Copper Will Remain On Bumpy Roads

Troubles from Greece and other European countries relating to debt put pressure on the Copper prices during May and April. The Dollar –EURO moves were major trigger for the metal in May. Dollar rose to 4 year high against the EURO and because of which investors pulled their money from the risky assets. Copper is a major industrial metal along with Aluminium and its fate always remains dependent on the global recovery and consumption from the user industries such as electricity and construction etc.

LME three month forward Copper tested a low of $ 6501 on 19 May 2010, a level not seen since February 2010. Domestic Copper prices also maintained a negative tone, though bottom fishing at lower levels provided some assistance for the metal at the fag end.

Interestingly the prices of Copper are not taking cues from the inventory levels that were down in LME and Shanghai. LME inventories are now at 6 month lows, but the major impact is from the fact weather such a fall will be sustainable and the lack of demand in Europe and US will play a big role in tuning the inventories in coming months.

The movement for Copper will remain bumpy in coming days and the performance of the metal will be dependent of the movements of Dollar in short term. The concerns from Europe have eased a bit and now the focus will be on import figures from China that will bring additional supplements for Copper.

World Copper markets in surplus: ICSG

International Copper Study Group (ICSG) in its recent released report for February 2010 showed a refined Copper surplus of 36000 tons after making seasonal adjustments the surplus stood at 83000 tons.

During the period of Jan-February 2010, refined Copper surplus was 148000 tons as compared to 144000 tons during the period of Jan-Feb 2009. Chinese apparent usage remained unchanged during the first two months of this year. While World usage increased by 163000 tons in Jan-Feb 2010 as compared to Jan-Feb 2009. Mine production capacity utilization increased by more than 77% during February 2010, marking an increase from January level. World mine production was up by 28000 tonnes or 1%.

For the first two months refined Copper production increased by 165000 tonnes. A rise of 2% was registered in primary production while secondary production registered a rise of 30%. Africa was the major market where a rise of 32% was recorded in refined production.

The total world mine production was at 2.45 million tonnes as against 2.43 million tonnes, up 1%. World refined Copper production increased by 5.7% during 2010 from 2009. Total world refined production was 3.062 million tonnes.

WBMS reports a fall in surplus of Copper in Jan-March 2010:

World Bureau of Metal Statistics (WBMS) said that Copper market recorded a surplus of 135000 tons in January-March 2010, this compared to a surplus of 338000 tons in the full year 2009. World mine production was 3.78 million tons in Jan-March 2010, which was 1.6% higher from 2009. Refined production was 4.71 million tons in Jan-March 2010, up by 4.8% from the corresponding period last year. Global Copper consumption stood at 4.58 million tons. Chinese apparent consumption rose by 93000 tons due to increase in domestic production. During March 2010, refined copper production was 1599.2 kt and consumption was 1713.7 kt.

Chinese imports data declines on monthly basis:

Chinese copper imports which were on a roll in 2009 have started showing declining trend in last few months of 2010. Rising capacity after hefty stimulus packages by Chinese government and heavy stockpiles will play an important role in the imports of the country going forward. The demand is high but so are the supplies due to various restarts of smelters, which were shut down during recession. Looking at the inventory levels in 2010 the stockpiles have grown by 70% to 167789 tons in Shanghai. Copper imports have also been affected by lower arbitrage opportunities in Shanghai markets; the same led to hefty rise in the stockpiles during 2009.

Chinese imports of unwrought Copper and Copper products were 436345 tonnes for April 2010, correcting by 4.36% on monthly basis. On the contrary the y-o-y trend is positive and a rise of 9.13% was registered. For April 2009, Chinese imports were 399833 tons. The strong imports data does not focus on the fact that the consumption levels were unchanged during the first quarter of 2010, as per the latest report from World Bureau Of Metal Statistics (WBMS).

Indian copper production increases in March

Indian copper cathode production increased in the month of March following the production from Hindalco. The overall Copper production during March was 56923 tonnes as against a production target of 35685 tonnes. Cumulative production during April-March 2010 was up by 6.6% to 683436 tonnes compared to April-March 2009. Rise in the production of Hindalco increased the overall copper cathode production of India by 59.5%.

