Global zinc deficit at 248 kt Jan-Jul 2014

The International Lead and Zinc Study Group (ILZSG) has released the preliminary data for world Zinc supply and demand during the initial seven-month period of the current year. The provisional data indicates that the global zinc production has grown by almost 2% year-on-year during January to July this year.

According to ILZSG, the world market for refined zinc was in deficit by 248 kt during the first seven months of the year. The total reported stock levels declined by 291 kt during the same period.

The higher mine output from China, Mexico and the US contributed to the 3% year-on-year growth in global Zinc mine supply. On the other hand, the mine supply from Canada, Ireland and Peru declined during the quarter.

The global refined zinc metal production has increased by 4.1% during the period. This was primarily on account of increased production in China, Italy, the Republic of Korea, Norway and Poland.

The global demand for refined zinc metal rose 7.7% during the seven-month period. The apparent usage of refined metal by China and the US increased 13.8% and 8.7% respectively. The refined zinc metal usage remained flat in the Europe.

ILZSG statistics indicate that the zinc mine production during January to July this year totaled 7,713,000 tonnes as against 7,538,000 tonnes during the same period in 2013. The global refined zinc metal production during the period totaled 7,684,000 tonnes during Jan-Jul ’14 as against 7,383,000 tonnes in 2013. The apparent zinc usage totaled 7,932,000 tonnes during the initial seven-month period in 2014, higher from 7,368,000 tonnes during corresponding period in 2013.

New 'fibre-reinforced aluminum' to generate 50% energy savings: Research

 Research conducted by the Hong Kong's University of Science and Technology is reported to have developed a new aluminum material named ‘fibre-reinforced aluminum' with augmented strength features that could possibly make it a potential replacement for steel and cement in buildings. The researchers claimed that the new material was 30% stronger than aluminum and lighter and less expensive than steel.

The new product is being made by altering the structure of carbon and aluminum materials at nano-level, allowing them to bond without using glue. A layered combination of the new product with gypsum, foam and other materials is likely to lead to 50% energy savings. The new product reduces the escape of air through gaps in the buildings which in turn may lead to less energy consumption to cool or heat rooms.

The research is being headed by Professor Ben Chan Yui-bun of the Department of Civil and Environmental Engineering. According to him, though the technology is in its early phase now, the newly developed aluminum material has immense potentials to be used in the manufacture of mobile phones, laptop casings, cars and planes, in addition to being used in building construction.

The Hong Kong's University of Science and Technology carries out the research in collaboration with Moscow State University and several other Russian universities. It is being funded by the world's largest aluminum company, UC Rusal.

HSBC raises copper price forecast, sees rosy long-term outlook for the red metal

In its latest published report, HSBC has raised the copper price forecast from the earlier $2.95 per lb to $3.20 per lb. The report states that copper’s long term prospects look extremely bullish.

Global Head of Metals & Mining Equity Research Andrew Keen notes that the supply will outpace copper demand in 2015, but things are likely to change from 2016 onwards. The global copper market will most likely turn deficit starting 2016 onwards. The bank predicts a cyclical peak for the red metal in 2017. The prices may surge as high as $3.90 per lb in 2017.

The supply of copper from Chinese domestic mines will remain subdued. The report cites that China accounts for nearly 44% of the global copper demand, but the contribution of domestic mines in the country is only 9% of the global supply. The country faces severe shortage of quality copper reserves. The huge imbalance between supply and demand in China will impact the copper prices hugely. This will also trigger copper mine investments in the country.

Meanwhile, the 3-month price of copper rose 0.5 percent on the LME to $6,835 per metric ton, snapping its two day fall. The cash price of primary copper too increased by 0.4 percent on the LME to $6,856 per metric ton.

Fed wipes out 2014 gold price gains

On Thursday the price of gold reacted negatively after a US Federal Reserve policy meeting left the central bank's stance on raising interest rates intact, boosting the dollar.

In late afternoon after-hours trade on the Comex division of the New York Mercantile Exchange gold for December delivery was changing hands for $1,218.20 an ounce, down $17.70 or 1.4% from yesterday's close and the lowest for 2014.

After closing 2013 at $1,205 the price of gold jumped out of the starting gate, rising consistently to reach a high of $1,380 in March. But the subsequent retreat accelerated during the third quarter with a loss of 5% so far in September.

Chairman Janet Yellen made no change to the Fed's guidance that interest rates would be kept low for a "considerable time" after the economic stimulus program in the form of quantitative easing winds down in October.

The statement notes an unemployment rate that is "little changed" and inflation "running below [the] longer-run objective", suggesting Yellen is prioritizing policy support over the concerns of dissenting officials who worry that interest rates may need to rise earlier than previously flagged mid-2015.

The dollar hit a six-year high against the yen and surged against the currencies of its largest trading partners to levels last seen in 2010

While the language was little changed, the Fed expects that short-term interest rates will be back to normal levels of around 3.75% by the end of 2017.
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Higher interest rates and bond yields raise the opportunity costs of holding gold because the metal is not income producing.

