Japan Q1 aluminium talks to drag on as buyers refuse higher premiums

 Quarterly pricing negotiations between Japanese aluminium buyers and global miners are set to continue next month as buyers are refusing to pay higher premiums for January-March shipments, five sources said on Friday.

It is unusual for the two sides not to reach agreement before the beginning of the quarter, but the sources said there remains a gap between producers' offers and buyers' bids.

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

For October-December, Japanese buyers mostly agreed to pay a record premium of $420 per tonne , up 3-5 percent from the previous quarter. This year, Major Japan Port (MJP) premiums have risen 64 percent. 

Earlier this month, three top producers asked Japanese buyers to pay record premiums of $435-$440 per tonne for January-March deliveries, up as much as 4.8 percent from the previous quarter, citing higher U.S. spot premiums triggered by solid demand and smelter shutdowns that have squeezed metal supplies, the sources said.

One producer has lowered its offer to $430 while another one had come down to $425 by Friday, five buyer sources said.

"But we still can't make a compromise as spot premiums are lower here and inventories at Japanese ports have built up as suppliers had brought the metal to Japan amid weak demand elsewhere in Asia," a Tokyo-based source at one end-user said.

Aluminium stocks at three major Japanese ports hit a record high at the end of November on rising imports and softer demand.

"We don't mind continuing negotiations until late January," one buyer source said.

Two other buyer sources, however, said they were getting closer to settling at around $425 while another source at a trading house said he heard some deals had been done at $425.

Most Japanese buyers are expected to take next week off for New Year holiday and return to work on Jan 5.

The quarterly pricing negotiations have been carried out between Japanese buyers and miners including Rio Tinto , BHP Billiton and Alcoa .

Global aluminium premiums are expected to reach record highs by mid-2015 on a supply deficit in the United States and Europe, according to a Reuters survey.

$ 1,200 gold price the new normal ?

After closing 2013 at $1,205 an ounce the price of gold jumped out of the starting gate, rising consistently to reach a high of $1,380 in March.

But the metal failed to consolidate gains during the summer doldrums, falling to a near four-year low November 6 at $1,143.

The recovery from there was swift and gold is heading into the final week of 2014 basically where it started the year.

Gold 2014's highs and lows were 20% or $237 apart, making it the quietest year since 2008. Last year it was 40% or $488 – gold's most volatile 12 months since crazy 1980.

Gold miners' problems are only exacerbated by falling by-product credits

The subdued trading in gold came despite potential market shocks including the slide in oil, the rampant dollar and a variety of geopolitical shocks during 2014.

The gold price is the most sentiment-driven of all commodities, but fundamentals still do matter.

And cost of supply may now be providing that elusive price floor gold bulls have been looking for since 2011's record high above $1,900.

As this chart by metals consultancy GFMS and Thomson Reuters shows towards the $1,100 mark, 60% of the industry would be loss-making on an all-in basis.

Gold miners' problems are only exacerbated say the authors by falling by-product credits, such as silver and copper which are down roughly one third and 10% respectively from the 2013 average.

Average costs in the industry sits around $1,200 and is falling as miners shelve projects, reduce exploration expenditure, defer or cut back on sustaining capital and a strong dollar helps to contain costs outside the US.

While the price may well fall to $1,100 in the year ahead, multiple quarters of prices at these levels would force loss-making miners out of business and reduce supply, helping prices to recover.

There have been 85 large aircraft disappearances since 1948...

Air Asia Confirms Lost Contact With Indonesia Flight After Crew Asked For "Unusual Route", 155 Passengers On Board on 28.12.2014

China To Launch Yuan Swap Trading With Russian Rubles On Monday

The world was slow to wake up to the new reality in which China is now the de facto IMF sovereign backstop, as Zero Hedge described two weeks ago in "China Prepares To Bailout Russia" when we noted that a PBOC swap-line was meant to reduce the role of the US dollar if China and Russia need to help each other overcome a liquidity squeeze, something we first noted over two months ago in "China, Russia Sign CNY150 Billion Local-Currency Swap As Plunging Oil Prices Sting Putin."

