Aluminum

A fascinating car project in the UK, which borrows as much from software development as it does cutting edge automotive design, was covered recently in a Financial Times article. We were so intrigued with the story that we caught up with Nico Sergent from Riversimple for further background on the project.

There are many aspects about the creators Riversimple that are different from other automotive firms, but one fact that is mainstream is 25% of the £2m (US$2.9m) start up money behind the firm is from the Piech family, part owners of Porsche and with a long tradition in the automotive industry. The connection to the software industry comes in the open source design approach Riversimple has adopted, encouraging outside contributions and sharing of ideas and designs.

In a move to break what the team see as a conflict of interest between car builders and their shareholders on one side, the general public in need of transportation on another and the needs of the environment on a third, Riversimple has proposed their new vehicle will be leased rather than sold. The philosophy is this will encourage design for longevity and low running costs rather than low selling price, high running costs and built in obsolescence. It will also make it much easier to manage the closed loop recycling of key components like motors, driver trains and critically the fuel cells which even at end of life are expected to still be worth some £3000 ($4350). So users will pay a set £200 ($290) monthly fee and a mileage rate to include fuel currently set at about £0.15 per mile (US$0.22/mile). At the end of component life fuel cells and drive trains, the firm will replace any and all components as they wear out. Vehicles will be designed for at least a 20-year life during which major components may be swapped out or updated as technology moves on.

At the moment the prototype demonstrator has been built by the design team many of whom have a motor sport background so the tubular steel suspension and machined aluminum wheels are unlikely to find their way through into the launch vehicle in 2012 but the composite fiber monocque body, fuel cell power unit and ultra capacitor storage systems are integral to the design. The remarkably small 6kw fuel cells are supplied by Horizon and while small and compact would not be sufficient to power the car any distance if not for the ultra capacitors providing a boost for acceleration. The ultra capacitors store energy from highly efficient (five times more efficient than those on the Prius apparently) regenerative braking units. The fuel cells run on hydrogen and by way of platinum catalysts turn the air and hydrogen into electricity, water vapor and low amounts of CO2. So low in fact that the vehicle produces just 3g/km of CO2 when hydrogen is used from renewable sources as planned or 30g/km if natural gas is used. This compares to about 100g/km from the lowest emission economy internal combustion engine car or hybrid.

The electric motors do all of the work and are also the product of cutting edge university research, this time from Oxford University’s spin off Yasa Motors. Although the final motor design is still in development, the prototype is running high density permanent magnets using Neodymium and patented designs to achieve torque ratings twice those of competitors. The team is looking at non Rare Earth magnets but as yet they don’t offer the power to weight and performance parameters.

It should be said a large part of the phenomenal performance is down to the low weight. The car only weighs 350 kgs (770lbs) and has a top speed of only 50 mph but for city driving that is more than sufficient. The sum total is a two seat city car with low running costs, no upfront costs for the user, exceptionally low emissions, mileage of some 240 miles between refueling and constructed of components that can be recycled but also are designed from the outset to be part of a closed loop recycling program from component manufacturer to car assembler through to user and back again. Will this low impact environmentally friendly vehicle prove a model for car-makers in the future? The team behind it certainly hopes so; even if it does not there are many technologies and concepts of car ownership that will be advanced when this project is finally brought to market.

–Stuart Burns

This past week (specifically, on June 10) I received a metals report dated May 2010. And though the dates were slightly incongruous, the report piqued my curiosity. I always like to see what other organizations (and even competitors) report in terms of metal price forecasts. What immediately caught my eye with this particular report relates to the price direction it gave for four metals markets, specifically steel, copper, aluminum and nickel. Oddly enough, the price arrow direction pointed upward for all four metals! Hmm¦that clearly doesn’t square away with much of anything we have reported or seen lately. So what gives?

The report outlines several data points for each of the above-referenced commodities. Here is a sample of a few key points that I found striking:

  1. Copper “Copper prices rose on improved fundamental demand in March
  2. Steel “Manufacturing sector demand increased, non-residential construction falls
  3. Nickel “Nickel prices climbed higher on rising demand and higher scrap prices
  4. Aluminum “Aluminum prices climbed higher on rising demand and higher scrap prices

We couldn’t quibble with the findings had the report been dated April 2010 (and therefore released in April), but with the exception of some current commentary on the steel market, specifically that steel prices could temporarily fall if demand pauses and imports increase (both of which we have reported as happening), we have to question the value of reports like these. For example, if the report had gone out with a “promotional material only — current issue available via subscription caveat, then certainly this rant would be unjustified.

