Wednesday report – 10th December 2014

Copper is range bound although shorts still predominate

The copper market remains mostly short with CTAs and macro funds,

which are not already short, happy to sell into strong rallies. That said

copper is still holding well above its support level in and around the

$6,320 level basis three months. However, overhead resistance in the

$6,520 area still remains very formidable and is unlikely to be seriously

challenged in coming days.

Other copper market news

Leon Westgate, the basemetals strategist at Standard Bank, had these

very interesting comments to make about the copper market on

Tuesday. He was writing in a note to clients.

The SHFE-LME arbitrage window has narrowed significantly in recent weeks, trading to within $14/mt of opening as of end-November, before widening to around $50/mt currently. With domestic SHFE stocks under pressure and a reasonable domestic premium suggesting demand is still ok, it looks likely that bonded inventories are being drawn down. Ordinarily, a narrowing in the arbitrage window and destocking of bonded inventory would lead to increased refined imports and a greater flow through of imported copper, followed by a closing of the arbitrage window as prices and premia react, and then by a restock of bonded inventory as imports trail behind the immediate arbitrage conditions (additional financing activity aside). This time however the backwardation on the LME is proving to be an interesting additional factor as it greatly adds to the cost of financing material in transit. That additional cost of financing material until it is sold, coupled with reports of incentives on offer at certain Asian warehouses and the slow evolution of copper financing activity in the wake of Qingdao, means that even with the arbitrage window looking like it’s on the verge of opening properly, material is still being attracted to (some) LME sheds rather than Shanghai. The nearby backwardation on the LME is therefore helping to support outright prices, deterring aggressive short positions from being built, while it is also helping to destock bonded inventory and increase LME inventory. The normal implication of rising LME stocks tends to suggest

to most observers that the market is well supplied. If however it is being achieved at the expense of bonded inventory and also impacts negatively on Chinese refined exports, then ultimately the longer term effect is actually positive, particularly if those LME stocks then prove to be sticky. Chinese smelter output remains the big unknown, particularly as they struggle with processing increasingly complex copper ores. Ultimately the SHFE-LME arbitrage will become a genuine two-way physical arbitrage rather than the current one-way physical flow and two-way paper trading, however, with China still a significant net importer of refined metal, that transition is still years away. The key will be the next couple of months of Chinese trade data. The preliminary figures showed another increase in imports of unwrought copper and copper products, in-line with steady market conditions. If Chinese refined exports also fall (in spite of the LME backwardation) then the Chinese refined market may arguably heading into the new year in a much leaner condition than is expected, with bullish implications for premia and likely prices too albeit perhaps once the Chinese New Year Holiday is out of the way. Platts reported on Tuesday that: Peru's production of copper, silver, tin and molybdenum dropped in October, while gold, zinc and lead rose, the government said Monday. Copper production fell 1.8% to 120,169 mt from 122,231 mt a year earlier, as lower output at Antamina (-35%) and Freeport McMoRan's Cerro Verde (-29%) offset 53,060 mt in accumulated output during the first year of production at Chinalco's Toromocho mine, the energy and mines ministry said in an emailed statement. Tin output at Minsur, the country's only producer, fell 10.3% to 1,805 mt, according to the ministry. Molybdenum dropped 15.7% to 1,502 mt on declines at Antamina and Cerro Verde. Zinc production climbed 0.7% to 112,458 mt, while lead rose 5.5% to 23,700 mt due to production gains at Glencore unit Los Quenuales and Votorantim Metais-controlled Minera Atacocha. Reuters reported on Monday that: Commodity trader Trafigura said on Monday its logistics and warehouse unit Impala Terminals plans to focus its refined metals business in Antwerp, Dubai and China, exiting several sites to concentrate on places where it has greater control. Trafigura, one of the world's largest commodities traders, said Impala planned to cease operation in Taiwan, South Korea, Malaysia, Vietnam, Thailand, Turkey and Italy by the end of 2014. The company said the impact of suspected metals financing

