Copper prices to slide on weak demand from Chinese property market, says Goldman Sachs

The latest analyst report by the US-based investment bank Gold man Sachs notes forecasts copper prices to slide further on weak demand from Chinese property market. The poor demand from the country’s construction sector will lead to fall in copper prices over the next 6 months to 1 year, the report noted.

According to Goldman Sachs, nearly 61% of Chinese copper demand comes from housing and property sector. Out of which 49% accounts for housing needs including local power infrastructure, telecommunications and lighting. The balance 12% copper demand comes from installation of home appliances after property sales. It also noted that the power grid infrastructure projects accounts for only 13% of the country’s total copper demand.

 

The property inventories in China are already at its peak. New starts are expected to slow down during H2 2014, as property prices continue to remain weak. The copper demand becomes high when the project reached its completion stage when internal and external copper wiring are installed. The construction completion cycle is expected to remain subdued in the medium term.

 

GS forecasts the global copper market to end the year at a 385,000 mt surplus, with prices averaging $6,778/mt in London and 307 cents/lb ($6,768/mt) in New York.

Base Metals: A rally may be overdone says Citi Research

A rally in base metals may be overdone, said Citi Research. The London Metal Exchange Index is up 7.2% since June 12.

However, Citi does not believe that current supply-(and)-demand fundamentals justify this rally and expect prices to correct lower.

According to Citi, the rally has been driven by paper-market positioning on the back of improving macroeconomic sentiment, money inflows including those from commodity trading advisers, and anticipation of more positive supply/demand conditions next year, such as zinc mine closures.

“Rather, supply-and-demand fundamentals have actually weakened for a number of metals, including growing refined copper production, rebounding aluminum production in China, weak demand from real estate, and corruption investigations at China State Grid,” said Citi.

Citi sees improvement in market fundamentals for most base metals later in the year, but says the current rally has gone too far too fast.

Trafigura targets $8 billion India metals market with online store

Switzerland-based Trafigura has launched an online store in India to sell aluminium, copper and other metals, seeking a slice of the $8 billion market and becoming the first big commodities trader to cater to hordes of small manufacturers dotting the country.

Trafigura, co-founded by French billionaire Claude Dauphin, said it has been drawn in by India's primary metals market that is forecast to grow at up to 8 percent a year.

Small and medium businesses contribute to more than a third of the market, but most of them depend on traditional methods of procurement. Per-capita consumption of nearly all metals in India, Asia's third-largest economy, is far below world levels.

The online store, named Lykos, will sell consignments of 1 to 24 tonnes of aluminium, copper, lead, nickel, tin and zinc at index-linked prices, Trafigura said in a statement on Wednesday.

It will invest $200 million to $300 million in Lykos over the next one year, a spokeswoman told Reuters in an email.

"There is a strong demand for refined metals such as aluminium, copper and zinc in smaller lot sizes, but currently the market suffers from lack of automation, erratic supply, poor quality control, complex transportation logistics and opaque pricing," said Raoul Bajaj, chief executive of Trafigura India.

Customers will have to pay cash to buy from Lykos, the spokeswoman said. That could limit its reach given that most small manufacturers are used to buying on credit, said a small metals trader. He did not want to be named.

Still, Trafigura's online platform could eat into the market share of smaller smelters and physical traders by attracting buyers at lower premiums, said a source at an Indian zinc smelter.

Trafigura customers will have to take delivery from warehouses newly built near manufacturing centres in Gujarat, Rajasthan and West Bengal. More warehouses are planned, it said.

Trafigura's move comes as storage of metals is in focus globally. The company and other metal merchants, Wall Street banks and the London Metal Exchange face more than two dozen class-action lawsuits alleging they artificially restricted supplies from warehouses and inflated aluminium and zinc prices. They have all denied the allegations.

