Market Analysis

Recently we wrote about how zinc and lead were struggling to rally. Just three weeks later, both these metals are testing new lows.

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

June was an even worse month for base metals but these this pair fell particularly hard.

3M LME Zinc Price 1 year out

3-month London Metal Exchange Zinc price, one year out. Source: MetalMiner.

Zinc fell 9% in June, or 15% since May and just hit a 14-month low, driven by the bearish sentiment afflicting industrial metals.

3M LME Lead 1 year out

3-month London Metal Exchange lead price, one year out. Source: MetalMiner.

Similarly, lead fell 7% in June and 16% since May, sending the metal near its lowest level in five years.

What This Means For Metal Buyers

Two of the best performers among base metals got hit hard and are now hovering now near multiyear lows. Meanwhile, other industrial metals are nosediving. Things are simply not looking good for metal producers this year…

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We recently wrote about platinum prices sinking. Well, palladium seems to be following its sister metal.

In April we noticed that palladium was heading into trouble and it certainly was, only this month the metal dropped 15%, falling to its lowest level in two years.

Palladium spot price since 2012

Palladium spot price since 2012. Source: MetalMiner.

Unlike platinum, palladium finds more application in gasoline engines and is, therefore, more exposed to the Chinese and US markets than to European markets.

Automotive Demand Stalls

Slowing growth in Chinese auto sales may have scared investors away from this precious metal.

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Another bearish factor is that supply concerns eased amid signs of recovering mining output this year. Although, there are different opinions on this and some experts are still saying there will be a continuing deficit.

Palladium Follows Platinum

As with platinum, we believe that a main driver has been a stronger dollar which puts pressure on commodities and gives South Africa’s miners an incentive to keep producing as their currency depreciates against the dollar. Meanwhile, it is clear that investors are not pouring money into precious metals and this trend is hurting palladium as well.

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

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Platinum prices fell to their lowest levels since 2009. Despite most analysts predicting a deficit, this precious metal has done nothing but falling during the past few years. As we pointed out previously, the technicals looked nothing but bearish.

Platinum spot price since 2012

LME platinum spot price since 2012.

A bearish factor could be that European car sales were rising at the slowest pace in six months in May due to buyers’ concerns about unemployment and the Greek debt crisis.

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

On the other hand, European car registrations, a proxy for sales, rose 6.9% in April to 1.17 million units, the best April sales volume since 2009 and the US car market is the strongest since 2001. Therefore, it’s tricky to blame the car market for platinum’s continuous price decline.

Another factor putting the market under pressure is South African production of platinum, which accounts for more than 70% of the world’s supply and has returned to levels ahead of the five-month strike in 2014.

We believe that the real driver has been a stronger dollar which puts pressure on commodities and gives South Africa’s miners an incentive to keep producing due to the South African Rand’s sharp depreciation against the US dollar.

Moreover, it’s been awhile since investors started taking their money out of precious metals and this trend will not help prices recover.

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Monthly-Metal-Buying-Outlook_June-2015_thumbnail

Want a short-term buying strategy for zinc? Check out our FREE June Buying Outlook report!

Top Market Drivers

1. Dollar to Euro exchange rate.
2. Global production.
3. Global capacity utilization.
4. Automotive production Europe/NA/China.
5. Chinese lead prices.

Market Commentary

Not surprisingly, lead has also fallen this past month on the back of a stronger dollar. In fact, lead fell below MetalMiner’s May short-term support level of $2,000/metric ton. Market sentiment also appears weak.
According to Shanghai Metals Market, of 10 secondary Chinese lead smelters surveyed on or about May 29, only one producer forecasted rising prices, three forecasted declining prices and the balance came in neutral.
And though Q1 2015 global lead mine output dropped 0.9% from the same quarter in 2014, world usage declined by 2.7%, according to the International Lead and Zinc Study Group. Moreover, the supply/demand balance appears largely in harmony. In other words, the world could see a small deficit of 17,000 metric tons, but provisional data from ILZSG
suggests that supply outpaced demand.
The fundamentals do not support or suggest any imminent lead shortage to give prices
a boost.

