Commodities Comment:Charting the key themes

Feature article

    We review some of the key themes of the week for precious metals and basemetals in ten charts. In base metals we look at price moves in the last twoweeks for copper and nickel, recent large warrant cancellations in zinc andaluminium, tin stocks and nickel stocks with some thoughts on the nickel pricearb. In precious metals we consider how rising US bond yields and fallinginflation expectations are putting pressure on prices.

    Latest news

    Precious metal prices fell sharply on Friday, with their downward moveaccelerating post the setting of the London benchmark prices (which areshown in the table on the left). By late London trading gold was down 0.7%DoD, platinum 0.8%, palladium 2.3% and silver 2.8%, moves which took goldand platinum to their lowest price of 2014, silver its lowest since August 2010.

    According to sources quoted by Reuters, Japanese aluminium contractpremiums for 4Q delivery have settled between several parties at $420/t. Thisis a rise on the $400-408/t reported to have been agreed for 3Q, and matchesthe offer made by Rio Tinto to its Japanese customers at the end of August,according to sources quoted by a number of media outlets. It is, however,notably lower than the $460/t that UC Rusal reportedly indicated to itsJapanese customers back in mid-August. An indication does not constitute afinal offer, and if Friday’s reports of settlements are true, $460/t could prove tohave been an over-optimistic starting position.

    US service centre shipments of aluminium products fell 3% MoM in August,to the lowest level since February, according to latest MSCI data. However,shipments remain up YoY, with August the 12th consecutive month registeringYoY gains and YTD shipments up 8.2%. We think this data supports thethesis that underlying US demand remains strong, though perhaps somenear-term caution is warranted, since inventories of aluminium products roseto their highest level since October 2008.

    Meanwhile, steel service centre shipments fell 2% MoM in August and wereflat YoY. YTD shipments are up 4%, with inventories as of end-August at theirhighest level since June 2012.

    The International Nickel Study Group (INSG) said on Friday that its estimatespoint to a nickel surplus of 5.2kt in July. This represents a fall of 58%compared to the previous year’s estimated surplus of 12.6kt. Global primarynickel consumption was seen at 152.4kt while supply stood at 157.6kt.

    A Reuters news story quoted the procurement manager of a Chinese utilityand a large trading company as saying that the recently announced Chinesethermal coal restrictions will not affect power plants in key consumingregions. The key clause in the coal regulations published by China’s NDRCon Monday was one relating to a "restricition" on coal sales and consumptionin three major consumption regions (including the cities of Guangdong,Shanghai and Beijing), if a 1% sulhpur, 16% ash limit is breached. In our noteon Wednesday we outlined that the impact of this was uncertain until moreclarity was provided on whether all consumers (including power palnts) wouldbe affected. If they are not, as this new story suggets, we think the seabornemarket impact will be relatively muted.