fraud at China's Qingdao port on Impala Terminals "was not material", but the probe had affected some partners and hit confidence in the industry as a whole. "Impala Terminals is focusing on export markets for bulk commodities (dry/wet) and on its larger, capital-intensive port and terminal developments selectively on a global basis," it said in a statement as it released its annual report. Trafigura bought warehousing company North European Marine Services (NEMS) in 2010 and later consolidated all of its warehousing and logistics activities into its subsidiary Impala. The OECD reported this week that: Composite leading indicators (CLIs), designed to anticipate turning points in economic activity relative to trend, suggest that growth will continue to lose momentum in Europe while the outlook is for stable growth momentum in most other major economies and in the OECD area as a whole. In Europe, the CLI for the United Kingdom points to growth easing, albeit from relatively high levels, while in the Euro Area the CLI continues to indicate a loss of growth momentum, particularly in Germany and Italy. Stable growth momentum, however, is expected for France. Amongst other major economies, the CLIs continue to point to stable growth momentum in the United States, Canada, China and Brazil while tentative signs of a positive change in momentum are emerging in Japan. The CLI for Russia points to growth tentatively losing momentum. India is the only major economy where the CLI points to a clear pick-up in growth momentum. Reuters reported on Tuesday that China's top leadership will meet on Tuesday for an annual gathering to map out economic and reform plans for the following year, and some influential advisers to the government are recommending it cuts its 2015 growth target to seven percent. China looks set to miss its growth target this year for the first time since 1999, and full-year growth is likely to be the weakest in 24 years. The government last cut its annual growth target in 2012, to 7.5 percent from eight percent that it had kept for eight years. Sources said government-run think-tanks, which are influential in the decision-making process but do not wield power themselves, are

planning to recommend Beijing reduce its official GDP growth target in 2015 to seven percent, down from 7.5 percent this year. "President Xi (Jinping) has already hinted at the growth target when he said growth of seven percent is the highest in the world," said a senior economist at the Chinese Academy of Social Sciences (CASS), who declined to be identified. "I think it should be seven percent if there are no more surprises. But it cannot be lower than seven percent, otherwise there could be employment problems and debt default problems." The annual Central Economic Work Conference, which state radio said meets from Tuesday, may reiterate a prudent monetary policy, but the sources believe the underlying tone could be accommodative to ward off a sharp growth slowdown. Economists expect policymakers to embark on their biggest easing campaign since the global financial crisis, forecasting a combination of more rate cuts and reductions in bank reserve requirements to encourage lending despite mounting bad loans. After months of saying major stimulus wasn't needed, the central bank surprised markets on Nov. 21 by cutting interest rates for the first time in more than two years to shore up growth and lift some of the pressure off debt-laden companies. Several think-tanks have also suggested the government lower its target on consumer inflation to around three percent from this year's 3.5 percent, given falling commodity prices. "We recommended a growth target of around seven percent," said Zhu Baoliang, chief economist at the State Information Centre, a top government think-tank. "We suggested an inflation target of around three percent. On employment, we should aim for 10 million new jobs," he said, adding that he recommended a quicker pace of reform in 2015.

The government may budget a deficit of nearly three percent of GDP in

2015 from this year's 2.1 percent, to allow local governments to sell

bonds independently as they scale back fund-raising via local financial

vehicles, sources said. "We will close the back door, barring local

governments from raising debt via special purpose vehicles, but we must

open up the front door. We need to boost fiscal spending and expand

the budget deficit as we need to stabilise growth," said the CASS

economist. The meeting, which sources said would run until Thursday, is

unlikely to result in any public announcement of economic targets, which

are usually reserved for the opening of the national parliamentary

session in early March.

Adding to already gloomy data analysts expect upcoming figures on

investment and inflation to be similarly lacklustre, and the property

market is likely to remain weak well into 2015, weighing on demand for

everything from furniture and glass to cement and steel.

ANZ Bank reported on Monday that: Imports of unwrought copper and copper products into China rose mildly, with November imports up 5% m/m to 420kt. On a seasonal basis, imports were down 3.6% y/y, although this was a big improvement from Q2 2014, where volumes were down 15% y/y. This trend of rising imports is likely to continue. Despite the ongoing Qingdao investigation into inventory financing, the relatively low offshore interest rates have kept financing activity elevated. Moreover, the import arbitrage has opened up again, after briefly closing in October. It also appears that tentative restocking has emerged. Inventories on exchanges continue to fall. In particular, China’s bonded warehouse stocks remain low at 159kt. That said, we don’t expect to see a repeat of the aggressive restock seen last year, where H2 imports rose 19% y/y. Aluminium exports were up 2.6% from the previous month to 390kt. This represents an increase on a seasonal basis of 23%. The continued high level of exports appears to be driven by a combination of increased domestic production and a record high LME-SHFE spread of $193/t. When combined with high premiums, this should encourage even more excess Chinese metal to be exported, putting some downward pressure on prices. Oil imports rose in November, up 5.5% m/m and 7.9% on yearly terms. Brent oil prices plunged 19% in November, supporting strategic and commercial buying. December prices could be more volatile around USD70/bbl, but generally low prices should continue to support crude oil imports in December. China is reportedly stockpiling about 90mbbls/day into strategic reserves right now. However, capacity constraints could hinder strategic imports going forward, until strategic storage facilities are built in Q2 2015.

