- Chinese supply-side reforms generally have a big impact on metal prices — such was the case for copper, as our Stuart Burns wrote early this week.
- In case you missed it, the fourth episode of our podcast series, Manufacturing Trade Policy Confidential, dropped this week. This time, we spoke with Heidi Brock, CEO of the Aluminum Association.
- With 2018 just under way, many publications are making predictions for the year with respect to the markets and how they will perform (among other things). Burns rounded up some of the predictions being made for the year, ranging from the political to the economic.
- After a solid 2017, Tata Steel has big plans for 2018, Sohrab Darabshaw writes.
- Speaking of supply-side actions, Burns touched on oil output cuts led by OPEC.
- We kicked off our monthly round of Monthly Metals Index (MMI) posts with the Automotive MMI.
- Gold and Bitcoin, in terms of finance, sit on opposite ends of the spectrum, with the former representing tradition and the latter representing the rise of modern cryptocurrencies. However, their relative fortunes are more connected than you might think, Burns writes.
- For our second MMI post, we surveyed the month in construction trends and prices.
Gold has defied interest rate rises and record equity markets to rally to its highest level in more than three months, the Financial Times reported this week.
Rising more than 6% since early December to over $1,300/ounce — its highest level, the paper reports, since September 2015.
Gold is normally considered a safe-haven asset and a store of wealth in times of financial stress and uncertainty. So, why the surge in demand?
Performance of the U.S. Dollar
The U.S. and Europe are both expanding and emerging market growth is set to top 5% this year. One theory is the weakness of the U.S. dollar — as the dollar falls, all commodities priced in the currency become relatively cheaper and therefore more attractive to buyers in other currencies.
The dollar has been the worst performer of the G10 currencies in 2017, falling some 10% over the year. Investors also have expectations of higher inflation in the U.S. due to President Donald Trump’s tax reforms and a rising oil price, which often stokes inflation is seen by some as a risk. But while the dollar is attributed with the majority of the rise in gold, it may not be the whole story.
This morning in metals news, Chinese steel futures start the year on the right foot, the automotive sales outlook for 2018 is not quite as bright as it has been in recent years and gold reaches a three-month high.
Chinese Steel Futures Start ’18 Strong
Chinese steel futures started the year on the right foot, according to a Reuters report.
With that said, the report cites concerns about consumption levels of the metal going forward, particularly as the winter season sees construction activity slow down in China.
Outlook for Auto Sales Less Positive
After a record 2016 and strong 2017 in automotive sales, it wouldn’t be surprising to see the market take a step back in 2018.
According to Bloomberg, higher interest rates could dim the prospects of the automotive market in 2018.
Good as Gold
Gold, meanwhile, hit a three-month high on the heels of a solid December, Reuters reported.
According to Reuters, the metal rose 4.4% in the last three weeks of 2017, with prices eclipsing the $1,310/ounce mark.
This morning in metals news, Wisconsin Gov. Scott Walker signed a bill ending the state’s moratorium on gold and silver mining, Chile approaches a busy year for mine union negotiations, and Chinese steel futures drop.
Going for the Gold in the Badger State
Wisconsin Gov. Scott Walker signed a bill ending the state’s moratorium on gold and silver mining, Wisconsin Public Radio reported.
The moratorium was imposed in 1998, when Walker was a member of the state Assembly.
Union Negotiations on the Horizon in Chile
Chile’s copper mining industry has a busy schedule next year, with 32 union contracts on the docket, Bloomberg reported.
Chile, a dominant force in the copper industry, will negotiate the contracts, which represent approximately 75% of the country’s copper output, according to the report.
China Steel Futures Drop
Chinese steel futures took a dip Tuesday as a result of concerns regarding demand in the country, the world’s top steel consumer, according to Reuters.
According to the report, upward price movement driven by supply constriction is expected to be counterbalanced by a drop in demand as winter weather affects construction projects.
