What the Overall Commodities Market and Metals Prices Have in Common

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When it comes to forecasting metal prices, one of MetalMiner’s core beliefs rests on the need to analyze metals markets within the broader context of commodities markets – not in a vacuum.

We’ve excerpted the following section from our recent report, “2015 Metal Buying Outlook: What Can We Expect for Base Metal and Steel Prices Over the Next 12 Months?

What Moves a Metal Price?

Thomson Reuters/Jefferies Index (CRB): January 2011-December 2014

Thomson Reuters/Jefferies Index (CRB): January 2011-December 2014

Regarding a metal price’s movements, we would argue that:

  • 40% is due to the general market
  • 30% is due to the metal sector
  • 30% is due to what is going on with the specific metal

Our historical analysis shows that a metal has far greater upside potential when the commodities market overall is in bullish mode. Since 2011, the commodities market has been in bearish mode, which has had a depressing effect on industrial metals. Despite having a good start to the year, commodities fell sharply in the second half.

The main driver of the drop was a stronger US dollar in the second half of the year. Commodities are now at their lowest levels in 4 years. Further declines to new lows will be a very bearish signal. Until we see the US dollar weaken, it’s hard to see commodities start trending up. Today, we’d characterize commodities markets as unhealthy, and this environment has not helped push metal prices up.

In other words, the upside potential of any individual metal will be limited until commodities turn up.

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