In part one of this series, we analyzed how metal prices have fallen in three selling waves. In this section, we will analyze the current sell-off (third wave) in metal prices that a rising dollar is producing.
Investors expect that the Federal Reserve will rise interest rates in December for the first time since 2006 while the European Central Bank plans to continue with more easing monetary policy. This, and the fact that growth prospects look brighter in US than they do overseas both add to the dollar’s attractiveness. Indeed, we suspect that the bullish move in the dollar over the past few weeks could be the beginning of a bigger move which could depress metal prices even more down the road.
Let’s take a snapshot of industrial metals to see the individual impact of a rising dollar since mid-October.
Aluminum prices are trading below $1,500 per metric ton, the lowest level since 2009. Notice how prices fell sharply as the dollar surged in mid-October (red arrow).
Copper prices are trading near $4,600 per mt, also the lowest level since 2009. Notice the slump in prices since mid-October as the dollar rose (red arrow).
Nickel prices fell last week as low as $8,800 per mt. Just below its lows of 2009 at $8,850, marking a 12-year low. Notice the decline in prices since mid-October (red arrow) due to the rising dollar.
Zinc prices quickly gave up the gains they made after major miner Glencore announced plans to cut 500,000 metric tons of its zinc production.
Notice how since mid-October (red arrow) prices fell sharply on a surging dollar.
Very similar to Zinc, Lead prices also gave up the gains they made after major miner Glencore announced plans to cut 100,000 mt of lead output. Notice how a rising dollar contributed to a sharp decline in lead prices. Since mid-October (red arrow) prices fell sharply on a surging dollar.
Tin prices are holding relatively well compared to the rest of the metals. Tin didn’t hit a multiyear low recently but notice how prices came down sharply since mid-October (red arrow) on a strong dollar.
Steel prices continue to fall week after week. A rising dollar has only contributed to the long slump in prices (see red arrow).
What This Means For Metal Buyers
Metal prices are falling together due to bearish macro factors such as the strong dollar and weak global demand. Metal buyers shouldn’t focus only on the supply and demand fundamentals of the individual metal, but they need to look at the broader picture to see what’s impacting the sector as a whole. These macro-drives are and might continue to add pressure to metal prices.