It occurred to me recently that we do a lot of talking, writing, and maybe even some whining on the subject of supply and demand. And we have largely concluded that 2008 thus far — from a metals perspective — has shown itself to be a challenging year for ‘supply’. The energy crises, the shortages, the escalating raw material and input costs, the effects of a low dollar on imports etc have weighed heavily on that side of the equation. At the same time, ‘demand’ is off due to a sluggish U.S. economy and some European economies. Because of sluggish demand, we had predicted some steady to lower pricing for certain metals categories.
But what does the forecast actually look like for demand? If you read the consumer confidence index, it’s hard to be optimistic as this week’s confidence index reached a low not seen since October of 1993, according to this Reuters article. The Institute of Supply Management’s recent report also wasn’t particularly uplifting . But being the optimist that I am, I try not to look at lagging indicators (though admittedly the consumer confidence numbers aren’t particularly lagging). First, they are depressing. Second, they are what they are, but for how long? That is the real question!
So it was with great delight that I read this interesting post by Dan North in the most recent issue of World Trade Magazine. Dan contends that by reading the economic tea leaves, specifically three factors: inflationary pressures (specifically tightened monetary policy, when the Fed raises the interest rates), the cost of oil and deflating assets if they all work in the directions that they did, the result can be nothing but a recession! What is delightful about that? It’s his prediction on the recovery. The article suggests that when the housing market stabilizes and the interest rate cuts start to take affect (which are predicted to occur in by Q4), the economy will come out of negative growth. That would be late 2008/early 2009.
What does that mean for metals buyers? This summer might be the perfect time to take advantage of some longer term price dips and lock in while the getting is good. I’m going to go get that cup of tea now and see if I can find any other hints…