Bulletins

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2011-November

MARKET COMMENTARY

Another month, another EU Summit – the 12th now aimed at addressing the two-year old European crisis. Another deal was struck, but once again there was no magic bullet. The crisis rumbles on and the region continues to sink into recession. China is another concern, however, although struggling export markets and pockets of weakness in certain domestic sectors have seen manufacturing officially contract, the government has started to ease monetary policy now and we still think a soft landing will be successfully engineered. Elsewhere, the US economy has remained remarkably robust, and it now looks like a recession will be avoided.

Another supportive theme that has increasingly established itself over the past month is a surprisingly robust and resilient US economy. Although we thought that the US would fare better than Europe, we had previously considered that the likelihood of a mild US recession was 50/50. However, with the resilience demonstrated by a run of positive macroeconomic data, we think the risk of recession has diminished. Together with China having now paused its tightening cycle and perhaps already embarked on a monetary easing cycle, we have fewer worries about the demand side of the copper market in the short to medium term, at least outside Europe. Assuming the European crisis starts to eventually be brought under control and that a credit event can be averted, we stil expect to see a gradual improvement in prices for copper and all the base metals during 2012, as sentiment and risk appetite improve and the bullish underlying fundamentals in this market start to reassert themselves.

LME copper fell almost 3 percent on 14th of Dec as worries increased among investors that credit rating agencies might downgrade European countries as EU leaders have so far been unable to tackle a debt crisis which is denting metals demand prospects.

Risk aversion also pushed up the U.S. dollar, generally perceived as a safe-haven asset, putting more pressure on industrial metals prices. Copper fell almost 3.6 percent to trade at $7,305 a tonne, the weakest since Nov. 30, down from a close at $7,600 a tonne on 13th of Dec. The metal used in power and construction has lost almost a fourth of its value so far this year, after gaining for the last two years.

"The market remains substantially sceptical after the EU leaders' manoeuvre last Friday and it is still unclear whether the rating agencies will downgrade European countries and this is putting some pressure on metals," said Gianclaudio Torlizzi, a partner at metals consultancy T-Commodity. "However this price drop offers a good buying opportunity. This price level is very interesting for a short-term trade. What can cap prices though is the uncertain exchange rate," Torlizzi said.

Downgrades worries also made the euro slide to an 11-month low against the dollar. A stronger U.S. currency makes dollar-priced commodities such as base metals costlier for holders of other units. "The euro is taking a beating again and this is affecting copper; the outlook is negative at the moment " said an LME ring broker.


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2011-October

 MARKET COMMENTARY

The lower price environment of the past month following September’s steep sell-off has changed the fundamental landscape for the base metals. On the supply side, the marginal cost of production has been brought sharply into focus for some metals, albeit to varying degrees. Meanwhile, mounting fears over the Eurozone debt crisis has spooked investors, and sent consumers running to the hills. It isn't all bad however, with the lower prices resulting in a notable pick-up in both speculative and price-related consumer restocking. Again we have seen this in most of the base metals, and it is Chinese buyers who are by far the most active. However, it appears that it is largely merchants doing the bulk of the restocking, not Chinese consumers who are still constrained by tight domestic credit markets, as well as uncertainty about the short to medium outlook for export markets.

The main stories in copper over the past month have been about supply disruptions and Chinese merchant restocking. Both are supportive fundamental themes that have helped to counteract negative sentiment stemming for the ongoing European debt fiasco and banking crisis. No doubt they have contributed to the extreme volatility in copper prices, last seen during the 2008/2009 crisis. Copper prices breached September’s lows in October, touching $6,735/tonne on a closing basis at one point. However, even with marginal cost support still well below these levels,
strategic players taking a longer term view in these volatile markets – investors and Chinese trade buyers – are still reluctant to look at copper too bearishly.

On 10th of Nov copper fell as demand prospects dimmed amid a protracted euro zone debt crisis, though hopes that political deadlock in Italy and Greece may be easing kept falls in check. Zinc, tin, lead, nickel and aluminium also came off lows, along with world stocks and the euro, as Italian bond yields eased off levels seen as unsustainable, prompting investors to take on some risk. Italy moved closer to a national unity government on Thursday, following Greece's lead in seeking a respected veteran European technocrat to pilot painful economic reforms in an effort to avert a euro zone bond market meltdown.

