Rumors abounded late last week about a really bad idea that the China Nonferrous Metals Industry Association suggested the state is planning.

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The, as yet officially unsubstantiated, suggestion is the State Reserves Bureau would buy 900,000 metric tons of aluminum, 30,000 mt of refined nickel, 40 mt of indium, and 400,000 mt of zinc, although there seems to be some uncertainty about whether zinc will or will not be included in the support program.

And make no mistake that is all this exercise is, a support mechanism, principally for state metals producers hit hard by falling prices and excess supply. Some feel it is akin to Beijing’s poorly thought-through intervention in the stock market last summer when they stepped in to buy shares to prop up the stock market, but although the sums involved would come to an eye-watering $1.5 billion it would be a drop in the ocean of excess supply to the Chinese market.

Back in 2009 the SRB stepped in to the market and purchased some 700,000 mt of copper, a move that contributed to an eventual rise in price from $3,000 per mt to a peak of $12,000 per mt. This time, the suggestion seems to be that the SRB will buy only from state metals producers and to pay prices based on state-owned smelters’ cash production costs rather than a market price.

Needless to say, prices on the Shanghai Futures Exchange have surged, up 5% this week in response, although how long this will last remains to be seen. Like a sugar rush, the effect quickly passes and if production continues to run in excess of demand prices will quickly fall again.

In 2009 a massive stimulus program drove double-digit rates of demand growth, that isn’t going to happen this time around.

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Fortunately, some parts of the industry are taking more sensible action with announcements by some 30 producers that they will cut capacity next year, particularly in copper, zinc, nickel and nickel pig iron, according to Reuters. Moves that will, in the long run, have wider benefits than just supporting prices by reducing the incentive for wasteful investment, less pollution and lower energy consumption.

It’s been a rough month so far for lead which, along with zinc, hit multiyear lows last week while sister metal copper also suffered after an assessment of China’s factory health revealed a continuing weakness in the world’s leading metals consumer.

According to a November 11 report from Reuters, lead traded down 1.8% to $1,604.50, having reached a five-year low of $1,582.

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“I see some bright spots and some continued softness (in the China data) however there is a definite bearish tone from Chinese and Asian speculators. Shorting has been concentrated during Asian hours, its not entirely clear why, if anything, the supply side looks a lot shakier,” Vivienne Lloyd, analyst at Macquarie, told the news source.

In a note, Commerzbank said the Chinese government and central bank will no doubt have to lean on further stimulus activity in order to improve the economy. This possibility could lead to the support of metal prices.

A Tale of Two Eras for Lead

It’s been an interesting 2015 for lead and other industrial metals, but prior to this year lead was one of the most stable metals around, thanks, in part, to a surplus combined with consistent production versus usage. But 2015 has proven itself to be the year of the bear for all industrial metals, including lead.

How will base metals fare for the remainder of 2015 and into 2016? You can find a more in-depth lead price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:


There is much debate about how much further copper prices have to fall. The LME Copper price dropped to $4,590 per metric ton on Tuesday and has recovered only slightly since. It is now at its lowest level in six years and, according to ThomsonReuters, some analysts are suggesting it could fall to $4,000 per mt, that is apparently Glencore’s worst-case scenario and the number they are cutting their cloth to live with as part of their ambitious debt reduction program.

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Not all producers are willing to join Glencore and make cuts. Bloomberg reports Codelco is saying it won’t cut copper production as prices slump. Speaking at the Metal Bulletin conference in Shanghai, Codelco’s CEO is quoted by the paper as saying he would rather rein in costs than curb output; noting that “if we suspend production then it’s difficult to restart.”

Goldman Sachs is Still Bearish

Goldman Sachs is quoted as saying the bear cycle in copper has years to run, predicting rising global surpluses through 2019. The growth in China’s demand will slow to 3% a year from 11% in 2013 as the government shifts the focus from investment spending to consumer demand and services as the main driver of the economy. Read more


Three-month LME copper hits a six-year low. Source: FastMarkets.

Copper prices traded this week as low as $4,590/mt on demand worries and a strong dollar. Not only copper but all metal prices have suffered significant declines this month.

While Copper slid to a new six-year low last week, there is some discussion about exactly why.

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Everyone can agree the market is oversupplied, demand has slowed in China, consumer of over 40% of the world’s copper and for Barclays believes China is partially responsible for the latest fall.

Barclay’s Note

Chinese demand is a big part of the problem. The WSJ printed, last week, comments from the bank’s most recent note to investors. “There’s over a million tons of additional supply coming online next year and the year after during a time when demand is seeming to stall,” said Dane Davis, a metals analyst with Barclays in New York.

