Market Analysis

This is the second of a two part series. You can read the first part here.

On the demand side, Zhang Fengkui, a director at the nonferrous metals department of the Chinese Ministry of Industry and Information Technology is quoted in a recent Reuters report as saying “Based on the development trend in the 12th five-year plan period (2011-2015), copper consumption will be very big,” China’s real consumption of copper may rise to 8.5 million tons by 2015, he said. That would be an increase of 25% from 2010 demand forecasts. State-backed research firm Antaike expects China’s refined copper demand to rise to 7.34 million tons in 2011, from an estimated 6.8 million tons this year.

So faced with sluggish but recovering demand in the west and the probability of continued strong demand from emerging markets are price levels of >$9,000 per ton a fair reflection of the supply constraints we are likely to experience over the next year or two? Copper has risen to just shy of its all time dollar high reached in July 2008 (just before a previous bubble burst, only that one was in debt) but as an illustration of how at least in part this current run is an expression of dollar weakness the copper price is still around 10% below its Euro peak achieved in May 2006. Certainly the physical market is not as active as it was with demand stagnant and physical premiums well below summer highs, reports Standard Bank in a recent note to clients. The bank speculates that recent power constraints enforced by Beijing could be restricting demand and point to rising SHFE inventories as signs that the physical market is actually well supplied. Nevertheless the bank observes that investors are in the driving seat as regards price with massive inflows of funds continuing after the Fed’s decision for further quantitative easing. Coming back to the previous point in dollar terms the price seems high but in euro and many countries currencies the copper price is some way from previous highs. Still Simon Hunt of Brook Hunt frets openly in an article reprinted by MineWeb that copper could be carried along on a wave of speculative euphoria up to $12,000 per ton before it collapses. Hunt’s concern is that we are in the grip of a commodities bubble stimulated by QE, likening the Fed’s actions to a giant Ponzi scheme. He predicts it will all end in tears sometime between 2011 and 2013 (exact peak date unsure) but that by 2016 copper will be back to $1500 per ton. We wouldn’t disagree on the bubble angle, the copper price is being driven far more by investor inflows than end-user demand, but if copper were really to fall to $1500 per ton most of the world’s mines would close. The marginal cost of production is variously estimated around $3500-4500 per ton.

For the time being, the supply side constraints, robust if currently slowing demand and high investor demand for a hedge against inflation if not an outright good bet means copper is likely to continue to be pushed higher. How far, and for how long, remains to be seen; more it seems will depend on the strength of demand than the inelastic supply.

–Stuart Burns

Few banks have been as deeply involved in the iron ore and steel markets as Credit Suisse. The bank pioneered the introduction of iron ore swaps and remains one of the market leaders with deep insight into both the mining community and their steel producing customers. In a recent report to clients, CS provided an intriguing analysis of the steel market ostensibly for equity investors but which, as you will see, has much to commend reading by steel consumers. Refreshingly the report focuses on ex China demand looking at industrial production ex China, inventory levels, ISM new orders and both real and apparent steel demand. The analysis appears to focus on a few key indicators without deeper insight into the demand picture for key consuming industries such as construction or automotive but nevertheless has much to commend it in terms of similarities to previous recessionary cycles.

The bank started modeling apparent demand ex China at the height of the crisis in late 2008, and since then the model has predicted the trough of 2009, the peak in April 2010 and is forecasting the next trough as April 2011. From then onwards though the model is predicting rising demand through t0 2012.

