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12 Sep 2012

Zinc Glut Diminishing as China Cuts Most Since ’04: Commodities

Chinese zinc smelters, the world’s biggest suppliers, are cutting the most production in at least nine years after prices tumbled into a bear market, diminishing a glut that began in 2007. Output of the metal used to rust-proof steel fell 6.8 percent in China in the first seven months, according to Beijing Antaike Information Development Co., which has researched metals for two decades. The nation accounts for 40 percent of global supply, the Lisbon-based International Lead & Zinc Study Group estimates. Prices will average $2,045 a metric ton in the fourth quarter, 10 percent more than the average since July 1, based on the median of 12 analyst estimates compiled by Bloomberg.The metal traded below the $2,526 a ton that Antaike estimates 79 percent of Chinese smelting output needs to break even since August 2011. Output has exceeded demand since 2007 after record prices in 2006 spurred more supply, driving London Metal Exchange-monitored stockpiles above 1 million tons for the first time ever in July. The glut is now diminishing at a time when steelmakers, the biggest consumers, are projected to expand production to an all-time high this year and next. “Zinc smelters in China have been suffering a lot for quite a long time,” said Gayle Berry, the analyst at Barclays Plc in London, who correctly predicted in February that supplies would tighten and prices rebound later in the year. “The Chinese market has addressed the surplus and the supply cuts have helped to provide a floor to prices.”

Bear Market:

The metal fell 20 percent in five months to June 27, the common definition of a bear market. Zinc rallied 14 percent to $2,003.75 since then, leaving it 8.6 percent higher this year and the best-performing industrial metal. The Standard & Poor’s GSCI gauge of 24 commodities added 5.7 percent and the MSCI All- Country World Index of equities advanced 11 percent. Treasuries returned 2 percent, a Bank of America Corp. index shows. The supply surplus will contract 26 percent to 230,000 tons next year, the lowest since 2008, Morgan Stanley estimates. Barclays is predicting a 13 percent decline to 231,000 tons and Bank of America sees a shortfall of 141,000 tons. Standard Bank Plc reduced its projection for this year’s glut to 249,000 tons from 539,000 tons estimated in February. Inventories tracked by the LME retreated 4.9 percent in August, the first monthly decline since November, and orders to withdraw metal from warehouses almost tripled since June 27, bourse data show. Stockpiles monitored by the Shanghai Futures Exchange fell 23 percent since mid-March.

Galvanized Steel:

About 50 percent of zinc is bought to galvanize steel, used in everything from buildings to roads to cars. Global crude- steel output rose 0.8 percent to 895.4 million tons in the first seven months from a year earlier, the Brussels-based World Steel Association estimates. Production will reach an all-time high of 1.56 billion tons in 2012 and 1.62 billion in 2013, according to MEPS (International) Ltd., a Sheffield, England-based industry consultant founded three decades ago. Expanding steel output may be curtailed after China, which accounts for about 47 percent of global supply, slowed for six consecutive quarters. Its steelmakers cut production to a six- month low in August, the National Bureau of Statistics reported yesterday. New property construction declined 6.8 percent to 1.23 billion square meters (13.2 billion square feet) in the first eight months of the year, the bureau said Aug. 9.

Central Bank:

While declining Chinese supply rather than expanding demand is driving prices higher now, consumption may also accelerate as policy makers bolster growth. The European Central Bank and Federal Reserve are holding interest rates at record lows and both have said they are prepared to do more to stimulate economies. China approved plans last week to build about 1,250 miles of roads, 25 new subway and inter-city rail projects as well as sewage-treatment, port and warehouse developments. The 17-nation euro area’s economy contracted in the second quarter and won’t grow again for another year, according to the median of as many as 22 economist estimates compiled by Bloomberg. Euro-area construction output fell for a third month in June, the European Union’s statistics office reported Aug. 20. The 27-nation EU, mired in a debt crisis, consumes about 11 percent of the world’s steel. Chinese zinc smelters may start idled capacity should prices keep rising. Global output jumped almost 14 percent in 2010, the most since at least 1961, after LME-traded futures more than doubled the previous year, according to the Lead & Zinc Study Group. Morgan Stanley expects mine production to expand in all but one of the next five years.

Warehousing Costs:

That may be less important than in previous years because prices are rising now in part because of a shortage of metal for immediate delivery. As much as 600,000 tons may be locked away in financial contracts, according to Citigroup Inc. The transactions typically involve a simultaneous purchase for nearby delivery and a forward sale for a later date. LME futures are in contango out to 2015, with prices rising throughout the period. Buyers in Singapore are paying the biggest premium in at least a decade on top of the LME price to get zinc, according to Metal Bulletin Plc. The fee rose to $105 a ton on Sept. 7, 31 percent more than at the end of 2011. Consumers are also struggling to access metal because stockpiles are held in a few locations, slowing down deliveries. Almost 71 percent of LME inventories are held in New Orleans, bourse data show.

