Institutional Investing / Macro Minutes
Macro Minutes: What Is Driving Metals Volatility
In our latest Macro Minutes video, Securities Research Analyst Zacher Lewis discusses recent volatility in metals prices.
Title screen appears, “What is Driving Metal’s Volatility?”
Presented by: Zacher Lewis, Fisher Investments Securities Research Analyst, on behalf of Fisher Investments Europe.
A man appears on the screen wearing a blue suit, sitting in an office. He begins to speak.
A banner identifies him as Zacher Lewis Fisher Investment Securities Research Analyst.
On behalf of Fisher Investments and its affiliates.
Zacher Lewis: Hi, my name is Zachery Lewis and I'm a securities analyst here at the Research department at Fisher Investments. And today I'll be talking about recent metals volatility and Fisher Investments views on metals moving forward.
A white screen appears with a chart titled: "Metals Price rose following vaccine Announcement but fell recently “
The chart is showing metal prices progress through the years 2020 and 2021.
Zacher Lewis: We've all likely heard about high metal prices this year, but to understand about how we got to where we are today, we should look at how metal prices have acted since the start of the global pandemic.
As uncertainty surrounding the global pandemic grew in early 2020, investors slashed their expectation for metals demand due to institutional lockdowns, causing metal prices to fall sharply. However, fears over lower demand quickly reversed after a small initial decline, and demand remained healthy throughout the pandemic, led by a growing China. Despite this, investors sentiment was still relatively sceptical to the sector, as doubts over metals demand lingered. These doubts were largely expunged when Pfizer's vaccine efficacy data was released in early November, leading to a massive rally in metals prices as investors priced in the reopening out of COVID related lock downs.
Zacher Lewis: This rally was accelerated by tight supply as COVID related shutdowns and restrictions limited metals production. Furthermore, a strong economic recovery stoked expectations for higher economic growth and inflation, leading to further optimism in metals markets. Prices reached a peak, however, in early May as economic releases begun to show slowing economic growth and inflation.
Zacher Lewis: Prices fell further as the COVID-19 Delta variant spread throughout the world. Debt concerns from one of the largest Chinese property developers ever, Evergrande, has led to further price declines, in recent weeks. Aluminium and US. Steel have largely avoided the pullback seen in other metals due to relatively little exposure to Chinese real estate and reduced Chinese steel and aluminium production.
The screen changes into another 2 charts titled” Sharp Changes in Investor Expectations have Added to Materials Volatility This Year”,
A subtitle would follow “Investors trading metals have influenced prices in addition to underlying fundamental changes”.
Zacher Lewis: Despite the many news stories seemingly impacting metals markets this year, we caution investors from putting too much weight into daily or weekly price movements. This is because large price movements are, in the short term, often not caused by lower production or higher consumption of metals, but actually by traders outside of the value chain buying and selling large quantities of metals.
Zacher Lewis: The chart on top is a good example of this. The green bar shows the net position held by those outside of the value chain or the speculative position. Large movements in copper prices often line up, with traders buying and selling the metal, showing the influence these investors have on prices. These investors often make these trades to express a certain forward-looking view on the market. This was seen in April and May as investors bought up metals and mining firms, as inflation expectations grew, then sold them off as those expectations fell. Overall, Sticking to a long-term view of metals, helps investors understand what matters for the market and what's just noise.
The white screen, shifts into 2 new charts titled “Industry specific Drivers Mixed” with the following subtitle “Global Metal supply growth remains muted but China's total Social financing growth has moderated”
Zacher Lewis: So, what does our outlook for metals look like?
As with any commodity, metals prices are a function of supply and demand. Overall, metal supply growth has been relatively limited over the past six years. Roughly the typical period for adding new supply to the market, making metal supply generally limited an overall positive for metals. However, Chinese demand, which represents over 50%of global metal demand, is less constructive. In addition to the commonly discussed fears surrounding Chinese real estate developers, credit growth measured by Chinese total social financing, has been relatively weak. Since this financing often pays for new construction infrastructure, a moderation of credit growth is by and large negative for metals demand. So, with tight supply but moderating demand, industry fundamentals look relatively mixed.
The screen changes into a table titled” Metals and Mining Typically Do Best During Periods of accelerating Economic Growth Inflation” the subtitle is “Current Economic outlook Favors higher growth firms over metals despite tight supply.
Zacher Lewis: One last analysis is to look at what environments metals typically perform best in. Overall, metals typically do well in periods where both economic growth and inflation are accelerating. As these increases, demand for metals while modestly boosting metals firms pricing power. However, we expect only modest inflation and moderate economic growth moving forward. Thus, we would expect metals to underperform larger and higher growth companies, which typically do best in low growth and low inflation environments. Overall, tight supply does make metals and mining a relatively attractive counter strategy to a growth led portfolio, as a slight increase in demand likely leads to strong metals performance.
The screen changes to a white screen, with the sentence “Thank you for watching. If you would like to learn more about our views, please reach out to your relationship manager or email FisherInstitutional@fi.com”
Zacher Lewis: Thank you for watching. If you would like to learn more about our views, please reach out to your relationship manager.
Zacher Lewis: finished talking, and a series of disclosures appear on screen: "Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of fisher investment or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.
