Commodity Online: Are the green shoots of spring turning into the full blossoms of summer? Or is a late frost about to descend? As might be expected at this point in the economic cycle, there is plenty of evidence and argument on both sides. In the more positive camp, the Organisation for Economic Co-operation and Development (OECD) said in early June that its overall measure of advanced member countries ranging from the EU to the US, Mexico and Japan now points to recovery instead of the strong slowdown.

And, according to one anonymous representative of the G8, the IMF is considering revising its 2010 growth forecast up sharply from 1.9% (in April) to 2.4%, in part due to the collective global stimulus measures. In the less positive camp can be found the OECD and the IMF. The former warned this month that it was still too early to assess whether [this] is a temporary or a more durable turning point.

And Dominique Strauss-Kahn struck a chilling note by saying: The large part of the worst is not yet behind us. We should expect more of this push-me, pull-you commentary in the coming weeks as fresh data continues pointing in two contradictory directions.

The bottom-line is that, just as the technical start of the recession came well before its impact started to be felt in industrial output and consumer spending, so too will the recession's technical end be some way in advance of a real and, equally important, a perceived to be real end of the recession.

Having said that, base metals have enjoyed a remarkable recovery so far this year, based on expectations (if not conclusively lasting evidence) of China's growth prospects. It's certainly the case that, ignoring May's lower export figures, China's fixed asset investment, home sales and car sales have all soared, and Chinese imports of raw materials have continued to set new records.

This is of course very positive but insufficient to bring about a rapid end to the global recession.

Gold
Gold's latest rally failed to beat its 2009 high, and with the dollar recovering the price has fallen back sharply. There is little internal news to get in the way of further dollar-based losses, and the IMF gold sale is approaching finalisation.

Silver
Silver shot higher and collapsed back, as is in its nature; nevertheless it remains higher relative to gold than it has been for most of this year. Stronger industrial demand is giving silver an independent source of price gains from the yellow metal, but deep uncertainties remain as to how solidly-based that demand source currently is.

Platinum
Strong Chinese jewellery sales and government-enhanced European car sales are both helping push platinum prices higher. But the latter cannot continue forever, and masks a slip in the diesel-engine share of the EU car market.

Palladium
Chinese and US car sales have charted utterly contradictory courses, with a surprisingly buoyant Chinese market offsetting much of the US decline. With a US incentive programme in the works there might be better prospects ahead, but investors appear to have already priced this in.

Aluminium
Aluminium is structurally the weakest of all the base metals, so a price rally of almost 9% in June has to be based on hope rather than reality. Apart from speculatively eager anticipation of future demand there is little reason for aluminium to trade above $1,200/t. The greatest risk is therefore to the downside, but such is the renewal of risk appetite that further price strength
cannot be ruled out.

Copper
Copper is approaching the point where there is danger of oversupply. The persistently high price has given miners and smelters the perfect justification to restart idled production and go ahead with mine expansions and the commissioning of new projects. The rally essentially boils down to the notion that Chinese fiscal stimulus-fuelled growth will more than absorb the contraction in copper demand from the developed world. If that proves not to be the case then we could see a sharp price correction in 2H 2009. However, right now the momentum is with bullishly-inclined speculators.

Nickel
A consensus is building among the world’s biggest stainless steel producers that the collapse in demand has stabilised. That is the only positive in nickel, a market that despite the savage production cuts of late 2008 and early 2009, is approaching oversupply. The speculatively-driven high nickel price risks encouraging a resumption of output at precisely the wrong moment.

Lead and Zinc
Both lead and zinc ought to be more alluring to speculative investors than is currently the case, as the supply-side response has been particularly effective in keeping stocks to historical norms for both metals. The higher Chinese cars sales will directly help demand for both, while the Chinese fiscal stimulus should offer zinc considerable support, due to its use in galvanised steel.

Tin
Tin may be subject to the same speculative support as the rest of the base metals complex, but unlike some of the others, it's more justifiable. Caught between continued low demand and tight supply, tin has the potential to rally much higher once the recession is well and truly behind us. Tightly controlled supplies from Indonesia are running headlong into the arms of China's electronic soldering industry.

Steel
Chinese steel producers want at least a 40% discount to the benchmark contract price, but iron ore producers only want to give a smaller 33% discount. With many Japanese, South Korean and Taiwanese steel makers succumbing to the iron ore miners' charms, the Chinese are fighting an uphill battle. Their case hasn't been helped by the high rates of Chinese production in 2009 (although monthly crude steel output in April fell 3.9% year-on-year).

Courtesy: Fortis Metals Monthly

Post your comment  (0)

Connect:

Post to Twitter

Post to Facebook