Political and economic turmoil in Italy has spurred fears of a possible break-up of the euro zone with borrowing costs for Europe's third biggest economy at unsustainable levels and the 17-nation currency bloc unable to afford a bailout. "The firmer equity markets and the weaker US dollar is limiting the price fall in base metals. Base metals are cyclical commodities, if the economy is deteriorating you are better off with other commodities, probably gold," said Commerzbank analyst Daniel Briesemann.

Three-month benchmark copper CMCU3 on the London Metal Exchange fell to an intraday low of $7,357 per tonne, the lowest since Oct. 24. It was at $7,456 at 1455 GMT, down from Wednesday's $7,621 close. Copper prices have fallen about 22 percent this year. A weaker dollar lifted some of the pressure off metals prices. The dollar fell against a basket of currencies, making diollar-priced metals cheaper for holders of other currencies.



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2011-September

 MARKET COMMENTARY

We expected upside for copper to be capped in Q3 as the economic slowdown quickened. There is no doubt that the outlook deteriorated sharply during Q3, with the sell-off at the end of September suggesting that the market is now pricing in recessionary levels of demand. Demand is now the binding constraint. The supply-side constraints that have dominated the global copper market in recent years have slowly been pushed into the background.

While mine supply problems are an issue, they are occurring at a time of reduced demand, offsetting their impact. Meanwhile, consumers, particularly in China, have proved adept at operating on lean inventory levels, running down their normal working stocks, using scrap where possible and opportunistically going out to the market for a top up, if the price and conditions are right. This is evident in the decline in spot premiums in Shanghai (reflecting a decrease in physical demand) when copper traded above $10,000/mt earlier this year and the rise in premiums (reflecting improved demand) with prices below $8,500/mt.

In Sep, the copper price traded in the wide range between $6,800-$9,258 a metric ton and its monthly average went down 8.1 percent to $8,314. We saw the sharpest decline in Sep approx 25% and it decreased 35% from its record level, had reached $10,190 in Feb 2011.

Today copper rose for a second straight day in London as a worsening strike disrupted production at Grasberg, the world's second-biggest copper mine, offsetting concerns that the euro zone crisis may drag on and cause a demand slump. Freeport McMoRan Copper & Gold Inc halted copper and gold production on Monday at its giant Grasberg mine in Indonesia because of security fears and worker blockades, in the worst supply disruption since a strike began a month ago.
Three-month copper on the London Metal Exchange gained 0.9 percent to $7,611 a tonne by 1038 GMT, after climbing 3.2 percent in the previous session. It has risen nearly 8 percent in the last two weeks.

In Europe, leaders are facing growing pressures to contain the euro zone debt problems as the world's leading economies pressed them on Saturday to act decisively to resolve the crisis by Oct. 23. Signalling that euro zone governments are doing their best, German Finance Minister Wolfgang Schaeuble said on Sunday that the region's governments are trying to persuade banks to accept a larger write down on Greece's debt crisis. "The euro zone crisis remains the major worry. Even if leaders there come up with a plan to resolve the debt crisis, it will involve some sacrifice of banks there,which will have some negative impact on the markets at least in the short term," said Jinrui Futures analyst Zhao Kai.

This morning copper has touched $7,660 level, which is current resistance, however eased off to around $7,635. Some investors think that copper looks overbought and expecting a correction. Current initial support level is $7500, after that $7380.




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2011-August

MARKET COMMENTARY


There is often a pick-up in physical demand around September, as metal consumers return to the market after the slower summer period. The deep sell-off in early August has actually brought many consumers back earlier and with greater appetite than usual to take advantage of the lower prices, which in some cases are 20-30% below the late-July levels.

In August, the copper price traded in the wide range between $8,446-$9,905 a metric ton and its monthly average went down 6.0 percent to $9,041.

