China metals demand seen up in 2015, copper at least 6 pct

* Power, rail sectors seen solid, property slows
* Aluminium seen up 7-9 pct in 2015 vs 10 pct in 2014
* Tin demand at below 160,000 T vs just above 150,000

China's consumption of refined copper is expected to rise at least 6 percent in 2015, roughly in line with this year, supported by new investment in power networks and demand from rail projects, analysts and industry executives said.

An expected slowdown in new residential and commercial building projects, however, could see an easing in consumption growth for aluminium and nickel in the world's top metals consumer.

Lead demand growth may also be trimmed by lower production of electric bicycles, while tin demand should be supported by chemicals and tin-coated steel plates makers.

China is expected to complete power network orders from its 2014 power plan next year, as well begin a new investment plan for 2015, said a senior executive at a state-owned copper producer.

The power sector is the country's top copper user. Investment in new power networks had been expected to rise more than 10 percent in 2014 fell 0.6 percent in the first half from a year earlier, raising expectations that more orders would be placed between the fourth quarter and early next year.

"In China, big (infrastructure) projects usually are started in the third year of a government. Next year is the third year to the current government," said the executive, who declined to be named because he was not authorised to talk to media.

Rail project orders for power cables and wires have risen since August and could stay strong next year, said a manager at a large end-user of refined copper, who put consumption growth at more than 7 percent next year.

This was above a forecast from state-back research firm Antaike, which put consumption growth at about 6 percent in 2015, compared to an expected 6.7 percent-rise to 8.75 million tonnes this year.

Growth could be capped by a fall in demand from air-conditioners makers next year after they raised the output in 2014, said Yang Changhua, senior analyst at state-backed research firm Antaike.

China's still healthy demand rise could help copper prices on the London Metal Exchange , three industry sources said. A trader at a Chinese hedge fund expected the average LME copper price to rise 5 percent next year from 2014.

PROPERTY DRAG

New property projects, which typically consume copper, aluminium, zinc and nickel, are likely to slow next year, even though banks have relaxed lending to some house buyers in the past month, cutting existing stocks, metal industry sources said.

For aluminium, demand from transport and power transmission may rise next year, said an executive at a state-owned smelter said, who asked not to be named.

Overall consumption of primary aluminium is likely to rise 7-9 percent next year from about 10 percent expected in 2014, said the smelter executive and Wang Chunhui, analyst at information provider SMM, who put consumption at 27 million tonnes in 2014.

Production of primary aluminium may rise about 10 percent to 30-31 million tonnes next year due to new capacity. High output and lukewarm demand may boost exports of semi-finished products.

A drop-off in new property projects could also affect demand for zinc and nickel, which are used to coat some steel products for the building sector. Zinc is also widely used in infrastructure projects such as power networks and transport.

Antaike expects China's refined tin demand to be flat this year, at just above 150,000 tonnes, and to rise slightly next year due to steady demand from chemicals and tin plated steel products used for packaging.

It expects China's refined lead consumption to rise 4 percent to about 5.1 million tonnes in 2015 from the year before, compared with a 5-percent rise for 2014 as production of electric bicycles starts to drop after a rapid rise in the past few years.

The Commodities Trading Cheat-Sheet

With commodity prices tumbling to 2009 lows, comprehending between the differing risks to Soybeans and Silver or Copper and Cocoa is crucial. Deutsche Bank has created just that 'cheat-sheet' - just how vulnerable is Gold to Ebola? or Silver to China growth?

Bloomberg's Commodity index is at 2009 lows...

So here's how to differentiate the commodity complex's risks...

Charts: Bloomberg and Deutsche Bank

Market Uncertainty Has Never Been Higher

The CBOE's VVIX Index, "an indicator of the expected volatility of the 30-day forward price of the VIX"reached extreme levels this week. While all eyes are firmly focused on the to-ing and fro-ing of VIX (the so-called 'fear' indicator), it is the uncertainty of that fear (or greed) that is exploding as VVIX measures. Simply put, the chance of VIX doubling, or tripling, in the next 30 days (which include the final POMO and Fed 'end of QE' meeting), has never been higher.

Chart: Bloomberg

Happy 27th Anniversary Black Monday

"It could never happen again... right?"

