|
|||||||||||||
|
 |
|
Party time?
October 16th 2009
"Ludicrous" was how one market participant described this week's trading conditions for metals, attributing it to a lack of liquidity. This is hardly surprising; many of the great and good of the global metals industry were gathered for the 'mating season' (rather more prosaically known as the London Metal Exchange's metals week).
In the third (occasionally the second) week of October, some 4,000 metal buyers and sellers congregate in London. This year's party comes with the price of most base metals running well ahead of the fundamentals. And even then there are doubts over what the 'fundamentals' are telling us. Analysts still need to convince investors that the perceived demand for metals is real, and that consumption is indeed rising.
The annual LME dinner is always a good time to take the industry's temperature. The LME's chief executive officer, Martin Abbott, was in no doubt. In his speech he trumpeted that "the LME, its members and the industry we serve have survived the onslaught of recession, the fear of depression and the confusion of broader market signals".
Mr Abbott gave several reasons why he believes this to be the case.
First, he noted that "the metals industry is based on the production, consumption and trading of hard assets". He added that "at a time when intangible financial products have been largely discredited as vehicles for investment, or as collateral for credit, it is no surprise to find that, to put it simplistically, real stuff is favoured by those who want and need to invest".
Second, the global strategy of stimulating recovery by investment in infrastructure has sustained, perhaps even increased, demand for basic commodities. Third, the need to hedge the risk associated with that demand is even greater now, in an economy still suffering a hangover brought on in part by a liberal attitude to risk.
Mr Abbott said that the LME has sustained its pre-crisis level of turnover because "it has proven to be a safe haven for business". He noted that the advantages of independent valuation and counterparty-risk mitigation (through the 'clearing' process and the provision of efficient trading venues) have kept the LME at the centre of the forward metals-markets trading business.
The LME is also moving forward. The delayed new contracts for cobalt and molybdenum now have a firm launch date of February 22, 2010, and the first cobalt-brand listing will be Vale Inco. Also, with China dominating the metals-trading scene, the LME is to improve its capability in the region by opening an office in Singapore during 2010.
On the technology front, the LME has launched a new pricing and data service for the web-enabled standard BlackBerry, and the new Smart Phones (including Apple iPhones and the BlackBerry Storm).
Producers, metals brokers, risk managers and analysts in the US$10,000 billion LME non-ferrous metals, steel and plastics markets can now access comprehensive real-time metals information. The Exchange's new service includes the latest trades and bid/offer prices, allowing, according to the press release, "users to take LME data on the road".
'Taking to the road' is what many analysts should be doing in an attempt to unravel what is happening in the world's economies. The uncertainty was clear at the annual Standard Bank LME luncheon, where Jim Coupland, managing director for Global Base Metals, said "we believe there will be an uneasy and potentially fractious transition from recession to recovery into 2010". The bank's report on base metals says "much still depends on the availability of credit and the general public's willingness to spend".
Metals inventories in LME-approved warehouses have almost doubled so far in 2009 to over 5.5Mt (valued at US$14 billion). Restocking earlier this year was led by China's smelting industry (in support of the government's economic-stimulus programme) and total global inventories are now thought to be over 9Mt.
Notwithstanding the higher stock levels, base-metals prices have risen almost 73% in 2009. Some reality has returned since the start of August, however, and only zinc has continued to make significant gains. This pause comes in spite of a decline in the value of the US dollar, in which all the metals are denominated.
The future for gold, meanwhile, seems to be well charted. The precious metal has pushed ahead this week to yet another record price (at least as measured in nominal dollar terms). The base metals are not so fortunate. Despite a returning appetite for risk, and improving macro-economic indicators, most metals still face massive supply surpluses and a far from certain immediate future.
Comments
There are currently no submitted comments for this blog.
