INSIDE METALS
Tuesday, March 3, 2015
CHART OF THE DAY
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TODAY’S MARKETS
BASE METALS: London copper slipped on Tuesday from a sevenweek peak hit in the previous session as expectations of rising U.S.
interest rates pushed up the dollar and flattened commodity prices.
The U.S. dollar hovered close to an 11-year high against a basket of
currencies, supported by growing expectations the Federal Reserve will
hike rates in June, eroding the allure of commodities by making them
more expensive for holders of other currencies.
Copper struck seven-week highs on Monday after the People's Bank of
China cut interest rates at the weekend to shore up the economy which
is struggling with a moribund property market and slowing economic
growth.
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TRADING PLACES
 London Metal Exchange aims to double cuts to warehouse logjams
GENERAL NEWS
 Glencore 2014 profit in line, takes $1.1 bln charge on
commodity prices
 Silver Wheaton takes new gold stream stake in Vale
mine
 Eldorado Gold says Greece has revoked key Skouries
approval
 Cakra bids for Cokal in play for Indonesia coal project
MARKET NEWS
COPPER:
 Indonesia sets Newmont deadline for Freeport smelter
deal
 INTERVIEW-KGHM keeps on spending as it sees copper price fall reversing
NICKEL/STEEL:
 Indian steelmakers hit by uncertainty over import duty
hike
 Nippon Steel planning 1.35 trln yen Japan capex in
FY2015-2017
PRECIOUS METALS: Gold edged higher on Tuesday, recovering from
early losses that pulled it briefly below $1,200 an ounce, as the dollar
came off an 11-year peak against a basket of currencies.
But expectations for a U.S. interest rate hike limited bullion's gains,
keeping it below Monday's two-week high. Gold fell the most in five
months in February, with the Federal Reserve seen to be set to lift rates
this year for the first time since 2006 amid a generally strengthening
U.S. economy.
FOREX: The dollar eased from an 11-year peak against a basket of
currencies on Tuesday, hit by losses against the yen after an economic
adviser to Japanese Prime Minister Shinzo Abe said the greenback
could not sustain more gains.
Etsuro Honda, who some analysts described as a proponent of yen
weakness, told the Wall Street Journal in an interview that dollar/yen
may be at the "upper limit of comfort zone".
INSIDE METALS
March 3, 2015
GENERAL NEWS
Glencore 2014 profit in line, takes $1.1 bln charge on commodity prices
The company now expects to produce 43.5 million silver equivalent ounces in 2015, including the new output from Salobo.
Glencore took an impairment charge of $1.1 billion on lower
commodity prices on Tuesday as the miner and commodity
trader posted a 2 percent fall in 2014 core profit, meeting analysts' forecasts.
Silver Wheaton separately said it would raise at least $800 million by issuing some 39 million shares at @20.55 each to a financing syndicate led by Scotiabank. Under the deal, the syndicate would have the option to sell an additional 5.8 million
shares.
Core adjusted earnings before interest, tax, depreciation and
amortisation (EBITDA) totalled $12.8 billion, said Glencore,
which has a large trading division in addition to mining and oil
assets.
The share offering will close on March 17. Silver Wheaton's
shares closed down 1.48 percent at C$26.60 on Monday on the
Toronto Stock Exchange.
Earnings from its marketing division rose 15 percent to partially
offset a fall in profits from its industrial division.
Eldorado Gold says Greece has revoked key Skouries approval
"The performance of our industrial activities inevitably reflected
the weaker price environment, particularly in energy products,
where price falls were the greatest," the company said in a
statement.
Greece has revoked authorization that Eldorado Gold
Corp needs to complete its Skouries project, the Canadian
miner said on Monday, adding that it might have to reconsider
its investment plans.
Roughly half of the $1.1 billion impairment stemmed from a
pause in the development of iron ore projects in Mauritania and
Congo Brazzaville as prices plunged.
Shares of Eldorado fell 8 percent to C$6.63 on the Toronto
Stock Exchange.
"These (iron ore assets) were inherited from Xstrata. We didn’t
spend too much money and rightly we slowed down those operations as in the current environment we wouldn't get the right
returns," Chief Financial Officer Steve Kalmin said.