Today three-month copper on the London Metal Exchange traded up at $8,725 in official rings, compared with $8,635 a tonne at the close on 14th of Sep when it fell to its lowest in more than a month at $8,590. Copper has now dropped by 15 percent from record highs of $10,190 a tonne hit in February, with calls for it to revisit records this year receding, given an increasingly uncertain economic climate.

"The (metals) market is very much driven by the bigger uncertainties in the macro environment," analyst Stefan Graber of Credit Suisse Private Banking said. Helped by signs that euro zone leaders are committed to keeping Greece afloat for now, lending a calmer tone to metals. But high costs for European banks to obtain dollar funding may yet lead them to cut credit lines, forcing institutional investors to scale back exposure to risky or cyclical assets, he said.

French and German leaders urged Greece's prime minister in a conference call late on 14th of Sep to meet the terms of its new bailout and said they were determined to keep the country in the euro zone. Suggesting metals may see further selling, the euro has been under pressure as market players, spooked by fears that a possible debt default in the euro bloc could unleash a major financial crisis, remain ready to sell the currency and risk assets into any rally. A stronger dollar provides headwinds for commodities because they become more expensive for holders of other currencies.

Copper supply remains tight and eroding at the edges due to declining ore grades, long lead times before new projects are ramped up and increasing incidences of industrial action as workers seek higher rewards from the copper price bonanza. Production and shipments ground to a halt at Freeport McMoran's Grasberg copper mine in Indonesia after thousands of workers began a month-long strike on 15th of Sep, stoking fears of a global shortage following similar action at a major Peruvian mine. Activity at Grasberg, the world's third-biggest copper mine which also has the world's largest gold reserves, has been paralysed while concentrate shipments have been halted.

"Supply disruptions are likely to increase tightness in a market facing significant shortages in the coming year or more," ANZ bank said in a note. "Some commentators are looking for a slide towards $7,000 in the near term before recovering. We think such a dramatic downside move is unlikely. "Appetite from merchants and Chinese consumers is likely to limit the downside to around $8,300-$8,400 and as the market begins to feel the impact of these disruptions, prices should move higher again."


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2011-July

MARKET COMMENTARY

In July, the copper price traded in the wide range between $9,350-$9,900 a metric ton and monthly average went up 6.5 percent to $9,619. After the decleration of US debit limit increasing, all metals started to go down except precious metals. Copper decreased from $9,700 to $8,446 deep level of the year.

LME copper steadied today, after dropping more than 2 percent in the previous session as lingering worries about euro zone debts and lacklustre U.S. data continued to weigh on sentiment. Three-month copper on the London Metal Exchange CMCU3 edged up 0.4 percent to $8,805 a tonne, after falling as low as $8,700, the lowest since Aug. 11.

"The LME copper market seems to be taking a pause to digest yesterday's global rout," said Jinrui Futures analyst Zhao Kai. "I think if ShFE copper doesn't fall below 65,500 yuan in the near term, there may be some upside soon," he added.
European stocks are slated for another fall on Friday after Asian stocks slumped on growing fears the U.S. economy was sliding into recession and as some European lenders faced short-term funding strains, raising fears of a systemic banking crisis on the continent. “Copper is still range-bound today, with support seen at $8,500 on the LME. Copper did not fall by that much overnight despite a rout in stocks, which shows that there is a bit of disconnect between base metals and equities now,” CIFCO Futures analyst Zhou Jie. “But when the macroeconomic environment is bearish, copper will move towards its support, and when things calm down, it’ll move towards its resistance level of $9,000 again.”

Gold jumped to a record high and oil fell on Friday on mounting worries the U.S. economy may slip into recession and as Europe's debt crisis pressured short-term funding markets, pushing investors out of riskier assets. Data on Thursday showing factory activity in the U.S. Mid-Atlantic region fell to the lowest level since March 2009 when the world's top economy was in recession fanned fears the U.S. economy could shrink again, pummeling global equities and boosting the appeal of safe-haven assets like gold. Adding to the global uncertainty, some European banks have started paying higher rates for U.S. dollar loans, raising fears the euro zone debt crisis could infect the financial system.


