Sideways moves grapple Lead

It was surprising to see that the prices of Lead only registered marginal gains when its peers like Zinc, Copper and Nickel remained outperformers all thorough October. Meanwhile Lead was mostly been contended with lower demand outlook and higher surplus scenario. The sharp rally seen in August and September months were missing during October and initiation of November. The news of Lead smelters being shut and supply hampered got discounted which affected the daily price movements adversely. Prices of Lead shot up during September when China shut down its smelters on the news of Lead poisoning in major production areas. But in current situation stockpiles in China have been more than the usage which has brought the prices to remain sideways. Estimates are that the at least 300000 tonnes of Lead is in stockpiles in China. This has helped offsetting the deficit due to poisoning incidents. However, the Lead prices registered meager gains during the month ended October. The prices tested a high of LME at $ 2436 per tonne on 22^nd Oct 2009 and a low of $2109 per tonne on 2^nd Oct 2009 with an overall rise of 5.6% in the month. In the first four sessions of November the prices have been range bound. The market breadth suggest that the prices of Lead will be under some sort of stress in coming days and the rise if any will be limited and short lived.

World refined Lead market in surplus-

The global Lead market was in surplus of 57000 tonnes in the first eight months of the year (Jan-August 2009) as per the latest monthly report from International Lead and Zinc Study Group (ILZSG). According to the report during the first eight months of 2009 world refined Lead metal usage was 5727000 tonnes up 0.1% as against 5721000 tonnes during the corresponding period previous year. The world Lead refined output for the period of Jan-August 2009 was 5784000 tonnes up 1.6% as against 5692000 tonnes for the corresponding period previous year. World Lead mine output declined by 1.7% to 2533000 tonnes as against 2578000 tonnes in Jan-August 2008.

Australia, Peru, and Canada registered declines in refined metal output but that was offset by increase of production in China, Bolivia and Mexico. Chinese apparent Lead usage increased 26.5%. The total net imports of refined Lead in China during the period of Jan- August 2009 was 1420000 tons compared to a meager 14000 tonnes of refined imports during the corresponding period pervious year.

The latest forecasts by ILZSG suggest that the global refined lead metal usage is forecasted to increase by 3% to 8.91 million tonnes in 2009. For the year 2010 the usage is expected to increase further by 7.2% to 9.55 million tonnes. Demand will be severely hit by the recessionary conditions. The demand from US is expected to come down by 4.9% in 2009, however this will be followed by a increase of 2.5% in 2010. The demand from Europe will be worst hit and expectations are that the same will decline by 15.6% in 2009; this will be its lowest level in more than 50 years. In the year 2010 the demand is expected to increase by 8.8%. China will remain the key driver of growth of demand of refined lead. In China growth is forecasted to increase by a whopping 25% in the year 2009 while in 2010 the growth is expected to increase by 7.8%. China will be accounting for 45% of the total world demand in the year 2010.

Global Lead mine production is expected to increase by 1.3% to 3.94 million tonnes with further increase in China. For the year 2010 the mine production is expected to increase by 5.8% to 4.17 million tonnes. World refined metal production is expected to increase by 3.4% to 8.99 million tonnes, this is forecasted to increase further by 7.4% due to commissioning of new plants in India and Brazil and higher production in China, Germany, Italy, Japan and US.

Indian primary Lead production misses production targets

Indian primary Lead production missed actual production targets by more than 33.3% in the month of September. Total production during the month of September was 4422 tonnes as against a production target of 6637 tonnes from Hindustan Zinc. Indian Lead is gearing up for production from its plants at Thane and Kolkatta and therefore the production was not reported. Total installed capacity for Indian Lead is 24000 tonnes. During the period of April-September total production of refined Lead was 26783 tonnes down by 10.2% from the corresponding period of 2008. Cumulative production for the period of April-September 2009 also missed the production target by 24% or 35203 tonnes.

Range trading in domestic markets

The metal used in batteries has run up 126 percent on LME so far this year. In October the prices have gained by 5.6 percent to $2345 per tonne on 30^th Oct 2009. In November prices have averaged $ 2310 per tonne. The inventories levels are on a higher side as well. The stockpiles have rose by 3025 tonnes or 2.36% since October to 130800 tonnes on 6^th Nov 2009. In Domestic futures markets, MCX Lead prices were in the range of Rs 98-114 per kg during October and few sessions of November. The benchmark contract faced dip during the initial period of October from where it saw consolidation. The prices saw spikes during the end of October because of fall in the value of Dollar against the EURO.

