Aluminum Stockpiles Jump Most in Seven Months on Vlissingen Gain

Aluminum Orders Increase to Two-Week High on Bookings in Asia

Copper Inventories in Shanghai Advance to Two-Month High

China-led copper bull market to continue into 2012

Author: Geoff Candy

Expectations of a pick-up in developing country growth, particularly in China, are behind much of the rise in base metal prices in recent weeks.

As a result, investors are keeping a close watch on what is happening in the region and, more importantly, what is likely to happen in the second half of the year.

According to Tom Kendall,  vice president for commodities research at Credit Suisse, "Copper actually has been trading very well since the end of June where we saw, for the first time in about six weeks or so, some reasonable size institutional money coming back into the copper market."

He adds that, around that time we also saw Shanghai prices looking relatively expensive compared to LME so we saw a brief period where Chinese buyers came back into the market.

"That gave us a lift up from where we were trading then – about $9,000 to the $9,500 – $9,600 sort of area where we've been since."

In the last couple of weeks however, he says, "the copper market is currently not seeing a great deal of activity from physical buyers in China, nor is there much action in the North American and European markets, which seem already to have entered the traditional period of summer softness but, he says, " when we get through into the back end of August and September, we expect to see a significant pickup in Chinese activity in the market."

He adds, "It looks to us as though the Chinese have made very significant draw downs in stocks over the year-to-date and there will come a point where they will need to come back to the international markets in much greater size than they have been and that certainly will have an effect on the price."

This belief is borne out by Fitch Ratings which writes in a report out earlier this week "China is tightening its money supply to reduce speculation in its property market as well as to curb inflation. Fitch believes this has resulted in significantly reduced stocking from the end of 2010 through May 2011."

The rating agency adds that it expects, copper consumption to grow 5% – 6% over the next 18 months, benefitting from " growth in demand for domestic autos, low cost housing, and consumer durables, as well as consumer durables exports."

"While urbanization trends will remain supportive of copper consumption, Fitch expects opportunistic destocking when prices are high," it adds.

French bank, Natixis, agrees with this but cautions in its latest Commodities Weekly Note, "In recent weeks, the rise in LME copper prices has once again closed the import arbitrage window which, alongside the disappearance of the backwardation in SHFE copper prices, suggests that the recent uplift in Chinese import demand may give way to another period of temporary weakness if Chinese restocking demand remains price-sensitive until inflation begins to subside and growth can then re-accelerate."

For Natixis, the question of inflation is an important one for the base metals complex but, while it believes that headline inflation rates are likely to begin to subside in the second half of the year it is unlikely to happen simultaneously in all markets.

"For some countries, the peak in inflation may already be behind us. Inflation peaked in Indonesia and South Korea during Q1, while Russia experienced a drop in headline inflation in June. The jump in Chinese inflation to 6.4% in June was therefore something of a shock, and suggests that we may have to wait longer, and potentially endure a more protracted period of economic weakness before inflation is finally brought under control and a reacceleration of growth can be permitted," it writes.

According to Kendall, however,  inflation in China is likely to begin to moderate from here. " We saw the headline figure for new lending move higher in June.  Now almost certainly there are going to be further moves on the headline interest rates in China, but I don't think that is going to derail the overall growth in the economy."

What is more important is what has been happening with copper inventories in the country.

"We've seen very sizeable draw downs in, until recently, Shanghai Exchange warehouse stocks," he says, "We've also seen much greater draw downs in bonded warehouse inventories of metal, and indeed we think in inventories of metal held by merchants and consumers, and there's only so long that that can continue.  At some point in time, they will get to a point at which they have run down inventory levels to an uncomfortably low level and then really, there is no alternative to coming back into the international market."

"Unless you have a very bearish view of the Chinese economy as a whole, then at some point in time those Chinese buyers are going to have to come back into the market in much greater size than we've seen."

As a result, Credit Suisse is looking for copper to trade up to $11,000 a tonne before the end of this year.

"Going forward, we think 2012 is going to be strong as well.  Beyond that you start to look at some supply side response, but we don't see a near term end to the copper bull story for the time being."

