The Greek Crisis: What Does it Mean for Industrial Metals?
We have all heard about the Greek crisis by now.
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On Wednesday, Greece formally asked for a three-year bailout. The European Union’s leaders have given a Sunday deadline on whether formal negotiations on this bailout program make sense or not.
So, How Will a Resolution Impact Metal Prices?
First, let’s start with: Greece is not China. Greece is not a major producer or consumer of metals. Therefore, its economic situation doesn’t have that big of an impact in the supply and demand balance of any base metal.
Some argue that a Greek exit could worsen the European economy. That, in theory, could deteriorate global demand for metals, driving metal prices down. Nonetheless, others (including me) think that a Greek exit would be beneficial for both Greece and Europe.
Austerity measures have already proven to be painful for the country over the past few years, leading to its economy slowing further, making its deficit even worse. A Grexit, however, would leave Greece with the ability to print money, which would increase inflation but allow Greece to meet its national obligations in a potentially more viable way than raising taxes and reducing pensions.
In either case, these are just opinions, no matter how informed they are. There is no obvious answer for the question since we don’t even have a precedent to compare the situation to. A national default in a currency block such as the Eurozone is truly unprecedented. Moreover, the longer-term costs — and any possible benefits — could take years to become apparent.
What This Means For Metal Buyers
Therefore, in the short/medium term, we believe that whether Greece exits the euro or not is irrelevant when it comes to metal prices. The only thing that matters is how the market will react to the news, which we don’t yet know. That Greece is in a bad situation is already well known, maybe any change from its current position will only be taken as positive. Who knows?
We are, however, keeping an eye on the euro exchange rate. A further depreciation of the euro against the dollar would normally be bad for commodities. So far, we are seeing the dollar remain strong against the euro and this seems to favor a continuation of the bearish market commodities such as metals are in.
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