Base Metals Monthly Report

Base Metals Monthly Report
Thursday| October 9, 2014
Base Metals Monthly Report
Prathamesh Mallya
Senior Research Analyst
Non-Agri Commodities
Prathamesh.Mallya@angelbroking.com
(022) 3935 8134
Kaynat Chainwala
Research Associate
Non-Agri Commodities and Currencies
kaynat.chainwala@angelbroking.com
(022) 3935 8136
Angel Commodities Broking Pvt. Ltd.
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Base Metals Monthly Report
Thursday| October 9, 2014
Major News and Developments
Refined Copper market for June shows deficit of 27k mt
Global zinc deficit at 248 kt in Jan-Jul 2014 - ILZSG
In the first half of 2014, world usage is estimated to have
increased by around 14.5% compared with that in the
same period of 2013, supported by strong apparent
demand in China.
The International Lead and Zinc Study Group (ILZSG)
indicate that the global zinc production has grown by
almost 2% year-on-year during January to July this year.
According to ILZSG, the world market for refined zinc was
in deficit by 248 kt during the first seven months of the
year.
Higher mine output from China, Mexico and the US
contributed to the 3% year-on-year growth in global Zinc
mine supply. On the other hand, the mine supply from
Canada, Ireland and Peru declined during the quarter.
The global refined zinc metal production has increased by
4.1% during the period. This was primarily on account of
increased production in China, Italy, the Republic of Korea,
Norway and Poland.
The global demand for refined zinc metal rose 7.7% during
the seven-month period. The apparent usage of refined
metal by China and the US increased 13.8% and 8.7%
respectively. The refined zinc metal usage remained flat in
the Europe.
ILZSG statistics indicate that the zinc mine production
during January to July this year totaled 7,713,000 tonnes as
against 7,538,000 tonnes during the same period in 2013.
The global refined zinc metal production during the period
totaled 7,684,000 tonnes during Jan-Jul ’14 as against
7,383,000 tonnes in 2013.
The apparent zinc usage totaled 7,932,000 tonnes during
the initial seven-month period in 2014, higher from
7,368,000 tonnes during corresponding period in 2013.
According to preliminary ICSG data, the refined copper
market balance for June 2014 showed an apparent
production deficit of 27,000 metric tonnes.
Chinese apparent demand increased by 27% (1.1 Mt)
based on a 47% increase in net imports of refined copper
from the low net import level in the first half of 2013.
World mine production is estimated to have increased by
around 5% (410,000 t) in the first half of 2014 compared
with mine production in the same period of 2013.
World refined production is estimated to have increased
by almost 8% (800,000 t) in the first half of 2014
compared with refined production in the same period of
2013: primary production was up by 7.5% and secondary
production (from scrap) was up by 8%.
Norilsk shares sank to a six-month low as nickel prices
plunge
OAO GMK Norilsk Nickel (NILSY), the best performer
earlier this year among Russian shares traded in the U.S.,
sank to a six-month low on concern demand will weaken
amid expectations for a slowdown in global economic
growth.
The stock has lost 20 percent since July, reversing a fivemonth rally that made it stand out as the benchmark
Micex Index tumbled after President Vladimir Putin’s
annexation of Crimea in March.
Nickel entered a bear market last month amid a
slowdown in China, the largest metals consumer, and as
stockpiles ballooned to a record.
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Base Metals Monthly Report
Thursday| October 9, 2014
Price Performance
Economic growth may never return to pre-crisis levels IMF
World economic outlook expects global growth to be 3.3%
in 2014, down from its April forecasts as countries fail to
recover strongly from recession.
The International Monetary Fund (IMF) has cut its global
growth forecasts for 2014 and 2015 and warned that the
world economy may never return to the pace of expansion
seen before the financial crisis.
Base Metals
Dismal base metals performance in Sep'14
0.0%
-2.0%
-4.0%
-3.6%
-6.0%
-4.4%
-8.0%
-6.8%
-7.1%
Aluminium
Lead
-10.0%
-12.0%
-14.0%
In its flagship half-yearly world economic outlook (WEO),
the IMF said the failure of countries to recover strongly
from the worst recession of the postwar era meant there
was a risk of stagnation or persistently weak activity.
The IMF’s economic counsellor, Olivier Blanchard, said the
three main short-term risks were that financial markets
were too complacent about the future; tensions between
Russia and Ukraine and in the Middle East; and that a
triple-dip recession in the eurozone could lead to deflation.
The IMF said the outlook was brighter in the US and the
UK, which were “leaving the crisis behind and achieving
decent growth”.
Zinc
Copper
-13.5%
Nickel
Base metals on the LME traded on a negative note in
September as China's factory output grew at the weakest
pace in nearly six years in August while growth in other
key sectors also cooled, raising fears of slowdown in the
world's second-largest economy and demand concerns in
the biggest consumer.
