Articles in Category: Macroeconomics

There have been many among the advocates of Brexit and even more than a few among those opposed to it who have pointed out the relative stability in both U.K. GDP growth and the reaction of the stock markets to say that it wasn’t such a disaster after all, was it? Where is the economic collapse so many forecast?

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Of course, we all like reassurance that all in the world is well but the reality is we are living in a phony war. The armies are massing but little engagement has taken place yet. The initial shots have been fired. The British pound dropped 10-20% against most currencies, notably the U.S. dollar and the euro. Japan sent an uncharacteristically strongly worded 15-page memo to the British government warning them of the consequences should negotiations lead to Britain leaving the single market. Jean-Claude Juncker, president of the European Commission with a long history of bitter antagonism towards the U.K., has uttered countless dire warnings as to life for the U.K. post-Brexit. But so far, in spite of these initial salvos, little has changed. 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

Earlier this month saw tin futures reach their highest price in nearly 18 months due in part to a weakened dollar and stronger than anticipated Chinese manufacturing PMI.

What was not so surprising: Tin’s continued impressive performance as the metal has fared particularly well thus far in 2016.

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!

According to a report from Economic Calendar earlier this month, the U.S. dollar retreated after the Labor Department reported the domestic economy added fewer jobs than expected in August, which — compounded with news from China of increased manufacturing activity — bodes well for tin prices.

“Tin prices have climbed in 2016 amid a background o declining supplies,” wrote Donald Levit for Economic Calendar. “Chinese tin supply has decreased after environmental inspections resulted in the temporary closure of domestic smelters. Four smelters, accounting for 18% of China’s output, will remain closed for just over a month, and this should further tighten the market and contribute to lower supplies for the months ahead.”

Myanmar Tin Production Peaking?

Just last month, our own Raul de Frutos wrote that tin production in Myanmar may have reached its nadir. “Tin production in Myanmar has surged more than 10-fold over the past four years, accounting for more than 10% of global tin mine supply and helping to make up for falling Indonesian tin exports. However, according to a recent study released by the International Tin Research Institute, it appears that Myanmar tin production is peaking at some 50,000 mt per year, although there is still significant potential for the discovery of new ore resources.”

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:


There are conflicting messages out there.

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

Last month, Business Insider ran a piece saying “Recent movements in copper inventories highlight the lack of significant demand for the metal, particularly in the ever-important Chinese market.”

Shanghai Futures Exchange inventories are falling while, London Metal Exchange inventories are rising, suggesting metal is flowing out of Shanghai bonded warehouses into local Asian LME sheds. The contango has grown, allowing traders to store and hedge metal on the LME supporting the move but the fact that refined metal is flowing out China suggests industrial demand is weak. BMI calls the move a red flag and says it expects imports of refined metal to fall in the coming months.


Copper supply in LME sheds might be up, but our copper MMI is down.

Yet, just last week, better-than-expected official industrial PMI numbers unexpectedly rose to the highest level since 2014, according to Bloomberg, resulting in a bounce in copper prices, share prices in Hong Kong  and London and a fall in bond prices.

What’s Up With Copper?

So, what does this mean for copper? Was the export surge a temporary phenomenon prompted by the market moving into contango? Or is this truly a sign of an underlying weakness in demand?

China imported a record amount of refined copper in the second half of 2015, partly fueled by a relaxation of credit controls and encouraged by Beijing’s stimulus plans. Domestic refined production also increased significantly, but refiners are now cutting back and appear well supplied with concentrate in what remains an oversupplied market. Read more

The facade of the Federal Reserve Bank.

The facade of the Federal Reserve Bank.

Copper prices dipped this week with a stronger U.S. dollar hindering foreign demand for the metal.

According to a report from Nasdaq, copper for December delivery fell 0.2% at $2.0960 a pound on the Comex division of the New York Mercantile Exchange, after trading higher earlier.

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!

Debate on whether or not the Federal Reserve will raise interest rates this year, as well as fluctuating signs on China’s economic strength have influenced copper prices of late, keeping the metal trading in a narrow range.

“(It’s) a go-nowhere-fast-market,” Bill O’Neill, CEO, noted investor, told the news source. “But every time it appears set to break one way or another, it doesn’t happen.”

China, the world’s largest copper consumer, is looking at an improved outlook with annual growth in industrial output growing to 6.3% in August compared to a flat 6% in July, according to the National Bureau of Statistics.

As for interest rates, the Fed is scheduled to meet next week.

“‘Jittery’ does not even begin to describe the current market,” wrote analysts at Marex Spectron. “Expect traders to continue to trade on a three-hour time horizon awaiting the next headline about what the Fed may or may not do with rates in September.”