Source: Credit Suisse

The graph above illustrates that the fall in apparent demand over the last 6 months or so has been significantly more dramatic than the real slow down in industrial production, that is apparent demand growth has undershot real demand growth by a considerable margin. Apparent consumption includes inventory build or de-stocking and so can often appear greater than underlying real consumption changes. Anyone involved in the market today will probably support that observation, end-user demand is not significantly down over early 2010 but prices have weakened and the supply chain is in caution mode.   The bank suggests this means that the real steel market is actually nothing like as bad as it seems and that if industrial production momentum picks up, the rebound in apparent steel consumption will be more dramatic than the real demand recovery. If the bank is right then through the middle-latter part of next year the steel market may feel very strong indeed. The bank makes the observation that the steel market is as driven by psychology as the equity markets. Acceleration in demand creates tension, which leads to the supply chain buying higher volumes and paying higher prices. Anyone involved in the distributor market will have seen this played out at times. Steel prices tend to trough before the trough in the demand cycle, and the bank suggests Q4/Q1 could be the trough this time around.

Looking back over 2010 there was what the bank terms a brief flurry of seasonal steel market activity heading into Q2 followed by a prolonged slowdown in demand that damaged sentiment among steel buyers killing off any chance of a prolonged up cycle. If they are right,   next year will see a demand recovery likely to lead to a far stronger sentiment in steel markets and sustained re-stocking in addition to real demand.

So far in 2010, the bank rightly observes there has been no meaningful re-stocking. The recovery in inventory has had more to do with the absence of the deep de-stocking in 2009 than a return to pre-crisis levels as the chart below from Credit Suisse illustrates. Absolute inventory in the US, Germany and Japan sits at the same pre-recovery level as the Asian crisis and 2003 within a year of these periods there was a fairly dramatic inventory build. These graphs show how in previous recessions the disconnect between inventory and new orders is most extreme as the economy comes out of the recessionary cycle.

Source: Credit-Suisse

In fact a disproportionate share of the current inventory is down to Germany where real demand has been stronger and has given distributors the confidence to take on more inventory.

Source: Credit-Suisse

If the bank is correct then the output and demand dip we are seeing now will continue into 2011, followed by a seasonal pick up in Q2 and a real and apparent demand acceleration to the peak in Q2 2012.

What do you see in the market? Take our quick 4 question MetalMiner Steel Market Pulse Survey – results will appear tomorrow!


–Stuart Burns

As both major steel scrap consuming and exporting markets, the USA and Europe are often treated as the be-all and end-all of the steel scrap market. The US’ world-leading electric arc industry has become a model of scrap-to-steel-making efficiency and scrap markets serving that industry viewed as a bellwether for the scrap market worldwide.

Source: World Steel Association

However, if there is one thing we can say for the steel industry, it is that it does not stand still and the rise of Asia has been a phenomena that even the financial crisis of 2008 barely slowed, let alone caused retraction as it did in the west.

Global steel scrap consumption will reach 631.5m tons in 2015 according to a Global Industry Analyst report widely reprinted but acknowledged here from PR Web. 2015 is probably a bit far off for us to focus on here but the point is scrap consumption patterns are changing fast and the implications will be felt as much at home in Europe or the US as they are in consuming countries; scrap is a global business. According to the report, Asia-Pacific and Europe now account for more than 70% of global steel scrap consumption, so prices and demand in these markets are equally as important as what is happening in the US. Indeed, one of the dynamics that will affect the scrap market in the medium term will be the imposition of restrictions in exports by several countries as scrap-exporting countries seek to protect domestic consumers.

Steel scrap is the key raw material used by electric arc furnace production. More than 55% of steel produced in the European Union employs steel scrap as a raw material and yet European companies using EAF technology account for only 40% of all steel production. The balance steel scrap is used as charge in the LD or BOF steel refining process mixed with pig iron from blast furnaces. The proportion of steel scrap used varies depending on the mill, the quality of the steel scrap and the end-use of the steel, Wikipedia quotes a nominal fifth (or 20%), but a very precise figure for the Japanese steel industry this year is quoted in a Chinese website at 14.5%. The Japanese steel industry is down in tons produced this year from 2007, but even so it is on track to consume nearly 14 million tons of steel scrap for LD/BOF converters and a further 24 million tons for EAF steel production, still some way short of the 48 million tons reported by the USGS for US steel scrap consumption in 2009.

