Commodities Comment : Global industrial production takes August vacation

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    Output from the world’s factories, mines and power stations shrank in August,a poor backdrop for commodities demand. The fall was exacerbated by theholiday season, and we expect a rebound in September, but it is clear thepositive momentum seen in this sector over the last 12 months has faded.

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    The base metals complex saw some polarity on Tuesday with copperrallying up 1.1% to close at $6,859/t on an LME cash basis, while tin soldoff heavily to close down 2.5%, moving below $20,000/t for the first timesince July 2013. Copper’s buoyancy was largely driven by short-covering,with some early gains in the western markets driving renewed vigour inthe Asian night session. Tin, meanwhile, only recently took the title fromcopper of the worst 2014 performer of the main six LME metals, and wesee no reason for a recovery here as the market continues to be weigheddown by this year’s rise in ore exports from Myanmar.

    Indian gold imports were $3.75bn in September, implying a volume of 94t.

    This is by far the largest amount imported since the government put inplace onerous restrictions on gold imports in June 2013, and much higherthan the 37t monthly average seen since that date. The increase hasbeen attributed to strong demand ahead of upcoming festivals and isunlikely to be sustained. Silver imports were also strong, at $478m anestimated 800t, the highest since December 2013.

    Chinese total aluminium inventory level ended last week at 627kt, up 16ktfrom the previous month. The total inventory data, as reported by SMM,includes SHFE stocks and non-SHFE registered warehouse stocks in fourcities (Shanghai, Wuxi, Nanhai, Hangzhou). Although SHFE stocks fellanother 37,681t last week, unregistered stocks increased 53,681t to 386,831t,which was a level last seen in late July. We expect the total inventory level tostabilise as more shipments arrive at warehouses in south and east China inthe coming weeks while another round of re-stocking is potentially just aroundthe corner ahead of an early 2015 demand pick-up.

    The latest US crude steel output data from the American Iron and SteelInstitute suggests the weakness seen in metal demand across otherdeveloped regions may be starting to raise its head in the US. Last week’sestimate for capacity utilisation fell to 75% for the first time since April, takingannualised production down to 85mtpa