Commodity Market Headline News (17th of Dec)

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Daily Summary of Baltic Exchange Dry Indices
BALTIC INDICES	INDEX		T/C LEVEL
BDI	2,292	▼38	-
BCI	4,065	▼181	36,339
BPI	2,082	▼14	16,612
BSI	1,546	▼7	16,169

 

Global coal demand growth slows slightly, IEA says in latest 5-year outlook  

Tougher Chinese policies aimed at reducing dependency on coal will help restrain global coal demand growth over the next five years, the International Energy Agency (IEA) says in its annual Medium-Term Coal Market Report released today. Despite the slightly slower pace of growth, however, coal will meet more of the increase in global primary energy than oil or gas – continuing a trend that has been in place for more than a decade.

 

“Like it or not, coal is here to stay for a long time to come,” IEA Executive Director Maria van der Hoeven said at the launch of the book. “Coal is abundant and geopolitically secure, and coal-fired plants are easily integrated into existing power systems. With advantages like these, it is easy to see why coal demand continues to grow. But it is equally important to emphasise that coal in its current form is simply unsustainable.”

 

Coal demand will grow at an average rate of 2.3% per year through 2018, the new book reports, compared with the 2012 report’s forecast of 2.6% for the five years through 2017 and the actual growth rate of 3.4% per year between 2007 and 2012.

 

Chinese policies are already affecting the global coal market, Medium-Term Coal Market Report 2013 finds. While China will account for nearly 60% of new global demand over the next five years, government efforts to encourage energy efficiency and diversify electricity generation will dent that growth, slowing the global increase in demand.

 

Despite its moderated demand forecast, the report does not project peak coal in China within the next five years, and the nation’s consumption and production will remain comparable to that of the rest of the world combined. Moreover, the report notes that China has approved a number of coal conversion projects to produce liquid fuels and synthetic natural gas – developments that bear watching as they could significantly reduce the country’s demand for other fossil fuels.

 

“During the next five years, coal gasification will contribute more to China’s gas supply than shale gas,” said IEA Director of Energy Markets and Security Keisuke Sadamori. “While there are many uncertainties about this technology, the potential scale of projects in China involving coal to produce synthetic natural gas and synthetic liquids is enormous. If this were to become reality it would mark not just an important development in coal markets but would also imply

revisions to gas and oil forecasts.”

 

For the rest of Asia, coal demand is forecast to stay buoyant over the next five years. India and countries in Southeast Asia are increasing consumption, and India will rival China as the top importer in the next five years, the report says.

 

Indeed, while it is true that demand growth is concentrated in non-OECD countries, coal will not decline in the OECD but rather will remain flat during the outlook period.

 

Coal use in OECD members Japan and Korea will rise by 1.3% and 3.0% per year on average, respectively, during the forecast period, but strength in OECD Asia will be offset by sluggishness elsewhere in the OECD. The European coal fever prompted by the price differential between coal and gas – as well as low CO2 prices – will prove temporary, and European demand will fall more than 6% through 2018. In the United States, environmental regulations will hamper construction of new coal-fired plants and bring the closure of some older ones, while increasing shale gas production will continue to encourage coal-to-gas switching.

 

The Medium-Term Coal Market Report 2013 is part of an annual series whose other outlooks address oil, gas and renewables. The series also features a report on the marketplace for energy efficiency.

Source:  IEA

 

 

Commodity demand seen positive on strong manufacturing numbers  

The latest OECD composite leading indicators (CLIs) released last week point to an improving economic outlook in most major economies. The CLIs are designed to anticipate turning points in economic activity relative to trend and currently they show signs of an improvement.

 

While the lead indicators for the US point to growth around trend, in the Euro area a positive change in momentum is seen. However, in the emerging economies while it shows growth around trend, a tentative positive change in momentum is seen for China, Russia and India.

 

The positive relationship between global economic growth and commodity consumption, especially growth-commodities such as energy products as well as industrial and base metals, is well recognised.