Although we believe commercial crude imports will continue to rise, as domestic refinery runs have recovered after the seasonal turnaround period.

Reuters reported on Tuesday that

Workers at Peru's top copper and zinc mine, Antamina, will go on a new

indefinite strike on Wednesday to continue pushing for a bonus and

other benefits, a union leader said. The union ended a 19-day strike on

November 30 after Peru's work authority declared it illegal. The mine

said the stoppage did not affect production. BHP Billiton and Glencore

Xstrata each have 33.75 percent stakes in Antamina. Teck Resources

holds 22.5 percent and Mitsubishi Corp 10 percent.

Platts reported on Monday that China's Zijin Copper Co. produced 210,600 mt of copper cathode in the year to December, exceeding its planned output target of 210,000 mt for 2014, its parent company Zijin Mining said Tuesday. The company produced around 200,000 mt of copper cathode in 2013. "Zijin Copper has achieved its yearly output target 24 days ahead of schedule. Its output is set to exceed 220,000 mt by the end of this year," Zijin Mining said in a statement. Zijin Copper, a wholly owned subsidiary of Hong Kong and Shanghai-listed Zijin Mining, is based in Longyan city of China's Fujian province. Platts reported on Tuesday that Chile's November copper exports were valued at $3.15 billion, down 6.4% from $3.364 billion in the same month of last year, according to figures released by the country's central bank on Tuesday. The bank does not provide numbers on export volumes. The bank said November exports of copper in concentrate rose 11.8% year on year to $15.258 billion, copper cathode sales aborad fell 6% from a year ago to $16.372 billion. Exports over the first eleven months of the year totaled $34.974 billion, down 5% from the same period of 2013, the bank said. Chile is the world's largest copper producer. Metal Bulletin reported on Tuesday that: Freeport-McMoRan Inc expects to restart its idled Miami, Arizona, USA copper smelter in mid-December. The Phoenix-based company shut

down the smelter after a molten copper breach caused a fire at the facility in November. "Progress on repairs at the Miami smelter has met expectations and a restart of the smelter is expected in mid-December," a Freeport spokesman told Metal Bulletin sister publication AMM. Freeport’s Miami operations comprise an open-pit copper mine, a smelter and a rod mill. The Miami smelter has the capacity to process 700,000 tons of concentrate annually, producing about 400 million lb of copper and 700,000 tons of sulphuric acid for Freeport’s North American leaching operations. Concentrate processed at the Miami smelter is sourced almost exclusively from Freeport’s copper mines in Arizona and New Mexico.

The Financial Times reported on Wednesday that

Crude at $70 puts at least 1.5m b/d of projects for 2016 at risk

The 40 per cent plunge in the price of oil over the past six months is

testing the mettle of the world’s biggest producers, from Venezuela to

Iran and Russia. But it is also a survival of the fittest at a more granular

level — among the world’s megaprojects.

Energy Aspects, a London-based consultancy, estimates that more than

12 per cent of global oil production would be uneconomic if the majors

were to give the go-ahead to these projects at today’s prices.

Most at risk are those in the Canadian oil sands which has a break-even

price of $80 a barrel, US shale plays and other areas of tight oil ($76).

Brazil’s deepwater fields ($75) and Mexican projects (around $70) are

also vulnerable.

None of this looks pretty, particularly as most new production scheduled

to come on line in the next couple of years is set to come from non-Opec

countries. Most, if not all, of this is high-cost production that has only

become more expensive in recent years.

See the 2014 cost curve (cost of production, excluding dividend or

interest payments):

Compare this to the 2012 cost curve:

With an oil price at around the $70 mark, at least 1.5m b/d of projects

scheduled for 2016 are at risk, Energy Aspects estimates. (Let’s keep in

mind the oil price has now fallen almost $5 below this level in the past

few days alone to five-year lows.) Well over 1m b/d of projects

scheduled for 2017 are also in the line of fire. The numbers for 2018

remain unclear.

