INSIDE METALS
Monday, March 30, 2015
CHART OF THE DAY
FEATURE
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COLUMN- Bauxite and the limits of resource nationalism
It's been over a year now since Indonesia imposed its ban on the export
of unprocessed minerals.
The aim of the January 2014 lock-down is to generate greater value for
the country and its citizens by forcing operators to build processing
plants and export value-added product not raw materials.
Other resource-rich countries, such as the Democratic Republic of
Congo, are travelling the same road but Indonesia is way out in front.
Andy Home is a Reuters columnist. The opinions expressed are his own
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TODAY’S MARKETS
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TRADING PLACES
 Speculators raise bullish bets in silver, copper -CFTC
GENERAL NEWS
 Miners' gold forward sales surged 103 T last year, most
since 1999-report
 S.Africa's Wesizwe says flagship platinum project ahead
of schedule
 Trafigura seeks to nominate Nyrstar board members
MARKET NEWS
BASE METALS: London nickel slid to its weakest in nearly six years hit
by faltering demand for stainless steel and worries that a new tax in
Malaysia may push metal into the market.
"A weak macroeconomic environment and demand data out of China in
combination with worries about the Malaysian tax gave enough ammunition for the shorts to come in," said Daniel Hynes, a strategist at ANZ
in Sydney.
PRECIOUS METALS: Gold dropped for a second straight session slipping further from a three-week high, after Federal Reserve Chair Janet
Yellen signaled that the U.S. central bank may be on course to raise
interest rates later this year.
"Yellen's latest comments might just change the course of gold and
cause a downward movement in the price from hereon," said Howie
Lee, analyst at Phillip Futures, who sees gold dropping to as low as
$1,180.
COPPER:
 Codelco 2014 copper production up 3 pct to 1.67 million
tonnes
 Rio Tinto CEO says Nov plan to restart Oyu Tolgoi was
"best and final offer"
 Southern Copper hit by conflicting remarks on Peru
mine's future
NICKEL/STEEL:
 Iron ore slump set to shrink China's mining capacity
FOREX: The dollar inched higher versus the yen and euro after the
head of the U.S. Federal Reserve underscored the view that the Fed is
likely to start raising interest rates gradually later this year.
"Yellen went to great length to detail why rate hikes would not be
rushed and ultimately may not reach levels previously considered to be
'normal'," said Ray Attrill, global co-head of FX strategy at National Australia Bank.
INSIDE METALS
March 30, 2015
FEATURE
COLUMN-Bauxite and the limits of resource nationalism
ALTERNATIVE SUPPLIES
By Andy Home
Even that strategy may not work because the simple fact is Chinese buyers are successfully tapping other sources of the mineral.
It's been over a year now since Indonesia imposed its ban on
the export of unprocessed minerals.
They haven't yet fully compensated for the loss of Indonesian
supply but Chinese imports have been steadily ticking higher in
recent months, rising back above the 3-million-tonne per month
level in both December and February.
The aim of the January 2014 lock-down is to generate greater
value for the country and its citizens by forcing operators to build
processing plants and export value-added product not raw materials.
In part this reflects higher imports from traditional suppliers such
as Australia but in part it's down to the emergence of new suppliers such as Malaysia.
Other resource-rich countries, such as the Democratic Republic
of Congo, are travelling the same road but Indonesia is way out
in front.
In 2013 Chinese imports of Malaysian bauxite totalled just
154,000 tonnes. Last year's tally came in at 3.3 million tonnes.
The country's high-stakes strategy, implemented in the face of
considerable opposition from both its own mining sector and
overseas buyers, does appear to be largely working.
Malaysian imports have accelerated further this year, totalling
1.0 million tonnes in the first two months alone.
Similarly, the Dominican Republic never even used to make it
onto the list of Chinese bauxite suppliers. Last year it did to the
tune of 1.6 million tonnes.
At a practical level flows of nickel ore and bauxite to Chinese
buyers have been halted.
Indonesia's mining ministry says there are now 11 nickelprocessing projects under way, many of them backed by Chinese nickel and stainless steel producers.
