The invention of the telegraph in 1832 and the opening of the Suez Canal in 1869 were big boosts to maritime industry and allowed exporters to tell buyers when ships were loaded and were ready to sail. The route through Egypt cut down journey times so that nearly all cargoes would arrive at London's docks comfortably within three months. This is why the London Metal Exchange (LME), one of the few open outcry markets left today, operates with three-month rolling forward contracts.
Futures trading on New York's Commodity Exchange last century barely dented the LME's almost complete dominance of the non-ferrous metals markets, also called base metals, but the Shanghai Futures Exchange has grown in stature, eating in to market share for some metals. Therefore we shall look at two futures contracts traded in China, as well as two LME forwards.
Rebar, reinforced steel bars embedded in concrete and used extensively in construction, is quoted as Chinese renminbi per metric tonne (1,000 kilos) where prices have declined steadily and spectacularly since 2011's peak at Y5,450. Holding above the psychological Y1,500, we feel it might steadily against here during the first quarter of this year. However, with relatively scant chart history we would be reluctant to call a long-term base.
Shanghai steel Rebar
Shanghai copper futures, launched in the early 1990s, now account for roughly one-third of global turnover (LME has 60 per cent), managing a record monthly volume in November 2015. Prices have more than halved since 2011's interim high (the record high was earlier at Y83,770 in May 2006) but mercifully it fell more slowly than in 2008; why all the fuss now rather than then? The price drop is not over yet, nor is it in London, with a strong chance that we will match 2009's low (Y23,650 and $3,000 on the LME). Then a slow basing process should start.
Shanghai copper future
Aluminium, where London accounts for all of wholesale volume, is back down at the sort of levels that were the mean between 1985 and 2005 - and just above 2009's low. So, rather than a catastrophe, we are merely at post-bubble levels once again. There is a very real chance that prices will fluctuate between $1,250 and $1,750 for another decade, something that would give the embattled mining industry time to regroup.
LME 3-month aluminium
As for LME zinc, some might say 'who cares?', with lithium and minor metals in the ascendant. Again, LME dominates with volumes just under those of aluminium. We are approaching but not yet at long-term chart levels where prices achieve relative stability - $750 to $1,250 per metric ton - and 2009's low. Once again a slow basing attempt is likely and the chance of another bubble negligible.
LME 3-month zinc
Above all the charts are a salutary lesson in what not to do. How not to assume a rosy scenario ad nauseam; not to borrow for expansion just because it's cheap; how CEOs can over-reach themselves once again.
