Perspectives

Metals Tumble Following Greece, China Announcements

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Greece Vote Against Austerity Measures

Prices of copper and nickel dropped 4.2% and 3.3%1, respectively, following news of Greece’s vote against austerity measures and recent moves by China to prevent a stock-market collapse.

The resounding “no” vote in Greece has signaled a potential exit from the euro, prompting market speculators to predict a significant slowdown in Europe, the world’s second-largest metals consumer. Investor attention has also turned to China’s economic “soft landing”; the Chinese government has made multi-billion dollar investments in modern transportation infrastructure and global land resources. Despite reduced demand for commodities, these investments have contributed to a growing stock bubble.

In January, China agreed with the African Union to help build railroads, roads, and airports to link all 54 African countries. These plans are already under way, including a $13 billion, 875-mile-long coastal railroad in Nigeria; a $3.8 billion, 500-mile-long railroad connecting the Kenyan cities of Nairobi and Mombasa; a $4 billion, 460-mile railway linking the Ethiopian cities of Addis Ababa and Djibouti; and a $5.6 billion, 850-mile network of rail lines in Chad.”2

The situation in China is worsened by Russia’s commodities market, which is benefiting from a strong U.S. dollar in contrast to a weak ruble. Steel companies are taking advantage of reduced costs for raw materials and labor, and are expected to continue exporting over 30 million tons annually.

The industry dynamics, though, have shifted. As China’s growth has slipped modestly, the ripples have been felt in the industry.”3

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Ethan Frederick GrantMetals Tumble Following Greece, China Announcements

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