Base Metals Monthly Report
Friday| November 7, 2014
Base Metals Monthly Report
Prathamesh Mallya
Senior Research Analyst
Non-Agri Commodities
[email protected]
(022) 3935 8134
Kaynat Chainwala
Research Associate
Non-Agri Commodities and Currencies
[email protected]
(022) 3935 8136
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Base Metals Monthly Report
Friday| November 7, 2014
Major News and Developments
Global LME zinc stocks markedly decline in July - USGS
Chile copper boom begins to slow owing to rising
production headaches.
According to the U.S. Geological Survey (USGS), U.S. mine
and smelter production of zinc totalled 478,000 metric
tons for the period from January to July of this year.
Chile is expected to produce a record 5.83 million tonnes
of copper this year, rising to 6.23 million next year, state
copper commission Cochilco forecast.
Combined zinc output for July of this year was 66,900
metric tons, up from 63,000 metric tons in July 2013.
Many in the industry are confident new mines will keep
boosting supply, and are worried more by falling demand
in the key buyer, China.
Domestic mine production of zinc in July 2014 was 64,400
metric tons, up from 61,000 metric tons in July 2013.
Average daily mined zinc output in July was 2,080 t, up 6%
from a year ago.
The official estimate for production in 2014 has been
downgraded twice, cut from 6.07 million tonnes - a drop
equivalent to the output of a medium-sized mine.
IMF sees Euro zone slipping in to deflation
Markets have been roiled by the diverging growth
prospects in the United States versus the ailing euro zone
and a Japan that has dipped back into contraction. The
value of the dollar had surged by the end of last week for
12 successive weeks, the longest rally in 40 years.
The IMF now sees a 30 percent chance of the euro zone
slipping into deflation over the next year, and nearly a 40
percent probability the currency bloc could enter
recession.
China expected to face Bauxite Gap on Indonesian Ban
China may face a shortage of bauxite, the raw material
that feeds the world’s largest aluminum industry, should a
ban on ore exports from Indonesia last into next year.
There’s potential for a so-called bauxite gap of between 10
million to 15 million metric tons as stockpiles in the
country run out.
Indonesia banned raw ore exports in January, seeking to
spur investments in processing facilities in Southeast Asia’s
largest economy.
U.S. consumption of refined zinc totalled 583,000 metric
tons from January to July 2014. Zinc ore and concentrate
exports were reported to be 254,000 metric tons during
the same period.
Nickel Asia says ore shipment value jumps 165% in Jan.Sept.
Nickel Asia Corp. shipped P20.6 billion worth of nickel ore
in the first nine months of the year, up 165 percent from
P7.8 billion year-on-year, the company reported to the
Philippine to the Philippine Stock Exchange on Monday.
In a statement attached to a disclosure, Nickel Asia said its
four operating mines sold 14.26 million wet metric tons
(WMT) of nickel ore in January to September, compared
with 10.32 million WMT in the same comparable period.
The effect of the Indonesian ore export ban has led to a
rapid surge in ore prices to Chinese customers,
significantly higher than the increase experienced in LME
(London Metal Exchange) prices.
As a result, ore sales to Japanese customers, whose selling
price has been traditionally linked to LME prices, are now
benchmarked to China prices on the basis of a negotiated
price per WMT of ore starting April of this year.
Before the curb was imposed, the country accounted for
about 18 percent of global bauxite production in 2013 and
was China’s largest supplier.
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Base Metals Monthly Report
Friday| November 7, 2014
Price Performance
Copper market in 77,000 tonnes surplus in Jul 2014 - ICSG
The global world refined copper market showed a 77,000
tonnes surplus in July, compared with a 63,000 tonnes
deficit in June, the International Copper Study Group
(ICSG) said in its latest monthly bulletin.
Base Metals
Slight recovery in Oct'14
6.00%
4.46%
4.00%
1.79%
2.00%
For the first 7 months of the year, the market was in a
589,000 tonnes deficit compared with a 22,000 tonnes
surplus in the same period a year earlier, the ICSG said
World refined copper output in July was 1.91 million
tonnes, while consumption was 1.84 million tonnes.
Bonded stocks of copper in China showed a 57,000 tonnes
surplus in July compared with a 106,000 tonnes deficit in
June.
Alcoa sees smaller aluminum market deficit on China
smelter restarts.
Alcoa Inc has decreased its estimate for the global
aluminum market deficit this year due to smelter restarts
in China, the world's No. 1 producer.
The U.S. aluminum producer expects demand to outpace
supply by 671,000 tonnes this year, down from a previous
estimate of 930,000 tonnes.
Aluminum prices which surged 27 percent in the first seven
months of the year to an 18-month peak have prompted
some Chinese smelters to abandon production cutbacks
and are seen leading to restarts of other plants, chipping
away at what was expected to be the first global deficit
after years of oversupply.