Outlook:

Lead prices are expected to remain range bound during November with negative bias. The demand for Lead is anticipated to face a hit due to fall in the usage of e-bikes in China. China is the main consumer of Lead in the world but due to start of winters the demand for e-bikes are expected to slow down, which will be reducing the usage of Lead. The official data from the China is forecasted to show a decline in the total sales of the e-bikes in the month of October. However the demand for passenger cars is expected to remain constant which will be assisting batteries demand to fall drastically. The stockpiles in China as well as rest of the warehouses across the globe are high which will ensure that every rise in the prices will be facing supplies. In domestic futures market Lead prices will be hovering between 117 per kg. This is the same range in which Lead kept trading in all through October as well.

Copper: Cracks Emerging At Higher Levels

Copper prices recently tested a high of $ 6968 per tonne on the LME. The prices have so far increased 5% in November. Less emphasis was paid to the declines in off take from majors consumers like China while more focus was on the appreciation of EURO against the Dollar. Inventory levels were on a high but that hardly made any difference to the bullish sentiments of the speculators.

The commodity prices have sky rocketed in the last six months. The lower levels in Commodities after the slump in global economy lured China to increase their reserves in the Base metals. The prices overrun their fundamentals but further decoupling was seen when the Dollar fall was taken as a major trigger. The reserves from China are already quite high and if ministry sources from China are to be believed the stockpiles are able to suffice even the 2010 demand.

China holding ample of stocks:

China's imports of refined copper in October dropped 40.1 percent to 169374 tonnes from 282828 tonnes in September. The declining trend in imports has started on monthly basis, though yearly imports data suggest a rise in the imports of Copper by 31.37 percent. Imports for the period of January-October in China were 2.75 million tonnes. Narrowing of price differential between LME and Shanghai has caused lower arbitrage opportunities. China refined Copper demand declined by 20 percent in October to 544000 tonnes. Infact all the major Base metals registered a fall in the demand. The coming months are expected to see the fall in the imports of Copper from China to continue.

Chinese State Reserves Bureau has stopped buying of further metal and Copper scarp imports have increased which is an indicator that the refined Copper will face pressure because of high refined Copper production. The Australian Bureau of Agricultural and Resource Economics (ABARE) predicts Copper prices in second half of 2009 to average at $ 6065 per tonne.

World Copper Markets In Surplus:

International Copper Study Group (ICSG) in its recent released forecast expects in 2009 refined Copper balance will show a surplus of 370000 tonnes metric tonnes. Decline in production due to strikes in the major mines will not be impacting the surplus as demand is expected to be feeble.

The latest monthly report from International Copper Study Group (ICSG) was released in November. The report showed that the apparent refined copper balance for the month of August 2009 had a surplus of around 150000 metric tonnes. After the seasonal adjustments the surplus stood at 90000 tonnes. The apparent refined Copper balance for the first 8 months of 2009 indicates a production deficit of 32000 tonnes. Production deficit for the period of 2008 was 117000 tonnes.

World mine production grew by 3% in the first 8 months of 2009. Indonesia was the main driver towards the growth where the production increased by 304000 tonnes.
Lower output in Chile and US registered declines. World refined production declined by 0.8% during Jan-August 2009. Chinese apparent usage of refined Copper was up 45% or 1.5 million tonnes but remaining world registered a decline of 19% or 1.7 million tonnes. Copper usage in European Union, Japan and US declined by 23%, 34% and 23% respectively. Now with Chinese usage slowing down the impact would be big.

ICSG predicts World Copper mine production in 2009 to rise by 2.9% to 15.8 metric tonnes. Mine production in 2010 will increase by 6.7% to 16.9 metric tonnes due to higher increase in production capacity. World refined Copper production for 2009 and 2010 are expected to remain stable declining by 0.8% in 2009 to 18.1 metric tonnes and a increase of 0.7% to 18.2 metric tonnes.

