Articles in Category: Macroeconomics

stainless-nickel-L1The losses incurred by nickel mines due to low prices continue to pile up with Canada’s Sherritt International Corp and Japan’s Sumitomo Corp announcing this week more than $1.7 billion in losses from their Ambatovy nickel mine in Madagascar.

The reason? Nickel prices are at 12-year lows and it’s wreaking havoc on operations. With 60,000 metric tons of nickel mined a year at Ambatovy, the continued slump in commodities has taken a significant toll on miners and traders alike, forcing asset sales, losses and write downs, according to a report from The Globe and Mail.

“There is a possibility that we may post impairment losses in additional projects,” Sumitomo stated in a press release.

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!

Slumping demand in stainless steel is the main source of nickel’s surplus. The glut in supply is putting downward pressure on prices for the metal, which recently dropped to its lowest mark in more than 12 years.

The Madagascar nickel project is one of the world’s largest and has suffered from both the global commodity slump as well as slowing Chinese demand, reports The Wall Street Journal.

“Our earlier outlook was too optimistic,” Hiroyuki Inohara, Sumitomo CFO, told the WSJ.

Demand Slowdown Not Stopping in China

China continues to produce steel in spite of a slowdown in domestic demand, according to our own Stuart Burns. “China’s steel exports rose by almost 20% in 2015 to a record 112.4 million mt. To put that in perspective that is enough to meet demand in Germany and Japan for a year and still leave almost 9 mmt to spare,” he wrote.

However, that amount of exports is not sustainable in the medium term. With global demand stagnant and trade tensions on the rise, exports will have to find a way to decrease this year either on their own or through anti-dumping actions.

How will base metals fare in 2016? 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:

 

 

More ominous economic news greets you this morning in MetalCrawler. Stock markets continued to fall, globally, while US unemployment unexpectedly jumped.

Growth Slowing Worldwide

Economic growth is losing momentum across emerging and developed economies as is inflation. China’s slowing economy is now the biggest worry for 2016, according to the overwhelming majority of hundreds of economists polled by Reuters around the world.

Free Sample Report: Our January Metal Buying Outlook

That comes despite several trillion dollars’ worth of stimulus and ultra-easy monetary policy from major central banks over the last half decade, and coincides with a growing sense of fear that is gripping world financial markets.

The benchmark S&P 500 US stock index closed below 1,900 for the first time since September on Wednesday, crude oil prices have fallen over 70% since mid-2014 to below $30 a barrel and US 10-year Treasury bond yields are back to two-month lows.

US Jobless Claims Rise

The number of applications for unemployment benefits unexpectedly increased last week, a sign labor market momentum may be starting to cool.

Free Download: New! The January 2016 MMI Report

Initial jobless claims rose by 7,000 to 284,000 in the week ended Jan. 9, the second-highest level since July, a report from the Labor Department showed on Thursday. The median forecast in a Bloomberg survey of economists called for a decline to 275,000.

After its surprise devaluation last August, a number of daily fixes in the Chinese yuan’s exchange rate have followed.

Free Sample Report: Our January Metal Buying Outlook

As its economy slows down, China is trying everything it can to encourage growth such as weakening its currency to make goods more attractive abroad while accelerating import substitution at home. The proverbial kitchen sink has been thrown at the growth problem in China.

However, while China pursues its domestic goal, the country is also worsening the financial stability of other countries.

Yuan-dollar exchange rate 1 year out

Yuan-dollar exchange rate one year out. Source: Yahoo Finance.

As we pointed out back in August, a weaker yuan is bearish for industrial metal prices. Here are four reasons why:

It Encourages Chinese Exports, Expanding a Global Glut of Cheap Imports

When the value of the yuan falls, metals produced  in China become cheaper and more competitive in global markets. This helps to prop up exports of metals such as steel and aluminum products, potentially hurting prices around the globe. Read more

We like to think of ourselves as optimists at MetalMiner.

Free Sample Report: Our January Metal Buying Outlook

If given the option, we prefer the glass half full than the glass half empty, so an article in the London Telegraph and many other newspapers this week reporting RBS Bank’s latest client note makes depressing reading, but unfortunately worthy of discussion.

The note advises clients to “Sell everything except high-quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crisis, warning that major stock markets could fall by a fifth and oil may plummet to $16 a barrel.

It All Must Go!

Nor is RBS playing a new tune, since November they have been warning the oil price and stock markets are headed lower, sure enough the oil price has continued to fall, dropping to a 12-year low of $30.41 for Brent and $30.43 for West Texas Intermediate this week.

Source: Telegraph Newspaper

Source: Telegraph Newspaper

The markets are clearly spooked and by a number of factors. China’s stock market is being kept alive only on the oxygen of government support via state enterprises buying shares. Oil consumption has stalled due to slow growth and warm weather, and oil supply continues to grow as Iran gears up to enter the market.

Read more

The Shanghai Metals Market conducted a survey that found about 35% of Chinese tin smelters are optimistic over tin prices in the short-term. In addition, recent market research anticipates the global tin market to grow at a moderate rate of about 2% due in part to the increase in lead acid battery usage.

