##{"id":58191,"date":"2011-05-24T10:17:32","date_gmt":"2011-05-24T00:17:32","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/05\/24\/material-matters-positives-for-bulks-and-changing-market-dynamics\/"},"modified":"2011-05-24T10:17:32","modified_gmt":"2011-05-24T00:17:32","slug":"material-matters-positives-for-bulks-and-changing-market-dynamics","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/05\/24\/material-matters-positives-for-bulks-and-changing-market-dynamics\/","title":{"rendered":"Material Matters: Positives For Bulks And Changing Market Dynamics"},"content":{"rendered":"<p>\n\t<strong>&#8211; Japanese coal and iron ore demand still solid<br \/>\n\t&#8211; Nickel surplus to pressure prices<br \/>\n\t&#8211; Jewellery and scrap dynamics changing in gold market&nbsp;<br \/>\n\t&#8211; Base metal market volatility likely to remain<\/strong><\/p>\n<p>\n\t<br \/>\n\tBy Chris Shaw<\/p>\n<p>\n\tIt is now two months since Japan suffered the twin disasters of an earthquake and a tsunami but there remain severe disruptions to supply chains that are constraining manufacturing activity. As Citi points out, even allowing for this the consumption of both coal and iron ore has remained relatively strong.<\/p>\n<p>\n\tThis reflects still solid steel production and a continued demand for coal to power thermal coal fired power stations. Having factored in data for April, Citi expects Japanese imports of both metallurgical coal and iron ore should be relatively steady this year.<\/p>\n<p>\n\tFrom a longer-term perspective, Citi suggests growing concerns over nuclear power will see coal-fired power generation increase its share of Japan&#039;s energy mix. This leads the stockbroker to suggest imports of thermal coal could rise by as much 7Mt this year and stay at elevated levels in coming years.<\/p>\n<p>\n\tIn the steel market the disasters had a limited impact on operations in Japan, as evidenced by a small increase in total output in March. Emergency manufacturing has provided a boost to demand in the period since the disasters, with Citi noting demand from the construction sector is yet to really kick-in.<\/p>\n<p>\n\tThis implies Japanese steel output should continue to enjoy a positive outlook through FY12. This should in turn be a positive for iron ore and met coal imports, especially as post disaster port and power bottlenecks are rectified.<\/p>\n<p>\n\tTurning to nickel, Macquarie notes the market has remained extremely tight through the first few months of 2011. This reflects strong demand from most parts of the stainless steel industry and production losses for a number of existing producers such as Vale and BHP Billiton ((BHP)).&nbsp;<\/p>\n<p>\n\tMacquarie estimates a nickel market deficit for the first half of 2011 of around 56kt, this split between LME stock falls and continued non-recorded falls in Chinese stocks. For 2011 overall, Macquarie estimates a nickel market deficit of 25kt, which implies a surplus in the second half.<\/p>\n<p>\n\tThis surplus is expected to continued through 2013 as new supply hits the market. A nickel market moving to surplus implies prices should see a downward correction, Macquarie expecting this will occur in the second half of 2011.<\/p>\n<p>\n\tThe downside to current prices should remain limited in Macquarie&#039;s view, this reflecting the rising costs of producing nickel pig iron. This should support prices above US$8\/lb and possibly above US$9\/lb.<\/p>\n<p>\n\tIn gold, industry consultant GFMS notes jewellery consumption has fallen significantly in the US and Europe over the past 20 years, to the extent consumption last year stood at around one-third of the maximum recorded for total western sales.<\/p>\n<p>\n\tAt the same time scrap consumption has grown greatly, volumes standing around four times higher in 2010 than were the case a decade earlier. GFMS estimates western consumption in 2010 was around 300 tonnes, against scrap supplies, much from jewellery, of around 500 tonnes.<\/p>\n<p>\n\tAssuming factors driving these trends are independent of the gold price, GFMS sees bearish implications for the gold market. For one, while much of the structural change in the market may have already occurred, there may be a relatively limited recovery in western consumption even if economic growth improves and gold prices soften.<\/p>\n<p>\n\tThe other issue is the growth in scrap supply has allowed new channels for gold recycling and jewellery collection to be established. GFMS sees this as sustaining such flows, even if the bulk of this metal has already come to market.