MRAI: Behind the hedge

“Volatility reached historic lows” in metal pricing in 2013 and early 2014, Sandeep Daga told attendees of the 2015 Metal Recycling Association of India (MRAI) International Conference, held in Mumbai in February, but the current landscape looks rockier.

 

Daga, director of Regsus Consulting Private Ltd., Mumbai, said, “The prices cannot remain quiet for so long.” He said prices that move during an international transaction “will eat away at your margins,” and declared to attendees, “Please stand up and start taking notice of it and begin hedging.”

 

Daga said investment funds are dropping out of the metals market, meaning metals pricing is likely to swing based on supply and demand factors that can change quickly. “I think in 2015 Chinese production cuts will be a big factor,” he added.

 

Despite the slowdown in China’s economic growth rate, Daga predicted metals prices will begin to rise after the rough patches in January and February. Metals have been harmed by the falling price of oil, said Daga, but “metals are not oil” and their pricing should not have suffered as much. For copper, Daga told the attendees, “I think maybe we have seen the worst price of the year already.”

 

On the supply and demand side, Daga said, “Trends favor positivity around China in the second half” of 2015 as its metals producers are not adding capacity so its supply should not weigh down world markets.

 

“All base metals will be in deficit this year, except copper and secondary lead,” added Daga, and even copper is showing signs of getting into balance. Daga cited global production cutbacks and other factors in the copper mining sector that should prevent an oversupply situation from setting in.

 

Daga urged metals buyers and sellers who have not yet taken part in hedging to start exploring it. “Hedging part of the book could be a good start,” he commented. “Please do not ignore these risks — manage them,” said Daga.

 

The 2015 MRAI International Conference was Feb. 5-6 at the Renaissance Mumbai Convention Centre and Hotel.