Aluminum on the London Metal Exchange has been trading broadly between $1,700 and $1,750 per metric ton for much of the fourth quarter. Maybe not to the same extent as copper or zinc, but aluminum along with most of the base-metal sector benefited from renewed investor interest as 2016 went on. Although net long positions have been trimmed back following some recent significant deliveries into LME warehouses, the consensus remains positive regarding prices for 2017. Read more
China’s authorities sets the mark 0.87% or 594 points lower than last Friday, the biggest daily decline since late June in 2016. Traders are allowed to trade up to 2% either side of the reference point for the day.
The Hong Kong Interbank Offered Rate for offshore yuan, known as the CNH Hibor, plummeted to 14.05% from last Friday’s 61.33%, down 4,728 points.
The People’s Bank of China set the yuan midpoint at 6.9262, a sharp drop for the renminbi compared with Friday’s fixing at 6.8668.
China’s central bank does not allow the currency to move more than 2% from its daily fixing in onshore trade. While policymakers cannot closely control offshore trade of the currency, it usually remains relatively close to its onshore counterpart.
Onshore, the dollar was fetching as little as 6.8679 yuan last week, compared with 6.9318 yuan at 9:54 a.m. today.
The two companies said they finalized an agreement calling for Tokyo-based Panasonic to pay capital costs for the manufacturing. Palo Alto, California-based Tesla made a “long-term purchase commitment” to Panasonic.
Their statement gave no financial figures. The factory in Buffalo is under development by SolarCity Corp., a San Mateo, California-based solar panel company owned by Tesla. The photovoltaic cells and modules will be used in solar panels for non-solar roof products and solar glass tile roofs that Tesla plans to begin making, the announcement said.
LME Names New Clearing Executive
The London Metal Exchangehas appointed James Proudlock as deputy chief executive of its clearing system, the exchange said last week.
Proudlock, who has 30 years experience in commodities, will join LME Clear in April next year.”Prior to joining LME Clear, James worked at JP Morgan Securities for 10 years where he was a managing director and commodity product lead for Futures and Options and most recently markets execution,” the LME said.
What’s causing gold prices fall dramatically? The U.S. dollar.
Gold (in dark) vs the dollar index (in green). Source: MetalMiner analysis of @stockcharts.com.
Since mid-August the dollar started a bull run that is still in play. Three main factors are propelling the dollar’s bull run:
Markets expected the Federal Reserve to raise rates by the end of the year. In December the Fed raised interest rates by a quarter point, as expected, but policymakers signaled a likelihood of three increases in 2017, up from prior expectations for two moves. While interest rates outside the U.S. stay near zero or even in negative territory, it’s no wonder yield-seeking investors are going after the greenback.
The ongoing political tensions in Europe are causing the dollar to appreciate against the euro. The ongoing refugee crisis in Europe, Brexit, terrorist attacks and political instability are some of the events causing investors to lose their appetite for the European currency this year.
Finally, the victory of Donald Trump has added fuel to the dollar’s bull market. The new president-elect has proposed new tax policies that will potentially make multinational companies bring their foreign profits back to U.S., increasing the demand for dollars. In addition, the dollar is perceived as a stronger currency since investors expect growth in US to get a boost.
What This Means For Metal Buyers
As long as the dollar continues to rise, there is little hope for gold investors to make returns. Gold buyers should wait closely for weakness in the dollar before buying gold. For now, sentiment on the dollar continues to be quite bullish.
The gist of the article was the question of will lithium demand from electric vehicles unsustainably drive up prices due to supply shortages? I said no. I expected the market to rise as demand increased, but that there was no shortage of lithium in the world and supply would rise in response to price increases and demand.
Well, the paper went on to report that supply shortages would constrain the market and the lithium price was set to boom. That’s okay. I don’t expect everyone to take my advice as gospel and, to some extent, you could say the author was right, the price has risen as this graph from CRU illustrates.
