Against the Grain

Though of the week - do we now classify all countries as EMERGING at this stage?

Y/day we said that the path of least resistance for the metals was up and overnight cu proved it. The catalyst for the rally was speculative and fund buying with a number of sources mentioning the jump in the Baltic freight rates and better steel market. There has been a pick up in spot iron ore activity as the Chinese take advantage of lower prices (US$ 80 / tonne) to build up stockpiles. This is to improve their bargaining position at the present annual contract talks. The very low freight rates means they can over book ships without punitive penalties. The view in Asia is freight rates will fall back moving into Mch. On the steel front a general view that Asia is better placed to embark on infrastructure build has given rise to a view that steel prices have very little further to fall after their 25% collapse in production. Cu and zn benefited further from a view the SRB will build stocks. In the case of zn, in Jan the SRB bid for 100 kt of metal to help the industry but only got 59 kt because the market felt their price was too low. With reports producers are increasing output and higher prices why would the SRB want to increase its bid?

The Japanese Dec leading economic index slipped to 79.8 (Nov 81.8) and coincident index 92.3 (94.9). After a fortnight Shanghai weekly stocks saw cu rise 11,986 tonnes to 28,553; al increased 19,549 tonnes to 198,983 and zn up 1299 tonnes to 63,041. The daily LME stocks saw rises in all the metals with a large flow of ni into Rott. On the week LME cu stocks increased 13 kt; al up 66 kt; zn rose 9 kt; pb up 1.2 kt; ni 1.3 kt (NB the world ni market is around 1.3 million tonnes on an annual basis of which roughly 40% is of LME deliverable grade, stocks represent approximately 16% of this tonnage) and sn down 110 tonnes. In the UK Dec industrial production fell 1.7% (Nov -1.7%) yoy -9.4% (-5.5%) and manufacturing output off 2.2% (-2.9%) yoy -10.2% (-7.4%) the biggest annual fall since ’81. Then Jan PPI saw input prices up 1.5% (Dec -2%) yoy up 2.3% (+4.3%) and output prices increased 0.1% (flat) yoy +3.5% (+4.7%). The Dec German industrial index fell 4.6% (-3.1%) the most in 18 years but it must be remembered these are lagging indicators things like PMI, consumer / business sentiment are much more current.

The Jan Canadian unemployment rate jumped to 7.2% (Dec 6.6%). The data of the day was Jan US non farm payrolls fell 598 k (Dec -577 k revised from 524 k) manufacturing jobs fell 207 kt and service providing 279 kt as unemployment rose to 7.6% (7.2%). Another late Fri rally lifted most metals close to their week highs, while currencies showed further divergence and US 10 year bond yields tested 3%.

By the end of the week cu had jumped 480, al risen 118, zn up 93, pb improved 65, ni put on 400, sn also 400, gold fallen US$ 11 / oz, oil off US$ 2.1 / bbl, DJI up 200 points at time of writing and 10 year US bond yield risen 0.15%.