‘Positive Trend’
‘‘When industrial numbers turn positive, that means you have a positive trend,” Frank Holmes, chief investment officer at U.S. Global Investors, which oversees $1.1 billion. “If the PMI is positive, that means you have a very strong economy. Those are the two global economic indicators that have the highest correlation to base metals.”
The annualized pace of new-vehicle sales in the U.S. accelerated to 16.9 million in June, the highest since July 2006, according to data from Ward’s Automotive Group. In China, sales in the first six months of 2014 grew 8.4 percent to 11.7 million units, China Automotive Information Network data show. European car sales in June rose for the 10th straight month, the longest run of gains in four years, an industry group said.
New-home sales in the U.S. climbed 19 percent in May to the highest since 2008, while construction spending in the country advanced to this year’s high of $956.1 billion.
Mine Closures
Mine closures are compounding supply concerns. Several zinc operations including MMG Ltd.’s Century open pit in Australia will close next year. Demand will exceed output by 339,000 tons in 2014, widening to 438,000 tons, according to Credit Suisse Group AG. Stockpiles at warehouses monitored by the London Metal Exchange are down 30 percent this year and at the lowest since December 2010.
Aluminum production may not meet expanding use after some smelters in the world outside China curbed output. Alcoa Inc. has announced 1.1 million tons of output cuts. The most recent plant closure, Point Henry in Australia, is scheduled to be closed in August
Most stockpiles are being held in financing arrangements or are in locations with long wait times and not available for immediate use. Indonesia’s ban on exports of unprocessed ores, including bauxite, a raw material used in aluminum making, may limit stockpiles.
“We think there are some very specific fundamental stories within base metals and they are particularly well geared to this kind of slow grinding recovery and this industrial cycle,” Paul Horsnell, global head of commodities research at Standard Chartered in London, said in a telephone interview July 15. “So we think they should outperform.”