Correlation between LME inventories and prices missing

In November a distinct difference between LME inventories data and prices was registered. The prices of three month forward Copper gained 5.1% to $ 6831 per tonne on 30^th Nov 2009. The prices hit a high of $ 6868 per tonne on 23^rd Nov 2009, its 14 months highs. During the same period LME inventories registered a rise of 66350 tonnes or 18% to 438525 tonnes on 30^th Nov 2009. The disparity has been created by the rise of EURO against the Dollar. Dollar was at 1.4771 at 2^nd Nov 2009 while it settled the month at 1.5004 down 233 pips or 2%. In domestic markets MCX futures of Copper settled at Rs 325.4 per kg or 5.4% on 30^th Nov 2009 as against Rs 308.75 per kg at the start of the month.

Jitters from Dubai

This time the economic tsunami came from the Middle East. On 26^th Nov 2009 major world markets faced pressure as the debt payments to European banks by Dubai got suspended. The news was a speed breaker for the constant rise of EURO. The trouble was short lived as the sentiments were again favoring the growth of world economy.

Helping the markets recover from the knee jerk reaction was the announcements from Dubai government. The Dubai government announced a restructuring of Dubai World after the company shocked creditors by requesting a standstill on all financings to it and its subsidiary Nakheel.

Dubai World, one of the emirate's main state holding companies, asked for a delay on maturities until at least May 30, 2010. The company has total debts of $59 billion, including $3.52 billion of Islamic bonds due December 14 from its property unit Nakheel.

Outlook:

Copper shot up sharply in the last few weeks irrespective of the persistent rise in the LME inventories as a slide in the US dollar Now with inventories registering a rise in every passing day and vulnerability of the increase in Chinese imports in the coming days suggest that the rise will be limited and cracks at upper end are now visible.

The news of loan suspensions from Dubai was short lived yet it has caution the investors from taking hefty pie of risk bearing assets. The impact on EURO will be calculated as the days pass on. That will put pressure on the Copper prices going forward. Technically speaking Copper on domestic futures markets can correct upto Rs 310 per kg levels in near term with upper cap at Rs 340 per kg. In Dollar some fresh bouts of rally is expected against the EURO, which will bring decline in metals prices.

Aluminium: Behaviour Of Economic Recovery Will Cap Prices

Riding higher on the back of Dollar:

Recent months have brought surprising yet soothing rally for the Base metals complex. Lacking any positive fundamentals the rally in major Base metal counters have been far from being justified. Aluminium is one such Base metal which has jumped as much as 5.5% in November so far on the back of weak Dollar. Weaker dollar makes the commodities denominated in the Dollar cheaper. In November the LME three month forward prices have tested a high of $ 2069 per tonne on 18^th Nov 2009. During the month of October the prices gained modestly by 2% or $ 41 to $ 1934 per ton on 30^th Oct 2009. The prices in the coming days are expected to show some more uptrend on technical basis and fall in Dollar. However the rally will be limited.

Global Production Of Primary Aluminium Declines:

International Aluminium Institute’s (IAI) latest data for the period of Jan-Oct 2009 states that the World primary Aluminium production declined by 9% to 19.51 million tons as compared to 21.44 million tons during the corresponding period previous year. Overall, Asia produced 3.65 million tons of primary Aluminium in Jan-Oct 2009 a rise of 11.36% from Jan-Oct 2008. With the exception of Asia, all other regions posted a decline in the primary Aluminium production. North America registered the worst decline of 18% due to lower demand from Aluminium consuming sectors.

Primary aluminium output in China rose to 10.30 million tonnes in Jan-Oct from 11.16 tonnes in Jan-Oct 2008, provisional figures from the International Aluminium Institute (IAI) showed. In October 2009 China's aluminium production was 1.294 million tonnes and last year the country produced 1.219 million tonnes, the institute said.

ABARE expects 2009 average Aluminium prices to be lower

Australian Bureau of Agricultural and Resource Economics (ABARE) latest report suggests that the average Aluminium prices for the year 2009 would be 36 percent lower at $ 1600 per tonne than the 2008 average price. The prices in the fourth quarter at 2009 are expected to remain higher. In 2010 the production is expected to exceed consumption which will result in lower prices. The LME stocks which are currently at 1 month highs are expected to increase to 14 weeks consumption. In the first 6 months world Aluminium consumption declined by 15 percent, yet in the rest 6 months the prices are expected to improve. Chinese government passed massive stimulus packages during the first half of 2009 which resulted in the increase of production of Aluminium. In 2009, Chinese consumption is expected to increase by 8 percent to 13.4 million tonnes.

