Industrial Metals: The 3rd Quarter Review

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The 3rd quarter of 2014 is over, and some interesting things have happened in the metals sector.

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The most critical thing has been the remarkable surge of the dollar against other currencies. The US Dollar Index increased by over 7% this quarter. This had a depressing effect in the commodities market, and therefore metal prices took a hit.

US Dollar Index since 2012

US Dollar Index since 2012 courtesy of @StockCharts.com

In the 2nd quarter, we pointed out that some industrial metals (nickel, zinc and aluminum) were showing some strength while others were still lagging (copper, lead and tin). The stimulus measures taken by Beijing gave some economic momentum in China, helping support industrial metal prices. However, the recent upturn of the dollar changed the picture, causing the leading metals to correct while the laggards fell to low levels. 

Despite their corrections, nickel, zinc and aluminum will still keep most of this year’s gains. However, their upside potential will be limited in the face of a strong dollar and a bad commodities environment. Meanwhile, the laggards: Copper, lead and tin are not showing individual strength and without the help of a good environment for commodities, it will be hard seeing these metals significantly surge.

In conclusion, commodities remain weak as the US Dollar gets stronger. This environment is not favoring industrial metal price increases, preventing the leading metals from going higher and pushing the weaker ones into bearish territory. It will be important to keep an eye on how the big picture unfolds to determine the next metal price trends.

 

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