Commodity Trade Mantra

Copper, Zinc & Nickel Prices Leap – Base Metals Rally as Bulls Hungry for More

Copper, Zinc & Nickel Prices Leap - Base Metals Rally as Bulls Hungry for More

Copper, Zinc & Nickel Prices Leap – Base Metals Rally

An analysis of speculative positioning shows copper to be at extremely bullish levels historically. Net long-copper futures bets from non-commercial traders recently rose to the highest since February. Speculative financial investors often act in a highly pro-cyclical fashion and are positioned too optimistically when prices come close to peaking. Copper is not alone in its bull run this year; in fact, it is not even the best-performing base metal. China-related factors triggered both the sharp price retracements of all base metals during April to May, and the strong rebound in June to August. For copper traders, global visible inventories remain key to watch for copper traders, it said. However, demand conditions in China are slowing and will continue to slow, according to Barclays Plc analyst Dane Davis. 

Is the Rally in Copper Looking Stretched?

Dr. Copper’s role as a bellwether for the global economy is increasingly under scrutiny. Copper prices climbed about 26 percent since early May amid robust Chinese demand and as some of the biggest mines suffered production interruptions. The question facing investors is whether gains are still being driven by demand — which would indicate growth is gaining momentum — or by speculators riding the trend, which would suggest the rally is no longer reflective of economic fundamentals.

Good News for Chile, Bad News for the US

Technical analyst Clive Maund analyzes why the rising copper price is good news for Chile.

Copper is looking strong, apparently due in part to China stockpiling it, and this of course augurs well for the Precious Metals, especially silver, as copper “shows the way,” which is why it is known as Dr. Copper. As we can see on its 5-year chart, it has already broken out of a Head-and-Shoulders bottom to enter a bullmarket. Right now it is overbought and has resistance to work its way through, so periods of consolidation are to be expected.

The rising copper price is good news for Chile, as copper is its main export earner, and the Chilean mining industry has been in a nasty slump for the past five to seven years, due to the lower copper and gold prices.

The photo below, taken from a circling Learjet, shows the world’s biggest open pit, Chuquicamata, a copper mine near to Calama in northern Chile, owned by state run company Codelco.

The true scale of this open pit is revealed by the following picture which shows an ore truck looking like a toy, driving down among the terraces.

These trucks are 100-ton monsters that burn as much fuel in a day as the average car owner uses in a year.


Photos by Maund.

The rising copper price is the major reason why the Chilean peso has started to strengthen and this week the dollar broke down from a large top area on the dollar/Chilean peso chart, as we can see on its 5-year chart below. While the Chilean peso is hardly one of the most important currencies on the planet, this chart by itself looks very ugly for the dollar, and taken together with other dollar cross rate charts, it suggests that dollar that we are looking for is starting or about to get started.

So – good news for Chile and the metals complex, bad news for the dollar and the U.S.

Nickel Prices Leap to Highest Level in Over Two Years

Bloomberg – Nickel climbed to a two-year high and copper extended gains to the highest since September 2014 as bets on tighter markets, especially in top user China, buoyed metals after their longest run of weekly gains in a decade.

Nickel advanced as much as 2.9 percent to $12,380 a metric ton on the London Metal Exchange, its highest since June 2015. Copper climbed as much as 1.3 percent to $6,924 a ton. Most metals rose after the LME Index of six contracts capped an eight-week advance on Friday — one short of a record run in 2006.

Industrial metals have been lifted by sustained demand growth and restrained supply. In China, environmental inspections and planned anti-pollution curbs on steel and aluminum have also stoked expectations of shortages. Gains are also being fueled by a weaker dollar and a super-charged steel market in China that’s steering sentiment for other commodities.

“It certainly feels like there is a broad resetting of expectations that are driving the metals at the moment,” Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd., said by phone from Sydney. “I was in China last week and I got the very strong impression that the environmental push is having a pretty profound impact, and that’s not something that’s going to fall away quickly.”

Nickel climbed 1.8 percent to settle at $12,250 at 5:51 p.m. on the LME, while copper gained 1.2 percent to settle at $6,917. Tin and zinc also rose, while aluminum and lead fell.

Miners Benefit

Mining companies are gaining from the metals surge, with the Bloomberg World Mining Index of shares rising for an 11th day to the highest since September 2014. Glencore Plc and Anglo American Plc are trading near the highest since 2014. U.S. equity markets were closed for the Labor Day holiday.

While Commerzbank AG cited surprisingly strong manufacturing data in both China and the U.S. for higher metals prices, it cautioned that the gains may be overdone.

“Apart from the good sentiment indicators, however, prices continue to be driven to a large extent by speculation,” Commerzbank said. “Prices have become largely detached from the fundamental data. In our opinion, the potential for and possible extent of a price correction are increasing every week.”

Zinc Bulls Are Circling and Major Miners Are Hungry

Ron Struthers – Of all the metals, whether precious or base metals, zinc exhibits the most bullish fundamentals and best price. It is obvious when looking at this long-term price chart.

In August, zinc made new highs to US$1.40 per pound and you can see by this chart on LME inventories that zinc supply is running near empty.

The next chart from Wood McKenzie shows supply in blue and demand the red line, hundreds of thousands of tons of zinc concentrate has come off-line in the past few years.

You can see the supply deficit looks to grow wider. There are four near-term projects I have heard about that could help the supply problem.

Rampura Agucha mine in India is the world’s largest zinc mine and is expanding.

Gamsberg Zinc Mine, South Africa: Phase 1, expected in mid-2018, will see the production of 4Mtpa of ore, resulting in zinc concentrate of 250,000tpa.

Dugald River, Australia: The optimized mine plan will support a 1.7 Mtpa operation with annual production of around 170,000 tonnes of zinc in zinc concentrate, plus by-products expected to start mid-2018.

Antamina Copper-Zinc Mine, Peru: The mine is expected to produce 340,000-350,000 mt of zinc in 2017, up from an estimated 170,000-180,000 mt in 2016.

At 14 million tonnes per year, zinc is the fourth most consumed metal in the world after iron, aluminum and copper. These new mines are simply, too small and not enough to fill the gap.

Zinc Outlook for 2016 – Another deficit 14.33Mt demand and only 13.98 Mt mine supply

World usage of refined zinc metal was expected to increase by 3.5% to 14.33 million mt in 2016, primarily driven by a further 4.5% increase in China with continued infrastructure investment. A sharp forecast fall in ex-China zinc mine production of 9.4% is due to a combination of mine closures and recently announced production cutbacks. A significant predicted 46% reduction in Australian production is a consequence of the closure of MMG’s 500,000-mt/year capacity Century mine in August last year, cutbacks at Glencore’s operations at Mount Isa and McArthur River.

Production is also expected to be lower in Ireland, where the Lisheen mine closed in November last year, India, Kazakhstan, the Democratic Republic of Korea, Saudi Arabia and the United States, mainly as a consequence of the suspension of operations at Nyrstar’s mid-Tennessee mines.

Chinese imports of zinc concentrates are expected to be significantly lower than the 1.37 million mt recorded in 2015. Global refined zinc metal production is predicted to increase by 0.5% to 13.98 million mt in 2016 with a forecast 4% increase in China being largely balanced by an ex-China reduction of 2.3%.

 

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