The uncomfortable fact for Indonesia is that China may not
need its bauxite any more. And if it doesn't need the bauxite, it
doesn't need to sink investment into Indonesian alumina refineries.
The country's two top copper miners, Freeport McMoRan and
Newmont Indonesia, have been successfully cajoled into committing to a new copper smelter in return for keeping their mining
rights.
THE SCARCITY FACTOR
When it comes to bauxite and the construction of alumina refineries, though, things are not going to plan with policy-makers
admitting they may have to partially roll back the ban.
That's the thing with bauxite. It's a commonly occurring mineral
and a lot of countries have deposits of it.
NO TAKERS?
Chinese nickel pig iron producers, the bedrock of nickel ore
demand, have had some success in tapping the Philippines for
alternative supply.
Indonesia has no choke-hold over supply such as it enjoys over
nickel ore.
As with nickel, there was an initial flurry of alumina refinery project announcements in the immediate aftermath of the export
ban.
But Philippine ore is lower-grade with all sorts of cost implications and the country simply can't produce enough to fill the gap
left by the Indonesian ban.
All of them were backed by Chinese aluminium producers, who
had been buying Indonesian bauxite to feed their own domestic
production of alumina, the intermediate product in the aluminium
supply chain.
And apart from the Philippines, there is no obvious other supplier of nickel ore.
The list of candidates included some of the biggest names in the
Chinese aluminium sector such as Chalco, Xinfa and Nanshan.
The scarcity factor is also in play when it comes to the country's
two big copper producers, particularly Freeport McMoRan.
One year on, though, and initial enthusiasm seems to have
evaporated.
Its Grasberg mine is one of the largest, longest-life copper
mines in the world, an increasing rarity in a sector that is struggling to find replacements for the mega-mines of the past.
Indonesia does have one new refinery, built by local company
Aneka Tambang and Japan's Showa Denko. But it was started
in 2011, years before the ban became a reality, and produces
chemical-grade rather than metallurgical alumina.
Faced with threats to withdraw its mining licence, Freeport had
little option but to accede to Indonesia's request it invest in a
new smelter, however sceptical the company may be about the
commercial logic of doing so.
All the other projects have gone, from an Indonesian perspective, ominously quiet, which is why policy-makers are now talking about trying to entice investment in return for bauxite export
rights.
With no such scarcity factor in bauxite, Indonesia may have
reached the limits of its resource policy as currently formulated.
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INSIDE METALS
March 30, 2015
FEATURE (Continued)
LESS STICK, MORE CARROT
to be needed if Chinese aluminium companies are to be persuaded to relocate part of their existing alumina capacity to Indonesia.
The problem is that the export ban is a blunt instrument through
which to force its mining sector down the path of value-added
processing.
But the window of opportunity won't be open for long with accumulating evidence the Chinese investment flow is switching to
Malaysia and its replacement bauxite deposits.
Simply tweaking the ban for bauxite, by linking export licences
to investment plans, is probably not going to work.
With many other developing countries tracking Indonesia's progress, bauxite is the clearest warning yet that coercion is only
one part of a successful resource policy.
It might be time to evolve the policy further, applying a little less
stick and offering a bit more carrot.
Alumina refineries cost a lot of money and require a lot of infrastructure. More than is needed to build a basic first-stage nickel
ore processing plant to produce nickel pig iron, which is itself
more raw material than value-added product.
-- The opinions expressed here are those of the author, a
columnist for Reuters --
Tax incentives and investment in power and transport are going
GENERAL NEWS
Miners' gold forward sales surged 103 T last year, most
since 1999-report
"Modest net hedging in the first quarter of 2015 (continued) to
offset ongoing deliveries," their report said.
The volume of gold sold forward by mining companies rose by
103 tonnes last year, the biggest annual increase since 1999,
an industry report showed on Friday.
S.Africa's Wesizwe says flagship platinum project ahead of
schedule
That far outstrips an estimate given late last year of 42-52 tonnes, after Mexican gold and silver miner Fresnillo said it was
hedging 47 tonnes of output over five years.
South African Wesizwe Platinum's flagship Bakubung project,
backed by Chinese funding, could start production about six
months ahead of schedule due to the use of new techniques to
build the mine, the company said.
