We will discuss some of the prevailing circumstances around the world to try and determine the direction of the metals pack going forward. This year has seen some meaningful gains in both precious and industrial metals taking lot of analysts by surprise.Last year in the month of August China devalued their currency to make them export competitive in view of the falling demand. There was also other factors to consider with supply issues in all the metals and indiscriminate production rise of smelting plants on an anticipated increase in consumption..
We were staring at a high interest rate regime as Fed was supposed to increase the interest rates with US economy looking up and unemployment rates decreasing.All this coupled with a staggering fall in Crude prices led metals to multi year lows and a total carnage in the mining world with most metals trading below the production cost or just at par. What transpired after that was a collective effort from the mining world with production cuts announced and implemented.Even the very stubborn Chinese aluminium industry joined hands with rest of the world in reducing supply.Zinc performed appreciably with supply side tightening and mines closing down due to depleted ore grades..All the metals gained with the earlier risk being put to the back burner. Fed refused to increase rates on the pretext of poor global demand.On top of that Japan and Europe started their own bond buying program to support their economy.Gold gained with easy monetary policies and a Briexit referendum putting a ring of uncertainty on the global financial system.Over all a period of strong prices for the commodities sector and favorable environment with global economy seemingly stabilizing.
Now if we analyse than some of the factors responsible for multi year low prices last year are rearing it’s head again. At least two mines have announced production increases next year,i.e Antamina and Nyrstar. Also on the wires was some Chinese zinc smelting units were trying to increase production to take advantage of the prevailing prices. Aluminium units in China re started production as prices rose and economies of scale improved.Copper is already burdened by over production and soft economic growth.Nickel has also given up some of it’s gains as news doing the rounds is that Indonesia might issue permission for export of nickel ore which was banned since 2013.Chinese currency has devalued substantially since the start of the year.There has been some hawkish comments from the Fed board and it seems that the long delayed interest rate rise regime might come to the forefront again.The positive factors in support of the prices is strong iron ore prices.Crude has recovered substantially from it’s lows.Economy looks to be in a better shape as compared to last year.Production levels even after restarts are not at the same level as last year.
Meanwhile the argument will continue but I will update my readers of the current happenings and developments in this commodity web so that they can benefit from it.