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Metal bashing

From A(luminium) to Z(inc)
August 3, 2017

Based on the most recent data available, the services sector accounts for almost 80 per cent of the British economy – the only large sector to have exceeded its 2007 peak. (Within this group, financial services shrank by 10 per cent.) In contrast, manufacturing today is just 10 per cent of national value added and agriculture, forestry and fishing combined a tiny 0.6 per cent. Needless to say, these ratios were very different pre-WWII, let alone at the dawn of the industrial revolution.

Mines in the Midlands were shuttered years ago, changing the geographical and social landscape forever. Now politicians are trying to revive the northern powerhouse, unsure what to do about the north/south divide and bemoaning the lack of productivity gains – running currently 16 per cent below the long-term trend.

 

Yet every now and then ‘good news’ stories appear and should be celebrated. This week Rolls-Royce, the British aero engine maker, reported first-half profit up 148 per cent as an extra 27 per cent large engines were sold to civilian air carriers. HMS Queen Elizabeth, the Royal Navy’s largest ever aircraft carrier known affectionately as ‘Big Lizzie’, left its Rosyth dockyard for sea trials at the end of June. She is so huge that 3.2m metres of mud had to be dredged out of Portsmouth harbour to accommodate her and sister ship HMS Prince of Wales.

 

Which prompted us to look at metal prices around the world. Aluminium, the second most widely used metal globally (after iron and ahead of copper) is actively traded on the London Metal Exchange. Rolling three-month forward contracts are quoted as US dollars per metric tonne, today priced at $1,918 at the centre of a fairly narrow band that has been holding since February. In theory this should be seen as establishing a new slightly higher threshold in the series of steps higher since January 2016. However, the psychological $2,000 area has capped on several occasions over the last 30 years. Because of this we would allow for a brief squeeze up towards £2,250 later this year, but feel that moves above here are unlikely to be sustained.

 

LME aluminium

 

The chart for high grade copper futures, traded on COMEX (part of the US CME group) and priced as US dollars per pound (weight) for a 25,000 pound contract, is similar but different.  Blasting through long-term resistance last week, it too has formed a series of steps since early 2016. But at $2.88 per pound it’s still relatively cheap in the long-term scheme of things.  We expect a rally to $3.30 over the next six months or so, then on up to $3.75.

 

Come high-grade copper

 

Steel rebar futures are actively traded in Shanghai and consequently priced as yuan per metric tonne. They too saw a technically important burst higher this week, with a sustained break above resistance at 4,000 yuan pointing to a surge up towards 4,550 and maybe 5,000, a level not seen since 2011.

 

Shanghai steel rebar

 

Rounding off with LME zinc, which this year has consolidated between $2,500 and $3,000 per metric tonne, we are currently watching for a weekly close above the upper level. This ought to signal the start of another step up and a move towards $3,500, possibly $3,750.

 

LME zinc

 

Metals were down but not out since 2009’s great financial recession; they're back on the radar.

 

Charts for this piece aluminium, copper, steel, zinc.