0.92%
0.00%
-2.00%
-4.00%
-3.25%
-3.69%
-6.00%
LME Alu
LME Zinc
LMECopper LME Nickel
LME Lead
Base metals on the LME traded on a mixed note in
October as the Federal Reserve ended its QE3 as stated
despite global turmoil and expressed optimism regarding
the growth in the US economy. The scheduled end of
quantitative easing comes as the US economy adds jobs at
the fastest pace since the Great Recession began in
December 2008.
The FOMC also said, as expected, that it will continue
waiting a considerable time after the end of its assetpurchasing program to raise interest rates, especially if
projected inflation continues to run below the
Committee's 2 percent longer-run goal.
In addition, China’s economy grew 7.3% in the third
quarter, its slowest pace in five years, dragged down by a
faltering real-estate market and waning consumer
demand. This is a grave matter of concern for industrial
metals that have been sucked into China to feed its
construction boom.
On the MCX, base metals traded mixed in line with trend
in the international markets.
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Base Metals Monthly Report
Friday| November 7, 2014
Copper
world mine production.
Copper prices on the LME returned to the positive
territory in October and around 0.9 percent as the US
economy showed robust recovery which can be seen in
third quarter GDP and favorable employment numbers,
thereby boosting demand outlook from the second
biggest consumer.
The ICSG forecasts a deficit of refined copper this year of
about 270,000 tonnes, before swinging to a surplus next
year of an estimated 390,000 tonnes. In April the ICSG had
forecast a surplus in 2014 of 400,000 tonnes. But
operational failures combined with delays in ramp-up
production and start-up of new mines, are leading to
lower than anticipated growth. After a growth rate of 8%
in 2013, world mine production of the metal is expected
to grow by about 3% year-on-year in 2014 to 18.6 million
tonnes and by about 7% in 2015. It expects strong growth
in world mine production next year owing to additional
output from expansions and new mine projects and says
most of the new production is expected to be in the form
of copper in concentrate.
Also, supply disruption concerns came to the fore as
Indonesia’s Grasberg copper mine, one of the world’s
largest, is running at two-thirds of capacity due to a
strike, while a union leader said the workers had been
suspended and a Freeport-McMoRan Inc. union official
said that workers at the Grasberg mine will hold a onemonth strike, starting November 6th, due to
management issues related to a fatal accident. In
addition, workers at the biggest copper mine in Peru,
Antamina, which is owned by BHP Billiton, Glencore
Xstrata, Mitsubishi and Teck, said that they will walk out
indefinitely as of November 10th, thereby bringing offline
a total capacity of 30000 tons per month.
On the flip side, China's copper imports surged 14.7%
from the previous month in September, hitting a 5 month
high after importers increased term shipments on an
expected rise in seasonal demand. The record shipments
come as smelters in the world’s largest metals consumer
ramp up production capacity. Data from the General
Administration of Customs showed that arrivals of anode,
refined copper, alloy and semi finished copper products
reached 390,000 tonnes in September, up from a 16
month low at 340,000 tonnes in August. The monthly
imports were down 14.8% from a year earlier but in the
first nine months, inflows rose 10.5% on year to 3.59
million tonnes. The data showed that imports of raw
material copper ores and concentrate surged 34.4% from
the previous month in September, hitting a record 1.29
million tonnes up from the previous record of 1.02
million tonnes in September 2013.
Chinese copper smelters have increased purchases of
concentrate in the international market to take
advantage of strong processing fees. In addition, China's
copper smelters may be paid between 9 percent and 20
percent more in fees for processing raw material
concentrate next year by global miners, reflecting higher
Overall, A strong dollar, boosted by Fed’s action, coupled
with persisting expectations for a bubbling global surplus
next year, pressured the red metal. Also fanning negative
sentiment, two of China’s largest banks reported a sharp
jump in bad loans in the third quarter, with one warning
that a credit crunch in the eastern provinces may be
spreading to the west.
Nickel
For the second month in a row, Nickel turned out to be
amongst the worst performers, second only to lead owing
to demand that has been limp due to a drag from China's
property market, and because of Beijing's moves to curb
pollution ahead of next month's Asia-Pacific Economic
Cooperation (APEC) forum.
Also, Supplies from the Southeast Asian nation in
September fell 15 percent to 4.52 million metric tons,
down from 5.33 million the previous month, data released
today by China’s General Administration of Customs
showed.
However, sharp losses were cushioned as China's nickel
pig iron producers were drawing down their stockpiles
faster in the past month due to disruptions in Philippine
ore exports, refuelling supply worries and fanning a nickel
rally. Also, prices rebounded after reports that top
stainless steel maker China may run down its ore supplies
as soon as next April.
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Base Metals Monthly Report
Friday| November 7, 2014
Further, seasonal rains are expected to disrupt nickel
mining in the Philippines out to February, crimping
exports to top buyer China and stoking a shortfall in the
global supply of ore. With a ban on raw metal shipments
by former top exporter Indonesia in place, the seasonal
decline in the Philippines' output could force China's
vast stainless steel industry to run down its stocks of
nickel ore, reigniting a rally in nickel prices.