In fact, it was only this week that Bloomberg reported that "China Offers Russia Help With Currency Swap Suggestion." But in order to fully backstop Russia away from a SWIFT-world in which the dollar reigns supreme, one extra step was necessary: the launching of direct FX trade involving the Russian and Chinese currencies, either spot or forward - a move away from purely theoretical bilateral FX trade agreements - which would not only enable and make direct currency trading more efficient by sidestepping the dollar entirely, but also allow Russian companies to budget in Chinese Yuan terms. It is no surprise then that this is precisely the missing step that was announced overnight, and will be implemented starting Monday.

From Bloomberg:

China will allow trading in forwards and swaps between the yuan and three more currencies in a bid to reduce foreign-exchange risks amid increased volatility in emerging markets.

The China Foreign Exchange Trade System will begin such contracts with Malaysia’s ringgit, Russia’s ruble, and the New Zealand dollar from Dec. 29, it said in a statement on its website today. That will extend the yuan’s swaps trading to 11 currencies on the interbank foreign-exchange market.

A plunge in Russia’s ruble this month to a record low sparked a selloff in developing nations’ assets, leading to a surge in currency volatility. The new contracts come amid efforts by China to increase the international use of the yuan, as the world’s second-largest economy promotes it as an alternative to the U.S. dollar for global trade and finance. Malaysia and Russia are China’s eighth and ninth biggest trading partners, according to data compiled by Bloomberg.

“This will provide companies with better hedging tools, and at the same time, make currency trading more efficient,” said Ju Wang, a senior currency strategist at HSBC Holdings Plc in Hong Kong. “China won’t stop yuan globalization or capital-account opening because of the volatility in emerging market currencies.”

The CFETS is an agency under the People’s Bank of China.

So while the US continues to parade with "destroying" the Russian economy, even if it means crushing the shale industry, aka the only bright spot, and high-paying job-creating industry in the US economy over the past 5 years, Russia and China continue to be nudged by the west ever closer monetarily and strategically, until one day, as we have long predicted, China and Russia will announce a joint currency, one backed by both China's "surprising" gold reserves and Russia's commodity hoard. Then things will get interesting.

Renewed flight from gold ETFs

After a soft start to the week, the gold price jumped on Friday, coming close to retaking the psychologically important $1,200 an ounce level.

Gold's gains since hitting four-year lows early November are close to 5%, but the metal's resilience against a sliding oil price, a rampant dollar, record money flowing into equities and looming interest rate rises has not enticed investors to return to physical gold-backed ETFs.

Holdings in the bellwether exchange traded fund backed by physical gold, SPDR Gold Shares (NYSEARCA:GLD), fell by 11.6 tonnes on Monday, the worst performance in 18 months, and the sales continued in post-Christmas trade.

At the close on Friday holdings in GLD, which represents nearly 50% of the gold-backed ETF market, stood at 712.3 tonnes or 26.9 million ounces, the lowest since September 22, 2008.

Kitco quotes a research note from HSBC pointing to the risk to the gold price of continued ETF outflows:

"If ETF investors begin to liquidate more heavily, gold may be in for another round of declines," according to HSBC but the investment bank is not expecting further substantial selling during the holiday trading period.

After a positive start to December, this week's outflows have put GLD back in the red for the month with 5.3 tonnes of net redemptions.

The performance so far in 2014 is dismal with investors pulling just over 85 tonnes from the trust although outflows have slowed substantially from the 552 tonnes pulled from GLD in 2013.

Holdings in GLD peaked in December 2012 at 1,353 tonnes or 43.5 million ounces.

In November Barclays noted the risk to the early money invested in the dozens of listed gold-backed ETFs across the globe.

Almost 900 tonnes (700 tonnes on a net basis) were acquired between $900 – $1,000 an ounce.

If the gold price were to fall to $1,000/oz, an additional 100 tonnes would become cash negative according to the UK bank.