OECD economies will be affected by lower industrial activity because of reduced demand for Aluminium. For the year 2009 OECD consumption is expected to decline by 27% to 12.4 million tonnes. Japan, US, Korea and Italy will remain the worst hit by decline in consumption.

China NDRC announces power price rise

China National Development and Reform Commission announced recently electricity price rise for Non-Residential use of 0.028 yuan (0.4 US Cents per KW hour). The increase in tariffs will increase the production cost electrolytic aluminium by nearly 400 yuan per metric tonne. Currently, producing one tonne of electrolytic aluminum consumes about 14,500 kWh of electricity. Thus, given an average price rise of 0.028 yuan per kWh, the production costs for electrolytic aluminum will be raised by around 400 yuan per tonne.

Indian Aluminium production increases in September

Indian Aluminium production increased in the month of September following the trial run production from Vedanta Aluminium Limited (VAL). Vedanta has commissioned its smelter at Jharsuguda from April, 2008 which is presently under trial production. On a monthly basis, NALCO registered a meager rise of 10 tonnes in Aluminium production in September 2009 by to 35010 tonnes as compared to production target of 35000 tonnes. On a cumulative basis Nalco’s production for the period of April-Sep 2009 was 207793 tonnes as against 177068 tonnes in April-Sep 2008. Bharat Aluminium Company production for Sep 2009 was 20534 tonnes as against 21107 tonnes the production target. When compared on a Y-o-Y basis, the cumulative production of NALCO was down 23% to 135285 tonnes in April-Sep 2009. Hindalco registered a rise of 19977 tonnes in the cumulative production for the period of April-Sep 2009 to 275051 tonnes from 255074 tonnes in Apr-Sep 2008. During June the production of Hindalco stood at 45890 as against a production target of 45985 tonnes.

The total production for the month of September 2009 stood at 119472 tonnes or 17% as against a production target of 102092 tonnes.

Sharp upswings in LME forward prices

LME inventories have maintained sharp uptrend in November 2009, however this has not been able to pullback the gains in the prices. In the month of November 2009, the three month LME aluminium prices traded in the range of $ 2069 - $ 1909 per tonne. The LME Aluminium contract started the month at $ 1909 per tonne on 2^nd Nov 2009, the prices managed to breach $ 2000 levels during the month and tested a high of $ 2069 per tonne on 18^th Nov 2009, the prices are now at $ 2015 per tonne levels on 20^th Nov 2009. The rise in LME prices was due to higher oil prices and a weaker greenback with funds taking new long positions. The stocks in the month of September across the globe were at 2.26 million metric tons as per the latest figures released by International Aluminium Institute. Total inventories in LME are at 4592850 tonnes on 20th Nov 2009 as compared to 4555525 tonnes at the start of the month. In domestic futures market benchmark Aluminium contract gained 6% to stand at Rs 94.9 per kg on 21^st Nov 2009 as against a start of Rs 89.55 per kg on 2^nd Nov 2009.

Outlook:

With Dollar now at 1.50 levels against the EURO, Aluminium prices will be able to find the cushion at the lower end of the spectrum. The recovery in the greenback has been quite modest and looks unsustainable in short term. However long term scenario brings with it hopes of the greenback recovering against its peers. This will ensure that the price levels of Aluminium don’t get stretched to far. Inventories levels are high and the consumption patterns across major nations are still quite low. Power prices are going up in consuming nations, the major one being China which will get impacted by the rise of electricity rates for Non residential usage. On one hand this looks a positive trigger for the Aluminium prices as production will get impacted adversely on the other it will ensure that the balance between higher inventories and lower demand is maintained. Therefore any expectation of rapid rise in Aluminium prices seems unviable as of now.

The prices will be enjoying the short term rallies with long term outlook still capped on the behavior of economic recovery across the globe. The prices in domestic markets will face resistances of Rs 99 per kg. Sell on rallies will be a strategy which can be adopted with prices targets of Rs 88-85 per kg.