The Outlook

Three-month lead closed the month of May at $1,952/mt, down about 8% from last month. We warned readers last month of a short-term pullback that did indeed materialize. And though lead had a strong price rally in April, the dollar’s ascent in May pushed lead prices lower. As with the other base metals, price risk remains to the downside.

Lead_350

Want more details on the exact price thresholds to watch? Check out our FREE June Buying Outlook report!

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Want a short-term buying strategy for zinc? Check out our FREE June Buying Outlook report!

Top Market Drivers

1. Dollar-to-Euro exchange rate.

2. Global production.

3. Global capacity utilization.

4. Zinc refining capacity utilization rates.

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Market Commentary

Zinc remains the best-performing metal of all of the industrial metals. And though zinc
fundamentals tell a mixed story – industrial-buying organizations should watch the dollar and commodities markets closely for a more likely price scenario for zinc.

The Fundamentals

The arguments supporting growing demand include detailed information recently collected by the International Lead and Zinc Study Group, suggesting 2015 demand for refined zinc will exceed supply by 151,000 metric tons. But this new deficit forecast has been revised down because of weaker-than-expected Chinese imports of refined zinc.
But not all agree that demand looks positive. The combination of a Chinese slowdown in construction (and reduction in demand for galvanized steel) and increased output, suggest an excess of supply.
Still some believe that major zinc deposits have run down and zinc will move into a deficit situation.

The Outlook

Three-month zinc closed the month of May at $2,185/mt, down nearly 7% from last month. And though zinc had a strong price rally in April, the dollar’s ascent in May pushed zinc
prices lower. As long as the dollar holds, and commodity markets remain bearish, we don’t see zinc breaking out of the rest of the industrial metals pack.

 Want more details on the exact price thresholds to watch? Check out our FREE June Buying Outlook report!

Want more details on the exact price thresholds to watch? Check out our FREE June Buying Outlook report!

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Metal prices are falling across the board, more concerning is this fall is happening while the dollar has weakened this month. Recent data shows that US consumer price inflation rose less than expected in May.

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

A weaker dollar usually helps push metal prices up but this month that doesn’t seem to be the case. For the month to date, most industrial metals are down on the London Metal Exchange:

Aluminum: -2.9%. The light metal was trading this week below $1,700 per metric ton and near record lows.

Copper: -3.3%. The metal rallied from January through May (in a dead cat bounce) but the rally stopped last month and prices seem to be heading back to the lows recorded in January.

Nickel: Flat. The metal is holding its value in June but as with any other metal, it seems to lack upside momentum.

Lead: -7.2%. Lead made a very suspicious rally in April, it fell sharply in May and the fall continues in June. The metal is now nearing a 5-year low.

Zinc:-5%. Like lead, zinc rallied in April but didn’t succeed. The metal is proving incapable of making significant upside moves while commodities are bearish.

Tin: -3.8%. The metal keeps falling, as if that was the only thing it can do since 2014.

MM-IndX_TRENDS_Chart_June-2015_FNL

What This Means For Metal Buyers

Weakness in metal prices can be seen across the board. Industrial buyers might be tempted to buy a lot of metal as prices look cheap. Contrary, we recommend to wait for signals that the market is turning up. In bear markets, what looks cheap can become cheaper…

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Tin Drivers

Monthly-Metal-Buying-Outlook_June-2015_thumbnail

Want a short-term buying strategy for tin? Check out our FREE June Buying Outlook report!

1. Dollar to Euro exchange rate

2. Chinese tin ore imports

3. Indonesian export quantities

4. Global production

Market Commentary

Tin remains the “biggest loser” of all the industrial metals this year (with the exception of rare earth metals, currently not covered in this forecast report) falling 21% since the beginning of the year.

Supply Glut

The feared “Indonesian raw ore export ban” proved inconsequential for tin. In fact, Myanmar has provided ample quantities of tin ore to China and for the first time in 7 years, China has become a net exporter of tin.

That development in combination with the bear commodities market in general and the strong dollar, continue to batter tin prices. However, we could see tin recover slightly in the short term.

The Outlook

Three-month tin closed the month of May at $15,540/mt, down about 2.5% from last
month, though trading range-bound. Tin remains in a long-term down trend and continues to show nothing but price weakness. However, prices have fallen hard and fast for tin throughout 2015, so we could see some price support in the short to medium term.

