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FOCUS – Russia likely to sell more palladium stocks than thought this year – Macquarie
May 1st, 2013Russia is likely to sell more palladium from state reserves than initially thought this year after data showing a surge in exports of the metal to Switzerland in March, Macquarie said.
The latest monthly data from Switzerland showed the country imported 8.9 tonnes – or 286,000 ounces – of palladium from Russia in March, the highest level since January 2010, the bank noted on Monday.
“It is not on its own large enough to make us fear a return to the situation seen in most of the 2000s and early 2010s, when the Russian state often offloaded more than a million ounces of palladium per year,” it said in its weekly note.
But the March data “strongly suggests our forecast of 150,000 ounces of implied Russian stock sales this year is too low”, Macquarie added.
The surge in imports in March could be a one-off event prompted by the high price of palladium that month. Data for April due late in May should give more clues.
Spot palladium traded around $684 per ounce on Monday, down from a multi-month peak of $787 reached on March 8.
Palladium has entered a period of prolonged deficit, according to analysts who see potential for substantial price gains ahead – Société Générale recently forecast a test of $1,000 per ounce in 2014.
The market was in deficit by 915,000 ounces in 2012 after a surplus of 1.255 million ounces in 2011 – it was oversupplied for most years in the 2000s.
Output at Russia’s MMC Norilsk Nickel, the world’s largest palladium producer, fell three percent in 2012 to 2,731,000 ounces.
(Editing by Mark Shaw)
Horse race, grunge and poetry… there is more to Cesco Week in Chile than copper
April 15th, 2013The annual Cesco Week in Santiago gathers the crème de la crème of the global copper industry: mining leaders, manufacturing executives, investment bankers, metal traders and engineers among others. Including a couple of FastMarkets journalists.
As always, the week was busy with meetings, conferences, workshops and social events. More than 2,000 of us were in town for the event, concentrated in the posh district of “Las Condes” in the Chilean capital. For a few days, the hotels are taken over by ”metal men” (and women) and it is impossible to go to a restaurant without sitting next to someone from the industry. Even taxi drivers know there is money to be made during the “semana Cesco” and not always in the most honest way (beware of fake notes or dodgy meters…).
But the mood seemed more sombre than in past years. The copper price is likely to fall – possibly as low as $6,000 per tonne from $7,100 now – and this, combined with rising production costs, could threaten the viability of projects or delay some investments. Still, we are apparently in for at least two years of supply surpluses and possibly more. Warehouse incentives are here to stay and copper premiums are likely to rise alongside, especially if China returns to the market later this year.
All in all, a good insight into copper’s outlook.
But this year there was a lot more happening outside the metals’ world. The Santiago marathon – Chile’s largest national sports event, with more than 25,000 runners and 5,000 supporters – blocked roads just as Cesco Week was about to start and as hundreds of horse-mounted Chilean dressed as religious cowboys (“huasos”) descended on the streets to celebrate the “Festival of Quasimodo”.
This tradition, which takes place every year on the Sunday after Easter, takes its root in colonial times. Legend has it that the local priest would visit the sick and unable accompanied by these cowboys to protect himself against bandits.
Outside Santiago, another dramatic event took place on April 8: the exhumation of Chilean Nobel Prize-winning poet Pablo Neruda 40 years after his death amid allegations he may have been poisoned on Pinochet’s orders just 12 days after the coup that brought the general to power. That same day, we learned the death of former British Prime Minister Margaret Thatcher, a close friend of Pinochet and a popular figure in the Chilean mining industry.
On a funnier note, Cesco Week also kicked off as the world-popular Lollapalooza music festival was taking place in Santiago. Metal traders meeting for a drinks reception on Sunday at one of the hotels widely used during copper week were surprised to see fans of Pearl Jam waiting to see their idols. Others had actually been to a few concerts, with other artists such as Franz Ferdinand, Kaiser Chiefs, The Black Keys and Queens of the Stone Age also on the bill, peddling a different kind of metal…
More relevant to the copper industry, Cesco Week was also hit by a wave of strikes, which many attributed to political action ahead of a presidential election in November. The country’s ports were paralysed for three weeks – fruit and copper exports were brought to a halt – while the miners of state producer Codelco also downed tools to protest against the management, demand better conditions and support resource nationalism.
But the week’s highlight – and certainly my favourite event – was the special horse race at Santiago’s Club Híppico on the occasion of Cesco dinner.