Source: CRU Group
But the same CRU article goes on to explain that to every price rise there is a response. The extent to which the market responds with new capacity or expansion to existing capacities varies with the commodity, the market during the time frame involved and any number of other issues. We will come back to CRU’s modelling of the lithium market a little later but, for now, how has the lithium industry responded to this rise in demand and what effect has the rising price had?
Well, Reuters leads an article with “stampede to invest in lithium mines threatens price gains” and goes on, as the title suggests, to say a rush to invest in new and expanded mines for lithium means material will flood the market just as demand for lithium batteries is due to soar, curbing prices. Read more
Over the holidays, we will be republishing our top posts of 2016 over the next few days. This was our single most-read post of 2016 from way back in January. Many of Soros’ predictions for the year we’re about to leave behind never came to fruition (a “hard landing” in China) while others were spot on (the Federal Reserve left interest rates, mostly, alone this year). Looking back on it now, much of what Soros spoke of has not changed. China is still exporting deflation even though metal prices recovered this year.
You would be a brave investor to bet against George Soros. The billionaire investor has shown a canny knack of making the right calls over the decades. As an article in Bloomberg says he rose to fame as the hedge fund manager who broke the Bank of England in 1992, netting $1 billion with a bet that the UK would be forced to devalue the pound.
He also successfully bet that Germany’s deutsche mark would rise after the collapse of the Berlin Wall in 1989 and that Japanese stocks would start to fall in the same year. Between 1969 and 2011, Soros led his hedge fund to average annual gains of about 20% before returning money back to investors in 2011. Read more
If currencies are any barometer for the health of an economy, or at least for investor’s perceptions of the health of an economy, this year has seen considerable variations and fluctuations. Robust commodity prices appear to signal continued strong health and confidence in China, even as the government works hard to realign the economy from export-led manufacturing to consumer-led domestic growth, but the currency has been falling since the spring as this chart shows.
Source: Financial Times
EM investors started the year hiding over fears about China and the oil market, then recovered during mid-year as growth remained stable and commodities rose. Read more
The measures imposed include raising trading margins, hiking transaction fees and imposing trading limits in attempt to tamp down speculative trading. Reuters’ Clyde Russell referred to the situation as China having “thrown the world’s commodity producers and traders a massive party.”
HRC and CRC prices in China rising through November. Source: MetalMinerIndX.
This year saw most analysts surprised by the strength of both China’s coal and iron ore imports, which led to rallies in the prices of both commodities. Chinese imports of iron ore jumped to the third-highest on record in November with 91.98 million metric tons up 13.8% from the previous month, taking the year-to-date gain to 9.2% compared with the same period in 2015, according to Reuters. Read more
Many economists and market observers have been warning for some time that with cheap cash sloshing through the Chinese economy, and attractive investments in the real economy remaining scarce, investors had plowed too much money into China’s bond market.
The Financial Times reports China’s 10-year government bond yield fell from 4.6% in January 2014 to 2.65% by late October. Banks borrow overnight and buy longer dated bonds in what appears a clear carry trade but, to work, the market requires stable and low market rates. Read more
While this year’s spectacular rebound in iron ore prices has been a godsend for the world’s biggest miners, it has not gone high enough for smaller, less-efficient producers that still have pits shuttered and equipment idle.
The price of the steelmaking material has nearly doubled in 2016 to above $80 a metric ton, a boon for miners such as Vale, BHP Billiton and Rio Tinto which extract the material at a cost of less than $20 per mt.
ABI Limps Out of 2016
Coming off a modest increase after two consecutive months of contraction, the Architecture Billings Index recorded another small increase in demand for design services. As an economic indicator of construction activity, the ABI reflects an approximate nine to 12 month lead time between architecture billings and construction spending.
The American Institute of Architects (AIA) reported the November ABI score was 50.6, essentially unchanged from the mark of 50.8 in the previous month. This score reflects a slight increase in design services (any score above 50 indicates an increase in billings).