U.S. aluminum premiums tumble to lowest in year as arb draws imports

(Reuters) - U.S. aluminum premiums have plunged by as much as 20 percent in the past week, reaching their lowest in more than a year as imports flood into the last remaining bright spot in a worsening global market.

Premiums paid for physical delivery on top of the London Metal Exchange benchmark have sunk to 14-15 cents per lb this week, the lowest since early 2014, from 18 cents last week as financing deals unravel and demand remains weak.

The decline from record highs above 24 cents earlier this year will provide some relief to can- and car-makers such as MillerCoors and Coca Cola Co . For producers like Alcoa Inc and Rusal <0486.HK>, it has removed a major prop to profits as LME prices tumble, increasing pressure to reduce high-cost capacity.

Market participants had expected premiums to fall after the LME introduced much-anticipated rules to reduce queues at warehouses with logjams. In Detroit, the wait time to take delivery of metal is a year and a half. 

Still, the scale and speed of the decline have sounded alarms among traders, reminiscent of the dramatic slump in 2008 when carmakers dumped millions of tonnes of unwanted metal in Detroit as sales collapsed at the height of the global economic crisis.

"Asia doesn't need anything. Europe doesn't need anything. There's inventory everywhere," said one U.S. trader.

For traders holding stock, the appearance of a backwardation this month, with cash prices higher than forward, has made financing deals unprofitable. The cash-to-three-month spread was around $9.75 per tonne on Wednesday.

The surcharges are tumbling quicker than expected as a wide arbitrage lures material from exporters who might otherwise sell to Europe, where premiums have nearly halved to around $250-$290 per tonne duty-paid from records seen in November last year.

In recent months, material has landed on U.S. shores from India in bulk for the first time in more than a decade, adding to the big flows of metal from the Middle East, Russia and Canada.

This week's drop has narrowed the arbitrage with Europe to around $100 per tonne, but traders say the cost of shipping metal to the United States may put a floor under premiums in the long term, helping to prolong the arbitrage game.

Estimates range between 8 and 12 cents per lb, which is $180-265 per tonne. They are historically still very high.

"Premiums will continue to fall, but not to historic levels because the U.S. is short of aluminum," said David Wilson, metals analyst at Citigroup. He reckoned premiums will fall to 9-11 cents per lb in the second half of the year.

INDIA, THE NEW SUPPLIER?

The pace of imports will reinforce concerns among producers about oversupplies and Chinese aluminum flooding the global market. Unwrought imports in the first two months of the year breached 500,000 tonnes for the first time in six years, with bigger-than-usual tonnages from Germany and India.

In February, India imported 1,027 tonnes of aluminum, the highest monthly total for the country since 2001, according to U.S. trade data.

That's still small compared with Canada and Russia, but it was likely due to new smelting capacity from Vedanta Resources Plc and Hindalco Industries Ltd , traders said.

India only imported metal in four months last year and over the past decade or so, it has only sporadically imported aluminum into the United States.

That's on top of hefty inflows last year of 3.06 million tonnes, the highest in five years, as Alcoa's smelter in the Middle East ramped up.

Zinc Deficits Drop as Prices Rise

 Zinc producers, along with investors, have been hoping for a supply crunch to materialize after repeated warning of mine closures and predictions of ore shortages, but supply has remained stubbornly robust.

As recently as October, the International Lead and Zinc Study Group (ILZSG) was predicting a zinc

deficit for this year of 366,000 tons, a figure more than halved to 151,000 tons this month, and itself still higher than a recent Reuters poll predicting a 143,000-ton deficit for the year. Overall, about a million tons of supply will eventually be taken out, Robin Bhar of Societe Generale predicts, but one unknown is how much mothballed production could come back onstream.

New Mining Coming Online

At $2,200 per metric ton most miners are operating profitably, a 10% rise (we have seen this much already over the last two months) would probably seal the case for restarts, in addition to several smaller projects already in the pipeline.

Some point to falling London Metal Exchange inventory as a sign of deficit but to what extent this is metal coming off-warrant to be moved into lower rent non-LME storage is not clear. Zinc has suffered from the same distortion as aluminum in recent years, with the stock and finance trade soaking up a percentage of production and inflating the impression of apparent demand.

The current LME forward curve does not support that trade at present, but that doesn’t negate the fact a significant percentage is still locked up in those deals.

For now there is ample ore supply, Reuters reports, as evidenced by treatment charges that have risen to $245 an mt, a 10% gain, from last year. To clear up a misconception, treatment charges rise with supplies as mining groups compete to find smelters to process their material.