As steel production has fallen in Europe, scrap recyclers have increasingly turned to export markets, shipping 22% more scrap in 2009 than 2008. Principal markets are China, India and Turkey, even though the first two do not have highly developed EAF production capability. Turkey retained its title as the largest steel scrap importer according to, at 15.6 million tons topping China’s 13.7 million tons, but even so, down on 2008’s 17+million tons import figure. Internally, Europe consumed nearly 81 million tons of steel scrap, down from over 110 million tons the year before.

Source: World Steel Association

As Asia (and in particular China) continues to grow, its steel production will have a growing impact on scrap consumption patterns, demand, and hence: prices. Although China’s steel mills are not traditionally large scrap consumers, they are increasingly adopting western production techniques and even low scrap consumption per ton of finished steel ratios have become significant when multiplied by the 600 million tons per annum capacity for the Chinese steel industry. World steel production reached 1,220 million tons in 2009 according to the World Steel Association. In the same year, the US produced just 58.1 million tons of that total. As a major steel scrap exporter, the US is going to be increasingly driven by the demands of the global steel scrap market rather than the domestic. Could we see steel scrap export quotas imposed in the US? Probably not in the short term. The US produces much more steel scrap than it consumes, but a weak dollar is arguably making US steel scrap even more attractive than US steel.

Tell us about what you are seeing in steel markets today. Complete our 4 question MetalMiner Steel Market Pulse Survey.

–Stuart Burns


Back in early October we published a post entitled: The Case For Steel Price Increases Weakens. We hesitated slightly about calling any outright price declines for several reasons. Ironically, only a month later, we now have multiple mills announcing price increases. AK Steel, will raise base prices for new HRC orders by $30/ton and CRC and coated products by $40/ton effective immediately according to BusinessWeek.   Severstal according to its own website, also raised prices for HRC, CRC and galvanized products by $40/ton effective immediately for shipments through end-December (the company has also announced price increases for January shipments). Finally, Nucor also announced price increases last week, according to Platts “a minimum $30/short ton increase in the base prices of its hot-rolled coil, cold-rolled coil and galvanized products.

In our post of October 4, we called out four conditions that would drive steel prices higher. These drivers include the following:

  • Raw material costs to remain high and volatile
  • Domestic producers must continue to closely monitor production rates. At the time we suggested that though the mills were carefully monitoring production, we felt that with the addition of ThyssenKrupp to the mix late in 2010, producers may have less success in monitoring production rates.
  • An improvement in order books from mills. At the time we said we don’t see a lot of support for that based on recent earnings guidance from several producers.
  • Finally, rising steel prices require strong demand from key manufacturing sectors

So where do we stand today on November 9?

Raw material costs do indeed remain volatile and have moved up in recent weeks. Whether one examines iron ore fines (now up to $157.20/dry metric ton for 62% Fe fines or $126.2/dry metric ton for 58% fines) according to The Steel Index or scrap prices according to October 28 data released by SteelBenchmarker, (shredded scrap is at $334/metric ton, No 1 HMS at $304/metric ton and busheling scrap at $377/metric ton) raw materials have crept up from September and early October numbers.   As for coking coal, my colleague Stuart reported recently these prices will likely increase after this quarter. Score 1 for rising steel raw material costs.

Turning to domestic production, we know from the AISI that steel capacity utilization rates through November 6 dropped to 66.8%, only 5.3% higher than the same time period during 2009. Score 1 for domestic producers holding the line on utilization.

In terms of order books from mills the only evidence we have of rising order books involves lead times. Looking at data from The Steel Index we see a mixed bag on lead times. Lead times appear to have extended for HRC, CRC and HDG but appear to have shortened for plate and rebar. Generally speaking, longer lead times suggest larger order books. Score .5 points for lead times supporting price increases.

