Copper Snaps Win-Streak As Imports Plunge 17% & Default Fears Reignite

Quietly behind the scenes, amid all the chaos of the Qingdao probe's contagion, copper has rallied modestly in the last seven days. That streak ended last night as the warehousing concerns we noted spreading to the entire sector, combined with a collapse in Chinese copper imports (down 17% in May), and yet another default (China Ting holdings said said two borrowers defaulted on entrusted loans). So it seems that not only are the commodities missing, but so is the money...as the slow motion train wreck gathers pace (no matter what PMIs or minis stimulus do to evade the tightening) as China's money-market rates (at 5 month highs) suggest liquidity demand is very high (and desperate).

We saw this kind of squeeze higher in early May, which collapsed back to 2014 lows quickly as reality restruck and perhaps the plunge in copper imports was that wake-up call...

As Bloomberg notes,

China’s imports of refined copper fell 17 percent to 282,969 tons in May, customs data showed yesterday, marking the first monthly drop since February. Inbound shipments could fall further as the Qingdao investigation may curb purchases from abroad by traders who use commodities as collateral to get loans, according to Ye Yonggang, an analyst with Jinrui Futures Co. in Shenzhen.

“China’s trade data showed a slowdown in the country’s demand for metals, clouding the demand outlook,” said Kazuhiko Saito, an analyst at Fujitomi Co., a commodities broker in Tokyo.

The country’s copper exports rose 31 percent to 28,149 tons, the highest since April 2013, customs data showed. Some copper may be moved from China to LME warehouses in South Korea, and possibly Singapore and Malaysia, according to Jeremy Goldwyn, head of business development in Asia at Sucden Financial Ltd.

China’s imports of zinc and lead also declined in May from a month earlier, customs data showed.

And then there's defaults...

China Ting Group Holdings, a garment maker, said two borrowers defaulted on entrusted loans it made through Ningbo Bank Corp. and Bank of Communications Ltd. The stock fell.

Zhongdou Group Holdings Ltd. and Hangzhou Zhongdou Shopping Centre Co. failed to make interest payments on schedule on loans worth 160 million yuan ($26 million), China Ting said in a Hong Kong exchange filing yesterday.

Entrusted loans, advances between companies arranged through banks, are part of China’s shadow banking system that regulators are seeking to rein in. Some of the entrusted funds, which totaled 8.2 trillion yuan as of the end of 2013, were being directed to industries that face lending curbs from the government, according to the People’s Bank of China.

“Ningbo Bank Corp. confirms that they have commenced legal proceedings in respect of their loan arrangements with Zhongdou Group,” and Bank of Communications is prepared to take action, China Ting said.

This is a problem because...

The number of entrusted loans made by publicly traded companies rose 43 percent from 2012 to 397 cases in 2013, the central bank said in its 2014 financial stability report.

It ain't over yet...

Despite the PBOC mini-stimulus, money market rates are on the rise again... as demand for liquidity is clearly on the rise...

LME Copper to struggle to sustain rallies much above $7,000 a ton in interim

In the interim, BNP Paribas believes that LME copper will struggle to sustain rallies much above $7,000 a ton and that the fundamentals are sufficiently weak to drag it back down to at least the March low and perhaps to $6,000 a ton.

BNP Paribas looks for a small copper-market surplus in 2014-2015 and doubts rallies above $7,000 per metric ton will be sustained. 

The bank says it looks for demand to grow above trend, with refined copper demand projected to increase by 5.5% to 6.0% in 2014 and by 4.0% to 4.5% in 2015. However, copper output is also rising sharply. 

BNP Paribas forecasts that world mine production will rise by about 10% over 2014-15, albeit with the growth skewed heavily towards 2015. 

The bank forecast a further modest global supply surplus of refined copper over 2014-15 of 450,000 metric tons, skewed toward 2015.

While the faltering in early June of copper’s recovery from the March low was largely due to the Qingdao scandal, BNP Paribas thinks there are structural reasons to expect it to remain more under downward than upward pressure. 

This may persist until mid-2015, when the market may start to look to the increasingly positive longer-term story.

Guess Who Is Propping Up The US Housing Market

A month ago we showed a chart that, in our humble opinion, summarized all that is wrong with the US housing market. The chart in question showed the April breakdown of existing home sales on a Y/Y basis by pricing bucket.

Needless to say, what the chart showed was the symptomatic, and schizophrenic, breakdown of US housing into two camps: the housing market for the 1%, those costing $750K and above, where the bulk of transactions are mostly between non-first time buyers, and typically take place as all cash transactions, and the market for "everyone else" which continues to deteriorate.

Moments ago the NAR released its May data, which on first blush was widely lauded as bullish: the topline print came at a 4.9% increase, rising from 4.65MM to 4.89MM, above the 4.74MM expected. Great news... if only on the surface. So what happens when one drills down into the detail? As usual, we focused on the last slide of the NAR breakdown, located at the very end of the supplementary pdf for good reason, because what it shows is hardly as bullish.

So how does this "housing recovery" in which the NAR has proclaimed the "sales decline is over" look on a granular basis.

The answer is below, and it is even worse than the April data. It also explains why first time buyers have dropped to even further cycle lows of just 27%, down from 29% both a month and year ago.

This is bad because while in April there was a modest increase sales in house buckets from $250 all the way up to $1MM +, in May the only bucket that had an increase in sales from a year ago was that exclusively reserve for the ultra-richest, i.e., those who benefit the most from the Fed's non-trickle downing wealth effect policies. In fact, on a price bucket basis, the May data was unformly worse than April!

The logical follow up question: what is the total percentage of sales by given price bucket? The answer, once again, below.

Housing recovery? Maybe for the richest, and even they are far less exuberant about purchasing $1MM+ mansions. For everyone else, enjoy "plunging" hedonically-adjusted LCD TV prices. Everything else is, well,noise.

Source: NAR

Copper Market in 83,000 Tonnes Deficit in Mar 2014 - ICSG

The global world refined copper market showed a 83,000 tonnes deficit in March, compared with a 2,000 tonnes surplus in February, the International Copper Study Group (ICSG) said in its latest monthly bulletin.

For the first 3 months of the year, the market was in a 205,000 tonnes deficit compared with a 206,000 tonnes surplus in the same period a year earlier, the ICSG said.

World refined copper output in March was 1.87 million tonnes , while consumption was 1.95 million tonnes.

Bonded stocks of copper in China showed a 27,000 tonnes deficit in March compared with a 32,000 tonnes surplus in February.

Copper price extends rally after Chinese data, deficit surprise

In New York trade on Monday September copper jumped to a high of $3.151 a pound after data out of China shows manufacturing activity at a seven-month high.

It's the seventh straight day of gains for the red metal after coming dangerously close to breaching the $3.00 a pound level for the second time this year.

LME copper also showed some strength climbing to $6,900 a tonne after inventories at warehouses managed by the exchange fell to a six-year low.

The latest jump came after the preliminary or "flash" Chinese manufacturing purchasing managers' index (PMI) indicated that the world's second largest economy was stabilizing.

China's HSBC/Markit manufacturing PMI for June rose to 50.8, up from 49.4 in May and much better than expected. A reading above 50 indicates expansionary conditions for industry.

The output and new orders components picked up, even though export orders weakened, suggesting strength in domestic demand.

Better than expected PMI number from the US also boosted sentiment and while the eurozone's measure of manufacturing activity fell back, at 52.8 it is still indicative of growth.

The output and new orders components picked up suggesting strength in domestic demand

The copper price is highly correlated with economic growth thanks to the widespread use of the metal in the construction, transport and power industries.

The global refined copper market swung to a surprise shortage in March and a 205,000 tonnes deficit for the first three months of the year, compared with a 206,000 tonnes surplus in the same period in 2013, preliminary data from the International Copper Study Group showed on Monday.

Defying market expectations, the copper price has dug itself out of a near four-year low struck mid-March.

The metal remains 6.5% down in 2014 as the market adjusts to slower growth in China which consumes more than 40% of the world's copper demand of some 21 million tonnes.

Chinese copper imports tumbled 16% in May compared to the previous month, but year to date China is still importing refined copper at a record setting pace – up a whopping 34% over 2013 to 2.1 million tonnes.

The better than expected import numbers out of China may be a bit misleading however, because much of Chinese copper imports are tied up in finance deals as collateral for trade credit and is not being put to industrial use.

Global primary aluminum output up 200 mt/day in May: IAI

According to figures released by the International Aluminum Institute (IAI), the global primary aluminum output was up by 200 mt per day during the month of May this year.

As per data, the average primary aluminum output excluding China was 67,500 mt per day in May ’14. This is when compared with the revised average primary aluminum output of 67,300 mt per day during April. However, the average output during May ’14 fell significantly from the levels a year ago. The global primary aluminum output had averaged at 68,100 mt per day during May 2013.

The total production during the month of May amounted to 2.093 million mt, almost 3.6% higher when compared with the previous month. The primary aluminum production had totaled 2.020 million mt during the month of April this year. Production during May this year was down when compared with the figures of 2.111 million mt recorded during May last year.

The primary aluminum output during the first five months of the year totaled 10.108 million mt. The average production during the five-month period was 66,900 mt per day. The total output during the corresponding five-month period in 2013 was 10.312 million mt at an average daily rate of 68,300 mt.

Weekly Economic Data for the week 21-Jun-14 to 27-Jun-14

Avg. change of last 1 year:	Average Change in Actual data calculated for last 1 year.
Expected impact on price:	This indicator shows the effect of the anticipation of data on the prices of related country’s major indices. We have categorized it as below: Very Good Good Neutral Bad Very Bad
Actual:	Refers to the actual/latest figures after its release.

Data for the week 21-Jun-14 to 27-Jun-14

Date	Time (IST)	Country	Data	Exp.	Prior	Exp. chg today	Avg. chg of last 1 year	Exp. Impact on Price
23 to 27 -Jun-2014	--	United Kingdom	Nationwide House PX MoM	0.5%	0.7%	-0.20		Neutral
23-Jun-2014	07-15 AM	China	HSBC China Manufacturing PMI	49.7	49.4	0.30	0.97	Neutral
23-Jun-2014	11-30 AM	Japan	BOJ Governor Kuroda Speaks in Tokyo					Neutral
23-Jun-2014	02-00 PM	United Kingdom	Bank of England Credit Conditions Survey					Neutral
23-Jun-2014	07-30 PM	United States	Existing Home Sales	4.74M	4.65M	0.09M	0.16	Neutral
24-Jun-2014	01-30 PM	Germany	IFO - Business Climate	110.3	110.4	-0.10	0.00	Neutral
24-Jun-2014	7-30 PM	Germany	Merkel Meets Designated NATO Head Stoltenberg					Neutral
24-Jun-2014	07-30 PM	United States	Reuters/Michigan Consumer Sentiment Index	83.5	83	0.50	2.48	Neutral
24-Jun-2014	07-30 PM	United States	US-New Home Sales	0.44M	0.43M	0.01	0.01	Neutral
25-Jun-2014	12-30 PM	Germany	Merkel Gives Policy Speech to Lawmakers Before EU Summit					Neutral
25-Jun-2014	06-00 PM	United States	GDP Annualized QoQ	-1.8%	-1%	-0.80%	0.45	Neutral
25-Jun-2014	06-00 PM	United States	US-Durable Goods Orders	-0.2%	0.8%	-1.00%	6.72	Neutral
25-Jun-2014	08-00 PM	United States	EIA Crude Oil Stocks change	--	-5.75	5.79	3.45	Neutral
26-Jun-2014	08-00 PM	United States	EIA Natural Gas Storage change	--	113	-113.00	33.60	Neutral
27-Jun-2014	02-00 PM	United Kingdom	GDP QoQ	0.8%	0.8%	0.00%	0.28	Neutral
27-Jun-2014	02-30 PM	European Monetary Union	EC - Consumer Confidence	--	-7.4	7.40	1.04	Neutral
27-Jun-2014	07-25 PM	United States	Reuters/Michigan Consumer Sentiment Index	82	81.2	0.80	3.26	Neutral

Economic Calendar