For projects already running, where approvals have already been

granted and funding is in place, the picture is different. It would take

much greater drops in the price of oil to shut them down. But the

planning and development for new projects can be deferred, re-

engineered or even cancelled depending on how operators are placed

financially and what their expectations are for returns on investment.

The Financial Times reported on Tuesday that

US shale industry faces endurance test after Opec rejects cuts

Anadarko Petroleum would have comfortable debt levels if US crude

were to average $70 next year. Not all groups are so well-placed

Oil groups’ varied debt levels and the diverse location and quality of their

assets adds up to a diverse outlook within the sector

Drilling in Eagle Ford: the number of rigs in the south Texas shale

formation has been reduced by 16 since October to 190

‘Because shale wells come on fast and drop off fast, [producers] are

more exposed to short-term prices,’ says Allen Gilmer

When Saudi Arabia and other Gulf countries last month rejected calls for

a production cut by Opec, the oil cartel, they put the responsibility for

stabilising plummeting crude prices on to the US shale industry. Suhail

al-Mazroui, energy minister for the United Arab Emirates, said US shale

companies and other producers who had created an oil glut should

“respect the needs of the market”. Less diplomatically, Scott Sheffield,

chief executive of Pioneer Natural Resources, one of the leading shale

oil producers, said Opec had “declared war” on the US industry.

Two weeks on from that Opec decision — and against a backdrop of a

40 per cent fall in the oil price since June — evidence of its negative

impact on US producers is starting to emerge.

Rather than a war, the US shale industry is braced for a test of

endurance. As the pressure on oil producers mounts, weak companies

face the threat of dwindling investment, faltering production, forced asset

sales and possible bankruptcy.

The successful companies will be the ones that both entered the

downturn in the strongest position and are most effective at improving

their efficiency. They can hope to make it through to better days when

the oil price recovers and are also likely to be able to pick up some

undervalued assets.

On Monday ConocoPhillips, the US’s largest exploration and production

company, unveiled plans to cut its capital spending by about 20 per cent

next year to $13.5bn — a steeper reduction than analysts had expected

— and said it would defer drilling programmes in several North American

shale areas.

Last Friday Baker Hughes, the energy services group due to be bought

by rival Halliburton, published data which showed the number of rigs

drilling for oil in the Eagle Ford shale of south Texas had fallen by 16

since October to 190. The number of rigs in the Bakken shale and

related North Dakota formations had meanwhile dropped by 10 to 188.

Also last week Drillinginfo, a consultancy, published figures showing that

the number of applications for permits to drill new wells had fallen by

about 30 per cent in both the Bakken and the Eagle Ford areas last

month compared with October. That may overstate the likely drop in

activity, because companies will have a backlog of permits they can use,

but it is clear the industry is responding to a steep drop in the oil price.

Allen Gilmer, Drillinginfo’s chief executive, said: “Because production

from shale wells comes on fast and drops off fast, their economics are

more exposed to short-term prices.” This applies more than for other

types of oil production, where projects can take many years to come on

stream, activity and output from shale can be stepped up and down

quickly.

While all shale companies are under pressure, their responses to the

declining oil price will often be different. The companies vary widely in

terms of debt levels, financing, hedging against price falls, product mix,

location and quality of their assets and operational efficiency, and those

differences have been reflected in share price movements over the past

six months.

One important issue for companies is their gas production. From 2010

until this summer, many US shale companies were shifting away from

natural gas and towards more lucrative oil production.

But now gas is back in favour. It has fallen less than oil and is likely to

rebound if there is a cold winter in the US. As a result, the shares of gas-

focused companies such as Cabot Oil and Gas have often been less

affected than their more oil-focused peers.

Another critical factor is debt. The shale surge has been built by

borrowing: companies have typically spent more on drilling and

completing wells than they have generated in cash flows and over the

past decade about $163bn worth of high-yield debt has been issued by

US oil and gas producers. Some have relied much more heavily on debt

than others, however.

If US crude were to average about $70 per barrel next year, EOG

Resources and Anadarko Petroleum would have debts roughly equal to

a year’s earnings before interest, tax, depreciation and amortisation — a

very comfortable level, according to analysts at Tudor Pickering Holt, the

investment bank. Other larger companies including Marathon Oil,

Apache, Devon Energy and Chesapeake Energy also have debt

burdens that seem manageable.

At the other end of the scale, companies such as Laredo Petroleum,

SandRidge Energy and Range Resources would have debts about four

times their ebitda, according to Tudor Pickering, while for Ultra

Petroleum, Exco Resources, Goodrich Petroleum and Halcon

Resources the multiple would be even higher.