Higher rates also boost the value of the dollar which usually move in the opposite direction of the gold price. The dollar hit a six-year high against the yen on Wednesday while against a basket of the currencies of the US largest trading partners, the greenback surged to levels last seen early 2010.

Even with the dramatic sell-off on precious metals markets last year and 2014's false start, an ounce of gold is still worth nearly 50% more than before the US central bank embarked on its stimulus program.

The first quantitative easing program which floods markets with easy money was announced by previous Fed chairman Ben Bernanke in December 2008 when an ounce of gold cost $837.50.

The QE program together with other stimulus measures saw the balance sheet of the Fed cross the $4 trillion mark in January, up 400% in seven years.

Gold's perceived status as a hedge against inflation is also burnished when central banks flood markets with easy money.

With support from ultra-loose monetary policy in the US no longer providing support, other factors could work in gold's favour for the remainder of the year.

Positives include the possibility of a sharp correction in US equities, better than expected buying in top consumer India ahead of the traditional gold-buying festival and wedding season, and a return of safe haven buying if the situation in Syria and Iraq deteriorates further and the ceasefire in Ukraine unravels completely.

Markets React Violently To China's Stealth QE

From copper to high-yield credit and from stocks to bonds and gold, markets are reacting violently to the headlines from China that they are unleashing another 500bn Yuan "stealth QE"... everything is rallying.. except the USD (biggest drop since May).

US markets...

FX... USD's biggest drop since May!

with AUD and EUR bearing the USD weakness brunt...

Commodities are all surging...

Copper surges and halted...

Aluminium on the rise, again

Metal supply seen in deficit as global economy paces up

The ultimate result of the 2008 global financial crisis was the end of the multi-year long commodity super cycle in base metals. Since then, most of the ferrous and non-ferrous metals have been largely in the bearish territory on concerns over the slow pace of economic activity that reduced the demand of metals. Aluminium has been the worst-performing non-ferrous metal, though it is one of the prerequisites of industrialisation of a country. However, the recent price actions in the commodity reflect a recovery amid reports of strong economic activity from the major consuming countries, coupled with supply uncertainties.

Price moves

During mid-2008, aluminium prices on the London Metal Exchange was around $3,375 a tonne but later they plummeted to $1,275 by March-end 2009, dropping over 65 per cent due to worries over global economic slowdown. Sentiments in the domestic bourses were also not different, but a weak currency provided some support.

Strong physical demand

Higher usage from industries such as automobile, construction, transportation, aviation and packaging sectors turned the physical market deficit. Automobile manufacturers are seen shifting to aluminium instead of steel to trim down the vehicle weight and thereby, reduce emissions in consequence of strict rules of the European Union and the US.

Low output from China and other producing nations together with a lag in getting the metal released from LME warehouses have also created tightness in physical market.

Increased surcharges and tightened LME rules for releasing materials from warehouses resulted in slowing down the delivery of the commodity. However, global demand exceeds supply with production of primary aluminium in the second quarter of 2014 pegged at 13.284 million tonnes (mt) against a demand of 13.753 mt.

Cut in production

Reportedly, China has de-commissioned several high-cost and polluting smelters with a production capacity of around two tonnes. Due to the scarcity of raw-material, Chinese imports of alumina, a material derived from bauxite to produce aluminium, increased significantly during the first half of the year. China had earlier increased its aluminium smelting capacity regardless of its mounting dependence on imported raw materials from other countries such as Indonesia and Australia. Besides China, Australia has permanently shut a 190,000-tonne smelter recently. Lower global prices and increased cost of power and labour urged many producers to reduce their production. However, supply-demand imbalances outside China alone are around one mt.

Earlier, an export ban of unprocessed mineral ores from Indonesia lifted prices. Worries over supply shortage resulted in a record high premium around $400/tonne in securing the commodity physically.

Buyers from Japan, one of the top consumers in Asia, quoted record prices for the metal as producers cut output and demand escalated. Positive global economic releases and renewed push into the infrastructure construction from China has made investors optimistic over the commodity. Smelters are refraining from adding capacity currently. Since $2,500 a tonne is required to incentivise the smelters, companies will not be in a hurry to restart the closed smelters. Also, the consensus is that the commodity will remain in deficit in the next year will lift the sentiments.

LME inventories

LME stocks have increased over the last couple of years. During mid-2008, LME warehouse stocks were around one mt but it had constantly increased testing a record 5.49 mt in early 2014. The sharp rises in inventories were due to feeble physical demand from China, world’s top consumer, and other developing nations. However, stockpiles have slumped over 15 per cent in the first half of the year to the lowest level seen since December 2011 on increased prospects of global economic recovery and concerns that the demand will outpace production.

The positive economic activity around the globe will support the commodity. Upbeat manufacturing data from the top consumer China and bullish economic activities from the US would be the trend setting factors for the commodity in the near future.

However the global benchmark, LME prices are unlikely to move past $2,500-2,600 a tonne in the immediate run due to a strong dollar whereas in the domestic market, feeble currency possibly obstructs major declines.

Coal Stock Postion @ Various Thermal Power Stations In India