Monthly Metal Review
- September 2018
- August 2018
- July 2018
- June 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018
- December 2017
- November 2017
- October 2017
- September 2017
In July, the base metals have recovered from the depressed levels of early June with prices trading at 12-14 weeks high and likely to continue their upward rally on economic optimism. Similarly, oil prices rose as better-than-expected earnings from ExxonMobil Corp., Southwest Airlines Co. and others bolstered hope for an improving economy.
The euro climbed to $1.31 for the first time in almost three months as European confidence in the economic outlook rose to the highest level in more than two years this month and German unemployment decreased. In spite of Portugal’s two-notch downgrade by Moody’s, the euro was also supported this week as stress tests released July 23 found only seven European banks needed to raise additional capital.
The Federal Reserve underscored yesterday in the Beige Book business survey its view that the U.S. economic recovery, while still moving forward, is progressing at a slower pace than earlier in the year. U.S. gross domestic product grew at a 2.5% annualized rate in the second quarter after expanding at a 2.7% pace in the first three months of the year, according to the median forecast of 81 economists in a Bloomberg News survey.
The month headline is the mining and energy taxing system issues which have spread globally. Australia eventually ended a damaging dispute with global miners by dumping its planned "super profits" tax for a lower resources rent tax backed by big miners, clearing a major hurdle to calling an early election. The resource rent tax will be at a rate of 30%, down from the previous "super profits" tax rate of 40% and it will only apply to coal and iron ore mining and exploration companies earning more than A$50 million in annual profit. Although miners will pay more tax, the total will be less than under the proposed "super profits" tax and the government still gets extra revenue to fulfil pre-election promises. Global miners BHP Billiton, Rio Tinto and Xstrata welcomed the new tax, but not all miners were happy, saying the deal still threatened Australia's resources sector and overseas investment. In fact, the watered down mine tax upset some smaller iron ore miners, the backbone of mineral exploration, who had wanted rebates on millions of dollars spent annually exploring.
In the meantime, Chile's Congress rejected a government proposal to revamp mining royalties to help pay for reconstruction after a massive quake, in a major political blow for President Sebastian Pinera. The proposed change in mining royalties aimed to raise up to $1 billion out of a wider $8.4 billion package to fund rebuilding after the February 27 disaster which killed over 500 people and ravaged industries in south-central Chile.
Paradoxically, China, which helped its heavy industry survive the financial crisis by lowering barriers to exports, is now hitting the same exports with a tax to discourage rampant production that uses too much energy. The government has repeatedly vowed to crack down on overcapacity, threatening to withdraw loans, outlawing expansion and advocating a wave of consolidation that will leave only a few big players in each industry. As a result China set a target of cutting the energy intensity of its economy by 20% in the current five-year plan, which ends this year, but that now looks a hard target to meet. After falling for four years, energy use shot up in the first half of this year because of expanded production in high-energy industries. The government said it would cut and scrap some rebates on exports of steel and most base metals and semi-finished products made from those metals from July 15. T his new export tax policy is part of efforts to limit capacity of high-energy and high-emission industries for which coal and coke are needed. China now aims at exporting high value-add finished products like automobiles and ships instead.
China's PMI fell by 0.9 points to a 17-month low of 51.2 points in July, marking the third straight month of decrease. An official from China's Federation of Logistics & Purchasing attributed this to seasonal factors and macro-control measures like property sector tightening and export tax rebate.