Last, we turn to demand from large steel-buying OEMs. We find this a challenging metric to gauge. On the one hand, we saw some better automotive numbers out of October and anecdotally distributors point to very low customer inventories (signaling some re-stocking may appear in the near-term) but the anemic economic recovery and lousy construction markets will continue to put pressure on demand. Score .5 points from key steel buying sectors.

What do our signals tell us? We may see some continued price strength through the end of Q4 but after re-stocking, we’ll need some cheery economic news to sustain the upward price momentum.

Perhaps we can solicit some thoughts from MetalMiner readers via the MetalMiner Steel Market Pulse series (see survey below). We will publish results on Friday.


–Lisa Reisman

Will we see aluminum prices suffer because of oversupply issues? Several analysts are saying no, and Harbor Aluminum’s recent conclusions on the topic point otherwise.

Sucden Financial recently released their quarterly base metals report, with a spotlight on aluminum, copper and tin activity. Brenda Sullivan, Sucden’s head of research, spoke with Reuters Insider reporters and underlined that both aluminum and copper are bucking their longer-term downtrends and moving upwards.

Aluminum and copper have both seen historic price increases in the wake of the Fed’s decision to buy up treasuries to the tune of $600 billion over the next several months. The aluminum cash price hit a high around $2,500 before the weekend.

Source: LME

Sucden is forecasting Q4 prices for aluminum to remain in the $2,000-$2,500 range.

Whether this remains a sustainable trend remains to be seen. Volatility has been higher, with spreads tightening, much of it due to supply-side issues. One reason aluminum’s price rise may be short-lived (or, at the very least, illogical) is that warehouse stockpiles are larger than producers would like them to be.   According to an article in Aluminum Investing News, “the amount of aluminum stored in warehouses has climbed to a 32-year high.   In the past year alone aluminum stocks have risen 25 percent, paradoxically futures prices are up 67 percent. Between 2000 and 2009, aluminum demand grew 38 percent, compared to 20 percent across other metals. However, supply has outpaced demand by 6 million tons since 2007, said William Adams, an analyst for

Going back into the world of ETFs for a moment, Steve Hardcastle, head of client services at JPMorgan Commodity ETF Services, seems to share the view of aluminum perhaps not making the most sense in the ETF market. “The aluminum fundamentals are by no means bullish,” he said in a Reuters report. “I cannot see that aluminum would be a particularly attractive investment for the ETC client base. It would be a very welcome introduction of somewhere else to park this surplus aluminum.”

But with global demand still pulsing (as opposed to domestic demand here in the US, what with the residential construction sector still sluggish) it may be hard to downplay the notion that aluminum prices have room to rise. In contrast to the above views, which downplay aluminum’s potential increases, Harbor Aluminum’s recent outlook seems more a rosy one.

Although we cannot republish these findings in detail, we can report that Harbor expects the developed world to do better than feared, and tightness in the scrap market and the launch of the new ETFs to buoy aluminum demand.

–Taras Berezowsky

For more information on Harbor Aluminum’s research and reports, click here.

Uranium is a metal we do not cover very often but as a material with a key role in power generation and an active spot market it deserves periodic review. Interestingly the market has been moving up. Just last month a Bloomberg article called out advice from Macquarie Group of significant risk of higher prices in the event of supply disruptions. At the time, uranium prices were $4548/lb but since then and even though there have not been any supply disruptions Industrial Fuels & Power reported prices are now at US$ 53.50/lb and annual sales volumes up a third over 2009.

The US tends to look at nuclear power as a sunset industry because reactor construction ceased after the Three Mile Island incident but in some parts of the world, massive nuclear programs are underway, seen as a way to limit carbon emissions and environmental damage from coal. Credit Suisse reports China has 24 reactors under construction about half of which were started in just the last 12 months. China’s target for installed nuclear capacity is 70GWe by 2020 and with only 11 reactors providing 8.6GWe at present, the program will require around 60 new builds. According to the World Nuclear Association such build rates are not unprecedented. During the 1980’s, the world was adding one new nuclear reactor every 17 days, including 47 in the US, 42 in France and 18 in Japan.