Wednesday , 20 Jul 2011
 

METALS-Copper steady; China demand, euro zone crisis weigh

LME doubles metal delivery rates from Detroit

By Andrea Hotter

A warehousing firm owned by a unit of Goldman Sachs /quotes/zigman/188479/quotes/nls/gs GS -0.02% must deliver twice as much aluminum out of its Detroit facilities than the London Metal Exchange required in the past, following a vote by the exchange's board Thursday.

From April 2012, Goldman's Metro International Trade Services–which is facing complaints over long delays accessing metal in Detroit by major aluminum users like U.S. can maker Coca-Cola Co. /quotes/zigman/222647/quotes/nls/ko KO -0.37% and U.S. aluminum sheet maker Novelis Inc–will now have to deliver out 3,000 metric tons a day, double the previous rate.

Because more metal will be available in the market more quickly, the changes to the rules will likely lower the cost of buying physical aluminum supplies, and will help ease the supply bottleneck that has been created. It currently costs a premium to the LME aluminum futures price of around $140-$150 a ton to buy the metal in the physical market as a result of the delays in getting metal out of warehouses, a cost now being replicated around the world as producers, traders and merchants take advantage of the situation.

The new delivery rate applies to all warehousing companies storing more than 900,000 tons of metal in one location, but Metro is the only one currently doing so. It's storing nearly all of the 1.12 million tons of aluminum held in the LME system in Detroit, the heart of the U.S. auto industry. This is equivalent to a quarter of the LME's global aluminum stock of 4.41 million tons.

The LME has more than 600 warehouse locations in a system designed to be the market of "last resort," meaning that industry can use it to sell excess stock in times of over supply and as a source of material in times of extreme shortage. But right now, industry–including producers, consumers, traders, merchants and banks–is using the storage system as an alternative spot or physical market, making it the market of first resort.

The situation has developed since the economic downturn, when metal was flowing into warehouses as demand slumped. It's come under closer scrutiny since a number of influential metals industry participants, like Goldman Sachs, Glencore International PLC (GLEN.LN), Swiss merchant Trafigura Beheer BV, and J.P. Morgan Chase & Co. (JPM) have bought warehouse firms, leading to worries that they were using knowledge of how much metal was stored to determine their own trading strategies.

The first complaint about the delays in the U.S. was made informally to the LME in July, 2009. A further seven complaints about the U.S. warehouses followed in the period between February and June 2010. Only one complaint about the U.S. warehouses was lodged officially, and that complaint has been resolved, LME Chief Executive Martin Abbott told Dow Jones Newswires in a recent interview. The exchange declined to name the complainants.

Consumers aren't the only ones grumbling; banks, warehousing companies and those with metal in financing deals are complaining, Abbott said. That's mainly because they're trying to get significantly more out of storage daily than the system was designed to handle, he said.

When demand for aluminum in its key consuming sectors of automotives and aerospace slumped during the downturn, producers struck a number of deals with investors, traders and banks by selling or pledging metal to raise much-needed working capital. For their part, investors, traders and banks bought inventory at spot prices and sold futures one to two years forward in so-called financing deals.

Concerns about warehousing were raised earlier this year by a U.K. government committee and referred to the U.K. anti-competition watchdog, the Office of Fair Trading. But the OFT said the concerns were without merit, and decided not to pursue an investigation.

The LME's rule change, which applies to all metals traded on the exchange, is unlikely to satisfy everybody, however, as Metro will still struggle to keep pace with demand for deliveries. It can take several months to get metal out of Detroit–anecdotal evidence suggests up to seven months in some instances. And once stocks in Detroit fall below 900,000 tons, then Metro will be required to deliver out less, with the rate proportionate to the amount stored in order to protect smaller warehousing firms.

LME warehouses will have to pay more to hire additional trucks and drivers, so they are likely to pass these costs on to customers in rent and trucking charges when the new rates kick in next April.

(Rhiannon Hoyle contributed to this article)

LME Aluminum Stockpiles Fall Further as Metal Climbs in Japan

Long steel product makers in the state have cut down prices in response to poor demand from real estate sector, which has been hit hard by frequent interest rate hike.

High quality steel billet in the state is currently quoted at Rs 27,500 per tonne, excluding taxes, lower than Rs 28,400 sold in the first week of June. Billet is a semi-finished long steel product used in construction works.