Also, weak housing, construction and manufacturing data
from the US indicated declining activity in the sector
which significantly accounts for base metal consumption
dragged prices lower. Further, LME stocks of all base
metals rose except Aluminium.
In addition, dollar strength which jumped to 4-year high
after the Federal Reserve raised interest-rate estimates to
1.375 percent, compared with 1.125 percent in June for
end 2015 in its September meeting added to downside.
However, prices were supported as the Fed maintained
the “considerable time” language in its forward guidance,
suggesting the 1st rate hike remains somewhat distant.
On the MCX, base metals took cues from international
markets and traded lower but Rupee depreciation
restricted sharp negative movement.
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Base Metals Monthly Report
Thursday| October 9, 2014
Adding to excess supply, Newmont Mining Corp sent out
its first copper concentrate shipment from Indonesia in
late September, while the country's largest producer
Freeport-McMoRan resume shipments in early August, to
end a multi-month hiatus after Indonesia imposed a
hefty export tax earlier this year.
According to Japan's largest copper producer Pan Pacific
Copper (PPC), global copper cathode supply growth is
expected to outpace demand in 2015, resulting in a
surplus of 193,000 mt. With 4 new mines started in Chile
and Peru in 2014 producing around 190,000 mt in 2014
and 508,000 mt in 2015, global supply increase will
outgrow consumption. PPC forecasts global copper
production in 2015 to be at 22.9 million mt, up 4.6% from
21.9 million mt produced in 2014 and global
consumption in 2015 to reach 22.7 million mt, up 3.9%
from 21.9 million mt in 2014. Demand in China, which
consumes around 45 percent of the world's copper,
seems to be waning. China's economy got off to a weak
start this year as first-quarter growth cooled to a sixquarter low of 7.4 percent. Beijing responded with a
flurry of stimulus measures that pushed the pace up
slightly to 7.5 percent in the second quarter, but could
not sustain the positive momentum.
Cautious investors increase short positions in copper
Source:Reuters, Angel Commodity
9/30/2014
8/26/2014
7/22/2014
6/17/2014
5/13/2014
4/8/2014
3/4/2014
1/28/2014
12/24/2013
11/19/2013
10/15/2013
60000
50000
40000
30000
20000
10000
0
-10000
-20000
-30000
-40000
9/10/2013
National Bureau of Statistics data showed refined copper
production rose 7.4 percent to 680,128 tonnes in August
from July, beating the record 654,803 tonnes in
November 2013. Output in August was 20.16 percent
higher than a year before. In the first eight months,
output rose 11.17 percent from the same period last year
to 4.93 million tonnes. Imports of copper ores and
concentrate rose 6.7 percent in August from July to
960,000 tonnes. In the first eight months, imports rose
14.3 percent year on year.
8/6/2013
Copper prices on the LME continued its negative stride in
September losing 4.4 percent of its value on account of
record high production of refined copper in China in
August. Besides, the world's top producer is continuing to
build new capacity. Strong output in the world's top
refined copper producer and consumer could mean end
users may cut their demand for imports from the biggest
consumer.
In an attempt to boost growth, China's central bank
provided the country's biggest banks with fresh loans of
500 billion yuan ($81.35 billion) in the earlier part of
September. Additional boost was given by People's Bank
of China (PBoC) by cutting the 14-day repo rate by 20
basis points to 3.5 percent in its bi-weekly open market
operations, its second such move in two months after a 10
basis point reduction in July. These efforts provided
temporary respite to prices and restricted them from
falling further.
7/2/2013
Copper
Managed Net Copper
Nickel
Nickel turned out to be the worst performer in Sep’14
with losses of more than 13 percent as concerns regarding
supply tightening were eased after news that a ban of ore
exports won’t be enacted anytime soon by the
Philippines, the largest supplier to China.The Philippines
last month proposed a bill to require ore minerals to be
processed before shipment. Congressman Erlpe John
Amante said the prohibition may not be implemented for
seven years, thereby putting an end to speculation of
extreme supply deficit.
Also, Philippines replaced Indonesia as the largest nickel
ore supplier to the country this year, with shipments
climbing 6.4 percent to a record 5.33 million tons in
August as per Chinese customs data.
China’s total nickel ore imports last month advanced for
the first time since Indonesia’s ban, climbing 6.8 percent
to 5.42 million tons. Moreover, China’s output of nickel
pig iron, a cheaper alternative to traditionally refined
metal, is estimated to be about 450,000 tons this year,
more than previously forecast, as ore prices fall amid
higher supplies.
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Base Metals Monthly Report
Thursday| October 9, 2014
In addition, Chinese nickel exports jumped to more than
50,000 tons over June to August, almost double its
exports in the first five months of the year, helping drive
LME stocks up by about a quarter since mid-June to a
record 359,166 tons. This has overshadowed
expectations of a deficit as soon as next year that drove
a spike in nickel prices after Indonesia enforced a ban on
ore exports in January.
