As any steel buyer can tell you, the direction of the market has gone only one way, up. Nickel is down significantly this year and lead and zinc have also headed south. But what to make of these “sideways” markets in aluminum and copper for example? First, what is a sideways market? I like this definition from YourDictionary.com , “A market with prices that are neither steadily climbing nor steadily falling. If the prices are plotted on a price chart, the main movement is sideways.” Sideways markets are rough because prices don’t move enough for traders to make money in the peaks or troughs or during the movement of peaks to troughs and vice-versa.
In the case of copper, the push-pull of supply and demand is the likely cause of this largely sideways market. On the one hand, demand is down in the US due to the housing market which still does not appear to have hit the bottom yet. On the other, supply disruptions have lowered production in 2008 particularly due to operational issues, labor issues and weather according to the latest ICSG press release. And according to this Platt’s article, “an analyst told Platts previously that above $8,000/mt and the “Chinese are just not interested,” an astute remark as to where the price could/could not go. The result of this ying/yang of course is a sideways market.
In the case of aluminum, though it too in recent days has traded sideways, other analysts are predicting a price increase mainly due to power related production cuts, primarily in China, according to that same Platt’s article. Though that is not what we have previously predicted, some of the evidence points in one direction and some in the other which results in a sideways market.
How should buyers think of sideways markets? Most long term forecasts for metals, particularly copper, state it is on a long term upward price path due to developing world demand. If you believe the global growth numbers, a sideways market in aluminum and copper may present a buying opportunity or at least an opportunity to mitigate some long term risk.