Aluminium Production Shows Slight Decline, Still Close To All Time Highs: IAI

International Aluminium Institute (IAI) stated that world aluminium market has showed again a slight decline in production. But, rising demand for aluminium made some relief in the month of June and that was close to all time highs.

IAI data showed that the production of primary aluminium in the month of June 2014 was about 4.303 million tonnes and that of May was about 4.331 million tonnes. Even though, it reported a slight decline, when calculating on year-on-year basis production figures have some improvements. It says that the aluminium production increased 1.8 pct on YoY basis in the month of June.

In the month of March, the aluminium production figure was at record highs of about 4.406 million tonnes. June month production has gained by 1.8 pct of last year figure 4.224 million tonnes. China is the main contributor in world aluminium production by producing a total of 1.95 million tonnes in June. In China May month production was around 1.898 million tonnes.

This implies that the China shares 45.31 pct in the world aluminium production. On YoY, production in China has increased by 6 pct, when compared to 1.84 million tonnes produced in June 2013. The unreported Chinese aluminium production is estimated about 250000 tonnes.

In the month of June 2014, production in Asian countries including China was about 193000 tonnes, when compared to 203000 tonnes produced in May 2014. IAI also noted that the production in the GCC region has also reported an appreciation. The net aluminium production in GCC in June was about 412000 tonnes, increased by 26 pct from 327000 tonnes in June 2013. 

Russia scraps nickel, copper export duties ahead of schedule

The Russian government said it would cancel export duties for nickel and copper ahead of schedule, as expected, signalling support for a project by Norilsk Nickel , the world's largest nickel producer.

Prices of nickel, used in making stainless steel, have gained 38 percent this year after top exporter Indonesia in January banned shipments of unprocessed ore, leading to fears that shortages would develop.

Russia's decision on Thursday to cut duties to zero from the current 3.75 percent for unalloyed nickel and 10 percent for copper cathodes will come into affect in 30 days after its official publication, which is expected in a few days.

The cut to zero was originally slated for 2016.

Norilsk, which is partially owned by Russian tycoon Vladimir Potanin and aluminium giant Rusal said in May it expected the duties to be cancelled early, which would provide the company an additional roughly 11 billion roubles ($315 million).

Norilsk will use the additional funds to shut down its 72-year-old nickel plant in the town of Norilsk. The shutdown will not affect its production plans. 

The decision to cut duties will add between $120 million and $140 million to Norilsk's 2014 core earnings (EBITDA), currently estimated at $5 billion, analysts at Otkritie Capital said in a note on Thursday.

($1 = 34.9550 Russian Roubles)

China Surprisingly Strong PMI to Push Up Shanghai Metal Prices

 Shanghai metals price is expected to lurch higher today following the surprisingly high HSBC PMI reading for July, Shanghai Metals Market foresees. 

The HSBC flash China manufacturing PMI rose to 52 in July, an 18-month high, well above market expectations. The result helped copper , being refrained from rising, lead the gain among base metals. The bullish sentiment in zinc and aluminum market should remain unchanged.  

The followings are SMM price estimations for base metals on July 25. (unit: yuan per tonne)

 

Copper: 50,500 -51,000 

Aluminum: 14,030 -14,130   

Zinc: 17050-17150

Lead: 14,300-14,400  

Nickel: 130,000-132,000 (spot)

Tin: 139,500-140,500 (spot)   

Will Aluminium continue its rising trend?

The aluminum market is now in the spot light, with both LME and SHFE aluminum surging recently. The question is will the rising trend continue?

On July 22, Shanghai Metals Market publishes an article analyzing the reason behind the gain. In recent two days, the light metal saw the rising momentum easing with profit-taking at highs, but positions remain, leaving further price increases possible.

On July 24, SHFE three-month aluminum prices are expected to test support at 14,000 yuan per tonne, with prices moving between 14,030-14,130 yuan per tonne, SMM foresees. In China’s physical market, price declines will be limited as SHFE current-month aluminum prices stay firm, with spot discounts expected between 60-20 yuan per tonne.

The followings are aluminum price estimates by major market participants.

HSBC's view on Aluminum
HSBC expects 2014’s average aluminum price at $1,875 per tonne, and raises the 2015’s average to $2,065 per tonne.

Sucden's view on Aluminum
Sucden estimates aluminum price to hit $2,050 per tonne in 3Q.

Norsk Hydro's view on Aluminum
Aluminum prices are expected to rise, Norsk Hydro foresees, adding global aluminum demand will increase by 2-4% outside China.

