Market Comment
Dates Avaiable
14 May 2008
12 May 2008
08 May 2008
07 May 2008
25 April 2008
23 April 2008
22 April 2008
21 April 2008
17 April 2008
03 April 2008
Zinc gains while Copper treads water
The base metals were dominated by the drip feed of information regarding the extent of the disruption in China, stemming from the recent earthquake. With the market having positioned itself short last week, newswire headlines citing major disruption triggered a wave of short covering. Zinc was the biggest beneficiary, closing up over 6%. Elsewhere the picture was a little more confused, with Copper actually losing ground today as it failed to recover from a sell-off during the afternoon.
As details began to emerge from China, the scale of the disaster became increasingly apparent. The main issue as far as metals are concerned is the impact that the earthquake has had on both rail and road networks, and on power. Actual physical damage to operations appears to be very limited, however delays to raw material deliveries and, in some cases a lack of power, will likely have a greater impact. We note however that the disruption will be to the full spectrum of the metals industry, including fabricators and consumers, not just to the supply side.
Though Sichuan is relatively small in terms of metals output, surrounding provinces such as Gansu and Shanxi have also reportedly been affected. The precise scale of the disruption remains unclear, however given the speedy recovery following the snowstorms earlier this year, some of the initial estimates as to the extent of the disruption may have been overdone. As for direction tomorrow, this will likely be dictated, initially at least, by the Chinese reaction to the earthquake and the level of disruption it has caused, with the LME likely to be playing catch up to any further news of production losses.
Zinc had the sharpest reaction today, on the back of a Reuters story suggesting 500,000 tpy of Chinese capacity in Sichuan, Gansu and Shanxi had been closed by the earthquake. With the Zinc market having been short for some time now, amid weak fundamentals and generally negative sentiment, the news sparked off a short covering rally which saw prices climb by over 7% at one point. The metal eventually closed the day up 6.47% at $2,320, closing above Lead for the first time since August 2007.
Lead also rallied on the back of the earthquake news, though arguably, given the extent of last week’s decline, today’s 2.89% rally was merely a continuation of yesterday’s recovery. Lead prices peaked at $2,345 before drifting back to finish the day at $2,315.
Aluminium gained initially from news of disruption in China, however momentum faded in the afternoon with the light metal closing up 0.58% at $2,945. Nickel also looked to be struggling, however a late rally saw it finish up 1.88%. Copper meanwhile failed to emulate Nickel and, after a strong start, faded badly in the afternoon to close the day in negative territory at $8,240. Tin continued to build on its recent strength however, closing up 0.80% at $25,150 after reaching a high of $25,350 in the early afternoon.
Déjà vu as Lead remains in freefall while Tin surges higher
With the exception of Aluminium, currencies again had a limited impact on today’s price movements. Instead relentless selling pressure, particularly in Lead, resulted in further long liquidation and substantial falls across much of the base metals complex. Tin was again the exception, reaching a new record high.
Lead tumbled yet again, reaching a low of $2,187 as stops were triggered. Sentiment towards the metal has turned overwhelmingly bearish over recent weeks, with the sheer weight of selling pressure dominating trading. Lead eventually finished the day at $2,195, down 5.41% on the day and down nearly 15% from last week’s close.
Rumours surrounding large SHFE and LME stock increases saw Copper come under pressure during the pre-market session. Those rumours were confirmed by a large 11,150 mt increase in LME inventory, mostly into South Korea, and by a 4,646 mt increase in SHFE inventory. The location of the stock build, combined with the lack of Chinese buying, lends weight to the belief that Chinese consumers are de-stocking Copper in a big way. With the Codelco strike action now resolved, the absence of Chinese buying finally appears to be having an impact on prices. Copper eventually finished the day at down 2.41% at $8,100, coming under pressure from a sharp sell-off towards the close.
In other news, reports of an explosion at Konkola Copper Mines’ Nkana smelter saw Copper prices make a brief flurry higher, though the effect was short lived. Six workers were injured in the accident which involved the spillage of molten material. Meanwhile, power has reportedly been restored to Katanga province following vandalism to a major power line in the region.