The 2,000 attendants were asked to bet on one of the 12 horses, each renamed after copper mines, seven of them Chilean: Antamina, Bingham Canyon, Buenavista, Chuquicamata, Collahuasi, El Teniente, Escondida, Esperanza, Grasberg, Los Bronces, Los Pelambres and Morenci.
The winner was Esperanza (in burgundy), Antofagasta’s newest copper and gold mine in Northern Chile, followed closely by Collahuasi (in green), a joint venture between Anglo American, Xstrata and Japanese trading houses in Chile.
It was the first race in 10 years at the annual dinner and a welcome return, according to most people I spoke to (especially the Japanese). No money was bet, of course (only tags), and a raffle from the box of the winning horse announced the winner, who was then invited to come on stage to receive a prize. And the winner was? An executive from Codelco who had bet on a rival horse! You’ve got to love the Chileans.
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Taiwan about to become LME delivery point, Panama City considered
April 4th, 2013Kaohsiung in southern Taiwan is now very close to becoming an approved location for the delivery of all LME metals, sources told FastMarkets.
Panama City in Florida, meanwhile, is also under consideration after the port authorities submitted an application to the LME to be a delivery point for copper only.
“Taiwan is on the verge of making it as an LME location,” a well-informed source said. “The timing for listing is dependent on [the audit] sign-off but could easily be by the April [LME] board meeting.”
For a new location to be approved by the LME as good delivery point, it must be in an area of net consumption, have appropriate fiscal and regulatory systems, be served by a good transport network, have the facility to store goods without payment of duty (free-trade zones) and enjoy political and economic stability.
“Taiwan fits all the requirements and also has the clear advantage of being a gateway in and out of China,” another source said.
“The idea is to be an alternative to China. Since China is not going to be listed soon, why not plunk an LME warehouse in Taiwan instead?”, a third source said.
The LME has many hubs in Asia including approved warehouses in South Korea, Singapore and Malaysia, but China is proving difficult due to political and tax barriers. The LME’s recent acquisition by Hong Kong Exchanges & Clearing (HKEx) may help but the process is expected to take time.
Kaohsiung Harbour has been trying to become an LME hub since 2010 but certification was delayed by extra LME requirements at the port and tax issues, especially after changes to local tax codes following a national election in January 2012.
“The Taiwan application had been stuck for a while due to legal and tax reasons but the last I heard, it was moving again,” a fourth source said.
PANAMA CITY IN SPOTLIGHT
The LME is also considering an application by Panama City to become a delivery location, people familiar with the matter said.
“Panama City will happen but there will need to be at least two players, which is standard,” the first source said.
To be approved the port authorities will need to create an expanded free-trade zone and may have to improve rail connections to the sheds, the source added.
Southwire, North America’s leading manufacturer of wires and cables and largest copper consumer, uses the port of Panama City, which is also historically a Comex-approved location.
Sources said the LME copper committee is pushing for the approval of Panama City as an alternative delivery point to New Orleans, where there is a long queue to remove copper stocks out of Pacorini warehouses.
Warehouse operators, meanwhile, may not see this application as commercially worthy as the copper stored in Panama City would likely move in and out quickly to consumers in the region, rather than stay in the sheds in profit-making rent deals.
“The reason there are incentives in New Orleans is that copper is not the dominant metal there and thus only a limited amount leaves the warehouses daily. But Panama would be different as it would be copper only,” a source said.
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Aluminium industry must cut output to reduce excessive stocks – Rusal CEO
September 19th, 2012The aluminium industry needs to cut output to reduce excessive stocks and adjust to the current level of demand, Oleg Deripaska, CEO and chairman of the management board of UC Rusal, said.
“Our industry still faces challenges but we’re going to solve them. We need to rationalise supply and reduce stocks to levels that are more [fundamentally] justified,” he told some 350 delegates at Metal Bulletin’s 27th aluminium conference.
Cutting supply globally is a “key priority” for aluminium producers, he insisted, while weak prices and high production costs continue to hurt suppliers.
The demand slowdown since 2008 lifted global stocks to record levels of around 10 million tonnes.
The aluminium industry should take model from the automotive sector, which is “very disciplined about their stocks and consider stocks as waste”, Deripaska said.
UC Rusal, the world’s largest aluminium producer by volume, recently announced plans to slash 150,000 tonnes per year of aluminium capacity by the end of the year, eventually reaching a capacity reduction of 275,000 tonnes per year by 2018.
