Posts tagged 'Metals'

Beware the darkside of the metal market force

Goldman Sachs launched a spirited defence of warehouse queues last week, arguing that they don’t have an unwarranted effect on physical prices because the hoarding is justified by curve dynamics.

The view, in short, is that because the curve is rewarding the market to store, these supplies are not coming at the cost of supply to the market. In fact, in their eyes, the hoards provide a balancing mechanism to what would otherwise be an oversupplied market. Yay for warehouses! They’re just keeping prices balanced! Read more

Assessing the scale of metal warehouse trades

Earlier this week Morgan Stanley published an in depth look into the financing warehouse trades in metals — the ones most analysts have been in denial about (at least publicly) for at least five years — and why they are now, thanks to new LME proposals, finally easing.

The note is titled: “Beginning of the end in warehouse trades: A game changer for base metals”.

There were three notable observations.

First, it’s not just banks that should be blamed for fuelling the queue and inventory over-financing problems. Part of the problem is related to the general demise of independent warehouse operators in the metals industry. That is to say, there aren’t enough warehouse owners who do not have conflicting interests as traders or bankers on top of their warehousing businesses: Read more

Goldman explains concept of queueing

When a lot of customers want to get their property out of the warehouse at the same time, a line forms…

Although Goldman is ready to swap you if you don’t like queueing in the LME warehouse system. Statement’s here. This is how it ends: Read more

An upcoming dehoarding effect in metals?

An interesting bit of news, by way of the FT’s Jack Farchy and Daniel Schäfer this week:

JPMorgan Chase and Goldman Sachs are seeking to sell their metal warehousing units just three years after their controversial entry to the industry, even as a proposed rule change by the London Metal Exchange is likely to reduce the attractiveness of the business. Read more

When the Chinese levee breaks, aluminium edition

The following from Goldman Sachs, on what’s currently driving the aluminium market, kinda speaks for itself:

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Breaking bad inflation expectations

A pattern is evolving in the world of inflation expectations.

It goes something like…

QE/government intervention is announced, people interpret this as inflationary, risk-on mentality ensues, a good opportunity to lock-in yield is provided for anyone who recognises the yield curve is mispriced — in the sense it is pricing in too much inflation/higher interest rates — the expectations turn out to have been misplaced, the curve corrects, confidence is lost until a new round of QE or government intervention is announced.

And so on. Read more

BHP against the iron ore price

Here’s a cracking little story from Reuters on what seems to be BHP Billiton’s single-handed attempt to prop up the iron ore price this week.

As they reported on Thursday:

SINGAPORE, Jan 17 (Reuters) – BHP Billiton, the world’s No. 3 iron ore miner, bought 100,000 tonnes of the raw material on the spot market in a rare move that traders interpreted as a strategy by producers themselves to stem a decline in prices as Chinese demand thins. A rally that carried iron ore prices to 15-month highs last week was a boon for miners such as BHP , but took the market by surprise, scaring off buyers in top consumer China.

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LME snapped up by Hong Kong Exchanges

A $2.15bn bid for the London Metal Exchange has sealed it for HKex, beating Intercontinental Exchange to end a nine-month bidding war. From the statement:

The board of Hong Kong Exchanges & Clearing Limited (“HKEx”) is pleased to announce that on 15 June 2012, HKEx, HKEx Investment (UK) Limited (“HKEx Investment”) and LME Holdings Limited (“LME Holdings”) entered into a Framework Agreement regarding the terms of a recommended cash offer (the “Offer”) for the entire issued and outstanding ordinary share capital of LME Holdings by HKEx Investment, a direct subsidiary of HKEx International Limited (“HKEx International”) and an indirect wholly-owned subsidiary of HKEx (the “Transaction”). Read more

LME concedes over fee amid bid battle

The London Metal Exchange has had to climb down from some plans to charge a controversial trading fee, postponing its roll-out and cancelling it for spread trades, reports Reuters. Bidders for the LME have closely observed the dispute as revising the fee could hit future revenues at their target. The LME’s board will work on narrowing down its list of suitors to a single name through to April, before putting the bid up for shareholder approval, the WSJ says.

