Articles in Category: Macroeconomics

AdobeStock/Stephen Coburn

Before we head into the weekend, let’s take a look back at the week that was.

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Tin prices decreased last month with high volatility. The drop in prices appears similar to a pattern that took place in February and June.

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Source: MetalMiner analysis of FastMarkets

Price drops of this magnitude on heavy trading volume usually point to price weakness. However, this year tin prices have recovered from similar price drops.

Before the latest price drop, tin prices increased somewhat dramatically. The price increase  occurred on heavy buying volume, and tin prices looked poised to follow other base metals for a bull run.

Readers might remember that tin outperformed many other base metals last year. Tin prices rallied throughout 2016. Tin prices began to waver only in the beginning of this year, which then pushed tin into more of a sideways trend and/or up-and-down trend.

Source: MetalMiner analysis of FastMarkets

Despite the volatile drops, tin prices appear to keep returning to the same levels throughout this year. Although price drops appear hard to predict, they often appear as buying dips for buying organizations.

What About Industrial Markets?

To understand the industrial metals complex, MetalMiner analyzes the underlying DBB index trend. Both the long- and the short-term trends still point to a bullish market.

Source: MetalMiner analysis of Stockcharts

Even if the DBB index fell in September — caused by price retracement in some base metals, such as copper or nickel — no doubt October saw a big increase. Most base metal prices increased this month, driving the DBB index to higher levels.

The CRB index (commodities) has also traded higher this month, correlating again with the DBB index. We still expect upside movements for most base metals and the DBB index.

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What Does This Mean for Buying Organizations?

Tin price drops appear as buying dips. However, given current market trends, buying organizations should be watching closely as to when to commit purchases to reduce risks. At the beginning of October, MetalMiner published a long-term perspective for base metals and steel.

For those who want to reduce risks when committing purchases, MetalMiner analyzes the market each month. Readers can take a free trial now or subscribe to the Monthly Outlook. 

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As a microcosm of how power generation is evolving around the world, the U.K. is not exactly a perfect example.

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But many of the trends being played out there are, to a greater or lesser extent, mirrored in other countries.

Striving for Coal-Free

The U.K. government has undertaken to be coal-free for electricity power generation by 2025, which is some pledge for a country sitting on coal reserves said to be sufficient for 300 years of demand (albeit much of it is at depth and not as economically attractive as it may sound).

In 2012, the U.K. produced 40% of its power from coal, much the same as in the U.S. at the time. Unlike the U.S., where coal now makes up a declining but still substantial 30% or so, in the second quarter of this year coal usage in the U.K. fell to 2.1%.

In fact, on April 21 – a particularly windy day – the U.K. was coal-free for 24 hours for the first time since the onset of the Industrial Revolution.

The major beneficiaries will come as no surprise for anyone familiar with British weather.

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It seems to be the perennial question among those dependent on and those active in the metals market – what are the prospects for China?

And, well,  we should be concerned.

As both the world’s largest producer and largest consumer – in many cases constituting nearly half of global consumption and production of many metals – China and what its economy does is the primary driver on price direction and pace of change.

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What’s Happened in China This Year…So Far

This year, metal prices have risen strongly on the back of robust demand fueled in part by a mini stimulus boom initiated last year. Anxiety is growing as to how long China can keep that demand solid and what the medium-term impact of the country’s rising debt-to-GDP ratio will be. The rising “credit gap” is split 70% in the stodgy public sector, which is contributing relatively less to growth and not in the more dynamic private sector where most growth is being generated.

As such, Beijing feels it has enough ammunition to handle any fallout without it seriously impacting the economy — and with the economy growing in a broad-based manner, across manufacturing, trade and services as well as construction. HSBC, in their most recent Metals Quarterly, remains cautiously optimistic that growth will remain solid around 6.7% next year.

What This Means for Metal Buyers

For metals consumers, however, it has been about more than macroeconomic issues.

Supply-side reform has been a major driver of price this year, with enforced consolidation in the steel sector driving shortages of certain product areas like rebar, and hence fueling price rises. Meanwhile, smelter closures in aluminum have pushed prices to multi-year highs. Arguably those price rises are investor-fueled and could, at current levels, be somewhat overdone — but much depends on how vigorously Beijing continues to implement environmental policies during the upcoming winter heating period.

Clearly the market thinks it will follow through with the policy as investors are positioning themselves for shortages within China. Although the rest of the world is technically in deficit, comparing production to consumption in that country results in still more than 85 days of inventory with unknown additional tonnage available in stock and finance trades. This will act as a damper on price rises in the medium term, but the market is quite capable of spiking further in the short term.

