Nickel Posts Longest Slump in Five Months on Supply Gain

Nickel prices fell to cap the longest slump in five months as inventories tracked by the London Metal Exchange rose to a record.

Stockpiles have climbed 19 percent this year to 311,088 metric tons, and open interest has dropped to a four-month low. Prices have jumped 34 percent this year, partly because Indonesia barred shipments of unprocessed ores, spurring concerns that supplies will trail demand.

“The LME stock rise reflects the reality that the global market remained in surplus during the first half of the year,” Macquarie Group Ltd. analysts, including Vivienne Lloyd in London, said in a report. “There’s no doubt to us that much of the rise in prices that took place up to May was speculative and anticipatory” of production deficits, they said.

Nickel for delivery in three months tumbled 2.8 percent to settle at $18,660 a ton at 5:58 p.m. on the LME, the biggest decline since May 15. The metal dropped for the fifth straight session, the longest slump since Jan. 30.

Goldman Forecasts Lower Commodity Prices as Cycle Ends

Commodities from iron ore to copper and Brent crude will drop over the next five years as global supplies climb, according to Goldman Sachs Group Inc., which highlighted oil’s recent losses as a sign of increased output.

There will be substantial declines in some metals, energy and bulk commodities, analysts including Chief Currency Strategist Robin Brooks wrote in a report. The period of continued year-on-year price rises for most commodities is over, they said in the report, which was dated yesterday.

Banks from Citigroup Inc. to Deutsche Bank AG have called an end to the commodities super-cycle, when China’s surging demand combined with supply constraints to more than double prices in the 12 years through 2010. Raw materials rallied this year from three annual losses as a lack of rain in Brazil lifted coffee and a ban of ore exports from Indonesia spurred a rally in nickel. The drop in energy prices since last month showed the impact of higher global output, Goldman said in the report.

“A prolonged period of elevated commodity prices has catalysed a supply response,” the analysts wrote. “We do not expect a collapse in global commodity prices. But we do anticipate substantial declines.”

Copper was forecast to drop to $6,600 a metric ton over five years, while iron ore was seen at $80 a ton and Brent may be $100 a barrel, according to Goldman. The steel-making raw material was at $98 a dry ton in Tianjin, China, today, and copper traded at $7,123 on the London Metal Exchange today. Brent was 33 cents higher at $106.35 on the ICE Futures Europe.

‘Looser Supply’

The Bloomberg Commodity Index of 22 raw materials climbed 3.4 percent this year. That compares with a 0.9 percent drop in the Bloomberg Dollar Spot Index and 5.3 percent advance in the MSCI All-Country World Index of equities.

“Against a looser supply backdrop, commodity prices should be much less sensitive to fluctuations in global growth than they were,” Goldman said in the report, entitled “Emerging Market Forex and the End of the Commodity Market Super-Cycle.”

Goldman said in a January report the cycle that spurred higher commodities prices is reversing as increased U.S. shale oil output keeps energy prices low, and that would eventually drive raw materials into a bear market. The new cycle would be the opposite of the super-cycle, it said then.

U.S. production of crude, along with liquids separated from natural gas, surpassed all other countries this year with daily output exceeding 11 million barrels in the first quarter, Bank of America Corp. said in a report July 4. Output climbed as hydraulic fracturing and horizontal drilling help producers to pull record volumes of crude out of shale formations.

Oil Supplies

Brent rallied to as much as $115.71 a barrel last month as military gains in Iraq by an al-Qaeda breakaway group stoked concern that oil supplies from the region may be disrupted. Prices posted a third weekly loss in the period to July 11, with Iraqi shipments unaffected and Libya moving to boost exports.

“Less than a month has passed since geopolitical risks in Iraq pushed up oil prices on concerns over a potential oil supply shock, and the market seems to have absorbed the related risks reasonably well,” Goldman’s analysts wrote. “The expansion in oil supply over the past few years -- primarily from the expansion of U.S. shale production -- has minimized the consequences from past disruptions in Libya and Iraq.”

Iron ore entered a bear market in March on prospects for a glut as supplies surged. Rio Tinto Group (RIO), the world’s second-largest mining company, said today iron ore production in the three months to June gained 11 percent, while Fortescue Metals Group Ltd. said its shipments were 57 percent higher on year.

Surplus Market

“We remain bearish on iron ore, and expect a surplus market to drive the longer-term price down,” the Goldman analysts wrote in yesterday’s report. “We see limited upside for agricultural commodities over the longer run.”

