Thursday, April 17, 2014

Chinese Base Metal Demand Thaws but Stocks Still High: Barclays

Chinese Base Metal Demand Thaws but Stocks Still High: Barclays
Chinese base metals demand has begun to thaw, with downstream orders rebounding and factories sourcing raw material. However, inventories remain high, and demand needs to strengthen further for the market to rebalance, said Barclays in a research note.
According to Barclays, last week Chinese market participants indicated metal demand had begun to pick up in China. Factories reported a moderate bounce in orders that allowed them to source more raw materials. Tax-paid spot copper premiums in Shanghai recovered to $29/t in April, in contrast to a $6/t discount in March. SHFE futures also shifted to backwardation, a sign of a tighter market.
Behind these price signals was a seasonal rebound in industrial activities. While sentiment turned sharply negative during the copper price sell-off in mid-March, activities were in fact picking up gradually. The State Grid Corp of China awarded two rounds of tenders in March, and other infrastructure projects also went under way. At the same time, government reassurances that China could deliver growth began to steady sentiment. A stabilizing USD/CNY after steep CNY depreciation has also helped.
However, demand is still best described as lukewarm rather than red-hot. YTD State Grid transformer tenders were still 13% lower y/y, and tight credit continues to constrain a variety of activities, from construction to property sales. The government, while promising to fast-track projects and provide state funding, has carefully managed expectations and avoided relaxing monetary policy too quickly.
March import data remind us there is still a lot of inventory to digest, though stock levels have largely stabilized. Preliminary data from China put unwrought copper and semi imports at 420Kt in March, implying roughly 295Kt of refined copper. Q1 unwrought copper and semi imports stand at 1.34Mt, the second-highest Q1 imports in history. While arrivals should begin to thin in coming months, reflecting soured financing appetite, bonded inventories are still high. On the other hand, recent feedback suggests that inventories have only inched up slightly since March, as outflows from the warehouses to the domestic market roughly offset imports and smelter deliveries to the warehouses. Still, Chinese demand needs to pick up more strongly for the market to rebalance.

Crude Alert: Gartman Is Now Long Oil

Having been stopped out of his "long punt" in copper futures (which are, we remind readers, levered via margin and not a simple cash percentage loss of capital), world-renowned (for something) Dennis Gartman has issued his latest missive - ultimate contrarian call - advice... "we are sellers this morning of copper and buyers of crude oil, one relative to the other, with the problems in China weighing upon the former while crude has held impressively as other commodity prices have fallen." Crude oil longs beware... prepare to be Gartman'd.

Via Dennis Gartman,
We were stopped out of our copper position yesterday, losing 1.2% on the position, which when compared to the 10-15% movements we’ve seen recently in NFLX or TSLA or others such as that seems rather inconsequential but is important nonetheless. Those not out should be out... now.
[deflecting the futures-contract - and thus 10-20x levered via margin - 1.2% loss in copper with a 10-15% gain in unlevered risk positions in NFLX and TSLA (a magical catch we suppose) seems a little disingenous to us - but we digress]
NEW RECOMMENDATION: Indeed, we are sellers this morning of copper and buyers of crude oil, one relative to the other, with the problems in China weighing upon the former while crude has held impressively as other commodity prices have fallen. As we write, June WTI crude is trading 103.79 and July copper is trading $3.0010. We’ll have stops in tomorrow’s TGL, but we’d not wish to risk more than 2% on this rather unusual spread position.

Crude Alert: Gartman Is Now Long Oil

Visualizing Taxes Around The World

Visualizing Taxes Around The World

Wednesday, April 16, 2014

Over 40% Of The S&P 500 Is In Correction Mode

Over 40% Of The S&P 500 Is In Correction Mode
The S&P 500 is down around 4% from its highs (outperforming the high-beta hangovers of Nasdaq and Russell 2000 that were down almost 10% from their highs at today's lows). But under the surface, the S&P is ugly with the 500 index members down 10.5% on average. 213 members of the S&P 500 are down over 10% (in correction mode). Only 72 member of the 500-stock index are 'beating' the index... this is not just a small-cap growth-hype selloff... it's spreading..

Chile Sees Its 2014 Copper Output at Record, Cuts Price View

Chile Sees Its 2014 Copper Output at Record, Cuts Price View
(Reuters) - Chile reduced its global outlook for copper prices to an average $3.05 per pound this year, down from its previous estimate of $3.15, as prospects for growth ease in top buyer China.
Prices are expected to further lose ground in 2015, falling to $3.00 per pound, state copper commission Cochilco said on Tuesday.
World No.1 copper producer Chile is expected to boost its output by 5.0 percent this year to a record 6.07 million tonnes of the red metal as the new Ministro Hales, Sierra Gorda and Caserones mines come on line, Cochilco added.
Chile, which produces a third of the world's red metal, is expected to further increase its production by 2.8 percent to 6.24 million tonnes next year.
Increased mining output is poised to trigger a global copper surplus of 373,000 tonnes this year, which Cochilco's new president Sergio Hernandez deemed "not significant."