But as we like to say, “looking at yesterday’s weather forecast won’t tell you what to wear tomorrow, (unless you live somewhere tropical). Historically, rear view mirror analysis and data points will tell you nothing about tomorrow’s market direction. And though we don’t want to destroy our own integrity by stating how MetalMiner examines the market and makes price forecasts (click on the link above to see our philosophy), we would argue that metal sourcing organizations need to ask themselves: does it make sense to analyze historic information in an attempt to understand future scenarios? Or, does it make more sense to analyze current market variables, their volatility and direction, and assign weights to those variables and attempt to make sense of future price forecast scenarios?

We’ll let you make that call.

–Lisa Reisman

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The aluminum market is in a state of balance, or one might say on a knife edge. You may find that a strange statement to make, from a supply-demand point of view the market is clearly not in balance, nor has it been for the last few years. One only has to look at the rising stocks levels or read these columns to know global aluminum stocks are at record levels. Some 4.5 million tons on the visible LME, over a million in western world un-wrought inventory according to the IAI and SHFE stocks at record highs, having risen by nearly 200,000 tons this year alone according to Reuters. New and idled production have continued to come back on stream, first in Asia with capacity in China, India and the Middle East rising, then in Europe particularly from Rusal. See this Reuters note and graph:

We recently wrote about power cost increases in China and the possible impact this could have on China’s metals production in general but aluminum production in particular. In itself, rising power costs wouldn’t have been a major issue for Chinese smelters as prices prevailed during the first quarter but since then prices have fallen by some 25% to below US$1900/ton although they have since recovered slightly to the low $19o0’s today. Even so, a SteelGuru article makes the point that smelters connected to the national grid in China have a cost of production of over US$2000 per ton while integrated smelters may be only $100 per ton under this. That places many of China’s smelters at or even below their cost of production and could force closures this year if the higher power tariffs are maintained as seems likely during peak summer power periods.

Indeed Oleg Deripaska, Rusal’s CEO and largest shareholder made the point in a Financial Times article this week   saying “If the aluminum price is still at this level at the end of the second and third quarters, we will see 2m to 3m tons (of capacity) shut down, all around the world.”   That would represent about 8% of global production, which stood at 37m tons in 2009, but more importantly would be enough to bring the supply demand situation back into balance.

Some would argue it would push the aluminum market into sharp deficit because even though production has been exceeding consumption much of the excess has gone into long term financing deals and in practice physical metal has been in comparatively short supply, as evidenced by the rising spot premiums being paid in Asian markets such as Japan.

This assumes the financing deals continue but recent trends have suggested they are coming to an end. The forward price curve for aluminum has flattened as this graph shows:

The difference between the 15 month forward price and the spot plus the premium required for physical delivery is only about $100 per ton or 5% which is not enough to cover interest, insurance and warehousing for 15 months. It was $200 per ton or 8-9% last year. So if financing is in decline and production is significantly reduced in H2 2010 the whole supply-demand balance will be different. A lot of metal currently on long term deals will gradually come back to the market as those deals mature but with production down it’s possible this could be absorbed without further price destruction. Does this signal further price falls or a support level for the aluminum price? We suspect aluminum is nearing the bottom but it will be an interesting next few months.

–Stuart Burns

Consumers of aluminum extrusions in the US could face higher prices following the decision of the US Trade Commission (ITC) to approve a Commerce Department investigation into harm caused by the sale of aluminum extrusions from China at below US market prices.   The petitioners for the action are the United States Union and the Aluminum Extrusions Fair Trade Committee (a coalition of domestic manufacturers of aluminum extrusions), notice of the decision can be found here.

The action will cover products with the subheadings 7604.21.00, 7604.29.10, 7604.29.30, 7604.29.50, and 7608.20.00 of the Harmonized Tariff Schedule. Apparently from 2007 to 2009, imports of aluminum extrusions from China increased 90% by volume. And in 2009, imports of aluminum extrusions totaled $514 million, according to US government figures quoted on various reprints of a Reuters article.