Beyond the financial metrics, the quality of a company’s assets is also

important. Some of the companies that are focused on the Bakken

shale, including Continental Resources and Whiting Petroleum, have

been out of favour with investors, but the early evidence from rig activity

and drilling permits is that there is no one “play” — as the different

geological formations are known — that has been worse affected than

any other.

More than the broad region where a company operates, it can be the

quality of its specific lease areas within the region that matters,

according to Cody Rice of Wood Mackenzie, another consultancy. In an

area such as the Eagle Ford, companies in the core where the rocks are

most productive can continue to thrive, he says, “but if you’re

underperforming your peers, and you’re not in the core of the play, it’s

not going to be so good for you”.

The other crucial variable is operational performance. Reid Morrison, the

advisory leader for US energy at PwC, the accounting firm, says that up

until this summer there was very little focus on efficiency in the shale

industry. When he tried to advise on cost savings, “the reaction we were

getting was: ‘We agree with that, but it’s not important right now’,” he

says. “There was a lot of confidence that the new floor for the oil price

was around $90 per barrel.” Now that view has changed completely:

interest in ideas for cost savings is soaring.

When Opec members talk about the US contribution to world

“oversupply”, they are referring to the growth in US crude production of

about 4m barrels per day, about 80 per cent, since 2008. US shale has

caused an upheaval in oil markets, and many rival producers, in Russia

as well as Opec, hope it will go away.

The existence of a group of financially strong shale companies such as

EOG Resources and Devon Energy, however, suggests that the US

industry is not about to crumble. They have been covering their capital

spending from cash flow generation, unlike many of their rivals, and

have little debt. They may cut capex next year, but does not face

pressure to make deep reductions.

Any good US shale assets owned by companies that cannot afford to

develop them are likely to be picked up by financially stronger groups. If

these can drive down costs, helped by increased spare capacity in the

energy services industry, the oil prices needed for development to be

commercially attractive could be lower than previous estimates have

suggested.

Many investors will suffer losses on exposure to oil and gas if prices stay

at current levels. But some analysts expect the overall impact on US oil

production to be relatively modest.

“The rate of increase in production is going to slow down,” says Philip

Verleger, an energy economist. “Even at $50 oil, though, US production

probably plateaus, but it doesn’t start going down.”

Aluminium continues to consolidate after recent sell off

Aluminium is still consolidating after last week’s options-related sell off.

The market is still moving towards overhead resistance in and around

the $2,010 area basis three months. If this level can be decisively

broken then the next upside target becomes the $2,070 to $2,080 level.

Good support is still to be found in the $1,940 area.

Other aluminium market news

Reuters reported on Tuesday that

Shanghai aluminium prices dropped to their lowest level since May as

growing overcapacity and the shaky outlook for demand in China curbed

buying that had already begun to wane towards year-end. The most

traded February aluminium contract on the Shanghai Futures Exchange

had fallen as far as 13,300 yuan ($2,151) a tonne, down 0.8 percent to

its lowest level since May 16. Aluminium closed up 0.36 percent at

$1,972 a tonne after touching a session low of $1,952, the weakest in 1-

1/2 months.

"Supply is growing steadily, with new capacity and idled plants

(restarting)," said analyst Paul Adkins of consultancy AZ China in

Beijing. "Demand is sputtering. It's a combination of weak

macroeconomic signals and pre-year-end wind-down."

Some Chinese manufacturers have been exporting semi-processed

aluminium shapes, sidestepping export tariffs and easing a supply

shortage in the rest of the world.

China exported 390,000 tonnes of unwrought aluminium and aluminium

products, including primary, alloy and semi-finished aluminium products,

in November, up from October's 380,000 tonnes.

"We are hearing that the authorities are now tightening the screws in

regards to exports, with closer inspections of paperwork and metal,"

Adkins added.

Reflecting a shortage in U.S. markets, aluminium imports in October

were at their highest for the month since 2008 as bigger inflows from

Canada offset a slowdown in material from Russia, according to

International Trade Commission data released on Monday.

Severe supply-side stress on the LME aluminium cash market eased

after nearly 12,925 tonnes were delivered into the Dutch port of

Vlissingen.

