Monthly Metal Review
- June 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018
- December 2017
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- June 2017
Base metals prices have rebounded sharply from early February lows as milder-than-expected inflation in China has eased concerns over monetary tightening and as assurances of broader Euro-zone support to help manage European fiscal issues have tempered concerns of sovereign default in the region. Besides, Developed Market fundamentals have also shown nascent, but meaningful signs of improvement, led by the United States. This improvement reinforces the idea that rising demand from Developed Markets, on top of continued robust demand from Emerging Markets, will continue to support the base metals complex and ultimately prove most supportive for more supply-constrained metals such as copper.
It is nevertheless important to emphasize that despite recent positive signs, the Western world is not yet on solid footing, as evidenced by the 10.5 points drop to 46 in the February US Consumer Confidence Index. Hence, Western demand remains a key risk. Further, signs of a likely temporary slowing in Chinese demand for global supplies with SHFE-LME arbitrage now shut, on top of ongoing policy risk, suggest that the markets will likely remain fragile in the near term.
Yet, several factors have begun to point to improving demand and tighter metals fundamentals in the West and in the US in particular.
In the Unites States, the Employment Index is up to 56.1% for the third consecutive month and recent data suggests that production is beginning to catch up with positive leading indicators with January IP data confirming the surge in activity. Specifically, this month, IP was substantially higher than expected, increasing 0.9% month-on-month and rising above year-ago levels for the first time since March 2008. Although activity remains below pre-recession levels, the recent gains confirm that improvement is ongoing and gaining momentum. In addition, leading the gains were metals-intensive sectors, with IP for Motor Vehicles and Parts in particular surging 40.2% above year-ago levels, consistent with a sharp increase in US auto production.
The stronger-than-expected IP in the United States follows a set of strong data from both Japan - where IP surprisingly increased 5.3% year-on-year in December - and South Korea, where IP surged 33.9% year-on-year. Much of these gains were also centered in metals-intensive electronics and transport sectors. The Euro zone appears to have bucked this trend, rising from 52.4 to 54.2. The German PMI was particularly strong, rising from 53.7 to 57.2.
The dollar index rose to a new 8-month high this month and the EURUSD finished the month at 1.3570 (9-month low), however the euro rebounded in late February as worries over Europe's debt crisis eased a little on Bloomberg news that Germany might buy Greek bonds through state state-owned development bank KFW. Greece has been at the center of the euro's struggles the last few months, with its fiscal debt this year estimated at more than 120% of GDP, the highest of any euro zone member.
Eventually, oil prices rose to trade near $80 a barrel on February 26, after the upward revision in the U.S. gross domestic product data boosted sentiment.