INSIDE METALS Friday, January 11, 2013
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INSIDE METALS Friday, January 11, 2013 CHART OF THE DAY FEATURE Click on the chart for full-size image COLUMN- China's copper import boom; a problematic legacy China's imports of copper ended the 2012 boom year on a muted note, with the headline figure falling 6.6 percent on the month to 341,211 tonnes, which was the second lowest monthly level of last year. Andy Home is a Reuters columnist. The opinions expressed are his own Click here to read more.. COLUMN- Iron ore curve, technicals show rally nearing end It's no surprise that iron ore is the current commodity market darling, given record Chinese imports, a jump of 82 percent in prices in just four months and a huge storm about to hit a major mining region. Clyde Russell is a Reuters columnist. The opinions expressed are his own Click here to read more.. Click here for LME charts TODAY’S MARKETS TRADING PLACES BASE METALS: London copper inched down from a one-week high hit Copper users ask SEC to reverse copper ETF ruling in the previous session after China's export demand improved in De- cember, while a slightly stronger dollar weighed. GENERAL NEWS "The market was rethinking whether the temporary resolution of the China December inflation accelerates on food prices fiscal cliff was going to help or just kick the can down the road. Having that extra shot (China trade data) in the arm was very helpful," said Turkey's gold output to rise to 36 T in 2013 -industry Barclays commodity analyst Sijin Cheng in Singapore. group MARKET NEWS PRECIOUS METALS: Gold inched lower but was headed for its biggest weekly rise in more than a month, following a decision by the European ALUMINIUM: Central Bank to keep rates unchanged despite signs of stabilisation in Goldman sees aluminium continuing to underperform in the battered economy. 2013 "The record-high gold prices in yen have triggered some liquidation COPPER: from Japanese customers, which is putting pressure on the market," Panoro CEO sees potential in Peru copper mine project said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong. Vedanta's Zambia unit suspends Chingola copper output NICKEL/STEEL: FOREX: The euro extended gains to hit to a four-month high against Australian cyclone cuts fifth of global iron ore trade the Swiss franc after the European Central Bank dampened rate cut Cold snap cuts China iron ore output, may extend price prospects and Swiss bank Zuercher Kantonal Bank said it may impose rally charges on savings accounts. TIN/MINORS: Weaker-than-expected Swiss inflation data on Friday added to Swiss franc selling pressure. Indonesia's Dec refined tin exports climb 9 percent on month INSIDE METALS January 11, 2013 FEATURE COLUMN-China's copper import boom; a problematic leg- The answer to the first question is financiers, but it is a catch-all acy word that could, and probably does, mask a wide spectrum of players with differing implications for how liquid this inventory actually is. By Andy Home It's noticeable that when China's major copper smelters had to LONDON, Jan 10 (Reuters) - China's imports of copper ended deliver against short positions on the London Metal Exchange the 2012 boom year on a muted note, with the headline figure (LME) back in the second quarter of 2012, they did so from their falling 6.6 percent on the month to 341,211 tonnes, which was own production rather than trying to tap what was in the Shang- the second lowest monthly level of last year. hai bonded zone. The drop has been widely attributed to reduced end-of-year credit appetite from financiers, who use copper as collateral in the shadow banking sector. FALSE SENSE OF SECURITY (1) Most commentators have instead focused on last month's re- The short-term implications of this legacy from the 2012 import cord imports of iron ore as a sign of manufacturing recovery in boom are likely to be felt first and foremost in China itself. the world's largest buyer of industrial raw materials. This growing buffer stock in Shanghai has served both to Last year's 4.65 million tonnes of cumulative imports of copper dampen volatility in the London-Shanghai arbitrage, which re- still marked a 14 percent acceleration from 2011 and a new all- mains negative for profitable imports, and physical premiums in time record, eclipsing even the 4.29 million tonnes imported in China. As of mid-December these were quoted in a $40-65-per 2009, a year when imports soared on the back of post- tonne range over the cash LME copper price . meltdown, bargain-basement prices. Compare and contrast with the premium range of $98-105 