ANZ Bank reported on Monday that: Chinese aluminium exports were up 2.6% from the previous month to 390kt. This represents an increase on a seasonal basis of 23%. The continued high level of exports appears to be driven by a combination of increased domestic production and a record high LME-SHFE spread of $193/t. When combined with high premiums, this should encourage even more excess Chinese metal to be exported, putting some downward pressure on prices. Bloomberg reported on Tuesday that

Global aluminum capacity will rise by 3.9 million tons in 2015, with more

than 90% of net additions coming from China, according to analysis from

Bloomberg Intelligence. Xinjiang in northwest China will be the largest

contributor in the country's expansion as new projects with captive coal

mines and power plants are built. These plants have significantly lower

electricity costs than smelters using grid power, putting more downward

pressure on prices and potentially squeezing out high-cost producers.

Platts reported on Tuesday that

China is unlikely to cut a 15% export tax on primary aluminium despite a

request by state-owned producer Chalco, Chinese and western smelter,

trader and analyst sources said.

Such a move would go against the government's long-standing

campaign to conserve energy, rein in gas emissions, and cultivate the

production and export of value-added products, the sources

said. Aluminium smelting is power intensive and adds little value, and

the export tax is meant to curb the flow of ingots offshore.

As China does not have surplus power generating capacity, a reversal of

the policy would be akin to exporting electricity and importing pollution,

analyst and smelter sources said.

Two Chinese smelter sources said authorities were more likely to

consider measures to incentivize the production and/or the export of

secondary or processed aluminium products, such as alloys, coils,

cables, plates and rods. A large number of these products enjoy VAT

rebates when exported.

Some sources said they would not rule out new rebate increases for this

category of products.

However, a metals analyst said aluminium sheets for automotive

applications were a compelling form of value-added production in the

aluminium chain, but coils, cables and rods were hardly advanced or

niche products. China should ideally work towards developing

advanced, proprietary fabricated aluminium products, he said.

A western producer said he would regard coils, cables, rods and alloys

as having legitimate value-added status.

A source close to Chalco said it was keen to export primary aluminium

priced off the LME plus premiums, which would fetch a better return than

domestic aluminium prices on the Shanghai Futures Exchange. But,

Chinese smelters are not able to make a decent margin on the arbitrage

due to the export tax, the source said.

The source also said Chalco's appeal was meant to be a longer-term

objective, and there was no expectation of it being granted for the 2015

fiscal year.

According to a recent Ministry of Industry and Information Technology

report, China is scheduled to shutter 25,800 mt/year of outdated

aluminium ingot smelting capacity by the end of 2014, bringing the year's

mothballed capacity to about 500,000 mt/year.

The shutdowns are in line with the government's goal of accelerating

industrial upgrade by scrapping energy-inefficient manufacturing

facilities.

In the past decade, China has slashed the number of aluminium

producers to 64 from more than 120, according a report last month from

the Henan Provincial Nonferrous Metals Guild.

But, in the larger scheme of things, China's ingot-smelting capacity

continues to swell, with overcapacity and poor margins being enduring

problem.

Platts reported on Tuesday that

Two aluminium producers have offered to Japanese buyers premiums of

$435-440/mt plus London Metal Exchange cash CIF Japan for first-

quarter 2015 shipments, sources involved in the talks said Tuesday.

One producer offered $435/mt plus LME cash CIF Japan, while another

offered $440/mt plus LME cash CIF Japan, up from a $420/mt premium

for the current quarter.

The two producers were offering primary aluminium ingot of P1020A

specification, buyers said. Producers could not be reached for comment

Tuesday.

Meanwhile, Japanese buyers said they were aiming for a reduction from

the current quarter's $420/mt plus LME cash CIF Japan, on the back of

high stocks and a bleak demand outlook.

The negotiations started in the week ended November 21. For the last

two weeks, buyers and sellers were focused on volumes, as some

buyers wanted to reduce Q1 deliveries.

December 15 is the deadline for making shipping arrangements for

January loading. Japanese buyer sources said premium negotiations

were likely to continue after December 15.

Platts reported on Tuesday that

US aluminium sheetmaker Novelis is to be the supplier of aluminium

sheet metal for the recently launched Jaguar XE, the company said

Tuesday.

The new Jaguar XE will be the the first all new car to use a new, high

recycled content aluminium alloy designed jointly by Novelis and Jaguar

Land Rover, the company said in a statement.

Vice President and General Manager Automotive, Novelis Europe,

Pierre Labat said: "The XE once again reflects the leadership of Jaguar

Land Rover and Novelis in the design and production of high-volume

aluminium vehicles and is another important milestone in body

engineering, redefining the standard in its class."

