Chinese commodity demand: Crisis. What crisis?

Tuesday was another bleak day on commodity markets.

The price of crude oil ($37.65) and iron ore ($38.80) dropped again and the globe's two most traded raw materials are now at levels prior to the word supercycle even entering the popular lexicon.

Similarly precious metals and industrial continued to drift lower with bellwether copper exchanging hands barely above seven-year lows ($2.04) and coal (thermal $51, coking $72) continuing its inexorably decline.

The world's major mining companies were trading even weaker than their products would suggest with stock valuations reaching decade or more lows.

On Tuesday billions more wiped off the market value of BHP Billiton (–3.7%), Rio Tinto (–8.6%), Vale (–6.3%), Freeport McMoRan (–5%), Glencore (–6.9%) and Anglo-American (–12.7%) in New York.

The fact that the mining and metals are being overwhelmed by negative sentiment and that sector investors are willing to shrug any positive developments were very much on display on Tuesday.

Commodity import volumes will increase further in 2016 due to an expected improvement in economic activity, a further lift from government policy support and an appreciation in the renminbi

Data released by Chinese customs early in the day showed the country's total import bill falling by 8.7% year on year in November. That was better than the 18.8% plunge in October but the weakness in the headline numbers gave bears an excuse to start selling again.

But the US dollar figure masks a significant underlying recovery in demand.

In volume terms, overall imports of commodities accelerated by 17% compared to the same month last year. It was the greatest jump for almost two years.

Chinese iron ore imports surged 22% in November year on year and 8.8% compared to October. Imports for the first eleven months were up just 1.3% compared to 2014, but last year was a record breaking year.

Copper shipments was just as strong with inbound shipments of refined metal rising 9.5% to 460 000 tonnes from a month earlier and racking up double digit gains compared to last year.

While year to date copper imports are down slightly, ore and concentrate imports rocketed  37% to a record 1.44 million tonnes compared to October and for 2015 imports of copper mine output  is growing by double digits.

As this chart from Capital Economics shows crude oil imports are picking up again and even the decline in coal seems to be arrested.

John Kovacs, senior commodities economist at the independent research firm expects that overall commodity import volumes will increase further in 2016 due to an expected improvement in economic activity, a further lift from government policy support and an appreciation in the renminbi."

"This increase in Chinese commodity imports in turn supports our forecasts for a recovery in prices next year," says the research note.

Motto in life. Good Karma.

Rusal: Aluminum sector under significant pressure, global surplus to surge in 2015

United Co. Rusal, the global aluminum major has reported 26% decline in profits during the third quarter of the year. The company noted that the aluminum sector across the globe is still under significant pressure. Also, weaker demand from emerging markets has dented demand growth prospects during 2015. The capacity additions in the Middle East, India and China have also impacted the sector.

The statement issued by the company stated that its Q3 EBITDA fell sharply from $568 million during the previous quarter to $420 million during third quarter of 2015. Also revenue dropped by 9% to $2.07 billion. The profits fell sharply due to the sharp decline in alloy prices, the company noted.

According to Vladislav Soloviev, CEO of Rusal, the higher-than-expected market surplus has resulted in huge decline in prices and premiums. The prices of aluminum have declined by nearly 19% since the beginning of the year. The global aluminum market faced significant pressure during the quarter gone by, he added.

Rusal has trimmed its global aluminum demand forecast for 2015. The company has lowered the forecast to 5.6% from the earlier predicted 6%. Also, it sees no ending to surplus capacity in market. The surplus forecast for 2015 has been raised to 373,000 metric tons. The company in its September review had hinted at cutting output by 200,000 tons, if the prices fail to recover.

Despite falling domestic prices, the pace of capacity closures remained slow in China. However, the closures are likely to pick up in 2016. The company expects rapid closures during next year as the new five-year development plan unfolds.

RUSAL is a leading, global aluminium producer. The company’s main products are primary aluminium, aluminium alloys, foil and alumina . RUSAL operates in 19 countries on 5 continents.

S&P 500 -The Scariest Chart, "Most Overbought" In 11 Months.

