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Monday, 23 February 2015

Bull Align for Heavy Beating in Copper

Copper prices, seen as a barometer of industrial demand around the world, plunged to a five-and-a-half low as fears grew over the health of the global economy. The red metal is the latest commodity to suffer in the wake of a collapse in the price of oil amid deteriorating sentiment over the global economy as the World Bank cut its forecast for global growth in 2015 to 3 per cent from an earlier figure of 3.4 per cent. 

The global market is currently feeling the heat of the abundance of copper. World refined production is estimated to have increased by around 8 per cent (1.5 Mt) in the first ten months of 2014 compared with refined production in the same period of 2013 - primary production increased by 8 per cent (including 9 per cent growth in production from concentrates), and secondary production (from scrap) increased by 11 per cent. The main contributor to growth was China (19 per cent, 1 Mt), followed by India, the DRC, the United States and Japan, where aggregated production increased by 14 per cent (430,000 t). Output in Chile, the second leading world refined copper producer, declined by 1 per cent owing to a 5 per cent decline in electrowon production. On a regional basis, refined production is estimated to have increased in Africa (8 per cent), North America (9 per cent), Asia (13 per cent), Europe (3 per cent), and Oceania (12 per cent) and to have declined in South America (-1 per cent). The average world refinery capacity utilization rate for the first ten months of 2014 increased to 83 per cent from 79 per cent in the same period of 2013. Based on existing facilities and announced project developments, annual copper mine production capacity until 2018 is expected to grow at an average rate of around 6 per cent per year ( per cent/yr) to reach 27.6 million metric tonnes per year (Mt/yr) in 2018, an increase of around 5.8 Mt (27 per cent) from that in 2014. Concentrates production capacity will represent 83 per cent of the growth (4.8 Mt) and SX-EW capacity 17 per cent (1 Mt).

The refined copper balance for the first ten months of 2014, including revisions to data previously presented, indicates a production deficit of 616,000 t (a seasonally adjusted deficit of 532,000 t). This compares with a production deficit of 159,000 t (a seasonally adjusted deficit of 56,000 t) for the same period of 2013. In the first ten months of 2014, world usage is estimated to have increased by around 11 per cent ([1.9 Million tons (Mt)] compared with that in the same period of 2013, supported by strong demand in China and a shortage of high-grade scrap that led to the use of more cathode by semi-manufacturers.

Industrial metals have been reeling under tremendous pressure since the beginning of this year. Prices of metals have been weighed down by several factors, including the downward revision of the global growth forecast by the International Monetary Fund (IMF), ongoing sluggishness in the Chinese economy and the tumult in oil market, which has raised deflationary concerns.

Copper is now in the midst of its longest run of losses for a year, and dragged other commodities lower. Lead fell to a 30-month low, nickel was down at an 11-month low, zinc and aluminum fell and spot iron ore prices were close to their lowest level in more than five years. China is crucial to the whole picture, accounting for about 45 per cent of global demand for copper as the metal’s wide range of uses for wiring, piping and in general industry make it essential to an economy where infrastructure is expanding. Although China is still growing fast compared with advanced nations such as Britain and US, growth is nevertheless slowing and fears of a hard landing remain. Growth last year is expected to have been less than 7.5 per cent, missing Beijing’s target for the first time since 1998. 

The major factors affecting the price of copper are – further dollar strength, commodity price deflation, China’s shift to a new normal (tight credit, slowing growth), weakening copper intensive construction completions growth, and above trend supply growth.

Unlike oil, which is in plentiful supply, the supply of copper is considered relatively tight. Although analysts are predicting a small surplus of copper this year, they expect a deficit for 2016 suggesting the fall in the copper price is driven more by worries over global growth than any supply glut. Also weighing on oil, copper and other commodity prices is a strong dollar. When the dollar is strong, the price of dollar-denominated commodities such as oil and copper tend to fall, because they are globally traded and are more expensive for holders of foreign currencies. 

On the demand side, China runs a structural copper deficit, with refined consumption of around 8.8 million MT and refined production of around 5.6 million MT; it seems unlikely that much of the Chinese stockpile will leave the country. Asia is accounting for 87 per cent of the increase in capacity – the China, India, Indonesia and Iran totals with all increase. Chinese apparent demand increased by 18 per cent (+1.4 Mt) based on an 18 per cent increase in net imports of refined copper. Excluding China, world usage increased by 5 per cent, supported mainly by apparent usage growth of 11 per cent in the European Union and 10 per cent in Japan, as well as by growth of 6.5 per cent in other Asian countries (excluding China and Japan) and 10 per cent in the Middle East/North Africa region. Usage in the United States remained flat.

More on the positive side, despite weakness in the Chinese housing sector, copper demand rose in the second half of the year in China. According to data provided by the General Administration of Customs, inbound shipments of both unwrought and fabricated copper increased by 7.4% to 4.83 million tons in 2014. The numbers are significant because the Chinese GDP growth rate of 7.4% last year was the weakest since 1990. Still, the growth rate was better than expectations. It shows that although slow, the Chinese economy is chugging along thanks to the People's Bank of China's economic stimulating efforts.

In late 2013 and early 2014, optimism was running high that the US economic recovery would continue and that China would move into recovery mode too. On the strength of that, metal prices ran higher while investment interest picked up. Although US data has tended to remain upbeat, Chinese data has been less constructive and a recovery in demand during the first quarter has proved to be elusive. This forced a reappraisal of the outlook for commodity demand and a corresponding correction in prices. Copper has had some of the tightest fundamentals of all the metals in recent years, which is no doubt why prices have managed to hold so far above the marginal cost of production. On paper, the market looks set to move into a supply surplus in 2013, which should in theory put downward pressure on prices; indeed, that seems to have been unfolding in recent months.

Friday, 13 February 2015

1st Rabi Crop Estimates for 2014-15 (NBHC)

With the Rabi Sowing season coming to its end, NBHC is releasing its first Rabi crop estimate for the year 2014-15. As per our assessment and market feedback on sowing crop progress, the total rabi cereals’ production is expected to decline by 11.44 per cent over last year to 108.30 million tonnes. The drop in the production estimate is because of the recent delayed sowing of rabi crops and expectation of lower yield in major producing areas. The crops with major negative impact are Pulses and Oil Seeds. Wheat is expected to show a marginal decline in area by 2.97 per cent and a dip of 3.93 per cent in production over last year owing to expected decline in yield. In Jowar, which is the other major cereal crop, the area is expected to decline by 7.60 per cent and the production is expected to decline by 11.60 per cent to 3.36 million hectare and 2.70 million MT respectively. As the lack of residual moisture and delayed sowing has been the major cause for the shortfall. In most of the rabi crop there has been a marginal to significant fall in the acreage which itself is painting a gloomy picture to the overall rabi crop outlook for the coming season of 2014-15. 

In the pulses sector, the Chana (Chickpea) is expected to be most affected by the lack of residual soil moisture in major growing areas. We expect the area under Chana to decline by 15.45 per cent over last year and the production is likely to decline by 19.80 per cent to 7.92 million MT. Overall, the total Rabi pulses production is likely to decline by 12.08 per cent over last year. 

The oil seed sector is likely to see a decline of production by 11.56 per cent. Maximum decline of 36.77 per cent in production is expected in case of groundnut over last year. 

On the aggregate basis, the total rabi crop production is expected to be 129.20 Million MT in 2014-15 against the production of 146.00 Million MT in 2013-14.


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