In their quarterly Global Hedge Book Analysis, Societe Generale
and GFMS analysts at Thomson Reuters said the bulk of the
rise in the global gold hedge book last year was driven by Fresnillo and Russia's Polyus Gold, which announced a major hedging deal in July.
Bakubung is China's first direct investment in the South African
mining sector, and Wesizwe aims to start production once the
mine is partially ready in 2017 and churn out 420,000 ounces of
platinum group metals a year by 2021 when fully completed.
"Of the growth in the book in 2014, the majority (85 tonnes)
came from these two companies. Together they now account for
half of the outstanding global hedging," the report said.
Eddie Mohlabi, general manager of the Bakubung mine, said
the speed of building the mine accelerated after the company
installed two separate shafts, one for ventilation and another for
workers. This almost doubled the number of hours workers
could spend underground, he said.
"What was also notable in the fourth quarter, and to a greater
extent the year as a whole, was the rebalancing of the hedge
book towards option contracts, rather than being dominated by
forward sales," the report added. "The two largest hedgers,
Polyus Gold International and Fresnillo, were two examples to
employ such structures."
Most South African mines use one main shaft for both ventilation and transporting workers.
"We don't want to make the same mistakes as our competitors,"
Mohlabi told Reuters on Thursday at the mine set near the rugged hills of the Pilanesberg Game Reserve, some 163 km (98
miles) west of Johannesburg.
Hedging, or selling future gold production, allows miners of the
metal to lock in prices for their output. While it can protect producers when prices are falling, it can also stop them capitalising
on a rising market.
Mohlabi said the company had also introduced a longer drilling
steel to dig a shaft at the mine, penetrating more of the rock
face at a faster speed than has been used in the past.
It fell out of favour during the 12-year bull run in gold prices that
began in 2001, as mining companies spent billions of dollar
closing out hedged positions.
The next milestone for the mine would be to complete two main
mining shafts, expected to be about one km deep, by the end of
the year in both shafts, he said.
GFMS and Societe Generale said that while evidence of a return to broad-based producer hedging was "thin on the ground",
they expect the uptrend in hedged volumes to continue.
Mohlabi said state utility Eskom is building a 60 megawatt
power station to meet the demands of the plant.
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INSIDE METALS
March 30, 2015
GENERAL NEWS (Continued)
Bakubung is one of only a handful of platinum shafts being sunk
in South Africa, at a time when other producers are selling off
under-performing and labor-intensive shafts following a fivemonth strike in 2014 that dampened their hopes of making them
profitable.
quired by the Belgian Code on Corporate Governance," Nyrstar
said.
South Africa sits on about 80 percent of the known global resources of the white metal, used mainly for catalytic converters
in motor engines and jewellery.
The commodities trader started in September to build a stake in
Nyrstar which stands at 15.3 percent, making it the largest
shareholder.
Trafigura seeks to nominate Nyrstar board members
Shares of Nyrstar rose by some 5 percent in early Friday trading
as the market speculated about whether the move would lead to
Trafigura buying an even larger stake.
Commodities trader Trafigura aims to get two seats on the
board of Nyrstar, in a move seen by analysts as an indication
that the company is tightening its grip on the world's largest producer of zinc.
"This news may spark some imagination over Trafigura potentially increasing its stake further and/or trying to make changes
to Nyrstar's management/strategy," ING analyst Filip De Pauw
wrote in a note to clients.
Nyrstar said on Friday that it had received a request from
Trafigura to nominate two board members at a shareholders
meeting in April, adding that it believed the proposal came too
late for it to assess whether they were suitable candidates.
In November, Nyrstar ousted its chief executive and replaced
him temporarily with the chief financial officer, in a surprise
change only weeks after Trafigura bought its stake.
Trafigura said the candidates it had put forward were well qualified and that it had stuck to the required deadlines when making
the nominations.
"The Board is not currently in a position to issue a recommendation to shareholders regarding the proposed candidates as re-
TRADING PLACES
contracts as prices rallied toward their highest levels in more
than a month.
