Metal markets drift between hope and despair

by: Casper Burgering

Industrial Metals Monitor September 2013.pdf ()
  • Economic indicators and metal end-user outlook support metal markets globally
  • But nevertheless, uncertainty over demand and volatility in prices will continue
  • Looking forward 3 months, metal prices should gain some pace from current levels

Here you can download the full report, and below you will find a summary:

Eurozone economy is modestly improving …

The eurozone officially came out of recession in Q2 of 2013, with an increase of GDP by 0.3% q-o-q, even though on a yearly basis eurozone GDP decreased by 0.5%. Yet this is a positive development for metal markets in Europe, which have suffered long enough. We expect economic activity in Europe to expand further in the second half of 2013, but the pace will be still very moderate. ABN AMRO foresees a decrease of GDP in Europe by 0.5% y-o-y in 2013. Although still relatively low, the path of recovery is encouraging. The US economy continues to perform well. The ISM composite index rose impressively in August by more than two index points and almost reached its record high level of 58.3 of January 2011. Despite these positive data, the Fed decided not to alter is monetary stimulus policy. This is positive for industrial commodities. Conditions in China have been improving lately, partly due to stimulus measures by the government. Fixed-asset investments increased further – driven by strong credit growth early in 2013 – and external demand improved strongly.tabellen sept eng

… and manufacturing PMIs are expanding globally

Apart from recent macro-economic developments – which positively affected the cyclical metal markets – the metal end-using sectors in the major economies also showed positive signs. The US manufacturing sector is picking up steam, with the ISM manufacturing index rising further in August to well above 50 index points, which translates into further expansion of manufacturing activity in this region. This supports prospects for industrial production in the coming months and thus for industrial metal demand. The US manufacturing sector created 14.000 jobs, which is in line with the improvements in manufacturing data. Car sales in the US increased strongly by almost 16% y-o-y, the highest growth rate this year. Striking in the second table on the left-hand-side are the red numbers for Europe in practically all major metal consuming sectors. Although conditions in Europe are still feeble, the most important indicators point to further – but modest – expansion of activity. And while in the eurozone industrial production still failed to meet expectations in July (and dropped by 2.7% y-o-y), production levels increased strongly in China and recovered further in the US. In China, retail and car sales advanced in August and industrial production continued to expand at a stronger pace. ABN AMRO expects the global industrial sector to expand further in the coming months, driven by economic developments in the US and Asia.

Going forward …

Conditions are expected to remain uncertain and volatile in most metal markets this year, especially in Europe, where metal buying activity will remain relatively weak. Although activity in metal end-using sectors is likely to strengthen the pace of recovery in the coming months, we do not expect any significant or sudden increases. Metal demand and macro-economic developments outside Europe will be stronger. Given the apparent accelerating growth in China in Q3 and the decent pace of US economic growth – with GDP growth gaining pace and manufacturing activity expected to stay solid – we consider this to be a positive baseline for metal demand going forward. For base metals we expect prices to increase from current levels in the next three months. Ferrous metal prices are likely to drift lower in the remainder of the year, for a couple of reasons. First of all, overcapacity and weak demand keep steel markets in their grip. There is currently enough supply to meet any increase in demand. Next to that, the number of transactions globally is expected to remain thin and going forward, markets will face increasing pressure from the supply side. Also, the last quarter of the year normally does not bring much price support and prices tend to soften during Q4 (by 1.3% on average).