On M-o-M basis Hindustan Copper (HCL) copper cathode production for March 2010 was 1881 tonnes as against a production target of 1685 tonnes, up by 11.6%. When compared on a cumulative basis, the production of HCL for April-March 2010 period was down 89.2%, to 15874 tonnes from 30035 tonnes in corresponding period previous year.

Hindalco registered a rise in the actual production for the period of April-March 2010 to 333360 tonnes, up 11.9%, from 297797 tonnes in April-March 2009. Production for the month of March 2010 was 26934 tonnes.

Outlook:

Fundamentals of Copper were out of the window and Greece debt uncertainties brought panic, investors were seen booking profits and selling the metal. Copper prices are facing sustainability problems even after testing 7 week lows on 3 May 2010. Demand is lacking in the markets and the monetary tightening measures are in progress in Copper consuming countries and the same is expected to bring the prices under check. The remaining period of May is expected to be rangebound and June will see some more fall in the prices if negative news on demand and consumption patterns emerges in the metal. As said earlier in domestic markets the prices of Copper face stiff resistance at Rs 340 levels, while Rs 300 will be providing support for the metal along with fall in inventory levels.

MUDDY PIIGS

PIGS and PIIGS have become synonyms in last few days. While PIGS swirl in mud PIIGS countries (Portugal, Italy, Ireland, Greece and Spain) did the same over the years. Hefty spending for so many years have led to surmountable debts in these countries and now they are begging in front of EURO zone and International Monetary Fund (IMF) to provide them with aid which helps them in recovering from their so called

pauper status.

The first such aid was provided to Greece on 2 May 2010. Greece reached an agreement with IMF, European Commission and European Central Bank to provide aid worth $ 145 billion in order to stabilize the economy and make it more competitive. This measure will help on one hand to make the confidence crisis spread to other countries. But are the other countries still confident? The answer is NO. The reason is only Greece has been bailed out so far, the remaining pigs (Portugal, Italy, Ireland and Spain) countries are on their way to spread wings and make this a spoilsport for the rest of the world.

The Greek finance Minister, George Papandreou said that the public finances would be brought under check. What has general public got with it in Greece? They have received austerity measures by Greece government. Bonus cuts, and axe on pensions. Looking at other PIGS that are still muddy and carry stains would be interesting. The countries are not in a chronological order as crisis is not in any order as well. The more danger and undercurrents countries have the worst is their position in global space.

PORTUGAL:

Economists believe that Portugal will be the next to create panic in the markets; we have seen this in the past that markets are reacting above normal on meager news and the tendency will be constant in coming days.

Portugal had an unemployment rate of 9.4% during 2009, which is expected to jump to 11% in 2010, as per IMF estimates. The deficits are estimated to remain robust in coming years. Deficit is the differential between the borrowing and lending of the government. Deficit of Portugal was 2.75% of GDP in the year 2008, which stimulated towards 9.3% in the year 2009. For 2010 and 2011 the deficit is expected to remain elevated at 8.7% and 7.5% respectively.

General government deficit was 4.579 billion euros in 2008 from where it has been a constant northward journey. The deficit rose to 15.371 billion euro, up 235%. For the year 2010 the deficit is expected to decline marginally by 5.15% to 14.58 billions but not a considerable decline by any stretch of imagination.

Looking at the percentage of unemployment and significant higher levels of Government deficits its is clear that though the rescue package for Greece has been transported from Euro zone and IMF the Portuguese may create fresh anomaly in the markets.

The current account balance of the country is also on a negative, which indicates that the country is usually importing all these years and this has also in some way impacted the deficits. Current account deficit as a percentage of GDP was 10% in 2008; the same will be 8.97% in 2010 as per International monetary fund while in 2011 it will again bounce back to 10.16%.

This is also a blinker that austerity measures by Greece government can be introduced in other Euro zone countries soon in order to siphon the debt.

