This week’s comments of particular interest are noted with ‘*’.

Wishing you a Merry Christmas and a joyful New Year.

                        This is an abridged version, providing all customary key data during the festive season.

The Year that Politics Broke the Commodity Cycles.

China – Industrial and Energy Output.

USA – Industrial production, Capacity utilisation, Housing Starts.

… from Chiang Mai

The year that politics broke the commodity cycles

The two-year rally in industrial metal prices came to an abrupt end at the start of June.  The London Metal Exchange Index, a basket of the LME’s major base metal contracts, hit a three-year high of 3499.6 in the first week of that month.

Prices then imploded over the ensuing weeks and the blood-bath has continued ever since.  The Index stood at 2845.5 as of Wednesday’s close, back at mid-2017 levels when the rally was just gathering a head of steam.

There is no mystery as to what caused the crash.

The United States pulled the tariffs trigger on Chinese imports on June 15.  China responded immediately in kind.

Trade jaw-jaw had just become war-war.

“The United States has initiated a trade war and violated market regulations, and is harming the interests of not just the people of China and the U.S., but of the world,” was the official Chinese Trade Ministry reaction. 

Markets took China at its word and went into free fall as speculators, not least Chinese speculators, targeted the metals complex as a proxy for darkening growth prospects, not least Chinese growth prospects.

Politics has broken the economic cycle for the LME base metal pack, dislocating price from fundamentals and causing both market and supply-chain turbulence.

Can metals escape the trade war blues in 2019? 

Can metals recover next year?

It doesn’t help that global growth is decelerating.  Nor that we are entering a seasonal low point for metals demand during the northern hemisphere winter.

Shorting copper is a favourite Chinese winter past-time.  It has happened in four of the last six years, according to analysts at Citi.

Bulls hope that Beijing’s latest mini-stimulus will mark a resumption of normal bull service after the Chinese New Year.

But all such traditional cyclical bets are off unless the trade war gloom is lifted.  

Industrial metal supply chains are highly globalised, not just in terms of consumption by an equally globalised manufacturing sector, but also in terms of production.

China is not just a dominant producer of steel and aluminium but a global power-house across the metallic spectrum.

In a world where the Trump Administration is leading a return to economic and resource nationalism, it’s hard to see how global metals can break free of global politics.

This year may have just been a taster of the turbulence ahead.

The above excerpts are from a Reuters column by Andy Home – 20 Dec 2018, and match Matau’s views closely.   The industrial metals (Cu, Zn, Pb, Ni Sn, and Al) markets are clearly (almost all) fundamentally tight, with little prospect of significant new supply within the next few years (compared to forecast demand growth).  However sentiment (uncertainty and fear) is currently  a strong influence on prices.  At some point, upon some catalyst, sentiment may do a double-take.