This article was written by Trevor Tarring. All views and opinions expressed are strictly his own.
There is no doubt we have been passing through (and are by no means out of) the worst recession since 1930. That is a gap of about 90 years. But allowing for some disturbance of the cycles by the Second World War, that is not a million miles from the interval of some 75 years covered by the famous quote “Clogs to clogs in three generations”. That, of course, is much more of a social comment on people than an economic analysis. (And if you hark back from the Depression by some 75 years, you rather neatly get back close to the date of the Crimean War).
It must always be borne in mind that the quote originally referred to the health of individual organisations, not the economy generally. But since there is nothing like a recession for damaging the health of individual organisations, it is no surprise that the two cycles – corporate and macroeconomic – mostly run together. And one of the best places to observe these forces at work is in a truly international business like metals. At the same time we should not be lured into thinking of metals as a surrogate for the broad economy. No other major economic stream of activity has the factor of recycled material embedded in it to the extent that metals do. Moreover, the arrival of the “clogs” factor in primary metal and scrap markets is not always too closely synchronised.
It is easy nowadays to forget that for some 20 years after the end of WWII, UK scrap trade was bedevilled by restrictions on exports maintained by governments of both stripes. This led to market behaviour that an unfortunate generation of scrap dealers at the time thought was the new norm. Without access to old heads who remembered prewar trading, some in the trade, especially at the grass-roots end of it, hit a steep learning curve when export trade was finally - and even then grudgingly - restored.
For the LME in those years the extraneous factor that complicated trading compared with prewar years was, of course, exchange control. The LME’s unique and hard-won concessions that allowed it to trade freely on the ring in sterling in commodities that elsewhere were dollar-denominated gave us a historical price record that was unchallenged at the time for pre-eminence. This was thanks to the US producers’ determination to keep their domestic market subjected to the rule of producer-set prices that changed only rarely. A by-product of this duality was attempts to set up alternative price series to compete with the LME, such as the notorious RST price for copper and the much more successful producer price for zinc. Thanks to the stresses of recent events, we are now seeing a greater willingness to debate the relevance and pre-eminence of LME prices than at any time since the sixties, so far without tangible result.
Thanks to the social and economic abnormality brought about by the pandemic, this is the worst possible time to speculate about the likely course of events in the next couple of years. This will only begin to be settled once the short-term crisis of the pandemic has finally passed. But when we again have a climate suitable for debating the future of price discovery in metal markets, a long view of the subject, such as that I have taken here, will be the most productive one to take,