What would Halloween be without a scary chart of The Stock Market That Cannot Die? We know the stock market cannot die because we’re constantly told it’s immortal:

You know the drill: the Federal Reserve will never let the market fall, never, never, never: it will continue to loft higher for all time, in immortal glory.

Like a blood-sucking vampire, the market is parasitically feeding off the real economy. As the host weakens, the parasite increases its control. Now the market is telling the real economy: if I die, you die, too.

The entire Status Quo is now utterly dependent on a rising stock market: not just for the illusion of the wealth effect, but for tax revenues, pension fund stability, and the fantasy that a rising market is a substitute for a healthy economy.

It’s terribly frightening to be in thrall to a parasite that will bleed its host dry to maintain itself. But that’s not the scariest possibility.

The scariest possibility is that the stock market will fall despite all the promises that its advance is immortal.

If this were to happen, all those “safe” index funds would implode along with the broad market.

 "Most Overbought" In 11 Months

The last time S&P 500 rallied at such a pace (from an extreme of oversoldness) and reached such an extreme level of overboughtness, things went south rather quickly...

Gold price on knife edge after post-Fed fall

Spooked by Federal Reserve's hawkish stance, hedge funds start liquidating 345 tonnes worth of bullish gold futures positions
Yesterday on the Comex market in New York, gold futures with December delivery dates fell more than $30 an ounce from where it trading just before the Federal Reserve's interest rate announcement. By the end of the day gold had clawed back some of those losses, but on Thursday the metal was being sold off again.

Late afternoon Thursday gold was exchanging hands for $1,145.10 – down more than 3% from $1,183.50 ahead of the Fed statement and a three week low. Higher interest rates boost the value of the dollar and makes gold less attractive as an investment because the metal is not yield-producing.

While the Fed decided to keep interest rates unchanged it changed the language in the statement to suggest a hike in December is more likely. The market had begun to price in an increase only in March 2016 and gold bulls were forced into a retreat.

Failure to hold this level would attract some additional long liquidation as a break below $1,140 could signal a reversal of sentiment

The Fed voted 9 to 1 to leave rates in a range of zero and 0.25% where they have been since December 2008. Interest rates in the world's largest economy has not been raised in more than nine years which played a huge factor in gold's rise to a record $1,909 in September 2011.

Gold hit its highest level since June 22 a fortnight ago, amid fresh indications that a limp US economy may push a rate hike further into the future, but that narrative now seems to no longer apply.

On the technical front gold is also looking vulnerable.

Hedge funds reduced bullish bets to more than five year lows ahead of the September Fed decision, but the hold on rates then forced a change of thinking with large futures speculators or "managed money" playing catch-up as the sentiment towards gold turned.

Hedge funds built up net long positions – bets that gold will be more expensive in future – for five weeks in a row, tripling holdings over the past month.

Last week the  CFTC's weekly Commitment of Traders data showed net longs now stand at 12.2 million ounces (345 tonnes), the highest since February.

That constituted a huge reversal from July and early August when hedge funds entered net short positions for the first time since at least 2006, when the Commodity Futures Trading Commission first began tracking the data.

Ole Hansen, head of commodity strategy at Danish bank Saxo says after yesterday's abrupt reversal the price of gold has so far managed to stay above the next level of support at $1,148 an ounce (only just), but "failure to hold this level would attract some additional long liquidation as a break below $1,140 an ounce could signal a reversal of sentiment":

FOMC Policy Decision Matrix Exposed

Data-Dependent...

FOMC Meeting
Two-day meeting, October 27-28, 2015 

LME Zinc may recover and average $2,275 a ton in 2016: Deutsche Bank

Deutsche Bank's bull case on zinc had been severely dented over the past three months. 

A strong USD combined with Chinese demand fears has seen a build of shorts on the LME, and prices collapse by $800 a ton since the beginning of May.

Glencore’s bold step of closing a similar amount of capacity is likely to squeeze out short positions, and lead to a deficit market of c.500kt in 2016E. 

This would be the fifth year in a row of zinc deficits, and Deutsche Bank forecasts the zinc price to recover and average $2,275 a ton in 2016E.

However, zinc prices at London Metal Exchange settled down by 0.64% to $1805.50 a ton on Thursday, while inventories down by 1050 tons to 587200 tons.