More recently, Chinese authorities have launched an investigation into whether a private metals trading firm, Decheng Mining, and its related companies used fake warehouse receipts at Qingdao Port to obtain multiple loans secured against a single cargo of metal. Decheng has not commented on the probe.

Trafigura, incorporated in the Netherlands, has a vast portfolio of assets from African petrol stations, Texas docks to a Brazilian port and iron ore terminal, a private equity vehicle, vast offtake deals and almost 9,000 employees across 58 countries.

Morgan Stanley Raises Nickel Forecast by 13% in 2014

Morgan Stanley raised its nickel price forecast by 13 percent for this year and 6 percent for 2015, anticipating a supply squeeze caused by Indonesia’s ban on ore exports.

The metal will average at $17,640 a metric ton this year and $19,346 next year, analysts including Joel Crane wrote in a report today.

Nickel has jumped 39 percent in 2014, the most among six main metals traded on the London Metal Exchange, after Indonesia barred ore exports of unprocessed ores in January. China is the biggest consumer of the metal, with Indonesia its most important supplier of ore to make nickel pig iron, a cheaper alternative to refined metal for making stainless steel.

“Prices caught a second wind in the second quarter after production at two key projects in New Caledonia, Glencore Xstrata Plc’s Koniambo and Vale SA’s VNC, failed to meet expectations, likely accelerating the impending supply-demand imbalance,” the analysts wrote.

Global supply will exceed demand by 44,200 tons in 2014 before shifting to a deficit of 97,100 tons in 2015, the first annual shortfall since 2010, the bank said. Nickel for delivery in three months on the LME fell 0.4 percent to $19,250 a ton at 10:38 a.m. in Tokyo.

Nickel ore and concentrate imports into China have slumped 36 percent this year, the bank said. China’s nickel pig iron output will drop to 388,000 tons in 2014 and to 212,000 tons in 2015 from 472,000 tons in 2013, it said. Indonesia’s pig iron production will rise from 1,000 tons this year to 46,000 tons in 2015 and about 150,000 tons in 2017, the analysts wrote.

U.S., Europe

Stainless steel orders in the U.S. remain strong, with some mills booking as far out as November to December, the bank said, citing Wood Mackenzie Ltd. In Europe, consumption of stainless products is strong because of a substantial pick-up in demand from the construction and auto industries, it said.

Base metals will probably be the greatest beneficiaries of China’s intensifying policy-easing measures this quarter, Morgan Stanley said. The bank maintained its positive outlook on copper amid a global shortage and expects prices to average $7,055 a ton in the second half of this year and $7,397 in 2015. It traded at $7,119.50 this morning in Tokyo.

“Copper, lead, and zinc supply-demand balances are already in deficit,” the bank said, adding that nickel and aluminum are headed in that direction.

Morgan Stanley also raised its average price estimates for aluminum by 7 percent to $1,830 a ton in 2014 and 6 percent to $1,913 in 2015, while the bank increased its estimates for zinc by 3 percent to $2,123 in 2014 and 1 percent to $2,348 in 2015.

China Manufacturing Purchasing Managers Index (PMI) for June: 51.0 (vs. expected 51.0)

China Manufacturing Purchasing Managers Index (PMI) for June at 51.0, as expected.

• expected 51.0, prior was 50.8

• New orders improved to 52.8 from 52.3
• New export orders higher to 50.3 vs. 49.3 prior Production up also, to 53.0 from 52.8

Next up isat  0145GMT, the HSBC/Markit Manufacturing PMI for June, expected is 50.8, prior was 49.4, flash reading for June was 50.8

China HSBC/Markit Manufacturing PMI for June: 50.7 (expected 50.8)

China HSBC/Markit Manufacturing PMI for June,

• expected 50.8, prior was 49.4, flash reading for June was 50.8

Key points:

• Output rises for the first time since January
• Stocks of finished goods decline at strongest rate since September 2011
• Rate of job shedding eases

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:

• “The HSBC China Manufacturing PMI final reading for June rebounded to 50.7, up from 49.4 in May, and relatively unchanged from the flash reading. This confirms the trend of stronger demand and faster destocking. The economy continues to show more signs of recovery, and this momentum will likely continue over the next few months, supported by stronger infrastructure investments. However there are still downside risks from a slowdown in the property market, which will continue to put pressure on growth in the second half of the year. We expect both fiscal and monetary policy to remain accommodative until the recovery is sustained.”

