gfms aug2009
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© Copyright GFMS Ltd - August 2009
All rights reserved. This report serves as a single user licence. No part of this publication may be reproduced,
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Published by GFMS LimitedHedges House
153-155 Regent StreetLondon, W1B 4JE
tel: +44 (0)20 7478 1777fax: +44 (0)20 7478 1779
email: info@gfms.co.ukweb: www.gfms.co.uk
Base Metals Forecasting
Monthly
August 2009
Date of release: 6th August 2009
Disclaimer Whilst every effort has been made to ensure the accuracy of the information in this document, GFMS Ltd cannot guarantee such accuracy. Furthermore, the material contained herewith has no regard to the specific investment
objectives, financial situation or particular needs of any specific recipient or organisation. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any commodities,
securities or related financial instruments. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. GFMS Ltd does not accept
responsibility for any losses or damages arising directly, or indirectly, from the use of this document.
Table of Contents
Copper 3
Aluminium 6
Nickel 9
Zinc 12
Lead 15
Tin 18
Base Metals Forecasting Monthly - August 2009
3Independent - Informed - International
1. CopperKey Copper Market Developments:• The strength copper prices enjoyed throughout the better part of June was maintained throughout
July, as after modest consolidations in the first half of the month, the spot price trended upwards over
the second, peaking at $5,750/tonne at end-month, a 9% gain over June’s peak of $5,266/tonne.
More recently, further gains have seen prices top $6,000/tonne, for the first time this year, during the
first few trading days of August.
• Concerns over tight supply conditions that could eventually fuel a shortage of metal continued to
underpin the market, prompting investors to maintain and in fact extend their exposure on the metal.
Coupled with healthy demand in China, this more than compensated what we perceive to have been a
continued weakness of consumption in the majority of mature economies.
• Looking at reported stocks and focusing on LME inventories, although the month saw these increase
on a net basis, at 16,400 tonnes, this offset only a small part of the decline stocks suffered over the
first half of the year. At end-month, LME inventories stood at 282,125 tonnes, amounting to just over
one week’s Western World consumption.
Outlook for Next Three Months:Investor sentiment towards copper has been very positive in the last few weeks and this continues
to be the case at the time of writing. Although the basic argument of structural tightness in the
copper market, on which this sentiment is founded upon, is undoubtedly sound in the medium-term,
our projections continue to see consumption declines more than offsetting losses in production over
the rest of the year, resulting in an overall surplus of 245,000 tonnes over 2009. Coupled with the
price currently around the $6,000/tonne mark, this makes us cautious towards copper, at least over
the next few weeks. We continue to see a noteworthy correction taking place before the end of the
summer season, which could see spot prices falling to levels around $5,000/tonne. Thereafter, as
consumption begins to recover sometime in the last quarter, so will prices, and we would not be
surprised to see levels of $6,500/tonne breached before the end of the year. As such, we think that
copper will trade in a $5,000-$6,500/t range from August to November.
Copper Price and Forecast Trading Range Copper Supply & Demand
Source: GFMS
4000
4500
5000
5500
6000
6500
OctSepAugJulJunMay
US$/tonne
Sources: GFMS, LME
(000 tonnes) 2008 2009F
W.World production 12,425 12,448W.World consumption 11,473 10,815Net East-West trade -700 -1,400W/W balance 252 232
ROW production 5,846 5,820ROW consumption 6,534 7,208
Global production 18,272 18,268Global consumption 18,007 18,023 Global balance 264 245
Base Metals Forecasting Monthly - August 2009
4 Independent - Informed - International
Copper Daily Stocks vs Price
Copper Price Volatility Copper Prices in Major Currencies in July
Copper Premiums Jan 05 - to Present
20
30
40
50
AugJulJunMay
20
30
40
50
AugJulJunMay
Daily Copper Price Volatility
Source: GFMS; Volatility is calculated using theLME cash prices from the prior 20 days.
Rolling20-dayvolatility(%)
US$/tonne
0
200
400
600
800
1000
1200
Jan 09Jan 08Jan 06Jan 05Jan 04Jan 021000
3000
5000
7000
9000
Spot Price
Stocks
tonnes000s
Source: Thomson Reuters Ecowin, LMEJan 07Jan 03
Max Min Average YTD Avg
US$/t 5,750.0 4,821.0 5,202.8 4,220.0
Euro/t 4,091.4 3,447.5 3,691.9 3,126.3
Yen/t 549,413 447,071 491,458 403,287
Rmb/t 39,285 32,936 35,686 26,466
Source: Thomson Reuters EcoWin
Copper Market News: • Collahuasi said its projections see it suffering losses of around 5% or 20,000 tonnes over the year
following power trouble in July. The mine said in a statement that repairs to the damaged control
room that powers its main conveyor belt will take two months.
