Freeport, Newmont CEOs in Indonesia in bid to break export tax deadlock

The chief executives of Freeport McMoRan Copper & Gold Inc and Newmont Mining Corp are both in Indonesia's capital, marking what might be a last-ditch effort to resolve a dispute over a mineral export tax before a new administration takes over in October.

Richard Adkerson, the CEO of U.S.-based Freeport, was in Jakarta again less than a week after talks with Indonesia's new chief economics minister failed to make a major breakthrough on an escalating export tax that has halted copper concentrate shipments since January. [ID:nL3N0OL1D8]

"Yes he is," Freeport spokeswoman Daisy Primayant said in a text message on Thursday, when asked whether Adkerson was back in Jakarta. She did not elaborate.

Newmont CEO Gary Goldberg, who was not involved in last week's talks, was in the capital to "demonstrate the company's seriousness in supporting the government's policy to increase domestic smelting", spokesman Omar Jabara said in an email.

He said Goldberg hopes to meet with "several government officials".

Indonesia's chief economics minister and billionaire businessman, Chairul Tanjung, is spearheading a new government push aimed at brokering a deal with foreign miners to restart copper concentrate exports that halted five months ago. [ID:nL3N0OJ12N]

Both Freeport and fellow U.S.-based copper and gold miner Newmont have previously argued they should be exempt from the tax, which kicks in at 25 percent and rises to 60 percent in the second half of 2016, before a total concentrate export ban in 2017. They say their current contracts prohibit any extra taxes.

The export tax is part of a government drive to force miners to build smelters and processing plants in Southeast Asia's largest economy, but a lack of progress in resolving the stalemate last week led to Newmont declaring force majeure.

Although government officials have said Freeport has agreed to pay the tax, with the percentage tied to progress made in smelter construction, the extension of the Arizona-based miner's contract beyond 2021 appears to now be a stumbling block.

While Freeport says it needs the certainty of a contract extension before investing more than $15 billion to turn its Grasberg complex into an underground mine when open-pit activities end after 2016, the outgoing government says it cannot legally do this.

Government officials have previously said Freeport can only renew their 2021 deal in 2019 at the earliest.

"The government at the moment has no right to extend Freeport's contract that ends in 2021," Tanjung told reporters on Thursday. "Freeport has asked for that extension but ... the current government doesn't have the right."

The government has consulted legal experts to see whether there is room for manoeuvre on the 2019 contract stipulation, and has proposed signing a legally binding MoU with Freeport to bypass the contract extension issue.

Indonesia holds a presidential election on July 9, with a new administration set to take office in October. Current President Susilo Bambang Yudhoyono has served the maximum two terms.

Nifty 7720/7700 or 7570 level

Global Death Cross Accelerates As World Bank Slashes Growth

The World Bank joined the hallowed ranks of the IMF and admitted it was clueless last night, slashing growth estimates for every developed and developing nation from Brazil to the US. The "bumpy start" as they called it merely exacerbated what is now becoming a dismal joke as the death cross of GDP growth expectations and world stock market valuations diverge in an ever more fragile manner.

And this after JPMorgan slashed US expectations...

China construction vs copper price – something's gotta give

Chinese copper imports tumbled 16% in May.

Year to date China is still importing refined copper at a record setting pace – up a whopping 34% over 2013 to 2.1 million tonnes.

This at a time when the Chinese economy is expanding at is slowest pace in more than two decades.

The mismatch is ascribed to the popularity in credit-starved China of the red metal as collateral in trade financing agreements.

But May's sharp drop indicates these deals may be unwinding at a more rapid rate than previously thought.

With all the focus on the unwinding of China's metal-backed loans, it's easy to lose sight of copper's ugly demand fundamentals

As part of its efforts to rein in the country's vast shadow banking system, Beijing has been clamping down on the practice.

At the same time a weakening yuan – another deliberate policy – has pushed many of these arrangements under water.

Last week's revelation that authorities are probing whether traders at the port of Qingdao pledged the same copper, iron ore and aluminum inventories as collateral for loans multiple times to different banks, could turn what has been an orderly exit into a stampede.

With all the focus on the collateralised loan business it is easy to lose sight of the fundamentals of the copper trade.

Unfortunately here the outlook is no rosier.

Capital Economics in a research note points out that construction and infrastructure typically account for nearly 60% of China’s copper usage and while Beijing is providing some support to these sectors through its affordable housing programme and expansion of the electricity grid, "the bigger picture is of weakness in the metals-intensive construction sector."

The close correlation between the copper price and the building sector is clear from this chart.

But early on in 2014 this relationship broke down.

And the most likely scenario of how this link will be restored is not a sudden building boom (Beijing is very wary of any economic stimulus), but a sharp correction in the price of copper.

MCX-Copper – Sell on rallies

The copper futures contract traded on the Multi Commodity Exchange has dropped sharply over 3 per cent in the past week.

Concerns that a private company in China could have pledged copper multiple times as collateral for loans has triggered this fall.