This afternoon in metals news, the U.S. renewable energy industry has reason to worry about the Republican tax proposal, union members at the Quebrada Blanca copper mine in Chile move closer to a strike, and precious metal prices fall.
Renewables Market Pushes Against BEAT Tax
While the Republicans’ latest attempt at an overhaul of the U.S. tax system is receiving the usual praise and criticism, the renewable energy sector is concerned – and understandably so. As Dino Grandoni explains in the Washington Post, the bill may inadvertently end investment in wind and solar energy.
Currently, many companies have large multinational corporations finance wind or solar energy projects, and in return, give the latter the renewable energy credit that the government provides. But these credits may be cancelled out as part of the base erosion anti-abuse (BEAT) tax, which is meant to discourage multinationals from moving profits abroad.
According to the American Wind Energy Association’s Peter L. Kelley, the BEAT tax – if it is not amended to exempt renewables credits – could put an end to more than half of the country’s wind projects.
Strike Brewing at Quebrada Blanca Mine
A quarter of the workforce at the Quebrada Blanca copper mine in Chile moved closer to a strike, as the 106-member union rejected Canadian miner Teck Resources’ contract offer on Wednesday, Reuters reports. Ninety-six percent of the union voted to reject the offer and strike, said the president of the union. Read more
Gold prices seem to be moving sideways after prices peaked in September.
Gold prices followed similar patterns to other base metals (such as copper and nickel), and rallied during Q3. We might expect to see price pullbacks after volatile bullish runs.
Gold and the U.S. Dollar
U.S. dollar-price movements heavily impact gold; the weaker the dollar, the stronger the gold price.
The U.S. dollar has appeared weak since the beginning of this year, while gold prices have risen. This suggests a negative correlation.
In the chart above, both gold and U.S. dollar prices appear in the upper half of the chart. The black line at the bottom reflects the correlation between the U.S. dollar and gold prices. Both correlate negatively, which supports our previous statement.
A weaker U.S. dollar will help boost gold prices. Moreover, the correlation value falls between -0.70, and even closer to -1. Therefore, gold and the U.S. dollar have a strong negative correlation, and the U.S. dollar serves as a reliable indicator for gold.
However, at certain times the correlation appears positive.
In July 2016 and July 2017, both the U.S. dollar and gold prices traded together. This tells us that the negative correlation doesn’t always provide clues as to gold prices.
S&P 500 Supporting the Bulls
Stock markets also shed light on metals markets.
Even though increasing stock markets do not necessarily equate to booming metal prices, they do suggest confidence in the overall economy. The S&P 500 currently trades at its historical levels, even in uncharted territory.
A rising stock market reflects investors’ positive sentiment with respect to the economy. The S&P 500 has increased by 15% so far this year. A better economic performance may lead traders to put their money in commodities, which will support the rally in base metal and precious metal prices.
Chinese Stock Market
The Chinese FXI index reflects an expansion in that economy.
Even though the FXI index has fluctuated more than the S&P 500 during the last five years, the uptrend that began in 2016 appears sustainable (at least for now).
Long-Term Relationship: Copper and Gold Prices
Readers might be asking: how can I relate gold prices to base metals strategy?
The answer is simple: copper and gold have traded historically in the same trend. Both gold and copper prices are currently in a long-term uptrend.
However, a couple of divergences took place at the beginning of 2016 and at the end of the same year.
Gold prices rallied at the beginning of 2016, while copper prices increased (but by a smaller amount). At the end of 2016, copper prices rallied and gold prices dropped. They recovered afterwards, continuing its uptrend together with copper.
What This Means for Industrial Buyers
Industrial metal buyers may want to consider gold price trends as an additional indicator at which to look.
Currently, stock markets are signaling a continuation of a commodities bullish market, as well as a healthy economy in U.S. and China. Therefore, buying organizations may want to understand how and when to buy to reduce their costs.
