Commodities Comment——Aluminium review: robust H2 demand keeps ex-China tight, but not China

Ex-China demand this year has surprised to the upside, led mainly by NorthAmerica where transportation had played the most significant role. Themarket has felt physically short throughout the year despite robust YoYgrowth of Chinese semis export, simply because the incremental Chinesesemis export is only just meeting the incremental ex-China demand. In China,supply side issues and strengthened demand in 2Q suggested a tighteningChinese physical aluminium market as we exited H1. While we expectsustained demand momentum in 2H, we see the underlying fundamentals asweak with 1H in surplus of 605kt. We have raised both Chinese aluminiumproduction and consumption forecasts for 2014, with the domestic balanceremaining largely unchanged.

    Latest news。

    Base metals sell-off: Selling overnight as the Chinese returned from a threedayweekend turned into a rout across the LME complex on Tuesday, withdollar strength and jitters from Monday’s late afternoon slide seeing Westernmarket participants piling in to drive the LME metals prices well beneathrecent trading ranges. Nickel was the worst hit as an early UK-time Reutersreport quoted a Filipino politician calling for the proposed minerals export banto be delayed for 5 years to allow development of downstream industrycapacity. The news decidedly reversed nickel’s fading rally, and the cashprice ended down 5.1% to 18,840/t by the close. Zinc was the next mostremarkable, with LME cash prices down 3.8% to $2,291/t after a day whichsaw the highest volume of LME trading YTD, at 21,970 lots by 5pm UKtime. Lead was down 3.2% to $2,112/t, while copper fell 2.0% to $6,857/t,dashing memories of prices with a “7” in front just a day prior, whilealuminium sunk below the $2,100/t level to close down 1.6% at $2,033/t.

    The UK was a net importer of gold in July 2014 to the tune of 70t, the latestdata shows. The main sources of 98t of imports, the highest since October2012, were South Africa, 39t, Canada, 23t and the US 12t. Exports, at 28t,were the lowest since December 2012. China took 15t, for the secondconsecutive month, supporting the idea that more gold is now going directly toChina rather than via Hong Kong (though we need to be cautious as tradestatistics do not always distinguish between the two accurately), followed byjust 9t to Switzerland, a very low figure by recent standards. Historicallyperiods in which the UK has been a net importer of gold have coincided with astronger gold price, basically because it implies higher western investment,though while ETFs did see inflows in July, it was of a modest 4t.

    Western European car sales, a crucial determinant of platinum demand, rosejust over 1% YoY in August, according to our calculations, the slowest pace ofYoY growth since November. Of the major markets Germany, France and Italyall saw YoY falls, while Spain (helped by incentives) and the UK saw solidgrowth. The slowdown in growth is probably overstated by calendar effects;nevertheless it chimes with an overall weakening of the European economy in3Q. A further bearish development is that the diesel share of the market, whichwe calculate from 15 countries, fell sharply, especially in France, though giventhe general weak level of sales in August across Europe it is difficult to know ifthis is a blip or the start of a new trend.