Source: Credit Suisse and WNA

In spite of planned reactor new builds of course a number of those old reactors are now coming to the end of their life and as in the UK will be replaced later this decade. To some extent closures will mitigate new builds so that the sum of new capacity added each year will drop as the decade goes on. Even so total nuclear generating capacity is estimated by Credit Suisse as likely to rise from the current level of 373 GWe to approximately 425 GWe by 2014 and 495 GWe by 2020, representing annual growth of about 3%.

Nevertheless UxC, a nuclear industry consultant, and CS estimate prices will rise next year to average $55/lb in H1 and US$60/lb in H2, before powering on to $70/lb in 2012 and 2013. Reactor closures will not begin to significantly feature in removing demand until the second half of the decade by which time mine expansions in Kazakhstan should increase supply and bring prices down slightly the bank says. However, doubts still exist as to the cost model for as yet undeveloped resources around the world and with emerging nations increasingly turning to nuclear power a long-term price of at least $60/lb is expected on solid demand.

–Stuart Burns

A lot of things have been going wrong in the marketplace for Rolls Royce. Their share price fell a bit more than 5 percent today on the LSE in the aftermath of Qantas grounding their half-dozen Airbus A380s. But stock price seems a more near-term hiccup as opposed to the potentially systemic failings of their jet engines. The malfunction may came down to a rather small but not insignificant metal part upon which the propeller is mounted: the rotating spline.

Splines are defined simply as a series of grooves that fit into a shaft to transfer torque:

Source: Perry Technology Corporation

The real issue at hand in the Qantas accident may be the wear and tear noticed on the splines. Aviation Week reported that an airworthiness directive had been issued for Rolls’ Trent 900 engine back in January by the European Aviation Safety Agency.

“As the shaft-to-coupling spline interface provides the means of controlling the turbine axial setting, the wear through of the splines would permit the IP turbine to move rearward¦This rearward movement “would enable contact with static turbine components and would result in loss of engine performance with potential for in-flight shut down, oil migration and oil fire below the [low-pressure] turbine discs prior to sufficient indication resulting in loss of [low-pressure] turbine disc integrity, the article explained.

Clearly, metal factors into the airline industry, in several industrial metals that we cover play crucial roles. Jet engines are made from various alloys of steel, stainless steel, nickel, aluminum and titanium. In fact, according to Rolls Royce’s Web site, the fan containment system in their engines is the first to be manufactured from titanium and does not need the additional Kevlar wrap (which has become more common than the alternative, fiberglass), making it a lighter and smaller system.

In recent years, there has been a significant rise in the demand for titanium and titanium alloys. The price of commercially pure titanium (CP) has risen sharply since 2003, from $15.00 per lb to $50.00 per lb., according to All Metals & Forge Group.  The price remains up as we head into 2011.


But Rolls has been under fire for the performance of a number of their latest products. On Aviation Week’s Things With Wings blog, Robert Wall reported that Rolls has experienced several setbacks with their Trent 1000 engine, among other things.

To put this into context, Rolls is the world’s second-largest jet engine manufacturer, and the majority of Airbus’s A380 line uses the Trent series engine.  (The company supplies to Lufthansa and Singapore Airlines as well.) If engine manufacturers like Rolls continue to experience trouble with their products, what could it mean from a design and development perspective using metals? Only time will tell, and we’ll keep an eye on it.

–Taras Berezowsky

This is the second part of a two part series. You can read the first post here.

MM: We have come out saying large parts of this sector appear to be in a “ bubble” yet in your report you state (and we would agree), “Investors have limited experience and knowledge of the technology minerals fundamentals to date as this is a complex new area.” First, do you agree the sector is a bubble (yes/no and why/why not) and second, can you explain some of the specifics (e.g. fundamentals) that you feel investors are lacking?