Capacity cuts will be at Rusal’s Russian aluminium smelters Nadvoitsy, Bogoslovsk, Volkhov and Novokuznetsk – the company’s older smelters in the Western part of Russia where power costs are higher than at its main operations in Siberia.
Other producers including Alcoa, Hydro and Rio Tinto Alcan have also announced production cuts at high-cost locations in Europe and Australia. But they face increasing difficulties to take capacities out because of social issues, rising unemployment and political pressure, other speakers noted.
China was branded “the elephant in the room” by many delegates – the country continues to raise capacity despite the current demand slowdown.
“China will be self-sufficient for the next two or three years so we will see no additional [import] demand from there,” Deripaska said. “But Chinese consumption will continue to grow by maybe seven percent average for the next seven years or more.”
Suppliers in the Middle East such as Emal and Alba are also raising capacity with the long-term view that demand will recover and grow towards 60 million tonnes in 2015 from 48.5 million tonnes currently, requiring additional supply.
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Antofagasta’s operations now performing to expectations – CEO Hernandez
September 9th, 2012Operations at Chilean miner Antofagasta are now performing as planned and annual copper production is thus expected to stabilise around 700,000 tonnes for the next two years, newly appointed CEO Diego Hernández said.
“Part of the strategy put in place by the company for some time – and I fully agree with this – is that operations perform up to expectations. This is the case now,” he told FastMarkets in an interview on Wednesday.
“So we don’t see any drop in production from now on. We see production remaining around this year’s level in 2013 and 2014,” he added.
Antofagasta expects copper production to be “very close” to 700,000 tonnes in 2012 before rising in 2014 when the Antucoya project is set to come on-stream, he said. Output reached 336,000 tonnes in the first half, up 16.5 percent on the same period in 2011, according to the group’s interim results statement.
It also forecasts gold production to ease slightly from the expected 2012 level of 280,000 ounces to around 260,000 ounces in the next two years due to lower grades.
The London-listed company went through a management crisis in the first half of 2012 in which former CEO Marcelo Awad resigned suddenly on March 7 and some 50 employees handed in their notice.
Although no official statement was made, industry sources said the underperformance of key divisions Esperanza and Los Pelambres were to blame.
“The good news is operations are performing well and all management changes are completed,” Hernández said, who joined from state-owned copper giant Codelco in July.
“The company is doing quite well and the labour climate is good,” he added.
Antofagasta is addressing problems at the Esperanza mine in northern Chile: new management has been put in place, the existing tailing thickeners thought to have been wrongly designed are being modified, two extra high-torque thickeners are to be installed in 2013 and additional crushing capacity is being planned.
These measures – requiring investment of $200-250 million – should ensure that the mine finally reaches its design capacity of 97,000 tonnes per day in the first half of 2014. This compares with 79,700 tonnes per day in the second quarter of this year.
Copper output from Esperanza is expected at around 160,000 tonnes this year, at the lower end of the original forecast range of 160,000-175,000 tonnes.
Meanwhile, production at Los Pelambres – Antofagasta’s biggest mine, which had been struggling with lower ore grades and rising cash costs – is ramping up faster than planned. The company currently expects 2012 output to be “marginally above” the initial forecast of 390,000 tonnes and cash costs before by-product credits stabilising at around 140 cents per pound.
The company is also working on a pre-feasibility study to be completed in 2013 on the potential for long-term, large-scale expansion of Los Pelambres.
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Former Codelco CEO Diego Hernandez takes the helm at Antofagasta
August 1st, 2012Chilean copper producer Antofagasta Minerals SA has appointed former Codelco boss Diego Hernández as its new CEO with effect from August 1.
The widely anticipated move sees 63-year old take the helm of Antofagasta in the midst of a management crisis – many senior managers have handed in their notice since January, including former CEO Marcelo Awad who resigned suddenly on March 7.
“We are delighted that Diego has accepted our invitation to lead the mining division business as its chief executive officer,” chairman Jean-Paul Luksic, who has acted as CEO in the past five months, said in a release.
“He has an extensive knowledge of the mining industry. This, we feel, will greatly benefit Antofagasta as it continues to enhance its overall growth profile, supported by our strong financial position and low-cost and profitable operations,” he added.
