Supply & Demand

Energy prices got hit the most with oil prices falling below $50/barrel, followed by precious metals. Gold prices hit a 5-year low, falling as much as 8% in July, silver of course, followed because metal price correlation is still an important factor to account for.


The American Institute of Architects’ (AIA) semi-annual Consensus Construction Forecast, a survey of several construction forecasters, is projecting that nonresidential spending will see a nearly 9% increase in 2015, with next year’s projection being 8.2%.


One may think that China’s steel industry could hardly be in a worse place.

Half the industry is losing money in spite of falling iron ore and coking coal costs and a reduction in domestic power costs all aiding steel producers on the supply side. Even among those that did not lose money in the first half, margins are said to be razor thin and banks are reported to be cutting credit lines and presenting difficulties in rolling over loans according to China Iron and Steel Association (CISA) comments posted by Reuters.


An interesting if short article in the Financial Times reviewing research carried out by a team at Bank of America Merrill Lynch illustrates something those in the metals markets will have been subliminally aware of but may be not have focused on unless they were truly cross-metals active.

Three Best Practices for Buying Commodities

In recent weeks there has been wholesale weakness across all the metals in the face of fear over global demand, particularly Chinese demand, and concerns about when, not if, the Federal Reserve will raise rates and the impact that will have on the US dollar. A stronger dollar is invariably a harbinger of weaker metals prices as it raises the cost of metals in foreign currencies by virtue of exchange rate, not demand.

Source Bloomberg, re-printed in the FT

Source: Bloomberg, re-printed in the FT

Comparing how metal prices have moved relative to each other over the last ten years to how they have moved over the last twelve months, the bank contends that metals have been, with the exception of the most recent weeks, influenced more by their fundamentals these last twelve months.

Breaking From Metal Price Correlation

In the period prior to the financial crash, links between metals were tighter. The analysis said, “Correlations between metals’ prices were high ahead of the Great Financial Crisis (GFC) and in the immediate aftermath of it. Prior to the GFC, this was heavily influenced by exceptionally strong global economic growth and Chinese demand. Immediately after the GFC, cross-asset correlations remained high, partially because several governments implemented large fiscal stimulus packages and many central banks flooded the markets with liquidity.”

But since the post-crash period, say from 2013 onwards, metal prices have been relatively driven more by their fundamentals. In the last twelve months copper’s correlation with gold is down 11.9%, the bank estimates, and the copper’s relationship with aluminum is 17.8% weaker. Only precious metals have increased, with gold and silver rising from 78.8% over the past 10 years to 81.4% in the last year.

Back to Fundamentals

The trend among base metals is a reflection of the lack of demand and rising surpluses. As investor demand has weakened, supply and demand fundamentals have been allowed to take on more of a role in price determination. A trend that is likely continue for the next two years, as surpluses remain and global demand is muted by lower Chinese demand.

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This week in metals started with a bang as gold dropped to below $1,100 an ounce on Monday, a one-day slide caused by the dumping of more than $500 million in bullion in early Asian trading.

Gold Bars Falling Showing Depression Recession And Economic Downturns

It’s raining gold prices! Not really, they’re just falling really fast.

And that was just the beginning. Market volatility was the rule, not the exception, this week. BHP Billiton reported earnings and warned of more write downs in its future, again showing the weakness of the iron ore market.

Three Best Practices for Buying Commodities

The View From China and India

Then there was the stock market crash in China. Many nations other than China are feeling the pinch from the loss of value experienced last week by investors. Foremost among them, India. India’s trade and industry body, The Associated Chambers of Commerce and Industry of India, said that steel and information technology are particularly vulnerable with their biggest trading partner reeling.


Now adjusted for GDP and prices!

Look to the Big Mac!

With all of this market volatility is it any wonder that The Economist changed how it calibrates its Big Mac Index this week?

the old model is based on the theory of purchasing-power parity (PPP), the notion that, in the long run, currency exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services (in this case, a burger) in any two countries.

The new Big Mac Index tries to account for the argument that we would expect a product, in this case a Big Mac, to be cheaper in poorer countries because wages will be lower and uses the relationship between prices and GDP per person to create a set of adjusted results.

It’s comforting to know that with markets volatile right now, and in the near future, we can still accurately tell the real price of a hamburger, whether that’s in the US, China, Australia, India or wherever the next disruption might come from.

Free Download: July Metal Price Forecast


We always keep an eye on the commodity market as it has a huge impact on metal prices.

Free Download: July Metal Price Forecast

Commodities have been in a falling market since 2011, but, so far, this year has been more of a flat market for commodities. We expect to see some movement soon. The rising US dollar has been a key factor in driving commodities down and although the dollar still strong, it has been taking a break for the past seven months from its meteoric rise while posting a flatter trajectory. A more stable dollar this year clearly helped commodities to stay flatter as we can see in the next graph.