Base metals prices rise on anticipation of positive Chinese PMI

Base metal prices rose during kerb trading on the London Metal Exchange on Monday June 30, on the anticipation of an upbeat reading for the official Chinese manufacturing data for June.

Three-month copper closed at $7,015 per tonne, up $70 from its previous close at $6,945 per tonne. The red metal traded at a low of $6,924.50 per tonne, before hitting a high of $7,025 per tonne. "We had a much more positive than expected HSBC PMI last week which has driven up the expectation for the official PMI," an analyst said.

Industrial metals to benefit from China's positive outlook

Restocking and improved demand for industrial base metals is likely, said TD Securities.

“With China growing at 7.5%, the U.S. showing more and more positive data points and Europe benefitting from more ECB (European Central Bank) monetary accommodation, industrial metals demand should tighten their supply/fundamentals across the base metals complex into 2014,” said TDS says.

Chinese inventories of products containing metals have been declining, and they may need to be replenished should industrial uptake speed up. “It is quite likely that manufacturers are light on inventories owing to recent uncertainty related to Chinese growth,” TDS added.

“We are also hearing the same thing from Western world manufacturers. Metals with supply constraints, like zinc, are likely to perform best. While the scandal surrounding copper in China may have some negative impact, it is small relative to the market and should not skew the positive impact of global supply/demand physical fundamentals and cost structures,” TDS added.

LME PRICE AND WAREHOUSE STOCK APRIL 2014, LONDON METAL EXCHANGE.

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Edward Meir / INTL FCStone May 2014 Report - BASE METALS - Copper, Aluminium, Zinc, Lead, Nickel & Tin.

The following is an excerpt from monthly market overview for May 2014, written by Edward Meir, Indepent Commodity Consultant with INTL FCStone Inc.

3-MONTH LME COPPER

Copper traded pretty much within our forecast range of $6400-$6800for much of April, with an upward bias evident. Nevertheless, the stronger tone was not as pronounced as some of the other metals, mainly because of copper’s less-than-inspiring funda-mentals. For one thing, China’s manufacturing activity remains lackluster – the latest flash HSBC PMI for April, out last week, came in at 48.3, slightly higher than March’s 48.0 reading but still in contraction mode.  This is the fourth month in a row that the number is below 50 and comes after China’s first-quarter economic growth (at 7.4%) clocked in at its slowest pace in six quarters. On the supply side, both Rio Tinto and BHP announced decent guidance for copper output this year; Rio expects to produce 830,000 tons in 2014, unchanged from 2013, while BHP is looking at 1.1 mln tons this year, rising to 1.3 mln tons in 2015. year. In addition, Mongolian copper conc volumes surged 53% year-on-year in March, as the Oyu Tolgoi project cranks up.  Miners operating from Indonesia, including  Freeport and Newmont, are not  faring as well given the continued supply restrictions on concentrates. Chile is expected to do well, expected to produce 6.07 million tons of copper this year and 6.24 million in 2015. On the demand side, Chinese copper demand remains decent, with premiums now at their highs for the year. In addition, the government has entered the market to scoop up 2000,000 tons for its stockpile last week, but prices hardly responded, somewhat par for the course. For the month ahead, we look for a slightly higher trading range setting in, somewhere between $6500-$6900.