Eldorado said Greece's energy ministry might reinstate the approval needed to complete construction of the processing plant
at Skouries, once it completes an internal review.
For the moment, the company said, the revocation has not affected its construction schedule, and operations at Skouries
continue.
The company also took an impairment on oil exploration activities at the Matanda oil block in Cameroon and in platinum, due
to lower commodity prices.
"The recent decision of the Ministry of Energy - if not reversed in
a timely manner - may force Eldorado to reconsider its investment plans for Greece," the company said in a release."
Glencore announced last month its intention to distribute its 23.9
percent stake in platinum producer Lonmin to its shareholders.
"It has been known to the market we wanted to get rid of it. We
didn’t get any serious bids," Chief Executive Ivan Glasenberg
said in an interview.
Last week a senior energy ministry official told Reuters that
Greece's new left-wing government would not block the
Skouries project but would review permits for the processing
plant.
"We decided the easiest way is to give it back to shareholders
and for them to decide what to do with that."
The comments appeared to be a step back from a position
taken by the energy minister in January. He told Reuters his
government was "absolutely" opposed to the Skouries gold
mine run by Eldorado and would review its next moves on it.
Silver Wheaton takes new gold stream stake in Vale mine
Silver Wheaton Corp said on Monday that it would pay $900
million for the right to buy an additional 25 percent of future gold
production from Vale SA's Salobo mine in Brazil, boosting its
2015 gold output to 230,000 ounces.
Cakra bids for Cokal in play for Indonesia coal project
Indonesian firm Cakra Mineral Tbk has offered at least A$70
million ($54 million) to take over Australian miner Cokal Ltd,
which is developing a coal project in central Kalimantan.
The deal means the Vancouver-based company can now buy
half of all gold produced at the copper mine over its lifetime for
the lesser of $400 per ounce, adjusted for inflation after 2017, or
the market price at the time of production.
Cakra, backed by one of Indonesia's biggest conglomerates, the
Sinar Mas Group, is looking for metallurgical coal for a planned
pig iron smelter and nickel pig iron smelter, Cakra corporate
secretary Dexter Sjarif Putra said on Tuesday.
Gold is currently trading at about $1,206 per ounce.
Silver Wheaton, which pays a lump sum up front to secure future precious metal production, spent $1.33 billion in 2013 for its
initial 25 percent gold stream at Salobo.
Cokal said in a stock exchange release it had received an incomplete proposal from Cakra, which operates iron ore and
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INSIDE METALS
March 3, 2015
GENERAL NEWS (Continued)
zircon sand mines, and would engage with Cakra to evaluate
the offer.
coal project in Indonesia, with coal prices trading just above sixyear lows.
Under the deal, Cakra would offer A$70 million in cash, or
A$0.15 a share, which would be a 58 percent premium to Cokal's last close. Alternatively it would offer A$87.5 million in
Cakra shares, worth about A$0.19 per Cokal share at current
prices.
"The important thing for us is that in the current climate an Indonesian group can see good value in what we've been doing up
there," Cokal Executive Chairman Peter Lynch told Reuters.
Cakra, which has a market value of $60 million, would need to
nearly double its share base to go ahead with the acquisition,
which would need approval from the Indonesian Financial Services Authority ahead of a shareholder vote.
Cokal's shares jumped 26 percent to a four-month high of
A$0.12, staying below the offer price amid uncertainty over
whether a deal would go ahead.
"Whether this is the right deal for us or not, we have to work our
way through that."
Cokal has lined up $110 million in project financing from Platinum Partners and Cedrus to build the Bumi Barito mine, aiming
to start production in the second half of 2016.
"We hope that with this smelter we are developing we can produce pig iron so we will no longer be exporting raw materials,"
Putra told Reuters.
Lynch said it had also been in talks with other strategic players
and private equity investors on potential cheaper sources of
funding, but declined to give details.
While the premium being offered looks large the proposal is well
below the A$124 million that Cokal was offered in October 2013
from Singapore firm Blumont Group. That deal was scrapped
after Blumont's shares plummeted.