Government regulations, most notably in China, are forcing manufacturers to replace antimony and cadmium in lead acid batteries with tin to alter the composition of the grid alloy. However, it should be noted that we consider this just a blip in the radar and the downward trend for tin is expected in our medium- and long-term projections.

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’s economy continues to be a sore spot on the global radar and as a top consumer of many of the industrial metals sourced, its fate plays a significant role in the price trends for those metals.

Chinese Economy Not Off to a Good Start in 2016

As we reported earlier this week, the global start market took a huge hit to begin the year. In fact, $2.5 trillion has been cleared from the value of global equities this week, starting in China and leading to a domino effect that has rippled through the rest of the world. This has led to one of the worst starts for the stock markets since the 1980s.

Our own Stuart Burns wrote: “On the Shanghai market, trading was stopped on Monday as ‘circuit breakers’ closed the market after shares plunged 5% and, again, Thursday trading was canceled for the day after just 29 minutes when the CSI300 fell more than 7%. Under the ‘circuit breaker’ system, created after the plunge in shares last August, if an index rose or fell 5%, trading was halted for 15 minutes. If it dropped by 7%, trading stopped for the rest of the day.”

How will base metals fare in 2016? 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:

 

 

As our editor said last week, the road to hell is paved with good intentions, an apt phrase for the events unfolding in China this week.

Regulators were obliged last year to relax tight controls over the currency in order to qualify for Reserve Currency status from the International Monetary Fund for the yuan/renminbi but had probably not foreseen the consequences. Indeed, many are still not seeing the collapse of share prices on the Shanghai Stock Exchange this week as a currency-related issue.

If You’re an Investor, It’s Your Money Getting Purposely Devalued

Anyone holding shares or a pension will be painfully aware that some $2.5 trillion has been wiped off the value of global equities this week, in just four days, events starting in China have rippled around the world causing one of the worst starts to the year for stock markets since the 1980’s.

On the Shanghai market, trading was stopped on Monday as “circuit breakers” closed the market after shares plunged 5% and, again, Thursday trading was canceled for the day after just 29 minutes when the CSI300 fell more than 7%.

Under the “circuit breaker” system, created after the plunge in shares last August, if an index rose or fell 5%, trading was halted for 15 minutes. If it dropped by 7%, trading stopped for the rest of the day.

So what prompted the sell-off? Many have been saying the Shanghai market is a bubble waiting to burst for quite some time, but is it a sudden epiphany among investors that prices are overvalued? No. Actually, it has little to do with share prices and a lot more to do with currency and ill-judged rules imposed by Beijing to try to control the market, Beijing’s actions often have unforeseen consequences in such situations.

What is the Real Value of a Controlled Currency?

First, the currency: as we mentioned above Beijing allowed the yuan to respond more readily to market forces. We won’t say float, but the trading bands were widened and the currency has fallen for much of 2015 against the rising dollar. This got investors worried, even if the Shanghai market was not shaky, a falling currency makes shares less valuable over time.

Further, holders of yuan,companies and investors made up of China’s rising middle and wealthier classes, see the cost of foreign investments such as houses, land, companies, rising almost daily in yuan terms.

Valuation of the yuan moved to a basket of currencies last year rather than a loose peg against the dollar with the promise by Beijing that it would remain more stable against the China Foreign Exchange Trade System basket. That was December, since then the currency has slid for three straight weeks and the central bank has burned through $140 billion trying to defend it.

Falling Production Data Adds to the Misery

Combine that with a fall in China’s Purchasing Managers’ Index composite for both manufacturing and services to below 50 and frightened investors took flight, dumping shares in a repeat of what we saw last August after Beijing’s snap devaluation of the yuan as this graph from the New York Times illustrates.

Yuan_USD_ Stockmarket

Source: The New York Times

In an attempt to calm the panic selling, Beijing has actually made matters worse. The end of a share sale ban, that was imposed last year wherein investors were prohibited from selling for a lock-in period, was extended. Believing they were going to continue to be locked in to shares that were falling in value and, naturally, becoming spooked by company insiders selling shares, investors rushed for the exits. Beijing then had to move fast to extend the ban into 2016, which has helped calm markets temporarily but done nothing the address the underlying causes.

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This week, we got to see China close its stock market early to stem massive losses not once, but twice. The second one after only 29 minutes of trading.

Free Sample Report: Our January Metal Buying Outlook

China suspended its recently implemented “circuit-breaker” system Thursday, after trading in Chinese stocks was halted minutes into the session because of a plunge in prices. The circuit breaker was a new tool this year that Beijing assured investors would calm the markets and keep massive stock price falls from happening in one day. They just happened on Monday and then, again, on Thursday. Fine work, Beijing.

Bye, Bye Circuit Breaker

“After weighing advantages and disadvantages, currently the negative effect is bigger than the positive one. Therefore, in order to maintain market stability, CSRC has decided to suspend the circuit-breaker mechanism,” a statement from the China Securities Regulatory Commission (CSRC) said in a statement announcing the sidelining.