Since 2013, Novelis' recycling plant in Latchford, northwest England, has

provided Jaguar Land Rover with a closed-loop recycling solution by

converting the car manufacturer's aluminium scrap metal into new

material for automotive sheet.

Novelis aluminium products are featured in more than 180 models of

vehicles produced by automakers around the globe.

Since 2011, Novelis has invested more than $550 million globally to

triple its automotive sheet capacity to 900,000 mt by 2015.

Novelis forecasts global demand for aluminium automotive sheet will

grow by approximately 30% each year through to the end of the decade.

Nickel continues to be a reasonably steady if nervous market

Nickel continues to be a reasonably steady market but the market still

has a nervous undertone to it. Good support exists in and around the

$15,800 to $15,900 per tonne area basis three months while strong

overhead resistance lies in and around the $17,500 level. The market is

taking some comfort from improving Chinese nickel pig iron prices.

Other nickel market news

Platts reported on Monday that

Spot prices of high-grade nickel pig iron (10-15% Ni) in China were

heard rising to Yuan 1,100-1,140/nickel unit ($179-186/unit) delivered

with 17% VAT included Tuesday from Yuan 1,000-1,050/unit heard three

weeks ago on tight NPI and nickel ore supply.

Offers were higher at Yuan 1,150-1,180/unit, but NPI was not tradable at

that level, market sources said.

NPI supply has tightened since producers cut output in Inner Mongolia

over late October-early November to lower pollution during the APEC

meeting in Beijing. Some producers have since resumed production

while others remain shut due to tight nickel ore supply, sources said.

Suppliers are also limiting sales in anticipation of prices rising further in

the near term, they said.

Nickel ore supply is tightening due to a decline in nickel ore shipments

from the Philippines with the start of monsoon season.

Nickel ore inventories at China's five main ports were down 285,000 mt

week on week at 14.92 million mt last Friday, research firm Shanghai

Metals Market said. Analysts expect China's nickel ore imports to fall

through to March, when shipments from the Philippines resume after the

monsoon season.

Spot NPI prices were also boosted by Shanxi Taigang Stainless Steel

last week hiking its December NPI purchase price Yuan 240/unit from

November's Yuan 1,170/unit. The sharp increase surprised market

participants, with some saying it was not representative of the market as

no other stainless steelmakers were willing to pay so much.

NPI demand from steelmakers is stable for now, said a mill official in

East China. But demand could pick up after December when mills start

stockpiling for production during winter and Chinese New Year holidays

in mid-February, he added.

Platts reported on Tuesday that

The European stainless steel market is "lackluster at best" with demand

from fabricators down and orders from stockholders substantially lower,

Germany-based service center Damstahl said Tuesday. Damstahl said

stockists are not looking to book new material for the remainder of this

year and are waiting as long as possible to place orders for 2015.

The company said stainless steel base prices did not increase in the

third quarter, while production volumes also declined compared to the

second quarter of 2014.

"Currently, base prices are under pressure again and are showing a

downward tendency. Chinese mills are still selling significant volumes of

304 CR coils up to Eur300 ($371) below European mills prices,"

Damstahl said. European stainless steel stocks are also elevated.

After a restocking phase in the first half of the year, third quarter stock

levels in Germany were at 65-70 days for flat products.

"Stockholders are currently trying to reduce stainless steel flat product

inventories until the end of the year to avoid possible stock value write-

downs of earlier procured material at higher prices," Damstahl

said. Demand indicators are also lower in some end-user segments.

Production in the construction sector fell by 1.8% in the euro area in

September, with Eurofer forecasting that the construction industry will

grow by 2% in 2015.

On nickel, Damstahl said demand from European and Chinese mills has

remained subdued after the summer period.

"Falling NPI (nickel pig iron) production in China might put nickel prices

under pressure in Q1, but there is no NPI shortage so far as China was

able to stretch Indonesian material with NPI ore from the Philippines,"

Damstahl said.

The International Nickel Study Group (INSG) forecast in October that

nickel production will reach 1.93 million mt in 2014 with a slight increase

to around 1.95 million mt in 2015.

Primary nickel usage will reach 1.92 million mt in 2014 and around 1.97

million mt in 2015, according to INSG.

This corresponds to a nickel deficit of over 25,000 mt in 2015, which

should support nickel prices in the next months, Damstahl said.

