Commentary

After news of Toyota’s recent supply chain troubles, so ably covered by my colleague Lisa Reisman last week, news from the US car industry, by contrast, couldn’t be better.

Free Download: The February 2016 MMI Report

General Motors reported $9.7 billion net income for 2015 as it was bolstered by buoyant US light-truck sales. Results for the fourth quarter more than tripled from $1.99 billion to $6.27 billion although, admittedly, benefiting from $4 billion in favorable special items.

Even so, the underlying figures were also boosted by the strong sales for the core North American operations, where earnings before interest and tax adjusted for special items rose 25% to $2.77 billion, on revenue up 9.5% to $27.7 billion. The company said low fuel prices boosted sales of more profitable pickup trucks and sport-utility vehicles.

Sales Surging

A rising tide lifts all boats, they say, and a strong North American market has also benefited Ford Motor Co. whose sales of SUVs and pickups soared last year. Ford announced a 13.6% rise in SUV sales for its Ford and Lincoln brands and a 13% rise for pickups. GM’s GMC premium light-truck brand recorded 13% year-on-year sales growth, while Fiat Chrysler’s growth came nearly entirely from a 42% surge in sales for its Jeep SUV brand. All manufacturers finished the year on a high, but for Fiat Chrysler sales were its strongest in the month of December since Chrysler was founded in 1925.

Car Sales

Source: Wall Street Journal

The US car industry has been a major bright spot for metals consumption in recent years with rising volumes driving demand for both steel and aluminum. Indeed, for aluminum, so strong has the demand been many manufacturers have made investments in dedicated automotive-grade production facilities to meet demand.

Read more

Base metals are bouncing off lows in February, helped by a weaker dollar. Although the long-term view for the dollar remains bullish, the currency is suffering some setbacks.

Free Sample Report: Our February Metal Buying Outlook

Last week, the US dollar index fell to its lowest level in three months.

Dollar index hits 3-month low

US dollar index hits a 3-month low. Source: @StockCharts.com

Last Wednesday, the dollar logged its largest one-day drop versus the euro since early December, on a lower than expected reading of U.S. service-sector activity.

The Institute of Supply Management non-manufacturing index fell to 53.5% from 55.8% in December, the slowest pace in almost two years. Some investors now fear a softer than expected US economy, potentially making the Federal Reserve put interest-rate increases on hold.

Higher rates make currencies more attractive for yield-seeking investors. The market had expected the Fed to raise rates for a second time in March and investors had probably priced in those hikes. The  indication that the Fed might hold off on increasing rates is having a depressing effect on the dollar.

Also in February, crude oil prices gained some ground. This helped commodity currencies, including the Russian ruble and Canadian dollar, to recoup some losses against the US dollar. Longer-term, the currency should hold its value well, especially while the rest of the world’s central banks keep up with their stimulus measures.

Last Week For The January 2016 MMI Report

But in the short term, a turbulent dollar is giving a boost to metal prices. Zinc, lead are tin were particularly strong as February started. So far, the moves seem like normal price reactions after previous declines. Whether the upward moves will continue or not will significantly depend on the fate of the dollar.

To say as the Financial Times did last week that China is undergoing significant transition is the understatement of the year.

Free Sample Report: Our February Metal Buying Outlook

A complex and interconnected reform agenda on this scale and at this speed has never been achieved before. It has scarcely even been attempted. It is only remotely possible with a central command economy and a compliant population yet, even then, it is far from without risks.

Coiledsteel_585

The Chinese steel industry will have to stop relying on overproduction to make the shift it is planning on.

As the FT explains, China is attempting a shift away from an export-driven and investment-led economy to a more balanced consumption-oriented one. At the same time as trying to achieve those goals, it is also trying to double gross domestic product and GDP per capita by 2020 from 2010 levels, according to the Chinese leadership.

How to Transition China?

They intend to achieve this with an extensive reform agenda, including further financial market liberalization, privatization or at least liberalization of state-owned enterprises, fiscal, and rural land reform. The FT goes on to warn if reforms are implemented too quickly, the country risks a sharp slowdown. If reforms are implemented too slowly, or not at all, China risks an unsustainable increase in debt-to-GDP ratio, which could push the country past the tipping point into economic and, possibly political instability. Read more

When people talk of Luxembourg you could be excused for first thinking of the European Union.

Last Week For The January 2016 MMI Report

Luxembourg houses the Court of Justice of the EU, is one of three seats for the EU parliament along with Brussels and Strasbourg, and co-hosts the European Commission, along with plenty more organs of EU bureaucracy.

