Production halts in mines might lead to supply deficit of copper

According to the estimations, about 84,000 tonnes of copper supply would disappear by the initiation of the strikes in the copper mines, by the end of the year 2014. According to David Charles, a mining analyst at Dundee Capital Markets, stated that even though the price of copper is staying low at 9 percent decline at the LME, the surplus will be long eliminated by the end of the year 2014, as the supply deficit, yet has to be materialized.

A rise in  the price of copper is to be extended to the year, 2015, as the demand for copper in the construction industry, household sector as well as in the power sector of China remains to be strong.

At the beginning of the  year 2014, according to the analysts’ forecast, there ought to have a supply surplus of about 600,000 tonnes of copper, but if the strikes held by the workers in the mine work out well, the surplus will turn out to be a small one of about 70,000 tonnes, or hopefully there would be a deficit in the global market.

Silver to avg $15.8 an ounce in 2015: Natixis

Silver prices are expected to average $15.8 an ounce next year and $16.1 an ounce in 2016, said Natixis in a Metals Review.

Based on Natixis positive outlook for the US economy (modestly rising US yields, appreciating USD), and additional downside risks attaching to silver prices (low cash cost of production, potential for sales from ETPs).

So far this year silver prices have fallen by 10%. The strong correlation with gold meant that the price of silver dropped as a result of a stronger dollar and US economy. 

Although silver mine supply is increasing, the drop in silver prices has led to a contraction in supply of silver scrap. 

As for demand, Natixis main concern remains the ever increasing amount of silver being held in physically-backed ETPs.

Stocks Now Most Overbought In A Year

Just two words - "Volumeless" and "Overbought" - but when has that mattered...

Spot The Rally (using the lower pane only)

 McClellan Oscillator at a notable extreme...

 and the Relative Strength Indicator is once again signaling a trend change...

Copper hits two-week high on supply disruption worries

* Strike action looms in Indonesia, Peru
* Nickel surges over 5 percent to hit one week high of $15,550/T

(Reuters) - Copper prices hit a two-week high on Tuesday as the outlook for rising supply was tarnished by looming strikes at two key mines while expectations of higher demand from top consumer China helped reinforce optimism.

Three-month copper on the London Metal Exchange

(LME) ended at $6,795 a tonne, up 0.97 percent, having earlier touched a two-week high of $6,797.75 a tonne.

Workers at Freeport-McMoRan's Indonesian copper mine will hold a one-month strike from next week and those at Peru's biggest copper mine, Antamina, plan to start an indefinite strike from Nov. 10. 

In a quarterly profit release, Freeport said a large percentage of Grasberg open pit operators had not reported for scheduled shifts, resulting in lower production from its open pit copper mine in October. It also reported a 32 percent drop in quarterly profit, hurt by lower metals prices. 

Analysts polled by Reuters expect the copper market to show a surplus this year and to post an even bigger surplus in 2015, but that view is threatened by events such as strikes and delays. 

"There's a bit of stability led by the copper supply disruptions and we're getting a bit of a bounce in prices," said Robin Bhar, an analyst at Societe Generale.

"But we are still expecting more downside to come for copper rather than upside. The wall of supply is still coming. That has not been delayed or cancelled," he said.

The metal used in power and construction is down more than 8 percent this year, and has gained just 1.3 percent this month, partly on expectations of a big surplus forming in the market.

"We hear what the producers are saying in terms of what they're planning to put out, but it's the unforeseen factors such as industrial action that create (uncertainty), as we have seen in the past few days, and that's providing a little bit of support," said analyst James Glenn of NAB in Melbourne.

"Plus the physical market at the moment is still quite tight so any signs of better demand is going to see the price go up."

On the demand side, Chinese firms showed slight improvement with industrial profits in September up 0.4 percent from a year earlier, reversing a 0.6 percent annual decline in August, data showed on Tuesday.

