How Higher Rents at LME Warehouses Affect Aluminum Market?

News reported that LME-registered warehouses will raise average rental rates for aluminum by 3.6 percent in 2015. 

How higher rent rates will affect aluminum market? 

“The higher charges will accelerate the outflow of aluminum stocks from LME-registered warehouses, evidenced by sharp increases in cancelled warrants in recent weeks,” an analyst from Minmetals Futures told SMM in a most-recent interview.  

Such outflows will also make it more difficult to track aluminum stocks, as most of goods are expected to go to non-LME registered warehouses, rather than consumers, the analyst added.  

Another analyst from Guosen Futures expects the impact from higher rents to be mainly felt by backwardation or contango.  

"There Is Moar Blood" WTI Crude Plunges Into The $40s

WTI crude oil prices are now down almost 55% from the June highs, the impossible just happened... WTI Crude broke into the $40s... the 6-month plunge is the largest since the pre-Lehman plunge and 2nd biggest plunge in 28 years.

WTI back under $50...

Ugly...

Unequivocally not good...

Energy stocks have ropundtripped to pre-Fed levels...

This is exactly what Jeff Gundlach feared.

Jeff Gundlach: "If Oil Drops To $40 The Geopolitical Consequences Could Be Terrifying"

In a recent interview with FuW, DoubleLine's Jeff Gundlach explained his concerns about the oil market not being "unequivocally good" for everyone...

Question: The crash in the oil market is already causing jitters in the financial markets around the globe. What is your take on that?

Gundlach: Oil is incredibly important right now. If oil falls to around $40 a barrel then I think the yield on ten year treasury note is going to 1%. I hope it does not go to $40 because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be – to put it bluntly – terrifying.

What would that mean for stocks?

Gundlach is right historically...

Large and rapid rises and falls in the price of crude oil have correlated oddly strongly with major geopolitical and economic crisis across the globe. Whether driven by problems for oil exporters or oil importers, the 'difference this time' is that, thanks to central bank largesse, money flows faster than ever and everything is more tightly coupled with that flow.

So is the 45% YoY drop in oil prices about to 'cause' contagion risk concerns for the world?

*  * *

Of course Gundlach is not alone in this rational concern...

"In its November 14, 2014 Daily Observations ("The Implications of $75 Oil for the US Economy"), the highly respected hedge fund Bridgewater Associates, LP confirmed that lower oil prices will have a negative impact on the economy.

After an initial transitory positive impact on GDP, Bridgewater explains that lower oil investment and production will lead to a drag on real growth of 0.5% of GDP.

The firm noted that over the past few years, oil production and investment have been adding about 0.5% to nominal GDP growth but that if oil

levels out at $75 per barrel, this would shift to something like -0.7% over the next year,creating a material hit to income growth of 1-1.5%."

-- Mike Lewitt, The Credit Strategist

Source: Bloomberg

Gold price rallies into teeth of rabid dollar

Commodities priced in US dollar usually have an inverse relationship to the world's reserve currency.

None more so than gold.

The gold price jumped the $1,200 barrier on Monday, but given the turmoil on markets and fears of a Lehman-magnitude crisis in the Eurozone, the metal would be expected to be trading higher than it is.

The greenback hit an all time high in February 1985 just as gold bottomed at $284 an ounce

The only thing keeping it back is the stronger US dollar.

On Monday, the greenback hit the highest level since November 2005 against the currencies of major US trading partners, with the dollar index topping 92.

That compares to a record low of 71.6 in April of 2008 and a record high of 164.72 in February 1985 when the price of gold bottomed at $284.25 an ounce.

While the gold price is now back to levels seen in January last year, the dollar strengthened 13.2% during 2014, with almost all the gains coming since August.

Plotted against the greenback on the basis of the past correlation between the two, the price of gold may now be expected to be touching $1,100 as this graph from Saxo Bank suggests:

The Philippine ban on nickel spooks out LME

After the Indonesian government, had declared the ban on the export of nickel ore, its on he Philippines that the whole demand of China is depended.the news that the Philippines is also planning to follow the path of Indonesia has created a kind of panic alert in the market of nickel. But a temporary relief was bought in, when the government of Indonesia itself declared that, the ban will be only after a few years.

At the London Metal Exchange, the benchmark price of nickel declined 1000 dollars to 18,925 dollars on Tuesday; a three month collapses, wiping clean all the profits gained by nickel in the previous days. Even so the news  of the nickel export ban in  the Philippines has highly affected the market, not sure whether to invest in the sinking ship or not. And it can be fairly stated that, the reason behind the recent lagging in the market. It might also turn out to be the effect of recent rumors that have been set out

After the ban announced by the Indonesian government, due to the decline in the price of the commodity in the market, has actually affected the whole base metal strategy. After Indonesia has put on a ban on the export of the commodity, the Philippines were in charge of the commodity’s distribution. The export ban has mostly affected China and also many other countries, who used to be highly depending on nickel, for the production of stainless steel in the market.

Natural gas eases off 2-year lows on cold weather outlook

Natural gas futures were higher on Friday, easing off two-year lows as reports of an outbreak of cold January weather was expected to stoke demand for the heating fuel.

On the New York Mercantile Exchange, natural gas futures for delivery in January were up 4.83% at $3.029 per million British thermal units during U.S. morning trade.

Natural gas futures found support after the U.S. government’s Global Forecast System published earlier in the week showed "a stronger cold push" in the Midwest.

The report also showed lower temperature readings for the Plains, Texas and the Northeast for January 3 through January 7, while forecasts turned colder in the central and northern mid-Atlantic regions for the following five days.

However, forecasts from Commodity Weather Group on Friday indicated that the weather in January will be 6.7% warmer than a year earlier.

Natural gas prices dropped below $3 per million British thermal units last week to the lowest level since September 2012, as unusually mild winter weather limited demand while production soared.

On Wednesday, the U.S. Energy Information Administration said in its weekly report that natural gas storage fell by 26 billion cubic feet last week, compared to expectations for a decline of 38 billion after a drop of 49 billion in the previous week.

Total U.S. natural gas storage stood at 3,220 trillion cubic feet.

Approximately 49% of U.S. households use gas for heating, according to the EIA, the statistical arm of the Energy Department.

Nickel prices likely to move higher in 2015

The rapid change in fundamentals led to high volatility in Nickel prices in 2014. The volatility is expected to continue in 2015, according to analyst reports.

The expectations of an interest rate hike by the US Fed and the feared slowdown in Chinese economy are the major drivers for base metal prices this year. The Nickel prices plunged almost 22% from its peak to close 2014 at $14,935 a tonne. The prices had hit its yearly high of $21,200 a tonne after the imposition of ban on exports by Indonesia. The suspension of production at the Koniambo mines in New Caledonia further support Nickel prices in 2015.

According to latest forecast provided by the London-based consultancy Natixis Commodity Markets, the Nickel prices are likely to average nearly $19,000 a tonne in 2015. This is almost 13% higher than the 2014 average price of $16,867 a tonne. Natixis believes that prices may get adequate support due to supply concerns. However, easing of such concerns would lead to drop in nickel prices in 2016. It predicts the average price in 2016 at $17,375 a tonne.

Natixis forecasts the average price for copper at $6,335 a tonne, aluminum at $2,071 a tonne, zinc at $2,523 a tonne and lead at $2,145 a tonne for 2015.