Or for thinking of the tiny state as the home of ArcelorMittal the world’s largest steelmaker, and the European headquarters of Skype, Amazon and Paypal to name but a few multinationals — encouraged, no doubt, by Luxembourg’s status as a tax haven in the heart of Europe.

Maybe it has paid off. Luxembourg has, by some measures, the highest GDP per capita in the world, with less than half a million citizens and all that wealth there’s plenty to go round. But while you are unlikely to think of Luxembourg as a leader in the space race, according to the Financial Times, Luxembourg has a longstanding space industry. The state played a significant role in the development of satellite communications a generation ago, including setting up SES, one of the world’s largest satellite operators.

Luxembourg’s Asteroid Mines Plan

In collaboration with US and European commercial partners, Luxembourg now aims to help create a space industry to exploit asteroids for metals and other materials that are scarce on Earth, but plentiful in “near-Earth objects” (NEOs). The intention is that Luxembourg will collaborate with, and invest in, one or more space resources companies, although no names have been mentioned. The tiny landlocked state sees a potential asteroid mining industry worth trillions in time.

Asteroids are made from material left over from the formation of the solar system, the FT explains. They are richer in valuable metals than the Earth’s crust, where heavier elements sank into the planet’s core as it cooled. Indeed all of the platinum group metals we mine today either come from magma that has welled up from the deep in the earth’s mantle or following the impact of asteroids in the distant past, they do not occur naturally in the crust.

Source Financial Times

Source: Financial Times

PGMs in Space

Asteroid mining has two potential categories. The most valuable materials, such as heavy metals in the platinum group, would be brought back to Earth after preliminary processing in space. But other materials, including metals such as iron, nickel and tungsten, would be manufactured in space into spacecraft and tools for further exploration of the solar system, while water from the process would be split into its constituent elements of hydrogen and oxygen and used in rocket propellant according to Planetary Resources, a leading pioneer in the field.

Luxembourg’s enthusiasm, no doubt, shows that this is a long-term proposition, not only to develop the technology — the first successful asteroid “landing and return to Earth with samples” space probe, Japan’s Hayabusa, is only due to return in June of this year — but metals need to be, at least sufficiently, in short supply so prices justify the expense.

Free Sample Report: Our February Metal Buying Outlook

At the moment, anyone in the commodities market can affirm the world is not short of metals. Still, the day will come when prices rise due to shortages and, by then, the technology, and Luxembourg, will be ready.

Roller Coaster Hill InclineIt was a volatile January for copper, in addition to other key metal, mineral and energy commodities, and isn’t set to change much despite the calendar turning over to a new month.

ANZ research is reporting that they are expecting further weaknesses in the oil and iron ore markets. “Both have ongoing supply side issues,” Daniel Hynes, senior commodities strategist, told ABC News.

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!

With copper (as well as nickel), significant declines have been the story, but a minor rebound in the copper price was a welcome sight after it hit six-year lows. “The import numbers we saw into China in December were particularly strong for copper and some other base metals, and there are some falling inventories on global exchanges,” Hynes added.

Our own Raul de Frutos wrote recently that despite better-than-expected copper imports in China to close out 2015, there is little to no reason to anticipate a turnaround with the copper markets. “While the slump in commodities continues and global markets slide, copper has little upside potential,” de Frutos stated.

Why?

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:

 

Almost everyone, by now, has heard of the deadly Zika virus which has prompted the World Health Organization to declare a global public health emergency. But this virus has felled another unlikely victim: a car in faraway India. You heard right.

Free Download: The January 2016 MMI Report

India’s leading automobile manufacturer Tata Motors never saw this one coming. Its newest hatchback, the Zica, is about to be officially launched, yet, the name, which matches with that of the virus if you ignore the spelling, sent the company into a public relations tizzy.

Tim Leverton and Mayank Pareek at the official unveiling of the new Tata Zica at an auto show in Goa last December. Source: Tata Motors

Tata Executives Tim Leverton and Mayank Pareek at the official unveiling of the new Tata Zica at an auto show in Goa last December. Source: Tata Motors

For months, the marketing division spent thousands of dollars on Zica’s promotional activities until the virus Zika came along. Now, Tata Motors has announced a name change, though at press-time, the new name is not officially out yet.

Zika vs. Zica: Bad Timing

Auto analysts are now wondering whether the change has come too little, too late since the hatchback is to be launched at the Auto Expo in New Delhi on Wednesday. Zica, by the way, stood for “zippy car.”

Sadly, what also turned out to be “zippy” was the rapid spread of the Zika virus.