3-MONTH LME ALUMINIUM

Aluminum prices shot up by almost 4% in April, getting to a high of $1,900, a level last seen in October 2013.  Some of this strength was due to a ruling by the UK High Court that the new warehousing rules proposed by the LME are “unfair and unlawful”. Investors interpreted this to mean that the “warehousing trade” would stay in place, keeping upward pressure on premiums and pulling flat prices higher as well. The LME said it would appeal parts of the ruling, while also announcing plans to launch a new premium contract by Q1 of 2015, a tacit admission that premium volatility is here to stay. All this augurs well for the May launch of the new CME contract, whose designers are well aware of the pitfalls surrounding the current LME contract and are keen to avoid them. In the meantime, the fundamentals of the market look uninspiring. Although some 1.3 mln tons of output have been taken off since 2013, we have yet to see the effects in the data. The latest IAI figures show global produc-tion for March (ex-China) rising again to 2.08 million tons, up from a revised 1.866 million tons in February, while March’s ex-China run-rate of 24.5 million tons was the highest since August of last year. In China, Chalco’s was the latest producer to announce a cutback (600,000 tons), but Chinese production nevertheless rose by 10.2% in the first quarter. Despite the increases, the rate of growth in both ex-Chinese and Chinese production seems to be leveling off, which is why investors have been bidding aluminum prices higher. The bullish view may end in tears unless we see more substantial cuts coming from China. We think this will eventually happen, but likely over the course of the year and going into 2015, when we are more upbeat on the market that right now. In the meantime, over the course of May, we see prices trading between $1775-$1900.

3-MONTH LME ZINC

Zinc prices posted solid gains this month, rising by almost 4% in April partly on account of improving fundamentals and on perceptions that the Chinese government is keen to avoid a slowdown, which may explain why it announced plans to speed up construction of railway lines and highways this month. Strong demand for Chinese zinc financing deals also contributed to the gains; the latest trade data shows that China took in 68,000 tons of refined zinc in March, almost double the 38,000 tons in February and a good indication that most of this metal will go into financing deals as opposed to consumption. The big in-take could also partially explain why LME zinc stocks have fallen by about 41,000 tons so far this month against a backdrop of a tightening market. In this regard, the ILZSG reports that zinc was in a 6,000-ton deficit in January to February, while for the year as a whole, the Group expects a 117,000 ton deficit. In the most recent Reuters poll, LME cash zinc was forecast to average $2060/ton this year and $2,250/ton in 2015. The mean forecasts also calls for a 50,000 ton deficit this year and a 75,000 tons shortfall next year. Shorter-term, and over the course of May, we see prices trading between $1970-$2110.

3-MONTH LME LEAD

Similar to zinc, lead prices rose by about 4% in April, reversing the downtrend seen in March. Indeed, lead enjoys the most favorable fundamentals in the LME group thanks to projections of structural deficits for both this year and next.  The latest report from the ILZSG has the market in a 15,000-ton deficit in Jan-Feb, with the full-year deficit expected at 49,000 tons. Separately, a Reuters poll projects the 2014 deficit to be at 28,000 tons this year and 32,000 tons next, which begs the question as to why prices are not pushing even higher? Huw Roberts, an independent lead/zinc consultant for whom we have much respect for, told a Reuters chat forum this month that lead’s inability to rally may be due to the fact that the supply shortfall is likely overexaggerated given what he thinks is the underreported growth in secondary lead production, both inside and outside of China. In China, high secondary production (fueled in large part by concentrate imports)  means that the domestic market is actually well supplied and also explains why 7,300 tons of refined lead was exported out of the country despite highs costs and no VAT rebate. Roberts sees Chinese lead growing by 7% this year, about in line with last year. Vehicle sales will drive a major part of this, but new car sales are only a small part of the market. A bigger component is batteries, especially for two and three-wheel e-bikes, which consume about 45% of all lead. Over the course of 2014, the Reuters consensus sees prices at $2180, rising to $2300 in 2015.  In May we see prices fluctuating between $2040-$2180.

