LME WEEK ASIA: What did we learn?

Metal Bulletin rounds up the hot topics at this year’s LME Week Asia in Hong Kong.

Metal Bulletin rounds up the hot topics at this year’s LME Week Asia in Hong Kong.

Bulls versus bears
A straw poll during the metals seminar revealed a 2:1 vote in favour of the bulls, but we could hardly get hold of them after the seminar – they had probably disappeared to cover positions.

“China is still growing at 7% and people are optimistic. I don’t know whether it is Chinese enthusiasm or people are really that bullish,” Sucden Financial ceo Michael Overlander told Metal Bulletin.

Macquarie senior commodities consultant Jim Lennon expects prices to hit $5,500-6,000 per tonne by the end of 2015. 

HFZ, a joint venture between Red Kite Management and Maike Metals International, sees weaker Chinese demand for copper in the second half of 2015 and in 2016. 

China’s refined copper supply is unlikely to see a big surplus this year as imports slow and Chinese smelters expand business into downstream.

“The big ones are all using their own cathode to produce copper rod. The rod sector is going to see a surplus instead of cathodes,” sources told Metal Bulletin.

Some local governments are keen to help smelters extend their value chain. With rod supply already exceeding demand, smelters are seeking ways to sell their products outside but face thin profits and fierce competition.

Robin Bhar of Societe Generale said the super-cycle in commodities will continue, but will be less super, as China’s economy rebalances towards domestic growth.

“Qingdao was a great wake-up call for the industry and we are better off than we were 12 months ago,” Sebastian Barrack, senior md and joint head of metals, mining and agriculture division commodities and financial markets at Macquarie Group, said.

Warehouse operators echoed this view. 

Henry Bath has hired a gm for its recently announced direct Shanghai operations. “The market as a whole should look to advance warehousing in China and build capability and confidence of LME-style warehousing in the country,” Sean Ginnane, group gm Asia, said. 

The Impala-CITIC warehousing jv is on track and the company is targeting SHFE listing, Charles Bucknall, director Asia and head of LME warehousing at Impala Terminals, said. 

Another warehouse operator said some companies have stopped using third-party operators for their logistics services and prefer to have their own staff running the business on the ground.

Chinese funds
The ‘shorts club’ formed by Chinese hedge funds may see a divergence following the unexpected rise in copper prices.

Pressure on Chinese hedge fund managers is coming not only from domestic longs, smelters and trading firms, but also from overseas hedge funds. The battle will continue in the second half.

Some market participants said asset managers and other kinds of fund will also be seen in commodities soon. 

“The Chinese hedge funds are not playing for a few million dollars,” Jeremy Goldwyn, head of Asia business development at Sucden Financial, said.

Macquarie’s Lennon described Chinese funds as “chaotic”. 

Physical market
Falling Chinese scrap copper imports raises questions not only about quantity, but also about quality, a major scrap player told Metal Bulletin. The 17% VAT rate makes Chinese buyers less competitive compared with their peers in South Korea and Southeast Asia.

Signs from the second-hand automobiles and home appliance industries indicate that China will satisfy its own demand in next five to 10 years.

An announcement by South Korean stockpiling agency PPS that it will buy aluminium at $145 per tonne became a talking point as traders fret over a constantly falling market.

James Wu of Mercuria (China) said premiums may be near the bottom and the all-in price for the light metal could settle at $1,950-2,000 per tonne. 

LME participants and products
The exit of banks from commodities and the consolidation of some brokerage businesses has created opportunities for others.

“We are one of the few traditional brokers left in the market,” Peter Allan, co-chief operating officer at Mitsui Busan Commodities, said. “We have seen a big gain in the markets with the high-profile exits.” 

Triland Metals is looking to bulk commodities and is keeping a close eye on other metal bourses, including SGX, CME and SHFE. The ring dealing member has applied for a Comex membership, chief operating officer Martin Pratt said in an interview.
He added that the company was expanding its Singapore office amid a growing Southeast Asian market. 

GFFM (UK) will expand from commodities to fixed income and currency and commodities (FICC) trading, md Edward Shi said. 

The London Metal Exchange plans to roll out an electronic audit system for warehouse receipts to boost confidence in processes that were shaken after the Qingdao scandal. 

The aluminium premium contract remains on track for a Q4 launch, LME ceo Garry Jones said, adding that the exchange was keen to expand services in the precious metals suite. 

After the Shanghai-Hong Kong Connect, the HKEx is developing a Shenzhen and Hong Kong through train but there is no information on how and when a commodities connect will develop. 
“A commodities stock connect will need an eco system that is unlike equities,” HKEx ceo Charles Li told reporters.

Discussions were continuing with all three major exchanges on the mainland, Li said. He added that just like before the launch of the stock connect, there was a quiet period, but that did not mean the commodities connect was not being worked on.

Li told Metal Bulletin last year that he hoped to replicate the Hong Kong-Shanghai Stock Connect for commodities in less than three years and the launch of the London minis was a step in that direction. 

A Shanghai-London through connect was also heard being discussed at the event.

“A through connect [for metals] from Shanghai to London may make more sense,” Sucden Financial’s Overlander said. “Someone mentioned it to me and it does have a ring of truth.”

Kiki Kang 

Shivani Singh 

Deepali Sharma 

What to read next
Chinese mining giant CMOC reported a 178% year-on-year increase in cobalt metal production for the first six months of 2024, according to an announcement by the company on Friday July 12
Aluminum scrap generation in Europe is expected to decrease in the current quarter due to lower demand from downstream metal producers amid the domestic seasonal summer slowdown, according to the latest market overview from the Bureau of International Recycling (BIR)
The US government will impose tariffs on steel and aluminium shipped from Mexico that were made elsewhere, in a bid to curb trans-shipment and excess production, the White House said in a statement on Wednesday July 10, a move widely applauded by the pair of metals industries
Norway-based aluminium producer Hydro and German car manufacturer Porsche signed a long-term agreement on Tuesday July 9 for supply of low-carbon aluminium to further decarbonize the supply chain of Porsche’s sports cars. The agreement follows the letter of intent signed in April
The Indonesian government is looking to ease its export ban on bauxite, sources familiar with the matter have told Fastmarkets
Price and supply were the major topics of conversation for market participants across the value chain attending Fastmarkets’ flagship Lithium Supply and Battery Raw Materials conference in Las Vegas on June 24-27