With Copper and Nickel both down around 10% from the beginning of the month and Aluminium & Lead down around 5%, it’s fair to say that metal markets are having a tough time at the moment. In our local market, it’s the Australian Dollar that is currently seen in the headlines, currently trading at 0.7271. Skimming back through my records, I found that the last time we saw the FX this low was on 18th May 2009. Interestingly at that time Copper was trading at USD4400/t and Aluminium at USD1472/t.
Metal markets are a perfect example of a classic supply and demand curve. With falling markets, manufacturers are seeing alternative feed stock as being more beneficial than scrap. As a result, there’s less demand on scrap which is putting price pressure on those commodities. Scrap prices need to fall as a result for them to become of interest to end users to use as feed stock again. This is most notable in scrap steel where iron ore is being replaced by cheaper Chinese billet and aluminium where new billet is being used as an alternative to scrap. In the case of the aluminium, premiums of up to USD400/t were being paid for new stock however as this premium has now fallen away, billet is being used in lieu of reusable stock such as extrusion and cuttings.
Please find the following for your perusal;
**** China’s stock market crashes again as panicking sellers lose faith **** by Scott Cendrowski
Beijing is struggling to rein in the self-preservation instincts of small investors. All that’s left to happen in China’s stock market is for government leaders to admit they are powerless to stop a selloff. Monday’s panic selling was the latest example. The Shanghai stock composite crashed by 8.5%, the equivalent of the Dow Jones industrial average shedding 1,500 points in a day, on little news and following more than a month of violent volatility.
The readiest explanation among analysts was that traders have lost faith that the government can slow the selling. Two and a half weeks ago the central government started enlisting $800 billion to prop up the market, Reuters estimated, and has since banned the largest shareholders of publicly traded companies from selling stock, restricted short selling, allowed 1,400 companies to stop trading, suspended IPOs, and encouraged banks to fund more share buybacks. Those measure all helped the Shanghai Composite to rise by 14% from its July 8 low-point through to the end of last week.
What effect China’s stock market swoon has on the general economy remains unclear: in contrast to many western economies, the stock market doesn’t act as a leading indicator of the economy as a whole, and the vast majority of household wealth is invested elsewhere.