3-MONTH LME NICKEL

Nickel surged to a 14-month high in April, fueled by expectations that the Indonesian export ore ban will keep supplies tight for the foreseeable future, while persistent concerns over sanctions on the Russian metal sector was also a contributing factor.  The latest trade numbers show China’s nickel ore imports declining sharply, with March imports off by 59% y-o-y to 2.3 million tons and well below January's 6.12 mln tons record high. Not surprisingly, ore imports from Indonesia fell 79% y-on-y and although there was an uptick of imports from the Philippines, the country will not be able to replace Indonesian volumes anytime soon. Despite the tight supply picture, we have not been seeing big drops in LME stocks; although inventories have been declining of late, they are actually higher now than where they were when the ban went into effect. In the meantime, the latest INSG report projects there will be a surplus of 50,000 tons of nickel this year, below earlier estimates. Other analysts are also shaving their surplus numbers and many are calling for a deficit for next year. However, forecasting the 2015 balance remains uncertain at this stage, as much rides on what will happen with Indonesian export policy between now and then. We are bullish on nickel, but are not starry-eyed about its long-term prospects. Remember that the Indonesian Parliament could modify the ban and the president could override part of it unilaterally (as he is legally entitled to do), in which case we could see a rather substantial selloff setting in. In addition, runaway prices could lead to demand instruction, substitution, or allow other extraction technologies to become more competitive. At the end of the day, the run-up is due to what remains an artificially-induced squeeze. As such, it could collapse equally as fast, as many of these schemes ultimately do. The latest Reuters poll shows nickel averaging $15,650/ton this year and $17,396/ton in 2015, both fairly low given the $30,000–$40,000 projections bandied about of late. We see prices trading between $17,800–$19,200 over the course of May.

3-MONTH LME TIN

Tin posted a good gain in April (up almost 4%), with much of the advance due to the inconsistency seen with regard to Indonesian tin exports. In this regard, exports have ranged from a low of 4,600 tons in December to a high of 13,560 tons in February, with the latest March number coming in at 7,800 tons. Cumulative exports since September (about the time when the new trading policies kicked in) are trending lower, clocking in at 40,000 tons, 20,000 tons below the same periods in 2011 and 2012. In response to the decline in longer-term exports, cancelled LME tin warrants have surged and now account for more than half of the tin stocks-- already low to begin with. Despite all this, investors are resisting the temptation to bid tin prices substantially higher like they did in nickel, as unlike nickel, tin units are at least flowing out of Indonesia. Moreover, more traders are using the local exchanges; ICDX volumes in March, for example, came in at 2,665 tons, but April turnover in the first week alone was 2,000 tons. In addition, first-quarter volumes totaled 10,540 tons, close to the 11,500 tons of metal exported. Another reason why tin prices have not exploded is that demand pressures are easing. China has been a consistent importer in recent years, but imports dropped sharply last year to 14,300 tons, less than half the 31,300 tons imported in 2012. That trend is continuing this year; only 2,019 tons came in during Q1 and there is now talk that China could become a net exporter for the first time since 2007. In terms of the supply/demand outlook, ITRI projects the 2014 deficit to be around 10,700 tons this year, forcing the ending stock ratio down to 2.5 weeks, the lowest in the LME space. For 2015, we see a 5,000 ton deficit forming. Over the course of May, we see prices trading between $22,600-$23,850, in line with the steadier tone we see for much of the year.

Chinese Base Metal Demand Thaws but Stocks Still High: Barclays

Chinese base metals demand has begun to thaw, with downstream orders rebounding and factories sourcing raw material. However, inventories remain high, and demand needs to strengthen further for the market to rebalance, said Barclays in a research note.

According to Barclays, last week Chinese market participants indicated metal demand had begun to pick up in China. Factories reported a moderate bounce in orders that allowed them to source more raw materials. Tax-paid spot copper premiums in Shanghai recovered to $29/t in April, in contrast to a $6/t discount in March. SHFE futures also shifted to backwardation, a sign of a tighter market.