Copper MMI Drops in September

Our own Raul de Frutos recently wrote that copper’s dive in September is of no surprise:

“Any price rally could continue to be limited this year, especially if Chinese demand does not pick up and we see the supply increase that some banks are forecasting. On the other hand, an improving sentiment in the metal complex this year should support and keep copper prices from experiencing significant declines.”

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:

There is a delicate game of cat and mouse, feint and counter feint, smoke and mirrors going on among oil producers universally suffering from low oil prices.

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

On the one hand we have Saudi Arabia, the architect of the current low-price environment which started pumping oil at record levels specifically to grab market share in the face of growing U.S. shale production and the return of archenemy Iran to the market after years of sanctions. The low prices that resulted have caused pain for all producers and driven some heavily oil-dependent economies to the brink of collapse.

Talk of a production freeze in the early part of this year got everyone excited and the crude price rose, only for Saudi Arabia’s powerful deputy crown prince, Mohammed bin Salman, to throw cold water on the idea if Iran was not willing to be a part of any coordinated freeze.

The Arabian Stallion and the Russian Bear

Since then, all parties have tried to tough it out. Saudi Arabia, with the largest sovereign wealth fund, has managed to maintain appearances but is still trimming budget deficits, burning through reserves and talking of selling its crown jewel, Saudi Aramco.

Russia has been partly shielded by a collapse in the value of the ruble that has partially compensated domestic budgets from low crude prices but is still desperate to achieve higher returns. Some 40% of the country’s revenue comes from oil and natural gas and the economy has languished in recession territory for the last two years.

Source: Financial Times

Source: Financial Times

It has taken five months but all the parties are now maneuvering to have another go at a production freeze in the hope that it will push up prices. Talk of a “task force” pact between Russia and Saudi Arabia was enough to drive the oil prices up in a matter of minutes last week. Read more

The Federal Reserve released its last assessment of the economy before its next meeting and steel imports into the U.S. were down in July.

Fed Upbeat About the Economy Ahead of Meeting

The Federal Reserve‘s Beige Book assessment of the economy is generally positive, noting a tight labor market in some areas but little evidence of wage inflation.

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It’s the latest data point for policymakers before they meet this month and decide whether to raise interest rates amid mixed signals and scant progress toward a 2% inflation target.

Steel Imports Into the US Down in July

Based on the Commerce Department’s most recent Steel Import Monitoring and Analysis (SIMA) data, the American Iron and Steel Institute (AISI) reported recently that steel import permit applications for the month of August totaled 3,028,000 net tons. This was an 8% decrease from the 3,294,000 permit tons recorded in July and a 7% decrease from the July final imports total of 3,266,000 nt.

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

Import permit tonnage for finished steel in August was 2,282,000 nt, down 8% from the final imports total of 2,471,000 nt in July. For the first eight months of 2016 (including August SIMA permits and July final data), total and finished steel imports were 22,001,000 nt and 17,576,000 nt, down 22% and 23%, respectively, from the same period in 2015. The estimated finished steel import market share in August was 25% and is 25% year-to-date.

Two major manufacturing indexes fell in July, prompting concern about the U.S. economy and nine steel trade organizations praised recent G20 action on overcapacity.

Manufacturing Indexes Fall

The Institute of Supply Management‘s manufacturing index turned negative in July for the first time since February. And the services gauge fell last month to the lowest level since early 2010.

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

The manufacturing index dropped to 49.4% from 52.6% in August and the ISM services gauge retreated to 51.4% from 55.5%. The combined reading of two indexes was also the weakest in six years.

Steel Groups Praise G20 Action on Steel, Express Cautious Optimism

Nine steel groups in North, South and Latin America, and Europe, expressed cautious optimism for the outcomes at the G20 leaders meeting that concluded Monday in Hangzhou, China.

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“We are grateful that the leaders of the G-20 governments have recognized the severe impacts that global steel overcapacity in the steel sector around the world are causing to our industry. This is an important first step, but it must be followed with concrete policy actions by governments to reduce excess capacity, end subsidies and government measures that distort markets, and guarantee a level playing field driven by market forces in the near term. We appreciate the commitment expressed in the G-20 leaders’ statement for ‘collective responses’ to address excess capacity in the steel industry. This excess capacity and the government interventionist policies that have fueled it are the root cause of the surge of steel imports currently being experienced in many of our home markets,” the industry groups said in a news release.