Deutsche Bank said last month commodity prices will remain subdued for years as many of the factors and fears that drove the super-cycle have dissipated. Citigroup said in April 2013 that death bells would ring for the commodity super-cycle.

“Our long-term commodity forecasts suggest that fundamentals for commodity currencies will deteriorate,” the Goldman analysts wrote. “Relative shifts in terms of trade between commodity importers and exporters will be a key input to currency determination over the coming years.”

bloomberg.com

Congo copper output growth to slow in 2014 - Congo's mining chamber

Growth in copper production in Democratic Republic of Congo will slow in 2014 from its rapid pace the previous year due to insufficient energy supply and uncertainty over new mining laws, Congo's mining chamber said.

Copper production leapt to a record 914,631 tonnes last year from 620,000 tonnes in 2012 as new mining projects and expansion plans came online.

In a report on the first quarter of this year, the mining chamber predicted that copper output in 2014 would inch up to 922,000 tonnes, annual growth of just 0.82 percent compared with the 47 percent leap the year before.

"(Congo) still has the potential to produce over a million tonnes in 2014 and even more in following years, if it controls the parameters that influence investment, notably electricity supply and the revision of the mining code," the report said.

The mining sector helped drive economic growth of 8.5 percent in Congo in 2013, which is forecast to rise further to 8.7 percent this year.

Congo possesses enormous reserves of gold , diamonds, copper, cobalt and tin , but the majority of its 65 million people live in poverty due to corruption, mismanagement and war.

International mining operations are drawn to Congo's copper-rich Katanga province, but they have been hamstrung by a lack of reliable energy from dilapidated power sources and energy grids. Congo's national energy company (SNEL) lacks the finances to overhaul its equipment.

"Demand (for electricity) has exceeded what can be delivered by SNEL since 2009, and with the exception of 2011, the gap has only grown, which is more than worrying," the report said.

In a January letter, Prime Minister Augustin Matata Ponyo asked mining companies in Katanga to suspend expansion plans and respect energy rationing imposed by the government, in an effort to cope with the power deficit.

Companies have united, meanwhile, to oppose proposed changes to the mining code. Mining representatives are negotiating with the government over the proposed changes.

The government is seeking to increase royalties on mined material and to reduce stability clauses, a plan that the mining chamber has said will reduce foreign investment in the sector in the long term.

The report also highlighted an expected surge in industrial gold production from 6,149 kg in 2013 to 18,872 kg in 2014.

"The spectacular increase in industrial gold production is due to several projects coming online, which were in the construction phase," the report said.

"It would have been difficult to launch these projects ... under a mining code with a heavy fiscal burden and a stability clause reduced to three years."

Base Metals: A rally may be overdone says Citi Research

A rally in base metals may be overdone, said Citi Research. The London Metal Exchange Index is up 7.2% since June 12.

However, Citi does not believe that current supply-(and)-demand fundamentals justify this rally and expect prices to correct lower.

According to Citi, the rally has been driven by paper-market positioning on the back of improving macroeconomic sentiment, money inflows including those from commodity trading advisers, and anticipation of more positive supply/demand conditions next year, such as zinc mine closures.

“Rather, supply-and-demand fundamentals have actually weakened for a number of metals, including growing refined copper production, rebounding aluminum production in China, weak demand from real estate, and corruption investigations at China State Grid,” said Citi.

Citi sees improvement in market fundamentals for most base metals later in the year, but says the current rally has gone too far too fast.

Trafigura targets $8 billion India metals market with online store

Switzerland-based Trafigura has launched an online store in India to sell aluminium, copper and other metals, seeking a slice of the $8 billion market and becoming the first big commodities trader to cater to hordes of small manufacturers dotting the country.

Trafigura, co-founded by French billionaire Claude Dauphin, said it has been drawn in by India's primary metals market that is forecast to grow at up to 8 percent a year.

Small and medium businesses contribute to more than a third of the market, but most of them depend on traditional methods of procurement. Per-capita consumption of nearly all metals in India, Asia's third-largest economy, is far below world levels.

The online store, named Lykos, will sell consignments of 1 to 24 tonnes of aluminium, copper, lead, nickel, tin and zinc at index-linked prices, Trafigura said in a statement on Wednesday.

It will invest $200 million to $300 million in Lykos over the next one year, a spokeswoman told Reuters in an email.