Behind these price signals was a seasonal rebound in industrial activities. While sentiment turned sharply negative during the copper price sell-off in mid-March, activities were in fact picking up gradually. The State Grid Corp of China awarded two rounds of tenders in March, and other infrastructure projects also went under way. At the same time, government reassurances that China could deliver growth began to steady sentiment. A stabilizing USD/CNY after steep CNY depreciation has also helped.

However, demand is still best described as lukewarm rather than red-hot. YTD State Grid transformer tenders were still 13% lower y/y, and tight credit continues to constrain a variety of activities, from construction to property sales. The government, while promising to fast-track projects and provide state funding, has carefully managed expectations and avoided relaxing monetary policy too quickly.

March import data remind us there is still a lot of inventory to digest, though stock levels have largely stabilized. Preliminary data from China put unwrought copper and semi imports at 420Kt in March, implying roughly 295Kt of refined copper. Q1 unwrought copper and semi imports stand at 1.34Mt, the second-highest Q1 imports in history. While arrivals should begin to thin in coming months, reflecting soured financing appetite, bonded inventories are still high. On the other hand, recent feedback suggests that inventories have only inched up slightly since March, as outflows from the warehouses to the domestic market roughly offset imports and smelter deliveries to the warehouses. Still, Chinese demand needs to pick up more strongly for the market to rebalance.

Edward Meir, Indepent Commodity Consultant April 2014 Report - BASE METAL

The following is an excerpt from monthly market overview for April 2014, written by Edward Meir, Indepent Commodity Consultant with INTL FCStone Inc.

3-MONTH LME COPPER

Copper crashed in March, with prices falling by roughly $760/ton from the $7085 high to the intraday low of $6321 before a decent bounce set in over the last week. A slew of worse-than-expected Chinese macroeconomic indicators has been the main reason behind the weakness, coupled with the fact that February refined copper imports dropped some 30% from January's record levels. In addition, Chinese copper premiums remain weak, while Shanghai inventories have climbed to nine-month highs. Moreover, investors were shaken by reports of sizable corporate defaults, this time by companies “close to home” such as a real estate developer and a steel mill. Finally, the fact that the Chinese government did not take any action to make anyone whole in the aftermath of these defaults was a clear signal to investors that they were on their own. The fear now is that stockpiles of commodities, which are typically used to raise financing such as copper and iron ore, may be liquidated further in order to raise cash. Although still unsubstantiated, there are reports some 700,000 tons of copper are being financed and held “off exchange”, but we think that fears of mass liquidation at this stage are overblown. Prices rebounded lately on talk that the Chinese government may order stimulus spending in order to stabilize growth, but we don’t think this is necessarily going to do much other than lead to a short-term and a likely ill-fated bounce. In April, we see prices trading between $6400-$6850. 

3-MONTH LME ALUMINIUM

Aluminum did not do much over the course of March, ending the month slightly higher. Underlining the grim state of affairs, China's Chalco warned that at current prices, around half of China's aluminum producers are losing money. In fact, Chinese smelters are shutting capacity, but the cutbacks are being offset by more efficient operators and new startups. Chalco expects Chinese output to rise 7.6% this year to 26.8 million tons, but we would not be surprised to see the actual number come in slightly less than that by the time the year is over. We say this in view of the fact that the government seems to be serious about weeding out excess capacity across a number of industries. Additionally, aluminum prices in Shanghai sank to a record low last month, but importantly, did not bring out any kind of government buying for the stockpile, an indication that the authorities may want to let industry fend for itself. In the meantime, we are seeing continued cutbacks in non-Chinese production, including a 147,000 ton decrease put through by Alcoa-Brazil last week, lending more credence to the view that the ex-Chinese balance is now moving towards a greater deficit. (The IAI has February global output ex-China at 1.87 million tons, down from 2.05 million tons in January). For the month ahead, we see prices trading between $1720-$1840. However, we are much more upbeat on prices for later this year, as we think investors will have to start to discount a tighter market going into 2015 as cutbacks –even from China – start to accelerate. Financial problems at Rusal are also something to watch and could be a short-term bullish wild card.