Markets are now eyeing the U.S. Federal Reserve's policy meeting this week, where it will likely reinforce its stated willingness to wait a long time before raising rates after a volatile month in financial markets that saw some measures of inflation expectations drop worryingly low

In other metals, nickel surged 5.25 percent to end at $15,550 - its highest in about a week, as investors reassessed the buy-side case given key supplier Indonesia's ore export ban.

Nickel has posted losses for the last seven weeks running as Philippines supply to China rose, partly filling the gap caused by an Indonesia ore export ban that sent price up by some 40 percent in the first half.

Tin ended up 1.66 percent at $19,875 a tonne and zinc closed up 0.04 percent at $2,256 a tonne.

Aluminium ended up 0.71 percent at $1,998 a tonne, and lead closed up 0.94 percent at $2,033 a tonne.

Freeport Indonesia union plans one-month strike at copper mine

Workers at Freeport-McMoRan Inc's giant Indonesian copper mine plan to go on strike for a month from next week, a union official said on Monday, after the company failed to make changes to local management following a fatal accident.

Earlier this month, hundreds of angry protesters blocked access for two days to the open-pit area of the Grasberg complex, where production was temporarily suspended following the death of four workers on Sept. 27.

The remote copper mine is one of the largest in the world and any prolonged disruption could support prices of the metal , which have fallen almost 10 percent this year.

Three Freeport unions have agreed to take strike action from Nov. 6 until Dec. 6 to pursue demands including the appointment of new managers, Albar Sabang, a senior official at a Freeport union, told Reuters. Sabang's union has about 9,100 members.

"The purpose of the strike is of course to stop production so there will be pressure for the Freeport Indonesia management to answer to our demands," Sabang told Reuters by text message.

Freeport, which employs around 24,000 workers, declined to comment on Monday. About three-quarters of the workforce belong to a union.

Relations between Freeport and the unions have been strained in recent years following a three-month strike in late 2011 as well as a series of minor disputes.

In addition to the four workers killed in the collision involving a truck last month, 28 people were killed after a tunnel collapsed in May last year.

Indonesia's mine ministry investigated the Sept. 27 accident and asked the company to introduce changes to safety procedures and policies before allowing open-pit mining to resume.

Three weeks ago, the Freeport Indonesia union warned of fresh protests, blockades or strike action if workers' safety concerns and other demands were ignored.

A union letter detailing the planned strike was sent on Oct. 23 to Freeport's local CEO, Rozik Soetjipto, the chief executive and chairman of the Arizona-based firm and various government officials.

Under normal conditions, the Grasberg open pit produces around 140,000 tonnes of copper ore per day and the underground mine about 80,000 tonnes.

Although the copper market is broadly expected to be in surplus next year, one trader said, an extended strike could tighten regional concentrate supply, with the market not far from balanced at the moment. Freeport's concentrate is low in impurities.

Freeport, one of the biggest tax payers in Southeast Asia's largest economy, only recently resolved a tax dispute with the government that halted exports for months and frayed relations.

Should the Freeport strike go ahead as planned, it may be the first big test for Indonesia's newly appointed energy and mineral resources minister, Sudirman Said.

Nickel continues its impressive fall

By the end of the week on Friday, the nickel price hits seven month low to 14,980 dollars per tonne, and at the same time the stocks on the London Metal exchange topped the roof with 378,132 tonnes.

At the beginning of the year, the metal, was expected to be the rising metal among other base metals in the year 2014, but the hopes have all been shattered and the supply has risen about 9 percent ahead of the coming year.

The commodity analysts at, Common wealth Bank, Vivek Dhar and Lanchlan Shaw, stated that, there is a high chance of nickel surplus in the year 2015-2016.

