Wars and inflation go hand-in-hand....
The chart below illustrates that not all wars are created equal when it comes to inflation. The year-over-year change in the US Consumer Price Index (CPI), a widely watched inflation measure, currently stands at 3.2%, down from the recent peak of 9.1% in June 2022, about four months after the Russia-Ukraine conflict began. Although it is unclear how long the Israel-Hamas conflict will last or how far it could escalate, a long, drawn-out conflict that envelops more of the region could be inflationary, thereby impacting both metals and energies, among others.
But metals prices react quicker than inflation data....
We want to point out that aluminum and copper prices are usually a leading indicator of inflation. This means copper and aluminum prices tend to bottom or peak approximately three to eight months before the CPI measures peaks or bottoms. Therefore, if an aluminum or copper consumer worries about increasing inflation, that end-user should begin hedging well before it's reflected in the CPI data.
Metals return to the "normal" range, which provides a buying opportunity.
Like inflation, LME copper and aluminum prices have tumbled since early to mid-2022. Since the peak in early March 2022, aluminum prices have fallen nearly 42%, while copper is down about 23%. Given that prices for both are back into what we would consider a normal historical range, this could be a good time for end-users to start or add to their longer-term hedging program. We would suggest a one-year time horizon or longer.
This price risk can be hedged!
Below are two charts illustrating different hedging strategies that an aluminum and copper end-user might consider. If you need help developing such strategies, please contact AEGIS for further information.
AEGIS can build your hedging program.
AEGIS can help aluminum buyers develop specific strategies that fit their operations. We are also happy to introduce new clients to more counterparties, therefore ensuring that you are receiving the best possible price. Please contact us for details.
Important Disclosure: Indicative prices are provided for information purposes only and do not represent a commitment from AEGIS Hedging Solutions LLC ("Aegis") to assist any client to transact at those prices, or at any price, in the future. Aegis makes no guarantee of the accuracy or completeness of such information. Aegis and/or its trading principals do not offer a trading program to clients, nor do they propose guiding or directing a commodity interest account for any client based on any such trading program. Certain information in this presentation may constitute forward-looking statements, which can be identified by the use of forward-looking terminology such as "edge," "advantage," "opportunity," "believe," or other variations thereon or comparable terminology. Such statements are not guarantees of future performance or activities.