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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
 Posted - 08/01/2008 : 23:10:06
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Commontary or opinion, take your pick
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Base Metals Stockpiles and Prices 4
by Scott Wright
The LME is the world's largest non-ferrous (not containing iron) metals exchange and is the most reliable source for daily base metals prices.
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Since most of the world's base metals trade takes place directly between producers and consumers, these LME stockpiles are in essence emergency supply. So when there is a global supply and demand imbalance, consumers are able draw upon the inventory that is stored in the hundreds of warehouses strategically located around the world.
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LME stockpile levels fluctuate each day as there is constant inflow and outflow of inventory. But when outflow exceeds inflow for an extended period of time it can be inferred that consumers' needs are not being met via regular supply channels. And inversely if inflow exceeds outflow for an extended period of time, it can be inferred that the suppliers are producing the metals faster than they can be consumed.
Therefore the fluctuations of LME stockpile levels can help paint a good picture of the balance between global supply and demand. And traders watch these fluctuations very carefully as they seem to strongly influence the pricing of the base metals.
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On a side note, according to the International Copper Study Group (ICSG), LME stockpiles account for about 75% of the above-ground measurable supply when the stockpiles of the other major metal exchanges (SHFE and COMEX) are factored in. This explains the major influence LME stockpile levels have on global base metals prices.
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But the ICSG also forecasts a supply surplus in the second half of 2008 and all of 2009. While this surplus is expected to be modest, if true this would likely grow stockpile levels and subsequently lower prices. But since forecasts are just professional guesses, and any number of environmental and economic factors can affect global copper supply, we'll have to wait and see how the stockpiles play out.
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Smelting in general is the process of chemical reduction in which metal is produced from ore. And while all smelting is very energy-intensive, aluminum smelting takes the crown. Aluminum smelting is an electrolytic process and requires massive amounts of electricity.
Not only has this energy-intensive process been catalyst to skyrocketing operating costs, but there have been substantial power-related production losses at some of the world's largest aluminum smelters. This has yet to noticeably affect the LME stockpile levels, but these are issues that are currently adding a risk premium to the price of aluminum.
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Even if the emerging economies responsible for much of the growth take a breather with the rest of the world, their development is not going to grind to a halt. In fact many experts believe that these economic woes mixed with higher base metals prices have prompted governments and consumers to destock their own inventories.
While destocking reduces capital expenditures in the interim, it also drops stockpiles to very low levels. So when the economy does turn around or when 'local' stockpiles get too low, consumers will need to restock which will place a huge strain on supplies.
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If nothing else, the following quote-
But since forecasts are just professional guesses,
should be kept in the back of our minds. Forecasts are merely educated guesses, the Pros have no better idea what metals will do in the future than we do, or to put it another way-
"An economist is an expert who will know tomorrow why the things he
predicted yesterday didn't happen today." - Laurence J. Peter
And that goes double for forecasters of all stripes.
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Base Metals Stockpiles and Prices 4
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