Freeport says Chinese copper demand to grow for over a decade

* China's copper consumption remains robust, says official

* Freeport still in talks with Indonesian government over dispute

China's copper consumption will grow for "more than a decade" as demand from the world's top user remains robust despite fears of an economic slowdown, a Freeport-McMoRan Copper and Gold Inc executive said on Wednesday.

 

Worries over slower growth in China, which accounts for 40 percent of global copper consumption, helped send prices of the industrial metal to a 44-month low last week, down 12 percent this year.

 

Still, the long-term outlook remained solid, said Freeport's Javier Targhetta, senior vice president for marketing and sales.

 

"We are seeing still robust consumption in China. Of course there can be hiccups here and there," Targhetta told Reuters on the sidelines of an industry conference. "I think Chinese consumption of copper will keep growing for more than a decade."

 

He expected China's import volumes to remain brisk even if its gross domestic product expansion slows to 3-4 percent, while a recovery in the U.S. and European economies should also copper consumption.

 

"Copper is increasingly needed both in mature and emerging economies," he said.

 

Three-month copper on the London Metal Exchange was trading at $6,470 a tonne on Wednesday, regaining some ground after hitting $6,376.25 last week, its lowest since July 2010.

 

Freeport, which operates the world's fifth largest copper mine in Indonesia, halted copper concentrate exports in mid-January over a dispute with the Indonesian government on a new tax.

 

"We are cooperating with the Indonesian government looking for a mutually beneficial outcome of the current situation. We hope to have it resolved soon," Targhetta said.

 

Freeport and fellow U.S. miner Newmont Mining Corp have refused to pay an escalating export tax introduced on Jan. 12 as part of package of new mining rules aimed at forcing miners to build smelters and process raw materials in Indonesia.

 

Targhetta said the company's Grasberg mine is producing at half of its capacity, but has not cut any jobs so far.

 

A union official said earlier this month that production at Freeport Indonesia was cut by around 60 percent. Freeport in February said it may need to declare force majeure on copper concentrate sales at its Grasberg mine.

Peru Posts Strong Increase in January Copper, Lead, Tin Production

Peru posted a strong increase in copper production in January on higher output from the country's biggest mines, while gold production continued to decline, the government said Friday.

The Mines and Energy Ministry said that Peru produced 111,855 tons of Copper in January, up 19.88% from the same month last year. The increase was due to higher production at Peru's largest copper mines, including those operated by Compania Minera Antamina SA and Sociedad Minera Cerro Verde SAA.

• Peru is the world's third biggest producer of copper, which is also the country's top export earner.

The ministry said that Gold production declined 5.8% in January to 11.089 kilograms due to lower output from Minera Yanacocha, which is majority owned by Newmont Mining Corp., and operations owned by Barrick Gold.

Peru is a major global producer of gold, which is the country's second biggest export product.

Silver production increased 1.91% in January to 274,725 kilograms, while Zinc output fell 9.54% to 100,885 tons, the government said.

Lead production climbed 8.01% to 21,995 tons, and Tin production rose 26.73% to 2,015 tons. Molybdenum production rose to 1,437 tons, and iron output increased to 644,218 tons.

Nickel Rises to 11-Month High on China Ore Stockpiles

Nickel rose to the highest level in 11 months as raw ore stockpiles in China, which produces a quarter of global production, are falling amid an Indonesian export ban and on speculation Russian supply will be disrupted.

The metal for delivery in three months climbed as much as 0.7 percent to $16,310 a metric ton, the highest intraday level since April 10, and traded at $16,231 at 10:20 a.m. in Hong Kong. Nickel has risen 17 percent this year.

Nickel entered a bull market yesterday on speculation Russian supplies will be disrupted at a time when some shipments are already banned in Indonesia. The U.S. and the European Union slapped sanctions on Russia after a disputed vote in Crimea paved the way for President Vladimir Putin to annex the region from Ukraine. Chinese nickel pig iron producers began stockpiling raw ore from Indonesia in the run-up to the ban, which started on Jan. 12.

“People are going after the available supply and there’s a sense that if something doesn’t happen very soon, you really would have a situation where you would run out of the stockpiles in a few months,” Sijin Cheng, a commodities analyst at Barclays Plc, said by phone from Singapore.

China’s inventory at factory warehouses and ports is enough to sustain output at last year’s pace until July, according to a Bloomberg survey in January. Small and medium sized plants are expected to run out of material stocks over March and April, according to the survey. China’s imports of ore from Indonesia rose by 21 percent in January from a month earlier, according to customs.