Reuters reported on Tuesday that Sherritt International Corporation announces November production update on Ambatovy nickel operation. For the month of November, Ambatovy’s share of finished nickel production was 1,108 tonnes (2,770 tonnes, 100% basis). November production was impacted by a major planned maintenance program at the plant site with maintenance undertaken in several areas. A majority of circuits have returned to service, and one autoclave will return to service in mid-December as scheduled. For the month of November, finished cobalt production was 67 tonnes (167 tonnes, 100% basis). Ambatovy is currently working towards reaching a production rate equivalent to 54,000 tonnes of nickel on an annualized basis

Zinc is struggling to move higher in choppy trading

Zinc is struggling to move higher in rather choppy trading. Good support

lies in and around the $2,170 area basis three months while overhead

resistance sits at around $2,260 per tonne. Technical picture still

remains long term bullish and many CTAs and macro funds are waiting

on the side lines for see if there are any sell offs which would allow them

to establish fresh long positions.

Other zinc market news

JP Morgan commodity research department released a report earlier this

month on the outlook for metals in 2015. The following comments are

theirs for zinc.

Starting with the closure of China Minmetals Group’s Century mine in Australia slated for the third quarter of next year, a series of significant World ex-China zinc mine closures have and will continue to dominate

the narrative on zinc supply/demand fundamentals. The loss of concentrate production at Century will likely drop the global concentrate market into a deficit of around 150 kmt next year. After underperforming in 2014 (we believe that Chinese zinc mine production will likely grow by 3.6% this year compared to 6.5% growth in 2013), Chinese mine production will grow by 5.1% next year, by our forecasts, as mine projects are ramping up to capacity. Throughout the coming years, we believe that globally, both production growth and greenfield/brownfield mine expansion will likely be large enough to fill the gap left behind by large-scale mine closures but will not be sufficient to both fill the gap and keep pace with our forecasted demand. In 2015, we believe refined production growth will not keep pace with refined demand growth, resulting in a deficit zinc market. We expect global refined production to grow by 4.7% next year, mainly anchored by another strong year of Chinese growth of 7.5% (additional 430 kmt). On the demand side, we forecast growth of 5.9% globally, mainly driven by 6.8% growth in China. In our opinion, strong demand growth will be driven by the automotive sector, especially in China where use of galvanized sheet by the domestic auto industry will continue to increase as the popularity of SUVs and luxury cars further grows. In sum, we are forecasting a refined deficit of 154 kmt next year and are constructive on prices, forecasting an annual cash price of $2,425/t, or 6% above current prices. Bullish Risk Factors for Zinc • Chinese mined zinc production underperforms for a second year amid tighter environmental regulations and safety concerns. • Significant further delays or downgrades in resources are announced upon the completion of the trial stoping program at the Dugald River project. Bearish Risk Factors for Zinc • Century continues to produce concentrate longer than-expected, resulting in a looser-than-expected concentrate market. • Zinc prices rise to a point at which end-users begin substituting aluminum, eroding zinc demand growth.

Gold holds up on “safe haven” buying in thin market conditions

Gold rallied sharply yesterday on the back of a falling dollar, Eurozone

worries centring around a possible Greek general election, a very sharp

5.4% fall in the Chinese stock market, and some very hectic short

covering in what was a relatively thin market. Technically speaking,

$1,240 is the next upside target while support has moved up to the

$1,185 area basis spot. A number of traders are now looking to buy dips

back to the $1,200 to $1,210 area basis spot on the view that the market

will punch higher yet again. Some bulls are talking about $1,250 to even

$1,260 as being possible upside targets. The big caveat, of course, is to

watch what the dollar is doing. It is interesting to note that gold

producers were strong sellers into the rally.

Other gold market news

Edward Meir, the precious metals analyst with International FC Stone,

noted in his precious metals report to clients yesterday that:

Meanwhile, gold does not seem to be trading against a stronger/weaker

dollar for the moment, as evidenced by its inconsistent performance this

week. Instead, it seems to be moving inversely with equity markets and

more importantly, on perceptions that the stronger greenback has the

potential to create economic dislocations in any one of a number of

emerging markets or perhaps in the high-yield energy bond space.

Silver poised to challenge the $17.80 to $18.00 level

Silver followed gold sharply higher on Tuesday and now looks poised to

challenge the $17.80 to $18.00 level basis spot. Support has moved up

as well and now stands in and around the $16.00 to $16.20 area. Silver

rose an amazing 3.4% on Tuesday on the back of short covering and

fresh CTA and fund buying.