Scotiabank: Copper 'likely oversold'

Not surprisingly the Commodity Price Index compiled by Scotiabank plunged in December to levels last seen during the global financial crisis.

The index was down over 10% compared to November and 15.4% year on year which the bank ascribes to "a fight for market share in international oil and iron ore markets as well as general unease over lacklustre global economic conditions and an almost ‘deflationary’ environment."

Apart from iron ore and oil where a market glut explains most of the downside, bellwether copper has been one of the hardest hit commodities.

In New York trade on Friday copper futures advanced nearly 2% on the back of a huge rally in oil and a comeback in the gold price, but at $2.50 a pound remains near mid-2009 lows.

Patricia Mohr, Scotiabank economist and commodity specialist, points out that even today's price "yields a slight 10% profit margin over average world breakeven costs including depreciation" and that the red metal has likely been oversold.

Copper has likely been ‘over-sold’, given the fifth-highest imports into China on record in December, new fiscal stimulus by Beijing to spur the economy (speeding up spending on 300 infrastructure projects) and a planned 24% increase in capital spending by the State Electricity Grid (likely geared towards copper cable).

Mining companies have recently cut projected output for 2015 by 300,000 tonnes (Rio Tinto at Kennecott, BHP Billiton at Escondida and Glencore at Alumbrera), helping to trim an expected surplus this year to a modest 250,000 tonnes.

Will India’s gold imports surge on tariff cuts? – Jayant Bhandari

India is the world’s second-largest importer of gold,1 currently taking in around 800 tonnes per year.2 In India, gold trades at a premium to international prices because of the hefty import duties and high domestic demand.

Jayant Bhandari advises funds and institutional investors on investing in India, and has commented on India’s impact on world gold demand for Sprott’s Thoughts.

In his last contribution, he said that India’s demand for gold would not be threatened by the heavy import tariffs that the government imposed in 2013. Smuggling and bribery would undermine government measures, he said.

He was dead-on. The Financial Times reports:

“About 200 tonnes of gold was smuggled into India in 2013, according to the World Gold Council, while officials at Mumbai’s international airport have complained that smugglers have been inventing new methods to hide the contraband metal.”

Now the Indian government is reversing its efforts to curtail gold imports, and gold importers expect a drop in import tariffs to be announced in the upcoming federal budget.

Prices are coming down as a result – traders who hold gold inventories are dishoarding reserves in anticipation that import tariffs will be lower in the future, as Jayant explained in a recent note:

As a result of the expected tariff cut, gold is trading 10% higher than international prices compared to about 12% or 13% higher a month back. As the import tax is a high 11.3%, gold traded at a slight premium to the official price, but now it trades at a slight discount. The reason is that traders and jewelers are reducing their stocks — it makes no sense for them to be stuck with gold when the price is expected to come down.

But will there be a big surge of gold imports as a result of tariff cuts? Probably not, says Jayant:

Now, Western media outlets (CNBC, e.g.) are thinking that a reduction in the import duty will suddenly increase the availability and demand for gold.

Availability was never a problem. Gold continues to be a very liquid commodity in India, with almost no spread. I don't think that a few percentage points’ reduction in the price of gold will make a noticeable difference to demand. A tariff cut will not lead to suddenly higher imports from India.

Even so, gold imports will continue to be strong, says Jayant, because holding gold is a good alternative to owning Rupees, Indian stocks, and real-estate for most Indians:

I have been telling people in India to load up on gold, for three reasons.

The economy is not doing well. Foreign and Indian investors have been hoping for big infrastructural projects and a significant liberalization of the economy to occur under the new Prime Minister, Narednra Modi. But the present government has done almost nothing in that direction.

Modi is a darling of the public for now, so the market still believes he will eventually do a lot for the economy. Foreign investors are enamored of Modi for his lip service for a more free market system.

People are hoping that the next federal budget will be a magic wand, bringing adjustments that will put the economy on the growth path painlessly. The truth is that entrenched interests from his own party would never let this happen, even if this were what the Prime Minister really wanted.

India’s currency keeps falling. As of January 29, it is down 6% in US dollar terms since its high during Modi’s inauguration in May 2014. This comes despite massive help from cheaper oil, which is India's biggest import commodity. Lower oil prices have slashed India's import bill. But it hasn’t stopped the Rupee from going lower. This tells you how weak the Indian export economy really is.

People typically leave out currency devaluation when looking at stock market performance, leading them to think that the Indian stock market has done better than it has in real terms. Now, of course, it has done well, even when adjusted for the Rupee's devaluation, but in my view it is one of the most over-priced stock markets today. Remember that Indians don't have many possibilities for moving their money abroad. So they generally must invest in domestic stocks and properties.

India’s property market is extremely expensive. Your rental yield, around 3%,4 is much lower than the official interest rate of 7.75%.5 So investors are left to hope that property prices keep increasing unhindered by the reality of rents.

Based on these three reasons, I think the economy will continue to do badly and the stock and property markets will fall significantly going forward. When this happens, people will look to gold as a store of value. So in my view, gold is a good place to be if you live in India. I expect that demand will continue to be strong, although tariff changes are likely to have only a small effect.

Chile cuts 2015 average copper price forecast to $2.85/lb

 Chilean state copper commission Cochilco cut its forecast on Thursday for 2015 average copper prices to $2.85 per pound, from a prior $3.00 estimate, amid a collapse in commodities prices, a strengthening U.S. dollar, and worries about top consumer China.

It also forecast average copper prices of $2.80 per pound in 2016.