• Chilean Antofagasta’s H1 output was down 6.6% y-o-y to 218,200 tonnes. Overall, the Chilean
government stated production was down 2.6% in June, at 467,185 tonnes.
• Moving to Russia, in line with past announcements, Norilsk Nickel recently said its first half copper
production was down to 195,507 tonnes, compared to 208,046 tonnes last year.
• In Japan, June copper cable shipments rose an estimated 20% compared with May in the latest data
from the Japanese Electric Wire and Cable Makers’ Association. However, shipments were estimated
at 53,600 metric tons in June and are therefore still down 25% compared with last June.
• The latest International Copper Study Group (ICSG) bulletin suggests that over the January-
April period the copper market was in deficit of 37,000 tonnes, comprising of 5.927m tonnes of
consumption exceeding 5.891m tonnes of refined production. A closer look at the seasonally adjusted
data though paints a completely different picture. On this basis, production over the four months in
question stood at a monthly 1.51m tonnes, while seasonally adjusted monthly consumption amounted
to 1.458m tonnes, pointing to a surplus of 141,000 tonnes over the period.
0
50
100
150
200
250
01/0901/0801/0701/0601/05
($/tonne)
High grade cathode
Grade A European
Source: GFMS
Base Metals Forecasting Monthly - August 2009
LME Stocks vs Spot Price Jan 03 - July 09 Copper Open Interest vs LME Price
0 1 2 3 40
2000
4000
6000
8000
10000
Combined Gold ETF holdings
Stocks (No. of Weeks Consumption)
$/tonne
Jul 09
Sources: GFMS, LME
LME Copper Cash - 3 Month Differential
-50
-40
-30
-20
-10
0
10
20
30
40
AugJulJunMay
-50
-40
-30
-20
-10
0
10
20
30
40
AugJulJunMay
Daily Copper Cash - 3M
Sources: GFMS, LME
($/tonne)
Shanghai Copper Stocks
0
25
50
75
100
125
Jul-09Jan-09Jul-08Jan-08Jul-07Jan-07
tonnes000s
Source: SHFE
Chinese Refined Copper Imports
0
100
200
300
400
20092008200720062005
tonnes000s
Source: Chinese Customs; GFMS
Comex Net Non-Commercial Positions
US$/tonne
100
150
200
250
300
Jan 09Jan 08Jan 06Jan 04Jan 021000
3000
5000
7000
9000
Spot Price
Open Interest
(contracts,thousands)
Sources: Thomson Reuters Ecowin, LMEJan 03 Jan 07Jan 05
5Independent - Informed - International
-30
-20
-10
0
10
20
30
40
50
20092008200720062005200420032002
-30
-20
-10
0
10
20
30
40
50
20092008200720062005200420032002
Source: CFTC
(contracts,thousands)
Short
Long
Base Metals Forecasting Monthly - August 2009
6 Independent - Informed - International
2. Aluminium
Aluminium Price and Forecast Trading Range Aluminium Supply & Demand
(000 tonnes) 2008 2009F
W.World production 21,148 19,734W.World consumption 23,729 20,321 Net East-West trade 3,750 2,440W.World balance 1,169 1,853
ROW production 18,332 17,135ROW consumption 14,391 14,843
Global production 39,479 36,869 Global consumption 38,120 35,164 Global balance 1,360 1,705
Source: GFMS
1350
1450
1550
1650
1750
1850
1950
2050
2150
OctSepAugJulJunMay
US$/tonne
Sources: GFMS, LME
Oct
Key Aluminium Market Developments:• After a subdued first half of July many market participants have been caught by surprise by the
strength and speed of the rally for a metal, which at all times during this rally, has seen record, and
rising, LME stocks. This trend has accelerated in the last few days of July, with cash prices ending July
at an 8-month peak of $1,864/tonne on 31st July. At the start of August prices have rallied further,
exceeding $2,000/tonne for the LME cash price on 5th August.
• This steep increase in the aluminium price also represented the largest percentage increase of all
the six LME metals, quite a turnaround for what has often been the laggard of the complex in recent
years. Indeed, the cash price is now 61% higher than the lows of late February.
• One supportive factor for the bullishness across base metals was the Chinese macro view,
particularly following the Chinese announcing that Q2 GDP was up 7.9% year-on-year.
• More importantly for aluminium, at least in the short term, is the continued inflow of primary metal
into China over the past few months. Chinese import data for June showed that 267,681 tonnes of
primary aluminium flowed into China, the second highest level on record.
• Meanwhile data from many of the developed markets was also more supportive than for many
months, as the statistics were up month-on-month, even if still down heavily year-on-year. A prime
example was North American aluminium mill products were up 5.8% in May from April. Noticeably the
previously hard hit extruded products sector which experienced a substantial recovery as shipments
jumped 10.1% to 221.7m lbs in May, from 201.5m lbs in April.