Speculators raise bullish bets in silver, copper -CFTC
.
The noncommercial dealers boosted their bullish bet in copper
by 11,193 lots for a net long of 15,036 lots, the largest level
since September 2014.
Hedge funds and money managers raised their bullish bets in
silver and copper futures and options in the week ended March
24, U.S. Commodity Futures Trading Commission (CFTC) data
showed on Friday.
The speculators slashed their bullish bet in gold for the eighth
straight week, shedding 3,468 contracts for a net long of 31,653
contracts, the lowest level in at least a year, according to Thomson Reuters data.
The speculators reduced their net long position in gold, the
CFTC data showed.
They raised their net long in silver for the first time in eight
weeks, adding 7,609 contracts for a net long position of 19,248
4
INSIDE METALS
March 30, 2015
MARKET NEWS (Continued)
Codelco 2014 copper production up 3 pct to 1.67 million
tonnes
Sam Walsh in an interview with Reuters on Saturday ahead of a
visit to the mine.
Chile's state-run Codelco produced 1.672 million tonnes of copper in full-year 2014, a 3.1 percent rise from a year earlier, the
world's No. 1 copper producer said on Friday.
"Clearly, in terms of reaching a final conclusion there's a lot of
detail that needs to be resolved, so negotiations were continuing last week," he said, adding that Rio was "not looking for
special treatment" but wanted more certainty and clarity from
Mongolia.
The company said the jump in output was mostly due to
Codelco's newest mine, Ministro Hales, which produced
141,200 tonnes copper in 2014, up from just 33,600 tonnes in
2013 when it was in its initial ramp-up phase.
Walsh said the firm would be willing to go to international arbitration to resolve the tax dispute, but said it was not expected to
affect current phase-one production at the mine.
Rio Tinto's Turquoise Hill Resources owns 66 percent of the
$6.5 billion Oyu Tolgoi, with the Mongolian government holding
the remainder. Rio is also in charge of running and developing
the project, which is located in the Gobi desert close to Mongolia's border with China.
The increase more than made up for production decreases, that
totaled 64,000 tonnes, at Radomiro Tomic, Gabriela Mistral and
Andina.
Codelco's two oldest mines, open-pit Chuquicamata and underground El Teniente, increased their copper output by a combined 7,000 tonnes last year.
The first, open-cut phase of the mine is already in operation.
Turquoise Hill reported $1.6 billion in revenue for 2014 from the
sale of 733,700 tonnes of concentrate from the mine.
Pre-tax profit fell 22 percent to $3.033 billion, dragged down by
falling copper prices and higher financing costs.
Walsh said financing for the second phase of the project, which
will extend the mine underground, will have to be renegotiated,
especially in light of volatile copper prices.
Codelco said its direct cash costs in 2014 were 7.8 percent
lower than a year earlier at $1.504 per pound of copper.
"There have been a number of lenders who rolled over their
offers. Once we've resolved all of the negotiations, we need to
go back to lenders to confirm the availability of the funding," he
said.
MINES OPERATIONAL FOLLOWING RAIN SUSPENSIONS
Torrential downpours in the north of Chile earlier this week
forced companies, including Codelco, to suspend operations at
several of the area's major mines, putting an estimated 1.6 million tonnes of capacity of the red metal on hold.
He didn't have a specific timeframe for when the second phase
could finally begin operations, saying Rio would first have to
finalise negotiations with the government and also remobilise its
workforce.
Operations at Codelco's Chuquicamata, Ministro Hales, Radomiro Tomic and Gabriela Mistral are now fully operational,
though its Salvador mine has between 20 to 30 days to get
there, chief executive Nelson Pizarro said at a press conference
on Friday.
"There are a lot of moving parts there that would need to be
taken into account before you can specify when it would start,"
he said.
Codelco lost 6,500 tonnes of refined copper production due to
the stoppages, Pizarro said.
Southern Copper hit by conflicting remarks on Peru mine's
future
He estimated that copper prices would average around $2.80
per pound in 2015, which would drag down Codelco's pre-tax
profit below 2014 levels.