3-MONTH LME ZINC

Zinc sold off over the course of March, with the complex losing about $200/MT at one point, although critically, key double-bottom support at $1940 held.  On the LME side, stocks actually increased over the course of the month, as did holdings in Shanghai, with both these variables contributing to the negative tone as well. In addition, further selling came our way during the middle of the month on reports that a large accumulation of unreported zinc inventories (said to total as much as 500,000 tons) could potentially be delivered against a large short position. We were skeptical about the story at the time and at the end, the delivery never materialized. On the fundamental side, the zinc balance continues to show signs of tightening. In its latest report, the ILZSG said that zinc was in deficit by 60,000 in January, a number that matched 2013’s entire shortfall. In addition there was a large uptake of zinc imports judging from the latest January/February Chinese trade figures, but given the slowing economy, we don’t know how much of this is being siphoned off into financing deals. Over the course of the month, we see zinc trading between $1915-$2060, but like aluminum, we are friendlier to the metal heading into year-end, as investors come around to discounting the prospect of a growing deficit in 2015.

3-MONTH LME LEAD

Similar to other metals, lead finished lower over the course of March, hitting nine-month lows at one point before recovering a touch going into month end. We continue to be rather surprised by lead’s relative poor performance and attribute March’s decline to the blowback from lower copper prices . In addition, LME stocks are not falling as hard as they once were, likely another reason for the sluggish tone.  In the meantime, the ILZSG reported last month that lead was in deficit by 31,000 tons in January, almost equivalent to the entire shortfall seen last year, but this failed to generate much upside excitement. In addition, lead’s ending stock ratio is now at 2.8, among the lowest in the LME group. We still like the prospects for lead going forward given that many of the variables we have highlighted in our previous commentary, including a structural deficit aggravated by mine closures and mounting environmental costs are still in place. One way to perhaps trade the complex is to go long lead and short zinc; the differential between the two got to a low of $31 at one point last month, down from $247 in November. It is now around $118 but we suspect it may have more room to expand given that the two are not entirely unrelated in terms of supply. In April, we see lead trading between $2020-$2170.

3-MONTH LME NICKEL

Nickel continued worked sharply higher this past month, gaining a whopping $2,000 a ton at one point, as Indonesian concerns and worries about possible sanctions against Russian metal boosted prices. However, a correction of sorts has set in of late, with prices retracing from the $16,400 intraday high reached in March. We suspect that the current selloff will prove to be short-lived, as the underlying picture still looks constructive. For one thing, Indonesian legislative elections that take place on April 9th may not result in any immediate change in policy with respect to the ban and so we may have to wait until the presidential elections are over in July before we see any change. In addition, CRU estimates that Chinese port stockpiles of nickel ore are down by some 4 million tons since the ban went into effect, paring China’s overall port holdings by some 20% and telling us that the restrictions are clearly starting to have some effect. CRU also calculates that for every week the ban is in place, an additional 750,000 tons of inventory is displaced. But whatever happens going forward, we should note that the rally in nickel this year is an artificially-induced move and as such, it has the potential to collapse under its own weight. The more relevant question is when; we think it will be later rather than sooner and accordingly, we expect to see a $15,400-$16,400 range prevailing at least through April.

