Articles in Category: Macroeconomics

PGM prices rebounded this month from being hit by the Volkswagen scandal last month, buoying the entire Global Precious Metals MMI for November. Our precious metal index hit 77 this month, a 4.1% increase from last month.


It helps that the rest of the complex did well across the board, with every single price point for platinum, palladium, and also gold and silver, appreciating across US, EU and Asian markets.

PGM Time

The US platinum price on the MetalMiner IndX ticked up considerably more than the US palladium price, almost-but-not quite proving our point from last month that “ultimately, in MetalMiner’s view, based on how investors reacted to the [VW] news, we’ll likely see both platinum and palladium trending in opposite directions in the short-to-medium term.”

Speaking of those investors, some big news in the ETF world: apparently platinum and palladium ETF outflows have approached some record lows. According to Reuters, platinum ETF holdings tracked by that news giant dropped 160,000 ounces near the end of October. Reserves of palladium ETFs were down 207,000 ounces over that same month, resulting in ETF holdings of both metals hitting their lowest since early 2014.

EconoTimes reported that just a few days ago, platinum and palladium ETF holdings were reduced by a further 31,600 ounces.

Interestingly, net-long positions, as the source reports, had risen to 13,500 contracts in that last week of October, which is itself the highest level since the beginning of July – so are we seeing investors taking a longer-term, slightly more bullish outlook? Remains to be seen.

In Economic Driver News: Fed Interest Rate Rise

The Federal Reserve recently announced that they would not raise interest rates, but it’s not ruling out a rate hike before the end of the year. Fed honchos see current economic indicators as generally favorable, which is the main reason the short-term rates have remained at near zero for the 7th year in a row.

However, as my colleague and MetalMiner’s lead forecasting analyst Raul de Frutos has pointed out, this waiting game is “generally bad news for metal prices and all commodity prices and the longer the Fed delays the more likely it is that when a rate increase does finally happen it will only make the US dollar more attractive to investors seeking yields.”

Which, of course, should bolster the dollar and, in turn, could ding at least gold prices…

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While many nickel producers were anticipating the Indonesian export ban would support price increases2016-annual-buyers-guide this year, the reality was much different. Philippine suppliers’ alternative supply led to nickel prices dropping more sharply than other metals this year.

We’ve identified the main price drivers for nickel next year as:

1. China GDP & PMI Data

2. Dollar to Euro exchange rate

3. Philippine exports

For a long-term industrial buying strategy for nickel, complete with specific support and resistance levels, download your complimentary copy of our 2016 Annual Metals Outlook report!

This report also includes commodities markets and industrial metals market analysis, in addition to key price drivers and commentary on aluminum, nickel, lead, zinc, tin and various forms of steel, in addition to copper.

Hot off the MetalMiner™ presses: The November Metal Buying Outlook report. In this month’s report,November report we recap October, the situation in China and then provide market commentary, industrial buying strategies and price drivers with support and resistance indicators for the metals YOU source: aluminum, copper, nickel, lead, zinc, tin and steel (HRC, CRC, HDG, Plate).

For November and December only we are offering a free trial to our Monthly Metal Buying Outlook reports. Now the final 2 reports for 2015 can be yours at no risk, no cost and no financial obligation.

Sign up today! 

A recent Financial Times article made an interesting comparison between our current fall in commodity prices and falls following previous price peaks.

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The FT says that after commodity prices peaked in 1997, it took 21 months to arrest that fall. In 2000-01 it was 13 months. After collapsing, along with the global economy in 2008, commodities hit the floor in just eight months.

Source: Financial Times

Source: Financial Times

This time, the Bloomberg Commodity Index has been in decline for four years and counting. From its most recent peak in May 2011, the benchmark is off by half and scraping the lowest levels of the 21st Century.

Picking Market Bottoms

When will it hit bottom and what will that look like? This graph is what a recent Economist Intelligence Unit report suggests the trend may look like. Yet, you have to ask, in a world expecting the imminent rise in Federal Reserve interest rates, with high levels of corporate and state debt and variable levels of growth around the world are we really going to move from a state of volatility to a situation of slow benign gradual price movements for the next 2-3 years?