Management’s claim that this is one of the best gold projects on the planet may be a bit of hyperbole, but it does tick all the boxes as an exciting new resource located close to major communication and support infrastructure in a politically and economically stable country.
The Curraghinalt gold deposit in the Sperrin Mountains, County Tyrone, Northern Ireland is owned by junior miner Dalradian Resources, which since the purchase of the resource in 2009 is said to have invested hundreds of millions of dollars, developing more than 2 kilometers of underground tunnels and more than 100,000 meters of drilling in order to prove the resource and qualify for planning consent.
Indeed, so compelling are the numbers and so attractive is the case that the only hitch seems to be that Dalradian’s Curraghinalt is situated in the center of an area of outstanding natural beauty, raising fears environmental objections may delay approval.
This morning in metals news, growth in China’s steel industry has slowed down significantly, U.S. steel production was up 8.6% year-over-year and a Russian firm launches a new copper and gold mine near the Chinese border.
Chinese Steel PMI Falls to 6-Month Low
The Chinese steel Purchasing Managers’ Index (PMI) fell to a 6-month low this month as the government attempts to curb pollution, according to a Reuters report.
This month, the PMI dropped to 52.3 from 53.7.
U.S. Steel Production Up 8.6%
Through the month of September, U.S. steel production was up 8.6% year-over-year, according to a report by the Northwest Indiana Times.
According to the report, citing stats from the World Steel Association, steel output rose by 5.6% internationally in September compared to September 2016.
Russia’s Norilsk Opens New Mine Near Chinese Border
The Russian firm Norilsk Nickel has launched a new copper, iron and gold mine near the Chinese border, according to Reuters.
The project, situated about 250 miles by rail from the border, will send iron ore exports to China.
Chinese copper demand continues to be strong. According to the report, Shanghai copper futures have surged 18% this year.
Before we head into the weekend, let’s take a look back at the week that was.
- Holidays in India mean an uptick in gold buying — our Sohrab Darabshaw covered India’s holiday gold surge.
- The fourth round of renegotiation talks focused on the North American Free Trade Agreement (NAFTA) concluded earlier this week. We covered the latest round of talks, which by all accounts have the three negotiating teams at an impasse.
- As the fallout continues from Kobe Steel’s quality data falsification scandal, our Stuart Burns wrote about what exactly might have gone wrong at Japan’s third-largest steelmaker.
- The World Steel Association’s Short Range Outlook came out this week, predicting solid, albeit moderated growth for the global steel market.
- Precious and base metals have been behaving similarly, our Irene Martinez Canorea wrote this week.
- The U.S. International Trade Commission launched a new Section 337 probe related to automation systems.
- The value of the U.S. dollar has a significant impact on the fortunes of a number of metals, our Stuart Burns explained.
- And how about palladium? Burns also touched on the rise of the platinum group metal and its leapfrogging of platinum (for the time being).
- It’s third-quarter earnings report time. Alcoa and Nucor were among the latest companies to announce their earnings for the latest quarter.
This morning in metals news, Japanese carmakers tested the safety of Kobe Steel products, palladium outshines gold and the global nickel deficit widened in August.
Kobe Steel Materials Pass Safety Checks
Toyota, Honda and Mazda gave Kobe Steel, Japan’s embattled third-largest steelmaker, a touch of good news Thursday by saying its products are safe, despite the recent data falsification scandal.
According to a report in The New York Times, the products fell short of advertised standards, but met with regulators’ standards (as well as those of the carmakers).
Palladium Continues Charmed Run
The palladium price recently eclipsed that of platinum for the first time since 2001 — and the metal’s rise has people taking notice.
The upward trend for palladium has even caught the eye of the gold industry, according to the Financial Times.
Our Stuart Burns covered palladium’s rise in his post earlier this morning.
Nickel Market Showed 6,700-Ton Deficit in August
The nickel market deficit deficit rose to 6,700 tons in August, according to data released by the International Nickel Study Institute.
Global production was 176,800 tons, with demand at 183,500 tons.