A Study On El Nino Weather Patterns

Is 2009 going to be an El Nino year? WMO, the apex UN body on climate, warned that there was a more than 50% chance of El Nino this year -- double the normal probability in any other year. This is likely to spell trouble for the world economy already teetering on the back of a grave recession and agri commodities prices may be in for a long haul irrespective of whether the economic recovery in V shaped, W shaped or L shaped. In case of India, risk of a failed monsoon has risen manifold with the World Meteorological Organization warning of a "substantially elevated risk" of this being an El Nino year. Agri commodity prices in the country are already on the way up with the food prices inflation hovering around 9% mark- even as the Wholesale Price Index hovers well below 0%. Food prices are likely to escalate around the world if the “little boy” as El Nino stands for in Spanish turns out to be a big mess.

A weather anomaly that saps the monsoon of its strength

El Nino is a periodic weather anomaly that saps the monsoon of its strength on most of the occasions it occurs. It is marked by warming of Pacific waters that slow down the trade winds blowing from South America towards South East Asia. Before one understands the impact of El Nino on the countries facing this phenomenon, one must empathize what is El Nino? The El Nino or Pacific warm episode is often referred to abnormal periodic warming of surface ocean waters in eastern tropical Pacific. The condition is a part of ENSO or El Nino Southern Oscillation. During southern oscillation the air pressure differs between eastern and western tropical pacific. When surface pressure increases in eastern pacific it declines in the western pacific and vice versa causing the oscillations. Warm weather conditions are prevalent in the Pacific Ocean during the El Nino year. The periodicity of El Nino differs from 3 years to 8 years and last from 12 to 18 months.

Drought in three states: Is India already hit

El Nino impacts the monsoons, and brings with it shift in rainfall patterns. During a typical El Nino, the Asian monsoon usually weakens and is pushed towards equator, often bringing summer drought to northwest and central regions of India. India has been of late witnessing the same problem. The monsoon in the northern agri growing belt of India has been severely impacted and drought has already been declared in states of UP, Assam and some regions in Bihar.

The latest forecasts released by Indian meteorological department (IMD) showed that La Nina weather conditions ended in December 2008 and since than the El Nino conditions have prevailed. In between the week ending 5^th Aug 2009, the country as a whole received a total rainfall of 56.3 mm as against 78.3 mm during the week ending 22nd July 2009. In Northwest India thesituation improved and the long period average (LPA) came down to below normal rainfall of 12% as against below normal rainfall of 22% registered on 22nd July. The long period average for the monsoon in India was at 82%. For the total period of South west monsoon the expected forecast in the second revised estimates of IMD was 93%.

World Wheat supplies yet again under hammer

Australia and Peru are few of the other countries, which will face the impact from ENSO conditions. Australia is one of the largest exporters of Wheat in the world. The country hasn’t fully recovered from the drought, which affected the wheat production drastically and with 2009 on a verge of being declared an El Nino year the situation is likely to remain same. In 2009-10, world wheat production is forecast to decline by 40 million tonnes while world wheat consumption is forecast to remain largely unchanged. The meteorological phenomenon El Nino could reappear and will affect Peru in the coming months, Peru's National Service of Meteorology and Hydrology director (Senamhi) said recently. Senamhi's director Elizabeth Silvestre said “the continuous warming in the Pacific Ocean implies a high risk for a negative impact to come and the agriculture harvests is likely to suffer the worst of up-coming droughts or floods.”

Palm oil to feel the heat too

The Australian Bureau of Meteorology in its latest report on 5th Aug 2009 mentioned that the weather conditions are warm in the tropical Pacific Ocean and if the situation persists than 2009 will be termed as an El Nino year. The Southern Oscillation index (SOI) is near to zero. Persistent negative SOI value is an indicator of El Nino events. The model forecasts for 2009-10 suggest that El Nino will continue to strengthen in coming months. US climate prediction center expects El Nino to be moderate to strong one. During August-October 2009 drier than average conditions will be prevalent over Indonesia and enhanced precipitation over the central and west-central Pacific Ocean as per National Oceanic and Atmospheric Administration (NOAA). The result would be negative affect on the major palm oil producing countries like Indonesia and Malaysia.

Blessing in disguise: is crude likely to be cool

The El Nino conditions are sometimes beneficial, as they tend to slow down the hurricanes emerging from the Atlantic. The US hurricane season starts in August and ends till October. The season brings along with it a threat to the Crude Oil refineries operating in the Gulf of Mexico. This time round, NOAA expects near to below normal Atlantic hurricane season as the effects of El Nino continue to develop. The probability of occurrence of below normal season has increased in August than in May when NOAA released its previous outlook. The May outlook called for 9-14 named storms, of which 4- 7 could become hurricanes. In August the number has come down to 7-11 named storms while the total number of Hurricanes will be 3-6. This will be easing the prices of Crude, which tend to swell on halts in refining.