Aluminium fared very well considering the losses seen elsewhere. The light metal was the odd one out, in so far as it looked to the currencies for price direction, finishing the day at $2,885, up $5 from yesterday’s close. Elsewhere, Aluminium Corporation of China (Chalco) is to link up with Malaysia’s MMC and Saudi Arabia’s Binladin group to build a 1 million tpy capacity Aluminium smelter in the Jazan Economic City, in Saudi Arabia. The project is estimated to cost around $4.5 billion and will include a power plant. Chalco will control 40% of the smelter and will also provide the Alumina for the facility.
Zinc took direction from Lead, finishing nearly 3% lower at $2,155, however good two-way interest did see prices manage to stabilise. Nickel also struggled, finishing the day at $26,700. Most of the selling came during the early morning, on the back of fears over production cutbacks at stainless steel mills. A drawdown in LME inventory helped to steady the ship, however prices continued to drift lower. Tin again did its own thing, trading up to a new record of $24,650 before closing the day at $24,600.
Currency moves continued to dominate the base metals complex today with dollar strength - or rather euro weakness, following some poor macro-economic data - putting the metals under pressure. All of the base metals finished in negative territory, however Lead was by far the worst performer, finishing over 5% lower as stops were triggered.
A raft of poorer than expected European economic data resulted in the dollar strengthening against the euro which in turn impacted on commodity prices. A greater than expected fall in European retail sales triggered the initial fall in the euro. Retail sales declined by 1.6% in March - twice consensus forecasts - as higher food and fuel costs impacted on consumer spending. An unexpected decline in German manufacturing orders was the nail in the coffin however with seasonally adjusted factory orders dropping by 5.0% in March compared to expectations of a 6.0% increase.
Elsewhere, UK Industrial production also disappointed, coming in at 0.2% y-o-y in March compared to expectations of 0.8%. In contrast however, the US economic data was generally positive with mortgage applications up strongly and non-farm productivity coming in better than expected. First quarter productivity was 2.2%, down on the 2.8% increase in the last quarter of 2007 but up on consensus expectations of a 1.5% gain.
Zinc came under pressure initially, however the metal managed to dig its heels in, trading sideways for much of the day to finish 1.10% lower at $2,255. News that miners at the 150,000 tpy capacity Skorpion mine in Namibia had voted for strike action also helped to shore up the metal. The Skorpion mine produces SHG Zinc directly using a hydrometallurgical process, so any impact on production will be felt in the refined market more quickly as, in this particular case, there is no buffer of concentrates stocks to soak up any losses. Strike action is due to take place on Friday with miners holding out for a 14% pay increase versus a company offer of 10%.
Copper also traded broadly sideways, albeit under pressure from a strengthening dollar, finishing the day down 1.01% at $8,435. Elsewhere, Codelco’s El Salvador mine remains closed while an evaluation of damage to equipment, incurred during the recent strike action, is undertaken.
Aluminium and Nickel drifted lower under pressure from the strengthening dollar finishing the day at $2,920 and $28,550 respectively. The worst performer however was Lead, with the heavy metal finishing 5.45% lower at $2,421. Initially Lead fell in line with the rest of the complex, however stops were triggered on the way down which saw the price fall sharply. In contrast Tin held on very well, recovering to close the day at $24,005.
Metals gain amid renewed dollar weakness.
The base metals started the week on a high, albeit belatedly following a long weekend in London, with everything bar Lead making gains. While the general flavour of today’s trading activity was fairly bland - dominated by a resurgence in the euro against the dollar - the finer details were pretty intriguing, in particular Copper, which had to digest a number of different factors including a new record on COMEX, set during trading on Monday.
