The world of metals has descended on London this week on the
back of a torrid 18 months which have seen prices plummet and
consumption volumes slow.
This year alone the exchange-traded commodity price for
copper has fallen 12%, aluminium is down 16% and nickel 21%.
Yet sentiment from the annual London Metal Exchange (LME)
Week has been positive.
The expectation of a brighter 2014 has been driven by the
industrial engines of the global economy: China and the US.
Signals that Chinas growth will still satisfy global
demand for industrial metals and minerals, even at the lower
rate of 7% GDP expected by President Xi Jingping, was enough
to buoy the metals community this week.
There is a feeling that China has settled into a new lower
rate of economic growth as the government seeks traction of
its 12th Five Year Plan which focuses on quality of growth
and not just quantity. This could see volumes of industrial
raw materials slow, but more niche minerals and metals used
in hi-tech applications increase as China develops its
hi-tech industries to add depth to its economy.
The federal government shutdown in the USA has not done much
to dampen the medium term mood either. Up until events of the
last week, the worlds biggest economy was one of the
bright spots in terms of economic recovery. Although
political difficulties may delay the prospect of
sustained growth until 2014, there is belief that the US
economy will remain on course for expansion.
Meanwhile it appears that many companies are not
anticipating solid economic growth in Europe anytime soon
with the strategy being one of a hope of maintaining sales
volumes while finding growth elsewhere.
The International Monetary Fund has reacted to these
devleopments by cutting its global growth forecast for 2013
to 2.9% (down 0.3 percentage points), while the
forecasted growth for 2014 has also been reduced 0.2
percentage points to 3.6%.
Minerals v metals
Despite metals being fundamentally different markets from
minerals in terms of structure, the drivers for many are the
Natural flake graphite for example is driven by its use in
steel refractory bricks and has suffered in particular from a
slowdown in three of the world's major steel producing
regions: Asia, Europe and the US.
There appears to be little chance the graphite industry will
see the all-time-highs in prices that were experienced in
2011, certainly anytime in the next few years. The price
spike which saw high quality flake graphite reach
$2,500/tonne (CIF, Europe basis) served as a wake-up call to
the industry which is now experiencing somewhat of a
restructure with new supply set to come on-stream in the next
On average flake graphite prices are down 20% in 2013.
For those in the fluorspar industry this year has been even
worse. Prices have fallen 25% in 2013 alone as a demand
slowdown has seen consumption from Asia, Europe and the
Demand for high-grade fluorspar (acidspar) from the
fluorochemicals industry a wide range of chemicals
used in fridges, freezers and air-conditioning units to name
a few applications has collapsed in 2013 as
individuals delay purchasing new white goods until improved
economic conditions prevail.
Low grade fluorspar demand (metspar) has also been hit, but
to a lesser extent, as increased domestic
consumption from China's steel industry has
insulated global markets from severe price decreases.
s outlook for both the
industries mirror the sentiment coming out
of the metals industry this week in London: a recovery in
both prices and demand is expected in 2014, but do not
anticipate a strong rebound as seen in 2011.
Chatham House analysis: Volatility in commodity
Extreme price volatility has been seen across all
commodity markets since 2008. The indexed examples above show
a very similar performance to many industrial minerals
including graphite and fluorspar.
Source: Resources Futures (Report), Chatham
House, London, December 2012