The petitioners claim Chinese producers enjoy rebates and other government subsidies that allow them to unfairly compete with domestic producers. The position has some merit. Chinese extruders support is overtly in two forms and covertly in others. Overtly they are able to reclaim most of the VAT they pay on raw materials when they export goods, in itself this is not different than any other country in the world which operates a VAT system such as the EU. It simply makes value added tax a neutral sum game for business conducted outside the economic zone in question. But in addition to gaining most (but not all) of this VAT back, the exporter can more controversially claim export subsidies of between 3 and 15% depending on the product. This is a direct government subsidy designed to promote exports. Producers in the US can fairly claim this should be countered with an import duty. In addition, Chinese producers benefit from two further advantages. First, their currency is kept artificially pegged to the US dollar. If allowed to free float it would unquestionably be at a higher level than the current approximate 6.83 peg to the detriment of exporters ability to compete on price. The second covert support is in cheap loans. Chinese state banks literally forced cash onto manufacturers over the last 18 months stimulating a frenzy of investment and resulting in the case of aluminum extrusions in significant over capacity. To keep presses busy we are seeing the results of that investment in a rise in aluminum semi’s exports.

According to the Fabricating and Metalworking website www.fandmmag.com, the ITC will make its preliminary determination of injury to the domestic industry by mid July. Commerce will then investigate dumping and subsidies and make preliminary determinations within 4-6 months. If dumping and subsidies are preliminarily found, the Customs Service will suspend liquidation of imports of aluminum extrusions, and importers will be required to post a bond in the amount of the estimated duties. The entire case is expected to take 12-14 months but meanwhile expect imports from China to plummet. No importer is going to want to post a bond if there is a fair chance duties will be later imposed. With significant excess capacity among domestic extruders, upward price pressures will be muted in the short term by domestic competition but as the recovery continues and mills become busier prices will undoubtedly rise faster without import competition than they would do with.

On the flip side consumers can look forward to a more comprehensive range of domestic supply options as a result of this action than probably would have been the case if it went unchallenged. In the end, an industry already operating at below optimum capacity rates would have seen casualties if Chinese imports had continued to take significant market share and depress prices. The US has seen casualties in the extrusion market during this recession and probably risked seeing more if imports continued to rise.

–Stuart Burns

As always, there is a lot of conflicting data coming out of China. Sorting what is relevant and what is not can be a challenging process.   Let’s face it: China has been the main story in the metals markets for the last few years. Demand up means prices up, demand down means prices fall. But short term price movements can be misleading, sometimes showing an early sign of a longer term trend and sometimes merely reflecting a temporary change in activity. Import and export volumes have been a metric much on the radar of China watchers keen to gauge how strongly China’s economy is really performing and worried that a significant rise in imports will drive prices higher or a surge in exports will be taken as a cooling of the economy and hence drive global prices lower.

Macquarie released a recent report covered in Mineweb which looks at import/export volumes and interprets a slowing in imports as a relatively positive development in terms of price stability. The report suggests that imports of commodities are falling as more material is being sourced from domestic sources and there is also an element of de-stocking going on in the domestic market. The reduction in import volumes is happening at the same time that global demand is recovering so net demand levels are not significantly different, supporting prices current sovereign debt crisis sell-off omitting. The report says the latest production and trade data for April 2010 confirms the trend of a slowing in China’s net imports of commodities. This reflects an ongoing de-stocking in most Chinese commodities the report says, something that started in 3Q09, and also surging domestic production of commodities as imports are replaced with domestic production. Usually a statement such as net imports are falling and exports are rising is a sign that domestic demand is cooling. China was a net importer of aluminum, lead and steel over the first four months of 2009 but now it is a rising net exporter. China’s exports of flat steel products are back at peak levels, driven by a 75 percent month on month increase in hot rolled coil (HRC) exports in April. In zinc, nickel and tin, China’s net imports of refined metal have collapsed from a year earlier.

So, can we use some other measure to gauge the underlying strength of China’s manufacturing activity and better understand if this is truly a cooling of demand, or as the report suggests, a rise in domestic production? Well, one long-time measure is electricity generation.   An investors’ report by Standard Bank said electricity consumption is highly correlated to manufacturing and industrial demand. These sectors tend to be the largest consumers of electricity ” especially in emerging market economies like China, where the primary and secondary economies contribute significantly to GDP. In China, electricity production grew at an average annual rate of 14.3 percent from 2004 to 2007. At the same time, the Chinese economy grew by an average 10.5 percent a year. China’s electricity demand growth outpaced GDP growth by around one-third in each year.