 

In 2013, overall, globally commodity demand has not fared badly despite growth concerns.

 

With the year-end nearing, markets are likely to trade range-bound or sideways. The FOMC meeting this week is keenly awaited. Will that big decision – tapering – be taken?

 

Although unemployment has fallen to 7 per cent, it is likely that the policymakers may wait for evidence that inflation is stabilising and that GDP growth will firm in early 2014.

 

So, the recent pick-up in manufacturing activity suggests that commodity demand in 2014 would be positive. However, price performance of individual commodities will depend on their own market fundamentals and other non-fundamental drivers.

 

Last week, on the LME, base metals complex had a strong week. All base metals prices were up except tin that was down by 1.8 per cent as a result of weakening concern over Indonesian export ban. Zinc outperformed with a rise of 4.6 per cent as the front end of the forward curve tightened, an expert commented. This was followed by lead up 3.2 per cent, nickel 2.5 per cent, copper 2.2 per cent and aluminium 1.2 per cent.

 

Precious metals were flat in London market last week. Palladium was down by a hefty 2.4 per cent over the week, while gold edged lower and silver as well as platinum remained nearly unchanged.

 

Oil WTI was down 1 per cent.

 

The market continues to be under pressure with enervated physical offtake, fears of tapering and reduced liquidity, the dollar looking to gain strength and perceived return on investment poor.

 

Imports into the world’s biggest consuming market India continue to be slow as a result of tight regulations.

 

Fragile Gold

 

On Friday in London, gold PM Fix was $1,232 an ounce, up from the previous day’s $1,225.

 

Silver was down on Friday with AM Fix of $19.55 versus previous day’s $19.80. Platinum moved down to $1,367 ($1,371) and palladium $723 ($729).

 

Given the lack of robust physical demand, exit of investors to more lucrative assets, outflows from ETPs and apprehensions of US tapering anytime soon gold prices can potentially sink below $1,200/oz in the near future.

 

In the event, there could be more outflows from ETPs. It is estimated that as much as 100 tonnes will become loss-making. So, gold is on a fragile floor.

 

Metals gain

 

The recent rally in base metals has been driven by short-covering because of year-end positions squaring-off and reduced short exposure given growing upside risk, according to experts.

 

The flow of strong manufacturing data is welcome. At the same time, Indonesia has been suggesting that it will go ahead with ore export ban.

 

On Friday, LME cash copper closed at $7,277, aluminium $1,755, zinc $1,976 and tin $22,750/tonne. The market made some gains on Friday despite the fact that Shanghai stocks of copper, lead and zinc all rose. However, overall copper stocks on exchange fell 2.5 per cent helped by a further 15,100 tonnes drop on the LME.

Source: The Hindu Budiness Line

 

 

 

Wheat Extends Decline to 18-Month Low as Weather Risks Diminish  

Wheat fell to the lowest since June 2012 as weather risks waned for crops in the U.S., the biggest exporter, boosting prospects for a record global harvest.

 

Wheat for March delivery lost as much as 0.5 percent to $6.2575 a bushel on the Chicago Board of Trade, the lowest price since June 15, 2012. Futures were at $6.2675 by 12:11 p.m. in Singapore, slumping 19 percent this year as world production heads for an all-time high of 711.42 million metric tons, according to the U.S. Department of Agriculture.

 

Snow cover will increase across central and eastern areas of the Midwest wheat belt, with no winter-kill expected, MDA Information Systems LLC, said in its five-day forecast dated Dec. 13. Cool temperatures will maintain wheat in dormancy across much of the Delta region, it said.

 

“We’re really out of production-risk area,” said Michael Pitts, a commodity sales director at National Australia Bank Ltd. “We’re largely near or moving into dormancy for the Northern Hemisphere wheat crops, so for the next six weeks or so there’s really unlikely to be too much that can hurt.”

 

Global inventories before the start of the Northern Hemisphere harvests in 2014 will be 182.78 million tons as Canadian and Australian growers collect bigger crops than a year earlier, compared with 178.48 million predicted in November, the USDA said Dec. 10.