Conflicting statements about whether Southern Copper Corp
would cancel development of its $1.4 billion Tia Maria copper
mine in Peru's Arequipa region have battered the company's
share price and left investors wondering about the project's future.
Rio Tinto CEO says Nov plan to restart Oyu Tolgoi was
"best and final offer"
Proposals made to the Mongolian government by global mining
giant Rio Tinto last November to restart the long-delayed Oyu
Tolgoi copper mine were the firm's "best and final offer" and
won't be changed, Rio's chief executive said.
Southern Copper's head of institutional relations, Julio Morriberon, told local radio RPP on Friday that the company was
"canceling Tia Maria and withdrawing all its investments in Arequipa" due to lack of support from regional authorities and continued local opposition.
Rio submitted the proposals to resolve some outstanding issues, including a $127 million tax claim that has already been
cut to $30 million as well as the approval of a $4 billion project
financing package to pay for phase-two construction.
But Southern Copper's Chief Executive Officer Oscar Gonzalez
later appeared to row back, telling Reuters that the announcement "did not totally reflect the intention of the board."
"This is the best and final offer and we believe this a very reasonable approach to resolving the outstanding issues," said
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INSIDE METALS
March 30, 2015
MARKET NEWS (Continued)
"Southern Copper will continue with its efforts to move forward
with the Tia Maria project and we hope to have the support of
the people and the government," he said.
Top global producers Vale, Rio Tinto and BHP Billiton have
boosted output despite falling prices, prompting No. 4 iron ore
miner Fortescue Metals Group to propose limiting production.
Grupo Mexico , which owns a controlling stake in the Peruvian
firm, also said that its subsidiary was not cancelling the project.
The commodity fell to $54.20 a tonne this week, the lowest
since records began in 2008, and Citigroup predicted prices will
drop below $50.
Southern Copper's Nasdaq-listed ADRs were down 3.6 percent
at 1924 GMT Friday, and its Lima-listed shares fell 5.6 percent.
Shares in Grupo Mexico were down 2.5 percent.
Three-quarters of China's domestic iron ore capacity is incurring
losses and capacity utilisation rates at small iron ore mines
dropped to as low as 20 percent at the end of last year, said
Yang Jiasheng, chairman of the Metallurgical Mines Association
of China (MMAC).
CORPORATE GOVERNANCE
The debacle raises questions of transparency and corporate
governance in South America at a time when other resources
companies in the region are also struggling with these issues.
"If there are some small loss-making iron ore producers that are
forced to close then this will be a good thing for the market," he
said, adding that bigger producers would also have to restructure and cut costs.
Fertilizer group SQM in neighboring Chile, which also has a
Nasdaq listing, has been caught up in a tax and political payments scandal that has felled its chief executive and angered
shareholders in the United States and Canada.
Only about 3 percent of China's 4,037 iron ore mines are large
scale, with the rest mostly small, said Yang.
Rio Tinto expects some 85 million tonnes of iron ore capacity to
exit the global market in 2015 on top of an estimated 125 million
tonnes last year due to tumbling prices, with Chinese mines
absorbing most of the losses.
With lower costs and less red tape than in Chile, many have
seen Peru as the country to race ahead in copper production,
but local opposition to projects is often fierce.
Opponents of Tia Maria, which if it is completed is slated to produce about 120,000 tonnes of copper a year over two decades,
say it would pollute agricultural valleys.
'INEVITABLE TREND'
Southern Copper's Morriberon accused protesters of "antimining terrorism" and criticized the Peruvian government for not
supporting investments more strongly.
"The elimination of high-cost miners is an inevitable trend," said
Feng Guoqing, general manager at Shougang Mining.
Several mining projects in Peru, the world's third-biggest copper
producer, have been suspended in the past decade because of
local opposition, including Newmont Mining Corp's $5 billion
Conga gold-and-copper project, Bear Creek Mining
Corp's proposed Santa Ana silver mine, and Zijin Mining Group
Co Ltd's Rio Blanco copper project.
In Hebei, China's top steel producing province, 80 percent of
local mining companies have stopped producing and output is
likely to fall 40 percent this year, said Li Fenghai, vice director of
Hebei Metallurgical Mining Industry Association.