Copper price rally comes to abrupt end

Copper price rally comes to abrupt end
In late afternoon New York trade on Tuesday May copper changed hands at $2.995 a pound as weakening demand from China and a flood of new supply worry the market.
Earlier in the day the red metal fell as low as $2.965, down more than 2% from Monday's close.
Tuesday's decline marks something of a reversal in sentiment after weeks of steady gains as the copper price dug itself out of a near four-year low struck mid-March.
Copper is down nearly 12% from opening levels for the year as the market adjusts to slower growth in China which consumes more than 40% of the world's copper.
China's copper imports have not slowed down, rising a whopping 31% to 420,000 tonnes in March over last last year and bringing the first quarter total to a record-breaking 1.3 million tonnes.
Those deals are now being unwound supplying even more copper to the market.But those numbers may be misleading and do not reflect a sharp fall-off in end demand. That's because much of that copper has been tied up in finance deals as collateral for trade credit and is not being put to industrial use.
On top of that as activity in China slows it drags down the copper price thanks to the widespread use of the metal in construction, transport and manufacturing.China's copper imports are highly price sensitive and traders could have simply made the most of the fall to $2.92 a pound a month ago to stock up.
The copper market has also been disappointed at the lack of major policy stimulus in China.
A number of small steps taken by Beijing including bringing forward already announced infrastructure projects has encouraged hopes in the market of bolder action.
But last week Premier Li Keqiang poured cold water on the notion saying: "China will not resort to short-term stimulus policies just because of temporary economic fluctuations … we will pay more attention to sound development in the medium and long run."
The supply side is also driving down price expectations.
The closely-watched Thomson Reuters GFMS Copper Survey forecasts a period of copper market surpluses and predicts the average price to test $2.75 a pound ($6,000/tonne) in the second half.
Global mine production rose by 8% to 17.8 million tonnes last year, its fastest pace in over a decade thanks to marked expansion top producer Chile and the Democratic Republic of Congo.
Output is to top 22.2 million tonnes this year from just over 21 million tonnes in 2013 led by Codelco's new 160,000 tonnes-plus Ministro Hales mine, Glencore's Las Bambas project in Peru it sold to China's Minmetals this week, the first full year of production at Rio Tinto's Oyu Tolgoi mine in Mongolia and expansion at BHP Billiton's already giant Escondida mine.

Tuesday, April 15, 2014

Rupee shackled in a range

Rupee shackled in a range

The Indian rupee has been stuck in a sideways range between 59.6 and 60.4 for more than two weeks. As the general elections kicked off last week, the currency weakened from its high of 59.78 on Monday to 60.34 on Friday before closing at 60.17, down 0.15 per cent for the week.
Weak macro-economic data releases in the past week could keep the rupee under pressure. The trade deficit for March hit a five-month high of $10.5 billion and exports declined 3.15 per cent year-on-year.
However, gold import curbs have narrowed the deficit for this fiscal to $138.59 billion from $190.33 billion. In addition, the index of industrial production for February fell 1.9 per cent after a 0.8 per cent rise in January.
Following these weak data releases, the market would be keenly watching the inflation data due for release in this truncated week, which has just three trading days.
Both consumer price and wholesale price inflation data are due for release on Tuesday. There is some mild good news for currency traders. SEBI has reduced the margin requirement for dollar-rupee contracts with effect from April 15. The margins were raised in July last year. Trading volumes are expected to pick up following the lower margin requirements. Though foreign institutional investors continue to buy Indian equities, the outflows from debt limit the rupee’s strength. FIIs bought $409 million in equity while selling $386 million of debt last week.
Dollar index
The dollar index tumbled 1.2 per cent last week as the euro and yen strengthened sharply. The index has crucial support at 79, which if broken could turn the outlook bearish for a fall to 77. On the other hand, a reversal from 79 would keep the 79-81.5 sideways range intact. The rupee is likely to hover in a range between 59.6 and 60.4 in the shortterm. The 21-day moving average at 60.43 is a key short-term support.
Dollar-rupee outlook
The rupee could weaken to test this level while it remains below 60. A decline below 60.43 could drag the currency lower to 60.7 in the short-term. However, 60.7 is a strong support that can limit the short-term weakness. A close above 60 is needed for the short-term bias to turn positive and test 59.6 again. A breach of 59.6 would see the rupee strengthen to 59.45 and 59.3. The medium-term outlook is bullish for the rupee to test 59 and even 58.
However, an intermediate fall to 61 and 62, key medium-term supports, cannot be ruled out.