LME Market Outlook
LME metals prices have fluctuated substantially over the course of 2012, but a closer look at the market’s dynamics reveals that volatility has been less intense than in previous years and that trading ranges have also become more compressed. Here, Edward Meir looks at their prospects, for the rest of this year and into 2013.
EVEN AFTER THE recent round of monetary easing catapulted prices higher, none of the LME metals exceeded their 2011 highs. Conversely, during the summer swoon, none broke below their 2011 lows either. These narrower trading ranges are partly attributable to the fact that commodity investments seem to have lost their allure somewhat as an asset class, with money flows into the sector slowing considerably and even declining in certain months. The reason for this is pretty clear: with the global
economy in a synchronized deceleration mode for much of the past year, there has been little appetite by the investment community to plunge back into the sector. In terms of the macro outlook, it is remarkable to see
just how harmonized global economies have become. Europe is on the cusp of tipping back into technical recession, as the debt crisis lurches from one country to the next, testing the resolve and creativeness of the authorities. Japan is also struggling, as are India and Brazil, with growth rates in these BRIC countries well off earlier highs. In China, the country that matters most to base
metals, the economy is struggling with its own issues, including declining growth rates, a shaky export sector, falling real estate prices, and contracting manufacturing activity. More importantly, the Chinese authorities have come to realise that despite their staggering economic advances over the past 15 years, they are not immune to business cycles or to the economic forces that originate outside their borders over which they have little control.
Please ... Just One More Bubble Faced with the frustration of slowing growth, central
bankers have responded in the only way they know how, which is to ease monetary conditions. The first salvo was fired in late July, when ECB Chief Mario Draghi said he would do “whatever it takes” to save the Euro, the first clear sign that the central bank was committed to utilizing the ECB’s formidable balance sheet to shore up confidence in Europe’s beleaguered currency.
Me Too ... Not to be outdone, Federal Reserve Chairman
Ben Bernanke rolled out yet another QE program in mid-September, involving the purchase of an additional US$40 billion a month in new mortgage
debt instruments. Significantly, the Fed said that the purchases would not end on a specific date, but as and when labour markets begin to heal – the first time monetary operations were explicitly linked to an improvement in the job market. Bernanke also said the Fed was not going “to rush to ... tighten” and pledged to extend zero rates into 2015. For their part, the Chinese announced unveiled
a US$126 billion stimulus program in September that centred on a variety of infrastructure programs, including roads, sewage treatment plants, as well as subway and rail projects. The spending has started and will extend until 2018.
Metals Outlook As we look to make sense of where metals could go in
2013, we should note that the forecasts presented here are contingent on an underlying set of assumptions which only tangentially touch on each metal’s supply/ demand profile. Granted, supply/demand balances are
... it is remarkable to see just how harmonized global economies have become
important and are discussed in the pages ahead, but this variable has arguably become the least relevant one in forecasting these days. With that in mind, we review the key themes behind the numbers.
China: Don’t Expect Major Fireworks In our previous annual commentaries, we advised
our readers not to get too starry-eyed about Chinese growth prospects and warned against assuming that every Chinese economic measure is on an ever-upward trajectory. Indeed, despite the government’s efforts to control almost every facet of the economy, it has become apparent this year that too much tinkering leads to its own set of problems, like overcapacity, excessive debt, and on the flip-side, inflation. China’s government will now have to face what
Westerners have known for some time, namely, that making credit cheaper will not necessarily lead to more borrowing. The lack of fresh Chinese borrowing is attributable not to expensive credit, but rather to the hangover generated from all the spending made thus far. Companies, banks, and local governments are finding it difficult to generate enough revenue from the investments already made in such things as industrial
December 2012 73
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96