HardAssetsInvestor

Mike Norman, Hard Assets Investor (Norman): Hello everybody, and welcome to HardAssetsInvestor.com. I'm Mike Norman, your host. Today we will be talking about base metals with my guest, Catherine Virga, who is the director of research at CPM Group here in New York. Catherine, thank you very much for coming on the show.

Catherine Virga, director of research, CPM Group (Virga): Thank you for having me.

Norman: Why don’t you give us an overview, just sort of a macro picture, of how the base metals have been. I suspect very tied in economically; economically sensitive. How have they been faring?

Virga: Well, you're correct. Some base metals … like copper has gotten the nickname of having a Ph.D. in economics, because it does closely track economic trends. So we do see a lot of the same influences from manufacturing, from industrial production and just consumer trends in general affecting base metal prices.

And right now, we are at an interesting point in time with the economic slowdown in China, which, when we talk about base metals, we actually spend most of the time talking about China. That’s partly because China consumes somewhere around 40 percent of many of the base metals that we look at. And for some of the other base metals, some of the more-niche ones, it could be even higher.

And the economic conditions in Europe, with the sovereign debt crisis, and the fiscal cliff in the U.S., all keeping base metals a little bit in limbo. We saw a little bit of strength going into the election. But they have pulled back in November, and are now at elevated levels, comparably, to the summer. But they're still feeling the pressure from poor manufacturing data and soft construction spending figures, and housing prices globally.

There are some bright areas. And I’ll just talk about some of them; really, the U.S. The U.S. has been particularly strong. We've seen fairly significant rebound in construction spending.

Norman: And that’s likely to increase, based on Hurricane Sandy, as we do a lot of reconstruction tied into that, correct? The fourth quarter? Maybe the first quarter of next year?

Virga: Yes. This year, so far, I think through September, we’re up almost 7 percent year-on-year. So there has been an improvement after many years of kind of sluggish performance there, both residential and nonresidential. The autumn markets in the States have been particularly strong. And we’re also seeing manufacturing actually taking the lead, comparably, to Japan, China and Europe.

We are expecting to see a pickup in the outlook for China. And so that should lend a little support to prices going into 2013. I think we’ve really kind of reached this trough here for demand. And with the leadership change in China, there are a series of stimulus packages that are slowly being announced—very targeted stimulus packages—that could help lend some support going into 2013.