Will LME Nickel continue to outperform base metal complex?

LME nickel overnight closed up 1.05% at $11,580 per ton as other base metals largely finished lower against a strong dollar. Will this continue into the last trading day of the week? 

“Weak demand and a strong dollar will cap gains in the nickel market, and short bets are advised to be built, with stop-loss order at 84,000 yuan for September delivery nickel on the SHFE,” an analyst told SMM in an interview. 

Another analyst from Chaos Ternary Futures expected wide trade in nickel market, with prices between 81,000-89,000 yuan per ton.

In other news, LME nickel inventories fell to 452, 850 as of Jul. 16, down 630 tons from a day earlier. The same day, Jinchuan Group announced to cut its ex-works prices after raising for second consecutive days.

LME Zinc price may advance to near $2,100 a ton mark next week

LME zinc prices are expected to point toward $ 2,100 next week, moving between $ 2,050-2,120 per ton, SMM zinc analyst predicts.

"Zinc prices appear to be more resistant to declines among other base metals, and investor confidence will improve after some mines lowered domestic zinc concentrate TCs due to tight supply in South China”, SMM zinc analyst explains. A technical indicator also shows significant support to LME zinc price.

But a strong US dollar will constrain some price gains, SMM added.

In China, September-delivery zinc contracts on the SHFE will consolidate support from the 5-day moving average, fluctuating in the 15,500-16,000 yuan per ton range. SHFE zinc price will underperform LME zinc with the lack of market confidence from soft domestic demand.

Spot price in Shanghai will trade 0-60 yuan per ton below SHFE zinc contracts for September delivery.

Supply grew recently as smelters increased sales with rising zinc price. A narrowing price gap between Shanghai and Tianjin will also drive more shipments to Shanghai. Purchases will be sluggish, though. 

Traders will be reticent toward goods releases after delivery, and downstream buying interest will be also weak, allowing spot discounts to expand.

Nickel prospects likely to improve in H2 2015

According to the third quarter commodity outlook report released by Deutsche Bank, the nickel market looks poised to improve significantly during second half of the current year. Incidentally, LME Nickel prices had touched six-year low on Tuesday, dropping to sub-$11,000 per mt level.

The research note states that the firm is confident on the prospects of nickel market and that it maintains a positive outlook on nickel market, going forward.

The Chinese unwrought non-alloyed nickel imports surged higher during the month of May this year, rising 127% year-on-year to 23,146 mt, said most recent data released by the country’s General Administration of Customs. The imports had totaled only 5,613 mt and 18,220 mt during the months of March and April respectively. This indicates that refined nickel import market has more or less returned to normalcy. On the other hand, a portion of these imports are assumed to be from Russia ahead of SHFE approval of Russian nickel deliveries.

Sources indicate that Norilsk Nickel has registered three bands- NORILSK COMBINE H-1, SEVERONICKEL COMBINE H-1, and SEVERONICKEL COMBINE H-1Y for physical delivery on the exchange.

The sharp rise in ferronickel imports by China during the month of May this year is also considered as a positive trigger for nickel market. The imports of ferronickel surged higher by 247% year-on-year to 61,551 mt. However, the imports were down when matched with the imports of 75,154 mt in April. The cumulative imports during the initial five-month period of the year were up by 110%.

Meantime, Shanghai nickel premiums continue to remain at high levels, indicating supply tightness in physical market. The tightening stainless steel scrap availability in Europe is also considered to favor nickel market, as stainless steel market accounts for nearly one-third of the global nickel consumption.

According to Deutsche Bank, annual Nickel prices are likely to touch $14,520/mt in 2015.

Chinese Zinc concentrate TCs to rise on growing supply

TCs for domestic zinc concentrate will rise on growing supply.

"Zinc concentrate imports are expected grow on increasing margins”, zinc analyst explains.

Profit from imported zinc concentrate increased 170 yuan to 520 yuan per ton (zinc content) above those from domestic concentrate this past week.

Recent rainstorms in Hunan and Guangxi have little impact on local mines due to suspension across SMEs from environmental protection inspections and stable production at large mines. Some mines were reluctant to sell on continuously falling zinc prices.

This week, TCs for imported zinc concentrate (50%) were $ 210-220 per dry metric ton (DMT), while those for domestic zinc concentrate (50%) were 5,300-5,500 yuan per ton (zinc content).