Outlook for Next Three Months:In our recently published Three Year Aluminium Quarterly GFMS has revised its projections for
aluminium supply and demand as well as our price forecasts for the year. Our largest revision for
2009 is to raise our projection for Chinese demand significantly higher. However, even with this
change our forecast is still for a surplus of 1.705m tonnes in 2009. Our projections though show
the market, especially outside China, to be tighter in the second half of the year than through the
first six months and this is supportive to the price. That said, the current strength of the rally given
the fundamentals is somewhat exaggerated, while the market remains so well stocked and with vast
restarts occurring in China. Thus, GFMS expects the price to come under downward pressure in the
weeks ahead, although prices will not get close to lows seen in February. In conclusion, over the next
three months we expect aluminium to trade in a $1,550-$2,150 range.
Base Metals Forecasting Monthly - August 2009
7Independent - Informed - International
Aluminium Daily Stocks vs Price
Aluminium Price Volatility
US$/tonne
0
1000
2000
3000
4000
5000
Jan 09Jan 08Jan 07Jan 06Jan 05Jan 04Jan 03Jan 021000
1500
2000
2500
3000
3500
Spot Price
Stocks
tonnes000s
Sources: Thomson Reuters EcoWin, LME
Aluminium Market News:• Two smelters have moved closer to shutting during the past month. Ormet’s 270,000 tonne
Hannibal smelter in Ohio handed out redundancy notices to its workers following the (premature)
end of a contract with Glencore, where all production had previously been sold forward. Despite
increasingly desperate government attempts the 148,000 tonne Anglesey smelter in Wales also
appears set for closure, when its existing power contract finishes at the end of September.
• Chinese production levels are continuing somewhat of a rollercoaster ride over the past 12
months. Output in June was up 8% month-on-month, to an annualised 12.592 million tonnes. This
represented a dramatic continuation of the surge in restarts, as more than 930,000 tonnes of capacity
came on stream in just one month. This has included smelters in Guangxi, Guizhou and Hubei
entering into agreements with power companies on preferential power rates.
• In Japan, May saw another rise in aluminium shipments month-on-month according to the Japanese
Aluminium Association. These shipments rose by 1.7% compared to April to 139,723 tonnes, however
just like in the US this still means a sharp year-on-year decline (of 28.7% to be precise). However,
aluminium rolled products shipments in Japan dropped at the slowest pace in 7 months in June.
• Italy’s non-ferrous metal association, Assomet, stated that output of aluminium product output
plunged 36 percent to 330,000 tonnes in the first six months of this year. Indeed, the industry
association estimates for aluminium semis consumption are for a decline of 20-25 percent in the first
six months of 2009. On a brighter note, Assomet talked of a recent pick-up in orders for aluminium
products for the July-September period.
20
30
40
50
AugJulJunMay
20
30
40
50
AugJulJunMay
Source: GFMS; Volatility is calculated using theLME cash prices from the prior 20 days.
Rolling20-dayvolatility(%)
Aluminium Prices in Major Currencies in July
Aluminium Premiums Jan 05 - to Present
0
50
100
150
200
01/0901/0801/0701/0601/05
($/tonne)
99.7% ingot duty Paid
Cif Japan
99.7% ingot duty Unpaid
Source: GFMS
Max Min Average YTD Avg
US$/t 1,863.5 1,531.5 1,668.0 1,458.9
Euro/t 1,326.0 1,096.1 1,178.7 1,083.7
Yen/t 178,057 141,051 156,923 139,078
Rmb/t 12,732 10,464 11,413 9,088.0Source: Thomson Reuters EcoWin
Base Metals Forecasting Monthly - August 2009
8 Independent - Informed - International
LME Stocks vs Spot Price Jan 03 - July 09
Shanghai Aluminium Stocks
LME Aluminium Cash - 3 Month Differential
0 2 4 6 8 10 121000
1500
2000
2500
3000
3500
Combined Gold ETF holdings
Stocks (No. of Weeks Consumption)
$/tonne
Jul 09
Sources: GFMS, LME
10
20
30
40
50
AugJulJunMay
10
20
30
40
50
AugJulJunMay
Sources: GFMS, LME
($/tonne)
Contango
0
50
100
150
200
250
Jul-09Jan-09Jul-08Jan-08Jul-07Jan-07
tonnes000s
Source: SHFE
Chinese and IAI Primary Production
0
20
40
60
80
100
Jan 09Jul 08Jan 08Jul 07Jan 07
tonnes(thousands)
L.AmericaAust'sia
W.Europe
AsiaAfrica
E.Europe
North America
China
Source: IAI and CNIA
Aluminium Open Interest vs LME PriceChinese Primary Aluminium Imports
0
100
200
300
400
20092008200720062005
tonnes000s
Source: Chinese Customs; GFMS
US$/tonne
0
200
400
600
800
1000
Jan 09Jan 08Jan 07Jan 06Jan 05Jan 04Jan 03Jan 021000
1500
2000
2500
3000
3500
Spot Price
Open Interest
tonnes000s
Sources: Thomson Reuters EcoWin, LME
Base Metals Forecasting Monthly - August 2009
3. Nickel
Nickel Price and Forecast Trading Range Nickel Supply & Demand
Key Nickel Market Developments:• Nickel prices in July represent a vast improvement on levels seen earlier in the year. The July
monthly average at $15,984/tonne is almost 7% up on June and 64% higher than the March low of
just under $10,000/tonne. More recently, on July 31, the spot price climbed by $775/tonne in the
space of one day to $17,625/tonne, breaching levels not seen since Q3 last year. Further sharp gains
have been seen in early August, with cash prices exceeding $20,000/tonne for the first time in almost
a year.