US Dollar (green) vs CRB Index (Blue) 1 year out

Dollar index (green) vs CRB Commodity Index (blue), one year out. Graph: MetalMiner.

Both, the dollar index (in green) and commodity Index (in blue) are within their one-year range. For the last couple of months, however, commodities are starting to fall again, approaching record lows while the dollar is rising again.

Free Download: Latest Metal Price Trends in the July MMI Report

We recently talked about a similar flat behavior in the stock market and how technology indexes could be leading stocks’ recent gains. Back to commodities, it seems like base metals are the ones taking the lead, and they are pointing down.

Industrial Metals ETF 1 year out

Industrial Metals ETF one year out. Graph: MetalMiner.

The recent Chinese market sell-off might explain the bad performance of base metals compared to other commodities, as they are more sensitive to buying activity on the ground level.

What This Means For Metal Buyers

The first half of 2015 has been relatively stable for commodities. However, as we see base metals recently sinking, we can expect to see more volatility across the board.


Architecture billings hit an eight-year high this month and several large, Asian sell orders triggered the big gold sell-off on Monday.

ABI Strong in All Sectors

Paced by continued demand for projects such as new education and healthcare facilities, public safety and government buildings, the Architecture Billings Index (ABI) increased in June following fluctuations earlier this year. An economic indicator of construction activity, the ABI reflects an approximate nine-to-twelve month lead time between architecture billings and construction spending.

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The American Institute of Architects (AIA) reported the June ABI score was 55.7, up substantially from a mark of 51.9 in May. This score reflects an increase in design services (any score above 50 indicates an increase in billings).

This is the highest score for the ABI since 2007.

  • Regional averages: Midwest (57.2), South (54.9), West (50.7) Northeast (50.4)
  • Sector index breakdown: institutional (59.1), mixed practice (54.7), commercial / industrial (51.6) multi-family residential (47.0)
  • Design contracts index: 52.5

How Gold Dropped Below $1,100 an Ounce

In early Asian trading hours on Monday, when typically only tens of contracts of gold are traded, investors dumped more than $500 million worth of bullion in New York in four seconds, triggering the market’s biggest rout in years.

The sell-off began when one or more massive sell orders hit the price of gold on the CME Group‘s Comex futures index in New York a tenth of a second after 9:29 a.m. in Shanghai, triggering turnover of almost 5,000 lots of gold. That equates to 13 metric tons of gold, more than typically trades in hours this early in the day. The sales knocked the price almost $20 to $1,100 per ounce during those four seconds.

Free Download: Latest Metal Price Trends in the July MMI Report


This is part two of an analysis of how China’s recent stock market crash affects neighboring India.

The Indian arm of global credit rating agency Fitch said with soft demand in China, base metal prices had gone down in the range of 2-21% in the first six months of 2015.

Free Download: Latest Metal Price Trends in the July MMI Report

On a year-to-date basis, Chinese domestic hot-rolled coil steel prices declined by 21%. London Metal Exchange nickel prices are down by about 12%, LME copper prices by 9% and China alumina prices by about 10%. In the last one month, iron ore prices dropped by 20%, Shanghai steel prices by 16.4%, and zinc prices by 7%.

What’s This Mean for Steel?

In reference to India’s steel sector, rating agency Ind-Ra pointed out that Indian manufacturers were already struggling with low capacity utilization, and lukewarm domestic demand was unlikely to benefit the margins of manufacturing units in the short term.

So was there any silver lining at all for India where the Chinese downturn is concerned? Depends who you listen to or talk to. Here’s what a report in the Business Standard claimed — the economic downturn would be good for smart cities. The rationale — copper is trading at a 6-year-low and China is the world’s top copper consumer, accounting for 40% of global consumption.

How About Aluminum?

Similarly, aluminum is trading at new lows and was already trading at prices below cost of production of many Chinese companies. For India, as a consumer, this is good news as the cost of constructing new infrastructure, especially smart cities, would reduce.

And that extends to a lower price for a technology innovation dear to almost everyone in the world, according to the report. Mobile phones will be cheaper, it predicted. If the Chinese really devalued their currency, world markets will be flooded with Chinese goods at low prices affecting exports of other countries, including India.

As for the rest, such as automobile manufacturers, it could possibly get only worse in the coming days.

Free Download: July Metal Price Forecast

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


The Commerce Department said Friday that housing starts in June climbed 9.8% to a seasonally adjusted annual rate of 1.17 million homes. All of that growth came from a 28.6% surge in multifamily housing that put apartment construction at its highest rate since November 1987. Starts for single-family houses actually slipped 0.9% last month.