CNIA's view on Aluminum
Production in Chinese aluminum smelting industry will remain low, while conditions in the aluminum fabrication sector are expected to outperform that in aluminum smelters during the rest of the year, China Non-ferrous Metals Industry Association (CNIA) predicts.

Freeport to soon restart exports from Indonesia as gov’t offers tax cuts

After over six-month of heated debate over restrictions on mineral exports imposed by Indonesia in January, the newly elected government is offering mining companies in some tax cuts ton settle the dispute.

Joko Widodo, who was elected President this week, vowed during his campaign to solve the long-dragged row that has already taken a significant toll on the government mining revenues.

According to Reuters, US miner Freeport-McMoRan Copper & Gold (NYSE:FCX) will be the first to take advantage of the deal, resuming soon concentrate — semi-processed raw material — shipments from its massive Grasberg mine, the world's No.3 copper operation.

Fellow US-based miner Newmont (NYSE:NEM) hasn’t been as lucky. The company has cut several thousand jobs on a poor, remote island, declared force majeure, and is paying more than $20 million a month to maintain its Batu Hijau copper and gold closed mine. All this while the government gets no revenue and is embarrassed by an international lawsuit filed by the Colorado-based firm earlier this month.The company has been able to run it at about half of normal rates this year as it sends some copper concentrate to a domestic smelter it helped build in the 1990s.

Indonesia introduced restrictions on export of unprocessed minerals in a bid to increase local processing in Southeast Asia's largest economy.

This week the country allowed two miners to resume exporting iron ore, lead and zinc concentrates. Copper shipments, however, remain stranded.

US Major Miners Step Forward To Resume the Copper Exports

Two major copper miners of Indonesia said that they were stepping forward to restart the exports of concentrates, which have been banned for more than six months due to the disputes relating new rules.

Due to the export ban, about $200 million per month in copper exports has been halted. Freeport-McMoRan Inc said during Wednesday that it would sign an agreement with Indonesia very soon to restart the copper concentrate export. Newmont Mining corp. also commented that it was in talks for a MoU to restart the delayed shipments.

Freeport on July 8 said that they had also agreed on a MoU with the government of Indonesia but it had not inked it yet. The company did not give the exact time on when they would restart the export.

Chief Executive Richard Adkerson of Freeport said that it was a compromise to form a bridge for them so that they could return to the normal operations. Adkerson said that under the MoU, the company would pay a reduced export duty in 2014, 2015 and 2016 but higher royalties on gold and copper sales.

He added that in terms of MoU, the company would pay a $115 million assurance bond against smelter development. Freeport, which owns the massive Grasberg mine, requires financial aids from the government to construct their own smelter.

Indonesia has imposed an export halt in January due to the disputes relating the new rule that the miners should construct their own smelters in the country. But the miners opposed by saying that building new capacity would not make any economic sense.

Adkerson said that the discussions with the government also involved the agreement to extend the company’s operations beyond 2021, when the present contract expires. As on the new decision, copper on LME was trading flat at $7,043.75 per tonne in early Asian trade.

At the time of trading halt, Newmont has shut down its mining operation at Batu Hijau and filed for an international arbitration. The US major miners contribute about 97 percent of Indonesia’s copper production.

Newmont spokesman Omar Jabara also said that they will also do an agreement with the Indonesian government for issuing the export permit. Widodo, Indonesia’s president-elect said that he was also planning to negotiations with the miners to resolve all the disputes.

An Annotated History of World Oil Price Shocks

A sharp increase in Middle East geopolitical tensions, first with the resurgence of a radical al-Qaeda affiliate – now called the Islamic State – making substantial territorial gains in major oil producer Iraq, and more recently with an escalating military conflict between Israel and Hamas, has barely caused a blip in global markets and even in oil prices despite the fact that oil supply today is tight. At the same time, the conflict between Ukraine and Russia – the largest oil producer globally – has reached a more dangerous level, also with little oil price response. Indeed, it is difficult to identify another point in recent history when the Middel East – for all its troubles – was in such a precarious state; yet, as Goldman, rather rhetorically asks, this raises the question of whether the markets are being too dismissive about the recent turn of events.

150 years of oil price shocks...

and a close-up on the chaos of the last 8 months...

Perhaps the following from Goldman best sums up the situation...

At what point does the US panic?

Meghan O’Sullivan: The US should have already panicked.

Major American economic and political interests are at stake. The erasure of the Syria-Iraq border by a group that is considered too radical for al-Qaeda, the takeover of Iraq’s second largest city by IS, the kidnapping of international diplomats, and the declaration of an Islamic caliphate in large parts of Iraq and Syria – each one of these should be a major signal about the gravity of the situation.

Source: Goldman Sachs