With London closed for a long weekend, COMEX was left to fend for itself on Monday. What appeared to be a trading error saw COMEX Copper jump by up to 12% during one point to reach a high of $4.2605 a pound, equivalent to nearly $9,400 per tonne. Prices quickly retraced however, dropping back below $4 a pound within the hour. With LME prices on both Bloomberg and Reuter’s screens not registering Monday’s price movements on COMEX, the episode appears to have been ignored with $8,880 still the price to beat, in dollar terms at least.
Elsewhere, the main story was another bout of dollar weakness which lent general support to commodities. Meanwhile news of a militant attack in Nigeria combined with the weaker dollar to send prices for WTI crude to yet another new record of $122.73 a barrel.
Copper opened higher following Monday’s activity on COMEX, however the news was quickly digested. The red metal did manage to hold onto its initial gains, but spent the rest of the day trading sideways as bearish news regarding a return to work at Codelco’s operations and an increase in LME inventory offset the weakening dollar, with Copper eventually closing the day at $8,521.
Elsewhere, the 20-day strike action by sub contractors at Codelco’s operations ended on Monday, with workers agreeing to a government proposal to return to work. Full output may resume as early as this week as the company’s Andina, El Teniente and Salvador mines resume output. Andina was reportedly already operating at 80% over the weekend, with El Teniente expected to re-start on the 6th.
Aluminium also opened higher, before drifting sideways during the morning. Prices picked up in the afternoon on the back of a weakening dollar and stronger oil prices, closing the day at $2,974. Aluminium briefly spiked up to a high of $2,985, however as with COMEX Copper on Monday, this also appeared to be in error.
Tin was the best performer on the day, with general support from the weakening dollar triggering stops. Tin eventually closed the day up nearly 5% at $24,200. Zinc also benefited from the weaker dollar and the triggering of stops, however the metal was more lethargic than Tin, finishing the day up 2.66% at $2,280. Nickel appeared to track Copper, opening higher then trading sideways to close at $28,950. Lead meanwhile was the worst performer coming under pressure during the afternoon to close around 1% lower at $2,560.
Stronger dollar puts base metals complex under pressure.
The day started brightly as the overnight exuberance in the Chinese market, buoyed by changes to the tax system, spilled over into the metals. That early enthusiasm waned however as the dollar staged a fightback and strengthened against the Euro. The complex came under pressure as a result, however disruption news helped to shore up Copper and Zinc, while a near absence of interest helped isolate Nickel from the losses.
On the macro-economic front, US Durable goods orders - excluding transportation equipment - were better than expected in March, gaining by 1.5% following a 2.1% decline in February. Total orders fell unexpectedly however, dropping by 0.3% compared by expectations of a 0.1% gain. Unemployment figures were also better than expected, with Initial Jobless Claims falling by 33,000 to 342,000 for the week ending April 19 against expectations of a small gain. Continuing claims also fell, to 2.934 million from 2.984 million. Likewise, consensus expectations had been for continuing claims to increase to 2.990 million.
On the downside, US housing data was significantly worse than expected, with New Home Sales dropping by 8.5% m-o-m in March to 526,000. Expectations had been for a much more benign 1.7% fall. The figures saw the dollar weaken temporarily, however the effect was short lived.
Copper was again dominated by the strike action at Codelco. After re-opening yesterday, El Teniente was again closed overnight, after protestors threw stones at company busses, injuring three workers on route to the mine. Two shifts were subsequently suspended. The news saw Copper prices yo-yo but did help to offset the effect of the strengthening US dollar. Copper eventually finished the day at $8,526 down 0.34%.
Zinc also had a positive day given the falls elsewhere, closing level at $2,240, as news of further power problems in China helped to shore up prices and lend support to the beleaguered metal. Yunnan Luoping Zinc announced that it had cut two-thirds if its capacity to 50 mtpd due to a lack of power. Yunnan Luoping was one of the companies affected by the snowstorms earlier this year and reportedly only ran at 60% capacity during the first quarter.
Nickel was the best performing metal today, ignoring the rest of the complex to finish 0.73% higher at $28,910. Part of the reason for its individualistic behaviour was the fact that the metal was very thinly traded, with LME Select turnover even lagging that seen in Tin.
