Monthly Metal Review
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The month of August was not only marked by volatile markets triggered by sovereign debt problems on both sides of the Atlantic, but also rioting on the streets of English cities, continuing and impending strikes in Chili and Indonesia, hurricanes in the USA, Philippines and Taiwan.
The sell-off in global equities accelerated sharply when Washington stepped back from the brink of a potential US debt default by raising its debt ceiling. The heightened mood of risk aversion continued to fuel demand for the safety of gold, which reached a record high above $1.882,25 an ounce, as well as German, UK and - somewhat paradoxically - US government bonds as S&P’s move failed to shake investor faith in the Treasury market.
Some analysts believe that although ratings downgrade by S&P was justified it will only be temporary. In a speech in Jackson Hole, Ben Bernanke, try to provide optimism for the future of long-term economic growth. Though no new quantitative easing program was declared, a strong and serious appeal was made to the US government to act effectively to promote macroeconomic and financial stability; to adopt effective tax, trade, and regulatory policies; encourage productive investment, both private and public and provide appropriate support for research and development and the implementation of new technologies. Bernanke also pointed out that temporary factors, including the run-up in commodity prices on consumer and business budgets and the effect of the Japanese disaster on global supply chains and production, played a significant part in the weak economic performance of the first half of 2011, however, growth in the second half looks likely to improve. Mr. Bernanke also expressed his belief that the European colleagues fully appreciate what is at stake in the difficult issues they are now confronting and that, over time, they will take all necessary and appropriate steps to address those issues effectively and comprehensively.
During this month investors underlined that high oil and food prices are forcing emerging countries’ central banks to tighten monetary policy. It leads to slowing economic growth in China, India and other big commodity consumers that consequently decreases their demand in base-metals. There was a view expressed that plummeting share prices could mean either that a double-dip recession is all but certain, or that it may be averted as lower prices attract investors.
The list of tumbling resources stocks included Xstrata, which fell 8.5 per cent, Royal Dutch Shell, Europe’s, which fell 5.2 per cent, and Vale of Brazil 6.3 per cent. Kazakhmys and Vedanta Resources fell also as another wave of heavy selling sent the FTSE’s mining index to a one-year low.
Glencore International was one of the sharpest faller losing 7 pct since the IPO pulling the FTSE 100 to an eight-month low. Nevertheless Commodity giant Glencore posted a 50 percent rise in first-half profit despite tough trading markets and said it saw potential opportunities emerging from current market turbulence, as commodity demand remains strong.
During August traders have complained of cases of lengthy and costly delays to withdraw their holdings of key industrial metals from warehouses approved by the London Metal Exchange (LME). The Malaysian port of Johor was one of them. This has once again aroused criticism that the LME has not done enough to ensure timely delivery. In its turn the LME has said that as the global economy improves it is quite typical that metals demand increases and that this may incur logistical challenges.
Nowadays state of affairs testifies to the tight interdependence of world’s markets. It appeals to the elaboration of mutually supportive, socially oriented and environmentally safe economic mechanisms that will underpin further stability of the world economy sustainable development.