Hernández was CEO at state-owned copper giant Codelco for the two years until he resigned suddenly on May 24 amid disagreements with what he saw as too ‘hands-on’ a board
He had joined Codelco as CEO in May 2010 after six years as president of base metals at mining giant BHP Billiton. A Paris-trained civil mining engineer, he previously held executive positions at Vale, Collahuasi, Anglo American and Rio Tinto.
Antofagasta has lost up to 50 employees including senior staff since January following technical and performance problems at its key Esperanza and Los Pelambres divisions, sources said.
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Postcard from Zug
July 30th, 2012“Where are all the people?” This was one Asian metal trader’s first response after landing in the Swiss city of Zug last year to work for a giant commodities trader.
Other than being known as a crowd-free and family-friendly place where trains are never late, Zug is also a low-tax city and headquarters for many multinational corporations. The German-speaking city is home to the world’s biggest metal trader, Glencore, as well as many producers and consumers such as Trimet, Rusal and Constellium.
Metals and Zug go hand in hand in hand – on a recent visit, we strolled down the “Metallstrasse” – Metal Street – and crossed “Metalli”, the main shopping area, which previously was a metals factory.
After rushing between meetings and grabbing ‘brezels’ (the Swiss version of the pretzel) for lunch, we sat down at Pier 41 – supposedly the trendiest bar in town – to reflect on all the different views heard about the outlook for base metals: all looks very uncertain and volatile and for now the bears certainly seem to outnumber the bulls. But one thing surprised us most of all: there is no night club in Zug.
“After 9pm, everything dies in Zug,” a metal trader told us. “They want to keep it family-friendly,” another younger one said. For a bit of fun, Zurich and Lucerne are a 30-minute train journey away.
Surely, an international town such as Zug needs a club. What about a metal-themed club serving cocktails like ‘Flaming Copper’ or ‘Smoking White Ali’? Wouldn’t this be a recipe for success? We think so.
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Curtain raiser to 2011 event
October 22nd, 2011The LME’s annual dinner week is usually a time when the global base metals community gathers to cast the runes for the year ahead.
For most of the past decade, early October has been a time of healthy conditions for industry and positive price prospects. But this year is different.
While the industry’s movers and shakers, big market names and a variety of hangers-on will all be here for a week of seminars, meetings and glad-handing, centred on one of London’s biggest black-tie dinners at a Park Lane hotel, the backdrop is such that 2012′s gathering may be radically different.
On the price side, metals have been in retreat since late summer, with commodities caught up in a maelstrom of asset sales while the world grapples with a growing debt mountain and the threat of a double-dip recession.
“LME Week this year will resemble that of 2008 [after the collapse of Lehman Brothers] in that confidence is battered, markets are bruised and uncertainties are vast,” Robin Bhar of Credit Agricole said. “It’s not as bad now as it was then – there’s more cash and less debt – but it’s easy to see how things could go really wrong.”
And the exchange itself, for more than a century an independent market, is being courted by at least 10 interested parties in the financial exchange arena – by October next year, 55 Leadenhall Street may well be under new ownership and have switched to a more commercial model.
“Will it be CME Week, SGX Week, ICE Week when we meet all again next year? I hope not – LME Week is a nice tradition. It would be a shame to end it,” a trader at a large merchant company said.
But change can be a good thing, another trade source, who sits on one of the LME’s numerous committees, argued.
“The LME is a great business – trading and warehousing operations are very buoyant,” he said. “I like changes – I think the LME could do so much better with a commercial hat on or, rather, the commercial freedom to expand.”
If the price tag of $1 billion initially reported in the press surprised some metals industry participants who still thought of ‘their’ LME as a giant in their world but a dwarf in the global derivatives arena, the final number may raise even more eyebrows.
“I think we could get a couple of billions, maybe more,” an LME shareholder said. “It’s not just trading volumes and revenues you have to look at. The true value of the LME relies upon the benchmark system [the use of the LME as a global pricing reference], the warehousing network and clearing.”
It is the LME’s decision to examine a move into self-clearing that caught the attention of other exchanges, another shareholder told FastMarkets.
Clearing expert Trevor Spanner, who joins the LME in November, will head up the LME project, which will carry on regardless of the sale process, CEO Martin Abbott said in an interview.
“He will get to work on validating the studies that we have done and whether we go to the board and say we want to change the way we clear or build our own clearing house,” Abbott said. “We are not looking at anything this year.”