This is adding further pressure to copper that had earlier tumbled after China, the world’s largest consumer of the metal, witnessed its first domestic corporate default in March.

The MCX-copper futures contract has declined below its key short-term support level of ₹404/kg.

The outlook is bearish since the sharp fall in the past week has happened after many failed attempts to break above the 200-week moving average resistance, at ₹420.

Though the contract is reversing higher from the low of ₹394.55 recorded on Monday, the upside could be limited.

Key short-term resistance is available in ₹404-405 zone. Fresh selling interest can emerge in this resistance zone.

Short-term traders can wait for an intermediate rally and initiate fresh short position at ₹403. Stop-loss can be kept at ₹408 for the target of ₹395.

Key support for the contract is at ₹393.

There is a high probability for the MCX-copper contract to reverse higher from the support level ₹393 in the later stage.

WTI Trades Near Three-Month High on U.S. Supplies; Brent Steady

West Texas Intermediate traded near the highest price in three months amid speculation that crude inventories fell for a second week in the U.S., the world’s biggest oil consumer. Brent was steady in London.

Futures were little changed in New York after declining 0.1 percent yesterday. Crude stockpiles probably dropped by 2 million barrels last week to 387.5 million, a Bloomberg News survey shows before Energy Information Administration data today. OPEC nations representing 94 percent of the group’s output said they’re at ease with global supply and demand before a meeting in Vienna to decide on a collective production limit.

“Oil has been boosted by an improved growth outlook in the U.S., but it’s being contained by high supply as we start to work into the driving season,” said Ric Spooner, a chief strategist at CMC Markets in Sydney who predicts investors may sell West Texas contracts if prices rise to about $105 a barrel. “The inventory figures tonight may tell the story on how the market will handle this.”

WTI for July delivery was at $104.50 a barrel in electronic trading on the New York Mercantile Exchange, up 15 cents, at 3:38 p.m. Sydney time. The contract settled at $104.41 on June 9, the highest since March 3. The volume of all futures traded was about 45 percent below the 100-day average. Prices have increased 6.2 percent this year.

Brent for July settlement was up 22 cents at $109.74 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $5.30 to WTI. The spread narrowed for a third day yesterday to close at $5.17.

U.S. Supplies

Crude stockpiles expanded by 1.5 million barrels in the week ended June 6, the industry-funded American Petroleum Institute reported yesterday, according to TradeTheNews.com, a newswire. Supplies were at 399.4 million through April 25, the most since the Energy Department’s statistical arm started publishing weekly data in 1982.

Gasoline inventories shrank by 440,000 barrels, said the API, which collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The EIA report will probably show a gain of 1 million, according to the median estimate in the Bloomberg survey of 11 analysts.

In China, the world’s second-largest oil consumer is hoarding crude at the fastest pace in at least a decade, shielding itself from supply disruptions. Its oil imports are helping drive prices higher, according to Barclays Plc, Citigroup Inc. and Nomura Holdings Inc.

OPEC Meeting

Oil ministers from Angola, Ecuador, Kuwait and Venezuela said they anticipated that the Organization of Petroleum Exporting Countries will maintain its quota at 30 million barrels a day. Saudi Arabia, Libya, Nigeria and the United Arab Emirates said supply and demand are well-matched. Iraq’s minister said there were indications the limit would be retained, while his Iranian counterpart also expected no change.

The 10 nations accounted for about 28.2 million barrels a day of output in May, data compiled by Bloomberg show. Ministers from Algeria and Qatar declined to comment on the market or OPEC’s production yesterday. The group’s first meeting since December will be held today.

Aluminum market to end up in deficit of nearly 1.2 million mt, says Rusal

 Rusal- the world’s leading aluminum producer said Monday that the world aluminum market is likely to report a deficit of nearly 1.2 million mt by end of this year. The company also predicts that aluminum will remain bullish in near term. They further believe that the aluminum prices are currently undervalued.

According to the Russian aluminum major, there is a general conviction among the industry participants and investors that aluminum prices are currently undervalued. The company has become increasingly bullish on the near term prospects for aluminum price.

Rusal also stated that there are very little chances for capacity additions outside China beyond 2015. The global aluminum market is likely to end up in a deficit of nearly 1.2 million mt in 2014. The deficit may lower to 985,000 mt in 2015.

The new capacity additions in China will be offset by the smelters that are idled on non-profitability issues. It notes that the total capacity additions in the country during the first five months of the year totaled 2.4 million mt. However, smelter capacities to the tune of 2.1 million mt were closed during the same period, thus maintaining the balance in production.

The mineral export ban by Indonesia has reduced supplies of bauxite ore to aluminum industry. The Indonesian bauxite shipments to China have fallen drastically during the year from levels of almost 4 million mt in 2013 to just around 4 million mt during the first five months of the current year.

Based on all the above factors, Rusal forecasts the aluminum prices to touch $2,000 per mt in the next few months itself.