MB APEX FULL YEAR 2011: Energy costs a threat to growth, Meir says

Rising energy costs will be a key driver of base metals prices in the coming year, Ed Meir, senior commodity analyst at INTL FCStone told Metal Bulletin.

Rising energy costs will be a key driver of base metals prices in the coming year, Ed Meir, senior commodity analyst at INTL FCStone told Metal Bulletin.

A spike in energy prices could kill off growth and cause further increases in inflation, especially if oil moves above $150 per barrel, he said.

“The central banks would raise interest rates again. Cost pressures would increase, which would mean tighter margins and passing on costs to consumers, who could then rein in [spending],” Meir said.

“Every time there’s a rise in energy problems, it causes a lot of problems. You have to keep an eye on it as a variable, especially in aluminium, where margins are really getting squeezed. Aluminium prices have dropped, but energy prices haven’t.”

The European debt crisis is likely to become less influential on the metals markets, he added.

“We’re probably going to have another seizure, but the markets will come back to challenge the authorities on what they’re doing. They want them to come out with a much more forceful, meaningful package,” Meir said.

“The [European Central Bank] ECB has to be more forceful in terms of its own bond buying. It’s a contrast to the [US Federal Reserve] in 2008, when they said: ‘any garbage you’ve got, we’ll take it’.”

The market is not convinced there will be a single solution in Europe and further confrontation is expected by the start of the second quarter, Meir said.

“I do think we’re going to see a very substantial fall-off in March or April. I still think there are issues with the stabilisation fund and whether it’s big enough,” he said.

“There are issues about the ECB policy statement. An enormous amount of debt still needs to be rolled over and it’s a cloud overhanging the market.”

But Meir is reasonably optimistic for the second half of the year and is confident the right response can be elicited from the continent.

In China, in the longer term, the impending election and likely policy changes could cause fluctuations in the market, Meir said, while near-term demand is still very much in place.

“People are moving from the countryside to the cities and they will demand more services and more housing,” Meir said.

Their reliance on exports is also on the wane as they move to a more internally driven economy, he added.

“Copper, aluminium and lead will probably do a bit better there, but zinc, nickel and tin could struggle as the steel side is starting to slow down,” Meir said.

Claire Hack
chack@metalbulletin.com
@clairehack_mb

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
Proceed