Commodities Comment-Macquarie LME Summit poll:Still nickel belief as copper slide continues

At Macquarie’s LME Week Base Metals Summit, our annual surveyhighlighted that, despite the recent weakness, the raw material constraint innickel is expected to yield further upside in 2015. Meanwhile, having been thedarling of the seminar for years until 2013, copper is now the favourite shorton a 12-month view.

    The overall mood was cautious, with some concern noted over both Chinesegrowth and the recent slide in global industrial production. Tomorrow’sCommodities Comment will look at the macroeconomic poll results in moredetail, while today’s will focus on metal specifics.

    Latest news

    Reported steel inventory held by traders in China has dropped to the lowestlevel since August 2009, according to data from Mysteel. After rising over theOctober holiday week at the start of the month, inventory declined sharply lastweek, falling 6% from a week before. Steel prices also performed well, withHRC prices rising 1.1% WoW to RMB3,070/t ($428/t ex VAT), while rebarprices rose 2% to RMB2,765/t ($386/t). Meanwhile, port stocks of iron orealso fell last week, dropping 1.9mt to 107mt according to Mysteel data,although iron ore prices slightly underperformed steel with TSI reporting spotprices rising 0.9% WoW to $80.6/t CFR China.

    Following a 10bp cut on its 14-day repo rate last week, China’s PBC hasreportedly conducted an SLF (Standing Lending Facility) operation last Friday,lending Rmb200bn to the medium-sized banks at 3.7% for a duration of 3months. The PBC already loaned Rmb500bn through the SLF to the largestbanks about a month ago. Combined together, the fresh liquidity from the twoSLF operations into the banking system exceeded one full RRR cut (50bps)according to our China economist, Larry Hu. The operations will help banksbetter deal with seasonal liquidity tightness in the last quarter, a shortfall incapital inflows, and a new round of IPO subscriptions (in the next few weeks).

    The Chinese domestic aluminium market displayed signs of softness withSHFE stocks being reported to have increased by 5,734t last week. Overalldownstream consumption remains stable with the average utilisationunchanged in September compared with August, according to SMM survey.

    However, demand for A356 aluminium alloy which was largely used in wheelrims was hit by the slowdown in automobile production and sales, and as aconsequence conversion charges was slightly down to RMB700/t ($113/t) inSeptember. Alumina prices in China’s spot market stood at RMB2,700-2,800/t ($273-283/t) compared with RMB2,700-2,900/t a week ago, accordingto Metal Bulletin. The stagnation of alumina price is a result of a knock-oneffect of the decline of aluminium prices. We see limited upside for domesticalumina prices as producers resume production following maintenance.

    The International Lead and Zinc Study Group reported that the global zincmarket is forecast to be in a deficit of 403kt in 2014 and a deficit of 366kt in2015, compared with a deficit of 298kt in 2013. In the first seven months, theglobal zinc market has already displayed a 248kt deficit, this compared with a15kt surplus during the same period last year. Meanwhile, the Study Groupreported that global lead metal is forecast to be a deficit of 38kt this year and23kt next year, compared with an 80kt deficit in 2013.