Spain:

Food, Wine and Bullfighting were all Spain was known for. But now some more specialties have been added, reduced bond status and eminent deficits. The markets believe that Spain will be the next to join the bandwagon of Greece and will be requiring billions of dollars for saving them from being extinct from global economy.

Spain government lending and borrowing deficits are expected to reach 108.67 billion Euro or $ 141 billion in 2010. This will be 10.4% of the total GDP of the country. For 2011, the deficit to GDP percentage is expected at 9.6. The total lending and borrowing decline will be 101.98 billion Euros or $ 132.38 billion in 2011.

This is only one side of the coin; the other is the rising unemployment rates and agitation of the civilians against the government. Rising unemployment in the country that is debt ridden is an alarming sign of troubles. The total unemployment in Spain has improved constantly. In 2008, the unemployment was 11%, this elevated to 18% in 2009 and no respite is there for 2010 as well with employment rates expected to cross 19% mark.

Standard and Poor’s have already downgraded Spain’s credit ratings and the cost of insuring Spanish debt against default has seen constant rise. Recently the Spain Prime Minister José Luis Rodriguez Zapatero met with European commission officials in Brussels and said that the Greece support was a measure of responsibility and credibility. It highlighted the capacity for commitment and bravery the Greek Government to implement a plan for deficit reduction, fiscal consolidation and structural reforms “involve great sacrifices to Greek citizens."

He denied the fact that Spain is planning for similar measures of rescue and termed it as “absolute madness”. Now if the news of bailouts in Spain is termed as madness, on wonders that what kind of lunacy Spain officials were doing when debt the deficit ballooned to $ 120 billion in 2009.

Mr Prime Minister acknowledged that the unemployment figure, known today, is "serious" but felt that "going to have a downward trend, moderate in the coming semesters," and expects this trend to continue. Whatever the case may be in future, it is very hard to conceive that the economic situation will be hunky-dory so easily when it took several years to become horrible.

ITALY:

The land of pizzas and junk food is now also a land of junk debts. Rising government deficits and unemployment with negative GDP numbers is asking for acid test in Italy.

GDP of Italy is now at –3%. The unemployment rate for the month of March was 8.8% according to Italy's statistics agency Istat. Italy public deficit has nearly doubled to 5.3% of output in 2009. This is the worst performance of the country since 1971. Italy's gross domestic product (GDP) shrank by 5% in 2009, its weakest showing in 38 years.

The public deficit is expected to remain almost constant in 2010 as well at 5.175%. This is much higher than the euro zone limit of 3% but when compared to peers it is quite low. Lack of industrial policy and failure on the part of government officials has rubbed Italy from wrong side.

The statement of Italy’s finance minister Giulio Tremonti was "It is true that we have a large public debt, but it is also true that we have a public deficit that is much lower than other countries," said Italy's Finance Minister. Now the implication of the statement can be made in two ways. One is that public deficit is lower so we will be in the mud after the other pigs have already gone there and secondly that may be Italy will not join the peers at all and will be able to cope with the problem of its own. We expect that it will be a uphill task if the later proves true.

IRELAND:

The last muddy Pig in euro zone is Ireland with deficits to the tune of 11.4% of GDP in the year 2009 that can go up to 12.16% in the year 2010. Banking sector is on a verge of death in Ireland and cost of buying insurance against Ireland bonds are raising steeply.

The budget of Ireland was put in public on December 2009. The Irish government has now started to take strict measures when the situation is out of hand. The Finance Minister Mr. Brian Lenihan said “if we cannot tax our way out of our difficulties and we all agree in this House that we cannot borrow our way to recovery then the only remaining option is to reduce our spending.” This is nothing but beating the bush.

The budget said that since 1997 country has made great strides in expanding levels of public service provision. This was done on public demand. But the current cost of providing public services is not sustainable. Without any correction, day-to-day spending would be about €58 billion in 2010, an increase of about Euro 2 billion over 2009.

The latest measures announced by Ireland will increase the amount of savings worth more than 4 billion euros. Don’t get too emotional by the generosity of Irish government. This article was not meant to give kudos to the government planning. This will mean that Ireland will join Greeks after some days in protests and there will be more hullabaloo.