However, Miners in the Philippines say they will be able
to fulfil their 2014 contracts as they have factored in the
impact of the annual monsoon.
In addition, Nickel ore stocks at five major ports Tianjin,
Rizhao, Lanshan, Lianyungang and Jingtang which
account for 70% of the total stood at 15.3 million tonnes
in October, down 17% since the start of the year.
According to data from the International Nickel Study
Group, Indonesian mine production of nickel in 2013
was 834,200 tonnes nearly a third of the global total.
Nickel mines in the Philippines produced 315,600
tonnes last year.
For the time being, there is little sign that the
Indonesian government will ease the ban. And in spite
of losing nearly a quarter of its price over recent
months, nickel is still the best-performing base metal of
2014 so far, up 17 per cent.
Aluminium
Aluminium returned to the positive territory with prices
surging by around 4.5 percent in October 2014 to
become the biggest gainer in the base metals space.
This can be largely attributed to concerns should
Indonesia’s ban on ore exports last into next year, China
may face a shortage of bauxite as there’s potential for a
so-called bauxite gap of 10 million to 15 million metric
tons as stockpiles in the country run out. China mines
bauxite domestically and supplements local supplies
with shipments from overseas. Before the Indonesian
ban came into effect, users in China stockpiled the raw
material to ensure supplies. The holdings may last a
further six months.
Hydro, one of Norway's biggest industrial companies
with operations from Brazil to Qatar, said it expected
any aluminium production start-ups around the globe
to be offset by curtailments elsewhere, keeping the
market tight after years of surpluses.
In addition, data from the International Aluminium
Institute (IAI) showed global unwrought aluminum
inventories at the end of September were down 4,000
mt from August and up 276,000 mt from September
2013. Unwrought inventories totaled 1.375 million mt
at the end of September, down from an August total of
1.379 million mt and up from 1.099 million mt at the
end of September 2013. Total aluminum inventories at
the end of August were down 17,000 mt at 2.466
million mt, and up 333,000 mt from 2.133 million mt at
the end of September 2013, the IAI said.
However, Alcoa Inc has decreased its estimate for the
global aluminum market deficit this year due to
smelter restarts in China, the world's No. 1 producer.
The U.S. aluminum producer expects demand to
outpace supply by 671,000 tonnes this year, down
from a previous estimate of 930,000 tonnes. In July,
Alcoa increased its market deficit estimate to 930,000
tonnes due to capacity cuts in China. Higher aluminum
prices have prompted some Chinese smelters to
abandon production cutbacks and are seen leading to
restarts of other plants, chipping away at what was
expected to be the first global deficit after years of
oversupply.
Also, Japan Aluminium Association stated that the
country’s aluminum product output increased by 5.1%
to 149,441 tonnes in August YoY increasing for the
twelfth consecutive month. Among them, the output
of aluminum plates used for aluminum cans, electronic
equipment, automobile parts increased by 13.4% to
91,522 tonnes; the output of extrusion products
mainly used for building and automobile sectors
decreased by 5.8% to 57,919 tonnes. Further,
Aluminium stocks held at three major Japanese ports
were 313,400 tonnes at the end of September, up 6.3
percent from 294,800 tonnes a month.
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Base Metals Monthly Report
Friday| November 7, 2014
Outlook
For Nov’14, we expect base metal prices to trade higher as the ECB left interest rates unchanged at an
all-time low but Draghi underlined the bank's readiness to take more steps to stimulate growth. Also,
surprise easing by the Bank of Japan will support gains. However, concerns over interest rate hike by the
FOMC have risen after robust economic data from the US will cap sharp gains. Further, demand
concerns from China will be a drag on prices.
Copper prices are likely to trade higher owing to expectation of lower surplus in 2015 after a number of
mine suspensions in Peru and Indonesia. Further, China's consumption of refined copper is expected to
rise at least 6 percent in 2015, roughly in line with this year, supported by new investment in power
networks and demand from rail projects.
We expect Aluminium prices to trade higher as reluctance by the Indonesian government to pull off the
ban on Bauxite exports has raised supply concerns and will boost gains in the light metal. However,
expected slowdown in new residential and commercial building projects in China will lead to easing of
consumption growth for aluminium in the world's top metals consumer and restrict sharp gains.
We expect Nickel prices to trade higher as supply concerns have reignited as most producers in the
Philippines' main nickel mining region of Caraga are expected to close operations as normal from
October or November until early next year in anticipation of heavy rains.
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
6475
400
1863
116
14160
870
1926
119
2190
135
Support 2
6280
388
1790
112
13350
820
1812
112
2101
120
CMP
6643
410.35
2061
127.75
15490
958.60
2004.5
124.75
2235.25
138.25
Resistance 1
6959
430
2136
133
16280
1000
2201
136
2394
147
Resistance 2
7185
444
2264
141
17910
1100
2298
142
2476
152
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