Global copper market in deficit in 2014 for 5th year in row -ICSG

The global copper market will be in deficit for a fifth straight year in 2014 before switching to a surplus of about 390,000 tonnes next year, an industry group said on Tuesday.

The International Copper Study Group forecast a deficit of 270,000 tonnes this year as operational failures combined with delays in the start-up of new mines will lead to lower-than-anticipated production growth.

The latest estimate is a reversal of the ICSG's previous forecast in April that production would outpace demand by about 400,000 tonnes as demand would lag output growth.

At that time, it predicted a surplus as big as 595,000 tonnes due to increases in output mainly in Asia and Africa.

Click here for the ICSG statement: ((http://bit.ly/1w6vepo))

Investors sold heavily into gold, silver price rally

On Tuesday gold futures managed to consolidate recent gains despite a strong dollar and a sharp drop in the price of crude oil.

In late afternoon trade on the Comex division of the New York Mercantile Exchange gold for December delivery was changing hands for $1,232.70 an ounce, as it continues to recover from nine-month lows sub-$1,200 hit earlier in the month.

Despite the strong bounce of the bottom, sentiment on the precious metals markets remains negative with both large investors and retail buyers using the 3.3% rally as an opportunity to exit the market.

The third quarter was the sixth quarter in a row holdings in global exchange traded funds backed by physical gold were reduced and September was the worst month for ETF funds since December 2013.

The selling continued into October. Last week 16.2 tonnes flowed from gold-backed funds, dropping total holdings to 1,662.3 tonnes, following a 10 tonne reduction in the week to October 3.

Last week silver funds lost just under 205 tonnes, the worst performance since May 2013

Overall gold bullion holdings are now at five year lows and a whopping 970 tonnes below the record 2,632 tonnes or 93 million ounces reached in December 2012.

Despite an even worse price performance, with the metal falling to four-year lows of $17.27 an ounce last week,

Retail investors in silver continued to pump money into silver-backed ETFs at the start of October pushing holdings to a record 20,182 tonnes, but silver's good week bouncing of four-year lows convinced some to reduce exposure to the metal.

Last week silver funds lost just under 205 tonnes, the worst performance since May 2013 and dropping total holdings to 20,136 tonnes.

Like ETF investors, speculators in gold and silver futures and options turned more bearish last week.

Bullish bets on gold – net long positions held by large investors like hedge funds – were reduced slightly in the week to October 7 according to Commodity Futures Trading Commission data

It was the eight week in a row hedge funds reduced their bullish positioning and is now at the lowest point this year.

On a net basis hedge funds hold 37,275 gold lots or 3.7 million ounces, a more than 10 million ounces cut from the the year high of 144,272 lots.

Silver price speculators moved further into a net short position, marking a dramatic reversal in sentiment towards silver by large investors or so-called managed money, falling to a 7,071 net short position from record longs of 46,795 or 240 million ounces only a three months ago.

Crude Crashing: Brent Is Most. Oversold. EVER

Yesterday we lamented the ridiculously oversold levels in West Texas Intermediate, which as BofA calculated, has hit "oversold" levels for only the third time in six years. We assumed that this could be the basis for a short-term rebound. We were wrong, because we clearly had no idea just how determined the Saudis are to crush Putin into the ground courtesy of plunging oil prices.

As of moments ago, WTI has tumbled nearly $4, some 5%, to just over $81...

... which just goes to show how idiotic any reliance on charts is in a centrally-planned world, in which commodities are nothing but political weapons. Bottom line: based on its weekly RSI chart, WTI has just hit the most oversold levels since Lehman.

But to our rather great dismay, what is gong on with Brent turned out to be far worse, and as the weekly RSI indicator shows the selloff in Brent is now the worst, well, ever!

5 Reasons Oil Prices Are Dropping

As oil prices continue to fall, analysts and producers are trying to wrap their heads around the reasons and identify a floor price. Even though crude benchmarks like Brent and WTI keep dropping, the cost of finding oil continues to rise. What are some of the key drivers that have created this paradox?

1. The U.S. Oil Boom
America’s oil boom is well documented. Shale oil production has grown by roughly 4 million barrels per day (mbpd) since 2008. Imports from OPEC have been cut in half and for the first time in 30 years, the U.S. has stopped importing crude from Nigeria.

2. Libya is Back
Because of internal strife, analysts have until recently assumed that Libya’s output would hover around 150,000-250,000 thousand barrels per day. It turns out that Libya has sorted out their disruptions much quicker than anticipated, producing 810,000 barrels per day in September. Libyan officials told the Wall Street Journal last week that they expect to produce a million barrels per day by the end of the month and 1.2 million barrels a day by early next year.

3. OPEC Infighting
There have been numerous reports about the discord between OPEC members, leading many to believe that OPEC will not be able to reign in production like it has done so in the past. The Saudis and Kuwaitis have reportedly been in an oil price war, repeatedly lowering their prices in order to maintain their market share in Asia. John Kingston, the news director at Platts, believes that the Saudis will not be willing to give up market share like they have done during previous price drops.