“We are encouraged that the G-20 leaders are committed to forming a Global Forum on steel excess capacity, and that the leaders expect a continuing relationship with the Global Forum at relevant upcoming G-20 ministerial meetings.  We are hopeful that the creation of a robust Global Forum, that includes participation by all major steelmaking economies, will be a substantive outcome of the meetings later this week in Paris of the OECD Steel Committee,” the groups continued.

“Our industry is at a crossroads. Governments must take action or we will remain in crisis. It is now up to the governments and the industry to work in partnership to create the Global Forum and define an agenda and process that will result in substantive policy actions to solve this crisis. The Global Forum has to start working as soon as possible, as the G-20 Leaders’ Communique clearly states that a progress report has to be ready for the relevant G-20 ministers in 2017,” the industry groups concluded.

The industry group includes representatives of the American Iron and Steel Institute (AISI), EUROFER (European Steel Association), the Steel Manufacturers Association (SMA), the Canadian Steel Producers Association (CSPA), CANACERO (the Mexican steel association), Alacero (the Latin American Steel Association), the Brazilian Steel Institute, the Committee on Pipe and Tube Imports (CPTI) and the Specialty Steel Industry of North America (SSINA).


News from the G20 summit includes Russia and Saudi Arabia agreeing to create an oil task force and all of the G20 condemned steel overproduction and promised tough measures against it.

Russia and Saudi Arabia Create Oil Task Force

Saudi Arabia and Russia said they will work together in global oil markets through a newly-announced joint task force.

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The two top oil-producing countries plan to hold a Russia-Saudi Arabia task force on oil and gas next month, the Russian and Saudi energy ministers Alexander Novak and Minister Khalid al-Falih announced Monday in a joint statement at the G-20 summit in China.

G20 Pledges to Curb Steel Overproduction

G20 leaders have pledged to work together to address excess steel capacity that has punished the global industry with low metal prices for years while raising tensions between China and other major producers.

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

A statement from the White House said that leaders at the G20 summit in Hangzhou, eastern China, on Monday accepted that overcapacity in steel and other industries is a global issue that requires a collective response.

European Commission President Jean-Claude Juncker warned Chinese officials Sunday that Brussels was devising a tough scheme of anti-dumping tariffs that would penalize Chinese producers for failing to rein in overcapacity.

Prescient hedge or foolish waste of money?

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Recent history has been on Mexico’s side on that one. As a significant oil producer, Mexico’s oil price hedging program has been the worst kept secret in the market recently, although it has been going on for a dozen years according to Reuters.

Trimming the Hedges

When it started, disclosure requirements were more lax and the volumes were lower making it easier to keep it under wraps, but the Dodd-Frank Act and success of the program has resulted in larger volumes that just can’t be kept under wraps. The 2015 hedge netted Mexico a record windfall of more than $6 billion last year as oil prices continued a three-year slide.

This year, Mexico has covered 250 million barrels of crude, more than last year’s 212 million but has been forced to accept a lower price at $42/barrel for 2017. The hedge is covered by 46 trades, the article states, with $38 per barrel covered by put options with seven derivatives traders. The remaining $4 per barrel is to be covered from money set aside in a government stabilization fund.

Why Hedge?

With some 20% of government revenue coming from oil, the purpose of the hedges is to help protect public finances for an economy which has already twice downgraded growth estimates for this year and is acutely sensitive to potential rate rises in the U.S. and the forthcoming U.S. presidential elections.

With previous years hedged at $76.40 in 2015 and $49.00 for this year, 2017 is already certain to show a lower revenue than this, yet time will tell if Mexico’s insurance policy is going to pay off. It has cost them over a $1 billion in fees but, arguably, the confidence it gives international bond investors in Mexico’s finances as a result of having the hedge in place has helped lower financing costs by a significant amount.

Free Download: The August 2016 MMI Report

It is not unlike major gold miners forward selling or hedging output, there is the potential to lose out if prices rise, sure, but of more importance to investors is the confidence of knowing revenues will meet budget commitments. That keeps ratings agencies grades up and borrowing costs down.

The annual jamboree for central bankers at Jackson Hole, Wyo., is always a cause for considerable speculation in terms of clues that may be dropped as to future policy direction, particularly from the Federal Reserve.

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Every word of the Fed Chairman address is keenly shifted, every nuance carefully weighed to see what clues it gives to future policy direction. This time is no different but markets have been curiously sanguine since last month after considerable volatility earlier in the year. The Vix volatility index slid to its lowest level last week since August 2014

Source: Financial Times

Source: Financial Times

That is peculiar because the direction of interest rates at the Fed has been the cause of considerable volatility for emerging market exchange rates, bonds and precious metals in recent years. Read more