"The primary reason for the fall in prices is poor demand from the real estate. The frequent interest rate has made the loans costlier, thereby affecting the housing sector,” said the marketing manager of a long steel maker.

This is in addition to the normal slump in construction activities following the onset of monsoon.

The Reserve Bank of India has raised the repo rate by 25 basis points to 7.50 per cent and the reverse repo rate by a similar margin to 6.5 per cent in its latest policy review. The rates have been hiked 10 times in last 15 months as a part of RBI’s inflation controlling measure.

According to Confederation of Real Estate Developers' Association of India (CREDAI), the real estate developers are feeling the pinch of rate hike as the number of booking orders has been falling constantly for past few weeks.

"Interest rates for housing loans have gone up by a whopping two per cent in a year's time. This raised the monthly installment dues and thus, the number of people who could have afforded the loans, slipped,” said D S Tripathy, president, CREDAI Orissa chapter.

The long steel prices have dropped at a time when rates of flat steel products, used in automobile industry, are rising. Many flat steel makers including JSW and Essar have increased flat product rates in June, citing higher input costs.

The long steel makers believe the piquant situation will continue in the July-September quarter too and hope prices may rebound in October-December period, after the monsoon season. They also blamed the tight supply of iron ore for higher input cost and for closure of some units.

"It is true that long steel product prices have come down by Rs 1,000-1,500 in a month's time due to poor demand, and at the same time input cost has gone up. So, we have shut down our Orissa plant since a month due to lower ore supply,” Rabindra Sharma, president (marketing) with Shyam steel said.

Kolkata/ Bhubaneswar July 12, 2011

METALS-Copper up on easing Greece concern, supply worry

 By Silvia Antonioli	

 Copper inched up on Thursday to its highest in
more than two months as expectations of increasing demand from top consumer
China, supply disruption in Chile and Indonesia and easing concerns over the
Greek debt crisis boosted sentiment.	

 Benchmark copper on the London Metal Exchange , untraded in rings,
was bid at $9,550 a tonne by 1031 GMT from $9,521 a tonne at the close on
Wednesday.	

 Earlier, the metal used in power and construction hit a session high of
$9,600 a tonne, its highest since April 21.	

 "The market has been bullish since the moment news spread that Greece will
be granted (loans)," said VTB Capital analyst Andrey Kryuchenkov.
  	

 "Also, copper stocks in Asia are coming off so maybe we will see some pickup
in demand from Asia."	

 Supply concerns were also, at least partially, supporting copper prices,
Kryuchenkov added.	

 Some of the world's biggest copper mines face strike-related disruptions,
early signs of a possible resurgence in labour unrest that could strain an
already fragile supply pipeline. 	

 In Indonesia, a strike for higher pay has paralyzed output at Freeport
McMoRan Copper & Gold's giant Grasberg mine. 	

 In Chile, some workers at state-owned Codelco are planning a one-day
walkout, while unions in Peru called off a two-day strike at the last moment.	

 The outlook for copper is deemed to brighten further in the second part of
this year, according to analysts.	

 "We see further upside in copper prices despite the recent rally," Goldman
Sachs' said in a note.	

"We expect (..) demand growth will be sufficient to substantially tighten the
copper market over the next year, especially as Chinese buyers continue to
return to the market."	

 The European Central Bank raised benchmark interest rates by 25 basis
points, as widely expected. This move had little impact on currencies and metals
prices as the rate hike was already priced in, analysts said. 	

 However, copper rose slightly after data showed that U.S. private employers
added far more jobs than expected in June, bouncing back from a surprise slump
the month before. 	

 16-YEAR HIGH   	

 Inventories of copper on the London Metal Exchange (LME) rose by 675 tonnes
to 461,950 tonne but were still more than 3 percent down from June 8, when they
hit their highest in about a year.	

 Copper stocks have also fallen in recent weeks in Asian warehouses
underlining that a pick up in demand may be underway. CU-STX-SGH.	

 Inventories of zinc MZN-STOCKS on the LME hit their highest in 16 years at
871,050 tonnes.	

 "The problem with zinc is that it is an badly over supplied market," said
Daniel Smith, an analyst at Standard Charted.	

 "Demand is not subdued but the producers have not been disciplined."	