• The fundamentals have had little to do with nickel’s progress, and instead it has been the investment
community that has been setting the direction for prices, encouraged by the increasing perception of a
recovery in economic activity and the stainless steel sector in particular. These investors were buoyed
by the latest PMI data, especially from the US, with the ISM manufacturing index for July up by 4.1 to
48.94. This was the slowest pace of contraction since August 2008.
• Stocks on the LME have recently started to show some support falling by around 3,800 tonnes to
105,864 tonnes on August 3, after having reached a one-month high of 109,716 tonnes on July 9.
However this figure, by historical standards still represents a very large stockpile. LME inventories
represent 7.1 weeks of “Western World” consumption, which is the second highest stock/consumption
ratio among LME base metals.
Outlook for Next Three Months:Over the past month or so, the nickel market has started noting improvements in some of its
fundamentals. Output at a number of stainless mills outside of China have been increasing as orders
from consumers and service centres are picking up, a trend we are likely to see accelerate over H2.
A tight scrap market should also help boost demand for primary nickel. More recently, stocks on the
LME have started falling, which signals an improving demand-side scenario. However, with prices
well above the marginal cost of production, it is likely that producers will start bringing back on idled
capacity, which in theory should put a cap on any excessive price rise. Consequently, nickel will trade
in a $14,000-$21,000 range from August to November.
11000
13000
15000
17000
19000
21000
OctSepAugJulJunMay
US$/tonne
Sources: GFMS, LME
(000 tonnes) 2008 2009F
W.World production 873 716W.World consumption 943 772 Net East-West trade 130 90W.World balance 60 34
ROW production 489 491 ROW consumption 352 408
Global production 1,362 1,207Global consumption 1,294 1,180
Global balance 67 27 Source: GFMS
9Independent - Informed - International
Base Metals Forecasting Monthly - August 2009
Nickel Daily Stocks vs Price
Nickel Price Volatility Nickel Prices in Major Currencies in July
Nickel premiums Jan 05 - to Present
30
40
50
60
70
80
AugJulJunMay
30
40
50
60
70
80
AugJulJunMay
Daily Nickel Price Volatility
Source: GFMS; Volatility is calculated using theLME cash prices from the prior 20 days.
Rolling20-dayvolatility(%)
US$/tonne
0
30
60
90
120
150
Jan 09Jan 08Jan 07Jan 06Jan 05Jan 04Jan 03Jan 020
10000
20000
30000
40000
50000
60000
tonnes000s
Spot Price
Stocks
Sources: Thomson Reuters Ecowin, LME
0
500
1000
1500
2000
2500
01/0901/0801/0701/0602/05
($/tonne)
US melting premium
Briquettes
4*4 cathode
99.7% uncut cathode
Source: GFMS
Max Min Average YTD Avg
US$/t 17,650 14,360 15,945 12,344
Euro/t 12,559 10,278 11,316 9,140
Yen/t 1,686,457 1,322,556 1,506,537 1,176,517
Rmb/t 120,587 98,118 109,269 76,956
Source: Thomson Reuters EcoWin
Nickel Market News: • Planned strike action was commenced on Saturday 1st August by 120 workers at the Voisey’s Bay
nickel mine in Canada, run by Vale, the company has announced. This operation had been due to
reopen on 1st August after a one-month shut-down.
• Global mine production growth according to the WBMS fell by 4.8% y-o-y to 584,200 tonnes in the
first five months of the year. Mine output slipped in every region, except in Asia (+17.7%), where
output was primarily lifted on the back of 223% y-o-y growth in the Phillippines. This reflects higher
ore production to feed Chinese nickel pig iron producers as well as the expansion at Coral Bay.
• Recovery in stainless demand over the last few months has led to a 25% m-o-m increase in the
Acerinox’s order book in June, and has also consolidated price increases. It has been reported that
orders at German stainless mills doubled in June from May, to over 200,000 tonnes.
• Japanese mills are raising stainless output in Q3. For example, Nisshin Steel has announced plans to
produce 140,000 tonnes, up from a low of 90,000 tonnes in Q1. By October, it plans to be operating
at a capacity utilisation rate of 50%.
