"Another volatile week in the commodity markets as uncertainty in the Middle East, a mixed bag of economic reports in the US, and concerns about China’s efforts to cool inflation weighed on prices," according to the ISRI Friday Report.
The report said "Copper started the week with a bang, as LME official three month copper jumped to $10,124/mt on Monday before losing ground over each of the next three days...
In London this morning, base metal prices lacked direction as China announced it was raising lenders’ reserve requirements by 50 basis points following last week’s interest rate hikes. Official three month copper hovered around $4.45/lb at the LME, little changed from Thursday’s official price, while three month aluminum was up around $1.15/lb as aluminum stocks, while down slightly, remained historically high at nearly 4.6 million mt.
On Wall Street, stocks opened slightly higher ahead of the President’s Day holiday on Monday and G-20 meetings in Paris this weekend. With unrest in the Middle East on-going, gold futures for April delivery firmed around $1,386/to, while crude oil for March delivery was up around $87/bbl. The dollar strengthened somewhat against the Euro, with the common currency buying $1.356, but weakened against the pound, which was trading around $1.62 in New York this morning.
Macro news…
Another mixed bag of economic reports this week that defied many expectations. Data on the housing market, not a great engine of economic growth lately, posted some surprisingly good numbers this week as housing starts in January increased by over 75,000 to 596,000, well above the Reuter’s consensus forecast for a slight uptick to 540,000. Growth in retail sales, while still positive, came in lower than expected last month at 0.3% while industrial production contracted 0.1% versus an expected gain of 0.5%. Initial claims for unemployment also took a turn, increasing to 410,000 from the prior week’s 385,000 as continuing claims for unemployment remained above 3.9 million.
Back to the industrial production figures. While the contraction in industrial production was less than encouraging, we note the big drop in utilities while the manufacturing component, a key for the scrap industry, improved 0.3% in January following the 0.9% gain in December. And within manufacturing, fabricated metal products were up 0.3% for the month and 11.7% year-on-year.
With the Philadelphia Fed’s broadest reading for manufacturing in the region surging from 19.3 in January to 35.9 in February, (the highest reading since January 2004), there remains ample evidence that manufacturing is still very much on track. While there are heightened concerns that rising commodity prices will be increasingly passed on to consumers, there was little evidence of it in this week’s figures as the Consumer Price Index for January remained tame at 0.4% and core inflation was up only slightly to 0.2%.
Ferrous…
The Bureau of Labor Statistics report on producer prices this week highlighted the surge in ferrous scrap prices in January. According to BLS, their index for iron and steel scrap surged 13.6% higher in January and was accompanied by gains in nonferrous scrap prices as well. This would seem to confirm the scrap price increases we were hearing last month although, while domestic steel prices seem to be holding firm, ferrous scrap prices have reportedly taken a turn. According to Scrap Price Bulletin, the No. 1 HMS composite price, which had climbed as high as $440.50 per gross ton in late January, had dropped by $25/gt by mid-February as shredded scrap fell by about $20/gt.
The rebound in ferrous scrap prices in 2010 resulted in a 17% jump in the value of ferrous exports (including stainless steel scrap and alloy steel scrap) to $7.4 billion despite the 8% drop in the volume of ferrous scrap exports. The top 5 export markets for US ferrous scrap last year were (in order) Turkey, China, South Korea, Taiwan and Canada.
Nonferrous…
That BLS report on producer prices indicated aluminum scrap prices in the US jumped 7.7% in January while copper scrap prices were up a more modest 1.4% for the month. With aluminum scrap stocks still reportedly tight, scrap tags remained firm this week with sheet and cast indicated in the upper 70’s to 80 cent range, siding mostly in the low to mid 80’s, and MLC reported in the mid to upper 80’s. Despite the very large aluminum stocks in LME warehouses, official three month aluminum prices ended the week higher in London at $2,542/mt.
Speaking of LME inventories we note the rapid build-up in LME lead stocks, which surged from less than 210,000 mt at the end of December to around 298,000 mt this week. Despite the stock build-up, lead prices have held relatively firm and are up around 2% since the end of December. Nickel prices, meanwhile, are up around 15% so far this year as preliminary figures released by the International Nickel Study Group show that primary global nickel usage increased around 15% in 2010 to 1.43 million mt as usage in China jumped by over 20%."
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