Europe Rises Up:

Three people already lost their life’s in Athens when the people were protesting against the austerity measures by Greece government. This violence’s are just the start we will see more of them in near future. Spain, which is considered to be the next spoilsport in the Euro zone, is getting tense. Even after repeated assurances from its Prime Minster, people and markets are in no mood to accept the promises.

We were also perplexed to know the situation of EURO currency that has been shot dead by the dirty policy makers of the PIIGS. If reader’s remember their were talks everywhere about the supra national currency and Euro taking over the Dollar in next few years. Some countries even started to use EURO as their global currency. Now the theory has taken a serious hit after the current disaster. Chinese government on the other hand will be feeling much relieved now as the treasury value locked in Dollar is fetching some returns or recouping the losses.

EURO zone and its currency image has been tarnished badly after the concerns and now the other countries will focus more on holding on to their Dollar reserves and believing in Uncle Sam. Dollar recently tested a 1-year high against the EURO and the markets are likely to see some more multi year levels get broken in coming days.

People must wait and watch PIIGS spreading further flues and contamination in the markets.

Weak Global Markets Make Nickel Skeptic

Weak global markets and tense situation of EURO zone led the markets trade in a flattish zone for Nickel; the markets lost all the gains, which it built up during mid April and ended flat. News of increase in usage of nickel pig iron which contents less content of Nickel was also confirmed across the globe making the prices of Nickel lost the pace it created in early 2010.

The raw material consumers are expected to use more of the Nickel pig iron as a cheaper substitute to refined Nickel. Meanwhile, China has again stepped on the accelerator to decline inflation by hiking the reserve requirements of banks for the third time in 2010. This will create additional burden on the demand of Nickel.

London metal exchange prices closed its April month at $ 25895 per tonne while the month started with prices at $ 25475 per tonne.

The Indian benchmark futures contract of Nickel saw prices gaining towards Rs 1224 per kg on 20 April but closed the month at Rs 1145 per kg. Overall in April the prices were up 2%. Indian government was also worried about the rapid rise of Steel prices in India as most of the manufacturers of Steel increased the prices following the rise of raw material cost.

Inflation is already on a roll and government is expected to take steps in order to insure that the rise in prices can be controlled. We expect prices to be facing supplies at every rise and China and European nations to provide key triggers for the same.

World primary Nickel production will rise in 2010: INSG

In a latest forecast released by International Nickel Study Group (INSG) the organization forecasted the growth of Nickel production. The total World Nickel production is expected to increase to 1.40 million tons. The figure though excludes any production disruptions.

World primary Nickel usage, which was 1.22 million tonnes in the year 2009, is expected to jump to 1.39 million tonnes in 2010. This will mark surplus of a meager 10000 tonnes. The group expected that the global economic crisis is over but there is high degree of uncertainty in the global market.

Nickel markets in surplus in Jan-Feb 2010: WBMS

The World Bureau of Metal Statistics (WBMS) latest Jan-February 2010 figures show that the Nickel markets were in surplus to the tune of 23000 tonnes. This when compared to the surplus of whole of 2009 is up by 64% from whole 2009, the surplus was 14000 tonnes. World apparent demand was 22700 tonnes higher than the previous year.

The stocks held by LME at the end of February were 4800 tonnes higher than at the end of last year.

Refined production in January-December 2009 totaled 1322800 tonnes and demand was 1308700 tonnes. Mine production during January and February was 230700 tonnes, 1 per cent above the corresponding period of 2009.

In February 2010, nickel smelter production was 106900 tonnes and consumption was 96700 tonnes.

Third Quarter Production Of stainless Crude steel increases: ISSF

The International Stainless Steel Forum (ISSF) preliminary figures for the year 2009 stated that the World stainless steel Crude production was 24.57 million metric tons (mmt). Total world stainless crude steel production for the fourth quarter was 6.69 million tonnes, which marked a decline of 4.64% from the third quarter of 2009. Asia ex China registered a rise of 4.3% to 2.13 mmt. China has a total production of 2.23 mmt, marking a rise of 10.6% on Q-o-Q basis.

