The Year For Metals - 2006 was the best year ever Will 2007 provide a repeat performance?

2006 was a great year for metals though very few things (except uranium) went straight up. Most commodities had larger price swings than the year on year numbers (impressive though they are) indicate. We don’t expect a repeat of that scenario for most metals in 2007. Price movements should be more muted than last year, and more individual, based on how balanced each metal’s supply-demand picture is. As the previous editorials make clear, we think the days of world markets being driven purely by US stats are over. We think that is true in fact, but we still have to see if it will be true in perception, which drives the markets as often as cold hard logic. One encouraging note we will add is the that world’s biggest exporter in 2006 was—wait for it—Germany! That statistic shocks a lot of people who view Europe as a brake on the world economy. The fact is, Brussels Eurocrat stupidities aside, much of “Old Europe” is making the sort of painful but necessary labour adjustments that North America went through after the “Japan Inc” scare 25 years ago. The effects are now being felt and its one more reason for bullishness in a year when the US itself looks shaky. The rebound in metals during the last two months of 2006 is evidence that the market is, in fact, coming to terms with the new realities. The jury is still out on the US economy, however and base metal traders clearly have the jitters. December’s US numbers were better than feared which helped the major stock indices close the year on a strong note. The housing slowdown is not over though. The pick up in sales volumes is encouraging but housing prices have father to fall. The full impact of the slowdown won’t be felt until currently permitted units get completed and we see how large the industry layoffs really are. Permits have dropped much more dramatically than sales. This is good—medium term– as it speeds up the process of the market coming back in to balance but it means construction layoffs down the road. The hero of the story in the US is, as always, the fearless consumer. Nothing seems to faze them. The housing slowdown might. The growing segment of the population that has used home equity to make ends meet is in for a tough year. You can’t bump up a zero or negative equity loan when the house’s value is dropping. That will continue to be a drag. The good news in the US is the labour market. Even with slower growth, unemployment rates are holding at decades low levels. That is one statistic that is worth keeping track of on a regular basis. If the ...

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