Copper: GOOD TIMES TO CONTINUE

Copper prices experienced a huge sentimental boost during April as the metal extended its recent spree of gains. The prices touched a six-month high in the domestic futures market as well. On LME it was the shrinkage of inventories and rise of equity markets that invoked confidence in the traders. Interesting to note was the fact that Copper prices got linked with equity markets in a big way and a direct correlation between the two was witnessed, unlike at the start of the year when Copper was rally despite the weak undertone in equities intensifying. The prices are expected to remain bullish in the coming days with the persuasions towards improvement in the economic picture now high.

High usage in electricity and other industrial applications:

Copper is the best non- precious metal conductor of electricity as it encounters much less resistance compared with other commonly used metals. It sets the standard to which other conductors are compared. Copper is also used in power cables, either insulated or uninsulated, for high, medium and low voltage applications. In addition, copper's exceptional strength, ductility and resistance to creeping and corrosion make it the preferred and safest conductor for commercial and residential building wiring. Copper is an essential component of energy efficient generators, motors, transformers and renewable energy production systems.

Refined copper surplus in January 2009 increases:

In a latest report released by International Copper Study Group (ICSG), preliminary data for Copper indicated a surplus of 150000 tonnes for January 2009 as compared to a deficit of 20000 tonnes during January 2008. However on a month on month basis the surplus remained unchanged. After making seasonal adjustments the surplus rose marginally to 160000 tonnes.

World refined copper usage decreases:

The ICSG report estimated that the refined copper usage for the period of January 2009 declined 144000 tonnes or 9.5% on a y-o-y basis. Major declines were registered in Japan, USA and European Union by 52%, 26% and 18% respectively. World usage outside China registered a decline of 18%. China was a major exception where the apparent usage increased to 15% due to high imports of refined copper.

World refined copper production increases in January 2009:

Total world refined copper production increased 35000 tonnes or 2.3% in January 2009. Copper primary production appreciated by 5.6% while secondary production (from scrap) decreased by 16.5%, reflecting the scarcity of scrap. Chile, China and the United States were the biggest contributors to growth, while production declined in Japan and some European countries. Refined production capacity utilization was about 77.5% in January 2009, compared with 79.4% in January 2008.

World mine production of copper increases :

World mine production for Copper grew 83000 tonnes or 6.8% in January 2009. Adverse weather conditions and operational problems led to reduced production. The mine capacity utilization also got affected and declined to 78.9% in January 2009 as compared to 82.3% during the corresponding period previous year.

Chinese copper imports continue to hit new records:

China copper imports continued to set new records in the month of April. China imports of unwrought and semi-finished copper rose 6.6 percent on an m-o-m basis, which is an all time high. The rise was a result of arbitrage trading opportunities, stockpiling by the state reserve bureau and rising hopes that the economy will revive soon. China, the world's top consumer of copper and aluminium, imported 399,833 tonnes of unwrought copper. China also produced 921900 tonnes of refined copper in the first quarter of 2009, up 8.7 percent from a year earlier, as per National Bureau Of Statistics. Mined copper output rose by 10.4 percent over the same period to reach 201800 tonnes.

Indian copper production declines in March:

Indian copper cathode production declined in the month of March. Both public and private sector companies registered fall in production. Hindustan Copper (HCL) copper cathode production in April-March 2009 was 30035 tonnes down 33% from April-march 2008. HCL production for the month of March 2009 was 1705 tonnes. Hindalco registered a downfall of 7.2% in the cumulative production for the period of April –March 2009. The production stood at 297797 tonnes as against 320930 tonnes on April-March 2008. Sterlite Industries (SIL) cumulative production (April-March 2009) was 312833 tonnes as against 339294 tonnes registering a decline of 7.8%. Total production of copper cathode in March stood at 65012 tonnes.

Grupo Mexico expects copper to remain in positive mode:

Copper major Grupo Mexico said strong demand from China coupled with tight global supply conditions will keep sustaining Copper above $ 2 per lb in 2009. Grupo Mexico is fighting court battle in U.S. to regain control of its subsidiary Asarco and is set to present its reorganization plan in May 2009.

Domestic Futures markets gain:

The local futures market witnessed some sharp swings upwards on the back of buying from the Chinese state reserves bureau. High imports data from China boosted the sentiments of other consuming nations as well. Domestic markets staged a bullish rally during the month of April, which also continued during the initial days of May. So far in 2009 the prices have leapt by Rs 80 per kg or 53%. The current range for prices in domestic markets is 235-242. On LME Copper three-month forward contract breached $ 4500 per tonne levels.

Outlook:

Copper prices have been volatile since the start of the year. In near future the prices are looking to surpass 250 levels in the domestic futures markets. Hope of revival in demand from US and Europe and buying spree from China will initiate rallies. On the other hand, Dollar has seen some fresh selling against the EURO and toppled to a seven week low against the single currency as concerns over the credit rating position of the US hurt the greenback.

US government has had a triple-A credit rating since 1917, but it is unclear how long this will continue to be the case given the plethora of money printing and mounting public debt in the world’s largest economy. A broad based debasement of the US dollar would support commodities and copper would derive a direct benefit as a result. This was precisely what drove the red metal to its all time highs in July 2008, even as the demand was shrinking worldwide.

NICKEL: Keep Bouncing Back

Nickel remained volatile during the month of April. The prices jumped higher on the back of Chinese demand outlook and positive equity markets but corrected sharply as the sustainability of the buying was questioned. Slowdown in global demand and increase in physical stocks have affected the prices of most of the non-ferrous metals. The expectations for the bearish trend in Base metals to continue are high even in 2009.

