Torlizzi Base Metals Report: Momentum remains

In the plus column for commodity fundamentals, the strength in global economic growth remains broad and based in many countries.

The Goldman Sachs developed markets Coincident Activities Indicators (CAI) rose to 3.8 percent in November, following a 3.2 percent rate in October. Emerging markets economies grew at 6.4 percent in November, rising from 5.9 percent in October.

The preliminary CAI forecasts for the United States (4 percent) and Japan (3.7 percent) suggest that growth will remain firm in December. Growth has recently exceeded our estimate of potential, most strongly in Sweden, the Euro zone and the U.S. among developed market economies. India and Brazil have outperformed their forecasts most notably among emerging markets.

In China, the world’s largest commodity consumer, trade data released in early December offered surprises to the upside, a sign that demand both within and beyond China remains strong despite any other signs pointing to a slowdown.

Exports in China grew at 12.3 percent in November 2017 versus November 2016, far surpassing expectations of 5.1 percent growth. Aluminum exports rebounded, putting them up by 8.6 percent year on year compared with 2016. Unwrought copper imports (which includes anode, refined and semifinished copper products) were up by 42.3 percent in November 2017 versus November 2016 and are up 23.7 percent year on year.

On the steel industry side, three producers in the U.S. announced intentions to raise hot-rolled and cold-rolled steel sheet prices by $30 per ton or more on all new orders

More worrisome for steelmakers and ferrous scrap suppliers could be warnings about an infrastructure spending slowdown in China. The results of a recent Bloomberg survey, however, show not an actual slowdown but merely a slower growth rate.

China’s fixed-asset investment in infrastructure is pegged to grow by survey takers at 12 percent in 2018 versus a rate of nearly 20 percent achieved in the first 10 months of 2017. Survey respondents cite the Chinese Communist Party’s pledge to focus on debt management, with casualties potentially including subway projects and local government public-private partnerships.

After copper inventories had been falling in much of November, LME (London Metal Exchange) copper stocks jumped in early December. This, coupled with loose time spreads, has raised concerns that demand is not strong, and supply might be stronger. The Shanghai market’s open interest remains long, which has started to raise concerns focused on what would happen if that came down.

Commodities Pricing Trends

Nov. 30, 2017                     Jan. 1, 2017        % change

LME Copper                                     $6,771                                  $5,481                         +23.5%

SHFE Copper                                $7,965                                  $6,813                   +16.9%

LME Secondary Aluminum           $1,885                                  $1,560                   +20.8%

LME Nickel                                       $11,145                                $9,970                   +11.8%

LME Ferrous Scrap                           $342                                     $297                       +15.1%

SGX Iron Ore                                  $63.36                                  $74.01                   -14.4%

SHFE Rebar                                    $603                                     $434                       +38.9%

[Prices per metric ton.]