3-MONTH LME TIN

Tin prices were range-bound over the course of March, trading within a $1000/ton band and closing the month pretty much flat. The market’s weaker spell occurred early on in March, just about the time when the Indonesians announced that refined tin shipments increased to 6,000 tons in February, up 30% from January. However, given the inconsistency in the data (exports have bounced around from 4,600 tons to 13,560 tons over the past three months) investors chose not to sell aggressively into the February number, as we suspect they remained uneasy about the supply pipeline going forward. For their part, the Indonesians are talking the market up; PT Timah says that it sees exports down some 35% this year on account of trading rules that make purchases contingent on trading in the domestic exchange. More broadly, PT Timah expects the global tin deficit to grow to 20,000 tons this year, almost double the 12,000 shortfall put out by ITRI and well ahead of the 3,000 ton January consensus figure issued by Reuters. Like nickel, we expect tin prices to work lower once the Indonesian restrictions become more flexible and supply starts to flow more freely, but unlike nickel, we think the Indonesians may see their tin program enjoy more long-term success. Over the course of April, we expect prices to trade between $22,400-$23,400.

WEEK-IN-BRIEF BASE METALS

A large delivery of aluminium into warehouses in Rotterdam was linked by market sources to JP Morgan's sale of its physical commodities business to trading firm Mercuria after late-night talks. 

Does state control in China distort the aluminium market in China? One US trade lawyer argued it does.  

There were other theories too on the boost to aluminium stocks - as well as one large delivery of zinc, which never materialised, which proved that stocks are still worth talking about.  

Earlier, a large zinc short position had led some to question whether it was covered.  

A large miner agreed higher treatment charges for zinc this year compared with last.  

MMG confirmed it is in talks with Glencore about the purchase of the Las Bambas copper project in Peru.  

The Australia-based miner plans to raise the limit on the amount of copper concentrates it can sell to controlling shareholder China Minmetals.  

A spot deal for copper concentrates in China demonstrated the effects of Jinchuan's declaration of force majeure on concentrate shipments. 

The Chinese company said it would focus on nickel after a furnace outage. 

Peru Posts Strong Increase in January Copper, Lead, Tin Production

Peru posted a strong increase in copper production in January on higher output from the country's biggest mines, while gold production continued to decline, the government said Friday.

The Mines and Energy Ministry said that Peru produced 111,855 tons of Copper in January, up 19.88% from the same month last year. The increase was due to higher production at Peru's largest copper mines, including those operated by Compania Minera Antamina SA and Sociedad Minera Cerro Verde SAA.

• Peru is the world's third biggest producer of copper, which is also the country's top export earner.

The ministry said that Gold production declined 5.8% in January to 11.089 kilograms due to lower output from Minera Yanacocha, which is majority owned by Newmont Mining Corp., and operations owned by Barrick Gold.

Peru is a major global producer of gold, which is the country's second biggest export product.

Silver production increased 1.91% in January to 274,725 kilograms, while Zinc output fell 9.54% to 100,885 tons, the government said.

Lead production climbed 8.01% to 21,995 tons, and Tin production rose 26.73% to 2,015 tons. Molybdenum production rose to 1,437 tons, and iron output increased to 644,218 tons.

Base metal demand to remain 'reasonably strong', says JP Morgan

In the research report published Friday, leading investment bank JP Morgan forecasts that the base metal demand from China should remain ‘reasonably strong’ in 2014, although down from 2013. The demand growth will be boosted by recovery in developed markets, says the research report.

JP Morgan estimates the global copper usage growth to decline to 5% in 2014 as compared with the 10% in 2013. Also, the global aluminum usage growth is expected to decline to 8.2% from 11.5%. According to the report, the global manufacturing sector may continue to grow with strong momentum. However, the Chinese base metal demand will remain lower when compared with 2013.

With regards to copper, the huge mine supply growth has lead to high stocks of copper concentrates in 2013. The conversion of these stocks to refined copper is the key. There are probably high chances that China may witness production ramp-up following the New-Year holidays.

Meantime, the copper inventory levels continued to wane in Europe. The copper stocks in LME-registered warehouses fell 2,225 mt on Friday to touch 308,025 mt. 

Also, Port Strike in Chile has considerably reduced the shipments, thereby keeping the premiums at reasonably higher levels.

LME PRICE MOVEMENT AND WAREHOUSE STOCK MOVEMENT FOR DECEMBER 2013