10 Independent - Informed - International
Base Metals Forecasting Monthly - August 2009
LME Nickel Stocks vs Spot Price Jan 03 - July 09 Nickel Open Interest vs LME Price
0 1 2 3 4 5 60
10000
20000
30000
40000
50000
60000
Stocks (No.of Weeks Consumption)
$/tonne
Jul 09
Sources: GFMS, LME
LME Nickel Cash - 3 Month Differential
-50
0
50
100
150
200
250
AugJulJunMay
($/tonne)
Sources: GFMS, LME
Contango
Backwardation
Chinese Nickel Imports
0
10
20
30
40
20092008200720062005
tonnes000s
Source: Chinese Customs; GFMS
Global Stainless Steel Production
0
1000
2000
3000
4000
5000
6000
7000
8000
200920082007200620052004
Tonnes(thousands)
W.Europe/Afr.AmericasC.+ E.Europe
Asia
Source: ISSF
US$/tonne
0
20
40
60
80
100
Jan 09Jan 08Jan 07Jan 06Jan 05Jan 04Jan 03Jan 020
10000
20000
30000
40000
50000
60000
tonnes000s
Spot Price
Open Interest
Source: Thomson Reuters Ecowin, LME
11Independent - Informed - International
Max Min Average YTD Avg
US$/EUR 1.42 1.39 1.41 1.34
JPY/US$ 96.67 92.24 94.43 95.33
US$/Rmb 6.83 6.83 6.83 6.83
DJ AIG 9,172 8,147 8,680 8,145
S&P 500 987 879 936 864
Source: Thomson Reuters EcoWin
Major FX Rates and World Stock Indices in July
Base Metals Forecasting Monthly - August 2009
12 Independent - Informed - International
4. Zinc
Zinc Price and Forecast Trading Range Zinc Supply & Demand
Source: GFMS
Key Zinc Market Developments:• Zinc prices maintained and in fact expanded their gains over the course of July. Having started the
month in the mid-1,500s, prices suffered a correction in the first half of the month that saw the spot
price bottoming at $1,461/tonne. From then on, the price trended upwards to an end-month $1,748/
tonne, which marked a fresh year-to-date peak (breached again by recent advances over $1,850/
tonne). The average price for the month, at $1,579/tonne, was virtually unchanged from June.
• Investor interest has continued, in our view, to be the principal driver of the strength prices
have enjoyed recently. In line with the wider base metals sector, optimism over the prospects of
consumption recovering has supported the rally. The metal’s fundamentals on the other hand remain
uninspiring and, similarly to the wider complex, talk of ‘green shoots’ has yet to translate in any
material recovery in galvanized steel demand and by implications zinc consumption.
• Looking at the LME inventory growth of July, the market seems to still be in surplus. Specifically,
stocks rose by 54,575 tonnes over the month to reach 407,950 tonnes, equivalent to a little over
three weeks’ Western World consumption. Interestingly, the bulk of the rise in LME stocks took place
in the last week of July, as price broke through the $1,700/tonne barrier. There were further additions
to LME stocks in early August, but again did not stop further price gains to over $1,850/tonne.
Outlook for Next Three Months:The last few months have seen zinc prices rocket from a low of $1,060/tonne to current levels above
$1,850/tonne. In the past, we had considered the former levels to represent unsustainably low levels
which call for a recovery. Although the argument may be less clear, it is our view that the current
levels will prove similarly difficult to maintain in the short-term, given the zinc market’s fundamentals
and anecdotal evidence pointing to an speculative overhang having been built in base metals over the
last few weeks. By implication, we would be surprised if a noteworthy correction did not materialise at
some point over the remainder of the summer period. In conclusion, we think that zinc will trade in a
$1,450-$2,000 range from August to November. The upper end of this range may be hit if the cur-
rent labour negotiations at the Antamina copper-zinc mine lead to a strike.
1000
1200
1400
1600
1800
2000
AugJulAugustJulyJunMay
US$/tonne
Sources: GFMS, LME
(000 tonnes) 2008 2009F
W.World production 6,712 6,480 W.World consumption 6,958 6,246Net East-West trade 375 -75W.World balance 129 159
ROW production 4,953 4,881ROW consumption 4,529 4,995
Global production 11,665 11,361 Global consumption 11,487 11,201
Global balance 178 160
Base Metals Forecasting Monthly - August 2009
13Independent - Informed - International
Zinc Daily Stocks vs Price
Zinc Price Volatility Zinc Prices in Major Currencies in July
Zinc Premiums Jan 05 - to Present
30
40
50
60
AugJulJunMay
30
40
50
60
AugJulJunMay
Daily Zinc Price Volatility
Source: GFMS; Volatility is calculated using theLME cash prices from the prior 20 days.