($1 = 1.2892 Australian dollars)
The offer comes as Cokal has been struggling to line up funding
for its promising $75 million Bumi Barito Mineral metallurgical
TRADING PLACES
London Metal Exchange aims to double cuts to warehouse
logjams
Under the new tougher rules, it would take a maximum of 2.3
years to reduce queues to 50 days, Matt Chamberlain, LME
head of business development, told a news conference.
The London Metal Exchange (LME) announced new rules and
proposals on Monday aimed at slashing delivery backlogs at its
global network of warehouses twice as quickly as under current
reforms.
"So in this example, the rate at which queues will fall would double -- the queues would last half as long."
NEW CONTRACT DELAY
The exchange, owned by Hong Kong Exchanges and Clearing
Ltd, also set a firm October date for the launch of three new
contracts: aluminium premiums, steel scrap and steel rebar.
The move is part of a wide-ranging reform drive sparked by consumer complaints about long delays to obtain aluminium from
storage and lawsuits accusing banks and commodity companies
of conspiring to restrict supply through the warehouse network.
The aluminium premium contract, which allows people to hedge
additional surcharges for buying metal for immediate delivery,
has been delayed from a second quarter launch.
The LME, the world's oldest and biggest market for industrial
metals, also said in a statement it planned to launch new contracts for aluminium premiums and ferrous products on Oct. 26.
This was because the LME first wanted to conclude any further
warehouse reforms, which could have had an impact on premiums, Chamberlain said.
The LME launched consultations last November on a second
layer of rules governing physical delivery and on Monday it requested even more feedback on further measures.
The exchange also released a discussion paper on the possibility of capping or banning rents in queues.
The exchange asked members for their opinion on proposals
that would force warehouses to reduce queues faster.
Buyers of metals have complained about having to pay high
rent during the months that metals were stuck in backlogs waiting to be delivered from warehouses.
The 137-year old LME won a major court battle in October, giving it the green light to implement its initial set of regulations on
Feb. 1 aimed at cutting delivery queues to a maximum of 50
days from up to two years at some depots.
Previously the LME has rejected the idea of setting rent levels
at warehouses, saying it had legal advice that it might fall foul of
competition law.
On Monday it said was now responding to complaints that under
the current reform it may take as long as four years to cut backlogs at the worst affected site -- the Dutch port of Vlissingen.
The exchange published a detailed set of new rules on Monday
to take effect on June 1, one of which will require warehouse
firms to report anonymously incentives paid to metal owners so
it can determine whether those payments were market distorting.
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INSIDE METALS
March 3, 2015
MARKET NEWS
KGHM International Chief Executive Derek White said the Poland-based company, which is Europe's second-biggest copper
miner, is sticking to its commitment to invest $9 billion over the
next five years.
Indonesia sets Newmont deadline for Freeport smelter deal
Newmont Mining Corp's Indonesian copper export permit will
not be renewed beyond March 19 unless it strikes a deal with
Freeport-McMoRan Inc to invest in the latter's planned smelter,
a mines ministry official said on Monday.
"We're going to invest because we are betting on the fact that
this (copper price fall) is a short-term phenomenon that is financially created," White said in an interview at the Prospectors &
Developers Association of Canada convention in Toronto.
Southeast Asia's largest economy is in talks with miners about
their plans to develop domestic smelting and processing facilities.
Chinese hedge funds were linked to a powerful selloff in copper
in January, when the price of the metal fell nearly 12 percent in
two days. Copper has dropped about 26 percent since the end
of 2012, forcing miners such as Glencore and First Quantum
Minerals to slash capital spending.
"For an export permit extension for Newmont, we are still awaiting an agreement between Freeport and Newmont," Coal and
Minerals Director General Sukhyar told a news conference.
"It will depend how serious Newmont's commitment to cooperate with Freeport is and how much they will share the investment," Sukhyar said.
On Monday, copper rose to $5,960 a tonne, its highest level in
seven weeks, after China unexpectedly cut interest rates.
"The supply-demand equation is significantly under-estimated,"
White said.
