Metals clawed back earlier losses over the course of the day yesterday, as a recovering US equity market, a slightly weaker dollar, and a rebound in oil prices, all combined to help the complex finished mixed. Ali turned out to be the best performer, rising on the back of falling stocks and news of production cutbacks at RUSAL, which we mentioned in yesterday's commentary. However, it was the US stock market that exerted the greatest influence on prices. To everyone’s relief, stocks did not follow through on Monday’s plunge with yet more weakness, but instead, opened unchanged after a number of decent earnings reports came out from the likes of United Technologies, among others. The market then worked higher over the course of the day after relatively favorable comments by Treasury Secretary Geithner on the state of the US banks. The Secretary said that most banks have more capital than needed “ to be considered well capitalized by their regulators”. He added that there would be a “series of options” for lenders who may need additional money at the conclusion of the stress tests, and also said there are signs of a “thawing” in credit markets, noting that “indicators on interbank lending, corporate issuance and credit spreads, generally suggest improvements in confidence in the stability of the system”.
This morning, we seem to have flipped back to the negative side, as a lower call on US equity futures is weighing on the markets. Otherwise, there is not much in terms of metals new that warrants the declines we are seeing. In fact, LME copper inventories were down sharply again overnight, while trade data out of China shows a sharp rises in imports for practically all the metals, thanks to recent government stockpiling and infrastructure spending programs. The March import figures are tabulated at the end of our report, but highlights include the fact that imports of refined copper rose to a fresh record of 296,843 tons in March, up from 270,948 tons imported in the previous month, and more than double the levels seen last year. China's imports of primary aluminum was up 14-fold on the year and was almost six times higher than the previous month, coming in at 85,965 tons in March. Imports of refined zinc also reached a records of 121,000 (12 times higher than the previous year and up 57% from the month prior) , while lead imports was up seven-fold compared to last year, coming in at 25,370 tons. Oddly, Shanghai copper markets gave up earlier gains after the data was announced, as apparently expectations on the copper import number was even higher than what actually came in.
There will not be much out of the US today in terms of macro news, but out of China, a government minister said that the Chinese “industrial situation remains serious”, as the country struggles with overcapacity and cash flow strains, despite signs of an economic recovery. The minister said that overcapacity, particularly in the steel and auto sectors, was intensifying because of weak domestic and global demand, and that smaller companies were facing credit issues because of rising inventories.
As far as today's metals action is concerned, we do not see a repeat of Monday's selloff, as US equity markets seem to be sporting only a modest opening loss, while the dollar is flat on the day. Moreover, crude oil prices are also holding up, so the stage seems very similar to what we saw at this time yesterday, when opening declines reversed, leading to a mixed finish.
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COPPER SUPPORT: $4300 / RESISTANCE: $5000
We are at $4440 on copper, down $67, but well off earlier lows of $4390. As we noted in yesterday's commentary, copper’s short-term up channel is intact, and we do not break down technically until we get below $4300. LME stocks were lower overnight, (off by 7200 tons), bringing total holdings to just over 450,000 tons. We look for the market to gradually recover over the course of the day, especially if equities perk up from their modest opening losses.
* The International Copper Study Group latest report (attached to the end of our attachment) shows the refined copper market balance for 2008 to be in surplus by about 250,000 metric tons. Projections for 2009 and 2010 are calling for surpluses of at least 345,000 tons and 400,000 tons, respectively. ICSG projections for copper production have now been revised downwards, and the group sees copper mine production in 2009 to rise by 3.8% over 2008 levels to 16 million tons, down significantly from the anticipated 11% growth projected in October. World 2009 production of refined copper is projected to decrease to 17.6 MT, a decline of about 700,000 tons from 2008 levels. The ICSG expects world refined usage to decline by a minimum of 4.3% in 2009, thanks to an average decline of 14% in three major markets - the United States, the European Union, and Japan. Growth in China of about 3% is expected to be lower than that of previous years.
* BHP Billiton is forecasting a 30% drop in annual output from Escondida on account of lower ore grade and weaker output from milling operations, and added that the force majeure in place at Escondida may end in the September quarter. As a result, the company reported a sharp drop of 14% in copper output for the March quarter. "In the medium term, we expect that market conditions will remain uncertain. All our operations will remain under review. We will continue to take appropriate actions in any business that is cash negative and set to remain so, or where there is lack of demand," the company said. BHP-Billiton also expects declines in iron ore and aluminum production; ali production was off by 4% in the quarter.