AdobeStock_signcloud_short_circuit_china_550_011715

The Chinese stock market’s circuit breaker was short-circuited. Source: Adobe Stock/signcloud.

The second trading suspension in China caused global shares to fall sharply on Thursday, with Wall Street opening more than 1% lower and European markets trading 2% down. Read more

Our Renewables MMI fell 4% to start the year, even as congress extended the renewable energy tax credit that gives end users of solar panels, wind turbines and other metal products an incentive for purchases through 2022. Our Renewables MMI fell 4% to start the year, even as congress extended the renewable energy tax credit that gives end users of solar panels, wind turbines and other metal products an incentive for purchases through 2022. This is, of course, the latest in a series of all-time lows.

Free Sample Report: Our January Metal Buying Outlook

We have previously written about the paradoxical nature of government incentives and metal price increases, particularly for the metals that go into renewable products. The solar tax incentive can cover up to 30% of a system’s installation and cost so it definitely helps adoption, but that offset also keeps base prices from rising as the true cost is so different than what consumers are paying.

Renewables_Chart_January-2016_FNL

The renewal, unsurprisingly, also supplements solar silicon products in a much more effective way than, say, the neodymium or the grain-oriented electrical steel used to construct wind turbines. We should not expect to see renewables prices rise until the level of government subsidy for solar begins to taper off in 2020 or until adoption of the underlying generation technologies skyrockets.

Free Download: The December MMI Report

In the meantime, demand is strong, if muted by the subsidy, and the supply of photovoltaic panels available for consumers that want to slap them on their houses to collect the tax credit can only help spur adoption. SolarCity has topped off its PV panel gigafactory in upstate New York and similarly looks forward to selling its panels and passing most of that discount on to consumers.

It will be years before we know if this economic experiment in subsidizing renewables is a success, but all of the ingredients for creating a stronger market in the future are there and paid for.

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Source: Adobe Stock/ epitavi

Source: Adobe Stock/ epitavi

Low copper prices have claimed another victim in the form of a once-profitable mining operation.

Imperial Metals Corp. announced it will be laying off more than a third of its workforce located at the Huckleberry mine in the northwestern section of British Columbia, Canada. The reason? You guessed it: continually falling copper prices.

“While HML has made significant efforts to reduce operating costs at the Huckleberry mine, the realized savings have not been sufficient to offset declining copper prices,” the company stated, according to a report from The Globe and Mail.

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Imperial Metals Corp. also owns the Mount Polley and Red Chris mines, and announced that while they’ll suspend pit operations at Huckleberry, they will continue milling stockpiled ore, the news source stated.

Copper future contracts are trading at about the same level they were back in mid-2009 when the global economy was still in the throes of a significant recession. Today’s low copper prices can be mostly attributed to the economic crisis in China, a top consumer of the metal.

Chinese Data Continues to Worry Markets

Copper prices slumped further this week, according to The Wall Street Journal, because of weak Chinese manufacturing data. Factory activity in the Far East nation dropped in December, further cementing a situation rife with slow growth and weak demand.

“It’s been hard to sustain any rally,” Bob Haberkorn, a senior broker with R.J. O’Brien in Chicago, told the news source. “Copper has nothing but headwinds facing it right now.”

How will base metals fare in 2016? 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:

 

Our Aluminum MM index rose 3% to 72 during the month of December from 70 in November.

Free Sample Report: Our January Metal Buying Outlook

Is this upward move something to be worried about? Or excited about? We don’t think so.

Aluminum_Chart_January-2016_FNL

As soon as prices rise a tick, people try to find the fundamental reason for that price increase. Sometimes they can even, somehow, make the case that the outlook is set to improve. But in the case of aluminum, nothing really improved in December.

First, aluminum has declined more than 30% on the year-to-date. A 3% increase after such a price slump means nothing. Indeed, aluminum producers should be worried that prices are not able to make a decent rally from these low levels. That only means that investors are only interested in selling, not buying.

Supply and Demand

Fundamentally, we didn’t see anything this month to make us more bullish on aluminum. The State Reserves Bureau in China announced intentions to buy a 1 million tons, or possibly twice as much, to help smelters awash in the metal. Some might take this as bullish news, but we doubt that can make the outlook any brighter. To us, this purchase would only represent a change in ownership of existing unsold stock, irrelevant to the future global market balance.

There is no shortage of metal and aluminum continues to flood out of China. December marks another month without significant production cuts. There have been reports that Chinese smelters plan to reduce some of the excess capacity but it seems like markets would like to see some real action on this front. In China, the most smelters have done involves taking smaller capacity offline for “maintenance.”

The slight increase in aluminum prices was mostly because of a weaker dollar in December which also helped most industrial metals hold their value during the month. China’s slowdown is the long-term price driver and we recently saw Chinese manufacturing numbers disappoint, adding more worries about overall weak demand. That alone, will likely keep a lid on aluminum prices.

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