CHARTS: What will happen to gold price after Greek exit

New study shows Greek bond yields as proxy for euro-zone break-up risk is more reliable than the strength of the US dollar in predicting the gold price

The real possibility of a Grexit is back on the cards. And with it a resurgent gold price.

New York gold futures moved back above the $1,200 an ounce level on Wednesday on news that Greece is preparing to declare a debt default by the end of April amid stalled negotiations with its international creditors.

A report by the Financial Times On Monday said Greece will withhold $2.7 billion in May and June repayments to the International Monetary Fund because it's running out of money to pay state salaries and pensions:

A Greek default would represent an unprecedented shock to Europe’s 16-year-old monetary union only five years after Greece received a €245bn bailout

“We have come to the end of the road . . . If the Europeans won’t release bailout cash, there is no alternative [to a default],” one government official said.
A Greek default would represent an unprecedented shock to Europe’s 16-year-old monetary union only five years after Greece received the first of two EU-IMF bailouts that amounted to a combined €262bn.
Default is a prospect for which other European governments, irritated at what they see as the unprofessional negotiating tactics and confrontational rhetoric of the Greek government, have also begun to make contingency plans.

On Wednesday a report by the Wall Street Journal said negotiations between Greece and its creditors "are nowhere near resolution" for bailout money to disbursed and quotes a US Treasury official:

“It’s important that a strategy be found in which Greece can continue to honor their obligations,” the U.S. official said. “If that doesn’t happen, if there’s not an agreement on that, then there would be economic, potentially tough economic challenges, for Greece,” he warned.

“It would also enhance and amplify uncertainties for Europe and for the global economy. So it’s of great importance that an agreement be reached,” the U.S. official added.

A new report by Capital Economics which examines the relationship between the US dollar, trading at near 12-year highs against the euro, and the price of gold and argues that when the US starts to raise interest rates as it is expected to do perhaps as early as June could potentially "mean more upside for gold than the dollar:"

"The fallout from, say, a 25% rise in the gold price would be largely positive (including the boost to producers’ incomes and the favourable wealth effects). But the same rise in the dollar could have a significantly negative impact on the US economy, and prompt the Fed to delay raising interest rates. This asymmetry may be especially relevant in the event of a shock such as the break-up of the euro."

The report by Julian Jessop, Head of Commodities Research at the independent London-based research firm includes two charts showing the asymmetry of the relationship and how well gold has held up against the dollar like it did in the second half of 2008 and in the first half of 2010.

The second chart plots the gold price against Greek government bond yields as a proxy for euro-zone break-up risk. "This relationship has been more reliable than that between gold and the dollar," says Jessop, who is predicting gold will rise to $1,400 by the end of the year.

Sourced :- Frik Els of MINING.com

Lead Prices Bounce After Diving To 5-Year Low

After hitting a fresh 5-year low in March, lead prices have risen 18% within the last four weeks. This price increase might seem impressive, but we need to remember that this type of bounce is normal after sharp price declines. We can see this happening with copper prices as well.

Most analysts argue that fundamentals are set to tighten and that should make prices rise.

Unconventional Market Movement

However, that’s what they said a year ago (good thing we didn’t) and prices are now well below last year’s levels. The market is expected to move into a deficit of around 100,000 metric tons this year as supply shrinks and demand (sort of) improves.

They might be right, however, as it’s always hard to tell what has already been discounted in the price. What we CAN tell you is that commodities continue to fall, driven by a strong dollar and low oil prices. This is having a depressing effect on industrial metals and most of them are at or near record lows.

Lead Outlook

We believe that this recent bounce in lead prices occurred because the metal needed time to digest a sharp decline, not because lead prices are set to increase.

The metal remains in a falling market and so do the rest of industrial metals. We believe that lead would need a real catalyst to inject upside momentum and trigger prices to climb above 2014 levels. In the meantime, we can’t expect this rally to last too long in the face of a bearish commodity market.

Source: MetalMiner

Bank of America Merrill Lynch cuts 2015 price forecast for Aluminium to $1,800 a ton

Bank of America Merrill Lynch has cut its this year price forecast for aluminium to $1,800 a ton and remained unchanged for 2016.

Bank of America Merrill Lynch previously mentioned that gold prices to average $1,818 a ton this year and $1,850 a ton for next year.

Aluminium has been among the best performing metals since the beginning of 2014. Of course, this was heavily influenced by substantial output curtailments from operators in World ex-China. Yet, exports of semis from China increased in recent months, halting the rally on LME. 

While the aluminium market in World ex- China remains in deficit, we remain cautious until Chinese product shipments subside. Meanwhile, trading on LME is normalising, which has pushed premia lower. 

Premia remain above fair value, so Bank of America Merrill Lynch expects further downside. Incidentally, lower premia have made Chinese semi exports less economic, so there is scope for China’s producers to dump less material onto international markets.

