Articles in Category: Macroeconomics

stainless-nickel-L1Nickel prices remained steady this week, trading in the range of their support and resistance levels, but the future could be an interesting one for the metal.

According to a recent report from the Economic Calendar, a tightening supply chain and increased demand could lend its support to future upside for nickel.

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!

“There are signs that this year could be finally the turning point for nickel with many expecting the market to be in deficit and so starting the much needed rebalancing process,” Eduard Haegel, asset president of BHP’s Nickel West unit, said at a conference in Perth. “The welcome return to balance over the next few years should see further recovery in nickel prices.”

So far this year, nickel prices have climbed following the Philippines banning several miners due to questionable environmental practices. On the heels of Indonesia’s ban on nickel ore exports, there were concerns this shift in supply would be temporary but both nations have confirmed they will continue their efforts.

Nickel in Line for a Rally?

Our own Raul de Frutos wrote just this week that nickel’s fundamentals favor a move higher, as do their recent consolidation.

“At least both the price action and fundamentals seem to agree with (nickel’s move higher). Buyers should have a good plan in order to protect margins in case of a price increase,” de Frutos wrote.

How will nickel and base metals fare for the remainder of 2016 and into 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:

Adobe Stock/ Björn Wylezich

Adobe Stock/ Björn Wylezich

Just last week, zinc prices experienced a tough couple of days as the London Metal Exchange (LME) three-month price fell by $100 per metric ton.

According to a report from Reuters, this has been an interesting month for zinc as the metal previously hit a five-year high earlier in October. Its slide can be attributed to news of producers planning to increase output of the industrial metal.

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!

North American zinc mining continues to play a significant factor with Canada’s Teck MIning providing a three-year production forecast from its report in Q4 last year.

“Zinc production is expected to increase significantly as the mine enters a phase with high zinc grades and a higher proportion of copper-zinc ore processed, with our share of zinc production during 2017 to 2019 expected to average more than 80,000 tons per year,” the report stated.

Nothing to Worry About With Zinc’s Decline?

Our own Raul de Frutos recently covered zinc’s decline and warned that it’s nothing to worry about.

“Don’t expect zinc to turn bearish or anything. Meanwhile, in China, manufacturing provinces have found a way to curtail power costs, no matter what the price,” de Frutos stated.

Actually, most industrial metals saw their prices increase as energy and transportation costs went up, as well. Also of note we oil prices, which flirted with $55/barrel this week and U.S. shale drillers increasing production.

How will zinc and base metals fare for the remainder of 2016 and into 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:

Chinese GDP is on a roll this year. After turning out less steel in 2015 than the year before, the first time in more than three decades that steel production declined, 2016 is back on the rise.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

According to Bloomberg, crude steel output totaled 603.78 million metric tons in the first nine months of this year, up 0.4% from a year ago. Demand has been boosted by stimulus measures encouraging investment in the real estate and infrastructure sectors. The September output of 68.17 mmt implies that Chinese apparent steel consumption jumped 9% from a year earlier, RBC capital markets is quoted as saying.

Surging in September

This makes September the strongest month so far in 2016 and October will probably stay high as consumption typically rises in the Fall. Steel mills are being encouraged by a return to profitability and, in spite of protectionist moves from overseas, markets around the world say China’s exports in the first nine months rose 2.4% on a year earlier at 85.1 mmt, the highest ever Bloomberg says.

Nor is this stimulus and debt-fueled binge restricted to steel. Global daily average aluminum production rose to 164,600 mt from 159,800 mt in August, led by a rise in China’s output for the month to 2.75 mmt, the highest in 15 months.

A rally in Shanghai aluminum prices and demand from housing and infrastructure encouraged Chinese smelters to bring back some 1.8 mmt of capacity this year in addition to adding some 2.9 mmt of new capacity. Chinese output is expected to continue to rise, Reuters mentioned in a recent note, and suggested that prices could soften to $1,550 per mt by the end of the year as a result of excess supply. While total global primary aluminum production increased to 4.937 mmt, up 1.2% from the same month last year,  growth continued to be at the expense of western smelters with North American output falling 11%  to 325,000 mt last month.

Markets React to Stimuli

As we have seen in the past, China’s stimulus measures are rather like the sugar rush that comes and goes. Chinese GDP has been boosted or at least stabilized at 6.7% this year on the back of measures introduced by Beijing towards the end of last year.