Alcoa cutting 12% of capacity

Alcoa, the world’s largest aluminium producer, is cutting back its global capacity by some 12 per cent, partly in response to current weakness in markets for the metal, the FT says. Aluminium prices fell 27 per cent from their peak in May 2011 to the end of the year. Alcoa also faces pressure to reduce costs and relocate plants to energy-rich regions — including closing production in the town of Alcoa, Tennessee, which settled around the firm’s smelter in 1919, the WSJ reports. Alcoa’s move will strike another blow to aluminium prices, especially with Chinese smelters also cutting back their capacity, Marketwatch adds.

Zambia suspends permits to export metals

Zambia’s new government has suspended metal export permits as it prepares new guidelines for the sector of Africa’s biggest copper producer, the FT reports. The decision followed concerns that copper exporters had not been paying their full duties to the state and is seen as an attempt to improve transparency in the industry. But it is also the latest in a number of sweeping measures by President Michael Sata’s administration, including the threat of higher mining taxes, as he looks to stamp his mark on the country after winning September 20 elections. Frederick Bantubonse, general manager at Zambia’s Chamber of Mines, the industry body, said he was “terribly worried” by the suspension. “At the current copper production level, you are talking over 2,000 tons of copper per day … you have contracts with exporters, you have contracts with the transporters,” he said.

Mass sell-off hammers metals

Traders are reeling after a wave of selling by investors from Chinese speculators to western hedge funds triggered some of the most violent price swings in metals in memory. Industrial metals such as copper, used in electrical wiring, zinc, for galvanising steel, or platinum, a component of catalytic converters in cars, had until last week remained relatively unscathed by the sell-off that swept other markets, according to the FT. Earlier on Monday copper continued to lose ground amid a broader sell-off in commodities markets, falling more than 6 per cent below the $7,000 level for the first time in 15 months, reports the FT.

 

Grantham on looming peak dirt

Jeremy Grantham has returned to the subject of finite resources. In his latest quarterly letter, he says he didn’t intend to get quite so doomy on us back in April:

With hindsight, there are a few additions and qualifications I would like to make regarding my letter on resources of last quarter. I will start with an overview of the prospects for our collective well-being: there is nothing about the resource limitation problem that we cannot resolve.  We have the brain power and, especially, the inventiveness.  We have some nearly infinite resources: the sun’s energy and the water in the oceans.  We have some critically fi nite resources, but they can be rationed and stretched by sensible, far-sighted behavior to fi ll the gap between today, when we live far beyond a sustainable level, and, say, 200 years from now, when we may have achieved true long-term sustainability.  Such sustainability would require improved energy and agricultural technologies and, probably, a substantially reduced population.  With intelligent planning, all of this could be reasonably expected.  A population reduction could be arrived at by a slow and voluntary decline (perhaps with some encouragement of smaller family size achieved, for example, through greater education). Read more

Doubts over Chinese steel output

China is underreporting the amount of steel it makes by about 40m tonnes a year – roughly the amount made by Germany – according to a new analysis that provides insights into the recent high prices for the main raw material used by the world steel industry, the FT reports. Detective work by Meps, a UK steel consultancy, indicates that Chinese steel output last year was 672m tonnes – nearly half of the world output – as opposed to the 627m tonnes reported by the Chinese authorities. Behind the underreporting, according to Peter Fish, Meps managing director, is that plants that Beijing would like to shut down because they are not economical and produce too much pollution have stayed open to meet local demand. Regional data-gathering bodies around China have disguised the fact the mills are still churning out metal by declaring that output is lower than is the case. According to Mr Fish’s analysis, the higher-than-reported steel production creates extra demand for iron ore – the main constituent of steel – and has been one factor keeping prices of the commodity at unprecedented highs, eating into steelmakers’ profit margins globally.

Scramble for scrap metal-rich demolition jobs

The spike in global demand for industrial metals has sparked a fierce battle among UK demolition companies as they vie to remove scrap metal from condemned buildings. Competition to demolish sites with a high concentration of copper and steel, such as oil refineries, power stations and old breweries, is so high that companies are paying for the right to take on contracts, the FT says. The price of a tonne of copper has soared 45 per cent during the past year to $9,400 (£5,850), while the value of nickel, a key ingredient in stainless steel, has climbed 21 per cent over the last 12 months to $23,160 a tonne. The high values, driven by demand from China and India, have provided a fillip for the demolition industry as it looks to offset the squeeze on contract values being felt across the wider construction sector.