Nickel, which generates most of the demand from steel sector, has been quite volatile since the start of April. The domestic prices were in the region of Rs 480 per kg on 31st March 2009 in the futures market but later on spooked to Rs 637 per kg levels on 17th April 2009, marking a rise of 32%. Short covering at lower levels and fresh buying positions ignited the prices. However after 17th April 2009, the prices saw consolidations after which bears again entered into the market to crash the prices. The prices once again collided towards Rs 564 per kg by 22nd April 2009.

World Steel Association’s preliminary figures for 2008 stated that the World stainless steel production was down by 25.9 million metric tons (mmt) or 6.9% on a Y-o-Y basis. This is a second year in a row that World stainless steel production got decreased.

Stainless Steel production in Asia (excluding China) declined by 10.3% to 8.1 mmt in 2008. China which accounts for 27% of the stainless steel produced in the world witnessed reduced production to 6.9 mmt or 3.6%. The second biggest stainless producing region, Western Europe/Africa, reported a decrease in stainless steel production of 4.8% to 8.3 mmt in 2008.

World steel association has forecasted that for the year 2009 apparent steel use is expected to decline by 15% to 1018.6 mmt in 2009 after a decline of 1.4% in the year 2008. India is projected to have a positive growth of 2% for apparent steel use in 2009. The association expects Chinese apparent steel usage to decline by 5% in 2009. The last time China recorded a negative growth was in the year 2009.

The latest report from International Nickel Study Group (INSG) suggests caution in the current Nickel environment. The group suggested that there is huge amount of uncertainness in the global markets and the impact on the supply and demand of Nickel was not fully known. World primary Nickel usage (consumption) for the year 2007 was 1.31 MT which decreased to 1.29 MT in 2008. The usage is expected to decline further to 1.18 MT or 8.5% in the year 2009.
The production on the other hand was 1.42 MT in the year 2007, the same declined to 1.39 MT in the year 2008, a further decline to 1.26 MT or 9.35 % is expected in the year 2009.

China Iron and Steel Association (CISA) in its latest report for March stated that steel price index stood at 97.59 points, down 44.72 points, or 31.42 percent, from the corresponding period previous year, and was lower than the level of 100 points in April 1994 when China first published the steel index. Meanwhile, the country exported 5.14 million tons of steel products in the first quarter of this year, down 54.9 percent year-on-year; and produced 124.52 million tons of crude steel in the period, equal to annualized 504.99 million tons. The slowdown of steel-consuming sectors and high steel output was the cause of fall in the fall in exports and prices.

LME Nickel kept on ascending all through April. Nickel is at its 3 months high levels. In April alone the prices have zoomed by almost 18% so far. LME Nickel three-month forward contract is at current $ 11450 per ton, a level not seen since February 2009. The descent of LME stocks has caused the rise in Nickel. In April the stockpiles were at 106518 tonnes compared with 107682 tonnes at the end of March, a fall of 1%. The fall has not been substantial and will not be able to hold prices at higher levels for long.

For the first three months Indian Crude steel production didn’t show any notable move. In January the production of Crude steel was 4.57 mmt, the production slipped to 4.1 mmt in February but again spiraled towards 4.5 mmt in March.

Companhia Vale do Rio Doce (Vale) announced that it has taken further steps to adjust its nickel production to the evolution of global demand. In light of a global recessionary environment, Vale retains the option of managing production and project execution according to its assessment of market conditions.

Vale decided to slowdown the conclusion of the Onca Puma nickel project, which was previously scheduled to come on stream in January 2010, with a nominal capacity of 58,000 metric tons of nickel in ferronickel. Global market production forced Vale to postpone the project by an year.
Vale also informed of shutting down its Sudbury nickel mining and processing activities for a period of eight weeks from June 1 to July 27. In addition, the processing facilities of precious metals a by-product of nickel mining in Sudbury, Ontario, will also be shutdown from June 1 to July 27, 2009.

Sudbury is one of the largest nickel producing sites in the world and last year its mines provided the feed for the production of 85300 metric tons of finished nickel, 31% of Vale’s output.
In another news, Norilsk Nickel International, a subsidiary of OJSC MMC Norilsk Nickel, announced that it will suspend its Black Swan and Lake Johnston nickel operations (Western Australia), placing them under care and maintenance effective immediately.

This decision was taken on the grounds of a structural review and the Company’s resolution to place the Cawse and Waterloo projects under care and maintenance in November 2008.Today’s announcement is largely the result of the prevailing economic climate and its impact on the nickel price.

Outlook:

Significant prices volatility is expected in Nickel prices in coming days. The prices are expected to recover modestly in the second half of 2009, while the first half will remain depressed. Australian Bureau of Agricultural and Resource Economics (ABARE) expect spot prices of Nickel to average around $ 10500 per ton. Nickel stocks are expected to increase to around 6.6 weeks of world consumption.

In China, the prices of refined Nickel Domestic nickel prices have surged from 90000 yuan per tonne to almost 130000 yuan per tonne, following a recent rally of international nickel prices. But the rise in prices was a results of speculation rather than demand recovery from the consumers. Investors were also anticipating tight domestic supply which caused Nickel prices to firm. The refineries which are still running will be producing lower than the normal. Therefore, lower revenues at refineries and refined Nickel production is also expected to decline.