"The oversupplied market will make the decision to close them."
But MMAC's Yang said the state needed to recognise the strategic importance of iron ore and ensure there was enough support to maintain a certain level of self-sufficiency.
China's industry ministry has agreed in principle to reduce the
tax burden on domestic miners, currently at about 25 percent,
said Yang. That compares to an 8 percent tax for Australian iron
ore miners.
Iron ore slump set to shrink China's mining capacity
A slide in iron ore prices is turning the screw on China's fragmented mining sector, paving the way for closures and consolidation with three-quarters of the country's mining capacity operating at a loss, industry officials said on Friday.
China is the world's biggest iron ore producer in terms of raw
ore, but buys about two-thirds of global output because of the
low quality of its own ore.
The country's iron ore imports climbed 14 percent to a record
932.7 million tonnes last year as a price slump boosted appetite
for high-quality ore overseas.
More mine closures in China, the biggest consumer of the steelmaking commodity, would increase its appetite for imported iron
ore and help ease a global glut that has slashed prices by more
than half in the past 12 months.
In contrast, apparent consumption of China's domestic iron ore
fell to 205.86 million tonnes last year from 313.8 million tonnes
in 2013, despite an increase in overall production volumes, data
from consultancy Custeel showed.
"I would like to thank the big four miners for driving prices down
because it has given bigger domestic mines an opportunity and
forced small miners to cut production," Gao Yan, deputy general
manager at the mining unit of Chinese steelmaker Angang
Group, told an industry conference.
6
INSIDE METALS
March 30, 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
7
INSIDE METALS
March 30, 2015
MARKET REVIEW
METALS-London nickel slides to lowest since 2009 on weak
demand
PRECIOUS-Gold slips as Yellen signals U.S. rate hike on
track
London nickel slid to its weakest in nearly six years hit by faltering demand for stainless steel and worries that a new tax in Malaysia may push metal into the market.
Gold dropped for a second straight session slipping further from
a three-week high, after Federal Reserve Chair Janet Yellen
signaled that the U.S. central bank may be on course to raise
interest rates later this year.
LME nickel dropped more than 1 percent to its lowest since
May 2009 at $13,105 a tonne, before trading at $13,140 a tonne
at 0240 GMT - down 1.1 percent on the day.
Bullion may be set to give up recent gains fueled by the Fed's
March policy statement that it was prepared to move more
slowly in hiking U.S. rates than the market expected. The metal
rose for seven consecutive sessions after the Fed's meeting this
month in its longest rally since 2012.
The Shanghai Futures Exchange's (ShFE) new nickel contract slid 4 percent in its second day of trade.
"A weak macroeconomic environment and demand data out of
China in combination with worries about the Malaysian tax gave
enough ammunition for the shorts to come in," said Daniel
Hynes, a strategist at ANZ in Sydney.
On Friday, Yellen said an increase in the Fed's benchmark rate
"may well be warranted later this year" given sustained improvement in U.S. economic conditions.
Demand for nickel pig iron in China did not pick up as strongly
as expected after the Lunar New Year holidays, industry
sources said last week, with stainless steel producers set for
lower exports as the sector faces tariff barriers.
"Yellen's latest comments might just change the course of gold
and cause a downward movement in the price from hereon,"
said Howie Lee, analyst at Phillip Futures, who sees gold dropping to as low as $1,180.
The European Union is preparing to impose anti-dumping duties
on imports of stainless steel cold-rolled sheet from China and
Taiwan, while India is also considering similar action.
Spot gold was off 0.5 percent at $1,193.10 an ounce by 0225
GMT, after rising for a second week in a row last week. It
touched $1,219.40 on Thursday, its loftiest since March 2.
In Malaysia, which stores almost half of the LME's nickel inventories at around 210,000 tonnes, a new government tax may
force owners to sell metal rather than bear the cost of transporting stocks to nearby LME locations, Hynes said.
Bullion is headed for a second consecutive monthly drop in
March as a looming U.S. rate hike dims the appeal of a noninterest bearing asset.
U.S. gold for April delivery dropped 0.6 percent to $1,192.50 an
ounce.