Outlook:

The situation is not well for the kharif season in India, lack of adequate monsoon during this period is adversely impacting the sowing progress in most of the states. The area covered under rice is so far estimated at 191.30 lakh hectares in July-August as against 256.70 lakh hectares during the same period previous year. The decline in the total area will affect the production of rice this year. The lower rainfall has impacted the sowing in Uttar Pradesh, Bihar, West Bengal and Jharkhand. Although the situation is not solely due to the El Nino conditions yet it is acting as a major factor. In countries like Australia, Indonesia and Malaysia warmer conditions will be bearing on the Wheat and Palm oil production. However the benefits will arise from the fall in number of hurricanes hitting the Gulf of Mexico refineries.

Understanding Cash For Clunkers

CASH FOR CLUNKERS

Cash for Clunkers scheme or Car Allowance Rebate System (CARS) ended recently on 24^th Aug 2009. The scheme provided benefits to US residents to purchase a new more fuel efficient vehicle in place of their old vehicle. The scheme provided stimulus to the economy by boosting auto sales and putting more fuel efficient vehicles on roads. The programme was allocated a limited period fro 1^st July 2009 to 24^th Aug 2009.

Fed started passing vouchers to Car dealers under the Consumer Assistance Recycle and Save Act of 2009, how much beneficial or cumbersome? the act is a matter of discussion.

Consumer Assistance To Recycle And Save Program (CARS) Act 2009:

CARS Act authorizes issue of an electronic voucher to the US residents subject to specifications. All the registered dealers will get the said vouchers as the partial payment of the purchase or lease made by them offered for sale by that dealer of new fuel efficient vehicle. However, their are qualifications that need to be fulfilled if the person wants to get the pre-defined sum of money ($ 3500 or $ 4500) from the US government. If the new fuel efficient automobile is a passenger vehicle, or truck than the person is eligible of a voucher of $ 3500 or $ 4500 voucher based on the fuel efficiency of the vehicles.

A voucher issued under the Program is used only in connection with the purchase or qualifying lease of new fuel efficient automobiles that occur between 1^st July 2009 and 24^th Aug 2009. Vehicles must be less than 25 years old and must be insured and registered. The vehicle which comes for trade in must be scrapped and the value of scrap and the rebate must be offered to the customer. The new vehicle bought by the customer should have a retail price of not more than $ 45000 and a combined fuel economy value of 22 mpg.

Assistance For The Auto Sector:

Cash for clunkers scheme which transformed the way of cars sale ended on 24th Aug 2009. The popular Cash-for-Clunkers program generated sales of nearly 490,000 vehicles in the U.S., worth more than 2 billion dollars. Car sales in July were the highest since August 2008 and up 13 percent over June. Higher sales from the program assisted producers start idled capacity of production units. The main focus of the scheme was to remove the polluting vehicles from the roads and bringing more fuel efficient vehicles. The other focus of the scheme was to revive the ailing manufacturing and automobile sector. The scheme was allocated a budget of $ 1 billion between 1st July 2009 and 24th Aug 2009 but with good response from the customers the some was exhausted on 30th July 2009 only. A additional sum of $ 2 billion was allocated after that.

How Far It Is A Viable Scheme?

Industry people have different views about the Cash for Clunkers scheme. While most of them are in favor of the scheme saying that it did an outstanding job in reviving the economy, the others believe that it used the tax payer’s money first to bailout the auto sector and then the government used it to throw it in a buy-buy economy. Temporarily it has helped the sales of new after the bailout companies. GM is expected to rehire more than 1300 laid-off workers, Hyundai is bringing 3000 workers back to an Alabama plant, and automakers are paying workers overtime to meet the demand.