Tin set yet another new high this morning, however prices faded under pressure from the stronger dollar, closing the day down 1.54% at $23,705. Lead also came under pressure closing 1.81% down at $2,759, with newswire reports that Ivernia was re-hiring workers denting sentiment towards the metal. Aluminium was the worst performer, falling steadily throughout the day to close nearly 3% lower at $3,010.
Base metals gain as dollar sinks further
The base metals sparked to life, after what initially looked like being another quiet day, as the Euro passed through $1.60 for the first time. The weakening dollar combined with better than expected macro-economic data, and a number of bullish supply side stories to see the base metals rally strongly. Tin continued to power upwards punching through $22,000 to set yet another record.
Comments from a member of the ECB’s governing council, saying that policy makers will act to restrain consumer spending if the rate of inflation doesn’t slow down, dashed any hopes of a rate cut in the near term and triggered a sharp fall in the dollar. Crude Oil reacted to the falling dollar with WTI Crude passing through $119 a barrel.
Elsewhere, Chinese stocks of thermal coal at power stations have dropped below government guidelines, reaching 12 days of consumption, from 15 days last month. The state’s current guideline is for 14 day’s of coal stocks. Coal fired power stations currently account for 78% of China’s power generating capacity. Any purchases of coal, to bring stockpiles into line, will likely increase the risk of further price gains and the associated knock-on effects that higher energy costs are having on inflation globally.
Copper was dominated by news of continuing strike action at Codelco’s mining operations, closing the day up 2.10% at $8,699. Strike action by sub-contracted workers has now closed three of the company’s four mining divisions, with only Codelco Norte operating normally. Further bullish news came towards the end of the day with newswire reports that the Salvador underground mine had suffered extremely serious damage which had left some areas unstable. Meanwhile, the Codelco news bulldozed over reports that Chinese imports of refined Copper had fallen by 7.2% m-o-m in March. The fall in imports suggests that Chinese consumers are in a de-stocking phase, however the bearish impact of the figures has been mitigated by the supply disruptions in Chile. Given the continuing high Copper prices, imports for April may continue to decline in April.
Zinc followed Copper higher, closing the day up over 2% at $2,271. Meanwhile, Teck Cominco is considering closing its Lennard Shelf mine a year ahead of schedule, in Q4-2009, unless Zinc prices rebound. Output at the mine re-started in 2006. Lead gained steadily, closing on its highs at $2,840, up over 2.5%, however Aluminium and Nickel were relatively subdued, closing the day up 1.41% and 1.58% respectively.
Tin was again the stand out performer, gaining nearly 4% to close the day at $22,500. The metal reached a new high of $22,600 as its recent momentum continues to propel prices higher and higher.
Dull start to the week but Tin retains its sheen.
It was an incredibly slow start to the weak as the recent lack of direction took its toll on the base metals. There was very thin trading across much of the complex, as the lack of a convincing reason for prices to move significantly higher, or lower, kept players on the sidelines. Consequently the base metals complex drifted sideways to lower, the exception being Tin, which managed to shake off the lethargy elsewhere to hit yet another record high.
With a quiet day on the metals and on the macro-economic front, much of the focus was on the equities markets. In particular, news that profits at Bank of America Corp dropped for the third straight quarter in a row did little to improve confidence in the wider financial markets. First Quarter net income declined by 77% to $1.21 billion, from $5.25 billion during the same period last year. The results included $1.31 billion in trading losses and $2.72 billion in costs for uncollectible loans.
Elsewhere, First Quantum Minerals Ltd has agreed to buy Scandinavian Minerals Ltd for about $280 million. The deal will give First Quantum full control of the Kevitsa nickel property in Finland. The acquisition would diversify the company both in terms of geography and commodity. Currently First Quantum mines Copper and Cobalt in Zambia and the Democratic Republic of the Congo.
