Articles in Category: Macroeconomics

Nickel price investment trading arrow going up rising strong indDespite nickel prices going on a hot streak — having climbed 40% since bottoming out at the beginning of the year — many nickel miners are seeing diminishing returns on their production.

According to a recent report from the Financial Post, Sherritt International Corp., a Canadian nickel miner, announced recently that more than half of global output is losing money with the percentage of underwater production even higher when capital spending and other costs are factored in.

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“This rally in the last few weeks is perhaps more robust than some false starts we’ve had over the last year,” David Pathe, chief executive at Sherritt, told the Financial Post. “But it’s got a ways to go before we think we’re at a long-term nickel price that’s sustainable.”

Prior to the recent surge, nickel prices had been a victim to lagging demand, rising inventories and supply from the Philippines in recent years. The recent increase in nickel prices has been partially attributed to speculation that new environmental regulations from the Philippine government will spur mine closures yet only a few small mines have actually been shut down so far, the Financial Post stated.

Nickel Imports Rise

According to a recent piece from our own Raul de Frutos, nickel, along with zinc, have benefited from higher demand coming from China.

de Frutos stated: “In the case of nickel, the supply shortage comes as the new mining minister in the Philippines, Regina Lopez, said that there would be a ban on fresh mining exploration in the country for a month while all existing mines are being reviewed. At present, the Philippines is the top supplier of nickel ore to China and these new developments have sparked concerns about ore supply to China.”

You can find a more in-depth nickel price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

 

A new report attempts to quantify government subsidization of Chinese steel and the Fed has left interest rates alone again.

Steel Associations Release Chinese Subsidy Report

Five of the leading American steel trade associations today released a report documenting that the steel industry in China is heavily subsidized by its government, and the rapid growth in the industry there has been fueled by government subsidies and other market-distorting policies.

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The report was released by the American Iron and Steel Institute, the Steel Manufacturers Association, the Committee on Pipe and Tube Imports, the Specialty Steel Industry of North America and the American Institute of Steel Construction.

The report analyzed each of the 25 largest steel companies in China and detailed the amount and types of government subsidies each company received in recent years. The analysis also found that these subsidies and policies have led to tremendous overcapacity and created a highly fragmented domestic steel sector in China made up of many inefficient, and heavily polluting, companies.

The full report is available from AISI.

Fed Holds Rates Steady Again

The Federal Open Market Committee of the Federal Reserve decided to maintain the target range for the its benchmark interest rate, the federal funds rate, at 1/4 to 1/2 of 1%.

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The Fed, in a statement after a two-day meeting of its policy-making committee, said that the economy had overcome wobbles this year and that job creation had increased with moderate economic growth. The central bank added that it saw fewer clouds on the horizon as the U.S. entered the eighth year of an economic expansion.

Adobe Stock/ Björn Wylezich

Adobe Stock/ Björn Wylezich

Zinc prices, along with nickel, rallied to hit multi-month highs last week as investors hedged on continued supply disruptions.

According to a report from the Financial Times, the zinc price climbed to its highest point in 14 months to $2,275.5 per metric ton on the London Metal Exchange. Investor sentiment surrounding commodities has improved due in part to a weaker dollar and growing oil prices, in addition to government stimulus in China. That stimulus has enhanced the Far East nation’s transportation and infrastructure sectors.

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Meanwhile, nickel could reach as high as $12,000 per metric ton.

“You could easily be forgiven for thinking the market has now become the London Nickel Exchange as … that is where most of the volume is trading and suggests that for the moment it has become the favoured metal of the speculators,” Malcolm Freeman, director at Kingdom Futures, told the news source.

Back to zinc, which has seen its price more than 40% higher in 2016 following a number of mine shutdowns. Citing data from the International Lead and Zinc Study Group, the global zinc market deficit hit 68,700 metric tons in the first five months of 2016, compared to the supply surplus of 177,000 metric tons over the same time in 2015.

Global stocks rally, metals see gains

In his week-in-review, our own Jeff Yoders wrote that global stocks rallied, and metals along with them last week, with precious metals helped by Brexit and sustained despite neutral fundamentals.

“Yet skulking under this prosperity lies a specter that threatens to erode prices and even affect the positive performance of those stock markets: Chinese overproduction,” Yoders wrote.

You can find a more in-depth zinc price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

 

lead-prices-L1To begin July, lead prices moved up nearly a quarter of 1% in futures trades as participants increased their positions due, in part, to a pick-up in spot market demand and a boost in base metals overseas.