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2011-June

MARKET COMMENTARY

In June, the copper price was steady in the tight range between $8,900-$9,200 a metric ton until acceptance of Greece austerity plan. After the decleration of this plan, the metal prices started to increase to the highest levels of June and the copper month average went up 0,1 percent to $9,045.

In July copper dropped for a third day in London on concern that Greece’s debt crisis may spread and as the Chinese government intensified property curbs, possibly reducing demand in the largest consumer of the metal. The metal for three-month delivery fell as much as 0.9 percent to $9,480 a metric ton on the London Metal Exchange and traded at $9,520. Copper for September delivery on the Shanghai Futures Exchange closed 0.5 percent lower at 71,130 yuan ($10,989) a ton.

“Worries over the European debt crisis linger, especially whether it will spread further, which is weighing on the markets,” said Wang Ning, an analyst at Xiangyu Futures Co. European finance ministers revived the prospect of bond buybacks to ease Greece’s plight, struggling to contain the debt crisis as investors pounded Italy, the continent’s third-largest economy. Prodded by investors and the European Central Bank, the euro’s guardians said a bailout fund set up last year may be used to buy bonds in the secondary market or enable Greece to retire its debt at a discount. They offered another cut in rates on its emergency loans.

In China, Shanghai Mayor Han Zheng said the city will start a trial to cap prices of newly built residential properties in planned urban areas in Pudong New District in the second half of this year, the Xinhua News Agency reported. “If the property market feels further pressure from the government, it is not good for base metals demand,” Wang said. China’s Shanghai Composite Index, which tracks the bigger of the country’s stock exchanges, closed 1.7 percent lower at 2,754.58. The Dollar Index, which tracks the currency against six trading partners, climbed as much as 0.8 percent.

In Chile, contract workers at Escondida mine ended a strike yesterday after reaching a collective labor agreement, union umbrella group Federacion Minera said. Workers at Codelco, the world’s largest producer, held the first companywide strike yesterday in 18 years to protest planned job cuts as management revamps century-old mines in northern Chile. Mining Minister Laurence Golvorne said the government expected the strike to end as planned and production will resume from today. In Indonesia, Freeport-McMoRan Copper & Gold Inc. said it reached an agreement with a union to end a strike at its Grasberg mine that began July 4 and caused the suspension of copper mining and processing. The workers will report to their positions tomorrow, Eric Kinneberg, a spokesman for Freeport, said yesterday.



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2011-May

MARKET COMMENTARY

After decreased to $ 8,503 a tonne in May, copper trimmed its losses during the month and finished above $ 9,000 a tonne, helped by expectations of higher demand from top consumer China, outweighing U.S. jobless claims data that signalled further slowing in the U.S. economy. Today benchmark copper on the London Metal Exchange was $9,024 a tonne at 1603 GMT, from $9,045 a tonne at the close of yesterday. The monthly average also went down 5.9% to $ 8,927.

The metal used in power and construction was also supported by news that nearly half of the contractors in a strike that halved output at the world's No. 5 copper mine, El Teniente in Chile had ended the stoppage. The metal fell to a session low of $8,932 after data showed jobless claims rose unexpectedly last week, and the European Central Bank's Jean-Claude Trichet signalled an interest rate rise is probably only a month away. "The jobs data was a little worse than expected, but I don't think that's a major surprise, we are definitely slowing down and we are going to start seeing poorer numbers over the next few weeks," MF Global analyst Edward Meir said.

"The other shoe will drop tomorrow when we get the Chinese numbers." China, which accounts for about 40 percent of global copper consumption, releases trade data on Friday. Its refined copper imports have slumped this year, but some market participants think underlying demand is still intact. "Base metal prices and especially copper will be supported by Chinese import data, which should be better given the sharp destocking over the last couple of weeks in Shanghai," said Daniel Briesemann, analyst at Commerzbank.

Behind predictions of higher imports are copper stocks in Shanghai bonded warehouses, which are said to have fallen by about 200,000 tonnes from April to between 350,000 and 500,000 tonnes now. "It looks like China is going to need more copper very soon, those stocks will need to be replenished," a LME trader said.