Source EIU

Source: Economist Intelligence Unit

The FT article and the EIU report tend to look at the issue from the asset class point of view, suggesting recent cuts in output by major producers, such as Glencore in metals and ExxonMobil in oil, will work their way through to support prices next year. But as metals consumers, we know only too well that a metal is capable of going in one direction and another is capable of going in the opposite if the fundamentals are sufficiently diverse.

Unprofitable Metals

Prices for many metals are probably close to the bottom simply because the current market price is below the cost of production. Glencore has not curtailed production of copper and zinc out of altruism, it has done so because the mines it closed are not economically viable.

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Without courting innuendo, I am not going to enter into a long evaluation on the shape of bottoms and whether we can a expect sharp pointy one or a big, fat flat one, the reality is the shape will depend on the particular metal’s supply and demand fundamentals, and investors’ view of those fundamentals.

Check out part two of this article, featuring Stuart’s analysis of the oil market and several metals.

This is part two of a series on market bottoms. Check out part one if you missed it.

Prices for many metals are probably close to a bottom simply because the current market price is below the cost of production. Glencore has not curtailed production of copper and zinc out of altruism, they have done it because the mines closed are not economic.

Free Sample Report: Our Annual Metal Buying Outlook

Without courting innuendo I am not going to enter into a long evaluation on the shape of bottoms and whether we can expect a sharp pointy one or a big fat, flat one. The reality is the shape will depend on the particular metal’s supply and demand fundamentals, and investors’ view of those fundamentals.

Some commodities, such as oil, may already have begun to turn as swing producers like the US shale industry stop drilling and OPEC huddles to consider how much further they can afford to drive prices down. The big unknown remains Iran. If the spigots are opened following a relaxation in sanctions then OPEC may have to come to some kind of accommodation on production to stop the market reversing recent rises but that market looks like it’s going to be the big, fat bottom kind.

Shale Oil Production

Shale producers will come back to the market if prices exceed $60 per barrel effectively halting any further significant rise. The FT quotes sources saying production cuts in zinc, nickel and copper may mean those markets have also bottomed, but one issue the market is only slowly coming to realize is that some of that massive Chinese investment boom in response to China’s 2009 stimulus package went into the mining and refining of base metals.

Chinese Production

China has built itself massive new capacity and is moving from a consumer to exporter of metals, a trend accelerated by the slowdown in domestic demand as the economy moves away from resource-hungry industry toward domestic consumption growth.

Think steel, aluminum, and stainless steel; oversupply from china in these commodities will ensure we have a dead cat bounce kind of bottom, prices of these commodities aren’t likely to rise far or fast for years to come.

Currency Effect

Another trend that is perpetuating the situation is that, at least in some commodities, currencies are shielding producers from the worst effects of falling global prices. For the sake of example, take soybeans. Over the past five years, the price of soybeans has dropped by 28% in dollar terms, the FT reports. But price in the Brazilian real’s depreciation against the dollar and soybeans have actually gained 64%.

Source: Financial Times

Source: Financial Times

A US agricultural attaché in Brasília is quoted as saying “Despite lower global soybean prices, the weak Brazilian real is compensating with higher domestic prices and is encouraging farmers to increase area.”

Different Places, Same Overproduction

The attaché foresees a record 97metric ton Brazilian soybean harvest next year.

This is true, too, of oil In Russia, to an extent, where the ruble has collapsed against the dollar. It is true of ferro alloys in South Africa as we wrote recently, and to a more limited extent it is true of China following revaluations of the renminbi, now a major exporter of many base metals and steels. In all such cases it reduces producers need to curtail production to support prices. Indeed, in some it encourages greater production.

Free Download: The October MMI Report

So if we are near the bottom for many metals we have little to fear by way of a sharp rebound in any. To a greater or lesser extent they are all plagued by oversupply, in some cases active steps are being taken to address this such as with copper, and for those metals a recovery next year is a probability but generally high inventory levels will dampen the rate and timing of any upswing giving consumers plenty of time to adjust to a new trend and act accordingly.

For others, such as aluminum and steel there is a an opportunity to take a longer-term view and consider material substitution or design changes to take advantage of what could be long-term price changes. A flat bottom if that is your wish, or a new normal if you prefer.