Meanwhile, according to a report from the Business Standard, lead for August delivery at the Multi-Commodity Exchange also grew by nearly .25%.

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Our own Raul de Frutos reported just this week that lead prices have hit a one-year high despite neutral fundamentals. It’s been a year of fluctuation for lead, but three-month London Metal Exchange data has prices at $1,900 per metric ton.

Stated de Frutos: “The latest data reported by the International Lead and Zinc Supply Group (ILZSG) indicate the world refined lead metal supply exceeded demand by 23,000 metric tons during the first four months of 2016. Reductions in Australia, China, India and the U.S. led the fall in global lead mine production of 5% compared with the first four months of 2015.”

A Closer Look at the World’s Lead Usage

In addition, world refined lead metal output fell by 1.8%, excluding Chinese usage of refined metal which increased by 4.2% due in part to an 8.8% increase in European demand.

These figures are considered fairly neutral, but the market has not been convinced by this development until now. What’s changed?

“Lead prices are being driven by funds’ increasing appetite for industrial metals,” de Frutos wrote. “This means that even though lead fundamentals don’t look overly bullish, the wind is now blowing at lead’s back. Funds are either seeing a tightening in the fundamentals that we can’t see yet or they are simply buying metals as sentiment in the industrial metals complex has improved. It looks more like the latter.”

You can find a more in-depth lead price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

 

 

Global stock markets are finally showing some strength after a difficult period of almost two years when investors had a hard time making money off stocks. Following the U.K.’s decision to leave the European Union, global stock markets fell sharply but the sell-off didn’t last very long.

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The fast recovery following Brexit is very encouraging and it suggests that investors are turning more positive on the health of the global economy.

U.S Markets Make New Highs

S&P Index makes all time highs. Source:MetalMiner analysis of stockcharts.com data

The S&P 500 Index makes all time highs. Source:MetalMiner analysis of @Stockcharts data.

In the chart above, we see the S&P 500 index making an all-time high this week after the index had struggled for almost two years. Rising stock markets don’t necessarily mean rising metal prices, but it’s a good sign. Read more

Road signs EU and BREXITWe recently held a webinar on Brexit’s impact on metal prices and the geopolitical risk posed to North American Manufacturing (sponsored by Avetta). The turnout was incredible with more than 100 registrants, half of which were from the manufacturing industry.

We posed several poll questions throughout the webinar and the responses paint a clear picture of what this industry thinks of Brexit and its impact on various companies’ industrial sourcing strategies. Here’s a recap:

Before the recap, just a reminder you can take 20% off an annual individual subscription to our Monthly Outlook by entering promo code BREXIT7 at checkout. OFFER ONLY GOOD THRU 7/31!

Question 1: “Do you consider the Brexit vote to be a ‘black swan’ event?”
21% Yes; 48% No; 30% Don’t Know

Question 2: “Why are you concerned about Brexit?”
31% have exposure to UK and/or EU suppliers; 61% don’t have said exposure but are concerned about commodity volatility; 56% concerned about currency volatility; 31% worried about other countries leaving the EU

Question 3: “How much of an impact will Brexit have on your industry?”
3% a large impact and we’re concerned; 50% some impact and we’re assessing how much; 16% I have no clue which is why I’m here; 0% no impact

Question 4: “As a result of Brexit, do you think non-ferrous metal (e.g. aluminum, copper, nickel, etc.) prices will:”
20% rise; 14% fall; 66% stay the same

Question 5: “As a result of Brexit, do you think ferrous metal (e.g. steel) prices will:
26% rise; 16% fall; 58% stay the same

Question 6: “As a result of Brexit, do you think precious metal (e.g. gold, silver, platinum, etc.) will:”
41% rise; 7% fall; 52% stay the same

Question 7: “Does your company have operations in Europe or the UK?”
40% yes; 60% no

Russia won’t cooperate with OPEC on oil production cuts and U.S. architecture billings are still up in June, but just not as much as they were in May.

Russia Won’t Coordinate Oil Production Cuts

Russian Energy Minister Alexander Novak said in an interview he has ruled out possible coordination with the Organization of Petroleum Exporting Countries on oil output after a failed attempt to jointly maintain production levels earlier this year.

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“We do not discuss the issues of coordination of actions between Russia and OPEC… We can’t agree on production cuts as we don’t have such tools and mechanisms,” Novak told Reuters in interview cleared for publication on Wednesday.

Architecture Billings Down But Still Up

The Architecture Billings Index was positive in June for the fifth consecutive month. An economic indicator of construction activity, the ABI reflects an approximate nine-to-12 month lead time between architecture billings and construction spending.