“Not only are prices going to be lower, they will be lower for a sustained period.” Global copper output is expected to reach a record 22.89 million metric tons this year, while demand is expected at 22.4 mmt, according to Barclays, that’s some half a million tons of overcapacity. Production cutbacks by the likes of Glencore and Freeport McMoRan, however, should balance that excess but it is the extent to which this new capacity comes on stream that worries Barclays. Certainly, China’s consumer-price inflation decelerated in October, according to data released on Tuesday suggesting growth will continue to slow unless some currently unexpected stimulus measures are announced.

Source: WSJ

Source: WSJ

However, others disagree, saying the current weakness in the copper price has more to do with a bounce in the strength of the dollar. The dollar appreciated to its strongest level since April this week versus the euro and its highest in more than two months versus the yen after a Labor Department report showed US employers added 271,000 workers in October, the most this year. Good jobs data increases the likelihood of a December rise in Federal Reserve interest rates and the US Dollar responded accordingly. A stronger dollar makes all dollar-priced commodities more expensive for non-dollar economies suppressing demand and, hence, prices.

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There is more to it than just the dollar though. Although inventory on the London Metal Exchange has been falling it has been rising on the Comex and the Shanghai Futures Exchange, according to the FT. With some quarters predicting the dollar will hit parity with the Euro next year and be below 1.50 to the Pound by the end of this year, the pressure will remain on the copper price. Expect a rebound from recent lows, but it won’t arrest the trend.

The fallout from the Paris attacks was felt in markets this morning as both gold and oil jumped in early trading. There’s still little good news to report for copper, which saw a major producer slash its premium for delivery to China.

Gold, Oil Up in Early Trading

Gold and oil edged up in nervous trading this morning following the deadly attacks on Paris and large-scale French airstrikes in Syria, although broader commodities markets remain weak on poor fundamentals, Reuters reported.

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Gold, typically seen as a safe haven in times of heightened risk, jumped about 1% as Asian shares and US stock futures fell but later fell. The euro skidded to a 6-1/2 month low. Oil prices edged higher, but copper slipped to a six-year low.

Codelco Cuts Chinese Copper Premium

Chile’s Codelco, the world’s top copper producer, has slashed its 2016 premium to China for the refined metal by more than a quarter to a three-year low, traders said on Monday, the latest sign of weakening demand from the market’s biggest buyer.

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In a move that will deepen concerns about waning consumption as growth in the world’s second-largest economy slows, Chile’s state-owned miner, Codelco, offered a premium of $98 per metric ton for 2016 term shipments, down from $133 per mt this year.

A roll of copper wire

Copper futures continue to struggle significantly, and are currently just above their worst point in more than five years, which says a lot about the state of the global economy and, more notably, the Chinese economy.

The summer of 2009 was the last time copper was this low. The base metal has dropped by about 22% this year, alone, so, naturally, we should take a step back and analyze the potential factors leading to this sharp decline.

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China is the world’s second-leading economy and as such, also happens to be one of its biggest importers of various metals, including copper. In fact, China represents 45% of global copper demand, making it a crucial demand driver in manufacturing everything from cars to electronics. However, the issues long-reported with the Chinese economy have led to a slowdown in industrial output, putting a hamper on copper imports and production.

“A plan by Glencore PLC to cut its copper-mining activities for 18 months, announced in September, briefly halted copper’s fall, but that effect appeared to be fleeting,” wrote Mark DeCambre of MarketWatch. “As a base metal, copper represents a fundamental supply/demand dynamic. Greater demand for copper pushes prices up and higher prices support the efforts of companies to mine for copper.”

Recent mine shutdowns have only slightly affected copper prices, giving support to falling prices but doing little to turn the tide against the mitigating macroeconomic factors at play.

Says our own Raul de Frutos: “While we have a strong dollar, weak Chinese demand and a still-bearish commodity environment, it will be hard to see copper making significant upside moves.”

How will base metals fare for the remainder of 2015 and into 2016? You can find a more in-depth tin copper forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:


Our copper MMI index rose by just 1 point in November to 66 from 65 in October.

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Like other base metals, copper prices have been more stable over the past three months. After the metal plummeted during the summer, prices recovered from six-year lows on the back of supply cuts by major producers. However, we still see a lot of price weakness across the board and the fact that prices are not able to fully rally on supply cuts may be indicative of the fact that we have yet to see a floor for copper prices.

Copper_Chart_November-2015_FNLIn early November, Glencore announced that it would reduce its copper production more than expected. The company is now aiming to cut output by 455,000 metric tons by the end of 2017, 14% up from its previously announced figures. Glencore’s cuts and another recently announced pullback in production from Freeport-McMoRan could raise hopes of more shutdowns, however, other major producers have indicated that they don’t have any intention of cutting production.