We will have a follow-on article on steel, nickel and stainless, where despite prices being off recent peaks, there is much to suggest we will not see a sell-off next year and prices could be well supported at current levels.

Irina K./Adobe Stock

Steel Market Update’s 2017 Steel Summit kicked off in Atlanta this week and the topic on everyone’s minds was Hurricane Harvey and the far-reaching impact it will have on the Houston region.

The humanitarian impact of Harvey cannot be overstated, but the economic impact on Houston, an industrial hub in the southern United States, will be felt in both the short- and long-term, with freight transportation at a virtual standstill (Port Houston operations resumed today, according to an alert on the Port Houston website).

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

According to SMU, FTR Transportation Intelligence reports up to 10% of U.S. truck capacity will be disrupted in the next two weeks.

“Look for spot prices to jump over the next several weeks with very strong effects in Texas and the South Central region, Noel Perry, partner at FTR, told SMU. “Spot pricing was already up strong, in double-digit territory. Market participants could easily add 5 percentage points to those numbers.”

Gas Prices Surge

In response to fuel supply disruptions from Hurricane Harvey, average national gasoline prices grew to $2.37 per gallon earlier this week, and continued to surge to $2.51 Friday morning, according to the AAA website.

“It’s still really early to tell what this is going to mean for long-term supply,” Denton Cinquegrana, chief oil analyst at Oil Price Information Service, told SMU. “If some of these refineries are flooded, it’s going to take weeks to get the water out of there and then get into damage assessment.”

How will steel and base metals fare in 2017? You can find a more in-depth steel price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

For a short- and long-term buying strategy with specific price thresholds:

Nickel prices maintained near nine-month highs mid-week, due in part to Chinese stainless steel mill demand and decreased supplies from the Philippines, a top exporter of ore.

According to a report from Reuters, nickel prices peaked earlier in the week to $11,885 a ton, its highest point since November 2016. Year-over-year, nickel prices are up more than 15%.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

“Stainless steel demand in China and elsewhere has surprised on the upside and talk about nickel consumption in lithium-ion batteries has helped,” Societe Generale analyst Robin Bhar told the news source.

“Supplies have been under stress,” Bhar added. “The Philippines exported less for various reasons, including monsoon rains, mine inspections and shutdowns. Some NPI (nickel pig iron) capacity has been shut in China because of environmental inspections.”

Nickel Lagging Behind in the Bull Run

Our own Irene Martinez Canorea recently wrote that nickel, along with tin and lead, are more reticent to join the bull rush with aluminum, copper and zinc.

She writes: “Even though the industrial metal outlook remains bullish, lead and tin seem to be behaving on their own terms. Buying organizations will want to pay careful attention to trading volumes in the coming month.”

How will nickel and base metals fare in 2017? You can find a more in-depth nickel price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

For a short- and long-term buying strategy with specific price thresholds:

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The International Lead and Zinc Study Group (ILZSG) released its August report, which found the global market for refined zinc metal was in deficit during the first half of the year. Total reported inventories declined over that time, as well.

Global production from zinc mines grew 5.4% compared to the first half of last year, mostly due to a boost in output from Peru, India and Eritrea.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

Furthermore, zinc production suffered in places like Canada, Thailand, Peru and the Republic of Korea, leading to an overall worldwide increase of just 0.5% after factoring in growth in places like France, Brazil and India.

The ILZSG report stated: “Despite a decrease in Chinese apparent demand for refined zinc metal of 2.1%, global usage rose by a marginal 0.6%. This was mainly due to increases in the United States and Taiwan (China).”

Gauging the Zinc Price Ceiling

Our own Fouad Egbaria wrote just last week that zinc has really hit its stride, recently hitting its highest price point in more than a decade ($3,180.50).

Just how high can the zinc price fly? Reuters’ Andy Home states:

“But right now the LME zinc market is bubbling away with stocks falling and spreads tightening. Volatility seems assured but can zinc return to the heady days of late 2006/early 2007, when the price peaked out at $4,580?”

How will zinc and base metals fare in 2017? You can find a more in-depth zinc price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

For a short- and long-term buying strategy with specific price thresholds:

An interesting article in the Financial Times explores the decline of global capital flows since the financial crisis and how the nature of capital flows has changed markedly since 2007.