Rolling20-dayvolatility(%)
US$/tonne
0
200
400
600
800
Jan 09Jan 08Jan 07Jan 06Jan 05Jan 04Jan 03Jan 020
1000
2000
3000
4000
5000
tonnes000s
Spot Price
Stocks
Sources: Thomson Reuters Ecowin, LME
0
50
100
150
200
250
300
01/0901/0801/0701/0601/05
($/tonne)
US high grade
LME warehouse Singapore
Source: GFMS
Max Min Average YTD Avg
US$/t 1,748.0 1,461.0 1,574.5 1,360.4
Euro/t 1,189.5 1,028.4 1,088.7 963.60
Yen/t 167,021 134,558 148,743 129,874
Rmb/t 11,942 9,982.6 10,795 8,499.0
Source: Thomson Reuters EcoWin
Zinc Market News: • Bulgaria’s second largest zinc and lead smelter, OTZK, stated in late July that its production declined
11.2 percent in the first half of the year, citing technical reasons. However, the company confirmed
that it still plans to produce 27,000 tonnes in the whole of 2009.
• The latest International Lead and Zinc Study Group bulletin suggests producers’ stocks rose at the
margin during May, to 402,000 tonnes, compared to 390,000 tonnes at end-April.
• In Germany, demand fell by a third for the first five months of 2009 compared to the same period a
year earlier. A 31% decline was also recorded for Italian consumption, which stood at 99,000 tonnes
over the same period, while a more measured 17% drop was suffered by Belgium, where 134,000
tonnes were used. Overall, European consumption fell by 27% to reach 803,000 tonnes.
• Apparent consumption in China over the first six months of the year, excluding confirmed SRB
purchases of 159,000 tonnes, amounted to an impressive 2.192m 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, which amounted to 473,393 tonnes over the period.
Base Metals Forecasting Monthly - August 2009
14 Independent - Informed - International
LME Zinc Stocks vs Spot Price Jan 03 - July 09 Zinc Open Interest vs LME Price
0 1 2 3 4 5 6700
1700
2700
3700
4700
Combined Gold ETF holdings
Stocks (No.of Weeks Consumption)
$/tonne
Jul 09
Sources: GFMS, LME
LME Zinc Cash - 3 Month Differential Shanghai Zinc Stocks
0
25
50
75
100
125
Jul-09Jan-09Jul-08Jan-08Jul-07
tonnes000s
Source: SHFE
Chinese Zinc Imports
0
25
50
75
100
125
20092008200720062005
tonnes000s
Source: Chinese Customs; GFMS
US$/tonne
100
150
200
250
Jan 09Jan 08Jan 07Jan 06Jan 05Jan 04Jan 03Jan 020
1000
2000
3000
4000
5000
(contracts,thousands)
Spot Price
Open Interest
Sources: Thomson Reuters Ecowin, LME
0
10
20
30
40
50
AugJulJunMay
0
10
20
30
40
50
AugJulJunMay
Sources: GFMS, LME
($/tonne)
Contango
Base Metals Forecasting Monthly - August 2009
15Independent - Informed - International
5. Lead
Lead Price and Forecast Trading Range Lead Supply & Demand
Key Lead Market Developments:• Prices have surged over recent days, to $1,949/tonne on August 3, representing the highest level
since September 2008. We continue to believe that prices are way ahead of the fundamentals, with
demand in the mature economies remaining weak and production recovering in China.
• Consequently, this latest surge is difficult to justify on real supply/demand grounds and is largely
due to intense speculative buying on the exchanges. We also believe this speculative activity was
at the forefront of the strength in prices through June and July, with the monthly average largely
unchanged on the previous month, at $1,679/tonne in July from $1,674/tonne in June.
• LME stock levels have picked up over past couple of months in line with the onset of the summer
slowdown, increasing by 11,650 in June and around 15,500 tonnes in July. This trend may continue
over the near future, taking into account the fact that we are entering a traditionally weak period for
lead demand and there have been significant restarts of previously idled capacity in China. Having
said this, at 110,550 tonnes on August 3, stocks still remain relatively low in comparison to the other
base metals at just over one week’s consumption.
• Lead was also boosted in the closing days of July by news that the US scrappage scheme had
completely been utilised in just 7 days, and that Congress was looking to extend the package.
Outlook for Next Three Months:The fundamentals in the immediate term are weaker than prices would suggest. Chinese restarts
of previously idled capacity could pose some problems over the short term, and import buying is
expected to ease over the summer months. Additionally, with conditions in the mature economies
remaining weak, we envisage prices dropping back slightly from current levels. However, with the
traditionally strong “battery season” coming into force as we enter Q4, lead prices should recover
towards the end of the year. However, given the recent surge, prices are likely to consolidate before
climbing further and will trade in a $1,400-$2,050 range over the next three months.