Data from the International Nickel Study Group showed
global nickel market was in a 5,200 tonne surplus in July,
compared with a 12,600 tonne surplus in the same
period a year ago. Inventories jumped 16 percent since
June 30 and are heading for an 11th straight quarterly
gain, the longest streak since the data begins in 1979.
Owing to all these factors, the nickel market looks well
supplied despite ban by the biggest producer.
Aluminium
Aluminium which is the second most produced metal in
the world and used in a wide range of applications, from
construction and cars to packaging has seen a revival in
prices in 2014. The light weight metal industry has been
suffering from oversupply since 2007, mainly due to
large capacity increases in China and the Middle East.
Prices have been falling since 2011, leading to shutdown
of smelters.
After gaining for 6 consecutive months, Aluminum
prices declined 8 percent in Sep’14 as economic
indicators for August showed decelerating industrial
production, slowing investment growth, contracting
imports, subdued CPI inflation, and widening PPI
deflation, fueling concerns of slowing growth in China,
the world’s biggest consumer. Construction sector
concerns were further fuelled by data from the National
Bureau of Statistics that showed the average price of
new homes in 70 Chinese cities fell at a faster pace in
August, with the average price of new homes falling for
the fourth straight month in August.
rose 8.8 percent year-on-year to 2.027 million tonnes
in August (despite dismal demand), first time it has
broken above the 2 million mark, thereby dragging
price lower.
Further losses were avoided as the world's biggest
aluminium producer Rusal forecasts a global market
deficit of 1.2 million to 1.3 million tonnes next year,
down from a deficit of 1.5 million this year. However,
the company stated that about 40 percent of
mothballed capacity could be restarted if prices
remained buoyant.
Also, news that the People’s Bank of China provided
China’s five largest banks with CNY 100 billion each of
lending facility gave base metals prices a short spike,
but surge in prices soon faded as the market digest the
inadequacy of the measure to boost the economy.
Another attempt to boost lending and aid growth was
in the money markets, with the central bank lowering
the interest rate on the 14-day repurchase
agreements, a short-term loan to commercial lenders,
by 20 basis points to 3.50%. While the cash injection
was considered a form of targeted easing measures,
which Beijing has deployed in recent months to
support select areas such as public housing and small
business, latest cut in the money market rates
suggests authorities may be tempted to use more
potent weapons to loosen credit.
Another factor supporting prices is falling stocks on the
LME. Stocks at LME warehouses have fallen 16% this
year, to two-year lows. However, at 4.6m tonnes, they
are still high by historical standards. However, there is
opacity regarding the underlying physical supply and
demand in the market owing to speculation that this
reduction was partly triggered by high storage costs in
LME warehouses, and some of the metal leaving LME
warehouses has been moving into cheaper nonbonded storage.
As per figures from the China Nonferrous Metals
Industry Association, Chinese primary aluminium output
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Base Metals Monthly Report
Thursday| October 9, 2014
Outlook
For Oct’14, we expect base metal prices to trade lower as Chinese demand concerns along with
trimming of global growth forecast by the IMF will act as a negative factor. FOMC minutes indicating
accommodative monetary policy for a longer period of time will cushion prices.
Copper prices are likely to trade lower owing to escalating supply glut concerns as Newmont Mining
Corp sent out its first copper concentrate shipment from Indonesia in Sep’14. In addition, Japanese
copper production is expected to rise about 3 percent in the six months between Oct’14-Mar’15 from a
year earlier.
We expect Aluminium prices to trade lower as concerns regarding demand outlook in China, the top
consumer of the metal will push prices in the negative territory. Besides, Norsk Hydro (one of the largest
aluminium supplier companies) is expected to increase its aluminium output at its Sunndal plant in
Norway by 30 percent by the end of the year and wants to further increase its output by an additional
35,000 mt by mid-2015.
We expect Nickel prices to trade lower as supply concerns have started to ease with rising output from
China and delayed ban from Philippines.
Technical Levels (30 Days)
Commodity
LME Copper ($/tonne)
MCX Copper (Rs./kg)
LME Aluminium ($/tonne)
MCX Aluminium (Rs./kg)
LME Nickel ($/tonne)
MCX Nickel (Rs./kg)
LME Lead ($/tonne)
MCX Lead (Rs./kg)
LME Zinc ($/tonne)
MCX Zinc (Rs./kg)
Support 1
6506
407
1883
116
14957
930
1999
124.4
2174
135
Support 2
6362
398
1818
112
13831
860
1912
119
2077
129
CMP
6698
413
1953
119.2
16658
1024
2095
128.85
2341
143.45
Resistance 1
6874
430
2061
127
17369
1080
2186
136
2367
147
Resistance 2
7098
444
2159
133
18656
1160
2282
142
2447
152
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