Early last year, Indonesia put in place export restrictions aimed
at forcing mining firms to develop smelting and processing facilities so that Indonesia could refine all of its raw ores and concentrates.
The global copper market oversupply is expected to shrink this
year and next, helping cushion prices that have suffered due to
slowing growth in top consumer China, a Reuters poll of market
participants in January showed.
Although fellow U.S.-based miner Freeport is pushing ahead
with expansion plans at Indonesia's sole copper smelter at Gresik, Newmont has said multiple studies show its Batu Hijau mine
cannot sustain a smelter on its own.
White said KGHM's focus is on expanding its Sierra Gorda copper mine in Chile, and building mines at its Victoria and AftonAjax projects in Canada.
The Indonesian government has long urged the companies to
cooperate on a smelter.
The company will also look at buying assets but it is primarily
interested in purchasing projects it can develop itself. As a result, it is unlikely to be interested in three Chilean mines that
Anglo American Plc has been reported to be trying to sell, White
said.
After an increasingly fractious nine-month export tax dispute,
Newmont signed a deal with the Indonesian government late
last year that allowed for the resumption of copper concentrate
exports. This agreement is set to end unless it can show it is
serious about domestic processing.
Indian steelmakers hit by uncertainty over import duty hike
"If they really commit, they will be given an export permit extension," Sukhyar said. "The time limit for us to give an export permit extension is March 19."
Shares in Indian steelmakers mostly fell on Monday amid uncertainty whether the government would raise import duties on the
alloy and whether any increase would be enough to protect the
industry.
Newmont and Freeport, which account for 97 percent of Indonesia's copper output, could not be reached for comment on Monday. Freeport's local CEO told Reuters last year that a new
smelter would be designed only to take concentrate from its
assets.
Shares in Jindal Steel and Power fell as much as 6.7 percent,
while Tata Steel and JSW Steel also underperformed the
broader NSE index which rose 0.62 percent to close at a record
high.
Newmont is expected to produce 500,000 tonnes of copper and
gold concentrate in 2015 "at most", up from 400,000 tonnes in
2014, Sukhyar forecast last month.
In Saturday's annual budget, Indian Finance Minister Arun
Jaitley said the tariff rate on steel imports would be increased to
15 percent from 10 percent, cheering Indian producers which
have been battered by cheap Chinese metal.
INTERVIEW-KGHM keeps on spending as it sees copper
price fall reversing
However, Jaitley also said there would be "no change in the
existing effective rates of basic customs duty on these goods".
Copper miner KGHM has no plans to follow competitors in cutting spending on mines and projects in reaction to bruised copper prices as it expects prices to recover soon, the head of the
company's international operations said on Monday.
A finance ministry official was not immediately available to clarify the discrepancy, but companies themselves, optimistic earlier, said they were now not pricing in any changes.
"Since there is no increase in import duty, it is our apprehension
that the surge in steel imports will continue unabated unless
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INSIDE METALS
March 3, 2015
MARKET NEWS (Continued)
adequate measures are taken," said H. Shivramkrishnan, chief
commercial officer at Essar Steel.
India was the fourth-biggest market for Chinese steel last year,
with imports up 132 percent to 3.7 million tonnes, the biggest
year-on-year increase among China's top destinations, based
on data compiled by UK steel consultancy MEPS.
As it stands, said a senior executive at a different major domestic steelmaker, India's budget suggests the government has
simply paved the way to raise the import duty up to 15 percent
from 10 percent earlier without going to parliament for approval,
speeding up the process.
JSW, Jindal Steel and Tata Steel did not respond to emails
seeking comment.
That is unlikely to be sufficient for Indian steel producers, which
have sought a tax hike, among other measures, to stem the flow
of cheap imports, as Russia and China ship out surplus output
to global markets.
Nippon Steel planning 1.35 trln yen Japan capex in FY20152017
Nippon Steel & Sumitomo Metal Corp said on Tuesday that it is
planning about 1.35 trillion yen ($11 billion) in capital expenditures in Japan over the three years through fiscal 2017.
"China and Russia are still maintaining margins on the current
rates so there is a window for them to reduce further to balance
out this 15 percent. Hence, the duty should have been heavier,"
said independent consultant Prakash Duvvuri.