Turning attention back towards the base metals, Tin was the odd one out as it powered up to a high of $21,950 in the early afternoon before drifting back to close the day at $21,655. Arguably, Tin has perhaps the clearest direction of all the complex at the moment with concerns over supplies from China and Indonesia meeting head on with increased demand for the metal. Available LME inventory remained unchanged at 7,450 mt, the lowest since October 2005. Incidentally, we note that while stocks are low, the last time LME inventory was at these sorts of levels the Tin price was nearly $15,000 per tonne less than today’s closing price.
As already noted, the rest of the complex was pretty quiet. Copper started incredibly slowly, lacking upwards momentum, but also being supported by continuing strike action in Chile. An increase in available LME inventory, up 1,000 mt today, helped to tip the balance however with the red metal closing the day down 0.6% at $8,520. An increase in LME inventory also weighed on Lead prices, with the heavy metal closing over 2% lower at $2,770. Zinc also struggled, closing nearly 3% lower at $2,225 however turnover was pretty good, with more lots being traded on LME select than for Aluminium. Aluminium was very lethargic albeit steady, closing the day at $3,042. Nickel was also incredibly sluggish, closing at $28,450 with only marginally more volume on LME Select than Tin.
Mixed end to the week as the dollar weighs on commodities
The base metals complex had a mixed end to the week after dollar strength put metals under pressure on Friday. The sell-off in base metals came amid a broader sell-off in commodities, as precious metals also came under heavy selling pressure.
All eyes in financial markets were on Citigroup’s earnings. This comes as the worse-than-expected results by General Electric a week earlier saw dollar weakness and market uncertainty return, with the outlook for US economic growth remaining bleak. But despite Citi’s Q1 revenue falling 48%, the results were still better than expected, boosting investor sentiment and pushing global equities higher. The US dollar responded by strengthening almost 2 cents against the euro — to trade at $1,5750. In the absence of any other major economic news, commodities perhaps overreacted to the Citi news and resultant dollar strength.
Copper continued to receive support as the strike at Codelco in Chile as it entered its third day, as well as from another decline (2,325mt) in LME stocks. Off this bullish news, copper traded towards its highs for the day, at around $8,700. However, when the US dollar started to strengthened mid-morning, liquidation pushed the price rapidly lower towards $8,450. But despite the sell-off, the strike action in Chile and bargain buying pushed copper slightly higher, towards a close of $8,571.
Aluminium tracked copper for most of the morning, as aluminium also experienced another decline of LME stock of 1,600mt. With the long liquidation of copper halfway through the morning, alimunium fell rapidly towards its intra-day lows just above $3,000. But the recovery in the metal from the intra-day lows was also rapid. This recovery came on the back of copper that pushed slightly higher in the afternoon and WTI crude oil that traded towards new highs above $116 in New York. Aluminium closed at $3,077.
Tin prices continued the upward trend of the past week on Friday. News out of Indonesia and China that production and exports of tin were likely to fall short of expectations continue to weigh on stock levels and support prices. Tin three-month prices closed higher, at $21,675, as LME stocks declined by another 55mt on Friday.
Zinc trade remained choppy. The metal bounced around in a $60 range between $2,270 and $2,330. The metal also saw early morning support as LME stocks declined 250mt. But after the liquidation mid-morning, zinc remained on the back foot. Zinc closed at $2,290.
Nickel and lead both traded lower during the morning. However, lead made a strong recovery and regained most of its early morning losses, to close higher, at $2,810. Nickel remained on the defense, closing at $28,810.
China, Strikes and Dollar weakness send metals prices higher
Stronger than expected Chinese economic growth, a new record low for the Dollar against the Euro, reports of power problems in China and reports of strike action at Codelco’s mining operations all combined to send prices higher across the base metals complex. The confluence of bullish factors initiated a wave of fresh buying interest and triggered a subsequent bout of short covering. Unsurprisingly Copper was the best performer, with prices once again breaching $8,800 today.
Chinese economic growth figures started the rally in metals prices, with Q1 GDP data coming in at 10.6%, compared to expectations of 10.4% growth. The figures lent support to the argument that the Chinese economy may be able to ride out a US recession, and with China playing such a key role in terms of global metals consumption, base metals prices rallied.