This week the Federal Reserve declined to raise interest rates here in the US, but hinted strongly that it might do so at its last meeting of the year in December. Market-watching and significant commodities lows dominated the week in metals and most commodities.

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In China, the central government made a move to goose its planned economy that hardly anyone expected when it rescinded the longstanding 1 child policy families had been limited to since 1979. Chinese parents can now bring 2 whole kids into the world!

Introduced by Deng Xiaoping to improve a then-impoverished nation’s scarce resources, the baby limit is threatening to undermine growth there as the working-age population shrank last year for the first time in 2 decades and the cohort of senior citizens is projected to grow rapidly, just like our retiring baby boomers.

We write about China quite a bit here at MetalMiner, but mostly in relation to metals exports, oil and things that aren’t human beings. Yet, our skepticism about China really changing to modernize its economy extends to this 2-child policy, which could be a clever way to make it look like the nation is changing without dealing with underlying problems.

US dollar vs. RMB

Dollars and yuan renminbi dominated our economic conversation this week.

With slowing growth and a steel industry that’s still stuck in the dark ages when it comes to supply and demand and environmental regulation, can China really have all the jobs necessary to fill its current population? Let alone the next generation? China’s planned economy shoots for 100% employment. I’m skeptical of China getting even close to that these days without currency manipulation, overproduction of steel, aluminum and most of the metals that we track.

So, the labor market there is not really a market at all. My colleague, Lisa Reisman explained just how far mainland China is from being a market-based economy this week while discussing recent World Trade Organization moves to recognize it as such. The picture’s not pretty.

China’s largest listed steel producer, Baoshan Iron & Steel, has no further plans to cut production following the recent closure of its 550,000-metric-ton-per-year Baotong plant, even though most figures show it is still overproducing steel for export. I suppose we could achieve 100% employment in the US here, too, if we were to give half the unemployed jobs digging holes and the other half jobs filling them up.

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As if on cue, the US Dollar bounced off support and is now climbing higher against other currencies. While our banking system, and the Fed itself, can sometimes seem arbitrary and unsatisfying to investors, things could be far worse.

Arguably, no issue has impacted the steel industry more than imports.

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With multiple trade cases filed in 2015, service centers reeling with higher than average months-on-hand inventory levels (at prices that exceed the current market), US producers operating at 71.3% capacity utilization, the last thing the industry needs to hear is China somehow ascending to the World Trade Organization with full “market economy” status.

Nobody Thinks China Operates a Market Economy

According to a new report issued by trade specialist law firm Wiley Rein entitled, The Treatment of China as a Non-Market Economy Country After 2016 discusses what changes in market status China should expect to receive after 1 provision in the original negotiated WTO agreement expires on December 11, 2016.

China’s Protocol of Accession (to the WTO as a full member) requires that China and more specifically, its government, not meddle, “…its control over prices of key inputs to many manufactured products.”

Read more

Last week, the dollar index bounced off a key support level, suggesting that the dollar bull market that started in 2014 has yet to end.

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The bullish move happened after we pointed out the US dollar was approaching a key support level last week. The dollar’s move is bearish for metal markets since commodities are priced in US dollars and thus are negatively correlated to dollar fluctuations.

Dollar Index bouncing off support for third time this year

US dollar Index bouncing off support for third time this year. Source: MetalMiner analysis of data.

The dollar advanced against most developed-market currencies after China cut interest rates for the sixth time in less than a year, and gave banks more freedom to lend more money for the fourth time since November. Also, a day earlier, the European Central Bank announced that it is ready to use all its tools to raise inflation and growth.

About That Rate Hike…

Even though the economic data this year made the Federal Reserve delay a rate hike, investors still expect the Fed to raise interest rates sometime early next year. However, other central banks are not showing even remote interest in a rate hike anytime soon as their focus is to employ other easing measures to stimulate incremental growth.

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These actions have made investors focus on diverging monetary policy between the US and most countries overseas. Although the US economy is not growing at a fast pace, it’s still looking better than most major economies. Once the Fed raises rates, higher borrowing costs domestically would make the dollar more attractive to investors seeking yields than other currencies. That would potentially make the dollar appreciate against other currencies, having a depressing effect on commodity/metal prices.