The LME’s record trading volumes and unchallenged dominance of the futures and options markets for non-ferrous metals must also look appealing.
Turnover is expected to hit a new record level close to 150 million lots in the whole of 2011, up from 120.3 million last year, Abbott said.
“Implicit in the assumption that there is a transaction is that there is a switch to a commercial model,” he said, judging a deal – if any – unlikely before April of next year.
What is certain is that the battle for the control of the world’s largest non-ferrous market will be the hot topic next week.
GLUM TIME FOR METAL PRICES?
But while news of a possible sale may bring some cheer, the tone will be gloomier in discussions about metals prices where words such as ‘uncertainty’, ‘caution’ and ‘risk’ are likely to dominate while trading conditions remain treacherous and volatility extremely high.
Since the start of the year, the price of copper has dropped 24 percent to around $7,200 per tonne while nickel, zinc, lead and tin have all lost more than 20 percent of their value. Aluminium has proved more resilient – down just nine percent in the year to date.
Sentiment has been soured by economic chaos and political inaction. The eurozone sovereign debt crisis is dragging on, the US faces the threat of another recession and, while China battles with high inflation and declining export revenues, a downturn in the world’s largest metals consumer seems likely too.
“If the eurozone can put its act together, if measures are put in place, if at last we get some decisive action from politicians and, if we get a resolution sooner rather than later, then maybe confidence will return and higher prices will be seen” Bhar added.
“But we’re walking on a very fine line at the moment,” he added. “There’s still a lot of uncertainties… about growth, about how the eurozone will play out, about credit lines and supply-side issues.”
This backdrop, analysts tell us, will probably persist well into 2012, with prices seen falling further.
“The restrained macro backdrop will mean that metal prices will trade in much lower ranges in 2012 then what was evident in 2011, at least during the first half of the year, as weaker demand will more than offset any supply related issues, particularly in complexes like copper,” Ed Meir of MF Global said.
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2011 What’s on and where
August 22nd, 2011The traditional London Metal Exchange (LME) Week, the largest annual gathering of the mining and metals’ world, starts in less than a month. Below is a list of events and functions scheduled for the week.
Please note that events are private parties requiring invitations to attend.
SUNDAY, October 2:
1800- : KGHM LME Week Dinner, Baltic Restaurant
1900- : Marex LME Week Dinner, The Savoy
MONDAY, October 3:
0800-1330: LME Seminar, Queen Elizabeth II Conference Centre
1530- : Sucden Financial’s afternoon tea at the House of Lords
1800-2230: Ambrian LME cocktail party at the Metropolitan Hotel, Old Park Lane
1830-2230: Natixis Cocktail Reception at the Mandarin Oriental Hotel, Hyde Park
1800-2230: INTL FCStone Cocktail Reception at the Grosvenor Hotel, Park Lane
2000-0030: Reuters-Brady’s LME Week party at The Cuckoo Club, Swallow Street, W1B 4EB
TUESDAY, October 4:
0845-1645: LME Education Seminar: Introduction to the LME
0900-1300: CRU London Metals Week Breakfast Reception 2011, The Mayfair Hotel
1200-1500: Standard Bank Buffet Luncheon, Plaisterers’ Hall
1200-1500: JPMorgan LME Lunch, Merchant Taylors’ Hall
2000- : LME Annual Dinner, Grosvenor House Hotel, Park Lane. Guest speaker is Lord Davies of Abersoch, former UK Trade Minister and ex-Chairman of Standard Chartered.
1930- : Minor Metals Trade Association (MMTA) Dinner, The May Fair Hotel
2000-2300: Standard Bank dinner at the Lanesborough, Hyde Park
2330- : Standard Bank party, Ronnie Scott’s Jazz Club, Frith Street, Soho
WEDNESDAY, OCTOBER 5
0845-1630: LME Education Seminar: Hedging with Futures
1200-1500: Wogen’s Heartstarter and Brunch, The Sanctuary, Westminster
1930- : Freeport-McMoRan Dinner Party at the Intercontinental Hotel, Park Lane
THURSDAY, OCTOBER 6
0845-1700: LME Education Seminar: Technical Analysis
FRIDAY, OCTOBER 7
0845-1700:
- LME Education Seminar: Hedge Accounting
- LME Education Seminar: Fundamental Analysis
- LME Education Seminar: Physical Trading and Warehousing
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