Ruble Rallies 34% After Biggest Russian Intervention In 5 Years

Since the Russian Ruble troughed at almost 80 RUB/USD, it has rallied an impressive 34% erasing most of the dramatic devaluation of December. However, as The CBR just announced, this 'strength' came at a price. Russia burned through $15.7 billion of reserves in the week ending Dec 19th - the biggest percentage weekly drop in reserves since Jan 2009, leaving reserves below $400 billion (still a significant amount) for the first time since Aug 2009. While CBR explained much of this will come back as repo trades mature, Vladimir Putin turned inward, blaming the government for "defects" in restructuring the economy.

The Ruble has soared in the last 2 weeks...

On the heels of the biggest intervention in almost 5 years...

•  
• *RUSSIAN INTERNATIONAL RESERVES FALL $15.7B IN WEEK TO DEC. 19
• *RUSSIAN INTERNATIONAL RESERVES AT $398.9B
• *BANK OF RUSSIA SAYS DROP IN RESERVES MOSTLY DUE TO FX REPO
• *BANK OF RUSSIA: FUNDS USED IN FX REPO WILL RETURN TO RESERVES
• *RUSSIA RESERVES ALSO FELL ON REVALUATION AS USD GAINED VS EURO

But, as Sputnik news reports, it's not just external factors, Putin points his finger internally...

The difficulties in Russia’s economy are not only because of outside factors, including sanctions, but also because the government has not worked out some defects, Russian President Vladimir Putin said Thursday.

“The difficulties that we have run into carry not only an outside factor. They are not solely tied to some sorts of limitations of sanctions or limitations tied with the objective international environment, they are tied to our not working out defects that have accumulated over the years,” Putin said during a government meeting in Moscow.

Putin said the government has taken efforts in order to change the structure of the economy in order to give it a more innovative nature, but said the efforts were below the needed measures.

“Much has been done in this but the latest events have shown that this is insufficient,” Putin added.

Russia is currently facing an economic slowdown, with dramatic fluctuations seen recently in the value of the Russian ruble against the US dollar and the euro.

The weakening of the Russian national currency is attributed to low oil prices. The sale of oil accounts for a significant part of Russian budget revenues. Economic sanctions imposed on Moscow by the West in the wake of the Ukrainian crisis are also cited among the reasons for the economic slump.

During a December 18 televised press conference, the Russian president said that the country's economic situation could begin to improve in the first quarter of 2015, with Russia's economy recovering completely over the next few years.

*  *  *

Still it's not like $400 billion is going to disappear tomorrow - for those proclaiming Russia's imminent default. (CDS imply a mere 5% probability of default over the next year based on 25% recovery assumptions)

Supply plays key role in 2014 global commodity market

The Chief Executive of Glencore one of the world’s top resource company, Ivan Glasemberg, stated that, the demand for the metals hasn't been bad this year.

He added that, the demand for oil, iron ore and also coal is growing, but the price of these materials is not progressing soon enough. He stated that, the reason behind the lagging of price for the commodities is that, the companies including Glencore has been investing largely in their projects, expanding the production, which finally lead to crisis.

Supply of commodities played a key role in the global market of metals this year. It was the judge to determine the winners and losers based on every market, starting from iron ore to nickel . Supply is also the reason why the commodities are performing at the worst for the third consecutive year.

According to the analysts, this trend could continue to follow the market for the year 2015, as none of the iron ore producers and the oil producers are showing signs to decline their rate of production for the next year.

According to the recent report published by the Citi Bank, the analyst stated that, it is too easy to assume that the main problem regarding the commodity market is the global growth of GDP. But actually the problems regarding the supply are the main issue which creates gluts in the market. The worst effect of supply can be seen in iron ore, as the metal has been marked as the worst performing metal of the year.

Iron ore, which is commonly known to be the key ingredient in the procedure of steel making, has declined over 50 percent in its value, which is noted to be five year low, due to the increase in the supply of iron ore, mainly from the mines of Australia. The increase in supply declined the demand of the commodity in the Chinese market.