The LME has threatened to stop registering new metal from July
if Malaysia doesn't clarify the impact of a new goods and services tax on metals trade and storage in its two bonded zones.
Malaysian officials said they plan to reach a solution before the
tax comes into force on Wednesday.
But analysts agree that the Fed will be anything but aggressive
in its rate hike path, with many looking at the first rate increase
happening in September instead of June as they predicted earlier.
"Given falling oil prices and slowing growth globally they cannot
afford to raise rates too early so I think the first rate hike will
happen in September," said Lee at Phillip Futures.
LME copper recovered part of Friday's near 2-percent losses,
climbing 0.4 percent to $6,078.50 a tonne. Buying from top consumer China has been tepid, blunted by a recent run up in
prices.
Mizuho Bank said Yellen's latest remarks showed the Fed remained "delicately determined" with regard to raising rates.
"Until we see evidence of a sustained pick up in Chinese industrial activity, we think there's very little upside," said analyst Joel
Crane of Morgan Stanley in Melbourne.
"Yellen was decidedly non-aggressive on her views of the underlying, residual slack from the financial crisis that requires a
gradual move up in equilibrium real Fed rates," the bank said in
a note.
The most-traded June copper contract on the Shanghai Futures
Exchange fell 0.6 percent to 43,610 yuan ($7,020) a tonne.
Investors were also keeping an eye on tensions in Yemen which
aided gold's climb last week. Yemeni fighters loyal to the Saudibacked President Abd-Rabbu Mansour Hadi clashed with Iranian-allied Houthi fighters on Sunday in Aden, the absent
leader's last major foothold in the country.
Data this week includes an official gauge of China's March factory health and a U.S. jobs report that could impact the timing of
its first hike in interest rates. There will also be Easter holidays
in many countries.
8
INSIDE METALS
MARKET REVIEW
March 30, 2015
(Continued)
FOREX-Dollar supported even as Yellen drives home message of patience
"Our take is that while rates may rise sooner and faster than
current market pricing, they are more likely to undershoot than
overshoot the Fed's latest median 'dot point' trajectory."
The dollar inched higher versus the yen and euro after the head
of the U.S. Federal Reserve underscored the view that the Fed
is likely to start raising interest rates gradually later this year.
The diverging interest rate pathways between the Fed and most
of the developed world meant that the dollar should in general
stay supported.
The dollar edged up 0.1 percent to 119.24 yen. It has fallen
more than 2 percent from a near eight-year peak of 122.04 set
early this month.
The euro slipped 0.2 percent to $1.0873, having in the last two
weeks pulled up from a 12-year trough of $1.0457.
"Our view of the U.S. dollar remains broadly positive and we
have always viewed that the correction of the past two weeks in
the U.S. dollar is temporary," said Heng Koon How, senior FX
strategist for private banking and wealth management at Credit
Suisse in Singapore.
In a highly anticipated speech on Friday, Fed Chair Janet Yellen
outlined the case for a 'gradualist approach' to rate hikes, in
comments mirroring those at the post-FOMC meeting on March
18.
"We expect the Fed to start hiking rates possibly by the September FOMC and the process will likely be gradual," he said, adding that the dollar would probably stay strong heading into the
start of the Fed's policy tightening cycle.
She said policy tightening could "speed up, slow down, pause,
or even reverse course" depending on actual and expected developments in the economy.
A key event for the dollar this week is U.S. jobs data on Friday.
Commodity currencies edged lower, partly unsettled by further
falls in oil and iron ore prices last Friday, when oil prices slid 5
percent. On Monday, benchmark Brent crude oil futures slipped
0.5 percent to $56.13 a barrel.
"Yellen went to great length to detail why rate hikes would not
be rushed and ultimately may not reach levels previously considered to be 'normal'," said Ray Attrill, global co-head of FX
strategy at National Australia Bank.
The Aussie eased 0.3 percent to $0.7729 continuing to retreat
from a two-month peak of $0.7939 set a week ago. It was nearing a six-year trough of $0.7561 plumbed early this month.
(Inside Metals is compiled by Vikas Vasudeva in Bangalore)
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