Source: Standard Bank

As this graph courtesy of Standard Bank shows, electricity demand has followed the same seasonal trends in recent years, but at progressively higher levels of consumption as GDP has increased. The February dip is Chinese New Year, but the interesting line is the second half of 2008 when consumption collapsed along with industrial activity all over the world. However, since July of last year, electricity generation in China has risen substantially ” well above levels seen in 2008. Electricity production ended 2009 at an all-time high. This pattern is consistent with China’s GDP data in 2009. Indications are that production during the five months of 2010 was also strong, although there was a small downturn in electricity generation in April (this could be seen as a seasonal drop similar to previous years).

Macquerie partially attributed China’s switch from imports to exports as a sign of supply chain de-stocking. Once complete, the strong electricity generation figures suggest demand could pick up again later in the year supporting prices in late 2010/early 2011.

–Stuart Burns

After several years of talking about curtailing excess capacity, it would appear the Chinese authorities are finally getting serious about it. The Ministry of Industry and Information Technology said on Thursday of last week.

China has said it will close a total of 300,000 tons of copper smelting capacity, 600,000 tons of lead and zinc capacity, 800,000 tons of aluminum capacity and millions of tons of steel capacity under a three-year plan intended to reduce overcapacity and cut down pollution. China has pledged to cut the amount of carbon dioxide produced from each unit of economic growth by 40-45% by 2020, compared with the 2005 level. Closing old excess capacity serves that purpose at the same time as bringing capacity in line with demand for many metals. This year, Beijing’s target is to shut down outdated capacity of 339,000 tons of aluminum, 117,000 tons of copper smelting, 113,000 tons of zinc and 243,000 tons of lead, according to a Reuters report in ChinaMining.

For some metals the numbers are significant. Although 339,000 tons of aluminum doesn’t make much of a dent on an estimated 20m tons of capacity it could reduce what is clearly a state of over production at the moment. Of more profound impact could be lead. A reduction of 243,000 tons of capacity from a market that globally is in surplus by just 168,000 tons per year according to the ILZSG quoted in Reuters would have a significant impact on China’s demands on global supplies.

The devil will be in the detail however as many issues in the report remain opaque. A Reuters report states Chalco (Aluminum Corp of China) has asked Beijing for approval to add 250,000 tons of primary capacity at its Pingguo plant in Guangxi currently producing 140,000 tons. Whether the authorities will give their approval is uncertain however as it flies in the face of recent announcements that no new capacity is to be added for three years. Smelters have however been given permission to buy power directly from generators to cut costs and there are rumors that semi’s producers could see VAT rebates increased on exports increased to the full 17%, which would be consistent with the authorities attempts to support value add production but suppress further investment in primary production across a range of metals products.

It would appear the authorities have been buying metals for stock again, as a continuation of last year’s dramatic intervention by the State Reserves Bureau. A spokesman for the state owned research group Antaike said the three year reserve plan was to buy one million tons of aluminum, 400,000 tons of copper and 400,000 tons of lead and zinc from domestic smelters. Apparently the State Reserves Bureau has already bought 590,000 tons of aluminum and 159,000 tons of zinc since December. At least some of China’s vociferous appetite for metals is not going into consumption but into state stocks. Unlike speculative trade stocks there is no danger these will come back out into the market if prices turn or demand falters but it does mislead superficial impressions of continued high consumption rates real consumption is clearly not quite as strong as it appears.

No wonder the authorities are keen to cut excess capacity and drive some consolidation into what has been a fragmented and undisciplined domestic market before cooling growth rates meet yet higher levels of over capacity and results in a general price collapse.

–Stuart Burns

Two reports in the Financial Times could almost be described as illustrative of the glass being half full or half empty. Both articles cover the energy markets of the Middle East but the first bemoans the perilous state of energy supply in many Middle East markets. Decades of extremely low energy prices have embedded a culture of waste and inefficiency that makes energy use per head of population some of the highest in the world. In addition the area has actively developed energy intensive industries such as aluminum smelting on the back of what was considered low cost limitless power supplies. Finally population growth has been relentless. The region’s largest economy, Saudi Arabia, is growing at 2.38% per year according to middle-east-online and 60% of the population is under 40, seeking jobs and demanding industrial development.

