Gold, knocked lower by strong U.S. jobs data

* U.S. nonfarm payrolls increase 257,000 in January

* Dollar boosted by higher U.S. Treasury yields

* China 2014 gold consumption fell by a quarter 

(Reuters) - Gold fell more than 2 percent on Friday as global stock markets and the dollar rose on stronger-than-expected U.S. jobs data, raising expectations that the Federal Reserve will increase interest rates by midyear.

U.S. nonfarm payrolls increased by 257,000 last month, topping expectations for 234,000, with the unemployment rate ticking up to 5.7 percent due to more people entering the labor force.

"The U.S. employment report was good and there has been quite a sharp adjustment in interest rates expectations, with 10-year Treasury yields up 10 basis points," ABN Amro analyst Georgette Boele said.

"I expect lower precious metals prices for the next six months up to the moment the U.S. really starts hiking interest rates."

Spot gold dropped to a three-week low of $1,228.25 an ounce earlier and was down 2.4 percent at $1,234.70 an ounce by 2:02 p.m. EST (1902 GMT), its biggest fall since Dec. 15. It has lost 3.8 percent so far this week, which would be its largest fall since the week ended Oct. 31. 

U.S. gold for April delivery fell 2.2 percent to settle at $1,234.60 an ounce.

"If nothing else changes, earlier hikes in interest rates by the U.S. central bank would be likely to undermine the prices of precious metals, notably gold and silver," Capital Economics said in a note.

"If Fed tightening is gradual and interest rates remain low by past standards, as we expect, there would be plenty of scope for other, more positive factors to dominate."

The dollar rose 1.2 percent against a basket of leading currencies, helped by a rise in the benchmark 10-year U.S. Treasury yield to more than 1.9 percent. Wall Street rose and European equities hit a seven-year high.

"The negative pulls for gold are the elevated speculative positions, hawkish Fed and stronger dollar, while the lowering of the reserve requirements in China, negative yields in most European countries and uncertainty in Greece lend support," Saxo Bank senior manager Ole Hansen said.

Elsewhere, holdings at SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose on Thursday to 24.86 million ounces, the highest since September.

China's gold consumption fell 24.7 percent to 886 tonnes last year even as output from the world's top consumer climbed 5.5 percent, the China Gold Association said.

Spot silver slid 3.7 percent to $16.62 an ounce. Platinum was down 2.6 percent at $1,218.

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Sumitomo sees Japan's aluminium premiums staying around $ 425 in 2015

(Reuters) - Japan's aluminium premiums are likely to stay at a record high level of $425 per tonne throughout this year, supported by higher U.S. spot premiums and tight global supply, outside of China, Japanese trading house Sumitomo Corp said.

 

Japan is Asia's top aluminium importer and the premiums for primary metal shipments it agrees to pay each quarter over the London Metal Exchange (LME) cash price set the benchmark for the region.

 

"I don't think Japan's premiums will fall sharply this year as U.S. premiums are about $100 above Japan's level and global supply excluding China is fairly tight," Shingi Yamagiwa, manager of Sumitomo's light metals trading team, told Reuters in an interview on Thursday.

 

Japanese premiums have risen for five quarters, hitting a record high of $425 per tonne for January-March deliveries, but that was only slightly higher than the previous quarter as the physical market cooled. 

 

The latest quarterly negotiations on premiums dragged on for longer than usual as Japanese buyers resisted paying more, given record stockpiles of metal in December. 

 

"But the inventories will likely drop toward March as Japanese companies want to cut inventories ahead of the end of their business year and Japanese buyers, including us, have reduced delivery volume for this quarter," Yamagiwa said.

 

He did not say how much volume it has cut for the quarter.

 

U.S. premiums, now about $530 per tonne, are expected to gradually decline as some producers had shifted supplies from Asia to North America this quarter, he added.

 

"China will be a wild card," he said. "If China steps up its export of aluminium products or even aluminium ingots, that will change the whole picture and drive down the premiums."

 

China's exports of semi-finished products climbed 9.8 percent last year to 2.52 million tonnes, easing supply in Asia.

 

Sumitomo predicts Japan's premiums will slip to $400 per tonne in 2016 and $370 in 2017.

 

The trading house, which owns 20 percent stakes in Malaysia's two aluminium smelters, expects the global aluminium market, including China, to be roughly in balance in 2015 and 2016, with demand and supply both growing at a pace of around 6 percent each year.