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2011-April

MARKET COMMENTARY


Copper dropped almost 3 percent in April after losing 4.2 percent in March. “China is slowing down,” said Phil Streible, a senior strategist at broker Lind-Waldock in Chicago. “There’s very little demand at the moment. Copper will be drifting lower slowly.”
  
At the beginning of April, copper was focused on inflation news from China. Copper fell in the market, capping the second straight monthly drop in April, on mounting concern that demand will slow in China, the world’s largest metals user. China’s central bank has raised lenders’ reserve requirements 10 times since the start of 2010 and boosted interest rates four times since October to rein in accelerating consumer prices and slow growth. Also, Chinese imports and exports data released on 10th April. “Chinese data looks much stronger than expected,” said Bart Melek, an analyst at TD Securities in Toronto. “There is now a concern that good economic data is actually bad, as it will embolden China’s government to raise interest rates much higher.”  While China’s overseas trade increased overall, imports of copper and copper products by the world’s biggest metals user fell 33 percent from a year earlier, customs data showed.
 
At the end of April, the commodities rout that knocked off $99 billion of market value last week is driving out speculators and leading Goldman Sachs Group Inc., which forecast the plunge, to predict a possible recovery. Commodities advanced, rebounding from the worst weekly plunge since December 2008, on signs that an improving U.S. economy may boost raw-material demand and on speculation that last week’s selloff was excessive.

Copper prices rebounded on 09th May, helped by a weaker dollar and as investors said last week's commodity selloff was overdone, especially in light of positive U.S. jobs data. Copper for delivery in three months on the London Metal Exchange rose 1.1 percent to $8,920 per tonne by, after touching $8,657.50 in the previous session, it’s lowest since Dec. 3.
 
The metal “seems to have reacted very positively to the payrolls data,” said Gayle Berry, an analyst at Barclays Capital in London. “When you tend to see these big sentiment- driven moves, they can reverse just as quickly as they happen.” Prices have slumped amid concern that higher interest rates will slow growth and cool metals demand in India and China, the world’s biggest consumer. “Much of the play in metals is a bet on China,” Edward Meir, a senior analyst at MF Global Holdings Ltd. in Darien, Connecticut, said today in a report. “With the government there tightening the screws in order to get control of inflation, there are legitimate concerns as to whether the authorities will press too hard.”
 
Now, looking ahead into May, Chinese economic data due out over the next two days will also be vital, particularly in terms of trying to gauge the effectiveness of the Chinese tightening measures. The Chinese Import-Export figures and Trade Balance for April, while the morning of the 11th April, sees the release of the CPI, PPI, Retail Sales, IP and FIA numbers. As far as market response is concerned, a combination of high inflation and lower than expected growth looks like being the worst option and would likely trigger further weakness as the government is forced to tighten further at the expense of economic output.



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2011-March

MARKET COMMENTARY

Copper market started to March with Chinese export and import data. London copper fell half percent after data from China  showed a rise in input prices in February and a drop in growth in manufacturing to a seven-month low on March 01. London copper was steady, as oil prices near 2-1/2 year peaks fanned fears of slower global economic growth and technical analysis suggested a period of consolidation between $9,780 and $9,942 at the beginning of month. Traders said high oil prices were keeping a lid on demand and prices below the record high of a couple of weeks ago in the short term. However, expectations of a supply deficit of half a million tonnes or more meant the bull-run was far from over. Oil rose the last day of first week in March as investors eyed growing instability in key Middle East oil producing countries, which could signal another threat to global supplies, after Libya's Muammar Gadaffi ordered airstrikes near Libyan oil facilities.  
 
The Middle East unrest is unlikely to derail copper's rally this year, but it is certainly putting pressure on prices now," said Guo Yong, an analyst at Jinrui Futures.  Also, he added about metals "Copper fundamentals remain positive, supported by upbeat data out of the United States and Europe. Consumption in China is also pretty good, even though spot prices are still in discount and exchange stocks increased." 
 
