Against the Grain

A big feature of this week has been the ongoing buying of Asian location warrants that have been bought, as the price has ebbed lower volume buying of cu, al and zn has occurred. In the case of pb there is none in the region so buyers are going further afield. Buyers who have stood back too far have a lower price but a lack of available material.

The metals were very quiet and on the defensive overnight as the DJI closed at a 6 year low. In China the SRB agreed to buy 290 kt of al at a 2.6% premium to the Shanghai Fri cash price (just over what has cascaded into LME stocks in the past fortnight). The Shanghai weekly stocks saw cu fall 3756 tonnes to 30,105; al rose 676 tonnes to 201,758 and zn dipped 652 tonnes to 62,988. In London prices were under pressure led by cu and the reason became evident as LME cu stocks rose sharply by 17,350 tonnes (into the US NO 14,350 tonnes); the al deluge continued while zn continued to be cancelled in Sing. Over the week LME cu stocks increased 26 kt; al leapt 219 kt; zn up 4 kt; pb rose 250 tonnes; ni increased 3.7 kt and sn fell 80 tonnes. Last week we outlined why we saw Asia leading any recovery this week’s The Economist has a view on this see attached “China’s economy – Perhaps a reason to be cheerful?” (www.economist.com).

In Japan the Dec all industry activity index fell 2.7% (Nov -2.4%). In Europe the Euroland flash Feb composite PMI rose 38.7 (Jan 38.3), manufacturing improved to 35.0 however service PMI slipped to 38.9 (42.2). On the good news front UK Jan retail sales rose 0.7% much better than the expected +0.2% (Dec +1.6%) as yoy sales rose 3.6% (+4.0%). In Zambia Vedanta has closed the Nkana cu smelter (150 ktpa) as production switches to the Nchanga smelter (300 ktpa) with lower costs. While in Africa the FT is reporting that more than 40 Chinese owned cu smelters in the Katanga province of the DRC are idle as owners have left without paying taxes or staff. In Queensland Xstrata has restarted the McArthur River zn mine (150 ktpa) which has been on care and maintenance since Jan after the Federal government approved its expansion. In the present atmosphere gold continues to stand out a investors continue to move into the ultimate “safe haven” as it breached 990 / oz and looks determined to test US$ 1000 / oz (putting an ounce of gold on a par with a tonne of pb). With weak equities in Europe and expectations of US equities coming in lowers the metals lacked any support.

Very little data this afternoon, the Jan US CPI rose 0.3% (Dec -0.7%) with ex food and energy CPI increased 0.2% (0%). Then equities took control of the market direction.