Zinc, nickel Scotiabank’s top picks for investors

“Base metals were a ‘bright’ spot in 2014—largely ignored by equity markets and are among our ‘picks’ for investors in 2015,” observed Scotiabank economist Patricia Mohr in the latest edition of the Scotiabank Commodity Price Index published Thursday.

“LME nickel and zinc ranked No. 3 and 5 within the ‘Top Five’ best-performing commodities of 2014,” she said, “with price gains of 19.8% and 11.6% respectively in the year through December 15, 2014.”

“However, a focus by investors on copper, widely expected to edge down in 2015 alongside ongoing mine expansion, seems to have taken the shine away from these metals in the equity markets,” Mohr suggested.

Meanwhile spot uranium prices bottomed in June, she noted, “given Japanese approval of two nuclear reactor restarts, posting a 7.2% y/y gain. …After a recent election win, Japan’s Prime Minister is expected to push for additional reactor restarts to boost a sagging Japanese economy.”

“The base term, contract price for uranium has increased from US$45 to US$49, a positive sign for a gradual recovery in coming years,” Mohr advised. “Cameco’s Cigar Lake mine in Saskatchewan continues to ramp up towards 18 million pounds by 2018.”

“To build shareholder value in a lackluster economy, mining companies will focus on ‘divesting non-core assets’ and ‘spinning-off undervalued operations’ (e.g. Sudbury nickel),” Mohr predicted.

‘Picks’ for 2015

Mohr forecasts average prices of $1,267/oz gold, $1.25/lb zinc, $9/lb nickel, $3/lb copper, and $42/lb uranium in 2015.

Zinc and nickel are Mohr’s top picks for investors in 2015.

In her analysis, Mohr said zinc prices strengthened in the second half of this year, averaging US$1.03/lb, “with investors and commodity funds expecting zinc concentrates to move into a supply-side deficit by 2016 alongside significant depletion. Century—the world’s third-biggest zinc mine—is expected to close in 2015:Q3 and Lisheen in Eire by late 2015 or early 2016.”

“Prices remain resilient at US$0.96 in mid-December (9 US cents higher than a year ago), despite further signs that China’s economy is slowing,” she noted.

“In the first sign of a response by mining companies to the coming shortfall in zinc, Vedanta has announced its intention to proceed with developing the Gamsberg zinc mine in South Africa (250,000 t/a by 2018),” observed Mohr. “We expect interest in ‘junior mining projects’ in zinc to intensify within several years.”

“Nickel prices should also outperform in 2015, benefitting the Sudbury Basin, Thompson Manitoba, northern Quebec (Raglan) and Labrador (Voisey’s Bay),” Mohr advised. “Prices will climb from this year’s US$7.67 average to at least US$9.00 in 2015 (+17.3%) and US$11.50 per pound in 2016.”

“This largely reflects the impact of Indonesia’s ban on the export of all ‘unprocessed’ nickel-containing ore on January 12, 2014, in a bid to encourage foreign buyers to update ore in Indonesia,” she said.

‘Nickel prices are expected to soar once NPI (Nickel Pig Iron) plants in China have used up their inventory on hand—forcing Chinese stainless steel producers to turn to more costly imports of FeNi and nickel cathode,” Mohr predicted.

“The global supply & demand balance for nickel is expected to turn from ‘surplus’ to ‘deficit’ by 2015:Q2, even assuming a slower pace of stainless steel production gains in China (5.5% in 2015, after a 10% gain in 2014),” she suggested.

Meanwhile, palladium was the strongest of the precious metals in 2014 with a 12.2% y/y gain as strong demand for catalytic converters for small-engine gasoline-drive cars and supply constraints boosted prices, Mohr noted.

Nevertheless, the Scotiabank Commodity Price Metal & Mineral Index posted the worst year-over-year decline of any sub-component in 2014 with the decline centered in ferrous metals, especially iron ore and coal, she advised.

What are the factors behind sharp rise in LME Nickel inventories?

Inventories in the LME nickel have kept growing, climbing above 400,000 tons recently. 

The launch of a probe into financial irregularities at China’s Port of Qingdao in June brought nickel inventories at Asia-registered LME warehouses up 94,000 tonnes during June-November, 3-fold higher than the growth of 29,000 tons during January-May, according to SMM data.

Hence, the impact from Qingdao’s metal fraud is believed to be one of major reasons behind high LME nickel inventories, prompting a shift from China’s bonded zones to LME Asian warehouses.

Nickel inventories also grew at LME European warehouses, meanwhile. From June to November, stocks added 27,000 tonnes, compared with a drop of 5,000 tonnes from January to May.

This suggests that waning global consumption, resulting from concurrent economic weakness, is also blamed for continuous increases in LME nickel inventories. 

INFOGRAPHIC: what's ahead in 2015 – a survey of Wall Street's top analysts

The folks on Wall Street remain optimistic that the party will keep on going. Hopefully nobody takes away the punch bowl.