Lead Poisoning: Sweeter For Speculators

Lead Sparkles In August-

Prices of Lead, Base metals used in batteries manufacturing, tested 11 months high after China shut down its smelters. China is the world’s largest producer and consumer of Lead. China shut 240000 tonne of annual lead smelting capacity in its top producing province of Henan after reports of lead poisoning in various areas, this provided bulls take advantage of the situation. The prices tested a 11 month high on LME at $ 2125 per tonne on 28th Aug 2009. During the month the prices tested a low of $1800 per tonne. Rise in equity markets and fall in Dollar also came in handy for Lead. In domestic markets Lead tested its peak of Rs 104 per kg on 28^th Aug 2009. During the whole month inventories of LME kept on piling up which will be a cause of concern for Lead in the coming months. The prices are expected to see buying at lower levels as Chinese shutdown of smelters will remove the excess inventories which will fill the gap of excess supply in the world.

World refined Lead market in surplus-

The global Lead market was in surplus of 37000 tonnes in the first six months of the year (Jan-June 2009) as per the latest monthly report from ILZSG. According to the report during the first six months of 2009 world refined Lead metal usage was 4204000 tonnes as against 4233000 tonnes during the corresponding period previous year. The world Lead refined output for the period of Jan-May 2009 was 4241000 tonnes or down 0.21% as against 4232000 tonnes for the corresponding period previous year. World Lead mine output declined by 5% to 1468000 tonnes as against 1546000 tonnes in Jan-May 2008.

Australia, Germany, Italy, Japan, and US registered declines in refined metal output but that was offset by the increase of 14.4% in China. Chinese apparent Lead usage increased 25.3% while declines were recorded in Europe by 17.9% and in US and Japan by 11.6% and 47.1% respectively.

Chinese shut down smelters after the incidents of lead poisoning were witnessed in many areas across the country. The provinces where the problems of Lead emerged were Shanxi, Henan, Hunan and Guangxi. China’s total annual refined Lead smelting capacity is 2400000 tonnes out of which 10% or 240000 tonnes have been shut down.

Indian primary Lead production misses production targets

Indian primary Lead production missed actual production targets by more than 67% in the month of July. Total production during the month of June was 2171 tonnes as against a production target of 6551 tonnes from Hindustan Zinc. Indian Lead is gearing up for production from its plants at Thane and Kolkatta and therefore the production was not reported. Total installed capacity for Indian Lead is 24000 tonnes. During the period of Jan-July total production of refined Lead was 17389 tonnes down by 26% from the corresponding period of 2008.

Sharp rally in major exchanges

The metal used in batteries has run up 106 percent on LME so far this year. In August the prices have gained by 8.8 percent to $2125 per tonne on 31^st Aug 2009. The inventories levels were on a higher side as well. The stockpiles rose by 13650 tonnes or 13% to 120950 tonnes. In Domestic futures markets, MCX Lead prices were in the range of Rs 90 per kg on 1st Aug 2009, it then went up towards Rs 104 per kg levels on 28th Aug 2009 a rise of 15% in a month.

Outlook:

Lead prices have rolled to 11 month highs in August itself, even after the rise of stockpiles across the globe but with reduction of excess supplies after China decision to close its smelters some more buying is likely to emerge. LME stocks are already at 1 year highs but we will see gradual decline after supply cuts from China come into affect. The stocks are currently at 3.7 weeks of consumption in June 2009 as against 3.6 weeks at the end of May 2009. In domestic markets, supports for the contract will be at Rs 95-96 per kg which is also a good level to initiate bottom fishing with price targets of Rs 104 per kg.

Zinc: Renewed Interest In Prices

Zinc prices augured well in August and the start in September is witnessing consolidation at higher levels. LME has reached $ 1986 per tonne recently on 8th Sep 2009 propelled by the rise in financial markets and support from the weaker Dollar. During the month of August price were in the region of $ 1780-1930 per tonne.

In domestic futures market, Zinc reached a 1.4 year high of Rs 97.15 per kg mark on 8^th Sep 2009. Bargain hunting will further elevate the levels but the prices will be capped by higher production and existing inventory levels on LME. LME zinc stocks are at 7.5 weeks of consumption currently. However after the Lead mine closures after the poisoning there are fears that the next scrutiny will be on the Zinc mines and this might cause a significant jump in prices. Going for a 1 year perspective the prices will closely monitor the Chinese imports data while in shorter run it will be trading with speculations on the Dollar and the hopes of revival in global economy.

