Against the Grain

Europe opened to a massive bank loss in the UK (RBS reported a £stg 24 billion loss and more government / taxpayer support) and a better Mch German GfK consumer climate index of 2.6 (Feb 2.3) as the Feb unemployment rate rose to 7.9% (7.8%). The LME stocks saw cu fall and its cancelled warrants rise; the other all rose with zn up 9075 with Detroit getting 6900 and Johore 2700 offset by 5425 tonnes of cancelled warrants. This is a trend we expect to gather pace as material is locked away in poor markets like the US and taken out of areas with better prospects in Asia. A survey of general business in Euroland showed a continuing deterioration, the Feb business climate was -3.51 (Jan -3.03), consumer confidence -33 (-31), industrial confidence -36 (-34) service confidence -23 (-22) and economic sentiment 65.4 (68.9).  It seems the price direction of the metals is becoming increasingly tied to the performance of equities.

In the metals, Newmont Mining expects its Indonesian Batu Hijau cu / gold mine will in ‘09 produce 60% more cu concentrates (206 kt) as it moves into higher grades. The reduced price volatility on the LME has seen the ICH lower initial margins from Mch 4. The IAI reported Jan global unwrought al stocks at 1.666 million tonnes (Dec 1.676 and Jan ’08 1.640 million tonnes). It is reported from the AZA conference that the zn TC benchmark for ’09 has been set at US$ 194 / tonne based on an LME cash price of US$ 1250 / tonne (’08 TC was around US$ 350 / tonne).

The US weekly jobless claims rose 36 k to 677 k. At the same time Jan durable goods orders fell 5.2% (Dec revised to 04.6% from -3%), ex transportation down 2.5% (Dec -3.6%). Then at 15:00 Jan new home sales sank 10.2% at 309 k units (Dec was revised up to 344 k units from 331 k). The afternoon saw stronger equities, climbing oil US$ 45 / bbl and falling gold US$ 337 / oz as base metals remained firm led by cu at 3535 mid afternoon. Then Feb Kansas City Feb manufacturing index inched up to -24 (Jan -25). After the LME pm rings the US equities turned lower capping further metal rises. The focus in the US was on the first Obama budget and rising GM losses.