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17 January 2018

2018 - Brighter Skies?



2017 wasn’t a bad year for the LME business. Prices - while not roaring - advanced generally healthily  through the year, and, wonder of wonders, volumes actually rose. Admittedly, it was only by a half of a percent or so, but after a series of disturbing declines, I would imagine the Exchange management and ownership were mightily relieved to see that depressing drift downwards halted. Is the volume increase a reflection of higher prices, and are the higher prices themselves a result of improving economic conditions, or have the LME managed to move the Exchange’s volumes independently of the overall environment? In other words, is the increase in volume purely a product of improving macro-economic reality, or does it represent  the Exchange grabbing new stuff that it didn’t previously have?

Well, the increase so far is probably too small to base any significant conclusions on, but my instinct is to suggest that it was more or less a direct result of improving economic conditions and that the LME should be wary of attributing the halt in decline and small turnaround to its various new initiatives. 

But so it has always been. When economic conditions improve, so do LME prices and volumes. That’s not a particularly profound statement - some may find it pretty facile - but it is of relevance. Since the LME was sold, conditions have been generally less than ideal; prices have flopped around, activity has been muted. Now, LME executives constantly assure me that there is no pressure to improve performance - and indeed the returns have seemed fair - but I still have a nagging feeling that shareholders are not endlessly forgiving, and having paid a (some might say) excessive price, they will want to see positive benefits. In the past, with no profit motive in the Exchange itself, it was probably easier to ride the flat times; now, there must be a corporate sigh of relief as the picture looks healthier.  

And why does the picture look healthier? Well, we need to look beyond just the confines of the non-ferrous business. The world’s economy continues to grow and, despite the squeals of outrage from the political left, there are certain things we should acknowledge. Capitalism continues - as it has done for a long time - to lift people out of poverty at an astonishing rate (check the UN’s figures if you want), life expectancy is globally increasing, literacy rates are rising, inequality is decreasing (again, all figures are there to be checked). In fact, to paraphrase the Spectator magazine recently, if you had to choose any period to be born, without pre-knowledge of class or social position, it would be difficult not to choose now. Now, I haven’t become Dr Pangloss, and I’m not suggesting that all is for the best in the best of all possible worlds; there are economic, social and political problems aplenty across the globe, and they will of course continue to cause downs as well as ups. Nevertheless, light is beginning to break through the clouds created by 2007/2008. I wasn’t enamoured of QE, and I would still be very reluctant to see such a policy used except in truly exceptional circumstances, but one has to accept that at  a particular time, in a particular set of conditions, it has worked to diffuse the problems. Paradoxically, it is precisely the security of the western world that creates the introspective searching about whether we should do things differently. Maybe we should; but that is not a discussion for here, neither is it rational to condemn what has worked.

Anyway, for the LME, the signs look good for the coming year. Battery development and the growth of electric vehicles are going to sustain demand and price growth in metals which should support increasing use of the market. I would, by the way, counsel against getting too enthused for contracts in things which look more like products than metals, and I’m thinking here about lithium and chemical cobalt, for example. But I could be wrong on that. 

Without being rampantly bullish, though, I can sense a growing confidence returning to the business.


On a different, and far sadder, subject, I couldn’t not note the passing of Charlie Bucknall. I wouldn’t describe myself as anything more than a friendly acquaintance, but I knew him as an entertaining, perceptive companion for the odd drink, lunch or dinner at many conferences and meetings. The business has lost one of the good guys. All my sympathy goes to his family; sadly, I can say that I know exactly how they are feeling right now, and that that feeling won’t go away for a long time. 

 

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