Nippon Steel, the world's second-biggest steelmaker by crude
steel output, issued the target under its new midterm business
plan. ($1 = 119.5700 yen)
Almost all companies making the alloy in India have urged the
government to take action against what they claim is "dumping"
of cheaper steel, which has pressured prices and hit profitability
over the past few quarters.
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INSIDE METALS
March 3, 2015
ANALYTIC CHARTS (Click on the charts for full-size image)
Daily LME Aluminium 3-months
Daily LME Copper 3-months
Daily LME Nickel 3-months
Daily LME Zinc 3-months
Daily LME Lead 3-months
Daily LME Tin 3-months
Daily LME Alloy 3-months
Daily LME Nasaac 3-months
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INSIDE METALS
March 3, 2015
MARKET REVIEW
In news suggesting more easily available supply, cash zinc
prices traded at the biggest discount to benchmark prices in
more than two years.
METALS-London copper dips on expected U.S. rate hike
London copper slipped on Tuesday from a seven-week peak hit
in the previous session as expectations of rising U.S. interest
rates pushed up the dollar and flattened commodity prices.
The London Metal Exchange announced new rules and proposals on Monday aimed at slashing delivery backlogs at its global
network of warehouses twice as quickly as under current reforms.
The U.S. dollar hovered close to an 11-year high against a basket of currencies, supported by growing expectations the Federal Reserve will hike rates in June, eroding the allure of commodities by making them more expensive for holders of other
currencies.
PRECIOUS-Gold recovers as dollar slips, U.S. rate hike outlook caps gain
Copper struck seven-week highs on Monday after the People's
Bank of China cut interest rates at the weekend to shore up the
economy which is struggling with a moribund property market
and slowing economic growth.
Gold edged higher on Tuesday, recovering from early losses
that pulled it briefly below $1,200 an ounce, as the dollar came
off an 11-year peak against a basket of currencies.
Markets are now waiting to gauge the strength of China's industrial demand, after Lunar New Year holidays finished last week,
and looking to fresh insights on economic policy from an annual
leadership meet that begins on Thursday.
But expectations for a U.S. interest rate hike limited bullion's
gains, keeping it below Monday's two-week high. Gold fell the
most in five months in February, with the Federal Reserve seen
to be set to lift rates this year for the first time since 2006 amid a
generally strengthening U.S. economy.
"Chinese new year has finished now, so we really should be in a
buying season... it's worrying me that we're not seeing follow
through," said Jonathan Barratt, chief investment officer at
Ayers Alliance in Sydney.
Spot gold was up 0.2 percent at $1,209.60 an ounce at 0619
GMT after falling nearly 1 percent earlier to a session low of
$1,194.90.
"Plus, global rhetoric at the moment is teetering towards a soft
patch, and that's really inhibiting copper from having a good
move to the upside. Structurally I'm positive - I think long is the
correct way to be."
Firm Chinese demand had kept gold above $1,200 since last
week, climbing to a two-week top of $1,223.20 on Monday.
Three-month copper on the London Metal Exchange had
slipped 0.6 percent to $5,869 a tonne by 0740 GMT, after ending little changed in the previous session when it struck its highest since Jan. 13 at $5,960.
The greenback eased from the day's highs versus a basket of
major currencies, making dollar-denominated assets such as
gold cheaper for investors holding other currencies.
U.S. gold for April delivery gained 0.1 percent to $1,209.70 an
ounce after dropping to $1,194.60.
"Despite the fact that most people are swaying back and forth
on the timing of the U.S. rate hike, there is still consensus that it
will happen this year," said Mark To, head of research at Hong
Kong's Wing Fung Financial Group.
A Singapore-based trader said that there was plenty of buying
and selling in the market, with no clear directional view as yet.
The most-traded May copper contract on the Shanghai Futures
Exchange slipped 0.7 percent to 42,540 yuan ($6,780) a tonne.
Seven of the Fed's current 17 members have now said they at
least want the option of an interest rate hike in June on the table, or have pushed in general for an earlier increase in expectation that wages and inflation will turn higher.
