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The Blunt End

June 2016

Base metals tread water on the back of lower demand, especially from emerging economies. Downside risks include stronger-than-expected monetary tightening by the US Fed and the dollar strength

Metals prices, as with other commodities, have been tapering off for quite some time triggered by some degrees of strength emerging in the US Dollar. The US dollar has reversed a trend on the back of a host of factors, primary being the Federal Reserve in its released minutes, signaling an interest rate rise could happen as soon as June. Given global commodities are priced in US dollars, a rise in the value of the dollar lowers the cost of a given commodity. Amongst the pack covered, zinc continues to find favor amongst experts and investors while nickel remains mired in worries.


Zinc prices retreated from a 9-month high of USD 1942 per metric ton recorded in the latter part of April. Opinion remains bullish on the base metal – the Goldman Sachs Group has raised its forecasts for the next year on tightening supply and robust demand in China, highlighting its positive prospects in contrast to the “very bearish” outlook seen for all other base metals. The six and 12-month forecasts were boosted to USD 2,100 a metric tonne from USD 1,700/mt, while the three-month call rose to USD 2,000 mt from USD 1,800 mt.

Chinese infrastructure spending grew 19% YoY for the period January-April 2016 (China accounts for nearly 47% of the global zinc consumption), which when accounted for with the supply side disruptions, augurs well for the outlook of the continued deficit visible in the metal going ahead.

Prices have remained largely topsy-turvy for the metal retracing nearly 9% for the month-to-date, retracing from a stiff resistance level of ~USD 5100 per tonne. The metal has been marked by lower demand predictions, burdened further by favorable supply – The Chilean Copper Commission (note, Chile is the largest Copper producing country) cut its prediction for global refined copper demand this year from 2.3% to 1.8% as Chinese consumption representing nearly half of the global total continues to moderate. The government forecaster also expects supply to increase by a substantial 5.1% or 985,000 tonnes this year to 20.25 mt, much faster than the body expected at the start of the year. This is on the back of a 35% surge in production from Peru and huge jumps in Mexico and Indonesia.

The metal continues to remain a laggard, trading currently at levels of ~ 8500/ton, the lowest in years. It continues to remain burdened by structural excesses — inventory at the LME (London Metal Exchange) and SHFE (Shanghai Futures Exchange) at approximately 500,000 tonnes is nearly 10 times the International Nickel Study Group (INSG) projected deficit of the current year.

Aluminium prices, after touching a yearly high at USD 1684 a kilo during the month, has retraced and moved to levels below USD 1500 / kg. Players within the industry have been marred by the low levels in the metal — Aluminium Bahrain (Alba), owner of one of the world’s largest aluminium smelters, reported a 88.6% fall in first-quarter net profit as a result of a collapse in aluminium prices.

Contrary to aluminium has been the story around tin. Malaysia Smelting Corp, which specializes in tin mining and smelting, announced its best quarterly performance in nearly two years – while revenues edged up 7% higher YoY, bottom-line moved from a loss to a profit. The metal has been a relative outperformer against the rest, and while recent weeks have seen some degree of price erosion, in tandem with the rest of the pack, projections of a deficit in the market till 2018 are expected to keep buoyancy in the metal.

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