Against the Grain

Quiet Asian trading glided into an equally subdued London bell with markets suffering from a lack of direction. The prices seem supported by two general assumptions the metals have fallen to about as low as they will go in the current circumstance as speculation mounts that government stimuli especially China will lead a recovery. Y/day we met with a major al producer and there was little good news to be gleaned with unsold material continuing to be directed towards warehouses. What is clear is how the industry is concentrating on producing al in the shapes that allows them to meet LME standards at the expense of producing shapes and grades that command a premium from end users. Century Aluminium is to close the remaining operations at Ravenswood al smelter (170 ktpa) in West Virginia later this month. This morning Rusal said it would increase al cuts to 11% of annual capacity or 500 kt with alumina production reduced by 3.45 ktpa.

The return of China has seen the Baltic dry freight index jump 15% on reports of further shipping requirements, the index has doubled from its Dec low of 663 points. There is little economic data this morning and LME stocks posted gains across the board with al back to the fore (Europe 10 kt, UK 4 kt, Sing 3200 and US7.5 kt). The better economic data of the past few days has produced genuine forward trade buying across the metals, hinting at signs of inventory rebuilding at these present levels. The UK Jan Halifax national house price index rose 1.9% with a yoy decline of 17.2% (Dec -2.2% yoy -16.2%). The prices remained in a very tight groove till gold rose and the US$ weakened with metals following there is no doubt at present the path of least resistance is up. The Chinese state owned metals consultancy Antaike said zn smelter are increasing production levels as they believe the zn price has found a base. They cut capacity to around 70% in Nov / Dec from the ’08 average of 81.5%. It estimated the larger smelters ran at 85% in ’07 producing 3.74 million tonnes (capacity 4.4 mill tonnes), in ’08 running at 81.5% the output was 3.74 mill tonnes of a possible 4.8 mill tonnes. Next door Korea Zinc having cut output by 10% believes ’09 sales will fall as much as 38%. The Dec German manufacturing orders fell 6.9% (Nov -5.3%) with exports orders suffering most, yoy orders fell 25.1%.

The BoE cut rates 0.5% to 1%, soon the cut will be greater than the overall rate. The ECB left rates unchanged at 2% as widely anticipated. To show how things have changed it seems now you cut rates and your currency appreciates, leave rates unchanged and it depreciates. The US weekly jobless claims rose 35 k to a record 626 k. The Q4 revised non farm productivity rose 3.2% yoy (Q3 +1.5%) as unit labour cost rose 1.8% yoy (Q3 +2.6%), both beat forecasts. Prices scattered in all directions, US$ strengthened, gold up, base metals down and oil steady. The Dec factory orders -3.9% (Nov -6.5% revised from -4.6%) inventories fell 1.4% the largest fall since Dec ’01. Metal prices meandered in a tight range testing the downside but the slightest up tick in US equities sent shorts running for cover.