Sharp recovery in Nickel production of BHP Billiton:

Nickel production of BHP Billiton increased sharply during the nine months ended March 2010. As per the production report released by the company for the nine-month and quarter ending 31 March 2010, the nine-month production of the company was 127700 tons. The production of Nickel was up 30%, from the corresponding period previous year.

For Quarter ending 31 March 2010, the production of Nickel was 43300 tons, or 8%, as compared to corresponding period previous year.

The rise in production for the first Nine months was the result of furnace rebuilding in West Kalgoorlie in Australia.

Production in the March 2010 quarter was impacted by a restriction in hydrogen supply at Nickel West Kwinana (Australia) and by planned and unplanned downtime at Nickel West Kalgoorlie and Cerro Matoso (Colombia).

Xstrata total Nickel mined production increases in 2009:

The latest released results from Xstrata showed a improvement in the production of mined Nickel in 2009. Total mined nickel production increased to 57052 tonnes, 5% higher than in 2008, as increased head grades and volumes from Raglan, significantly higher volumes from Xstrata Nickel Australasia (XNA) and initial feed from the Nickel Rim South operation more than offset the impact of the restructuring of the Sudbury operations.

Xstrata Nickel's restructuring, which repositioned the business lower on the cost curve, included the closure of high-cost, end-of-life mines in Sudbury, the suspension of Falcondo, significant reductions in operational and administrative costs and the deferral of the Fraser Morgan and Sinclair underground growth projects.

Raglan increased its nickel in concentrate production by 13%, as a result of an 11% increase in nickel head grade and a 12% increase in ore mined compared to 2008. Nickel in concentrate production at Xstrata Nickel's Australian operations increased by 119% to a record 16,678 tonnes, due to a significant increase in mining at the Prospero deposit, a 3% increase in head grade overall at Cosmos and the commissioning of the Sinclair open pit mine.

Nickel production at the Nikkelverk refinery remained at a similar level to 2008, as increased volumes at Raglan and XNA offset the loss of direct feed from Sudbury and Montcalm and reduced third party feed volumes. Nikkelverk produced a record 46,605 tonnes of nickel in the second half of 2009, demonstrating its ability to operate at an increased annualized rate of 92,000 tonnes, following minimal capital cost debottlenecking initiatives.

Domestic Nickel face barriers at higher levels:

After a smooth sailing for Nickel the prices are facing barriers at higher levels, increase of usage of Nickel pig iron instead of refined Nickel is leading to the pressure. China imported 3.7 million tonnes of nickel concentrates and ores during Jan-March 2010, up 123% on the year as per the official data. This will impact the prices of China as well as of India. Meanwhile the appreciation of Rupee has caused commodities to drag down, as it makes imports cheaper.

The domestic prices of Nickel settled at Rs 1145 per kg on 30 April 2010. The prices gained marginally by 2% since the start of April. The markets are inching towards crucial resistance zone from where supply pressure can emerge. The trend can continue in coming days.

Outlook:

The pace of Chinese loan growth and the reserve requirements measures will be a major laggard for the Nickel prices in days to come.

In 2009, it was the hefty stimulus package by the Chinese government, led to a rise in the commodities and created a bull run. The scenario has changed completely and now the Chinese government is asking banks to reduce the array of growth in the loans that was leading to inflation. The banks have already acted thick and fast and the loans are on a sliding path. According to People's Bank of China, growth of Chinese bank lending slowed 27% on a M-o-M basis to RMB 510.7 billion in March.

The overall metals pack is also closely following the trends emerging from Greece and other Euro zone countries. These factors cannot be overlooked and although the prices and demand scenario for 2010 remains intact their lies huge uncertainty on the Chinese front on the growth of consumption.

Chinese traders already stopped purchases of raw materials for production of Steel due to rising input costs; this can bring down the mine production in the country.

Domestic markets can see prices to test Rs 1100-1090 per kg levels if it slumps below Rs 1157 per kg. Higher end of the price band is capped at Min-April levels of Rs 1224 per kg, from where fresh short positions are likely to be build.