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.
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 -36.6 in October 2013. There was an overall fall during 2013. Therefore, the difference will follow the schedule (linear trend) marked by green line and likely extend into 2015.
The producer price index of aluminum base scrap has to follow the same trend, as Figure 2 shows. However, the liner trend will intersect the zero line in 2015 and the potential for further fall might be exhausted.
The price of aluminum will be decreasing in 2014 but likely reach its bottom in 2015.
Figure 1. The evolution of the difference between the PPI and the index of nonferrous metals from 1985 and October 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 October 2013.