LME Week and the Future of Metals Prices

As we all know, commodity prices are once again capturing headlines on a regular basis. This is a subject which we'll be covering even more of on Spend Matters in the coming weeks. Yet today, we'll keep the focus on the metals price outlook. Stuart Burns, Co-Editor of Spend Matters sister-site MetalMiner, recently captured a few of the commodity forecast headlines to come out of London Metals Exchange (LME) Week, which took place earlier this month. Stuart presents both the bull and bear case for metals price direction, yet I already bought into the rising price scenario before reading the article. Consider, for example, how a Credit Agricole analyst has recently "upgraded his forecasts for metals next year following expectations on a new round of quantitative easing and the effect that will have on the dollar (weakening) and the increased liquidity finding its way into commodities." Add to this current observation, "falling exchange inventories as evidence of tightening supply markets for metals like copper and tin" and it's clear many metals are destined to climb upwards in a pattern that could look like 2008 all over again.

Stuart also refers to a Goldman Sachs report that suggests "the wider market has not appreciated the impact of China on global demand for metals and has too much focus on OECD demand trends." Specifically, "it's all about Asia now." In other words, we could be in for negative GDP growth within the EU member countries and the US in the coming quarters, but metals prices could still climb based on actual demand in Asia. Also toss into this "the one development everyone does seem to be able to agree" and the bull market scenario seems even more likely. This single development is "the proposed physical metal backed ETFs" for base metals such as copper and tin that will more easily enable both speculation and hedging based on actual physical demand (versus just on future market demand and outlooks).

Procurement organizations have more options than ever before when it comes to managing commodity volatility and risk in metals, not to mention many other commodity categories. From leveraging commodity management-focused software to deploying more accepted contracting norms that help either defray or pass through risk in a more transparent manner to insurance agreements that focus on either named supplies or suppliers, the universe of available risk management and cost containment approaches is increasing nearly as fast as metals prices have in recent months. But whether or not organizations decide to pay to take metals risk off the table in what many consider to be a rising price market will be another story entirely.

Jason Busch

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