Delaying Projects:

Commodity producers are delaying spending on concern that global growth will keep slowing. BHP Billiton Ltd., the largest mining company, has put approvals on hold for projects estimated by Deutsche Bank AG to be valued at about $68 billion. Rio Tinto Group, the third-biggest, said last month it may spend less on expansions next year. Mining costs are rising because of higher charges for energy and labor and declining metal content in ores. One ton of ore contains about 5.5 percent of zinc, compared with almost 7 percent in 2000, Macquarie Group Ltd. data show. Xstrata Plc (XTA) will report profit of $3.66 billion this year, from $5.71 billion in 2011, according to the mean of eight analyst estimates compiled by Bloomberg. Shares of the Zug, Switzerland-based company rose 3.4 percent this year after it got a $35 billion takeover offer from Glencore International Plc. Zinc and lead accounted for 11 percent of Xstrata’s revenue last year, down from almost 17 in 2007, data compiled by Bloomberg show. A combined Xstrata and Glencore would create the world’s biggest zinc miner. “It’s a more balanced market next year,” said Michael Widmer, the head of metal markets research at Bank of America Merrill Lynch in London. “The view in the market is that over the next few years it will get tighter.”

Courtesy: Bloomberg

Crude falls as market awaits Federal Reserve policy decision

Crude oil futures fell in Asian trading on Wednesday as investors continued to sell the commodity for profits ahead of a two-day Federal Reserve monetary policy meeting that may lead to monetary stimulus measures. On the New York Mercantile Exchange, light, sweet crude futures for delivery in October traded at USD97.00 a barrel on Wednesday, down 0.17%, off from a session high of USD96.95 and up from an earlier session low of USD96.86. The U.S. Bureau of Labor Statistics reported Friday that the U.S. economy created a net 96,000 nonfarm payrolls in August, well below market calls for 125,000 jobs. The weak jobs numbers fueled already growing sentiment that the Federal Reserve will roll out a third round of quantitative easing at two-day monetary policy meeting that starts today. Under quantitative easing, the Fed buys assets such as Treasury holdings or mortgage-backed securities held by banks, pumping the economy full of fresh liquidity in a way that pushes down interest rates to encourage investing and hiring. Such accommodative policies tend to weaken the dollar by design and send commodities prices rising, especially oil, which shoots up on hopes for sustained demand that comes from a jolted economy and also due to a weaker dollar, which makes the commodity a nicely-priced asset in the eyes of investors holding other currencies. However, investors sold the commodity for profits to wait for a formal announcement. Meanwhile, Moody's Investors Service said the U.S. could lose its coveted triple-A rating if its doesn't find a way to narrow deficits and pay down debts. At the end of 2012, a series of tax cuts and other benefits expire at the same time preprogrammed cuts to government spending take effect, and the combination of the two taking place simultaneously could send the U.S. into a recession in 2013, according to studies from the nonpartisan Congressional Budget Office. Investors also kept a cautious eye on Germany, where a court ruling is due out on Wednesday on whether the eurozone's permanent bailout fund, the European Stability Mechanism, is compatible with German law. The European Central Bank needs Germany's participation to push through its recently announced sovereign bond purchasing program, known as Outright Monetary Transactions, which aim to lower borrowing costs in debt-ridden periphery countries. An anti-bailout ruling could send oil falling on fears the European debt crisis could heat up anew and bruise an already battered eurozone economy, crimping demand for energy and fuels in the process. On the ICE Futures Exchange, Brent oil futures for November delivery were up 0.12% and trading at USD114.67 a barrel, up USD17.67 from its U.S. counterpart.

Courtesy: ForexPros

Today Market View

12-SEP-2012 RESISTANCE LEVELS SUPPORT LEVELS
COMMODITY RES-1 RES-2 RES-3 SUP-1 SUP-2 SUP-3
GOLD 31963 32051 32128 31798 31721 31633
SILVER 64183 64563 64835 63531 63259 62879
COPPER 455.20 457.45 460.25 450.15 447.35 445.10
NICKEL 932.10 937.00 941.90 922.10 917.20 912.20
ZINC 111.05 111.90 113.00 109.10 108.00 107.15
LEAD 117.30 117.85 118.70 115.90 115.05 114.50
ALUMINIUM 114.25 114.85 115.80 112.70 111.75 111.15
CRUDEOIL 5377 5398 5424 5330 5304 5283
NATURAL GAS 171.50 177.10 186.70 156.30 146.70 141.10