 

Prices may further decline to $6.23 a bushel, Sydney-based Pitts said by phone, without giving a time frame.

 

Corn for March delivery fell 0.6 percent to $4.23 a bushel, the lowest level since Dec. 3. Soybeans lost 0.4 percent to $13.085 a bushel.

Source: Bloomberg

 

 

Copper Reaches Six-Week High as Premium Signals Limited Supply  

Copper reached a six-week high in New York as the widest premium in 18 months for metal for immediate delivery indicated supplies are limited.

 

Copper for immediate delivery traded as much as $27 a metric ton higher than the contract for delivery in three months on the London Metal Exchange. That was the widest backwardation since May 25, 2012, data compiled by Bloomberg showed. Prices rise for earlier deliveries until at least September 2018 on the Comex in New York. LME-tracked stockpiles of copper available for delivery are the lowest in more than five years.

 

“Globally, copper inventories are low, with most stock held in China,” commodities trader Trafigura Beheer BV said today in a report. “Our expectation is that the copper market will remain broadly in balance next year.”

 

Copper for delivery in March added 0.3 percent to $3.323 a pound by 8:01 a.m. on the Comex after touching $3.3275, the highest since Oct. 30. Prices slid 9 percent this year, poised for a second drop in three. Copper for delivery in three months rose 0.3 percent to $7,279 a ton on the LME.

 

The Federal Reserve may decide at a two-day policy meeting starting tomorrow to begin slowing its $85 billion of monthly U.S. economic stimulus, according to 34 percent of economists surveyed Dec. 6 by Bloomberg. The nation is the world’s second-largest copper consumer after China.

 

“It is all about the FOMC, with the market divided as to whether tapering will kick off this week,” RBC Capital Markets Ltd. said in a report, referring to the Fed’s policy panel.

 

Copper stocks monitored by the LME, at the lowest since February, fell for a 31st session to 389,175 tons, daily data showed. Orders to remove the metal from warehouses dropped 1.4 percent to 258,350 tons, the lowest since Oct. 22.

 

Prices are “well supported,” Aurubis AG, the world’s second-largest producer of refined copper, said today in a report. The Hamburg-based company predicted “good demand” in 2014 for cathodes, a form of refined metal.

 

Zinc touched the highest price since Aug. 22 in London and lead traded at the highest level in almost six weeks. Nickel and tin rose as aluminum fell.

Source: Bloomberg

 

 

Chinese imported thermal coal buying interest waning as holidays near  

Not many thermal coal buyers are looking to conclude deals for imported material this week with Chinese Lunar New Year holidays approaching, sources said Monday.

 

"The delivery window before the Lunar New Year is closed," a source at a major international coal producer said.

 

A Beijing-based trader said he was only focused on performing December and January shipments he had booked earlier rather than procure any additional tonnages.

 

"My utility has nearly finished taking seaborne cargoes. They may take more domestic parcels, but not seaborne coal," he said.

 

Some 5,500 kcal/kg NAR domestic coal was heard being offered at Yuan 630/mt ($103.02/mt) FOB Qinhuangdao, including 17% value-added tax, according to a Shandong-based trader.

 

"There is potential for domestic coal prices to go higher before the end of the year," said the trader.

 

A mini-Capesize cargo of 5,500 kcal/kg NAR Australian thermal coal was heard sold at $84.25/mt CFR southern China for late-February delivery.

 

"The price [of $84.25/mt CFR] is pretty high, as China's February thermal coal market will probably soften," a Singapore-based trader said.

 

China's domestic 5,500 kcal/kg NAR thermal coal is currently transactable at about Yuan 610-620/mt or Yuan 521-530/mt without VAT, FOB Qinhuangdao Port, up by about Yuan 5 over the weekend.

 

"I would expect China's domestic thermal coal prices to rise slowly this week until the ongoing coal and electricity talks between coal miners and power plants come to a conclusion later this week or next week," the Beijing-based trader said.