Free Download: The October 2016 MMI Report

But, like previous stimulus measures, the result is increased debt progressively at lower rates of return and ultimately adding to more of a global overproduction problem. In the short term then, demand for iron ore, coking coal, bauxite and alumina looks set to remain firm at least until the winter slow down begins to bite. Depending on how marked that is we will either see a drop in raw material demand, and hence prices, or a drop in finished steel and aluminum output. Neither scenario being particularly positive for prices.

lead-prices-L1Lead prices climbed to their highest point in 16 months earlier this month, due in part to steadier copper prices and concern over mine supply.

According to a recent report from Reuters, three-month lead on the London Metal Exchange surged more than 3% to begin October, its strongest showing since May 2015, stacking on gains from the last session when rising oil prices were also a contributing factor.

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!

“Lead, which has underperformed the other base metals for much of this year, has been catching up in the past couple of months … with contraction in lead mine supply and refined lead, Caroline Bain, senior commodities economist at Capital Economics, told the news source.

According to the Reuters report, mine shutdowns on a global scale over the past year, as well as lead producers’ activity in curbing output due to low prices, have tightened global supplies of lead, which is used to make batteries.

China reported last week that its economy grew at 6.7% in the third quarter compared with a year ago.

Free Download: The October 2016 MMI Report

That’s bang on the money where most analysts had expected it to be and was identical to the GDP figures posted in the first and second quarters of the year. The consistent numbers have caused some to question the accuracy. A New York Times article suggests that a lending binge in China this year has helped to sustain growth and create some uplift for the property market. Read more

Tin cans. Cans are used for packing all sorts of goods - conserved food, chemical products such as paint, etc

Tin cans. Cans are used for packing all sorts of goods – conserved food, chemical products such as paint, etc

Tin prices saw a boost this week due in part to reduced output from Myanmar, a key producer of the metal.

According to a report from Reuters, other base metals including zinc, also climbed this week due in part to a weaker dollar and strong credit data from key consumer China.

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!

“China released new credit data, which was better than expected,” Xiao Fu, head of commodity market strategy at Bank of China International in London, told the news source. “The new yuan loans hit the highest level since June, so that’s helped to lift sentiment.”

It’s also worth noting that tin was the top performer on the London Metal Exchange Tuesday this week following reporting from senior mine officials in Myanmar, China’s top supplier of ore, that production at key operations was falling drastically and deposits could be depleted in the next several years.

Tin Bull Market Extends into Q4

Earlier this month, our own Raul de Frutos wrote that industrial metals rose in the first half of the year, then subsided in Q3, but momentum is beginning to tick back up.

“The industrial metals exchange-traded fund, which tracks the performance of four base metals, recently hit a 14-month high,” de Frutos wrote. “This is important because when money is flowing into the industrial metals complex, every metal gets a tailwind. Recently, we witnessed particularly strong momentum in lead, zinc and tin.”

How will tin and base metals fare for the remainder of 2016 and into 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 report in the Financial Times last week covered falls in metal prices due to recent Chinese trading data.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

The data showed a 10% fall in China’s exports last month and a greater than expected drop in imports sent copper down nearly 3% late last week before a slight recovery on Friday. The FT quotes Caroline Bein analyst at Capital Economics saying “ to drop in exports is negative for industrial commodities raising concerns about weakness in the manufacturing sector and import figures raise concerns about domestic demand.”

Broad Drop

Copper was not alone in reacting to the poor trade figures, although the Shanghai market seemed remarkably sanguine, European and U.S. stock markets dropped sharply, driving stocks lower and boosting gold, bonds and safe haven currencies like the Yen.

Are the trade figures quite as bad as they seem? And do they justify the markets sharp reaction? There are broadly two issues at work here. First, the wider issue of China’s trade data. Back to the FT, China’s trade data showed that the country’s exports last month were down 10% from a year earlier — following a 2.8% contraction in August — suggesting that global demand was decidedly weak. Read more

Set of copper pipes of different diameter lying in one heap

Set of copper pipes of different diameter lying in one heap

Copper prices could soon see significant pressure due to what many are calling ‘a wall of supply.”

A recent report from CNBC, citing commodity analysts at Goldman Sachs Group, reveals a supply glut could translate to reduced copper prices for the foreseeable future. In fact, the weakness of copper (in addition to the strength of zinc) has been one of Goldman Sachs’ focal points this 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!

