Are metals prices about to collapse following the end of the cash for clunkers programs? Analysts at Standard Chartered think so:
Aluminum prices are “particularly exposed” to a decline because vehicle sales are likely to shrink as government “cash for clunkers” programs end, Standard Chartered Plc said.The CHART OF THE DAY shows aluminum rallied in June and July as a clunkers program drove U.S. sales to their first monthly gain since 2007 in August. The U.S. program ended last month. Germany’s 5 billion-euro ($7.3 billion) clunkers fund, the world’s largest, ran out of money a week ago. Car sales rose for a seventh consecutive month in August from a year earlier, the country’s main auto-industry association, VDA, said.
“After a surge in car sales in many major countries, the next few months are likely to be disappointing,” Daniel Smith, a Standard Chartered analyst in London, wrote in a Sept. 7 report. “The U.S., in particular, is likely to fall back sharply in September.”
Aluminum has gained 23 percent this year in London, rebounding from two consecutive annual declines. Supply of the metal will outpace demand this year and next, Barclays Capital said Aug. 18. Stockpiles in warehouses monitored by the London Metal Exchange have almost doubled this year, reaching a record 4.63 million tons on Aug. 20.
Aluminum for delivery in three months will average $1,550 a metric ton in the fourth quarter, Smith forecast. The median of 15 analysts surveyed by Bloomberg is for an average of $1,639. The metal closed at $1,895 on Sept. 8 and averaged $1,821 so far this quarter.
An average North American passenger car uses 319 pounds (145 kilograms) of the metal, according to the Aluminum Association in Arlington, Virginia.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.