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ALUMINUM SUPPORT: $1400 / RESISTANCE: $1600
We are now at $1446 on ali, down $12. Prices have been holding up fairly well of late, on account of a slight moderation in recent stock increases, coupled with the news of production cutbacks at RUSAL. However, we still believe that aluminum is the weakest metal in the group, as it faces the headwinds of high inventory levels that need to be worked off before prices can push higher.
* Demand for North American aluminum mill products in February fell 8% from January, and is off by 30% from February 2008 levels, latest industry data compiled by the Aluminum Association shows. February 2009 aluminum shipments tumbled to an estimated 1,324.9 million lbs from 1,961.7 million lbs in February 2008, and was down from the 1,439.8 million lbs shipped in January. The association also said aluminum exports from the US and Canada, excluding cross-border trade, dropped 40.3% in February on a year-over-year basis.
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ZINC SUPPORT: $1400 / RESISTANCE: $1525
We are at $1430 on zinc, down $45, and basically where we were at this time yesterday. Despite the weakness, our charts show that the short-term up channel remains intact, and will only be taken out with a break below $1400.
* Teck Cominco announced that the company has reached an agreement to defer $4.4 billion of debt incurred with its purchase of the Fording Canadian Coal. Under the new plan, the company must pay $1.9 billion by October 2009, down from the $6.3 billion previously owed. The debt is expected to be paid-in-full by the end of 2012. The company’s shares soared by 30% yesterday on the restructuring announcement.
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LEAD SUPPORT: $1350 / RESISTANCE: $1650
We are at $1430 on lead, down $31, and fairly quiet; channel support is at $1350.
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NICKEL SUPPORT: $10800 / RESISTANCE: $13,500
Nickel is at $11,380, down $125, and still looking fairly weak technically, as charts have broken their short-term up channel. We are looking for a gradual drift to $10,800 support.
* BHP Billiton said it might close its Yabulu nickel smelter in Queensland after failing to find a buyer following the closure of an associated refinery in Western Australia, this according Australian Financial Review. Separately, the company said that nickel output rose 10% in the latest quarter, but the Ravensthorpe closure has yet to flow through into the numbers
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TIN SUPPORT: $10200 / RESISTANCE: $12500
We are at $12,100, down $45, and for the moment, holding up within our up-channel. A dip below $11,750 will break the short-term trend.
* Indonesia said refined production this year may be less than a planned output limit of 90,000 tons, this according to the Ministry of Energy and Mineral Resources.
China's imports and exports of leading nonferrous metals for March and the first 3 months of 2009 as reported by official Chinese customs figures and compiled by Reuters.
March Jan-March
tonnes pct chg* tonnes pct chg*
Imports:
Anode copper 11,279 -46.75 39,722 -38.49
Refined copper 296,843 137.63 748,281 92.3
Copper alloy 2,721 -45.69 8,105 -39.89
Copper scrap 329,266 -38.99 731,974 -47.57
Copper ores, concs 461,620 10.92 1,411,325 3.24
Copper products 64,063 -27.1 140,858 -40.8
Primary aluminium 85,965 1486.53 115,755 255.36
Aluminium alloy 19,361 50.56 39,017 4.74
Aluminium scrap 149,161 -21.24 337,169 -36.07
Alumina 274,276 38.52 1,026,206 -11.22
Bauxite 929,613 -66.49 3,080,994 -54.18
Aluminium products 41,855 -28.4 108,858 -34.0
Refined nickel 12,620 28.68 32,932 -7.72
Refined lead 25,370 7003.64 48,320 826.01
Refined zinc 121,027 1193.76 210,730 875.75
Zinc alloy 9,672 -22.96 23,725 -29.58
Refined tin 2,463 106.55 4,402 17.79
Nickel ores, concs 573,280 -55.05 1,692,108 -52.33
Lead ores, concs 111,559 9.55 328,869 18.04
Zinc ores, concs 192,190 -3.54 687,945 15.71
Tin ores, concs 142 -84.01 1,677 -23.54
March Jan-March
tonnes pct chg* tonnes pct chg*
Exports:
Refined copper 342 -97.01 782 -93.44
Copper products 35,875 -29.5 89,236 -35.2
Primary aluminium 1,683 -80.47 3,677 -77.73
Aluminium alloy 6,668 -86.62 33,313 -75.13
Aluminium scrap 59 57.3 205 56.71
Alumina 4,032 18.03 13,049 54.9
Aluminium products 90,000 -35.5 230,000 -49.1
Refined lead 395 -93.16 4,063 -81.77
Refined zinc 785 -83.79 3,848 -82.32
Zinc alloy - - 5 -
Refined nickel, alloy 609 31.68 1,189 -11.65
Refined tin, alloy 10 -82.71 49 -86.52
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