 Zinc , used in galvanizing steel traded at $2,384 a tonne in official
rings from $2,380 Wednesday's close.	

 Battery material lead , untraded in rings, was bid at $2,703 from
$2,700. Earlier, it touched a peak of $2,719.75 a tonne, its highest since
mid-April.	

 Lead prices recovered largerly in line with copper but positive fundamentals
were also supporting the metal, analysts said.	

 "The long-term perspective is very positive for lead," Nic Brown, head of
commodity research at Natixis said. 	

 "We may see an increase in demand for lead for batteries for new cars and
replacement batteries."	

 In the very short term however the metal may be facing headwinds such as the
closure of a significant number of lead manufactures in China due to
environmental issues, Brown underlined.	

 Tin traded at $27,150 from $26,745 while and aluminium
traded at $2,560 from $2,556.	

 Nickel traded at $23,355 from $23,380.

 (Reuters) - (Additional reporting by Tasim Zahid; editing by Keiron Henderson)

METALS-Copper steadies as relief rally peters out

By Melanie Burton

 Copper steadied on Tuesday as a pick up in demand for
risky assets petered out and markets awaited U.S. data for fresh direction,
while some wondered if copper prices have climbed too far too fast, given
still-scant signs of demand from China. 	

 Three-month copper on the London Metal Exchange traded at $9,445 a
tonne, compared with a close of $9,455 a tonne on Monday. 	

 The metal used in power and construction rallied to a two-month peak of
$9,520.25 the prior session, but remains still some 7 percent from a record seen
in February	

 "(A price recovery) seems to me a little bit early. We've got all of these
problems around the macro market... and I don't think the evidence of Chinese
demand picking up is strong enough yet," analyst Stephen Briggs of BNP Paribas
said.	

 "Sentiment a couple of weeks ago was quite poor...this is a relief rally,"
he added. 	

 A pick up in demand for risky assets from last week softened a bit on some
speculation about a possible rate rise in China this weekend, as well as a
Moody's report saying the scale of problem loans at local governments in China
may be much bigger than previously thought.  	

 Expectations that appetite from top consumer China will improve alongside
European and U.S. industry after summer -- against a backdrop of constricted
supply -- has fed predictions that copper will print new records later this
year.	

 BNP Paribas sees copper hitting a record near $11,000 in the second half.	

 But so far, Chinese consumers do not appear to be making major buys. LME
copper stocks have fallen by some 12,000 tonnes to two-month lows, but the
latest inventories data from the Shanghai Futures Exchange showed that stocks
jumped by more than 9,000 tonnes on the week. CU-STX-SGH  	

 "Backwardation in the (Shanghai) market has all but disappeared following
last week's stock increase. This is a sign that the buying has dropped as prices
have risen too fast for some," broker Triland said in a note.	

 Elsewhere, the euro looked set to snap a six-day winning streak on Tuesday,
as the dollar was bought back broadly on concerns over the Chinese economy and
speculation that U.S. companies will repatriate dollars earned overseas.
 	

 "Overall we would watch the dollar closely if it continues to rebound then
we would expect that to produce a headwind for the metals," FastMarkets said in
a note.	

 SUPPLY PIPELINE	

 The copper supply pipeline, which is at risk of severe disruptions, was
highlighted again on Tuesday, with weather and strike issues in the world's top
copper producer, Chile, overnight.	

 Chile's giant Collahuasi copper mine said on Monday it was operating under a
contingency plan due to bad weather that has delayed a workers' shift.
 	

 Meanwhile, state-run Codelco sought to avert a 24-hour strike by
workers demanding a bigger say in its restructuring. [IDnN1E76310A] 	

This comes on the heels of a seven-day strike at Freeport-McMoran Copper &
Gold Inc's Indonesian unit on Monday. 	

 In other metals, battery material lead was at $2,673  from
$2,684. A trader said there had been a flurry of demand for high grade material
in Europe.	

 Aluminium was at $2,514 from $2,510. Stainless steel material nickel
 was at $23,287 from $23,175.	

 Tin changed hands at $25,850  from a bid of $25,650 while
zinc , used in galvanizing, was at $2,386  from $2,398 on
Monday's close.


 (Editing by Keiron Henderson)