Against the Grain

Further to our comments on China y/day from the DJ newswire came this interesting quote from a Chinese Shanghai exchange trader “China’s current prices are ahead of supply / demand fundamentals, we are in the high consumption season but manufacturer activity has just started picking up, so I guess that’s why we’ve seen prices consolidating for so long … the market needs to digest the higher prices”.

The double D’s (DJI / Dollar) gave metals a small boost in light Asian trading as the markets lack a quarry to chase, the recent economic stories have lacked legs; Chile, China rate hike and currency appreciation while US data and news has been in line. As regular as clock third Wed LME al stocks jumped (Detroit landed 22.6 & cancelled 24 kt) and expect more in the next couple of days, zn increased while cu led the fallers. The al was instantly cancelled as traders who are buying the metal off producers look to move it out to customers or into financed (dead) stock. The attached Bloomberg al price / stock chart shows how we have sawed along record stocks since Aug ’09 with a declining trend just beginning. The warehouse system is such that material can be landed in bulk on the private side of a warehouse with a set LME material withdrawal quota of 1500 tonnes of all metals / warehouse / location /day. So if this al is in one warehouse in Detroit it will take 16 days to move but if the existing 85 kt is  in that warehouse there is 56 days of material in the queue ahead. News from China that drought induced power shortages in Yunnan province were 70% is hydro has forced al and pb smelters to cut output. In Zambia the 10 ktpa Munali ni mine is set to restart operation managed by the Junchian Group after being placed on care and maintenance in Mch ’09. Under construction since 2005 the problematic Vale Goro laterite ni mine in New Caledonia is set to produce its first ni by early Apr having cost US$ 4.3 billion with a target capacity of 60 ktpa. In Australia Japan’s Toho Zinc which owns 24% of zn miner CBH Resources has put in a counter bid to Nyrstar takeover offer. The group produces 60 kt of zn in concentrate and the Rasp deposit to be developed, highlighting the urgent need custom zn smelters have to secure feed. The ILZSG said Jan pb surplus was 2700 tonnes. From the ME Emirate’s al is looking to increase smelting capacity from 300 kt to 700 kt by Dec. In the pre market a weaker US$ helped the metals higher and then back to the double D’s.

In Europe the Mch German ZEW economic sentiment survey 44.5 (45.1), current improved to - 51.9 (-54.8) the ZEW Euroland sentiment survey was 37.9 (40.2). The Feb Euroland CPI rose 0.3% (-0.8%) and yoy +0.9% (+0.9%). The € gained as the EU finance ministers laid the ground to break their own rules to bail out Greece.

The Fed FOMC meets today with a “no change” announcement expected at 18:15.The weather effected Feb housing starts down 5.9% at 575 k (revised to +6.6% at 611 k from +2.8%) and building permits fell 1.6% at 612 k (-4.7% at 622 k).