CME to launch aluminium contract in May to rival LME

* CME aluminium contract to be physically deliverable

* CME sees contract as "robust and significant" in 2-3 years

* MillerCoors sees contract as "a potentially useful tool" 

LONDON, March 18 (Reuters) - CME Group Inc will launch a North American physically deliverable aluminium futures contract in May that could compete with the London Metal Exchange's (LME) $54 billion market.

The move comes after the LME has implemented sweeping reforms to its metals warehousing system after a years-long crisis that has undermined its own aluminium futures contract.

"We have had a high level of engagement from major market participants, as well as smaller players, who are looking for an alternative to the exchange contract they have today and who want to be able to manage price risk," Harriet Hunnable, managing director of metals at CME Group, told Reuters.

Hunnable said a CME team had been signing up participants for months, and that in two or three years it will be "robust and a significant size". The new contract will begin trading on May 5, pending regulatory approval, she said.

CME said in October it would launch the contract and has been canvassing producers, traders and end-users for months.

The new contract has the approval of at least one large consumer of aluminium, MillerCoors, which uses aluminium to make drinks cans.

"It's one of the single largest commodity price risks we face today as a company and an industry," Tim Weiner, MillerCoors global risk manager, said in the CME's statement.

"We see this North American aluminum contract, which will combine both the underlying price of aluminum along with the premium, as a potentially useful tool to help us eliminate many hedge accounting issues."

JPMorgan Chase & Co's Henry Bath unit, Scale Distribution, part owned by Australia's Macquarie Group , and C Steinweb have applied to be warehousing firms in three different cities for the new contract.

If approved, Henry Bath will be in New Orleans, Scale Distribution will operate in Ypsilanti, Michigan and Steinweg in Baltimore, the CME said in a notice to members following the announcement.

Ypsilanti is near Detroit, the focus of regulatory and legal scrutiny in a long-running controversy over the LME's warehousing policy.

Long wait times and incentives paid by LME-registered warehouse operators, owned by Wall Street banks and big merchants, have distorted supplies and inflated physical prices in a market awash with an estimated 10-million tonne surplus, metals consumer and manufacturers have said.

U.S., British and European regulators are now investigating the issue and the exchange, Goldman Sachs Group Inc and Glencore Xstrata PLC are among those targeted in a series of class-action lawsuits.

NEW MEASURES

The LME's new owners, Hong Kong Exchanges and Clearing will implement a series of measures on April 1 aimed at curbing wait times for users to take delivery of metal, placating users and protecting its stronghold in the global base metals market.

Some aluminium users have said the measures do not go far enough while Russian aluminium producer Rusal says it goes too far.

Rusal is seeking court permission for a judicial review, hoping to quash the LME moves it says may undermine the price at which the company sells its products.

Still, despite the uncertainty over the LME's warehousing revamp, the CME might find it hard to lure money away from a deeply entrenched benchmark, which took some seven years to win over producers after its launch in 1978.

There are very few examples of new commodity contracts dislodging a critical portion of liquidity from an established market.

The New York Mercantile Exchange (NYMEX), now owned by CME, struggled for 10 years to gain traction with a North American aluminium contract before delisting it in 2009. It was unable to lure established users away from London

Is Dr. Copper diagnosing impending disaster or temporary indigestion?

The more China-leveraged metals, copper in particular, have suffered an early-year sell-off: prices are down 14% from this year’s high, while the LMEX, a basket of LME metals, is down only 8%, said Barclays in a snippet. China’s first bond default has triggered fears that the country’s financial sector clampdown will force copper inventories to be liquidated since imports have been used to be turned into credit.

 

Huge portions of early 2014’s commodity imports were used to generate financing after the December “cash crunch”, and without strong underlying demand, inventories soared. Copper market sentiment turned bearish in January, and China’s copper indicators have not looked healthy. The price differential between London and Shanghai has been deeply negative, the premium that buyers are willing to pay has fallen, and inventories have been rising fast. However, Barclays thinks fears that China’s financial sector clampdown will force copper inventories to be liquidated are overblown, though financing flows will likely fall, which means Chinese copper imports would weaken from early-year highs.

 

Taken in a wider context, Barclays thinks it would be positive if China stopped importing more copper than it needs. It would help to chip away at bulging inventories, especially if it coincided with a seasonal pick-up in demand in Q2. Feedback from our meetings in China last week suggests that the worst may be over (or close to it) and that end users, such as power cable makers, have very low raw material inventories, so physical buying could accelerate quickly if industrial activity normalises.