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The article draws on research by the McKinsey Global Institute looking at how bank lending, particularly European cross-border bank lending, has shriveled up and been partially replaced by company fixed-asset investment. That, we would normally say, is a good thing. Foreign Direct Investment (FDI) is usually a more productive commitment by companies in factories and other facilities.

But the concern is the main factor behind the expansion in FDI has been the flow of investment booked in “financial centers” — the polite phrase for low-tax countries such as Ireland, the Financial Times says.

A lot of this money represents tax-motivated profit shifting that simply shows up on balance of payments as FDI flows.

Cross-border capital flows are down significantly from where they were when the global financial crisis began, the Financial Times reports. The $4.3 trillion that flowed around the world last year was only a third of the peak of $12.4 trillion in 2007. While no one is suggesting a return to those levels would be a good idea – much of that liquidity resulting from savings in China and other emerging market economies and the wealth of oil exporters found its home in U.S. property, helping build a bubble that led to the financial crisis — but nor is it healthy that firms are squirreling away billions off-shore to avoid tax at home. Think Apple’s massive off-shore war chest, as an example.

Another major change that the world is only just catching up to is the shift in capital account balances.

At the time of the financial crisis, China had the world’s biggest surplus while the U.S. had the largest surplus on its current account – mainly trade. Now, it is China and Japan, as the graph below shows, and politicians in the U.S. are only just catching up to the idea that Germany is the mercantilist of the second half of this decade, not China. It should be said, however, that all imbalances have declined relative to GDP.

Source Financial Times

Finally — and this will not come as any surprise — the role of mature economies is waning compared to emerging markets.

Developed economies are sending significantly less money overseas in the form of FDI than they did before the crisis. Their share of global FDI has also been falling as China’s role has grown. This is already causing a reaction in the U.S. and Europe to Chinese firms buying up famous and occasionally strategic firms and assets, and may yet lead to legal barriers being raised to prevent further encroachment.

Free Download: The August 2017 MMI Report

The lead price grew this week following a Chinese-issued ban on North Korean exports.

According to a report from Reuters, lead’s sister metals also rebounded, in response to once-rising geopolitical tension easing up a bit and Chinese data, a top metals consumer, coming in higher than expected.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

“Those Chinese numbers (on Monday) were quite soft … I suppose the only glimmer of light came in the new yuan loans, which beat consensus, and maybe that suggests that things will remain stable as we go forwards,” Robin Bhar, head of metals research at Societe Generale in London, told Reuters.

“The metals seem well poised. After a period of consolidation this week perhaps we’ll have another push towards those (recent) highs going forward,” Bhar added.

Lead Price Movement in August

Earlier this month, our own Fouad Egbaria reported that Chinese primary lead posted a price increase, growing 3.3% to $2,694.90/metric ton.

How will lead and base metals fare in 2017? You can find a more in-depth lead price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

For a short- and long-term buying strategy with specific price thresholds:

The bullish trend has become even stronger.

Copper and zinc prices have joined the bullish trend led by aluminum in the latest rally, which started at the beginning of August.

This new uptrend in these three metals is accompanied by heavy buying volume — signaling a a bull market.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

As suggested in our article published Tuesday, aluminum prices have outperformed and broke out from their sideways trend.

Source: MetalMiner analysis of FastMarkets

Copper prices have decided to join in on the fun, and are also trending up again.

After the breathtaking rise that copper prices demonstrated at the end of July, prices are up again. A bullish sentiment has returned for copper.

Source: MetalMiner analysis of FastMarkets

Zinc prices have also hit their highest levels recorded since 2007, according to FastMarkets historical data, and point to a possible continuing uptrend. A rally in zinc prices occurred just after the sharp increase in aluminum prices. Buying trading volumes remain heavy, therefore the uptrend is underpinned by strong buying sentiment.

Overall Outlook

Although MetalMiner considers a variety of variables, indexes and data to analyze market sentiment, the most important variable is how metal prices behave.

Commodities have re-started a short-term uptrend after they lost steam at the beginning of the year. Meanwhile, industrial metals have moved from bullish (to nearly sideways/top, as we had even considered switching our industrial metal outlook to bearish but did not) to absolutely bullish again (mainly caused by these three metals rallies). The U.S. dollar has fallen relentlessly since the beginning of the year.

Free Sample Report: Our Annual Metal Buying Outlook

What This means for Buying Organizations

Buying organizations should watch metal prices closely to determine the best strategy to commit long- and short-term purchases.

For more insight into forward buys and hedging, subscribe to our monthly reports.