Low Prices, Lower Costs

Despite low prices, many copper producers are still earning decent profits thanks to lower operating costs. BHP Billiton and Rio Tinto Group are ramping up their copper production.

In fact, BHP says that its mines are still generating cash. The company is confident that its well-diversified and low-cost portfolio will keep generating profits in spite of falling prices. Meanwhile, Rio Tinto announced no intentions to cut its production and lose market share. Thanks to its low-cost assets, the company sees an opportunity to actually increase its market share by expanding its Oyu Tolgoi copper mine in Mongolia.

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Given that 45% of copper demand comes from China, the slowdown in the Chinese economy offset the boost from production cuts on copper prices. So far, mine shutdowns have been unsuccessful in triggering a bull run. It seems that production cuts are only giving support to falling copper prices but it remains unclear if these shutdowns would hold prices against more disappointing macroeconomic releases coming from China.

What This Means For Metal Buyers

Copper is not giving buyers any reason to panic on mine shutdowns. While we have a strong dollar, weak Chinese demand and a still-bearish commodity environment it will be hard to see copper making significant upside moves. Refer to our monthly outlook for key price levels that we are seeing in copper markets at the moment.

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Our Construction MMI was, once again, a victim of a brutal commodity environment with high production from China and a strong dollar encouraging import purchase and dwindling market share for US producers of aluminum, steel, stainless and other construction metals. The index dropped 3% to fall to 65, yet another all-time low.

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US construction spending actually rose in September to its highest level in seven-and-a-half years as both private and public outlays increased, suggesting a modest upward revision to the third-quarter GDP growth estimate.

Construction Up As Prices Lag

Estimators and procurement professionals are clearly taking advantage of the low-cost environment and buying forward, which is not a great strategy in this market as we have seen every indication that prices will continue falling. Buying now is, essentially, attempting to catch a falling knife.

Construction_Chart_November_2015_FNLConstruction spending has actually increased every month this year in the US. This week, Economists from the Associated Builders and Contractors (ABC), American Institute of Architects (AIA), and National Association of Home Builders (NAHB) predicted continued construction industry growth in 2016 during a joint economic forecast web conference Tuesday.

Oversupply for Export

The low-cost environment has created a domestic boom that builders and contractors are taking advantage of. One would think that increasing demand must eventually cause prices to rise, but that’s simply not the case for aluminum, steel and stainless as so much overcapacity has been built up, mostly by overproduction in China.

My colleague, Stuart Burns, recently wrote oversupply from China in these commodities will ensure we have a dead cat bounce kind of bottom.

“Prices of these commodities aren’t likely to rise far or fast for years to come,” he wrote.

An unfortunate continuing theme of our MMI series this month is that not all markets will experience a similar bottom. Some aren’t even close to bottoming out despite the historic low prices we have seen. At least in some commodities, currencies are shielding producers from the worst effects of falling global prices while others, such as the strong US dollar, are encouraging end users to buy less-expensive imports over dollar-enumerated-and-produced domestic supplies.

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Copper is one of the metals keeping the construction MMI from falling more. Its relative strength of late is causing some producers to hope it has already found its bottom and it was a sharp one, at that. We caution buyers to stay conservative and not make large purchases until the overall commodity picture is better.

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The Automotive MMI bounced 1.4% this month but we would caution metal buyers to wait a bit longer before calling this anything close to a market bottom.

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As MetalMiner co-founder Stuart Burns adroitly pointed out this week, no two metals’ bottoming out experiences will be the same. Some will be sharp and some, particularly steel, could be fat and flat. It should come as no surprise to our readers that steel and aluminum were, again, the laggards in our automotive metals index.

Automotive_Chart_November-2015_FNLA mini-surge from copper and relative strength in platinum and palladium were able to collectively raise the index to its small gain this month. Therein lies the true problem for long-term Automotive MMI growth: there are signs that PGM prices will not be able to hold the modest gains they’ve made in recent weeks.

Eeek… TFs

Platinum- and palladium-backed exchange-traded funds tracked by Reuters were facing their biggest monthly outflows at the end of October since the data series began in 2010.

Platinum flowing out of ETFs is good news for the dollar and bad news for dollar-denominated commodities, such as precious metals. The bulk of the selling was seen from the Johannesburg-listed NewPlat ETF operated by Absa Capital, which saw its holdings fall 134,000 ounces in October, according to Reuters.

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While the Volkswagen scandal did not cause the price losses some expected for exhaust system metals such as platinum and palladium, the muted market reaction may still be growing. ETF outflows have also pushed gold to 4-week lows, too, and we would expect more losses for automotive metals as aluminum and steel have very little upside right now and the rug very much looks like it’s finally being pulled out from under PGMs.

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