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An Associated Press report said that strong job growth and a rebounding economy have increased the number of buyers and renters searching for homes, while gradually rising mortgage rates have spurred homeowners to finalize deals. The Wall Street Journal also noted that rental-apartment vacancies remain near multi-year lows, and lease rates have risen by 10% in the past three years to the highest monthly average ($1,194) since research firm Reis Inc. began tracking the figures in 1980.

Apartment/Condominium Boom

The boom in apartment and condo construction is regional, however. Housing starts jumped 35.3% in the Northeast, while climbing 13.5% in the South. In the Midwest and West they were actually down.

Home construction numbers are notoriously volatile, so these numbers could be revised downward later. Friday’s report showed new-home construction fell 10.2% in May from the prior month, compared with an initially reported 11.1% drop. Starts in April rose 24.7%, an upward revision from a previously reported 22.1% increase.

Financial distress also played a role, leaving more Americans renting instead of owning, creating need and demand for apartments. The share of Americans owning homes has fallen so far this year to a seasonally adjusted 63.8%, the lowest level since 1989.

What Does This Mean for Metal Buyers?

A strong domestic demand for multifamily construction is good news for metals such as copper and structural steel. Approved building permits increased 7.4% to an annual rate of 1.34 million in June, the highest level since July 2007. This means a steady need for metals in pipes, conduits and structural members as well as new apartments.

The National Association of Home Builders/Wells Fargo builder sentiment index released Thursday climbed to 60 this month, a level last reached in November 2005. Readings above 50 indicate more builders view sales conditions as good rather than poor.

Free Download: Latest Metal Price Trends in the July MMI Report


Old Chinese proverb: when a giant in a race with another falters, the other, without a doubt, wins.

Free Download: July Metal Price Forecast

Actually, I made that up. Ignore it. Still, when China’s economy started showing signs of a meltdown, some in India “predicted,” in a knee jerk reaction, that it was a “welcome development” for neighbor India.

No need to reiterate here how the two nations, with the largest populations and the largest economic growth rates, were in competition with each other in almost every sector.

A few days later, after the fog cleared, warning bells were rung by analysts and ratings agencies that if China was to lose the race, it would be tough for India, too. Even a tiny spill, such as the one China’s stock market felt last week, was bad enough. There would really be no winners in the race.

China’s economic troubles could have a significant impact on India, particularly in sectors like IT and steel, according to India’s trade and industry body, The Associated Chambers of Commerce and Industry of India (Assocham).

The adverse economic developments may have a directionally negative impact on the Indian metals industry as well as on sectors with an export focus, claimed another agency, India Ratings and Research (Ind-Ra) in a statement.

News reports, quoting metal analysts, claimed that while it was true that a drop in commodity prices linked to China’s slow demand was a positive for India, it was not really “good news” for a host of metal and iron ore producers such as Steel Authority of India, Tata Steel, and upstream oil producers.

The fall in ore, steel and copper prices hit Indian manufacturers as hard as any other company in the world, so what’s there to cheer about?

A paper prepared by Assocham said that in today’s global economy, where India’s economy — like any other — is plugged into the rest of the world’s, the China downturn was bound to impact India. China, incidentally, was the number one merchandise trader in the world with over $4.16 trillion worth of trade, followed by the US with $3.9 trillion, as claimed by Assocham.

But the more pertinent point made by Assocham was that the kind of cost competitiveness which the Chinese companies provided to manufacturing semi-process industries — such as electronics, electrical and telecom equipment — would disappear from the global supply chain. This is without even mentioning the inability of India to fill any of those spaces vacated by the Chinese companies.

Another news report quoted Hitesh M. Avachat, Deputy Manager at CARE Ratings, as saying that China accounted for more than 30% of the overall consumption of metals globally. For Indian metal producers, the price collapse meant their landed price in India would go down further, thereby pressuring companies to reduce prices. Because of the likely Chinese dump of its surplus goods, India’s export demand may also fall, he added.

Jayant Acharya, Director, Commercial and Marketing, JSW Steel Ltd., quoted in the same report, said if prices kept falling, margins would get impacted.

The Indian arm of global credit rating agency Fitch said with soft demand in China, base metals prices had gone down in the range of 2-21% in the first six months of 2015. On a year-to-date basis, Chinese domestic hot-rolled coiled steel prices had declined by 21%, London Metal Exchange nickel prices by about 12%, LME copper metal prices by 9% and China alumina prices by about 10%. In the last month, alone, iron ore prices dropped by 20%, Shanghai steel prices by 16.4%, and zinc prices by 7%.

Free Download: Latest Metal Price Trends in the July MMI Report

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