Everyone Gets a Surplus

This year, the Chinese domestic zinc market is expected to be in surplus as domestic output and imports rise, while demand for the metal weakens. A slowing manufacturing sector and tightening environmental standards could also trim zinc demand sapping expectations of a rise in demand.

Against such a backdrop the rally in prices seen in recent weeks could be said to be overly bullish, fueled as it is by falling inventory and expectations of a looming supply crunch, the current market realities don’t support a near-term supply shortfall, but markets are said to trade on expectation so maybe investors’ optimism about higher prices is right, just ill-timed.

Original text link:http://agmetalminer.com/2015/04/28/predicted-zinc-deficits-fall-as-prices-rise/

GLOBAL ECONOMY-China factory activity disappoints again, hopes pinned on US and Europe

* Surveys show China PMI falls to 49.2 in April, Japan PMI at 49.7

* Asia still facing tough conditions, more China stimulus seen

* European and U.S. flash PMIs due later Thursday

(Reuters) - Manufacturing activity in Asia's top two economic powerhouses slowed further in April, a disappointing outcome that calls for yet more stimulus and puts pressure on the United States and Europe to do more of the heavy lifting to drive global growth.

 

The flash HSBC/Markit Purchasing Managers' Index (PMI) for China fell to a one-year low of 49.2, from 49.6, pushing deeper below the 50-point level that is supposed to separate growth from contraction.

 

"The worse-than-expected PMI suggests downside risks to China's 2015 growth outlook," analysts at Barclays wrote in a note to clients.

 

"We believe downside risks to growth and inflation are materialising given the disappointing Q1 growth rate, and maintain our below-consensus 6.8 percent growth forecast for 2015."

 

The soggy outcome illustrated why the People's Bank of China

 

(PBOC) on Sunday cut the amount of cash that banks must hold as reserves to help spur lending.

 

It slashed the reserve requirements by a bigger-than-expected 100 basis points (bps). 

 

"We continue to call for two more 50 bps reserve requirement ratio cuts and three more 25 bps benchmark rate cuts over the rest of the year," Nomura analysts said in a research report.

 

Hopes of yet more stimulus have helped sparked a massive rally in the local share market. The CSI300 index <.CSI300> of the largest listed companies in Shanghai and Shenzhen has risen over 30 percent so far this year.

 

It briefly scaled a fresh seven-year peak of 4,767.9 in the wake of the survey, but has since drifted off the high.

 

The report was not all bad with overseas demand picking up in April and new export work rising for the first time in three months.

 

A separate survey showed Japan's PMI slid to 49.7 from 50.3 in April as new orders continued to shrink and manufacturing production fell for the first time since July 2014.

 

Yet the rate of decline for production was only fractional and encouragingly employment returned to growth.

 

"Meanwhile, reports of a favourable yen/dollar rate continued to help improve price competitiveness, as companies noted a rise in new export orders for the tenth consecutive month," said Amy Brownbill, an economist at Markit.

 

The result is unlikely to drive the Bank of Japan (BOJ) into action. The BOJ has steadfastly maintained its outlook for a recovery that will keep the economy on track to hit the central bank's 2 percent inflation goal over time.

 

At next week's policy review, the BOJ is expected to hold off on expanding its already massive monetary stimulus but may lower its inflation forecasts.

 

All eyes are now on PMI surveys for the euro zone, with forecasts for the Markit's flash Eurozone Composite PMI centring on a more encouraging reading of 54.4, up from 54.0.

 

In the United States, the factory sector is expected to continue expanding in April, albeit at a slightly slower pace. The Markit's flash U.S. manufacturing PMI is seen at 55.5 versus 55.7 in March. 

Cautious optimism for zinc, despite burnt fingers

(Reuters) - Too often in previous years those betting on higher zinc prices have suffered burnt fingers, but for now some are cautiously optimistic that a deficit and falling stocks will buoy prices.

Historically, supplies of the metal -- used to galvanise steel -- go from feast-to-famine as miners ramp up output when prices rise and cut when prices fall.

However, producers are now more wary and are looking for sustainably higher prices to boost and protect profit margins.

"Zinc does come with baggage, it's destroyed a lot of shareholder value. Miners are being careful," said Robin Bhar, metals analyst at Societe Generale.

"But demand is healthy and supplies are falling ... Mines have closed and more are due to close. Overall about a million tonnes of zinc in concentrate will be taken out."