1350
1450
1550
1650
1750
1850
1950
2050
OctSepAugJulJunMay
US$/tonne
Sources: GFMS, LME
(000 tonnes) 2008 2009F
W.World production 4,955 4,905W.World consumption 5,168 5,108Net East-West trade 250 250W.World balance 37 47
ROW production 3,603 3,801ROW consumption 3,344 3,537
Global production 8,558 8,706 Global consumption 8,512 8,645 Global balance 46 61
Source: GFMS
Base Metals Forecasting Monthly - August 2009
16 Independent - Informed - International
Lead Daily Stocks vs Price
Lead Price Volatility Lead Prices in Major Currencies in July
Lead Premiums Jan 05 - to Present
30
40
50
60
70
AugJulJunMay
30
40
50
60
70
AugJulJunMay
Source: GFMS; Volatility is calculated using theLME cash prices from the prior 20 days.
Rolling20-dayvolatility(%)
US$/tonne
0
50
100
150
200
250
Jan 09Jan 08Jan 07Jan 06Jan 05Jan 04Jan 03Jan 020
1000
2000
3000
4000
tonnes000s
Spot Price
Stocks
Sources: Thomson Reuters Ecowin, LME
0
50
100
150
200
250
01/0901/0801/0701/0601/05
($/tonne)
US high grade ingot
European warehouse Rotterdam
Source: GFMS
Max Min Average YTD Avg
US$/t 1,842.5 1,567.0 1,674.3 1,381.9
Euro/t 1,311.0 1,121.2 1,188.3 1,024.0
Yen/t 176,051 144,321 158,188 131,951
Rmb/t 12,558 10,707 11,462 8,623.2
Source: Thomson Reuters EcoWin
Lead Market News: • Bolivian production was strong, with production at 38,000 tonnes for the first five months and up
46.2% year-on-year. This strength looks likely to continue as the San Cristobal mine is now reported
to be back operating at full capacity. However, in the rest of the Americas production was weak,
with output declining 5.6% to 437,000 tonnes for the first five months, on falls in Canada, Peru and
the US. Peruvian weakness continued into June, with output down 11.9% y-o-y to 25,148 tonnes
according to the Peruvian mining ministry.
• Chinese concentrate production in June has risen further to 124,559 tonnes, up from the May level
of 112,019 tonnes, according to the China Non-ferrous Industry Association.
• Chinese demand has found significant support from its auto sector. Over the first six months of the
year, vehicle sales climbed to 6.099m units, up 17.7% y-o-y. June sales of 1.14m units gained on May
levels and approached those seen in April. This figure was up a significant 36% y-o-y.
• Doe Run Peru has told regulators it plans to restructure its operations after months of financial
difficulty, company and government officials have said.
Base Metals Forecasting Monthly - August 2009
Commodity Indices
DJAIG
S&PGSCI
350
400
450
500
7500
8000
8500
9000
9500
JulJunMay
DJ AIG
Source: Thomson Reuters EcoWin
S&P GSCI
17Independent - Informed - International
0.0 0.5 1.0 1.5 2.00
1000
2000
3000
4000
Stocks (No.of Weeks Consumption)
$/tonne
Jul 09
Sources: GFMS, LME
LME Lead Cash - 3 Month Differential
-20
-10
0
10
20
30
AugJulJunMay
($/tonne)
Sources: GFMS, LME
Contango
Backwardation
Lead Open Interest vs LME PriceLME Lead Stocks vs Spot Price Jan 03 - July 09
Chinese Lead Imports
0
10
20
30
40
50
20092008200720062005
tonnes000s
Source: Chinese Customs; GFMS
US$/tonne
25
50
75
100
125
Jan 09Jan 08Jan 07Jan 06Jan 05Jan 04Jan 03Jan 020
1000
2000
3000
4000
(contracts,thousands)
Spot Price
Open Interest
Sources: Thomson Reuters Ecowin, LME
Base Metals Forecasting Monthly - August 2009
18 Independent - Informed - International
6. Tin
Tin Price and Forecast Trading Range Tin Supply & Demand
Key Tin Market Developments:• Having fallen to $12,450/tonne on July 10 – residing to levels last noted in late April – from the
year-high of $15,725/tonne on June 10, the cash quote has picked up and at present is trading above
$15,500/tonne in early August. The increases seen in recent days are the result of positive economic
data, coupled with improving financial markets.
• Nonetheless, out of all of the base metals on the LME, tin was the only metal to see its July monthly
cash quote, which came in at $14,039/tonne, fall m-o-m, by 6.3%.
• The intensity of the speculation has been highlighted by the movement of spreads between the cash
and three month price. The premium for cash material over three months on 6th August for example
was $305/tonne, which compares to around $40/tonne in mid-June. The premium is even larger when
compared to contracts dated further out.