Bonded premiums continued to climb slowly, reflecting a sluggish pick-up in demand, rising by $2.50 to $90-100 on Friday. A
trader said she saw premiums rising to $100-105 near term
where they should settle, given moderate demand.
To said he expects gold to trade between $1,180 and $1,220 in
the short term, and does not see demand from top consumers
China and India providing any lasting support.
China's slowing economy will be at the forefront as parliament
convenes for its annual meeting this week, with the weekend
interest rate cut a reminder of the challenge of balancing painful
restructuring with combating the onset of deflation.
"We should not have any fantasy that physical gold demand can
pull gold out (from low levels)," said To. "In China and India, we
can see that the peak for physical gold demand has passed."
Elsewhere, growth in the U.S. manufacturing sector jumped
during February, with factories reporting their best gains since
October, according to an industry report released Monday.
Structural reforms in China aimed at a more sustainable pace of
economic growth would keep gold demand in check, he said.
Most analysts expect China's gold imports via main conduit
Hong Kong to recover this year, but to stay below the record
1,158.16 tonnes seen in 2013.
In news that could further tighten the copper concentrate market, and underpin copper prices, Newmont Mining
Corp's Indonesian copper export permit will not be renewed
beyond March 19 unless it strikes a deal with FreeportMcMoRan Inc to invest in the latter's planned smelter, a government official said.
India kept the gold import duty at a record 10 percent in a setback for jewellers when it unveiled its budget over the weekend.
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INSIDE METALS
March 3, 2015
MARKET REVIEW (Continued)
FOREX-Dollar hit by Japan govt adviser's yen comment,
drags index lower
the U.S. Federal Reserve expected to tighten monetary policy
sometime later this year, the dollar is likely to resume its upward
trek, traders said.
The dollar eased from an 11-year peak against a basket of currencies on Tuesday, hit by losses against the yen after an economic adviser to Japanese Prime Minister Shinzo Abe said the
greenback could not sustain more gains.
"In addition to some option-related selling above 120 yen,
Honda's comments helped send the dollar lower. The pullback
in Japanese shares is another factor weighing on the dollar today," said Kaneo Ogino, director at Global-info Co in Tokyo.
Etsuro Honda, who some analysts described as a proponent of
yen weakness, told the Wall Street Journal in an interview that
dollar/yen may be at the "upper limit of comfort zone".
The Nikkei sagged 0.2 percent on Tuesday.
The comments pulled the dollar off a three-week high of 120.27
yen hit earlier due to a spike in U.S. debt yields. It last traded at
119.78, down 0.3 percent. The euro was also lower at 134 yen.
The dollar index climbed to 95.516, a high not seen since September 2003 before drifting down to 95.353, down 0.1 percent
on the day.
"Honda's comments reflect the latest view of the government
and comes ahead of a proposed visit by Abe to the United
States in April," said Yujiro Goto, currency strategist at Nomura.
The Australian dollar rose 1 percent against the greenback after
the Reserve Bank of Australia opted to leave its policy rate unchanged at a record low of 2.25 percent, surprising some who
had looked for another easing after February's cut.
"But these factors are only short-term selling factors. Dollar/yen
firmly remains in an uptrend long term," Ogino said.
"They might not want the yen to weaken too much ahead of the
visit. So in the short term the yen's weakness could slow, but
over the medium term it will still weaken."
The Aussie jumped to a high of $0.7845 before settling at
$0.7820, still up 0.8 percent on the day. Analysts said the Aussie's rebound might prove temporary, as the RBA is still expected to take rates lower sooner or later.
Some countries, especially in the G7, had complained about
sharp yen weakness in early 2013, just as Abe came to power
and the Bank of Japan was about to embark on a huge quantitative easing programme to get inflation back to 2 percent.
The euro, meanwhile, was flat at $1.1192, crawling up from a
six-week low of $1.1160 struck overnight.
The criticism about waging a "currency war" by driving the yen
sharply lower to boost exports have made the Japanese sensitive to excessive weakness in the currency. Nevertheless, with
(Inside Metals is compiled by Renuka Vijay Kumar in Bangalore)
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