The next link in the chain of events was the worse than expected European inflation data. Consumer price inflation rose by 3.6% in March, the highest rate in nearly 16 years. The figure left little, if any, scope for the ECB to cut interest rates, prompting a sharp strengthening of the Euro against the Dollar to a record of 1.5970. The weakening of the dollar lent additional strength across the complex during the morning.
After the initial moves, headlines took over with power problems in Yunnan province lending support to Aluminium. The main news however was strike action by contract workers at Codelco’s operations. Copper prices rallied sharply as fresh buying came in and shorts covered positions. The surge helped support the rest of the complex which followed the red metal higher.
The strike at Codelco’s operations follows on from similar action last year with contract workers protesting over pay and working conditions and attempting to block access to mining operations. At the time of writing Andina had halted production, though the other Codelco operations, including the giant Norte division were reportedly unaffected. Copper prices rallied strongly on the news with short covering seeing prices reach a high of $8,810 before drifting back to close at $8,720.
Aluminium had a solid day closing over 2% higher at $3,069, helped by the weakening dollar but also by news that Yunnan province has cut power supplies to metal producers, amid a seasonal drought and dwindling coal supplies. Electricity supplies were reportedly cut by one third to Aluminium producers and suspended totally for ferro-alloy producers.
The rest of the complex also made gains with Nickel also helped by the power issues in China, closing over 3% higher at $30,325. Zinc followed Copper higher closing up over 2% at $2,349, while Tin pushed on further to close the day at $21,500. Lead was the exception, having a fairly muted day as it finished 0.9% higher at $2,866.
Elsewhere, the main news of note was a glut of mostly poor macroeconomic data from the US. Industrial production did increase more than expected in March, gaining 0.3% m-o-m, following on from a revised 0.7% fall in February. US housing data meanwhile continues to point towards recession with housing starts falling more than expected to an annualised rate of 947K, a 17-year low. Building permits also fell dramatically, to a rate of 927K compared to expectations of 970K
Mixed day for complex
It was a fairly quiet day for base metals as market players continue to act cautiously amid improved global market sentiment. The improved sentiment comes on the back of a marked easing in risk aversion in financial markets since the beginning of the week. This has seen some fund money flowing out of commodities. But despite this fund rotation between different asset classes, base metals remains well supported.
Support for metals came in afternoon trading as US jobs, according to the ADP survey, saw an unexpected rise of 8,000 jobs. This data release has further advanced the general feeling in financial markets that the worst of the credit market write-downs by major banks might be behind us. Combined with central bank intervention over the past few months global equity markets are experiencing a good week so far.
It remains to be seen how long this optimism can last. Fed chairperson Mr Bernanke did acknowledge today that a US recession is likely as construction is slumping, job creation in general is slowing and consumer spending is on a decline. The next major data release is Friday’s US non-farm payroll data that should shed more light on the state of the US jobs market, and by extension, the outlook for consumer spending going forward.
After dipping to around $8,300 Copper found good support early in the day as news of a possible strike by contract workers at Codelco, the worlds largest producer of Copper, supported the red metal. This momentum was enough to result in a decent rally when the US jobs data was released. Copper closed higher at $8,515 in London.
Aluminium three-month prices closed lower at $2,935. With far out oil prices declining over the past two days, not even another fall of 1,075mt in LME stocks could save the metal from a decline. Aluminium is also the victim of the fund rotation away from commodities this week.
Nickel, tin and zinc all saw a fall in LME stock levels. Nickel three-month prices dropped a $1,000 despite the decline in stock levels. Buying interest for the metal was absent and fund liquidation resulted in the metal closing at $28,300.
Zinc drifted higher on the back of Copper’s performance as well as a decline of 375mt in stock. The metal closed at $2,350.
Tin closed at $20,100 after a fall of 10mt in stock levels while lead was also pushed higher to trade at $2,870.