Market Analysis

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Purchasing Managers Index, or PMI, numbers are at best an estimate of sentiment and an indication of business confidence about the coming months.

But confidence can evaporate like dew in the sunshine.

In today’s uncertain world, however, we tend to cling to any data points for a clue on how the economy is faring and what the future may hold.

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The usually highly liquid gold market hit turbulence last week as transport restrictions prevented contract settlement procedures at New York’s COMEX futures market.

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The Financial Times reported the price of gold futures traded on COMEX and expiring this month widened to a $70-per-ounce premium above the London physical gold market Tuesday. The spread marked the highest on record, prompted by fears the physical 100-ounce gold bars traded on the exchange would not be available as retail demand surged.

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Popular investor inclination may be that after such a dramatic fall, the oil price has to bounce back, that investor sentiment on the downside was an overreaction.

That inclination might also say after a chance for reflection has been allowed, prices will recover.

But the reality is all we can reliably expect is a period of intense volatility.

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Just as we were about to go to press with an article on the surprising resilience of seaborne iron ore and coking coal prices in Asia, the market in Asia closed yesterday with heavy falls – they beat us to it.

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Supply disruptions and what looks like an overly optimistic assessment of likely stimulus measures have supported iron ore and coking coal, despite the collapse of just about all other commodity prices.

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How will the coronavirus outbreak and oil price volatility impact metal prices in 2020 and how can industrial metal buying organizations be prepared for what’s ahead?

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This past Friday, the MetalMiner team hosted a pop-up webinar on that very subject, “Managing Metal Price Volatility: How the Coronavirus Will Impact Metal Prices Throughout 2020,” featuring MetalMiner CEO Lisa Reisman, MetalMiner Editor-at-Large Stuart Burns and Vice President of Business Solutions Don Hauser.

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Despite a plunging LME price and dire short-term prospects for metal consumption in Europe and the U.S., aluminum mills are still following through on long-term plans to improve their environmental credentials.

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They are doing this, particularly, to lower the carbon content of their products to meet buyers’ increasing focus on such environmental considerations.

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Various reports hit the news feeds today quoting a deliberately headline-grabbing statement by Paul Sankey, managing director at Mizuho Securities, in which he is reported as saying, “Oil prices can go negative.”

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That is, they could as a combination of Saudi Arabia (and Russia) flooding the market with increased oil and the market running headlong into COVID-19-induced curtailment of activity that is suppressing consumption, which combined will create the perfect storm of excess supply.

In reality, inventory levels are already rising.

CNN quotes Sankey, who said global oil demand is only around 100 million barrels per day.

However, the economic fallout from the coronavirus pandemic could crash demand by up to 20%.

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We are not claiming any particular foresight on this, but a recent Reuters article yesterday covers a topic we wrote on last week concerning the disconnect between China’s aluminum smelters, which managed to raise output by 2.4% during the troubled first two months of this year, and the downstream aluminum semi-finished product producers, which all but shut down due to the enforced government lockdown in many parts of the country.

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The result we and Reuters report is SHFE stocks have mushroomed from 185,127 metric tons at the end of December to 519,542 tons now, as smelters churned out metal that no one could use.

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As government entities in the U.S. battle to curb the spread of the coronavirus (COVID-19), incrementally stricter provisions on public gatherings have been implemented. Large businesses, from casinos on the Las Vegas strip to Disney World, have closed up shop.

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As of 4:00 p.m. CET (Central European Time) on Monday, the World Health Organization (WHO) reported 168,109 confirmed cases in 148 countries, including 6,610 deaths.

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The price of all precious metals plummeted on Friday and again on Monday as investors sort to liquidate profitable positions to raise cash.

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Gold, in particular, has been the victim of its own success, rising strongly this quarter on the back of growing investor anxiety about the wider economy.

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