per These preliminary figures aggregate imports of copper in vari- tonne being asked by Chilean producer Codelco for 2013 term ous forms but it is almost certain that imports of refined metal shipments to China. also notched up a new record of around 3.40 million tonnes in It seems highly likely that Chinese mainland buyers will accord- 2012, unless there was a drastic change in November's product ingly go light on this year's term commitments. "Must-have" ratio split. metal will still be booked, make no mistake, but why go for extra This Chinese import boom has, however, left an unwelcome, tonnage when there's nearly a million tonnes of metal sitting on destabilising legacy, one that will determine not only the level of your door-step? imports this year but, quite possibly, the structure of the entire Particularly when China's own production of the red metal is global copper market. likely to re-accelerate from this year's 8-percent growth rate thanks to better raw materials supply. LEGACY Imports of concentrates were up 18 percent in the first eleven months of 2012, hitting consecutive records of 716,000 tonnes The copper market is now collectively wise to the fact that what and 832,000 tonnes (bulk weight) in October and November China's customs department classifies as an import may only respectively. That may herald a step-change in availability as travel as far as Shanghai's bonded warehouse zone. global mine supply finally shows signs of emerging from years What was once little more than a statistical quirk has assumed of systemic under-performance. ever greater importance as accelerated "imports" over the Chinese buyers, however, risk being caught off-guard if con- course of 2012 coincided with a marked slowdown in the Chi- sumption growth this year turns out to be better than expected. nese growth story. Because another by-product of this Shanghai stocks mountain The result has been a massive build in Shanghai bonded appears to be the run-down of manufacturers' own copper in- stocks, something in the order of 500,000 tonnes over the last ventories to extremely low levels. 12 months. Again, why worry when there's so much metal sitting in the port At an estimated 800,000-900,000 tonnes they dwarf the 543,000 of Shanghai? Assuming, that is, that this metal is actually avail- tonnes held at the end of December in the warehouse systems able on a spot basis. of the world's three foremost copper trading exchanges, namely the London Metal Exchange (320,500 tonnes), the COMEX Even if it is, it will require sharp shifts in both arbitrage and pre- (64,150 tonnes) and the Shanghai Futures Exchange (158,200 mium levels to entice it onto the mainland, at which point value- tonnes of duty-paid metal). added-tax must be paid. This Shanghai mountain is "dark" inventory. Not just because The scale of those shifts will be magnified if it turns out that there is no official monitoring of its size, leaving the market reli- much of the metal is locked up in financing deals. ant on guess-timates, but also because it is unclear who exactly owns it and how mobile it is. 2 INSIDE METALS January 11, 2013 FEATURE FALSE SENSE OF SECURITY (2) It's always tempting to dismiss technicals in the face of an op- The build in Shanghai bonded stocks carries risk for the market posing fundamental picture, but an analysis of the recent history outside of China as well by offering what may turn out to be an of iron ore prices shows they have been accurate in reflecting equally false sense of security. turning points. At the LME close yesterday the benchmark cash-to-three- Asian spot iron ore has retreated slightly from a 15-month high months spread was valued at $34.00 per tonne contango. This of $158.50 a tonne hit on Jan. 8 and closed on Thursday at is the widest it's been since May 2010. $158.20, having rebounded from a three-year low of $86.70 hit True, LME stocks have rebuilt over the last couple of months last September. and at 326,575 tonnes they are near their highest level since This has been driven by robust Chinese imports, which climbed January last year, a telling comparison given the seasonality of above 70 million tonnes for the first time in December, as steel the copper market, characterised as it is by end-year stocks mills restocked on the back of a brighter economic outlook for build. the world's largest commodity buyer. But by any historical yardstick this is still a low outright figure The solid demand outlook comes as Cyclone Narelle bears and it looks even lower if the 68,400 tonnes of cancelled LME down on Western Australia, home to the bulk of mines operated stocks are stripped out.