In Bank's view, the headwind to prices was driven by a confluence of factors, including the following:

--China has continued to export substantial tonnages of semi-finished products. Of course, while the majority of these semis are genuine, some really are primary aluminium disguised as a product to attract tax rebates.

--In addition, queues at LME warehouses after the Financial Crisis contributed to a substantial tightening of the physical market. Yet, trading on the exchange has gradually normalised.

North American Aluminum new mill orders surged 10% in Mar '15

The statistics released by the Aluminum Association indicates that the new mill orders for the month of March 2015 have increased significantly by nearly 10% from the same month a year ago. The orders jumped 6.6% from Feb ’14 levels.

The year-to-date new mill orders index was up by 7.0% in 2015.

New orders for plates have declined by 10.3% in March this year when compared with the same month a year ago. The Mar ‘15 plate orders were also down by 5.8% from January levels.

The heat-treatable sheet orders during the month of March this year surged higher by 125.7% from Mar ’14. Also, the orders climbed higher by 14.4% over the previous month. Non-treatable sheet orders were up by 7.7% year-on-year, but declined marginally by 0.2% from the previous month.

New orders for extruded products and domestic can were up in March, whereas those of foils and export can stock declined.

The orders of extruded products jumped 11.8% in March ‘15 when compared with the previous year. Also, extruded products orders were up by 10% when compared with February 2015 orders.

The Mar ‘15 orders of foils plunged by 17.3% when compared with the previous year. However, the orders rose significantly by nearly 9% from Feb ’15.

The orders of domestic can stock were up by 12.5% from previous year. Also, the orders during March were up by 10% over the previous month.

Also, the orders of export can stock fell 13.2% month-on-month in March ’15. The export can stock orders were up by 1.2% on year-on-year basis.

Deutsche Bank: It's perfect time to buy Nickel

The capitulation on nickel is understandable. Weak stainless steel demand compounded by de-stocking in a traditional restocking period, combined with growing uncertainty over Philippine ore exports have undermined the bull case.

 

Deutsche Bank continues to believe that Chinese nickel pig iron production will decrease as high ore stocks are depleted. However, even if production rates stay higher than anticipated, the current price environment means that 40% of the industry is underwater.

 

Deutsche Bank estimates that the marginal NPI cash cost is c.USD16,000 a ton, which is a more sustainable price in their view, and represents 30% upside from current levels.

 

Nickel is the worst performing base metal, down 17% since the beginning of the year. This is in contrast to the other base metals which are down between 1 to 5%, and lead which is up c.3%.

 

Although Chinese demand has been weak across the board, the recent (widely expected) imposition of an import tariff on imported stainless steel by the European Commission has been a further significant drag on nickel.

 

The 25% rate was also higher than expected. Chinese stainless steel production was down 16% year on year for February, and although the production increases in other regions should compensate, the short-term de-stocking is creating volatility in the short-term.

 

Furthermore, Deutsche Bank thinks investors have given up on the bull case in nickel, as Chinese port ore stocks have remained high and LME inventories have yet to show any signs of declining.

Big Chance Exists for Zinc Prices to Rise in Q2

Zinc prices will have a big chance to rise during the second quarter of the year.

Production worries from environmental drive and demand expectations following China’s One Belt, One Road policy, and loosing in housing market will be the major price driver, Jinyou Futures said to SMM.  

The ongoing stricter environmental protection inspections across the nation, especially in some regions, will prevent utilization rate at domestic zinc smelters from rising significantly, and this will serve as a major supporter to zinc price.

The US’s potential hike in its interest rate, however, will be negative to zinc price, but the supply and demand side will remain the leading factor. 

How will El Niño effect Base Metals Market this year ?

El Niño has arrived, according to a report released by the National Oceanic and Atmospheric Administration (NOAA) in early March.

What is El Niño?
El Niño is the warm phase of the El Niño Southern Oscillation (commonly called ENSO) and is associated with a band of warm ocean water that develops in the central and east-central equatorial Pacific (between approximately the International Date Line and 120°W), including off the Pacific coast of South America.

El Niño Southern Oscillation refers to the cycle of warm and cold temperatures, as measured by sea surface temperature, SST, of the tropical central and eastern Pacific Ocean.

How will El Niño effect Metals Market this year?

“Extreme weather related to El Niño, such as floods or droughts, will be a big threat to production in world’s major metal producing countries, including Chile, Peru, Indonesia. Supply disruption resulting from this will boost the market,” said an analyst from COFCO Futures in SMM interview.

Another analyst from Guosen, however, expects the impact on metals market to be indirect, saying the disruption on production in major producing countries remains to be seen. But, he adds that copper price will likely stage a rally in 2Q.

Foreign investors generally expect a boost on the market from El Niño, especially copper and nickel prices.