 

At the close of Asia trade Monday, the Platts/Fenwei China Coal Index (CCI 1) for domestic thermal coal traded at Qinhuangdao port was assessed at Yuan 630/mt including VAT, up Yuan 2 from Friday's close.

 

Platts assessed the FOB Qinhuangdao 5,500 kcal/kg NAR coal for delivery in the next 7-45 days at Yuan 538/mt, up Yuan 2 from Friday. 'TOO RISKY'

 

Capesize cargoes of Australian 5,500 kcal/kg NAR coal were being offered at $72.50/mt FOB for February loading with bids coming in at $71/mt FOB, as heard through broker Marex Spectron.

 

On a landed basis, offers for February-loading cargoes were at $85/mt CFR south China, as heard through the same broker.

 

Some Capesize cargoes of 5,500 kcal/kg NAR Australian thermal coal were heard being offered at $85/mt CFR eastern or southern China for February and March delivery, according to a Fujian-based trader.

 

The trader was not interested in the offers as he did not expect huge demand for thermal coal after the Chinese New Year holiday.

 

"It's too risky booking the cargoes now. We can wait and see how the market goes when we come back from the holiday," he added.

 

Higher freight rates are currently deterring deals from going through, the major international coal producer source said.

 

Capesize freight rates have jumped to as high as $21.45/mt FOB from Richards Bay to South China, while Panamaxes are being quoted at about $26/mt on the same route and that has kept Chinese buyers away on the sidelines, he noted.

 

The CFR South China (CCI 8)price was assessed at $84.40/mt basis 5,500 kcal/kg NAR excluding Chinese VAT, down 20 cents from Friday.

 

Platts price assessment for cargoes of 5,500 kcal/kg NAR coal for arrival in south China ports in the next 15-60 days was at $84.65/mt CFR, down 20 cents from Friday.

 

Typical 20% ash Newcastle 5,500 kcal/kg NAR coal for loading in the next 7-45 days was assessed at $72/mt FOB, down 20 cents from Friday.

Source: Platts

 

 

Iron ore pellet premiums to remain firm into 2014 on demand growth  

Global iron ore pellet premiums are expected to remain firm into the first half of 2014 as supply growth struggles to keep pace with an increase in global demand, market participants polled over the past month said.

 

In the short term, supply tightness resulting from idled pelletization capacity may drive contract prices higher, especially for premium quality Brazilian material, sources at steelmakers and mining companies said.

 

In Japan and South Korea, as steelmakers are in the midst of pellet premium negotiations, buyers have quietly admitted that the benchmark deal with Vale for 2014 would almost certainly be above 2013's $28/dry mt.

 

Industry sources said Vale has offered Northeast Asian mills a pellet premium of around $40/dmt for 2014. The miner has also offered the option of a quarterly negotiated premium, which was offered at a slightly higher price of $41-43/dmt for Q1.

 

"But we'll have to negotiate it down because of cost cutting measures," one of the mill sources said. "If we're going to agree to an annual price then it should be lower than the quarterly or spot price."

 

"The higher the premium in Q1, the faster customers will change their procurement practices," said a European mill source. “Around $30/dmt and below, it’s very comfortable and economical. If it’s above $40/dmt, it gets very uneconomical and buyers might reach the decision to change their burden.”

 

Pellet capacity was removed from the market in November 2012 when Vale idled its Sao Luis and Tubarao 1 and 2 plants, which produced 8.16 million mt in 2012.

 

Cliffs Natural Resources also idled its Wabush Pointe Noire plant in Sept-Iles, Quebec, at the end of the second quarter of 2013. The Wabush operation has a capacity of 5.6 million mt/year and produced 3 million mt of pellet and concentrate in 2013.

 

At the same time, pellet demand from mills in Northeast Asia has been increasing, due to capacity growth in China and an improved steel market in Japan.

