Spend Matters sister site, MetalMiner, recently ran an interview with a metals buy-side equity research expert on some of his views on where markets are headed this year and beyond. The interview is a good summary of trends for readers who don't keep up with MetalMiner or for those who just want the metals commodity forecast cliff notes. The full post, which you can find here, digs into China's impact on metals prices quite a bit (it also features a chart on metals where China lacks self-sufficiency, including copper, nickel, zinc and aluminum). But what are some macro metals trends worth highlighting here?
For one, some metals have gotten ahead of themselves and the market and demand fundamentals. Consider the case of copper and zinc: "Copper has a steep cost curve but zinc doesn't. The zinc cost curve is much flatter -- all of the producers are pretty much at the same level." Nickel, in contrast, has some of the strongest "fundamentals of all of the base metals ... running a small surplus this year and a deficit next year." In other words, expect emerging price pressure in a deficit situation. In terms of where prices are headed? Ultimately, it will come down to fundamentals, but expect periods of both correction and price increases based on speculative and other factors in the coming years.
In other words, for those sourcing metals or for those who must contend with metals price volatility in their supply chain, it would make significant sense to not only pursue cost reduction strategies in the areas of pricing that you can control (e.g., value-add) but also to consider risk management strategies for addressing underlying commodity volatility. This might take the form, on the most basic level, of price escalation and de-escalation clauses. Or it could involve more sophisticated demand aggregation, forward buying, ETF investment, direct hedging, swaps or other options.
- Jason Busch