There is no commodity “reflation trade”

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From Morgan Stanley:

Crude’s rebound has increased interest in playing the reflation trade. Copper miners (FCX and TCK) have been the main beneficiaries (up >20%). Aluminum equities fell on concerns about regional premiums, though inventory trend remains bullish. We updated our TCK and KGC models after 4Q results. Metals: LME aluminum inventory fell below 4.0 mmt, first timesince May 2009; zinc stocks fell below 600 kT, lowest since May 2010. At the YTD withdrawal rate of zinc inventory, LME stocks should decline to their 2007 lows within 8 months. Zinc priceaveraged ~$1.50/lb in 2007 vs. spot below $1.00/lb. Platt’s European aluminum premiums fell to $445/T, down $18/Tfor the week; whilethe US Midwest premium fell to 23.75 c/lb, down 0.50 c/lb. Molybdenum prices are now below $8.00/lb and closeto their 2009 lows. Post 4Q results, we haveraised our TCK 2015eEPS to C$1.50 from C$1.20, details inside.

Steel & Iron Ore:Flat-rolled steel prices remain under pressure as service centers continue to destock, with hot-rolled coil prices reaching ~$510/t. However,actual transaction levels may be lower due to mill discounting on extras. Buying activity is also reportedly scarce, suggesting distributors arestill working through inventory. Service center executives at our latest quarterly dinner expect hot-rolled pricing to bottom at ~$460-$480/t in the next 6-10 weeks. Meanwhile, export scrap prices remain under pressure.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.