E&Y: From a company share price perspective, yes the market is probably a little frothy. There does appear to be a lot of hype in the market but not from a metal pricing perspective. Let’s face it, because the politics of rare earth metals specifically the disputes between China and Japan and leaders such as Angela Merkel and Hillary Clinton getting involved, the political agenda is creating the sentiment we are seeing in the market. This may be driving the stock prices of many of these companies. There are quite a few big projects specifically Molycorp, Lynas, Great Western, and one more in Australia coming on stream soon. The question is this – are the valuations of the companies in the sector too high at the moment? It’s possible.

The reality is that the pricing of rare earth metals, increased China demand, and supply chain bottlenecks with few processing plants for rare earths have led not only to an extraction problem but also a refining problem this point is not often made. Skilled labor has disappeared from this portion of the supply chain.

In terms of what investors are lacking, we definitely see confusion over the Rare Earths terminology and what it means. There is a big divide between light and heavy rare earths and confusion over how these metals are used in terms of end industries and their respective future demand.

MM: Do you think China back in the Ëœ70’s when Deng Xiaping famously said, “The Middle East has oil but China has rare earths specifically intended to drop the prices of these metals in the US to effectively take out the US domestic industry?

E&Y: No, we don’t believe China had a sinister point of view or intent to lower prices to sell into the US. They have a different way to operate in terms of profits but they were likely more motivated to create jobs domestically.

MM: You advocate for a number of steps that the EC should take to remain (or become) competitive with regard to REEs. To what extent do you feel the US is doing or is not doing the same series of recommendations?

E&Y: 13% of the world’s rare earth reserves are in the US and the US used to have the expertise to run the supply chain as well. Between the US and Europe, the US is likely better positioned than Europe in terms of reserves. In terms of recycling rare earth metals, Europe may have a greater emphasis than American companies. In the UK, today for example , if you want a replacement mobile phone, the mobile operator is likely to ask you to turn in your old one before you get the replacement, this was not the case 18 months ago, although I am not 100% sure that they can recycle it but there is a change in attitude. In the US, the focus is to keep phones out of landfills, but without those specific rules and regulations. Read more

Though the rare earth field is awash with news and constant media exposure, we recently came across a well-written report examining the European market. The report, published by Ernst & Young, entitled “Material Risk Access to Technology Minerals, discusses many points typically not covered in the now very public rare earth metal discourse. We caught up with Michel Nestour, Director in the Mining and Metals Practice based out of the UK (and author of the study) as well as Andy Miller who leads the Americas Mining and Metals practice for some additional insight into some of the key findings in the report.

MM: Can you give us some background information on the E&Y metals practice?

E&Y: As a practice, we serve 25 of the top 30 mining and metals companies. We perform external audits, tax, advisory and transactional work that includes due diligence, operational M&A and strategy. There are 1000 professionals in the metals and mining practice including mining engineers, mineral process specialists and geologists (Michel came from Corus). We have a global center in Australia, and major operations in the key mining hubs such as the US, Brazil, China, South Africa and Russia. We focus on both mining and metals (upstream and downstream). We also work for some players in the rare earth sector.

MM: You mention in the study that Korean companies are able to take equity positions in rare earth metal companies in China. Though there have been some news reports on specific investments, this factor is not widely known. Are other countries able to do the same and if so which ones and if not, why not?

E&Y: As was reported in the China Daily in June of this year, Posco has taken a 60% ownership stake in a Chinese mining company. This was a way to get access to the export quotas set by the Chinese. Essentially, you want to be near the actual extraction as well as to the refining, fabrication, etc. near raw materials. In addition, Glencore announced it was looking at a rare earths mine in the USA which is currently owned by a private business, Wings Enterprises Inc. In Baotou, a high-tech zone in inner Mongolia, we understand that there are French companies and some outsiders are trying to locate themselves there. In addition, we understand a sideline meeting of the 10-nation association of South East Asian nations (ASEAN) summit in the Vietnamese Capital Hanoi between the Chinese w/ the Japanese and South Korean counterparts on the subject of rare earth metals had been canceled last week.