"Investing in Financial Markets Involves The Risk of Loss and There is no Guarantee that all or any capital invested will be repaid. past performance neither guarantees nor reliably indicates future performance, the value of investments and the income from them will fluctuate with world financial markets and international currency exchange rates.
The information in this document constitute the general views of Fisher Investments and its affiliates and should not be regarded as personalized investment advice or a reflection of the performance of fisher Investment or its clients. we provide our general comments to you based on information we believe to be reliable. there can be no assurances that we will continue to hold this view; and we may change our views at any time based on new information, analysis or Reconsideration. some of the information we have produced for you may have ben obtained from a third party source that is not affiliated with Fisher Investment. Fisher Investment requests that this information be used for your confidential and professional use. Data is month end and USD unless Stated otherwise.
Fisher Asset Management, LLC, Doing Business as Fisher Investment (FI) is an Investment adviser Registered with the US Securities and Exchange Commission. As of February 28, 2022, Fi Managed Over $192 Billion, Including assets sub-Managed for its Wholly-owned Subsidiaries.
Fisher Investments Ireland
Fisher Investments Ireland Limited (FII), an Irish private Limited Company, is Registered, along with its trading name, Fisher Investment Europe, With the Companies Registration office in Ireland (#623847 and #629724), and is regulated by the Central Bank of Ireland, with its registered address at: 2nd Floor, 3 George’s Dock, International Financial Services Centre, Dublin 1, D01 X5X0, Ireland. FII is Wholly-owned by Fisher asset Management, LLC, trading as Fisher Investment (FI), Which is Wholly-owned by Fisher Investment, Inc. FII outsources Portfolio Management to FI, FI’s Investment Policy Committee is responsible for all strategic investment Decisions. The Fisher Joint Investment oversight Committee is Responsible for overseeing FI’s Management of portfolios that have been outsourced to FI. This Material may also be found posted on the FII website at Institutional.fisherinvestments.com/en-ie. if you firm wishes to be removed from receiving these Materials in the future or wishes to pay for this material. please contact FII. This material has been approved and is being communicated by FII.
Fisher Investment UK
Fisher Investments Europe Limited (FIUK) is authorized and regulated by the Financial Conduct Authority (FCA #191609), Trades Under the name Fisher Investments Europe, and is registered in England (Company #385093). FIUK is Wholly-owned by Fisher Asset Management, LLC, trading as Fisher Investment (FI), Which is Wholly-owned by Fisher Investment, Inc. FIUK outsources portfolio Management to FI. FI’s Investment Policy Committee is responsible for all strategic investment Decisions. The Fisher Joint Investment Oversight Committee is Responsible for overseeing FI’s Management of Portfolios that have been outsourced to FI. this Material may also be found posted on the FIUK website at institutional. Fisher Investments | Wealth Management Company. if your firm wishes to be removed from receiving these materials in the future or wishes to pay for this material, please contact FIUK. this material has been approved and is being Communicated by FIUK.
Fisher Investment Australasia
Fisher Investment Australasia Pty Ltd (FIA) (ABN 86 159 670 667, AFSL 433312) Provides Services To Wholesale Clients only. FIA is Wholly-owned by Fisher Asset Management, LLC, Trading as FI, Which is Wholly-owned By Fisher Investment, Inc. FIA Delegates Portfolio Management To FI. Thi Material is Designed for use with Wholesale Prospects and Clients as Defined under the Corporation Act 2001. it is provided for information only. It is not an investment recommendation or advice for any specific person. Although it is based on data provided to FIA that is assumed to be reliable at time of writing, the accuracy of the data cannot be guaranteed. Investments involves risks. Past performance is no Guarantee of future returns nor a reliable indicator of future returns. Neither FIA, nor any other person, Guarantees the investment performance, earnings, or return of your investment. Opinions expressed in this analysis are Current only at the time of its issue. We may change our views at any time based on the new information, analysis or reconsideration. Forward looking statements (including Statements of intention and projections) are based on current expectations, assumptions and beliefs and involve risks and uncertainties. All these factors may cause actual outcomes to be materially different. To the Maximum extent permitted by law, Neither FIA nor its directors, employees or agents accept any liability for any loss arising from reliance on this analysis.
Fisher Investments DIFC
Fisher Investments, DIFC branch (FI DIFC) is regulated by the Dubai Financial Services Authority (DFSA) and is Authorized to Conduct Business with Professional Clients or Market Counterparties only as Defined by the DFSA.
Fisher Investments Japan
Fisher Investments Japan (FIJ) is a branch of fisher Investments Japan Limited and is registered as a Financial Instruments Business Operator with the Japan Financial Services Agency Under Director- General of Kanto Local Finance Bureau (Financial Instruments Firm #2766), and is a member of Japan Investment Advisers Association. FIJ was established in Tokyo. Japan in 2015 as a wholly-owned subsidiary of FI. FIJ serves as the investment Manager, and delegates a Portion the investment Management Function To FI subject to the oversight of the FIJ portfolio Engineer. FIJ provides discretionary investment management service to clients in Japan."
See Our Institutional Insights
Stay on top of the latest investment trends and developments with our views and research.