<\/p>\n<p>\n\tGFMS has also released details of its 2011 Copper Survey, which suggests the copper market went into deficit in the second half of last year. The move into a deficit was the result of an increase in consumption growth in mature economies, lacklustre mine production growth and further increases in Chinese offtake.<\/p>\n<p>\n\tOn GFMS&#039; estimates the deficit in the second half of 2010 was about 286,000 tonnes and, in combination with strong investment demand, was enough to push up prices in the latter months of last year.<\/p>\n<p>\n\tConsumption is expected to remain strong through 2011, to the extent refined production is unlikely to outpace demand this year. This should see the market stay in deficit for the rest of the year, so putting upward pressure on prices.&nbsp;<\/p>\n<p>\n\tGFMS is forecasting a new peak in copper prices in the second half of 2011, with prices likely to move near the US$11,000\/t level.<\/p>\n<p>\n\tFor base metals generally, GFMS suggests solid consumption growth has carried over from 2010 and through the first half of this year. But for this to be maintained, GFMS is of the view there needs be support from key economies and with the exception of China there are doubts as to whether this is possible.<\/p>\n<p>\n\tWhile base metals are increasingly being viewed as an asset class, GFMS argues there must still be some fundamental support to justify current inflated prices. Even factoring in more fundamentally attractive situations such as the copper and tin markets, GFMS takes the view fundamentals at present favour a consolidation of the gains of the past 18 months rather than further advances.<\/p>\n<p>\n\tIssues such as some indicators pointing to a slowing in global economic growth and high oil prices suggest to GFMS a constant stream of bullish news is needed to push base metal prices higher. This news flow is unlikely to be maintained, so GFMS is cautious about the potential for additional price increases.<\/p>\n<p>\n\tSome news flow remains positive, ANZ Banking Group noting there are signs of an improvement in Chinese demand. As the bank points out, a 15% drop in Shanghai copper stockpiles suggests Chinese demand is picking up, while there are also reports of increased buying in other Asian markets.<\/p>\n<p>\n\tBarclays Capital expects the recent volatility in base metal prices will continue, this given increasing sensitivity to ongoing macroeconomic concerns. It is also a sign the market has turned attention away from physical indicators of late, as these are the strongest Barclays analysts have seen for some time.<\/p>\n<p>\n\tIn the view of Barclays, current demand concerns for some metals appear excessive, as aluminium demand is running at a record high and copper and nickel demand have both been only marginally below historical peaks.<\/p>\n<p>\n\tGiven solid fundamentals Barclays remains bullish on copper prices for the second half of this year, though a marking to market has taken forecasts lower. The cut has been 9%, Barclays now expecting an annual average copper price of US$10,412\/t. Given a still bullish second half view, the recent sell-off is therefore a short-term buying opportunity according to Barclays.<\/p>\n<p>\n\tThe same adjustment process has seen Barclays lower price expectations across the other base metals, apart from aluminium. Forecasts for aluminium have been increased to reflect strong, broad-based global demand that should see recent price strength continue through the second half of this year.<\/p>\n<p>\n\tLooking further forward, Barclays suggests political risk is set to become a more common element in base metal markets. Peru is offered as the latest example, as polls for the upcoming national election suggest a result in favour of a left-wing candidate.<\/p>\n<p>\n\tSuch an outcome could threaten some projects in the view of Barclays, which would then limit potential supply growth relative to current expectations. Such increases in political risk could therefore be supportive of prices.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A glance through the latest expert views and predictions about commodities with signs Japanese demand for coal and iron ore remains solid, nickel coming under pressure, changes to gold market dynamics and some mixed views on base metals.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[23,27,89,88,22],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58191"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=58191"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58191\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=58191"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=58191"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=58191"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}