Commodities Comment:Base metals after the squall
Base metals prices were battered on Friday by heavy Asian selling andMonday looked initially to be shaping up for a repeat performance before anabrupt change of pace in the (UK) afternoon saw metals rallying to close upstrongly. However, Tuesday saw a return to selling, though volumes eased. Areview of the price moves, volumes, volatility readings and latest positioningdata puts the spotlight on copper as the big mover, and so we consider thenear-term outlook for the red metal from here.
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US Midwest aluminium premium continues to climb higher with spot P1020premiums rising to $512-524/t, as assessed by Metal Bulletin. However, despitepersistent tightness of aluminium ingots in North America, falling fuel prices arelikely to weaken premiums as shippers begin to benefit from lower fuelsurcharges. Meanwhile, Japanese spot premiums remain undermined by highport stocks and overall subdued demand. Spot premiums on cif MJP basis arereported at $390-410/t, much lower than the 4Q contract term of $420/t. InChina, with a large volume of ingots shipment to Henan and Shandong andnearby fabricators, registered and non-registered warehouse stocks remainunsurprisingly flat. This resulted in slight spot tightness, particularly in thesouthern part of China, and may partly explain why the domestic market hasdisplayed price resilience to the recent base metal sell-off.
South Africa exported an estimated 325 koz of platinum and 155 koz ofpalladium in October, latest trade data shows, just 5% and 8% lower YoY,respectively. This compares to a drop of 17% and 35% YoY in September,and illustrates how effectively the PGM miners in South Africa have recoveredfrom the strike. The data also suggests there has been little restocking ofrefined stocks so far, something we have forecast given the miners liquidatedalmost 0.5 Moz of platinum stocks and 0.25 Moz of palladium stocks in thefirst eight months of the year.
The 28 gold ETFs we track saw an outflow of 33t in November, the thirdconsecutive month of a >30t outflow, and bringing the total YTD to 120t. Thatremains a far cry from the 806t that was sold in the first 11 months of 2013,however. The 19 silver ETFs, by contrast, enjoyed an inflow of 143t, bringingits YTD inflow to 737t, despite the fact the silver price fell 21% over thatperiod. The 17 platinum ETFs saw an outflow of 65 koz, with 36 koz comingfrom the largest fund, the South African-listed Absa product. YTD the platinumETFs have added 200k oz, as with silver despite a substantial price fall (13%YTD). The 17 palladium ETFs added 45 koz, bringing the YTD gain to a huge889 koz, though as the two South African-listed palladium ETFs launched thisyear now have nearly 1.2 Moz under management, the 15 funds outsideSouth Africa have seen redemptions.
At their annual investor day in New York, Vale announced a 2015 iron oreproduction target of 340mt, up 13mt (4%) on estimated 2014 volumes. This islower than we had previously been modelling, and implies the net impact ofthe Carajas 40 expansion will not see the growth benefit previously expected.