The World Steel Association (WSA) recently said that India is the silver lining in an otherwise gloomy global steel market where most of the steelmakers have come under intense pressure from the Chinese economic slowdown.

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The Association, in its Short Range Outlook (SRO) forecast issued a few days ago, forecast the demand for steel in India to go up by 110 basis points (bps) in 2015 to 7.3% and by another 30 bps in 2016. Compare this to another top producer of steel, the US, where demand continued to remain a “challenge.”

US, Chinese Consumption Falters

Crude steel production, for example, dropped 9.7% year-over-year to 7 million tons in the US in August this year, marking it the seventh straight month of decline in 2015. The WSA saw no major change in this position through the rest of the year, at least as a stronger greenback and a listless energy sector continued to weigh down the domestic steel industry. The WSA predicted steel usage in the US to drop 3% in 2015, before clawing back to a 1.3% gain next year.

Where China is concerned, the WSA said in its report that steel exports from there had risen 28% to almost 44 million metric tons in the first 6 months of 2015, despite output declining by 2%. No surprise there since China produces over half of the world’s steel, but finds domestic uptake slowing, forcing its steel companies to dump there products in foreign markets. Low local demand has started to affect steel production, so much so that in July steel production fell 3.8%.

Overall, the WSA has predicted a 1.7% drop in global finished steel demand to 1,513 mmt in 2015. Demand may increase slightly next year by just 0.7% to 1,523 mmt, as it hopes the Chinese economy stabilizes.. This iss slightly different from its April SRO forecast which said steel demand was set to grow by 0.5% in 2015 and then recover to 1.4% in 2016.

India, South Korea Buck Falling Trend

Only India and, to a certain extent, South Korea somehow managed to buck the global trend. India, in the top 5 producers of steel, had produced 91.46 mmt in the last year. According to the Brussels-based WSA, world steel production fell by 3% in August, its biggest fall this year. But India still managed to beat this trend to post a 2.8% growth in steel output as compared to the same month last year. Despite the threat of imports, India produced 7.66 mmt in August compared to 7.45 mmt in August 2014.

At 5.9 mmt, South Korea, too, posted a 4.9% growth in steel output in August as compared to the same month a year ago. In July, the country posted a 1.7% growth in steel production to 6 mmt in the month.

South Korea today has a high-per-capita steel consumption of steel, over 1,000 kg of finished steel per person. By comparison, China’s is half as much per capita. To a large extent, by virtue of it being 1 of the world’s largest automobile maker,s South Korea consumes a lot of auto grade steel. Shipbuilding remains another major source of South Korean steel demand.

Free Download: The October MMI Report

The WSA report is based on data collected from 65 countries, representing about 98% of the global steel production.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

The American Iron and Steel Institute (AISI) hailed the House Transportation and Infrastructure Committee’s unanimous passage yesterday of the Surface Transportation Reauthorization and Reform Act (STRRA) of 2015. The legislation provides limited authorizations for infrastructure projects for the next 6 years.

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It comes at a cost of $325 billion, only the first 3 years of which are yet accounted for in current spending. Many House members have already said they will only support the bill if lawmakers come up with a way to fund the last 3 years of the proposal.

Thomas J. Gibson, AISI president and CEO, said, “The House Transportation committee, led by Chairman Bill Shuster (R-PA), made good  progress toward fixing our crumbling infrastructure by passing this long-awaited multi-year authorization bill, and we commend their dedication and commitment to bipartisanship. This bill benefits the steel industry by creating an environment for the quick delivery of projects and by providing the certainty needed for long-term, steel-intensive highway and bridge projects to break ground.

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Gibson also said AISI is urging support for an amendment by Congressman Reid Ribble (R-Wis.), which was not voted on in committee but will be considered during floor debate on the bill, calling for state-optional reforms in federal truck weight limits to allow 6-axle trucks to carry up to 91,000 pounds of cargo. AISI has long-supported this policy to improve efficiency and safety, and lower logistical costs for steel manufacturers, fabricators and shippers.

Please follow Jeff Yoders on Twitter @jyoders19