MM: You cite from an EC report, three minerals that should experience the largest demand growth – gallium, indium and germanium. And we know these metals are by-products of bauxite, zinc, lead and copper. Little is made of this particular issue. How do you see the “rare earth crisis” affecting these three metals? It seems as though the supply chain story here is quite a bit different from the heavy REEs. What are your thoughts?

E&Y: Gallium, indium and germanium are not Rare Earths as they are not part of the 17 elements comprising the Rare Earths.   But they could potentially be considered “Rare Metals.   If you look at these three minerals they are by-products and subject to the supply/demand scenarios for the underlying metals. This drives the larger miners and drives those metals. According to Metals Insider, in China, there is an export quota for example for Indium of 233 tons in 2010 (expectations are that this will be the same in 2011, according to the Chinese commerce ministry). You are asking us whether a large diversified miner will make the investment to refine more of that by-product if demand for the gallium, indium and germanium increase. We do not think so as these products are just credited to cost of sales and the diversified miners generally would rather produce the copper, tin, lead, or zinc.

The large miners look at this sector but the interest is pretty limited it’s just too small for them. If there is nominal investment, they’ll add it. Generally if it doesn’t make economical sense, it becomes a tailings pond.

The second post to this series will appear later today.

–Lisa Reisman

It seems the gold rush is slowly working its way up again.

With an already weak dollar, QE2 around the corner and the price of gold at around $1350 per ounce”and few signs of letting up”certain market watchers and product providers are pointing to these factors as the main reason to invest in gold and other precious-metal securities.

Indeed, if QE2 goes through, many analysts say that gold prices will spike sharply.

One of the liveliest (and certainly lesser-known, at least in some U.S. markets) ways to invest in precious metals is with commodity ETFs. Now, one of the world’s leading promoters and issuers of these funds, ETF Securities (ETFS), is making a run on U.S. markets. More on ETFS’s performance can be found here.

On Nov. 2, at a precious metals briefing in Chicago, ETFS made their bid to prove to Chicago investors the global importance and potential value of investing in precious metals “baskets”bundles of precious metals securities”in this economy.

“At $1300 an ounce, is the price of gold really expensive? No, it’s not! said David Hightower, president and co-founder of The Hightower Report and a speaker at the briefing. “Just shows that times are changing.

In his view, gold’s market price should match the cost of production. By inducing another round of quantitative easing, Hightower later said, the Fed is extending the gold market for the future.

But what do commodity ETFs mean for metals buyers? In terms of gold and silver, probably not much. However, as far as platinum and palladium prices go”and even more importantly, base metals such as copper and aluminum”key developments are on the horizon.

After already introducing physically backed gold ETFs in the U.S. (traded on NYSE Arca), ETFS is set to introduce base metals baskets soon. When MetalMiner asked Nicholas Brooks, Head of Investment Research and Strategy at ETFS, when to expect an announcement on physically-backed base metal baskets, he kept mum.

As we look to watch metals such as copper and aluminum trade on ETFs, the biggest concern is when, not if, inflation will hit. The implications for buyers may be huge.

With Bernanke playing with QE fire the second time this decade, folks such as Hightower see no way around it. “In my 30 years of experience, he said, “I have not seen such a loaded macroeconomic setup for inflation, and politicians think they can stop this.

Regardless, it behooves investors and metals buyers to be educated on commodity ETFs so that they not only are aware of the risks, but of the potential rewards. Firms such as ETF Securities want to spread the word to buyers that the terms “commodity and “ETF, when used side-by-side, will no longer sound as opposite as oil and water.

–Taras Berezowsky

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