Source: Shanghai Metals Market

Will Copper Break below the January Trough?

Weak demand, declining trading activities and China’s poor data are pushing copper prices towards a low last seen in mid-January.

What’s next? Is the red metal falling below the January trough?

“Copper price dropped to a low never seen since 2009 in January, but this may not be the bottom for 2015 if you look at the data for construction,” said analyst of Everbright Futures.

The analyst explained that although home sales picked up, housing starts remained weak, presaging poor copper demand in the latter half of the year.

“Falling fixed asset investment means the economic growth will be less dependent on investment, which is certainly bad news for copper market,” analyst from Guotai Junan Futures told SMM.

Image Source: fastmarkets.com

Peru's metal output rises in April, silver production lags

The production of almost all major metals by Peru reported robust growth in Peru during the month of April this year. While the output of copper, gold and zinc reported significant increase during the month, silver production declined, in accordance with the official government data released yesterday.

According to data released by the Energy and Mines Ministry, copper production rose 18.5% from 103,410 mt in April last year to 122,506 mt in Apr ’15. The decline in copper output from Freeport-McMoRan's Cerro Verde was offset by increased mine output from Antamina, Southern Copper, Toromocho and Antapaccay mines.

The increased output from Newmont and Barrick gold mines contributed to the 15% growth in gold production during April this year. The gold production totaled 379,504 Oz in Apr ’15, in comparison with the output of 330,273 Oz during the same month a year before.

Silver production dropped marginally by 0.4% over the year from 9.57 MOz to 9.53 MOz in April. The output from Antamina mines dropped significantly, whereas Buenaventura and Volcan reported rise in silver production during the month.

Zinc production rose 17.7% from 97,128 mt a year before to 114,323 mt in Apr ’15. Lead output too rose 27% from 97,128 mt to 114,323 mt over the previous year. Lead output witnessed sharp increase in Antamina, Volcan and Milpo. Molybdenum output too jumped 45% to 1,632 mt in April 2015.

Meantime, tin production by Minsur- the country’s only tin producer, rebounded sharply in April this year, rising nearly 15% from 1,438 mt in April 2014 to 1,654 mt in April this year.

How central banks will push up the gold price

Gold on Tuesday was inching its way back to the $1,200 an ounce, a level it hasn't strayed too far from for the better part of three months.

A new research note by anlyst Simona Gambarini of Capital Economics suggests official sector buying can take much of the credit for establishing something of a price floor for the metal this year.

During the first quarter this year, the World Gold Council estimates that 120 tonnes of gold were added to global central bank reserves.

Central banks have upped their share of overall gold demand from around 2% in 2010 to as much as 14% last year and in 2013.

Just to up gold as a share of forex reserves to 5% central banks in emerging economies need to buy 8,000 tonnes

Gambarini expects this trend to strengthen adding that "any emerging market central bank looking to reduce exposure to the dollar still has few credible alternatives to gold":

Most developing countries still hold less than 10% of their reserves in gold, compared to 70% or more in advanced economies. Admittedly, the much higher share in the latter is mainly a legacy of the Gold Standard. Nonetheless, an optimal share that makes the most of gold’s diversification benefits would probably be at least 15%. Even the European Central Bank (ECB), established long after the demise of the Gold Standard, holds around 25% of its reserves in gold.

Barron's quotes chief economist Warren Hogan and commodity strategist Victor Thianpiriya of ANZ, an Antipodean bank, on the same issue:

"If all central banks in the world were to hold at least 5% of their foreign exchange reserves as gold, this would require the purchase of almost 8,000 tonnes of gold,” argued Hogan and Thianpiriya. Emerging market central banks should remain net buyers of gold to bring their allocations more in line with developed countries’ – to the tune of about 75 tonnes a year, they added.

While Russia's central bank has been most active recently (30 tonnes in March and another 8.3 tonnes in April), rumours about massive buying from People's Bank of China are perennial.

China's gold reserves are officially put at 1,054 tonnes – a number authorities haven't updated since 2009.

Gold makes up only around 1% of the country's $3.8 trillion in reserves compared to more than 70% for the United States which holds more than 8,000 tonnes of gold in vaults.

ANZ expects the gold price to top $2,000 an ounce by the end of the decade while Capital Economics has a $1,400 forecast for the end of this year.