Monthly Metal Review
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Overview
December has culminated the year following through the last stretch of the rollercoaster that rose to new heights in 2010. The word of the year appeared to be volatility that though perhaps a rather bumpy ride seem to keep topping new summits. The shining stars of the year were clearly gold and silver while copper and other metals surpassed expectations, commodities in general drew quite a bit of attention. Indeed the views for 2011 seem to be continuing along the lines of volatility yet bullish and fairly optimistic.
Miners have continued to lead the way this month with copper hitting new records. While talk of a super cycle seems to hold new ground though there are fears that this may be moving into bubble territory. Not many would have forecast that the commodity prices would have recovered as quickly as they have, leading some to believe that this will be looked back on as the golden age of commodities. Emerging from the credit crises several of the world’s largest economies have considerably reduced their demand of raw material, a number almost ceasing to grow. Luckily for commodities the emerging economies and notably China picked up the slack and effectively took up the demand side of the market. Giving the swift rebound that has been seen this year and most predict such a trend to continue.
This significant rebound in commodity prices has drawn a plenty of attention in particular to metals. Miners are expected to have cushioned profits next year allowing them to restore their balance sheets and still have money to invest. This is a welcomed boost to several of their suppliers as miners dig even deeper planning to expand on their profits and taking advantage of the current market trend. Larger manufacturers of mining equipment such as Joy Global’s Chief executive Mike Sutherlin believe, “we are entering the early stages of another multiyear expansion of the industry. Suppliers and miners are not the only ones looking to profit on this global boom in resources. Following the credit crisis, panicked investors scurried to find safe havens to weather the storm and precious metals in particular gold seem to be their preferred choice and could be seen in the sky rocketing price. Nevertheless base metals began to shimmer as well with the interest and appearance of physically backed industrial metal exchange trade products known as ETP’s. The lure for investors in such products is the sense of security and safety that is brought with knowing that what is purchased is physically backed. The concept of gold ETP’s has been replicated for other precious metals as to vault store these products do not take up that much space in relation to their considerable worth. This is not so for industrial metals which are stored in large warehouses around the world. Some feel that industrial metal ETP’s may be an innovation too far, possibly bringing even more volatility to the markets, others think it will bring increased stabilizing liquidity, while others believe it will never take off due to the inevitably high warehousing costs.
Another metal sector that is tempting a swath of investors however with strong reservations is the Afghanistan mining industry. A country that is proving to be exceedingly rich and yet hesitations to invest are apparent as it is incredibly insecure. Around the world investors are tempted by the promise of considerably lucrative returns in the region nevertheless unnerved by the security concerns. However some of the braver and more optimistic have gone in with work starting on the Aynak copper mine forecast for production in 2013 and directed by the Metallurgical Corporation of China Limited MCC. The significant government security around the project demonstrates their serious intentions to protect major investments. Indeed the mining ministry has been shaking up the sector introducing far more transparency in a bid to create a far more accountable industry even jointing the Extractive Industries Transparency Initiative. Though this alone will not word of all corrosive corruption it is still seen as a clear and important first step in that direction.