"There is a strong demand for refined metals such as aluminium, copper and zinc in smaller lot sizes, but currently the market suffers from lack of automation, erratic supply, poor quality control, complex transportation logistics and opaque pricing," said Raoul Bajaj, chief executive of Trafigura India.

Customers will have to pay cash to buy from Lykos, the spokeswoman said. That could limit its reach given that most small manufacturers are used to buying on credit, said a small metals trader. He did not want to be named.

Still, Trafigura's online platform could eat into the market share of smaller smelters and physical traders by attracting buyers at lower premiums, said a source at an Indian zinc smelter.

Trafigura customers will have to take delivery from warehouses newly built near manufacturing centres in Gujarat, Rajasthan and West Bengal. More warehouses are planned, it said.

Trafigura's move comes as storage of metals is in focus globally. The company and other metal merchants, Wall Street banks and the London Metal Exchange face more than two dozen class-action lawsuits alleging they artificially restricted supplies from warehouses and inflated aluminium and zinc prices. They have all denied the allegations.

More recently, Chinese authorities have launched an investigation into whether a private metals trading firm, Decheng Mining, and its related companies used fake warehouse receipts at Qingdao Port to obtain multiple loans secured against a single cargo of metal. Decheng has not commented on the probe.

Trafigura, incorporated in the Netherlands, has a vast portfolio of assets from African petrol stations, Texas docks to a Brazilian port and iron ore terminal, a private equity vehicle, vast offtake deals and almost 9,000 employees across 58 countries.

Zinc premium seen to stay with rising Asia demand

Rising zinc demand in Asia is pulling supplies East, sustaining premiums paid by the region's steelmakers for the rest of the year, said Japan's top producer.

Mitsui Mining & Smelting has seen surcharges for recent spot deals near the levels in its long-term contracts, said Osamu Saito, a general manager of the company's business department. Those premiums for annual supplies rose up to 70 per cent year on year, compared with a 15 per cent gain in 2013, the company said in February.

"The current higher premiums in Asia will remain at least until the end of this year," Saito said. "Supplies in the region will continue to remain tighter."

Japan's shipments are declining because of strong demand at home and South Korea's exports are falling while China's imports are rising, he said.

Japan's exports of special higher-grade zinc used to prevent steel from rusting have dropped to the lowest since 2011 while China has been buying the metal at the quickest pace in five years. Zinc stockpiles on the London Metal Exchange have declined 29 per cent to the lowest since December 2010, with inventories in Europe falling the fastest.

The metal has risen 12 per cent this year, the second-best performer among six main metals traded on the LME.

Morgan Stanley forecast global demand will exceed supply by 300,000 tonnes next year, a third annual deficit. Cash prices will average US$2,123 a tonne this year and US$2,348 next year, the bank said in a report.

China imported 310,974 tonnes of refined zinc during the first five months of this year, up 27 per cent from the same period in 2013 and at the fastest pace for that time of year since 2009, data from the General Administration of Customs show. China, which is the biggest user of the metal, may import up to 800,000 tonnes this year, compared with about 624,000 last year, Saito said.

China has begun pulling the metal from Europe as its demand rises and supplies from the region decline. Belgium and the Netherlands, which shipped no zinc to China last year, joined Spain among the country's top 10 suppliers this year, according to Mitsui Mining & Smelting's analysis of the figures.

"We've heard that some metal was shipped to China from LME warehouses in New Orleans," Saito said.

"If it's true, stockpiles are now moving into China from the US as well as Europe and this would give strong evidence that current premiums are high enough to cover costs" to ship the metal to Asia.

Alcoa anticipates 7 pct growth in global aluminium demand

Alcoa, world’s third largest producer of aluminium forecasts a 7 pct increase in demand for the light metal globally for this year. The company predicts that there will be a supply shortfall of about 930,000 tonnes when compared to the previous year deficit of about 730,000 tonnes.

It also expects 8 to 9 pct growth in global aerospace in 2014 Q2 package, mainly due to the strong for both regional jets and large commercial aircraft. They also forecasts about 1-4 pct, 2-3 pct and 4-6 pct growth in automotive, packaging and building and construction respectively.

The company is expecting a steady growth of about 1-3 pct in transportation sector in 2011 due to the weak European market. At US$ 5.8 billion, the company’s Q2 revenues were same as to those recorded in the same period last year however were higher on a sequential basis due to the stronger volumes in the mid- and downstream, better metal prices and higher energy sales.