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

Aluminum Hits Bull Market Target While Alcoa Stock Keeps Flying

The three-month LME aluminum price finally traded above $2,000/ton on Monday, hitting our target point. The move doesn’t come as a surprise to us. In June, we pointed out that the stock of aluminum-related companies, such as Alcoa, was skyrocketing due to high expectations on the future use of aluminum in automobile and aerospace sectors. Watching aluminum-related stocks rising while aluminum prices remained low was an uncommon divergence that we expected to converge at some point.

Since we pointed this out in June, Alcoa’s stock price has surged 20% and today it is at a three-year high. Meanwhile, aluminum prices followed up, reaching a 17-month high. The move looks very bullish and it seems that aluminum has plenty of room to go higher.

The move is not only supported by aluminum-related stocks. Industrial Metals also had a good half. Indonesia’s export ban and the closure of major zinc mines pushed  nickel and zinc prices higher so far this year. Aluminum is finally catching up with them and copper remains the laggard, but even it is showing some signs of life. Since industrial metals have historically moved in tandem, this grouped trend favors the continuation of aluminum on its way up with aluminum-related companies such as Alcoa.

What This Means For Metal Buyers

It looks like the aluminum bear market that started in 2011 has come to an end. Aluminum reached our price target on  Monday. We would suggest aluminum buyers be hedged as we would expect aluminum prices to trend upwards throughout the rest of the year.

Why Chinese Aluminum prices up during this low-demand season?

Aluminum prices are now gathering up the rising momentum due mainly to falling inventories, as per Shanghai Metals Market.

It is now the low-demand season, but aluminum stock declines have not slowed from those recorded during the peak-demand period.

Last Thursday, total inventories in Shanghai, Wuxi, Hangzhou, and Nanhai were 798,000 tonnes, down 42,000 tonnes on a weekly basis, according to SMM data.

SMM attributes the decline mainly to the drop in market supply after production halts or suspension, in addition to growing consumption of aluminum liquid and the shipment to regions with new fabricating capacity, such as Shandong, Henan, Hebei, Hubei, etc.

Over 2 million-tonne aluminum capacity has been cut so far this year, with complete shutdowns reported in May and June. More than one third of idled capacity is scheduled to be brought back online, but full resumption at the 700,000-tonne capacities in idled lines is not expected until August at the earliest, SMM learns.

Part of this is due to the difficulty in securing sufficient funds to support large scale restarts, and many smelters continue to struggle in loss-making territory. Besides, tight liquidity is also slowing the commissioning of new capacity, SMM believes.

The SMM recent survey of 34 large aluminum smelters and traders in China reveals 71% of them are bullish towards the outlook, expecting spot aluminum prices in China to rise to 13,900-14,000 yuan ($2,254-2,270) per tonne this week. The growth both in trading volumes and positions in SHFE aluminum market and few arrivals in spot market explain their optimism, the survey shows.

Source: Shanghai Metals Market

2 Companies Begin Shipping Concentrate from Indonesia; Export Regulations Still in Place

Companies have struggled to export minerals from Indonesia since harsh regulations were put in place in January, creating a supply squeeze for nickel . However, two companies have now opted to start paying newly required export taxes in order to ship mineral concentrate.

Reuters reported Friday that Sebuku Iron Lateritic Ores (SILO) and Lumbung Mineral Sentosa have secured permits to ship iron ore , zinc and lead subject to a 20-percent export tax. Currently, that tax is slated to increase incrementally to 60 percent in the latter half of 2016. Indonesia implemented new rules banning the export of mineral concentrates in order to pressure miners to refine metals domestically.

SILO has now shipped 100,000 tonnes of iron ore concentrate, while Lumbung has sent 8,000 tonnes of lead and zinc concentrate out of the country, according to the news outlet. R Sukhyar, Indonesia’s coal10 and mineral director-general, stated, ”they finally wanted to pay it,” in reference to the tax.

Indonesia’s new mineral export regulations have also been making waves in the copper space as major miners Newmont Mining (NYSE:NEM) and Freeport-McMoRan Copper & Gold (NYSE:FCX) have so far been unable to come to an agreement about the rules with the Indonesian government. Reuters said in another Friday article that Newmont may even risk losing its mining license to a state-run miner as Indonesia is prepared to defend its case in international court.

To be sure, the news is important for resource investors to note. As well as being a leading supplier of iron ore and bauxite before the ban, Indonesia was the world’s number one nickel-exporting country, and a restart of shipments from the island nation would certainly affect the market. Since January, when Indonesia implemented its new laws, nickel prices have risen16 above $18,000 per metric ton, with China going so far as to get around the ban by purchasing ore with lower nickel and higher iron content labeled as “iron ore.”

In terms of whether the ban will actually be lifted, a Bloomberg article from July 9 suggests18 that Joko Widodo, Indonesia’s new, more market-friendly leader, may ease the harsh export rules. Mike Dragosits, senior commodity strategist at TD Securities in Toronto, told the publication, “that signals to us that he’ll probably relax the country’s ore export ban. His hand will basically be forced by the fact that the Indonesian economy has been suffering under this ore export ban regime.”

However, as Nickel Investing News has previously explored, the Indonesian ban is not the only factor at play for the metal. Russia’s Norilsk Nickel (MCX:GMKN) is the world’s single largest nickel producer, and it also influences the market. Kitco News reported last week that although increasing sanctions on Russia have yet to affect the metals producer, another increase in sanctions last week renewed supply fears on worries that Norilsk will eventually be affected.

For now, of course, ban has yet to be lifted, and any exports from Indonesia will remain subject to hefty tariffs. In that light, nickel investors may want to keep an eye on the situation in the island nation, as well as nickel-focused companies operating outside of Indonesia and Russia.

North American Nickel (TSXV:NAN) currently has two exploration projects: a nickel-copper-cobalt-PGMs project in Greenland and a copper-nickel-PGMs project in Ontario, while PolyMet Mining (TSX:POM,NYSEMKT:PLM) and Duluth Metals (TSX:DM) are both exploring for polymetallic deposits in Minnesota’s Duluth Complex. Polymet is advancing its wholly owned, advanced-stage NorthMet nickel-copper- precious metals project, while Duluth is focused on its Twin Metals copper-nickel-cobalt-platinum-palladium- gold - silver project.

Additionally, Balmoral Resources (TSX:BAR30) is assessing the base metal potential of its Grasset gold discovery in the Abitibi greenstone belt. Follow-up drill testing intersected a previously unknown occurrence of nickel-copper-PGMs mineralization grading 0.5-percent nickel, 0.1-percent copper, 0.33 grams per tonne palladium and 0.15 grams per tonne platinum.