Price of nonferrous metals on a mid-term decline

This is a regular revision. We have been following the evolution of several price indices of metals since 2008. Our general approach is based on the presence of long-term sustainable (linear and nonlinear) trends in the evolution of the CPI and PPI in the United States [1, 2]. The difference between various components of these indices is not a random one but is rather a predetermined process. Using these trends, one can predict consumer and producer price indices for select goods, services and commodities.

 

Yesterday, we revisited the index of steel and iron. In this post, we revisit the trends in the PPI of nonferrous metals. Originally, we reported on this item in 2008 and then revisited in 2010 and February 2012. The index for non-ferrous metals (102) shows an example of the absence of sustainable trends in the difference (see Figure 1). The curve is rather a comb with teeth of varying width. Although varying, the distance between consecutive troughs is several years at least. 

We predicted that the index of nonferrous metals had to fluctuate with large amplitude around the PPI and grew at a lower rate than PPI during 2012 and 2013:  “Considering the observation that the rate of growth was approximately 3 points per month since February 2012 one may expect the level of -10 in approximately 10 to 12 months, i.e. in September 2013.” 

In reality, this difference was at -38.5 in June 2013. There was a short term fall during the summer of 2012. Therefore, despite there is three months to grow, the difference is slightly behind the schedule. This delay does not change the trend, however, and we expect the price of nonferrous metals to fall through 2016.  

The producer price index of aluminum base scrap has to follow the same trend up, as Figure 2 shows. The price of aluminum will be decreasing as well.

Figure 1.  The evolution of the difference between the PPI and the index of nonferrous metals from 1985 and June 2013. There are no linear trends in the difference, but its behavior demonstrates a clear periodic structure with relatively deep but short troughs, which reflect the fast growth in the PPI for nonferrous metals.

 

Figure 2.  The evolution of the difference between the PPI and the index of aluminum base scrap from 1985 and June 2013.