Ten of the top analysts from the mainstays of Wall Street made predictions to Barron’s in an annual December survey. Their expectations for 2015? The S&P 500 will continue to soar (+10% was the mean prediction), the American economy will continue to gain traction (+3.0% GDP growth), and the top performing sectors will be Technology and Financials.

The worst performing sector will be Utilities, which has been the best performing sector of 2014 so far.

While we were not surprised that top analysts chose their own sector (Financials) as a top performer, we were surprised that not a single analyst expects a pullback in 2015. In the same sense, the vast range of GDP expectation variability is between the bounds of 2.8% and 3.5% growth.

Keep the Kool-Aid flowing, and drink it all up before it sits out in the sun too long.

For the full survey, check out Barron’s article here on it.

Rising production data a last straw for Lead

Lead market experienced sharp declines, with the February-lead on Shanghai Futures Exchange losing 7.74% yesterday and down by its daily limit at the open today.

What’s behind the collapse in lead prices?

“The increasing output data should be the last straw for lead prices,” an analyst from Shanghai CIFCO Futures told SMM in a recent interview.

“Lead prices have been falling this month, and the report that China’s refined lead climbed to a five-month high of 381,941 tons stoked fears for a severe glut in the market, resulting in a slump in prices,” the analyst explained.

Analyst from Ruida Futures also pointed out that noticeable rises in both lead concentrate and refined lead production in November definitely added to a drag on prices which had already been pressured by waning consumption and weak macroeconomic conditions.

Novelis declared as the supplier of aluminum to new Jaguar XE

Jaguar XE, was recently launched in Europe, and will arrive in North America in the year 2016. The company stated that, the new Jaguar XE, is the first launched in the mid size segment, to preview an aluminum based intensive body structure.

The designs of the car are featured by the Novelis Advanz 6000 series alloys, which had been developed by the company, especially for automotive skin sheet and also the structural appliances of vehicles. The construction of new Jaguar XE, makes the car, highly strong and also considerably light weight, which contributes to the fuel efficiency of the vehicle, and also reduces the emission of the vehicle.

The Vice President as well as the General Manager of the Novelis Europe Automotives, Pierre Labat, declared that the company had selected to supply aluminum sheets for the recently launched Jaguar XE, in order to make the vehicle more novel and also light weight.

He also stated that, the launch of XE, once again regains the leadership of Jaguar Land Rover. In both the design as well as in the production of high volume aluminum vehicles. He added that, this could be stated as an important milestone for the company in body engineering as well as to redefine the standers in its class of vehicles

Antamina workers return to labor

The strike, which was initiated by the union workers working in the mine, demanding for better working conditions and also greater wage. Just like the previous strike, which lasted for about 2 weeks, the second strike with the same demands was also declared illegal by the authorities of the mine.

The first strike by the union workers was inaugurated on November 11th and the strike lasted till November 30th. The authorities of the mine, during the strike stated that the operations at the mine is not affected by the strike. But the union workers kept on insisting that, the mine has been highly affected by the strike. They claimed that the output has affected almost 60 percent reduction due to the strike.

From the total number of workers at the Antamina copper mine, about 1,630 workers are the members of the union. The authorities of the mine, produced the media with a letter, which they claim is to be from the head of union workers. The letter claims that, the workers are ending the strike and will soon return to work.

The stakeholders of the company are, Glencore Xstrata, Mitsubishi Corp, and also BHP Billiton. The BHP Billiton, holds the  major stake of the Peru based copper and zinc mine, followed by Glencore Xstrata, and then Mitsubishi Corp. 

Zinc demand to outcast supply by the end of 2014, says ILZSG

According to the estimation released by the group, the demand for zinc would rise about to 13.65 metric tonnes, which is a 5.1 percent increase compared to the present situation, and will be followed by an additional increase in demand of 14.05 million metric tonnes, which is another 2.08 percent increase.

The anticipated increase in demand is expected from China as the production of galvanized sheet  in the country, is reported to have risen to a large extend. According to the reports from the International Lead and Zinc Study Group, the increase in global demand of zinc excluding the demand from China, is rather low, which is reported to be 2.3 percent hike in the year, 2014 and 1.3 percent hike in the year 2015.

The group also stated that, in Europe, 1.2  percent hike in demand is expected this year and 1 percent hike in demand is expected the year after, after remaining constant through the year of 2013.  In the year 2014, a sharp increase in the demand of zinc is expected with a raise of 8.4 percent, followed by the large scale import of zinc into the United states, even so the demand from the United States will decline in the year 2015 to 0.4 percent.

At the same time the production of zinc is expected to have a slight hike of 1 percent to 13.33 million metric tonnes in the year 2014, and a 3.8 percent increase in the production by 13.80 million metric tonnes, in the year 2015.