Like the rest of the region, Saudi Arabia is rapidly consuming more and more of its own production of oil and gas just to feed rising domestic demand. Khalid al-Falih, the chief executive of Saudi Aramco, the state oil company, recently warned that unless Saudi Arabia tackles inefficiencies in the way it uses energy, the kingdom’s availability of crude for export risks falling by as much as 3m barrels by 2028 to 7m barrels a day. He said that Saudi Arabia’s domestic demand is expected to rise from about 3.4m b/d of oil equivalent in 2009 to approximately 8.3m by 2028. The company is pouring money into exploration of new natural gas fields even though it has the region’s fourth largest reserves; drilling has started in the Red Sea and in the remote Empty Quarter. Although no finds have been made yet, Aramco expects to ramp up current natural gas production at existing fields from 10bn cubic feet a day to 15.5bn cu ft a day in 2015.

With the exception of Qatar, which is coming to the end of a 20 year investment program and now has the capability to move 77 mm tons of LNG per year, much of the rest of the Middle East is scrambling to develop existing reserves or identify new ones. Unfortunately new undeveloped fields are mostly sour gas like Abu Dhabi’s Shah filled that ConocoPhillips has just pulled out of as the gas price has collapsed at the same time as the US$10bn development costs have been identified.

The second article tackles the issue of gas supply in the gulf from more of a short-term perspective. In addition, the impact of the low gas prices in the region is exacerbated by the massive rise in reserves in the US following the success of shale gas development. The price of natural gas has fallen from a high of $13.70 per million British thermal units (mBtu) in July 2008 to lows of $2.75 per mBtu in September 2009, followed by a slight recovery to today’s price of about $4 per mBtu. In addition, demand in the US for imports of Qatar’s LNG have all but dried up and in the UK previously Qatar’s second largest market demand has dropped as a result of the recession. As a result, Qatar has developed sales to China but the issue is that low gas prices are likely to prevail for the next couple of years depressing investment interest in developing new fields particularly if they are technically challenging such as sour gas or in more remote locations.

What the two articles do show is that the energy market in the Middle East, long home to the principal suppliers of the world, is changing rapidly. Finite reserves are coming up against rising domestic demand and more challenging new field development both technically and financially, which will change the landscape this decade. Although cheap at the moment, natural gas’ lower carbon emission profile will make it the fuel of choice in the decade to come and will put a strain on energy supplies in the Middle East.   Middle Eastern states may come to regret the massive investments they have made in energy intensive industries such as aluminum smelting if their domestic market has to start importing natural gas from elsewhere to make up the shortfall.

–Stuart Burns

China’s aluminum smelters have a problem power, or to be more precise, power costs. Coming fast on the heals of an electric power cost increase announced last week in Henan, the industry has now heard that all subsidized power deals are to be withdrawn.

The announcement last week was a result of rising thermal coal prices pushing up the price for generators in Henan home for a fifth of China’s production. Spot prices of thermal coal in China’s top coal port Qinhuangdao rose by about 2% last week and are expected to rise further as Chinese power plants buy more coal to build stocks ahead of the peak consuming period in the summer. Generators have pushed up electricity prices by 6% to compensate for a series of rising coal costs and have also advised smelters that they will face rationing if power consumption reaches 75-80% of total capacity. The Henan hike would increase the cash production cost for aluminum smelters in Henan to around 15,500 yuan per ton, compared to the average cost of about 15,000-15,700 yuan for other smelters in China according to a ChinaMining article.

Meanwhile market prices for aluminum have fallen in line with softer demand and a fall back in world prices. Currently domestic China prices are 15,350 yuan per ton according to MetalMiner’s IndX but smelters said they could see capacity being closed if prices dropped to 14,500 yuan per ton.

That was before the announcement last week in a Reuters article by the National Development and Reform Commission to the effect that power costs for energy hungry industries such as aluminum, cement, steel, zinc, ferro-alloy, calcium carbide and sodium hydroxide would double from June 1st. For firms that fall into the restricted category, power surcharges will rise to 0.1 yuan per Kw-hr from 0.05 yuan previously and any preferential power rates in the name of direct trade between power generators and power users but without any approvals must be halted immediately, the report said. In the past ,calls by Beijing to remove preferential power deals have been ignored by regional governments keen to protect revenue and local employment, but now the authorities have issued a direct edict.

Smelters use 13,000-15,000 kilowatts of electricity to produce one ton of primary aluminum in China so a doubling of electricity costs from 0.05 to 0.10 yuan per Kw-hr would add 700 yuan or US$100 per ton to smelter costs. This is enough to nearly bring the spot price of 15,350 back to the 14,500 point at which the industry was saying smelters could close. With the market in oversupply a trimming of capacity would be no bad thing but if played out in any volume would likely support LME prices at or above current levels going forward.