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Want more details on the exact price thresholds to watch? Check out our FREE June Buying Outlook report!

So What Should My Industrial Buying Strategy Be?

This tin price forecast was excerpted from our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds, consult the FREE June report:

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The Bureau of Labor Statistics recently released its producer price index (PPI) for May. An analysis by the Associated General Contractors of America showed that steel mill product prices were down 2% for the month and 11% over the previous year.

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

AGC Chief Economist Ken Simonson wrote that goods such as steel and concrete constitute 60% of the index (including 7% for energy); services, 40% (trade services, 25%; transportation and warehousing services, 4%; other services, 10%). The overall PPI for inputs to construction increased 0.6% from April to May. The index for energy soared 12% for the month, outweighing declines of 0.2% in the index for goods less food and energy and 0.1% in the services PPI.

The PPI for all goods used in construction declined 3% over the last 12 months. Materials important to construction that had notable one- or 12-month price changes include diesel, up 11% for the month but still down 36% over 12 months. The aforementioned steel mill products fell -2% and -11%, respectively. Steel pipe and tube were down -1.9% for the month and -9.2% for the year. Copper and brass mill shape prices were up 3.7% in May but still -3.7% for the year. Fabricated structural metal bar joists and rebar prices were up .3% and 1.3% for the last 12 months.

What this Means for Metal Buyers

Energy prices are still rising, changing the cost calculations for construction projects, yet construction materials prices remain low, allowing estimators to reduce costs.

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If we had to name 2015, we would go with “the trendless year.”

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

We are halfway into the year and markets have barely made any moves. There has been a lot of hesitation among investors since the start of the year. Sometimes markets need a pause before they either continue with their previous moves or change directions. Interestingly, we are witnessing the same behavior in commodities, stocks and currencies.

CRB (in red) vs Dow Jones Industrial Average (in Black) since 2014

CRB Commodity index (in red) vs Dow Jones Industrial Average (in Black) since 2014. Source: MetalMiner.

Equity markets are pretty much flat this year. Investors had an easy time making good returns over the past few years but they are now probably having a hard time dealing with the sluggish behavior of stocks and many are wondering if we are at the end of the bull market.

In the same manner, commodities are pretty much flat this year as investors vacillation rises. After four years of a bearish market many investors might be wondering if we are finally at the bottom. With the falling commodity market, materials and energy were the two worst sectors in the stock market as growth-minded investors looked for other alternatives. On the other hand, many value investors might be looking at these two sectors, trying to spot some bargains.

Adding Value?

Value investors are good at holding stocks through market turbulence, but not good at timing their buys. Industrial buyers on the other hand can’t afford to “hold” in their forward buys while prices keep falling. For this reason, we always recommend not to be a “value buyer” when doing your job and instead wait for real evidence that the trend has changed.

Finally, currency markets are also trendless this year. After the huge appreciation of the dollar against other currencies, the dollar is now trading sideways.

No one knows how much longer this trendless period will last, but sooner or later we will see significant movement in these markets. Whether these markets will continue with their previous move or make a turnaround is something that we can’t answer yet…

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Aluminum Market Commentary: Oversupply is the Word

Despite a strong start during the early part of May, as the US dollar entered a small correction, aluminum prices have continued their downward price movement with the other industrial metals. If the dollar continues its moves to the upside — and we have no reason to believe that trend has changed — aluminum will likely remain in a bear market.

Several indicators tell us the state of aluminum supply. Traders have reported Chinese bar products have now entered European markets cost-competitively, the first time in five years, as a result of the Chinese export tax change reported last month. In addition, service centers have ample aluminum stocks and global aluminum producers have reported extremely short lead times – in some cases days, and in other cases longer than three weeks!

MW Premiums

MW premiums as well as global aluminum premiums continue to fall. Meanwhile queues in the LME warehouse system have indeed shortened. However, the LME aluminum forward curve has returned to “normal,” meaning the spot to 18-month price shows a 10% difference, enough to restart the stock and finance trade, soak up excess ingot and place a floor under physical delivery premiums.

The Outlook

Three-month aluminum closed the month of May at $1,742/mt, down from last month. As we reported last month, the current environment points to aluminum prices trending lower through the end of the year and on that basis, making long-term commitments appears risky until we see real signs of strength.

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