Commodities Comment:Down but not out,Changes to our Cu,Zn, Pb and Ni forecasts
The price upside for base metals seen in 2Q turned out to be short-lived, andafter grinding lower since mid-May, China’s equity market shocks last weekspilled over into a sell-off amongst the popular metal contracts of copper, zincand nickel. (Lead also came off from its recent peak, but found itself less of aparticular target last week.) Acknowledging current trading ranges, with fewlikely catalysts amongst their relatively mediocre fundamentals to trigger amajor upward shift back to previous levels nearby, we have thus downgradedour price forecasts for copper, zinc, nickel and lead.
Latest news
Wednesday brought some better news for industrial production (IP), which wesee as a key driver of global commodity demand, as the two largest industrialpowers announced more upbeat June data. In China YoY growth wasreported as 6.8%, beating expectations of 6.0%, with MoM growth reported asa punchy 0.64%. Meanwhile the US reported a 0.3% MoM increase, the firstsuch rise in IP since November 2014. Base effects however meant the YoYrate slowed to 1.5% from 1.6%, and the detail of the data was somewhat lesspositive than the headlines, given the main contributor to the rise wasincreased oil output.
China’s 2Q15GDP expanded by 7.0% YoY, according to data released by theNBS on Wednesday, the same as in 1Q15and confounding expectations of aslowdown in the world’s second largest economy. On a QoQ basis, theinternational standard for describing growth, GDP was up 1.7%, anacceleration from the 1.4% increase seen in 1Q 2015though slower than the1.9% recorded in the same quarter of 2014.
Data in for the main Chinese stainless steel producers (around 85% of totalproduction) show that 1H production was up a modest 2.4% YoY. For thenickel market, it is significant that production of 300-series (containing 8% Ni)rose by 8% YoY, while production of 200-series (containing 1-2% Ni) fell by9% YoY. The rise in Chinese 1H production was due almost entirely to an88% YoY rise in total production and 164% YoY rise in 300-series productionat Tsingshan’s Fujian plant (FuAn). Excluding FuAn, Chinese 300-seriesoutput was down almost 9% YoY. China’s second largest stainless steelproducer, Taiyuan also recorded a 7.5% YoY rise in total stainless and 16%YoY rise in 300-series stainless production. An apparent market share battlebetween these two stainless giants in China has left the rest of the industrystruggling with most other producers being forced to slash production.
After 14consecutive months of increases, Japanese port stocks ofaluminium fell 2.8kt in June to 575kt, in line with a large fall in physical spotimport premiums. However, given last month’s stock reading was an all-timehigh and this MoM decline is relatively small, stocks are still in excess of 13weeks of Japanese consumption, ~double historical levels.
Gold and silver prices sank on Wednesday as Fed Chair Janet Yellen,testifying to Congress, reaffirmed her belief that US interest rates would rise“at some point this year”. This was sufficient to propel the dollar to a threemonthhigh against a basket of currencies. The stronger dollar also took theshine off what had been firmer base metal prices.
