Thursday, October 2, 2014   




Metals yet to ring true

Tuesday, February 11, 2014

After the financial tsunami of 2008, the US economy started to recover under quantitative easing policies.

Besides, a 4 trillion yuan (HK$5.12 trillion) stimulus package from Beijing plus rapid money supply growth created inflation expectations.

Smart investment banks started to expand commodity businesses and hired traders. Unfortunately, the commodity market did not perform as expected.

Mainland exports, and hence manufacturing activities, did not grow and Chinese raw material demand declined.

Copper price per metric ton went up to US$9,800 (HK$76,440) in early 2011, only to fall to the current US$7,100 level.

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And the biggest blow was the decrease of volatility. In a directionless and narrow-range market, it was difficult for commodity houses to make money.

Higher costs, lower profitability and tough regulations forced banks to retreat.

JPMorgan exited physical trading in July and is about to sell its entire commodity business soon, while Deutsche Bank in December cut 200 jobs on its global commodities trading desk.

Last month, Morgan Stanley sold its physical oil trading unit and Bank of America-Merrill Lynch shut European power and gas sales and trading arms.

In December 2012, Hong Kong Exchanges and Clearing (0388) acquired London Metal Exchange. The dip in competitor numbers may be a good sign but it is too early to consider bargains. Dr Check and/or The Standard bear no responsibility for any investment decision made based on this column.


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