In an effort to create a greater awareness of the physical commodities markets, Islamic Finance news introduces a new feature to the Islamic Investor — a monthly commentary provided by Merit Commodities Partners, which co-launched the world’s first investible Shariah compliant physical industrial metals index series
In this issue we focus on recent activity in the Industrial Metals sector.
The start of the year spread optimism that China’s growth would shortly resume and the crisis in the Eurozone could be alleviated due to ample liquidity provided by the European Central Bank (ECB). Commodities built on gains from late December after an enthusiastic take-up of the ECB’s massive LTRO (Long Term Refinancing Operation) with the central bank lending EUR489 billion (US$642.06 billion) to European banks. Markets quickly overcame Standard and Poor’s mass downgrading of nine European countries on the 13th January, cutting France’s ‘AAA’ rating and leaving Germany the only Eurozone country with the top rating.
On the 25th January, the Federal Open Market Committee shifted its ‘exceptionally low rate’ guidance from mid-2013 to at least late 2014. Subsequently the US dollar sold off and commodities posted gains with base metals among the biggest winners. Since the 31st December, copper, aluminum and nickel surged by more than 11%, zinc and tin gained more than 17% easily outperforming all other commodity sectors.
Generally investors are expecting a more benign government policy outlook in China. Optimism that the world’s largest copper consumer will ease lending restrictions to kick-start growth should allow businesses to build inventories and drive restocking after prices fell more than 20% last year. Global copper demand growth for 2012 is forecast to grow by 3.7% with nearly all of it coming from China. Preliminary data provided by the International Copper Study Group in its January Bulletin indicated a production deficit of 296,000t for the first 10 months of 2011. Commodity Exchange (Comex) speculative net short positions moved to neutral recently.
Merit Commodity Partners. For more information or a daily update, contact [email protected] or [email protected].