4. Negative European Economic Outlook
European Central Bank president Mario Draghi has left investors concerned about the continent’s slow growth. Germany’s exports were down 5.8 percent in August, stoking the fears of anxious investors that the EU’s largest economy had double dipped into recession last quarter. Across the Eurozone, the IMF again lowered its growth forecast to 0.8 percent in 2014 and 1.3 percent in 2015.

5. Tepid Asian Demand
Beyond slow economic growth and currency depreciation, a number of Asian countries have begun cutting energy subsidies, resulting in higher fuel costs despite a drop in global oil prices. In 2012, Asia’s top spenders on energy subsidies, as a percentage of GDP included: Indonesia 3 percent; Thailand 2.6 percent; Vietnam 2.5 percent, Malaysia 2.3 percent, and India 2.3 percent. India is a primary example. Between 2008-2012, India’s diesel demand grew between 6 percent and 11 percent annually. In January 2013, the country started cutting the subsidies of diesel. Since then, diesel consumption has plateaued.

If The Oil Plunge Continues, "Now May Be A Time To Panic" For US Shale Companies

Over the past 5 years, the shale industry, fabricated or real reserves notwithstanding, has been a significant boon to the US economy for four main reasons: it has been the target of billions in fixed investment and CapEx spending, it has resulted in tens of thousands of high-paying jobs, its output has been a major tailwind for the US trade deficit, and has generally been a significant contributor to GDP (not to mention various Buffett-controlled or otherwise railway corporations). And perhaps, most importantly, it has become a huge buffer to the price of global oil, as the cost curve of US shale is horizontal, with a massive 10,000 kbls/day available within pennies of $85/bl.

Goldman's explanation:

We believe that the vast reserves that have been opened for development through shale oil in the US have flattened the cost curve meaningfully, at around a US$85/bl Brent oil price. We estimate shale reserves from the top three fields in the US onshore (the Permian, Bakken and Eagle Ford) at around 91bn boe, which to put it in context, is equivalent to roughly one third of Saudi Arabia’s current stated reserves (ZH: this number may be vastly overstated). Most of this resource has become available in the past five years, with few barriers to exploiting the reserves. Production in the US as a result is growing strongly, by more than 1mbpd currently, and we expect this pace of growth to continue over the coming three years as capital continues to be drawn in to these developments. The consequence is that costs of production and E&P capex/bl should stabilise as the marginal cost of production remains stable. We believe that shale oil has become effectively the marginal source of supply, providing the bulk of non- OPEC production growth. This is also the key driver of our oil price view: we continue to expect Brent oil to stay at c.US$100/bl for the coming few years.

For once, Goldman is spot on (even if their Brent price target may be a bit off): with shale oil profitable only above its virtually horizontal cost curve, it means that a whopping 11,000 kbls/day are available as long as Brent is above $85, a clear "red line" for all OPEC producers.

The red line is conveniently shown on the chart below:

Furthermore, in the following chart, it is clear how lower rates of Fed-sponsored cheap-funding have enabled more and more mal-invested wells to drilled chasing 'only-increasing' shale oil... if rates rise (high-yield credit spreads broke 400bps today - the highest in 13 months) then the breakevens become even more expensive and that cost curve even more compromising to the marginal producer...

However, should the price drop below $85, and very bad things start to happen, not the least of which is what we warned about in May that "Shale Boom Goes Bust As Costs Soar." That was when Brent was $110. It is now at $85 and sliding lower.

As a further reminder, we noted two days ago that shale is now in a bear market:

But that is nothing compared to the no bid market the (very, very levered) shale companies will find themselves in if and when, for whatever reason, Brent drops below $85 to a price where only Qatar is profitable on the global Brent cost curve.

So while we understand if Saudi Arabia is employing a dumping strategy to punish the Kremlin as per the "deal" with Obama's White House, very soon there will be a very vocal, very insolvent and very domestic shale community demanding answers from the Obama administration, as once again the "costs" meant to punish Russia end up crippling the only truly viable industry under the current presidency.

As a reminder, the last time Obama threatened Russia with "costs", he sent Europe into a triple-dip recession.

It would truly be the crowning achievement of Obama's career if, amazingly, he manages to bankrupt the US shale "miracle" next.

S&P to find short term support at 1830 - 1840

Alcoa’s results rally domestic aluminum producers

 According to the announcements, which were made last week, National aluminum and also Hindalco industries, improved to a higher extend, after the rise in Alcoa, exciting the investors.

The most  important reason  behind such a sudden improvement is realizations. The realization of Alcoa, that the price of aluminum rose in the month of June, with a 10.8 percent increase due to the rise in the price of aluminum in the London Metal Exchange, and due to the hike in the region. These are the premiums which are paid by the customers in order to have the metal delivered faster.

Along with happy moments, the rise promoted by Alcoa, there is also Cautionary note tagged along. For one whole year, the company has maintained its aluminum protection demand at about 7 percent. So this force one to think that, if china who contributes about 48 percent of the consumption, decides to decline its rate of consumption as a part of the country’s creeping economy rate.

From this realization another risk is also developing, that as the price rises, the closed smerlter4s which had to halt due to the lowering value of the metal would suddenly start reappearing. The report states that, this procedure has already started taking its turn in China.