“Over the next three to six months we believe that copper will continue to underperform zinc, with copper about to hit a wall of supply, while the zinc concentrate market continues to tighten,” Jeffrey Currie of Goldman Sachs and his team of analysts said in a note.

This week, three-month copper on the London Metal Exchange slipped following weak export data from China. The metal recently reached a two-month high as recently as the end of September, the news source stated.

“In copper, we expect the main catalyst for the downside will be accelerating oversupply, but we are also conscious that we are entering a weak seasonal period for demand during which period inventories tend to build and prices often come under pressure,” the team added. “In zinc, the catalyst for further upside is that we expect a further substantial tightening of the concentrate market over the winter, which should result in zinc smelter production curtailments in China.”

Q4 Copper Price Forecast

How will copper and base metals fare for the remainder of 2016 and into 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:

 

Long row of rolls of aluminum in production shop of plant.

Long row of rolls of aluminum in production shop of plant.

Tuesday this week, aluminum prices traded with downside bias due in part to a rising dollar when compared to rival currencies, but that wasn’t the only major news to be found in the industry.

Alcoa, Inc., reported its third quarter earnings, which revealed a decrease in revenue while reducing its revenue targets due to lower aluminum prices and a shift in aerospace delivery schedules.

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!

It wasn’t all bad news for Alcoa, however, as the company reported profit improvement on a year-over-year basis.

Still, it is becoming more evident that conditions for the aluminum market remain challenging.

“Alcoa has moved to trim the costs of its aluminum production by shuttering its higher-cost U.S. facilities. Cheaper, more plentiful aluminum production from Chinese aluminum smelters have caused major struggles for North American aluminum companies. This has resulted in many cutbacks, and now North American production of primary aluminum is running at its lowest levels since 1983,” wrote Donald Levit for the Economic Calendar.

Aluminum MMI up in September

Our own Raul de Frutos wrote this week that our Aluminum MMI climbed 4% last month with prices for the metal rising above $1,600 per metric ton.

“However, we still need to see if this will surpass stiff resistance at $1,700/mt, a level that aluminum hasn’t overcome in more than a year,” de Frutos concluded.

How will aluminum and base metals fare for the remainder of 2016 and into 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:

 

The fact is Europe is deeply worried that giving the U.K. anything like access to the single market without acceptance of the “Four Freedoms” would be the beginning of the end for European federalism. That Europe would unravel as everyone saw the benefits without the pain.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

The irony is French President Francois Hollande is the most unpopular French politician ever. Not in the last decade. Not in this century. Ever, assuming we don’t count King Louis XVI who brought the French Revolution upon himself, and who wasn’t even an elected head of state anyway.

Remainers Dig In

Even Hollande’s own countrymen don’t listen to a word he says, so why the markets would have taken any notice is a mystery. Maybe because he isn’t alone. Even previously conciliatory German Chancellor Angela Merkel has this week been lecturing her own business leaders not to lobby for a soft exit in the interests of their trade with the U.K. According to the Guardian, she appealed to German firms to show a united front with E.U. governments in negotiations over the U.K.’s departure from the bloc, urging them to support the principle of “full access to the single market only in exchange for signing up to the four freedoms.”

Most Remainers would have said, prior to the referendum, that this was always going to be Europe’s position. The markets appear to have been hoping for some kind of softer exit deal, some kind of compromise that both sides could live with. But in the last week or two it has become progressively clearer that for whatever reasons, mostly short-term political survival in the case of the U.K. government, compromise is not something anyone is talking about.

Right or wrong, the exit looks like it will be a hard one and, as a result, firms should expect more volatility in the months ahead as positions harden and the markets take announcements as a shock.

Was the Pound Always Overvalued?

Some, such as Liam Halligan in the Telegraph, would argue that the pound has been overvalued for some time and an adjustment has been in the cards for months if not a year or more. He cites an International Monetary Fund report last year which judged that, based on the U.K.’s trade and productivity, the pound was overvalued by 20%. I suspect they were hoping for a more gradual readjustment than we have seen since June but, nevertheless, the IMF at least may argue the pound is closer now to where it should be… even if driven there for the wrong reasons.

Two-Month Trial: Metal Buying Outlook

HSBC’s economist David Bloom is predicting parity for the British pound to the Euro and 1.20 against the U.S. dollar over the coming months. Those with exposure should consider positioning themselves for such a possibility. Politicians are not much interested in the effect their words are have on the exchange rate or on companies struggling to cope with the volatility.