Apologies at the outset for returning again to the parlous state of the metals - as if you needed any further reminder - but something just occurred to me.
The context within which the present bleak outlook is spreading is most unusual. There is no actual, pressing crisis. Not like 1979 and the second oil shock, not like 1987 and the stock market crash, not like the collapse of Lehman Brothers in 2008.
Oh no, I hear you cry: he’s not going to give us that “this time it’s different” line, is he?
No. I suspect we are about to repeat the 1990s … languid, languishing market conditions ahead of a trigger that just makes everything worse.
But I am getting ahead of myself.
Let’s get back to this non-crisis theme.
Last month we saw the sudden fall of gold that had everyone chattering. Yet the metal has regained more than $US100/oz since then. The gold plunge was the nearest thing to a crisis moment we have seen since the GFC and yet it seems almost over as quickly as it had begun. Sure, we’re still a way from the 52-week highs, but there is no sign of the $1000/oz, or even $700/oz, scenarios that some commentators predicted.
Indeed, the plunge last month actually sent gold sales soaring and not only in China.
What really is a worry is that monetary policies around the world seemed to have lost their sting. Japan has shown a little more life since Tokyo unleashed its mighty stimulus, but the Federal Reserve’s $89 billion a month QE had only limited effect.
Now we see that things are getting very bleak in Holland, so much so that the Dutch government has suddenly got the vapours and walked away from its planned austerity program, so fearful are the politicians of bringing down their economic house of cards with more tightening.
So, are we doing an early-1990s time warp?
You remember that awful decade, don’t you? It just seemed to go on and on and on, gloom everywhere. Of course, there was the Asian financial crisis kicked off by the Thais devaluing and then others following, and the Long-Term Capital collapse where the Federal Reserve played backstop, but even before that the mining sector never really clawed its way back from the ‘87 crash.
Unless some miracle occurs – the US stages a meaningful recovery, Europe gets its house in order, China somehow papers over the soaring debt cracks – then something is going to break. We had one day last week when metals recovered on expectations of Europe cutting interest rates, but that was a 24-hour flash in the pan.
Metals are doing worst of all in the commodities area. The six largest falls in the space since January 1 have been steel (almost 50%), silver (about 20%), then lead (down 14.7%), tin (14.94%), gold and copper, both of whose stories we know all too well. The best performers have been natural gas, cotton, lumber, cobalt (mainly due to the Congo export ban), rhodium and soybeans. Scant comfort there.
The pain is being widely felt. While we fixate on iron ore, the base and precious metals, most of the minor metals are doing it hard, too. The graphs for antimony, bismuth, gallium, rare earths, indium, ferro-molybdenum, ferro-tungsten and vanadium vary from grim to awful. Only selenium, germanium and mercury have fared well in the past year. Again, scant comfort.
With metal prices where they are – tin is now sub-$20,000/t and lead now under $2000/t – this suggests that mining companies are starting to face margin constraints already. A continuation of this relentless grind downward will just exacerbate the situation and make it harder for companies to endure any global financial shock.
After all, with three-month nickel now at $14,837/t, you have to wonder how much more pain that sector can bear.
Back in the 1960s and 1970s there was so much use by British housewives of diazepam (or valium) to anaesthetise themselves that the drug became popularly known as “mother’s little helper”
The way things are going, we might have to make that the miner's little helper.
