along with being a major supplier to China, the news source stated. A renewed emphasis on environmentalism led to Philippines’ President Rodrigo Duterte appointing a like-minded resource minister to investigate the nation’s mining industry.

“My issue here is not about mining, my issue here is about social justice,” Regina Lopez, natural resources secretary, said during a recent briefing. “Why is mining more important than people’s lives?”

Nickel Price Outlook for 2017

Lopez pointed at the mine closures, which account for nearly half of the nation’s nickel output.

“We are very pleased to see the Philippines taking this action while allowing proper mining companies which adhere to better environmental practice to continue,” analysts at SP Angel told the Financial Times, adding the whole nickel supply chain was an “environmental disaster”.

“The huge growth of ore exports into China for the production of nickel pig iron disrupted the nickel industry in recent years while causing massive environmental disruption in the mining areas and at the nickel pig-iron furnaces.”

How will nickel 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:

 

Stock markets in China are up nearly 10% this year, outpacing a 4% gain in the S&P 500.

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President Donald Trump’s election victory in November raised worries that his administration would pursue more aggressive policies toward Asia’s biggest economy. On the campaign trail, Trump had threatened to increase tariffs on Chinese exports and label the country a currency manipulator.

FXI China shares attempt to breakout. Source: MetalMiner analysis of @stockcharts.com data.

While these threats haven’t materialized yet, fund managers have focused on healthier Chinese corporate earnings and stable economic data, rather than worrying about protectionism.

Read more

Ezio Gutzemberg/Adobe Stock

The tin market in London remained tight last month and the underlying problem appears to be a lack of deliverable metal.

According to a recent Reuters report from Andy Home, a closer look at China reveals a significant supply of tin registered with the Shanghai Futures Exchange, but it previously was hiding behind the country’s 10% export duty.

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, that doesn’t appear to be the case any longer as China evidently removed the barrier without notification, which could lead to serious consequences for the worldwide flow of tin and, more specifically, the London Metal Exchange market.

Home writes: “There is still a good deal of uncertainty as to what exactly may, or may not, have happened. But tin industry body ITRI has drawn attention to the fact that the tin export duty has not been referenced in China’s 2017 Exports Commodities Tax Rates table.”

Home adds the reason for China dropping the duty, a standard for nearly 10 years, can be attributed to the US-filed complaint last July to the World Trade Organization regarding their export duties on numerous metals and minerals, including tin.

Tin Price Update for February

Just last week our own Raul de Frutos wrote tin prices dropped 9% since the beginning of the year, reaching a 5-month low.

de Frutoes wrote: “There are two factors driving this decline:

  • Profit taking: Prices rallied near 70% in 2016 and prices need to digest those gains.
  • Speculation that China has removed it’s 10% export duty on refined tin exports.”

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:

I am not sure this would go down well in the U.S., but take the most populous country in the world, with an estimated population of 1.3 billion of whom 22% are judged to be living in poverty and give them a state-provided universal basic income (UBI) payable to every single person. Sound like madness? Sound like a recipe for financial disaster? Sound like a socialist pipe dream? Maybe, but the idea is being actively debated in India according to the Economist.

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Although the pre-annual budget economic survey, published on January 31, did not make any promises, it did outline an idea to pay every citizen 7,620 rupees ($113) a year. Far from a king’s ransom — it is equivalent to less than a month’s pay at the minimum wage in a city, but it would cut absolute poverty from 22% of the population to less than 0.5%. The money would largely come from recycling funds from around 950 existing welfare schemes, including those that offer subsidized food, water, fertilizer and much else besides. Altogether, these add up to roughly the 5% of GDP that the UBI would cost, the government’s chief economic adviser, Arvind Subramanian estimates. Read more

SONY DSC

Copper prices have been on the rise and could continue their ascent if the world’s two biggest copper mines continue their strike.

According to a recent report from CNBC, copper futures contracts for March delivery grew by more than 1.5% this week following information that BHP Billiton is halting production at the world’s largest copper mine, Escondida, located in Chile.

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“It’s presenting the market with a bullish case for a little upside, Vivienne Lloyd, base metals analyst for Macquarie in London, told the news source.

Copper prices were already on the ascent, growing more than 30% last fall with the U.S. dollar weakening close to the election, combined with traders’ more optimistic views on China.

“Traders were already bullish into the strike, Dane Davis, commodities research analyst at Barclays, said. “People have watched the negotiations deteriorate.”

Copper Disruptions Bring Upside Potential

Our own Raul de Frutos wrote just this week on the factor the copper mine strikes will play in the metal’s recent bull run. He added:

“Base metals looked more bullish in January and strong Chinese data is no doubt driving that. China’s PMI was in growth territory for the seventh consecutive month.”

Raul concluded: “Copper prices might look expensive compared to what they were just three months ago. However, that rally might just be the beginning of a bigger move. Sentiment in the industrial metal complex remains quite bullish and there are factors currently playing out that could build the case for another rally in copper prices. Copper buyers should minimize their commodity price risk exposure accordingly.”

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:

China is a top producer of aluminum, and its ongoing battle against pollution could lead to production cuts and, subsequently, skyrocketing aluminum prices.

According to a recent report from Reuters, the aluminum price rally could also potentially be offset by the oversupply situation. Any kind of extreme market fluctuation would be dependent on the Chinese government following through on the shutdown of aluminum-rich provinces during the winter months.

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“When the government in the past tried to implement measures to control production it wasn’t very successful,” Edgardo Gelsomino, research director at consultancy Wood Mackenzie, said. “The only time production cuts really happened in China was when the economics of the smelters didn’t work.”

Aluminum Prices Begin Year on a Strong Note

Our own Raul de Frutos wrote recently on exactly how much US aluminum prices and premiums can rise in 2017. Well, they started off the year strong. “While robust demand has supported aluminum prices, investors’ eyes have recently turned to the supply side of the equation. In December, China’s share of global aluminum output was more than 56%. The giant producer’s share of supply is now facing some serious risks,” de Frutos wrote.

He concluded: “In addition to higher aluminum prices due to supply cuts, we could see higher aluminum premiums due to the ongoing trade tensions, just as we saw the spread between domestic and international steel prices widen.”

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: