Macquarie’s LME Week Base Metals Summit Survey

Macquarie’s Base Metals Summit, a linchpin of LME Week for the past decade, was held today where an audience of over 400 market participants were polled on their views on the outlook for base metals over the next 12 months.

Providing a strong indication of market sentiment in the metals industry at the start of the annual LME Week gathering in London, the 2014 Macquarie LME Week Summit Survey indicates that market fundamentals will continue to drive differentiation across base metals, though macro headwinds are increasingly a concern.

The results also show a large swing in participant preference towards nickel , despite weak recent performance. In contrast, copper is now the favourite short for the first time since the global financial crisis on strong supply growth.

Commenting on the results, Macquarie’s Head of Commodity Research, Colin Hamilton said “The results reflected confidence in the 2015 story for nickel, while the market seems well aware of the supply headwinds facing copper”.

Further highlights from the survey include:

• 46% of the audience expected the global economy to be moderately weaker over the next 12 months, while 35% expected it to be much the same. Only 7% predicted a growth shock.

• Global metals demand is expected to grow modestly in 2014 by 47% of the audience, while 24% think it will contract – a figure much higher than the 2013 summit.

• 77% of the audience expects Chinese GDP growth to drop below the 7% mark in 2015.

• 36% of participants believe the impact of global deflation will be the key theme being discussed by the market in mid-2015.

• 40% consider the volume of ‘invisible’ metal stored off-market as the biggest problem in current base metals markets.

• When asked in which metal they would most like to hold a short position on a 12-month view, copper was the favourite for the first time in 6 years, while zinc was the least preferred short.

• When asked in which metal they would most like to hold a long position on a 12-month view, nickel took 47% of the poll (up from 10% in 2013). In contrast, only 7% voted for copper.

• Delegates think that another co-ordinated global easing is the biggest risk to the upside over the next 12 months, while a China collapse presented greatest downside risk.

In terms of the individual metals:

• The audience's weighted average price expectation for cash copper was $6,663/t a year from now, compared with Monday's LME official price of $6,615/t. This is 9% lower than 2013 Summit expectations.

• 53% expected the copper market to take until 2017 or beyond to move back to deficit.

• The audience's weighted average price expectation for cash aluminium was $1,997/t a year from now, compared with Monday's LME official price of $1,955/t. This is 5% higher than 2013 Summit expectations.

• A flood of Chinese supply is viewed as having greatest potential to cause aluminium inventory unwind.

• The audience's weighted average price expectation for cash nickel was $19,859/t a year from now, compared with Monday's LME official price of $15,315/t. This is 12% higher than 2013 Summit expectations.

• The majority of the audience expected the Indonesian nickel ore ban to stay in place over the coming year.

• The audience's weighted average price expectation for cash zinc was $2,325/t a year from now, compared with Monday's LME official price of $2,223/t. This is 9% higher than 2013 Summit expectations.

• The majority of participants expect some Chinese mine supply growth in 2015, but only when incentivised by price.

• The audience's weighted average price expectation for cash lead was $2,137/t a year from now, compared with Monday's LME official price of $2,012/t. This is 6% lower than 2013 Summit expectations.

• The audience's weighted average price expectation for cash tin was $19,809/t a year from now, compared with Monday's LME official price of $19,400/t. This is 25% lower than 2013 Summit expectations.

HKEx to introduce first Asia commodities contracts

Hong Kong Exchanges and Clearing Limited (HKEx) will introduce its first Asia commodities contracts – London Aluminium Mini Futures, London Zinc Mini Futures and London Copper Mini Futures – for trading on Monday, 1 December 2014, subject to market readiness.

The three mini metals contracts will trade in Renminbi (RMB). Other contract details, including the hours of the after-hours trading session, are shown in the tables below.

HKEx decided to postpone the introduction of its US-dollar traded API 8 Thermal Coal Futures so it could focus on the launch of the mini metals contracts. HKEx remains committed to the coal contract and will announce its rollout date later.

"This is another big step in our commodities strategy following our launch of self-clearing at the London Metal Exchange (LME) last month and our announcement last month of new LME fees, starting 1 January 2015, to support our ongoing investment in the LME," said HKEx Chief Executive Charles Li. "The new contracts will provide currency convenience, they will expand our range of RMB products, and they will further strengthen Hong Kong's position as the leading offshore RMB centre," Mr Li added.

"These new contracts are part of our fixed income, currency and commodities strategy in Asia and our efforts to expand our Hong Kong markets into new asset classes," said Romnesh Lamba, HKEx’s Co-head of Global Markets.

"RMB traded mini-contracts traded at HKEx, referenced to the LME global reference price, further develops our coverage for global metals traders and enhances liquidity," said HKEx’s Co-head of Global Markets and LME Chief Executive Garry Jones.

Trading Details

The new mini metals contracts will be traded on Hong Kong Futures Exchange Limited (HKFE) and cleared through HKFE Clearing Corporation Limited. They are all monthly cash-settled futures contracts. The trading hours for the new London Aluminium/ Zinc/ Copper Mini Futures will be 9:00 am to 4:15 pm and 5:00 pm to 1:00 am the next morning Hong Kong time Monday to Friday, excluding the public holidays on HKEx's trading calendar. Pre-holiday arrangements will also be the same as those for existing contracts traded on HKFE. Key contract specifications are shown in the table below.

Liquidity Providers, Active Trader Programmes and Possible HKFE-LME Reciprocal Scheme

HKEx is seeking Liquidity Providers for the new contracts and there are two Active Trader programmes with fee rebates (please see this circular for details). HKEx is also aiming to introduce a scheme to encourage LME Members to become HKFE Participants and vice versa. Subject to regulatory approval, there will be a low-cost way for LME Members and related entities that meet certain requirements to become HKFE Participants, and for qualified HKFE Participants and related entities to become LME Members.

Key Contract Specifications

Ends --

The London Metal Exchange, Hong Kong Futures Exchange Limited and HKFE Clearing Corporation Limited are wholly-owned member companies of HKEx.

Zinc demand to outcast supply by the end of 2014, says ILZSG

According to the estimation released by the group, the demand for zinc would rise about to 13.65 metric tonnes, which is a 5.1 percent increase compared to the present situation, and will be followed by an additional increase in demand of 14.05 million metric tonnes, which is another 2.08 percent increase.

 

The anticipated increase in demand is expected from China as the production of galvanized sheet  in the country, is reported to have risen to a large extend. According to the reports from the International Lead and Zinc Study Group, the increase in global demand of zinc excluding the demand from China, is rather low, which is reported to be 2.3 percent hike in the year, 2014 and 1.3 percent hike in the year 2015.

 

The group also stated that, in Europe, 1.2  percent hike in demand is expected this year and 1 percent hike in demand is expected the year after, after remaining constant through the year of 2013.  In the year 2014, a sharp increase in the demand of zinc is expected with a raise of 8.4 percent, followed by the large scale import of zinc into the United states, even so the demand from the United States will decline in the year 2015 to 0.4 percent.

 

At the same time the production of zinc is expected to have a slight hike of 1 percent to 13.33 million metric tonnes in the year 2014, and a 3.8 percent increase in the production by 13.80 million metric tonnes, in the year 2015.

China’s electric car production encourages the rise in demand for aluminum

The world’s largest producer of carbon fumes, China, has decided on promoting electric cars by replacing about 30 percent of the government vehicles with a new electric power charged vehicles, with an agenda of reducing the rate of air pollution and also conserving the resources.

The present estimation of the demand of aluminum , based on the production of cars in China, South Korea and Japan, is likely 50,000 metric tones, and there is now a chance of 30 percent hike in aluminum demand, for as long as next decade, stated the President of Novelis, Shashi Maudgal.

He also stated that, China, is now under a strong determination to increase the production and usage of electric based cars. If the government decides on using this plan all over the country, then the demand will increase over 30 percent.

Today the company, is inaugurating its brand new aluminum plant in china, located in Changzhou, which is situated about 180 kilometers away from Shanghai. The new aluminum plant is expected to produce about 120,000 tonnes, of aluminum auto body sheets.

Whether the company has already fixed their customers, or are in communication regarding the supply are still unknown. Anyway the expected car companies in the list are SAIC Motor Corp and Chery  Jaguar Land Rover Automotive Company Limited.

World Nickel output and utilization to increase in 2015, says INSG

The participants at the meeting held last week by the International Nickel Study Group (INSG) in Lisbon, Portugal has predicted significant growth in global Nickel production and consumption during 2015.

According to INSG, the improved economic situation around the globe has led to increased consumption of Nickel during first half of the current year. The countries which reported significant consumption growth during the six-month period were China and North America. The conditions remained favorable for Nickel market in the European region and Japan.

The Indonesian ban on ore exports has affected Chinese nickel pig iron production. The shortage of availability of nickel ore has adversely affected the functioning of large number of new facilities that became on stream during this period, thus resulting in reduced global production of Nickel. However, nickel ore exports from the Philippines continued to increase.

INSG predicts marginal drop in world primary nickel production in 2014. The production is likely to to reach 1.93 Mt in 2014. It must be noted that the production during 2012 and 2013 were 1.75 Mt and 1.94 Mt respectively. However, the output is likely to record marginal growth in 2015 to total at 1.95 Mt. INSG cautions that the above forecasts are subject to alterations on account of future market developments.

The world primary nickel usage is estimated to increase from 1.78 Mt in 2013 to 1.92 Mt in 2014. The usage is likely to post further growth to reach 1.97 Mt in 2015, added INSG.

Natixis sees LME Nickel to avg $19,000 a ton in 2015

LME nickel prices are expected to average $19,000 a ton during next year, said Natixis in its Metals review.

According to Natixis, of all the base metals, there is perhaps the greatest potential uncertainty surrounding the outlook for nickel.

Uncertainty surrounds:--The strength of Chinese demand for nickel,
--The size of unreported nickel (and stainless steel) inventories held in China,
--The likely volume of NPI produced in 2015H1 as a ban on exports of Indonesian ore combines with seasonal weakness in Philippine supplies,
--The pace at which Indonesian nickel ore is likely to return to the global market in the form of 4% NPI.

Natixis's central forecast anticipates a period of deficit during first half of 2015, resulting in an average LME nickel price of around $19,000 a ton over 2015 as a whole, although there is scope for substantial variation around this mean.

By 2016, The firm would expect the market to have settled more closely upon its longer-term equilibrium, hence Natixis forecast for an average price of $17,375/tonne for that year.

Zinc deficit to be 366,000 T in 2015 -ILZSG

The global zinc market is forecast to have a deficit of 403,000 tonnes in 2014, dipping to 366,000 tonnes next year, the International Lead and Zinc Study Group (ILZSG) said on Monday.

The group also said, following its annual meeting, that the global lead market is forecast to be in a deficit of 38,000 tonnes this year and 23,000 tonnes in 2015.

In zinc, global demand for refined metal is expected to rise by 5.1 percent to 13.65 million tonnes this year and a further 2.9 percent to 14.05 million tonnes in 2015, the ILZSG said.

"These rises will be primarily driven by increased Chinese usage," it said in a statement.

Refined zinc metal output is forecast to rise by 2.9 percent to 13.25 million tonnes in 2014 and by 3.3 percent to 13.68 million tonnes in 2015 mainly due to further expansion of output in China, it added.

In lead, global demand for refined lead metal is forecast to increase by 1.4 percent to 11.33 million tonnes this year and by

2.1 percent to 11.56 million tonnes in 2015, the group said.

Growth in Chinese lead demand is due to slow this year.

"This is mainly due to a slowing of the increase of output of e-bikes that account for a significant portion of Chinese automotive lead-acid battery sales," it said.

World production of refined lead metal is forecast to edge up by 1.5 percent to 11.29 million tonnes in 2014 and rise by 2.2 percent to 11.54 million tonnes in 2015.