And if you think this time is different - just take a look at the 'tricks' they used 27 years ago to stop the fall - A Fed statement and borken/halted exchanges...

Charts: Bloomberg and Yahoo

*  *  *

Bonus Clip - as we noted previously,

"This is a market that has been seriously overvalued for some time," exclaims Paul Tudor Jones,"and what we are seeing today is the piercing of the bubble..." adding that "Wall Street was uniformly unprepared for this kind of a drop."

Of course Bill Griffeth asks should we buy this dip... Tudor Jones replies - so ironically -

"we should see massive Federal Reserve and Government intervention in the FX and debt markets to stem what has unquestionably been a panic."

But Tudor-Jones cautions:

"prudent investors should use any rally to scale back into short-term Treasuries."

The legendary trader goes on to explain he is trading fear as investors fear deflation and disinflation and warns

"every American needs to get their house in order, needs to be conservative in their investments, the next few years will be about capital preservation."

Wise words for record highs...

Gold price vs dollar shows true extent of rally

Commodities priced in US dollar usually have an inverse relationship to the world's reserve currency.

None more so than gold.

Given the current geopolitical environment (spurring safe haven buying) and what's been happening on global financial markets (falling bond yields, tanking stocks and massive volatility), gold would be expected to be trading higher than today's $1,240 an ounce.

But as this chart shows the recent strength in the gold price has been into the teeth of a rampant dollar.

Any reduction in support for gold prices from US monetary policy could easily be offset by new positives

Research house Capital Economics on Friday released the best chart I've seen to put the relationship between gold and the dollar in proper perspective.

Julian Jessop Head of Commodities Research at Capital Economics says for the third time since 2013 gold has found decent support at around $1,200 per ounce, but this time it's different:

This latest episode is all the more remarkable given the strength of the US dollar. On the basis of the past relationship between the two, the price of gold might now be expected to be touching $1,000.

Jessop believes "any reduction in support for gold prices from US monetary policy could therefore easily be offset by new positives, including policy easing elsewhere, higher volatility in other asset markets and strong physical demand from emerging economies."

Capital Economics' house view is that the price of gold should rally to $1,300 per ounce next year, and to $1,400 in 2016.

Aluminum faces decline in production after 8 years

During the first half of the year 2014, many Chinese smelters shut down under the label of increasing charges of electricity and also declining profit. In addition to the estimated 1.3 million metric tonnes, which cut down in the year of 2013, about 1.4 million metric tones of copper were cut down in the year half of 2014.

The Chinese smelter now came to the realization that the profit rate is increasing and the companies have planned to start and increase the production by the end of this year. Even though the come back Chinese smelters are a relief, but they will have to face a lot of challenges starting from, the way to achieve constant profits, steady supply of bauxite and alumina and also the availability of a cheap source of energy.

Other than the Chinese producers the western producers have also cut down their outputs. Rusal, the Russiahn aluminum producer, declined its production by 324,000 metric tonnes in the year of 2013, and is also anticipating on declining the production of copper to about 3.55 metric tonnes.

Bank of America Merril Lynch bullish on base metals in 2015

Bank of America Merril Lynch in a research note published Wednesday forecasts bullish 2015 for base metals, backed by structural improvement of market fundamentals. The report also states that macro-economic pressures led to substantial retracement in prices of some base metals during summer this year.

According to the report, cyclical headwinds continue to exist for the time being. However, early signs of structural improvement in fundamentals are already visible in individual base metals. Aluminum market fundamentals are looking strong with the metal expected to shift to deficit in 2014. Bofa ML forecasts aluminum price to reach $2,010 per mt in 2015.

As for Nickel, the supply-demand situation may turn out to be extremely bullish through 2015. Higher Chinese refined and ferronickel imports and declining LME stocks may trigger further strengthening of market fundamentals for the metal. Nickel is expected to end in a deficit of nearly 50,000 mt in 2015, BofA notes. The Nickel prices may average at $23,836 per mt in 2015.

According to BofA Merril Lynch, copper still has the weakest fundamentals among base metals. China has de-stocked huge inventories of copper during summer, resulting in lower imports. But with copper inventories at substantially lower levels, the bank forecasts rebound in copper prices during 2015. The LME copper prices are likely to average at $6,939 per mt in 2015.