–Stuart Burns

The phenomenal growth in Chinese primary aluminum production has to go somewhere and aluminum auto wheels seems to be one such application. Being a “finished product, wheels do not suffer the same export tax that primary ingot is subjected too and has largely contained excessive production capacity and actual demand to a form of balance in China. Semi’s producers however are not only encouraged by rebate for part or all of the VAT they pay on inputs but have positive export incentives as well.

Well the European Commission has decided enough is enough and imposed a 20.6% duty on aluminum car wheels imported from China in an attempt to halt a decline in sales and production for European wheel manufacturers. The duty is applied to Chinese imports for six months, with the option for an extra five years.

The EC launched an investigation into Chinese aluminum wheel manufacturers after a complaint by the Association of European Wheel Manufacturers last June of “dumping” where a product is sold below the cost of production. According to a report in the Telegraph newspaper, Chinese producers are said to be selling at below the cost to produce. The European producers of wheels cited in the case include AEZ of Germany, Speedline in Italy, and Ronal in Switzerland.

The report said imports of Chinese wheels had increased by 66%, from 3.7m in 2006 to 6.1m units by June 2009, and that China’s market share had nearly doubled from 6.3% to 12.4%. As a dispassionate report in the China Daily points out, European producers share of the market fell from 78% to 72% over the last year, although not all of that decline was due to China. Turkey also increased its sales to the EU. The Chinese producers denied wheels being dumped and said consumers would suffer if their more competitively priced products were denied to them. The commission stated they did not see that there would be any impact on consumers, but that is hard to square with the reality that prices will now rise for the main consumers which include BMW and Renault among others.

In another article covered by Reuters, the EU executive is reported to have extended punitive tariffs of up to 60.4% on Chinese steel ropes and cables that are shipped through South Korea to evade EU import tariffs.

The European Union, with a population of 500 million people and a gross domestic product in 2009 of more than 12 trillion euros, is the world’s largest trading bloc by value. As the article points out, the decisions could spark another round of retaliatory measures from Chinese authorities in the growing spat between two of the world’s largest trading powers.

–Stuart Burns

Last week, I had the opportunity to speak with Wayne Atwell, Managing Director of Casimir Capital. Wayne has toured over 500 mines and mills on six continents. He has over 35 years of experience in the field of investment analysis for Metals and Mining industries. He was selected as one of the ten best buy side stock pickers by Institutional Investor magazine several times and was rated as one of the top analysts in metals and mining by Institutional Investor and Greenwich Associates for more than twenty years. We wanted to hear Wayne’s perspectives on metals markets and in particular if he saw any trends that we may have missed on MetalMiner.

Wayne had a few things to say about copper, “Metals are pretty much ahead of themselves. Sometimes folks think all metal fundamentals are the same but that’s not true. Copper has a steep cost curve but zinc doesn’t.   The zinc cost curve is much flatter all of the producers are pretty much at the same level. China only supplies 22% of its own copper. China is investing all over the world to lock in supply.  In terms of nickel, Wayne suggested that it had the best fundamentals of all of the base metals running a small surplus this year and a deficit next year.

We spent a fair amount of time discussing China. We found two pieces of data in particular quite interesting. The first involves “intensity of use which relates to the amount of metal consumed by an individual (measured on a per capita basis). We have seen an analysis of this before, primarily from the steel industry. But specifically some of Casimir’s research suggested, “China’s share of global metal consumption has risen from 3-5% 25 years ago to 30-40% today. The reasons for that growth all relate to rising living standards and the general urbanization of the Chinese economy. Casimir suggests the intensity of metal use will continue to grow for another ten to fifteen years.

The second piece of data that intrigued us involves China’s share of global consumption and its self-sufficiency ratio. Wayne suggested that some of the run-up in certain metals likely relates to where China lacks commodity self-sufficiency particularly copper, nickel, zinc and aluminum. The chart below from Casimir’s research highlights this in greater detail:

Though we haven’t plotted China’s self-sufficiency in other commodities, Wayne mentioned a couple of additional metals in which China relies upon imports including molybdenum and metallurgical coal.

Finally, we asked Wayne to comment on price trends. He pointed to momentum as an important factor in the psychology of prices, “Eventually, the metals will trade on their fundamentals. In the next month or two we’ll see a correction but we’re in a secular bull market.

–Lisa Reisman

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