 

Barclays also thinks macro concerns and stock overhang take some of the potential upside off their Q2 forecast of $7,300/t. However, the recent sell-off looks overdone, in our view, since micro trends have likely bottomed. It reminds us of 2013, when copper prices sold off in Q2 due to China hard landing fears, only to bounce back when Chinese demand surprised to the upside. Our economists believe Q1 14 marks the nadir for Chinese growth and forecast a strong sequential pick-up over the next few quarters. If the government again leans on targeted investment to protect growth, it would be positive for metals demand. With that, we expect more volatility this year and think the risk/reward of buying copper at these lows is attractive.

Yuan Tumbles To 11-Month Lows As China Home Price Growth Slows

It would appear that the widening of the daily trading bands (we discussed last night) are having a directional effect on USDCNY as the devaluation continues on the back of forced carry-trade unwinds. At 6.19, CNY is its weakest in 11 months (2.5% weaker than its lows in January) and the last 2 months have seen by far the biggest weakening in the currency on record. This 'implied' easing is modestly supporting the stock market and copper for now (though we suspect that is more spillover from risk-on squeezes post-Ukraine). While Goldman and BofA are adamant that widening the bands will not mean a change in trend overall, it seems clear that hot money is outflowing and driving a trend change anyway ascorporate bond prices are not rising and home-price appreciation is slowing in the major cities.

USDCNY drops 100 pips to 6.19 - lowest in 11 months...

Chinese home price appreciation slows notably... (h/t @M_Mcdonough)

Weekly Economic Data for the week 15-Mar-14 to 21-Mar-14

Data for the week 15-Mar-14 to 21-Mar-14

Date	Time (IST)	Country	Data	Exp.	Prior	Exp. chg today	Avg. chg of last 1 year	Exp. Impact on Price
17-Mar-2014	02-00 PM	European Monetary Union	EU Foreign Ministers Hold Meeting in Brussels
17-Mar-2014	03-30 PM	European Monetary Union	Consumer Price Index (MoM)	0.4%	-1.10%	1.50%	0.65	Very Good
17-Mar-2014	03-30 PM	European Monetary Union	Consumer Price Index - Core (YoY)	0.8%	0.8%	0.00%	0.05	Neutral
17-Mar-2014	06-45 PM	United States	Industrial Production (MoM)	0.2%	-0.3%	0.50%	0.97	Neutral
18-20 Mar-2014	--	United States	Federal Reserve FOMC Meeting
18-Mar-2014	06-00 AM	Australia	RBA Releases Policy Meeting Minutes of March Meeting
18-Mar-2014	03-30 PM	Germany	ZEW Survey - Current Situation	52	50	2.00	5.46	Neutral
18-Mar-2014	03-30 PM	Germany	ZEW Survey - Economic Sentiment	52	55.7	-3.70	12.25	Neutral
18-Mar-2014	03-30 PM	European Monetary Union	Trade Balance s.a.	€13.9B	€13.7B	0.20€	2.05	Neutral
18-Mar-2014	06-00 PM	United States	Consumer Price Index (YoY)	1.2%	1.6%	-0.40%	0.25	Bad
19-Mar-2014	03-00 PM	United Kingdom	ILO Unemployment Rate (3M)	7.2%	7.2%	0.00%	0.07	Neutral
19-Mar-2014	03-00 PM	United Kingdom	Bank of England Releases Minutes From Mar 5-6 Meeting
19-Mar-2014	08-00 PM	United States	EIA Crude Oil Stocks change		6.180		3.45
19-Mar-2014	23-30 PM	United States	FOMC Rate Decision	0.25%	0.25%	0.00%	0.00	Neutral
19-Mar-2014	11-30 PM	United States	Fed QE3 Pace	$55	$65	-10.00
20-Mar-2014	00-00 AM	United States	Fed's Yellen Holds Press Conference in Washington
20-21 Mar-2014	--	European Monetary Union	EU Leaders Hold Summit in Brussels
20-Mar-2014	07-30 PM	United States	Existing Home Sales (MoM)	4.62M	4.62M	0.00M	0.16	Neutral
20-Mar-2014	08-00 PM	United States	EIA Natural Gas Storage change		-195		33.60
21-Mar-2014	03-30 PM	European Monetary Union	Consumer Confidence	-12.3	-12.7	0.40	1.04	Neutral