Zica’s marketing campaign included advertisements featuring football legend Lionel Messi. In another messy coincidence, Zica’s brand ambassador, too, hails from Argentina where the first case of a Zika-infected person, who reportedly contracted the disease after being bit by a mosquito, was from.

New Name But Not Yet

In a statement announcing the rebranding, Tata said: “Empathizing with the hardships being caused by the recent Zika virus outbreak across many countries, Tata Motors, as a socially responsible company, has decided to rebrand the car.”

Tata has said for the time being, though, the compact car will still carry the Zica label. At least until the auto show ends. The new name will be announced in a few weeks.

For auto lovers, the Zica was Tata Motors’ first hatchback offering after the globally famous Nano, billed as the cheapest car in the world. And for those of you out there who love to get your hands greasy with vehicular details, Zica is said to have a 1.2-liter petrol (gasoline) engine or a 1.05-liter diesel engine, both with three-cylinders. The petrol engine will be a new all-aluminum one. Both the engines are paired to a five-speed manual transmission.

Last Week For The January 2016 MMI Report

Along with the Zica, Tata Motors will be showing off a slew of new models including two forthcoming SUVs. Over 80 vehicle launches are expected at the Auto Expo 2016, with Fiat-Chrysler-owned Jeep making its India debut.

 

There was a lot of talk last year about coal resources needing to be left in the ground if the world was to reach it’s 2-degree-celsius reduction environmental targets.

Free Sample Report: Our February Metal Buying Outlook

The suggestion was that legislation was required to force power generators to switch to less polluting energy sources and, while in the meantime tougher emissions standards have played their part, the market has been much more active than government in encouraging change.

Could 2015 be the beginning of the end for coal-fired power in the US? Source: Adobe Stock/Snap Happy

Could 2015 be the beginning of the end for coal-fired power in the US? Source: Adobe Stock/Snap Happy.

A recent US Energy Information Administration report covered by Reuters states that generators produced 101.86 million megawatt hours (MWh) of electricity with gas in November versus just 87.78 million MWh with coal, the lowest monthly level since May 1980 when monthly coal use was 84.88 million MWh.

How Coal Lost Ground

After more than one hundred years during which coal was the dominant fuel for power generation, some analysts think that when the final data for December is in, 2015 will prove to be the year natural gas took over. Read more

This week, the Bank of Japan introduced negative interest rates in the latest attempt to goose the Pacific nation’s stalled economy.

Free Sample Report: Our February Metal Buying Outlook

Essentially penalizing people for saving money seems like a curious thing to do to try to turn around a struggling economy, but it’s not the first time banks have gotten a push to force them to lend. The European Union has done it, too, in recent memory.

Shorter supply chains for in-demand products could benefit retailers around the holidays. Source: Adobe Stock/cacaroot.

Boy does Toyota Motor Corp. ever wish it had a bigger supply chain this week. Source: Adobe Stock/cacaroot.

My colleague and metal price analyst Raul de Frutos wrote that, “negative interest rates mean that depositors must pay regularly to keep their money in the bank. This measure encourages people and businesses to spend, invest and lend money rather than pay a fee to save it and keep it safe.” Read more

You may be an investor in mining shares or you may be an investor in commodities, or you may be both, but your pension fund — if it’s any good — is almost certainly neither.

Free Download: The January 2016 MMI Report

Because, if it holds mining shares, it is nursing some heavy losses after the last 12 months.

Source: Telegraph Newspaper

Source: London Telegraph

Pension funds, thankfully, are cautious animals. They like solid dividend payers — as many in the mining sector have been for years — but they hate the combination of falling share price, high debt and low commodity prices that will almost certainly result in a cut in dividend payments this year even if mining companies are to survive the downturn. Read more

Ford Motor Company took the automotive world by storm when it announced it was going to construct the iconic F-150 pickup truck from aluminum in 2015.

Free Download: The January 2016 MMI Report

The very idea that America’s workhorse could be made from something so fragile as aluminum was a complete anathema to some people, but the resulting product on the whole has been well received.

Classic car

An aluminum-bodied Rolls? It’s more likely than you think. Source: Adobe Stock/Dimitri Surkov.

Lighter, more economical and more responsive it can be said in most quarters to have been a success; so much so that Ford has recently announced it will increase the aluminum content in 2017 models.

GM Plays Catch Up

Despite initially trashing the idea, General Motors has now said it would sink $877 million into its Flint, Mich., truck factory this year with the intention of converting many of the bodies for models such as the Chevrolet Silverado and GMC Sierra pickups into aluminum. Read more