LME WEEK: What did we learn this year?
A welter of things were learned at this year’s LME Week, ranging from the hopes about warehousing’s future to the state of the super-cycle.
Aluminium’s mating season has moved
Last year, negotiations for 2013 supply stretched to the end of the year as producers and consumers wrangled over the structure of contracts as premiums hit record highs and continued to climb. This year, with premiums falling, consumers were in no mood to book 2014 material at LME Week and many have not even completed the budgeting required to finalise supply requirements.
Outright aluminium prices are not interesting for now
A trader’s typical LME Week calendar includes meetings with as many producers and consumers as can be fitted into a diary, and discussions cover all the big talking points of the market. But in between talks about warehouse rents, fixed or floating premiums in contracts, fot charges and new LME warehouse rules, almost no time was given over to discussions about prices, which, at about $1,850 per tonne, still threaten millions of tonnes of primary capacity. “There are remarkably few people talking about prices,” one trader said.
LME users are waiting for the final outcome of the warehousing consultation
The consultation about the LME’s proposed rule changes, which could impose additional load-out requirements on warehouses with wait times of over 100 days, was completed at the end of September. The LME board will vote on the amendments at its next meeting in October, and there could be significant changes from the initial proposals, some market participants believe. The UK’s regulatory watchdog, the Financial Conduct Authority (FCA), backed the LME’s warehousing consultation and stressed the need for transparency and integrity in the market. “There is no doubt that the long-term reliability of warehousing arrangements is vital for confidence in the integrity of the market and its reputation,” Martin Wheatley, ceo of the FCA, said in his keynote address at the LME dinner.
Nyrstar has plans in Asia
As Nyrstar prepares to take control of the marketing of 150,000 tonnes of its European commodity-grade zinc, svp of marketing, sourcing and sales Bob Katsiouleris is preparing the groundwork for a move into Asia. The Zurich-based producer has sold significant tonnages into China in recent months to capitalise on the domestic arbitrage, and next year it may open a trading office in the region. The company has also been competing directly with traders in zinc concentrates tenders, Katsiouleris told journalists on Wednesday.
The copper premium benchmark is becoming less of one
The benchmark copper premium in Europe is becoming “less official than it used to be”, Freeport McMoRan’s Javier Targhetta told Metal Bulletin. His comments came after Aurubis and Codelco respectively offered European customers premiums of $105 and $112. Freeport doesn’t publish its own numbers, but it has found that the negotiation process is more fluid than it used to be, and is becoming more closely pegged to the spot market, he said.
In Asia, too, both copper premiums and TC/RCs are rising for long-term contracts…
Japan’s largest copper producer, Pan Pacific Copper (PPC) told Metal Bulletin it has settled 2014 supply contracts with several Chinese customers up 45% at premiums of $123 per tonne Shanghai cif. It was still negotiating treatment and refining charges with miners and expects them to go up.
…and nickel remains in huge oversupply with all eyes on the Indonesia story
Nickel prices are going to remain under pressure because of the oversupply in the market, analysts said. Indonesia is the big unknown and the 2014 minerals export ban in the country may provide some upside to prices. But people don’t expect the move to be a blanket ban on minerals exports. “I don’t think it will be an all-out ban. I think we will see a graduated increase in export taxes and policy on a mine-by-mine basis,” Barclays commodities analyst Gayle Berry said. However, some companies are looking to raise production, with Japanese producer Sumitomo Metal Mining (SMM) targeting nickel metal production of 46,000 tonnes in 2013, and 65,000 tonnes in 2014, helped by its new Taganito project in the Philippines.
There are mixed views on the supercycle debate
The commodities super-cycle is far from over, with urbanisation and growth in the developing world being the key drivers for demand for metals, Société Générale said. “We think the current super-cycle is far from dead, which is a bit of relief because a year ago we sort of pre-empted the discussions that perhaps the super-cycle was pausing,” SocGen metals analyst Robin Bhar said. But changes to base metals prices in the recent past are not part of a super-cycle, but rather a paradigm shift, Shaun Browne, chairman of the AME Group said. “China is having a period of reindustrialisation and maybe that could be called a super-cycle,” Browne said, adding, “The cyclical improvement in the west will not be offset by the maturing east, but the rate of change will probably be more limited than people think.”
Market participants are sitting on their hands...
...in tin and noble alloys, as well as aluminium. Changes to regulations in Indonesia on tin exports have led market participants to adopt a “wait and see” approach before they decide to do any business, as it is unclear what kind of impact the changes will have on prices and premiums. Traders had expected a rise in both, but this has so far been disappointing, and some are also expecting some relaxation of the regulations in order to placate frustrated exporters. In noble alloys, traders, producers and consumers all appear to be waiting for prices to reach a floor. The only alloy to move in recent days has been ferro-molybdenum, and then only by relatively small increments. No one is expecting much support from the steel industry as it prepares to begin destocking ahead of the year end.
All eyes are on the Fanya exchange in the minor metals market
This year, indium prices have been supported by the Fanya exchange as its higher prices have drawn in Chinese producers, who have sold material onto the exchange, turning China from a net exporter into a net importer of material. Bismuth prices have recently been boosted by a 30% rise in the stocks on Fanya in one month, with the market wondering whether bismuth will become the new indium. “Fanya changed indium and the same impact is expected with bismuth,” one trader said. Others have been nervous about whether indium prices will start falling rapidly now that the price on the exchange is closer to the domestic price. There have also been rumours that tellurium might be the next metal to be added onto the exchange.
There’s nervousness about minor metals prices after weak performances last year
After many of the minor metals markets suffered this year, market participants are nervous about how prices will fare in 2014. Some have reported that fewer people are looking for fixed 12-month contracts, and instead favour shorter or more flexible contracts to minimise their exposure to falling prices. Others have said they might buy a little more material on a spot basis rather than on contracts. Selenium prices dropped the most last year but the market is optimistic for the outlook in 2014. However, confidence hinges on the level of spot demand from China, which is difficult to predict. Tellurium also had a bad year, but while some believe the market has hit a floor price, others see no signs of a pick-up in demand and believe prices will continue to drop.