In the beginning of this year, Indonesia, the main producer as well as the exporter of high grade nickel ore, and one of the  vital exporter of nickel to the steel industry of China, banned the exports of unprocessed nickel to the world.at that time, China advanced its procedure by importing nickel from Philippines, the under developed mines Indonesia, and also imported ferro-nickel from other parts of the world to cover up the deficiency caused by the decline in the nickel imports from Indonesia. Many stainless steel producers in China, had to change the amount of nickel in their final product.

Copper Surges After Report Mysterious London Buyer Has Cornered Up To 90% Of Market

Copper prices are surging this morning (in the face of Goldman's recent warnings of a plunge), jumping 4 handles apparently on the heels of a WSJ story in which LME admits that a single buyer has snapped up more than half the copper held in London Metal Exchange warehouses, giving it control over a crucial source of supply and raising concerns among traders about the potential for higher prices. What is more remarkable is, as WSJ reports, on several occasions in the last month, this buyer held as much as 90% of the world’s copper stored in LME-licensed warehouses. Though no confirmation has been given traders suggest the firm cornering the copper market is Red Kite Group, a London hedge-fund manager that focuses on metals trading.

As The WSJ reports,

A single firm has owned at least 50% of the copper in LME-licensed warehouses for much of the last four months. Accumulating such a dominant position became easier in June because the amount of metal under the exchange’s watch had plummeted, as had prices. The warehouses have held less than 160,000 tons of copper since mid-June, compared with more than 360,000 tons at the start of the year. Some analysts say copper production is running behind demand, forcing some users to draw on stockpiles in LME-licensed warehouses.

On several occasions in the last month, this buyer held as much as 90% of the world’s copper stored in LME-licensed warehouses, equal to about 140,000 tons, or enough to make the copper parts of the Statue of Liberty more than 1,700 times. As of Wednesday, the buyer owned between 50% and 80% of copper held in warehouses, according to the most recent exchange data.

Rumors are that it is Red Kite...

Established in 2004, Red Kite is now run by two of its founding partners, Michael Farmer and David Lilley, both alumni of the German industrial conglomerate Metallgesellschaft AG, which collapsed in 1993. The fund is known for its bold and extremely profitable trades involving copper, as well as other metals. Red Kite Group manages $2.3 billion, according to its website.

Red Kite declined to comment.

The London Metal Exchange, owned by Hong Kong Exchanges & Clearing Ltd. , doesn’t limit how much metal a single trader may hold in its warehouses, and says that it has mechanisms in place to prevent market squeezes—a situation in which holders of a large share of the supplies use their position to jack up prices.

Some traders say the concentration of so much copper under one firm’s control is already driving up prices. It costs about $72 more per ton to buy copper for delivery today than for delivery in three months.

“There’s no reason for anyone to be holding 70% of the stocks of the commodity,”said Jessica Fung, head of Commodities Metals at BMO Capital Markets.

*  *  *

As Metal Bulletin notes,

The Red Kite metals fund posted returns of just over 50% in 2013 after a well-timed switch from a short to a long position in the copper market around the time that prices posted their lows for the year, well-placed sources told Metal Bulletin.

Simply put, they were the market (buying it up in hopes to corner the market)...

The long position delivered returns as copper prices rebounded to finish the year up nearly $700 from its 2013 low, but Red Kite also made strong returns on physical inventory and spreads as copper premiums jumped in Asia and the LME forward curve moved into backwardation, market sources told Metal Bulletin.

"The Red Kite switch was definitely up there as one of the big trades of the year; the volumes were huge," a source active in the copper market told Metal Bulletin.

At the time, sell-side analysts in particular were turning strongly bearish on the copper market, reacting in part to lagged evidence of the slowdown in demand that prompted Red Kite to run short positions around the start of the year, sources said.

"Good data is very hard to come by in the copper market, and at the time I think a lot of people were trading looking in the rear-view mirror," one observer of the company told Metal Bulletin.

*  *  *
Summing it all up - Is Red Kite the next Amaranth?

*  *  *

The irony of someone cornering another metals market a week after the death of Nelson Bunker Hunt is not lost on us.