The first quarter of 2017 has ended with firm prices across the metals spectrum. Demand markers continue to show surprising resilience: Chinese manufacturing expanded at the fastest pace in 5 years in the last month of the quarter. The price drive has been as much a supply story as it has been about demand. Disruptions and labour unrest at major mines like Escondida have further bolstered the bulls in driving up prices across the curve. The mining ban in El Dorado might not have an immediate impact on the market but it sets precedence for environmental concerns trumping commercial interests and adds another layer of uncertainty to the project pipeline. To sum it up, the supply story is increasingly pointing to a deficit and demand, although not resolutely encouraging, continues to print encouraging numbers. The weaker USD continues to make commodities cheaper for consumers and acts as another layer of price support.
On the trading front, established players continue to maintain their grip in the market, however, some diversified names are trying to rationalize the metals piece within their portfolio. Louis Dreyfus has shifted official rhetoric to say it is now willing to sell a controlling stake in its metals unit as opposed to a minority stake, months earlier. Although the sale would be a means of reducing its debt burden, it also points to a portfolio rebalancing in much the same way Cargill shed its non-core assets recently.
Smaller/less established players continue to dot the market and have become increasingly aggressive in offering longer-term contracts within the Asian markets. However, access to credit and financial firepower continues to be the key hurdle for many of them. There have been instances of some of these firms getting caught in their short positions and with limited funding, they’ve had to take a significant hit on their balance sheets. Hiring activity remains centred around the smaller and/or newly established outfits with established players only hiring for replacement roles and maintaining a lean team otherwise. The emergence of a new name – Statdrome – at recent concentrates tenders has got the market talking. Set up by ex Trafigura and MRI traders, it is yet another new name staffed by seasoned hands in the business. With a raft of new entrants to the market in recent years, it remains to be seen how effectively these players can dominate their niches and how many will survive in the long run.