 

"We had expected China's output to slow down in 2014-16 following government policy, but it looks like it won't happen until 2016-18, about a two-year delay," Yamagiwa said.

 

"LME aluminium prices will stay in a range of $1,700-1,900 for the first half and gradually move higher to a range of $1,900-2,100 later this year," he said.

 

LME aluminium has gained 1 percent so far this year and was trading around $1,866 a tonne on Thursday.

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China to cut RRR by 50 basis points

 China's central bank on Wednesday decided to lower the reserve requirement ratio (RRR), the minimum level of reserve banks must hold, by 50 basis points from Feb. 5.

The People's Bank of China (PBOC) also increased support to some target areas, cutting the RRR by an extra 50 basis points for certain commercial banks engaged in proportionate lending to small firms, the farming sector and major water projects, said the central bank's statement.

The Agricultural Development Bank of China, the sole policy lender for agriculture, gets an RRR reduction of 4 percentage points.

Currently, big banks must hold 20 percent of their deposits in reserve, while the ratio for small and medium-sized banks is 16.5 percent.

The move came days after the purchasing managers' index, a main gauge of manufacturing activity, fell below the 50-point mark for the first time since October 2012, a sign of a weakening economy. The world's second largest economy grew at the slowest rate for 24 years in 2014.

The PBOC said that it would "continue a prudent monetary policy, striking a balance between being tight and loose, guiding monetary credit and private financing to grow steadily and moderately, promoting a healthy and steady economy."

The central bank cut benchmark interest rates for the first time in more than two years in November 2014. 

Rusal's aluminum production hits record low in 2014

The Russian aluminum major-Rusal's aluminum output during the entire year 2014 dropped significantly by over 7% in 2014 to touch the lowest levels since the company's merger with Sual in 2007. Rusal's aluminum production during 2014 totaled 3.6 million mt.

However, the Rusal management stated that it has met its production guidance for the year 2014. The company had put strict controls on aluminum production and had shifted focus to value added products in 2014. Value added products including billets, slabs, wire rod, foundry alloys and high purity aluminum accounted for nearly 45% of the total production. Rusal had idled seven smelters during the year in an attempt to improve the global demand-supply situation.

The company further stated that the cautioned approach will continue in 2015 as well. Rusal's production guidance for the year 2015 stood at 3.6 million mt, unchanged from 2014. This constitutes 80% of the company's total production capacity of 4.5 million tons per year. Also, it also has no plans whatsoever to resume production any time soon at the idled facilities.

According to Rusal, the average aluminum sale price has increased by 3% from $2,150 per mt in 2013 to $2,219 per mt in 2014. The country's alumina production has dropped marginally by 1% to 7.2 million mt in 2014. On the other hand, bauxite production during the year was up 2% year-on-year to 12.1 million mt in 2014.

Rusal forecasts 6.5% growth in global aluminum demand during 2015. The markets excluding China are most likely to encounter sharp deficit in supply during the year, it stated.

Nickel to see first deficit in 5 years: Sumitomo

The Japanese Nickel mining major- Sumitomo Metal Mining Co. has predicted that Nickel will end in deficit during 2015, the first time in five years. The demand for the metal will outpace production by 12,000 metric tons during the year. The company predicts notable decline in supply from China. The global output of Nickel had ended in surplus of 36,000 mt during last year.

According to Hiroshi Sueta, General Manager, Sales and Raw materials Department, the ore stockpiles in China are most likely to get exhausted by mid-2015. The Chinese Nickel Pig Iron (NPI) output is likely to decline 15% year –on-year to 365,000 tons in 2015. The Chinese NPI production had dropped 4.4% in 2014. After Indonesia imposed ban on exports of processed ore, China had boosted imports from Philippines. In order to meet the excessive demand, the country also had destocked ore inventories in large quantities.

Sumitomo further anticipates the global nickel demand growth to slow down to 4% in 2015 from 7.4% in 2014. The sharp fall in oil prices have reduced the intake of the metal by energy producers for use in pipes and tanks. Meantime, the global nickel output is forecast to increase by 1.5% during 2015 to 1.99 million tons.

Meantime, LME Nickel for delivery in three months jumped higher by 1.8% to $15,165 per ton on Jan 30th.