Boletines
MARKET COMMENTARY
While base metals have drawn support from generally positive macro developments, a weakening in the Chinese physical market so far in 2012 has given the complex pause for thought. Investors believe short-term price action will continue to reflect the tension between softer trends out of the Chinese market versus improving global growth momentum. As the Chinese economy reaccelerates from Q2 onwards, they generally anticipate a more positive period for price levels.
As last month’s focus highlights, the medium-term outlook for the base metals complex offers a somewhat differentiated picture. The most significant change of tack is expected in the lead and zinc markets, which will likely move from surplus to deficit. Conversely, the nickel market is expected to have the most significant weakening in fundamentals and, hence, a constrained price outlook. Copper and tin, the metals offering the most bullish stories of the past few years, will likely remain in this camp, albeit with a critical degree of supply tightness, as is currently the case.
Demand performance is anticipated to be generally stable across the complex over the next three years. An assumed stabilisation in the global economy will prevent any significant erosion in Western World demand levels, while historical per capita consumption trends suggest the rebalancing of China’s economy from investment to consumption will support solid demand growth for the majority of the base metals. Influences such as miniaturisation, substitution and end-product developments cannot be ignored, but do not appear to be overtly critical to market balances in this period.
The medium-term outlook for the copper market can be characterised as a mild easing in fundamental tightness. While 2012 is anticipated to see another market deficit, some brokerage companies expect a balanced market in 2013 and then surplus the year after. This headline story should not be depicted as bearish per se, given that the stocks-to-consumption ratio for the refined market will remain close to a record low of just above two weeks, which should in turn maintain relatively good support for prices close to the $9,000/t level.
Copper has risen around 11 percent so far this year, after a 21 percent slide in 2011, on a brightening economic outlook in the United States and hopes that easy monetary policies around the world would buoy asset prices. But the demand from China, which consumes 40 percent of the world's copper, is key to the outlook for prices. “The demand this year is not looking particularly good, as the cycle of rapid economic growth driven by fixed asset investment is over and export-driven growth is also easing," said Zhu Bin, an analyst at Nanhua Futures in the eastern Chinese city of Hangzhou.
Copper prices increased 5 percent in Feb and steadied on 15th of March, recovering after a 1 percent drop in the previous session, but concerns about the outlook for demand from top consumer China weighed on sentiment and kept prices within a tight trading range.
Prices for the metal used in power and construction have seesawed between around $8,400 and $8,600 this week, as investors weigh an overall improved global economic growth outlook against the disappointing copper demand recovery in China. "On the fundamental side you have two opposite forces - you have the U.S economy which is improving and on the other hand the demand in China is still weak so there is a lack of fundamental drivers," said Gianclaudio Torlizzi, partner at T-Commodity. Helping keep copper prices from falling further was a rebound in the euro, which bounced off one-month lows against the dollar, while European shares paused near eight-month highs. A weak dollar makes commodities priced in the U.S. unit cheaper for holders of other currencies.
On the technical side LME copper may fall to $8,342 per tonne, the 61.8 percent Fibonacci retracement on the rise from $8,176.75 to $8,608.75. A rebound from the current level may be capped at $8,481.50.
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After falling 21% in 2011, copper prices have risen nearly 13% ytd as fears about Europe ease and stabilization in Chinese manufacturing brighten the outlook. While equities have rallied 19% to start the year, expectations for lower prices in 2012 remain the consensus as global GDP growth slows and mine supply rises.
Last month some investors downgraded their demand and price forecasts and reiterated their view that the risks for both remained to the downside, at least in the short to medium term. The strong rally in prices during January has created a much more bullish perception of the market – prices have shot up 19% from the lows around $7,200/tonne in mid-December to $8,600/tonne in late January and early February. However, in our view, this strength is not built on the fundamentals, which makes the gains vulnerable. This doesn’t mean to say that prices won’t rally further – they may if central banks keep the liquidity taps open – but it does mean that prices have become disconnected from the physical fundamentals again. It is reminiscent of the situation a year ago, when QE2 drove copper to well over $10,000/tonne, despite a very troublesome macro and fiscal backdrop. Admittedly, the US is better shape now, but it is still vulnerable to contagion from Europe, where the crisis has merely gone from bad to worse. On the China front, although apparent consumption looks strong, real consumption is certainly not, and there are plenty of reasons to retain a cautious outlook for 2012.
