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
Base metals continued to edge higher on the back of US dollar depreciation against most major currencies. In fact, weaker-than-expected US economic data have raised expectations that the Federal Reserve will extend its quantitative easing program before the end of the year. The anticipation of intervention has driven the dollar lower and a wall of money has flooded into emerging markets in Asia, as well as South America, in search of yields that are not on offer in developed economies.
Beijing responded to the US House of Representatives voting for measures to penalise China for keeping its currency weak by allowing the renminbi to fall 0.1% from its recent highs to Rmb 6.6903 versus dollar on the 29th of September.
Meanwhile, the yen hit its strongest level relative to the greenback since Tokyo intervened twice to hobble its ascent. The currency has risen about 10% against the dollar this year, and business leaders were pressing the government for help. The yen's rise had gained momentum as worries about banks exposure to the debt of European countries with stagnating economies triggered a search for safety.
The Eurozone's debt crisis is the focus of investor attention after Dublin gave details of its €34 billion bailout of Anglo Irish bank and Moody’s downgraded Spain’s credit rating. However, there was some respite for embattled peripheral Eurozone government bonds as a successful €4 billion auction of Spanish debt attracted strong demand and saw yields below market rates. But peripheral yield spreads continued to widen over German Bonds.
Base metals have also rallied on a further improvement in Chinese PMI data suggesting stronger economic growth ahead. Chinese production has strongly recovered in 2010 compared with 2009. This mostly reflects that, in 2009, high-cost production was closed rapidly in China and, in 2010, as prices have recovered, production has been restarted. However, production appears to be leveling out and, in some cases, is being cut again. The data do not yet reflect any energy-related cuts. To the extent that this is happening, it will be reflected in data from September onward.
While production has been rising this year, net imports of finished production have mostly fallen sharply YoY and, in some cases, China has switched back from being a net importer in 2009 to being a net exporter this year. Net imports of copper remain surprisingly strong. The pattern of imports in 2009 was strongly suggestive of a one-off opportunistic restocking. By comparison, the pattern of monthly trade in 2010 suggests the opposite - heavy destocking.
Further support for the destocking theory is provided by the contrast between apparent consumption for many commodities and the trends in their end-use sectors. Weak apparent demand growth this year for nickel, copper, zinc and lead in particular, suggests heavy destocking in these commodities this year.
While Chinese apparent demand has slowed sharply in 2010, the rest of the world has had a strong rebound in apparent demand for base metals. This is one of the few years during the past decade when non-Chinese demand growth should exceed Chinese demand growth.
In Australia, the formation of the Labor minority government, supported by independent and Green MPs, will see iron ore and coal miners hit by a new resource tax. Gillard's proposed 30% tax on mining profits is due to start in July 2012, but the shape of the tax may change with Labor relying on support from the Greens. Because the tax applies only to coal and iron ore mining companies earning $46 million or more, some 2,000 copper, silver, lead, zinc, gold, nickel and other minerals producers are unaffected if the proposed tax is passed intact.
In the Philippines, the government and mining industry expect foreign firms to invest over the next few years, despite an uncertain investment environment and opposition from the powerful Catholic Church. The Philippines has mineral deposits estimated to be worth $1 trillion, and the new government of President Benigno Aquino tries to attract foreign investment to sectors such as mining as essential to developing local industry and creating jobs. But foreign miners have found it difficult to operate in the Philippines. Key concerns are corruption, governance and security risks from two long-running insurgencies.