World refined Production Exceeds Usage-

The global Zinc market was in surplus of 273000 tonnes in the first half of the year (Jan-June 2009) as per the latest monthly report from ILZSG. According to the report during the first half of 2009 world refined Zinc metal usage was 5079000 tonnes as against 5737000 tonnes during the corresponding period previous year. The world zinc refined output for the period of Jan-June 2009 was 5352000 tonnes or down 8.6% as against 5858000 tonnes for the corresponding period previous year. An 8.6% decline in world refined zinc metal production was mainly due to a number of closures and cutbacks, most notably in Belgium, Brazil, Canada, Germany, Japan, the Netherlands, Romania, the Russian Federation and the United States. Despite an increase in Chinese apparent usage of refined zinc metal of 12.1%, world demand fell by 11.5%.

Japan refined Zinc exports triple in July-

Japan's refined zinc exports for July nearly tripled from a year earlier, with China accounting for about 46 percent of shipments, Ministry of Finance data showed on Friday. The July figure marks an increase of about 28 percent from the previous month. Taiwan and Southeast Asia are also large importers of zinc from Japan.

GFMS doesn’t see any material recovery in the demand

GFMS is of the view that though the prices of zinc have been treading higher, any significant recovery on the galvanized steel demand front is yet to be seen. On inventories front as well the stocks are ample at 7.5 weeks of consumption. The latest report released on August 2009, suggest that the recent rally in zinc prices are more speculative then fundamental and therefore sustainability is questionable. According to the report, apparent consumption in China over the first six months of the year, amounted to an impressive 2.192 mn tonnes, marking a 13% increase over the same period last year. The increase was in large measure fuelled by the exceptionally high net imports into the country The state reserve bureau purchases stood at 159000 tonnes.

ABARE suggests Zinc surplus in 2009-

Zinc production for the year 2009 is expected to overtake consumption by 226000 tonnes leading to an increase in zinc stocks by 37% to 4.7 weeks of consumption, as per the June quarter report of Australian Bureau of Agricultural and Resource Economics (ABARE). World zinc consumption is forecast to fall by around 5 per cent to 10.9 million tonnes in 2009. This is a result of lowere construction activity and economic slowdown. Refined zinc consumption in developed economies such as the European Union, the United States and Japan is forecast to decrease in 2009. Declining construction activity, automobile sales and industrial production in these economies have lowered the demand for galvanized steel.

Indian primary Zinc production misses production targets

Indian primary zinc production missed the actual production targets by 15% in the month of July. Total production during the month of July was 49050 tonnes as against a production target of 57713 tonnes. A marginal rise in production of Binani Zinc (BZL) by 31 tonnes was more than offset by the fall in Zinc major Hindustan Zinc (HZL), which registered a fall of 8694 tonnes in the month of July. On M-o-M basis Hindustan Zinc (HCL) primary Zinc production for July 2009 was 46006 tonnes as against a production target of 54700 tonnes down 16%. Binani Zinc registered a rise in the actual production for the period of July 2009 to 3044 tonnes as against a production target of 3013 tonnes up by a meager 1%. During the period of Apr-July total production of refined zinc was 198644 tonnes up 11% from the corresponding period of 2008.

Spark in Zinc prices-

The metal used in making galvanized steel has rallied 59 percent on LME so far this year. During the month of Aug the prices the prices were more or less stable but September has brought significant jump in the metal prices. During the 6 trading sessions of September from 1^st Sep to 8^th Sep 2009, the prices have gained nearly 8% to $ 1986 per tonne on LME. During August the prices remained in the range of $ 1784-$1930 per tonne on LME while closing the month at $ 1880 per tonne. In Domestic futures markets, MCX Zinc prices have significantly moved higher to Rs 97 per kg its 16 month high. The pace of the rally can very well be understood witnessing the prices in mid July with Zinc at Rs 71 per kg.

Outlook:

The higher prices of zinc are more or less the result of decline of Dollar and speculations. In the short term the prices look firm to test fresh highs but longer term targets will still be focused on the demand from China. The second largest miner of Zinc in China, Western Mining, said recently that it has slashed its output targets for the year 2009 after it missed production plan due to falling base metals prices in the first half of 2009. The refined zinc target has now been cut to 56000 tonnes as against 61000 tonnes earlier. During the first half, it produced 24500 tonnes of refined zinc, 80 percent of its target. The revision of targets is expected from other miners as well in coming days. In domestic markets, prices are likely to encounter stiff resistance at Rs 101 per kg while Supports is likely at around Rs 89 per kg.