Prices for the industrial metal have been hovering near 5-1/2 year lows. Concerns about global economic growth and demand for metals in China, which accounts for 40 percent of global refined copper demand, have kept the pressure on prices.

"The forecast for copper prices this year assumes a recovery in the copper market starting in the second half of the year once prices find an equilibrium, uncertainty about China is dispelled and investors adjust their risk aversion," Cochilco said.

Top copper exporter Chile is expected to produce 6 million tonnes of copper in 2015, said Cochilco, who had previously forecast output of 6.23 million tonnes for the year.

That compares to the 5.78 million tonnes produced in 2014, according to data published earlier in the day by the government's INE statistics agency. 

Cochilco also forecast a surplus in the global copper market of 275,000 tonnes in 2015 and 404,000 tonnes in 2016.

Consensus forecast 2015 gold price average: DOWN

Gold on Thursday plunged more than $30 an ounce as eurozone troubles fade from headlines and the focus shifts to US fundamentals, the rampant dollar and a likely June rise in interest rates.

In heavy trade of more than 22m ounces by lunchtime in New York, gold for delivery in April fell over $35 an ounce or 2.8% from Wednesday's close hitting a low of $1,251.84 an ounce – the lowest in two weeks and the worst trading day in more than a year.

The metal is still trading up nearly $70 or almost 5.5% in 2015, but is down sharply from an intra-day high of $1,307 hit last week.

Gold's gains this year have been ascribed to safe haven buying amid currency turmoil, a slowing global economy, the continuing fallout of the collapse in oil prices and a crisis in the Eurozone.

Norman has been the most accurate forecaster – the outright winner five times and a runner up four times

But with the first hike in more than six year likely at the Fed's June meeting raising the opportunity costs of holding gold because the metal provides no yield, gold traders refocused their attention on fundamental factors.

The consensus forecast seem to be that today's decline was only the beginning and the gold price will trend weaker in 2015 – the third year in a row.

According to a new survey by the London Bullion Market Association of 35 analysts, gold will trade in a narrow band this year to average $1,211 a troy ounce with a range between $1,085 to $1,356 during the year.

Ross Norman of Sharps Pixley is the most bullish analyst with a forecast of $1,321 average and a $1,450 high. Norman has been the most accurate forecaster in recent years coming in as the outright winner five times and a runner up four times.

Adam Myers of Credit Agricole is the most bearish with $950 as an average and a low point of $880. Myers is one of five analysts predicting a dip below $1,000 this year.

Last year analysts were bearish on gold, forecasting a price of $1,219, according to the LBMA. The gold price averaged $1,267 in 2014, some 4% higher than estimated.

Silver, the worst performing of the four metals in 2014, is forecast to increase in price by 2.1%.

Forecasters are more bullish about the prospects of the PGM prices, with platinum predicted to be the best performing with an increase of 5.6% and palladium forecast to increase by 5.3%.

Click here for the full report from the LBMA. 

Sourced from Mining.com

Zinc Prices to Outshine Other Metals in Q1 2015

The price of zinc will perform strongly during Q1 2015 due to favorable market fundamentals, to outshine other metals, Futures Daily said in a research note.  

"Despite the broad sell-off in nonferrous metals market, zinc has held up quite well recently, and zinc will lurch higher once the dollar softens," it foresees.  

China is expected to see a lower growth of zinc output due to tightening ore supply worldwide and acceleration of inefficient capacity elimination in China. Zinc demand in China, reflected by high output of galvanized plate/sheet, is strong. 

Production of galvanized plate/sheet hit a new record high of 4.82 million tonnes in December 2014, thanks to growing consumption in the automobile sector and robust exports.   

Moreover, exchange inventories, both in SHFE and LME, have been falling, which will also give a boost to zinc prices.   

The History Of Global Crises Through The Eyes Of The US Dollar

Which is better: a stronger dollar or a weaker dollar? You decide...

"King Dollar" met Queen Caterpillar this week and awoke the beast of broken narratives that a strong dollar may not be the 'unambiguously good' thing so many proclaim it to be. However, with the rest of the world competitively weakening their currencies (in order to 'help' their economies), we hope the chart above will help readers decide which they prefer... a stronger (US multinational-crushing) dollar or a weak (domestic drag) dollar?

Commexes’ turnover drops 43% to Rs 48.5 lakh cr

Turnover of commodity exchanges fell 43 per cent to Rs 48.54 lakh crore till January 15 this fiscal due to poor participation.

According to the Forward Markets Commission (FMC), these exchanges had generated business worth Rs 85.28 lakh crore between April and January 15 last financial year.

According to the latest data released by the Forward Markets Commission, there was decline in turnover in almost all commodities.

The maximum decline in turnover was reported in bullion, metals, energy and agricultural commodities.

Turnover from bullion fell 54 per cent to Rs 17.17 lakh crore during April-January 15 of this fiscal from Rs 37.39 lakh crore in the year-ago period.

Similarly, the business from base metals like copper declined 39 per cent to Rs 12.48 lakh crore from Rs 20.49 lakh crore, while the turnover from energy items fell 34 per cent to Rs 10.07 lakh crore from Rs 15.14 lakh crore.

Turnover from agriculture commodities dropped 28 per cent to Rs 8.81 lakh crore during the April-January 15 period of this fiscal against Rs 12.25 lakh crore in the same period previous year, the FMC data showed.

Experts said lack of volatility in commodities market and high transaction cost have kept many investors at bay, while the Rs 5,600-crore scam at the commodity spot exchange NSEL has also dented investor confidence.

Currently, there are four national-level and six regional-level commodity exchanges operating in the country.