Planned closures include the Century mine in Australia owned by China's MMG and Vedanta Resources' Lisheen mine in Ireland.

Restarts of existing mines such as Teck Resources' Pend Oreille and Trevali's Caribou zinc mine could take up some of the slack. But new projects such as Vedanta's Gamsberg in South Africa will not be producing for a couple of years. 

Zinc prices at around $2,200 a tonne may be high enough for some to contemplate restarting mothballed mines.

"Another $200 or $300 would make a much stronger case," a producer said. "There's plenty of (concentrate) supply at the moment for smelters."

Some are concerned about China's zinc exports, which are climbing. But at 39,489 tonnes between January and March, they are for now a fraction of total demand estimated at nearly 14 million tonnes this year. 

SPIKES AND SLIDES

Ample supply of zinc concentrate can be seen in treatment charges, which have risen to $245 a tonne, a 10 percent gain, from last year. Treatment charges rise with supplies as mining groups compete to find smelters to process their material.

Zinc rose more than 15 percent between November 2013 and July 2014. It fell back about 10 percent to below $2,000 a tonne between July and mid-March.

Since then expectations of a deficit, 145,300 tonne this year according to a Reuters survey, mine closures and falling stocks have pushed prices back up. 

"The deficit will rise. The big question is how stocks of metal and concentrate accumulated in recent years ," said Graham Deller, analyst at consultants CRU. "Century and Lisheen are eventually going to make a difference."

Zinc stocks in LME-registered warehouses at around 486,850 tonnes have tumbled more than 30 percent since last September and compare with levels above 1.2 million tonnes in June 2012.

Data from the International Lead and Zinc Study Group showed producer and consumer stocks of refined zinc at around 1.5 million tonnes in February.

"A deficit will result in a drawdown of inventories," said Andrew Thomas, a zinc analyst at consultants Wood Mackenzie.

Nickel surplus to shrink dramatically this year - INSG

The global nickel surplus will shrink to about 20,000 tonnes this year as an export ban on nickel ore by top producer Indonesia further crimps production in China, the Lisbon-based International Nickel Study Group

 

(INSG) said on Wednesday.

 

Last year's surplus was 120,000 tonnes.

 

"The Indonesian export ban on nickel ore which took effect in January 2014 is expected to reduce further the nickel pig iron (NPI) production in China despite the increase in nickel ore exports from the Philippines," said the industry body.

 

Nickel pig iron is a low nickel content substitute for refined nickel, commonly used by Chinese stainless steel makers.

 

Global demand for nickel is expected to increase to 1.94 million tonnes in 2015 versus 1.87 million in 2014, according to the INSG, while output is expected to shrink to 1.96 million tonnes versus 1.99 million.

 

"An estimated lower GDP increase in China in line with the government goal to achieve a more sustainable and environmental friendly growth (means) primary nickel usage will continue to grow but at a lower rate than in recent years," said the Lisbon-based group.

 

Supplies of nickel reached glut levels in the past few years with inventories in London Metal Exchange-registered warehouses currently near their highest ever levels at more than 434,000 tonnes, according to LME data.

Copper Plunge Continues Despite Chinese Stimulus

Since China unleashed its latest (and greatest since 2008) RRR cut, stock prices have surged amid the liquidity hype. However, perhaps more indicative of the underlying reality of just what good an RRR cut will do to a debt-saturated economy full of weak credits thanks to tumbling asset prices, copper prices have now plunged over 6% in the last 2 days...

But still BTFATH in Chinese stocks...

Charts: Bloomberg

10 Top Nickel-producing Countries

While many expected the nickel price to continue to rise in 2014 on the back of Indonesia’s ban on unprocessed ore exports, it ultimately fell on concerns over rising stockpiles and predictions that the new rules would soften.

Overall, global nickel production decreased slightly in 2014 compared to the previous year (2,400,000 tonnes vs. 2,630,000 tonnes). Similarly, the nickel price fell 12 percent in 2014, according to the US Geological Survey (USGS), and market watchers are divided about what’s in store going forward — some say production will ramp up, while others say the nickel market will turn in 2015.

Here’s a look at the 10 top nickel-producing countries from 2014, as reported by the USGS.

1. Philippines

Mine production: 440,000 tonnes

The Philippines saw a slight decrease in its nickel production from 2013, producing 440,000 tonnes. Even so, the country took advantage of Indonesia’s export ban and stepped in to distribute to China. In fact, the country’s nickel exports to China increased 24 percent in the first 10 months of the year, according to Bloomberg. Much of that came from stockpiles, but the Philippines plans on increasing the number of mines it has, hoping to permanently fill the gap left by Indonesia.

