Monthly Metal Review
- November 2018
- October 2018
- September 2018
- August 2018
- July 2018
- June 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018
- December 2017
- November 2017
As we approach mid-2009, the global economic outlook has shifted from one of pessimism and fear of the unknown to optimism and a feeling that the worst of the financial crisis and global recession may be behind us.
External influences on the base metals are somewhat supportive, with equities trading positively in the European session, and Asian equities putting together a robust performance. Crude oil is also stronger, and seems to have established a foothold above the $60 per barrel level.
The USD is mixed, weaker against the EUR and the JPY but unchanged to lower against the commodity currencies. In the US, existing home sales increased by 2.9% month-on-month in April, according to the National Association of Realtors, although they remained down by 3.5% year-on-year.
The premise for the recovery in base metals prices has been based on very little evidence, however. The fact that Chinese imports of refined metal have exceeded expectations is not based on any real pick-up in consumption, but more on the shifting of surplus metal from one location to another. The main forces behind this have been Chinese consumer and State Reserves Bureau restocking, and the strong arbitrage trade in copper, zinc and aluminium.
In fact, the SRB might have been far more active in the copper market than currently thought, and China plc is stocking up on raw materials in order to drive its huge infrastructure-focused economic stimulus programme.
The economic outlook in the West may be less blitzed-out than it was in December, but the West has not yet turned a corner, only glimpsed the possibility of a corner that might be able to get round. Therefore, the evidence from steel and the minor metals’ prices suggests where we really are today, without any solid indication that industrial activity (and therefore demand) has started recovering.
Speculative investment has accounted for the relatively better price performance of base metals so far this year, with investors betting that the bottom of the cycle has been reached and that as a consequence, base metals’ prices have bottomed.
The price rally is largely based on Chinese imports and a swing of the pendulum away from deep pessimism to optimism. This may not be illogical, but there still exists significant structural overcapacity in most markets, and price rallies may soon be capped by supply reactivations. However, the sharp destocking in the rest of the world should end in the second half, and recent readings from steel and other sectors in the US indicate that the destocking there is almost over.
Those expecting a big hole in world demand as Chinese imports ease may be surprised by the extent to which a recovery outside China may gather pace.