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The American Institute of Architects reported the June ABI score was 52.6, down from the mark of 53.1 in May, but this score still reflects an increase in design services (any score above 50 indicates an increase in billings).

mining-L1The South Crofty tin mine acquisition has finally been completed after initially being announced in March.

Various news sources are reporting the Canadian company Strongbow Exploration has acquired 100% interest in Western United Mines Ltd. and Cornish Minerals Ltd. (Bermuda).

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“This represents a significant step towards our goal of creating a new strategic metals company with Osisko Gold Royalties as a cornerstone shareholder,” said Richard Williams, president and chief executive at Strongbow.

The South Crofty Tin Project, as it has been referred to, spans several tons and holds an active mining permit through 2071 and also includes 26 former production mines. Several companies have previously attempted to revive the mine, dating back to 2001.

“The Cornish people are justly proud of their mining expertise, and Cornwall led the world in the tonnage of its tin production,” Sally Norcross Webb, mining lawyer at Stephens Scown, told Insider Media. “Completing this deal gives South Crofty a chance to progress towards a production decision, which could mean significant investment and generate valuable jobs for Cornwall.”

Tin Continues to Surge

Our own Raul de Frutos wrote last week that tin, along with zinc, have been the biggest gainers among base metals so far this year. July has been a particularly strong month in growth for tin as it rose above $18,000 per metric ton for the first time since March 2015.

You can find a more in-depth tin price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

Source: Adobe Stock/ epitavi

Source: Adobe Stock/ epitavi

What’s copper demand like in China, the world’s largest consumer? If the volume flooding warehouses in Asia is any indication, then copper prices could be weighed down as a result of that apparent demand.

According to a report from the Financial Times, copper currently residing in warehouses licensed by the London Metal Exchange (LME) has climbed by 18% over the past week, the highest level since February.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Sign up for your free trial to our monthly buying outlook reports!

This tidal wave of copper could weigh on prices, which recently closed in on a two-month high of nearly $5,000 per metric ton due in part to expectations of further economic stimulus from central banks.

“It’s certainly a sign the market is struggling to absorb all of the supply coming to it,” Matthew Wonnacott, analyst at consultancy CRU in Hong Kong, told Financial Times. “Partly because supply is good but demand is not that great either.”

Chinese copper exports

Our own Raul de Frutos wrote recently that Chinese copper exports spiked as much as 256% in May this year when compared to the prior year. This causes some concern about domestic demand with production also rising significantly, up 7% year-over-year in May.

de Frutos added: “Along with the LME copper inventory, bonded copper stocks held in free trade zones in China have climbed this year. Higher inventory levels are, perhaps, limiting the upside potential of copper prices. Although copper rose in June, the outlook remains neutral and, due to all of this uncertainty, we could continue to see choppy price action in the coming months.”

You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

 

Much of the focus so far, and nearly all of it gloomy, has been on the impact of the U.K.’s decision to leave the European Union at some point in the future. Most are proceeding with caution because, as yet, no formal announcement of intent has been given and the exit process will take a minimum of two years, so once the dust has settled both sides will dig in for a prolonged period of trench warfare during which the real work will be done, negotiating the exit terms.

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Although most (apart from a naive few who are still gazing at the sunlit uplands of total independence) concede Britain will be worse off, at least in the short to medium term, not so much has been said about the impact on Europe.

Durable Trade in Durable Goods

Apart from the fact that the U.K. runs a massive trade deficit with Europe, Germany alone exports close on $100 billion a year of goods and services to the U.K., mostly cars and high-end consumer goods. The UK is also a net contributor to the E.U. budget. Net is the key word here, as Brexiters made much of a spurious £350 million a week figure that supposedly Britain paid to the E.U.

In fact, when the payments the E.U. makes back to British farmers — such as aid to deprived areas, support for research, etc. — the net figure is probably half that, but the U.K. contribution remains a significant part of the E.U.’s €145 billion annual ($160 billion) budget.

Screen Shot 2016-07-11 at 16.18.40

E.U. Positive and negative contributor states. Source: Financial Times.

This chart from the Financial Times shows the contributions per capita, not the total contributions, so those countries in the upper section with the larger populations are the major source of funds – Germany, France, the U.K. and Italy

Screen Shot 2016-07-11 at 16.18.22

The E.U.’s 2015 budget. Source: Financial Times.

The FT says that, under the pre-Brexit status quo, Britain would have made a net contribution of £65.7 billion from 2014 to 2020, with £47.5 billion ($60 billion) of the total coming in the years 2016-2020. Read more