"If Indonesia’s ban goes on we’ll see more new mines in five years,” said Leo Jasareno, director of the Manila-based Mines & Geosciences Bureau. “Nickel will be the darling of mining in the next 10 years.”

2. Russia

Mine production: 260,000 tonnes

Russia also saw a drop in production from 2013, putting out 260,000 tonnes of nickel vs. 275,000 tonnes the previous year. While the Indonesian ban threw a wrench in the works for some companies and end users, Russia had its own export barriers to deal with. According to a 2014 article from the CBC, sanctions limited the country’s exports to the US and UK in light of last year’s tensions between Russia and Ukraine. While that didn’t keep the country from producing, it did shift its focus to Asian purchasers.

"Well, the problem with sanctions is very porous,” said Donald Rumball, a Toronto-based analyst. “If Russia was stopped from selling nickel, what would stop it from selling to China and Indonesia and Vietnam and who else.”

3. Indonesia

Mine production: 240,000 tonnes

Indonesia experienced a drastic cut in production from last year, with its output dropping from 2013′s 440,000 tonnes to just 240,000 tonnes. Most of that drop was due to the country’s export ban on unprocessed ores, which came into effect in January. With the ban, Indonesia is aiming to reap additional benefits from its natural resources by forcing companies to process ore domestically. However, the move led to thousands of job cuts, and economists have warned that the short-term negative effects of the ban will be extremely costly for Indonesia’s fragile economy.

4. Canada

Mine production: 233,000 tonnes

Canada saw mild gains in its nickel production from 2013 to 2014, producing 223,000 tonnes of nickel last year. Like other countries, Canada is looking to the Indonesian ban as a catalyst to increase production, and believes it could benefit not only via output growth, but by also adding jobs to its economy, according to a 2014 report from The Globe and Mail.

"We would have the additional jobs around refining and of course the value added inside the economy would be augmented that much more,” said Peter Hall, chief economist with Export Development Canada.

5. Australia

Mine production: 220,000 tonnes

Australia’s nickel production dropped from 234,000 million tonnes in 2013 to 220,000 tonnes in 2014. However, according to a Platts article from 2014, that decline was expected. The country is currently starting new mines in three states and expects to begin boosting output by 2018.

6. New Caledonia

Mine production: 165,000 tonnes

Like Canada, New Caledonia saw its nickel production gain marginally in 2014, rising from 2013′s 164,000 tonnes to 165,000 tonnes. Caltrac, which is an arm of Hastings Deering, is expanding mining operations in the country and opened a state-of-the-art maintenance facility in October. The new facility has six operational bays compared to two at the previous facility, according to Mining Australia

"We are one of the leading commercial entities in New Caledonia and deeply involved in the business life of the region,” said Michele Verges, Caltrac’s director general.

7. Brazil

Mine production: 126,000 tonnes

Brazil also saw a decrease in nickel production in 2014, falling short of 2013′s 138,000 tonnes. However, as MINING.com notes, companies in the country saw record-hitting increases as the year progressed. For example, Vale (NYSE:VALE), which is a global leader in nickel production, saw an increase of 18.7 percent from the previous year in the third quarter.

8. China

Mine production: 100,000 tonnes

China increased its nickel production in 2014 by roughly 5,000 tonnes compared to its 2013 total. According to Reuters, China is the world’s leading producer of nickel pig iron , which is a low-grade ferronickel used in stainless steel. When the price of nickel ore nearly doubled between February and April, that raised the cost of production for nickel pig iron, as demand for the material stayed low due to overcapacity in China’s stainless steel sector.

9. Colombia

Mine production: 75,000 tonnes

Colombia’s production stayed relatively constant from 2013 to 2014. However, according to Bloomberg, production could have gone differently had a mining strike gone ahead in the country. The action was a response to workers being angry over extended hours. However, the strike was refused by the union in November and mines continued to operate as normal.

"This is something of a knee-jerk reaction from Colombia that a mine strike had been expected, but is no longer going ahead,” said Nic Brown, head of commodities research at Natixis (EPA:KN) in London. “If you take away the potential strike, the picture is not quite as positive as the market thought it was.”

10. Cuba

Mine production: 66,000 tonnes

Cuba also recorded similar levels of nickel production from 2013 to 2014. According to Reuters, the country cut production at one of its two nickel plants last year to focus on maintenance and capital improvements at the facility.