The Eastern Japan earthquake which hit northeastern Japan on March 11 is expected to strongly depress economic activities in the near term by way of outage at production facilities in devastated areas, limited power supply due to shutdown in nuclear power plants and parts-supply shortages in areas not directly affected. However, reconstruction demand stemming from earthquake/tsunami damage is likely to bolster the economy especially the metal market in the longer term as reconstruction of housing and infrastructure begins. When the details of earthquake/tsunami released by Japanese government, copper fell to a three-month low on March 15, following blasts at a quake-stricken nuclear plant in Japan which hit market sentiment and prompted liquidation of investments perceived as risky. After the big lost in the metal market, copper climbed for the first time in six days on expectation that reconstruction needs after Japan’s largest quake on record will boost demand in three to six months on March 16.
 
Most commodities are set to post gains for the first quarter of 2011 as political unrest in Africa and the Middle East sent prices soaring on worries about supply disruption and inflation.  However, the earthquake in Japan and resulting tsunami and nuclear crisis caused a sell-off that took many markets down from recent highs.
 
When the markets start to April, base metals fell on the first day in London, down 0.5 percent on average, led by copper's 0.7 percent slide in light trade during a two-day market holiday in China. Copper investors ignored positive U.S. jobs data released on April 01, which cheered equity and energy markets, with a second straight strong monthly read, suggesting a shift in the struggling labour market. The markets will closely follow details on the geopolitical uncertainties in the Middle East and North Africa and also recovery in Japan will be the most significant subject in April for the investors. 



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2011-February

MARKET COMMENTARY

At the beginning of February, London copper edged higher trading around $10,000 a tonne, but an earlier attempt to set a new high was thwarted, and the risk of retracement grew with bullish investors increasingly frustrated by the market's inability to press on. Copper has surrendered more than 3 percent of its value from the highs, as investors began to question whether the sky-high futures price was justified, given the sluggish state of physical market demand.  "There is significant scale-up selling interest each time prices get through $10,000. The market is overheated and there is little appetite in Asia at least to press ahead," said a trader in Hong Kong. 
 
Copper stumbled to three-week lows on February 17, as inflation worries and the demand-stifling effect of prices near record highs kept sentiment in check. Three-month copper on the London Metal Exchange traded at $9,745 a tonne from $9,843 a tonne. It fell to $9,705, its lowest since Jan. 31. "We have seen record highs, but you can clearly see that demand is cooling down a little on the current high prices. This is not just limited to copper but also for the others base metals as well," Commerzbank analyst Daniel Briesemann said.He also cited profit-taking for falling prices.
 
Three-month copper on the London Metal Exchange raised $90.75 to $9,515.75 a tonne on Feb. 24, after having touched $9,365, a near one-month low, in the previous session.  "Metals have decoupled from energy in recent days and the market is obviously worried about the inflationary impact of oil prices," said Edward Meir, analyst at MF Global in New York. "Energy prices are going higher with daily news of falling exports from Libya, but something has to give - either Gaddafi will be overthrown, which seems likely or the Saudis will pump more oil. Either way we should see a dip in oil and rallies in metals." U.S. crude oil futures raised more than $1 on Thursday 24, on mounting fears that unrest in Libya could spread to other oil producers in the Middle East and North Africa, while Brent touched a 2-1/2 year high of $113 a barrel.  The turmoil in Libya continued, as thousands of Libyans celebrated the liberation of the east of the country from the rule of Muammar Gaddafi, who has vowed to crush the revolt.  
 
Three-month copper on the London Metal Exchange traded at $9,908.50 a tonne on March 03.On the week, LME copper has 1.5 percent, on track for its first gains since the start of February. “Metals are moving again on oil. The gains in crude are a worry when it comes to growth, but to be honest, no one is taking on any big positions ahead of the jobs numbers," a trader in Singapore said.   "We've been burned too many times. The forecasts point to big numbers but the reports have had a tendency to disappoint. Maybe this time the surprise will be on the upside, but I am not betting on it." 
 
The big jump in the euro was potentially highly supportive for base metals, but there are concerns an interest rate rise, combined with higher oil prices, may be too much for consumers to bear and slow the economic recovery.  Market focus remains on the geopolitical uncertainties in the Middle East and North Africa in March. 


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