• Indeed, the tin market, for some time now, has been in backwardation suggestive of the market
being in a short-term deficit. However, this seems at odds with the current market situation,
particularly as it is widely perceived to be over-supplied. Stocks on the LME increased by 1,275
tonnes over July to end the month on 18,405 tonnes, which largely reflects the weakness in demand
more than a pickup in supply, although Chinese production is increasing. Nevertheless, at least for
prices, it can be said that the pace in the acceleration of stocks has slowed down in comparison to the
previous month when they surged by 2,650 tonnes.
Outlook for Next Three Months:Tin’s price performance to date is a reflection of speculative activity rather than any sort of
improvement in its fundamentals. Demand remains weak, and in our view will not recover any time
before September when the slow summer months come to an end. On the supply side, we have the
problem of low output in Indonesia versus rising output in China with the restart of operations at
Yunnan Tin. However, in the medium-term the shortage of new projects leads us to believe that prices
could rise considerably from current levels if consumption returns to pre-recession levels. As such, we
think that tin will trade in a $12,000-$17,000/t range over the next three months.
10000
11000
12000
13000
14000
15000
16000
17000
OctSeptAugJulyJunMay
US$/tonne
Sources: GFMS, LME
(000 tonnes) 2008 2009F
W.World production 210.1 213.4W.World consumption 206.9 218.0Net East-West trade -10.0 5.0Stockpile sales 7.0 7.0W.World balance 0.2 7.4
ROW production 136.7 154.8ROW consumption 142.5 146.5
Global production 346.8 368.2 Global consumption 349.4 364.5
Global balance -2.6 3.7
Source: GFMS
Base Metals Forecasting Monthly - August 2009
19Independent - Informed - International
Tin Daily Stocks vs Price
Tin Price Volatility Tin Prices in Major Currencies in July
Tin Premiums Jan 05 - to Present
20
30
40
50
60
AugJulJunMay
20
30
40
50
60
AugJulJunMay
Daily Tin Price Volatility
Source: GFMS; Volatility is calculated using theLME cash prices from the prior 20 days.
Rolling20-dayvolatility(%)
US$/tonne
0
10000
20000
30000
40000
50000
Jan 09Jan 08Jan 07Jan 06Jan 05Jan 04Jan 03Jan 020
5000
10000
15000
20000
25000
30000
tonnes000s
Spot Price
Stocks
Sources: Thomson Reuters EcoWin, LME
($/tonne)
Source: GFMS
100
200
300
400
500
600
01/0901/0801/0701/0601/05
US Grade A
3-month
Spot
Tin Market News: • In an effort to further clamp down on illegal operation in Indonesia, the country approved its 30th
export license in July. The ministry approved a permit for CV Nujanah. The latest data released by
the Indonesian trade ministry shows that the volumes checked for exports up to June remained strong
amounting to 50,575 tonnes, up 9.2% y-o-y.
• Global mine production over January-May waned significantly by 10% y-o-y to 117,400 tonnes,
largely the result of falls in excess of 12% in the two largest producers, China and Indonesia.
Combined, these fell by 15% y-o-y, which is largely the reflection of wet weather and earlier price-
related cutbacks.
• According to the WBMS, global refined tin production in the first five months of the year fell by
around 10%. The largest producer, China, saw production decline 13.7% to 44,287 tonnes, while
Indonesia registered output at just 27,000 tonnes, down 12.9%. A shortage of concentrate feed has
also translated to lower refined output in these regions.
• Domestic Brazilian shipments of tinplate fell by 20.3% y-o-y for the first five months of 2009, to
206,300 tonnes.
Max Min Average YTD Avg
US$/t 15,050 12,450 14,013 12,530
Euro/t 10,673 8,947 9,945 9,297
Yen/t 1,433,250 1,150,006 1,324,197 1,195,087
Rmb/t 102,807 85,068 95,781 78,027
Source: Thomson Reuters EcoWin
Base Metals Forecasting Monthly - August 2009
20 Independent - Informed - International
LME Tin Stocks vs Spot Price Jan 03 - July 09 Tin Open Interest vs LME Price
0 1 2 3 4 5 60
5000
10000
15000
20000
25000
Stocks (No.of weeks consumption)
$/tonne
Jul 09
Sources: GFMS, LME
LME Tin Cash - 3 Month Differential
-500
-400
-300
-200
-100
0
100
AugJulJunMay
($/tonne)
Source: GFMS, LME
Backwardation
Contango
Chinese Tin Imports
0
1000
2000
3000
4000
5000
20092008200720062005
kg
Source: Chinese Customs; GFMS
US$/tonne
0
10
20
30
40
50
Jan 09Jan 08Jan 07Jan 06Jan 05Jan 04Jan 03Jan 02
0
5000
10000
15000
20000
25000
30000
(contracts,thousands)
Spot Price
Open Interest
Sources: Thomson Reuters EcoWin, LME
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