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US dollar and copper – a surprising
finding
Feature article
An appreciating US dollar does not necessarily correlate with falling copper
prices. In 6 out of 12 ‘episodes’ of US dollar appreciation that we identify over
the past 10 years, copper prices actually increased. What appears to matter is
what is driving the appreciation of the US dollar – if it is an improving US
economy this is actually bullish for copper and commodities more generally.
We expect the US economy will continue to improve through 2011 and 2012.
Any resultant US dollar strength is therefore not a major concern for copper
or, indeed, for other commodity prices.
Latest news
Nickel fell very sharply on Thursday, closing down 4.6% on the day, with long
liquidation reported to be the major driver. Most other base metals fell by 1–
2%, with the exception of lead, which bucked the trend rising by 1.3%. Slower
US home sales, a weaker regional survey of US manufacturing and
somewhat disappointing data on US unemployment claims weighed on metals
markets through the day. Silver rose 3.4%, and the PGMs rose almost 1% on
the back of US dollar depreciation.
Prices for manganese ore and ferrochrome, crucial bulk commodities in
carbon and stainless steel making, respectively, remain under pressure
despite recent record levels of steel production and rising costs. Our own
Duncan Hobbs will host a conference call on Friday, 20 May, at 8:30am UK
time – Manganese and ferrochrome: falling prices, rising costs - what next? –
to explore what is happening and the outlook for investors in these markets.
He will be joined by industry expert, Kevin Fowkes (formerly of Privat and
Elkem), who will present industry cost curves and discuss the dynamics of this
key price driver. Please contact us or your Macquarie sales representative for
dial-in details.
The China Heavy Machinery Industry Association (CHMIA) has set targets for
the sector to realise output growth of 16% per annum over the 12th five-year
plan period. This reinforces the Macquarie view, as promoted by our China
economist, Paul Cavey, that China is on the verge of a structural and cyclical
need to build out machinery capacity. We anticipate steel consumption in the
machinery sector to grow at a CAGR of 8.5% from 2011–2015, consuming
568mt of steel. Meanwhile, the latest MIIT statistics show the surge in
agricultural machinery as China moves to mechanise its farming process, with
output of large tractors up 49.3% YoY.
Further evidence of the difficulties iron ore miners are having with regards to
maintaining product quality has come from the Chinese Administration of
Quality, Supervision, Inspection and Quarantine (AQSIQ). The watchdog
noted that 36.13% of Indian iron ore deliveries to Jiangsu province during
January–April were out of specification, either due to a lower iron content than
stipulated in contracts or higher in impurities. With seaborne iron ore supply
being stretched to the limit, minimising ore degradation and maintaining blend
quality are serious problems for iron ore miners in 2011.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
US dollar and copper – a surprising
finding
Feature article
An appreciating US dollar does not necessarily correlate with falling copper
prices. In 6 out of 12 ‘episodes’ of US dollar appreciation that we identify over
the past 10 years, copper prices actually increased. What appears to matter is
what is driving the appreciation of the US dollar – if it is an improving US
economy this is actually bullish for copper and commodities more generally.
We expect the US economy will continue to improve through 2011 and 2012.
Any resultant US dollar strength is therefore not a major concern for copper
or, indeed, for other commodity prices.
Latest news
Nickel fell very sharply on Thursday, closing down 4.6% on the day, with long
liquidation reported to be the major driver. Most other base metals fell by 1–
2%, with the exception of lead, which bucked the trend rising by 1.3%. Slower
US home sales, a weaker regional survey of US manufacturing and
somewhat disappointing data on US unemployment claims weighed on metals
markets through the day. Silver rose 3.4%, and the PGMs rose almost 1% on
the back of US dollar depreciation.
Prices for manganese ore and ferrochrome, crucial bulk commodities in
carbon and stainless steel making, respectively, remain under pressure
despite recent record levels of steel production and rising costs. Our own
Duncan Hobbs will host a conference call on Friday, 20 May, at 8:30am UK
time – Manganese and ferrochrome: falling prices, rising costs - what next? –
to explore what is happening and the outlook for investors in these markets.
He will be joined by industry expert, Kevin Fowkes (formerly of Privat and
Elkem), who will present industry cost curves and discuss the dynamics of this
key price driver. Please contact us or your Macquarie sales representative for
dial-in details.
The China Heavy Machinery Industry Association (CHMIA) has set targets for
the sector to realise output growth of 16% per annum over the 12th five-year
plan period. This reinforces the Macquarie view, as promoted by our China
economist, Paul Cavey, that China is on the verge of a structural and cyclical
need to build out machinery capacity. We anticipate steel consumption in the
machinery sector to grow at a CAGR of 8.5% from 2011–2015, consuming
568mt of steel. Meanwhile, the latest MIIT statistics show the surge in
agricultural machinery as China moves to mechanise its farming process, with
output of large tractors up 49.3% YoY.
Further evidence of the difficulties iron ore miners are having with regards to
maintaining product quality has come from the Chinese Administration of
Quality, Supervision, Inspection and Quarantine (AQSIQ). The watchdog
noted that 36.13% of Indian iron ore deliveries to Jiangsu province during
January–April were out of specification, either due to a lower iron content than
stipulated in contracts or higher in impurities. With seaborne iron ore supply
being stretched to the limit, minimising ore degradation and maintaining blend
quality are serious problems for iron ore miners in 2011.
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