Oxymoronic LME stocks

Here’s a chart to ponder over on Wednesday:

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LME warehouse recommends upping load-out rates

An independent study by the London Metal Exchange into its authorised warehouse networks has advised much harsher recommendations than expected.

Key among them is that warehouses with large stockpiles be required to deliver greater sums of metal out of their inventories than is now the case. Read more

Please wait 10 months for your aluminium. Thank you

There’s never a dull moment in the metals markets these days.

The latest developments come via Metal Bulletin which reports that backlogs at some LME aluminium warehouses are now so large that warrant holders are considering taking legal action just to take delivery of their own stocks. Read more

Iridium soars on high-tech gadget demand

The popularity of smartphones, tablets and flatscreen televisions has triggered a 150 per cent jump in the price of a little-known metal used in the manufacture of backlit screens, the FT reports. Demand for iridium, one of the earth’s rarest metals, more than quadrupled last year, according to Johnson Matthey, the precious metals refiner that compiles benchmark supply and demand statistics on the market. The sudden rush of buying in the tiny market has sent the price of iridium soaring to an all-time high above $1,000 a troy ounce. The 150 per cent surge in prices since the start of 2010 dwarfs the rallies in silver, gold, platinum and palladium. The market for iridium is very small, less than $500m a year compared with $30bn for silver and $10bn for platinum, but the metal is crucial for some new technologies.

Subprime metals

Metals Markets Anomaly No.1 worth pondering, courtesy of Citigroup’s Metals and Mining team in a note published on Monday:

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JPMorgan’s big pile of copper

JPMorgan has emerged as the buyer of around 50 per cent of the copper stored in London Metal Exchange warehouses, the WSJ says. The trade’s size and the purchases by a single trader had caused a stir with fears that someone was trying to corner the market. But the bank’s buying — on the behalf of clients, such that JPMorgan doesn’t directly own the copper — underlines the commodity markets’ increasing concentration, the Journal notes. Single traders also held most supplies of aluminum alloy and nickel last week, according to LME data. There’s another angle here, however, says Joshua Brown of The Reformed Broker — copper is fast becoming financialised, with new ETF products based on the metal in the pipeline.

China’s copper strategy delivers $1.5bn profit

China is sitting on a profit of nearly $1.5bn from a bold trading strategy in copper based on expectations of an emerging markets-led boom, the FT reports. Beijing’s bet that a “super-cycle” in metals would keep copper prices high, despite the financial crisis, has paid off, according to dealers’ calculations. The State Reserves Bureau mopped up 2 per cent of global copper production last year when prices tumbled after the crisis. As demand for metals has recovered, copper markets have tightened dramatically and prices have soared, delivering a huge paper profit for China which traders expect to be cashed in soon. The SRB will seek to smooth out price spikes with its trading, they said, following its strategy of pursuing the super-cycle.

Block on Thailand chemical plants is removed

A Thai court has given the green light to almost all the suspended plants at a controversial petrochemicals and metals refining complex south of Bangkok to resume operations, the FT reports. The courts suspended operations and construction on 76 projects worth $10bn (€7.8bn, £6.5bn) a year ago after finding that their operating licences had been erroneously issued. The decision revealed a new and unexpected regulatory risk for investors.

Vale escalates Eurofer dispute to new level

Vale of Brazil, the world’s biggest iron ore producer, has raised tensions in a mounting dispute with its European customers by calling on the European Commission to investigate possible “breaches of competition rules” by Eurofer, the European iron and steel industry association, the FT reported. Vale and Anglo-Australian groups Rio Tinto and BHP Billiton control about 70 per cent of the world’s seaborne ore market.

Iron ore price deal sparks steel fury

European steel and auto industries on Wednesday accused mining companies of unfair pricing practices following the introduction of a new system for valuing iron ore that will see the cost of the resource nearly double. The complaints followed warnings steel prices would have to rise by up to a third after miners and steelmakers in Japan and China agreed to a change in pricing iron ore.

Ebullio: We messed up, and we’re sorry

How refreshing.

A commodity hedge fund on Wednesday stunned metal investors not by denying forced liquidations; but rather by its oddly honest account of how badly it had done in the month of February. Read more