For this week it was with very careful steps that the participants entered the market on Monday morning following Sunday’s late agreement where the Greek Parliament approved the country’s new loan agreement with the Troika. Out of 300 lawmakers, 199 voted ‘Yes’, while 74 voted ‘No’ and five voted ‘Present’.
This morning London copper was almost unchanged after slipped by nearly 4 percent from 5-month peaks of $8,765 a tonne reached last week, as investors took a cautious stance over Greece's approval of harsh austerity measures and traders noted scant buying from top consumer China. Three-month copper on the London Metal Exchange traded at $8,403 a tonne by 0757 GMT, down 0.26 percent from Monday's close, and retreating from modest gains early in the session.
Sharemarkets and the euro were showing some signs of risk aversion on scepticism that Greece's harsh austerity measures will be implemented and after ratings agency Moody's downgraded several smaller European nations and placed others like France and Britain on watch.
But the impact on metals was cushioned by copper's recent price decline, said Nick Trevethan, senior commodities strategist at Australia and New Zealand Bank. "You’ve seen a decent fall in prices in the last few days," he said. "It’s getting a little more attractive for Chinese purchases, although it’s still bit high for them to leap in with both feet." China is the world's biggest copper consumer, accounting for around 40 percent of refined demand.
Greece has admitted it still faces a tough job in persuading the European Union and IMF to save it from bankruptcy even after parliament approved savage extra budget cuts, provoking a night of looting and burning in central Athens.
Also tempering risk appetite, rating agency Moody's warned on Monday it may cut the triple-A ratings of France, the United Kingdom and Austria while it downgraded the ratings of Italy, Portugal, Spain, Slovakia, Slovenia and Malta.
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The manufacturing PMIs for December showed ongoing strength in the US and rebounds in China and India. However, weakness persists elsewhere in Asia, and of course in Europe which is where the main focus of concern for the coming year still lies. However, with January and February PMI figures clouded by the timing of the New Year holiday, it is a bit of a waiting game as far as Chinese economic data is concerned, with early April, and the release of the March PMI, the point at which better clarity may start to return in terms of the state of the Chinese PMI and underlying economy.
The base metals continue to react to wider macroeconomic factors, with firmer European equity markets. The flow of money, from the ECB lending facility to the banks and finally back into European sovereign bonds appears to have started, on the basis of auctions, easing some of the immediate fears over the Eurozone debt crisis. It is still a case of symptoms being addressed, however, rather than the underlying condition being cured, with the spectres of sovereign debt and capital adequacy at European banks stil overhanging the market.
Copper, which sagged 22 percent in 2011 and was traded between $7,131-$7,995 a metric ton in Dec, steadied this morning, following small losses in Asia, as European markets found firmer footing on the basis that the credit rating cut for nine euro zone nations by agency Standard & Poor's was already priced in. Three-month copper traded at $8,055 a tonne by 0944 GMT, from a last bid of $8,000 on the London Metal Exchange kerb close on Friday. Prices are up 6 percent so far this year.
"The downgrade hasn't come as a surprise. It was mooted on Dec 5," said Daniel Briesemann, an analyst at Commerzbank. “But because of new year holidays in China, the market will cool down and with the low liquidity we should also see lower interest and probably lower prices," he added. Prices had declined in Asian trading because of a lack of purchases by Chinese consumers before the start of a week-long holiday in the world's largest user of the metal, and investor concern that European markets may tumble in reaction to last week's ratings downgrade.
Speculators in copper remained bearish, a bet they have held on to for almost 20 weeks, as demand prospects continued to be clouded by Europe's debt crisis and signs of slowing growth in top consumer China, U.S. Commodity Futures Trading Commission (CFTC) figures showed on Friday. They increased those shorts by 454 contracts to 2,465 lots.
Goldman Sachs said on Friday it expected upside for copper prices, citing greater supply risks and stronger fundamentals. But Standard Bank said it expected prices to fall, citing the sovereign debt crisis in Europe and the potential it will produce fallout around the world.
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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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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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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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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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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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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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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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