 

A shipment of Samarco-produced pellet, initially discharged at a Chinese port for a Chinese mill, was said to have been bought by a trader and resold to a mill in Japan in October, according to two people familiar with the matter.

 

A separate source suggested that the rare purchase of spot material by a Japanese mill could have been due to problems at its sinter facilities, which led it to seek alternative feed in the form of pellet.

 

Prices could also rise in the short term due to a higher reliance on pellet by mills in China, which sees lower domestic concentrate output during the winter months.

 

Chinese mills, especially those in the north of the country, typically build ore inventory from the end of October to last them until February.

 

The Chinese government's push to reduce pollution has also led to the idling of some sintering plants in the country, which may lead to an increase in the demand for imported pellet and lump as substitutes, market participants have said.

 

In an early December interview with Platts, Jose Carlos Martins, executive director, ferrous and strategy at Vale, said pellet and lump allow blast furnace operations to generate less carbon emissions, and contended that demand from Chinese iron- and steelmakers would grow as they seek to cut pollution.

 

"The market is the market, okay? Sometimes good. Sometimes bad. As far as the premium for pellets and lump today, it's increasing because of the issue of pollution in China," Martins said.

 

"So there is a strong demand for these products in the market – mainly for China, and that situation spreads to other markets. Europe is facing this issue and Japan, Korea also facing this issue," he said.

Source: Platts

 

 

Why Iron Ore Miners Ought to Be Watching India  

China makes headlines for its consumption of natural resources, but India is an equally important developing nation. And, like China before it, it is quickly getting to the point where key domestic resources aren't enough to satisfy domestic demand. That means key natural resource imports will pick up—a shift that may soon happen in the iron ore space.

 

The Ministry...

According to India's Ministry of Steel, "iron ore production during 2011-12 (provisional) was about 167.28 million tonnes" with domestic consumption of "about 116.3 million tonnes." So, historically, India hasn't used all of its iron ore. However, the ministry also notes that "Considering the growth of the iron and steel industry and planned steel capacities, the present resources of high grade iron ore in the country may not be sufficient to meet the long term requirement of [the] domestic iron and steel industry."

 

In other words India has plenty of iron ore for the moment, but pretty soon it will turn into a new customer for global iron ore miners like BHP Billiton , Rio Tinto , and Vale .

 

Big growth

Vale, for example, expects steel production in Asia to grow by 24% through 2020. That's going to lead to an increase in seaborne demand for iron ore of 35%. How does a 24% increase in steel production lead to a 35% increase in demand for iron ore? When countries go from being able to satisfy their own iron ore needs to being forced to import raw materials to meet domestic demand.

 

India is one of the big Asian nations and, as the Ministry of Steel noted, it could soon become a net importer of iron ore. In fact, India's steel consumption per capita is well below that of developed nations like the United States, Japan, and South Korea, and developing nations like China and Brazil.

 

Vale is looking to tap into this market by increasing its iron ore production by 50% over the next five years and by continuing to invest in its logistics assets. The latter is a big issue for the company since its South American location puts it at a disadvantage to iron ore miners like BHP and Rio that have mines in Australia.

 

Benefiting from being local

While Vale clearly has Asia in its sights, the opportunity it outlines isn't lost on other iron ore miners. BHP, for example, has been working on cutting costs in a difficult mining market, but is spending money where it makes the most sense—to increase port throughput at its iron ore terminals. The most recent upgrade will take place at its Nelson Point port operations in Australia. Replacing two older shiploaders will increase iron ore throughput by 25%.

 

Rio Tinto also has a big iron ore operation in Australia. Although Chinese demand is the most prominent talking point, the company highlights India as an important growth market for iron ore. Like BHP, the company is working on improved efficiency and cost reductions. It also has a couple of large development projects that will increase its iron ore production. While both are currently on hold, they are waiting in the wings for a quick ramp up when demand increases. India shifting from exporting iron ore to importing it could be the catalyst that gets the projects off the drawing board.

 

All eyes are on China...

While everyone is talking about China, you should also be keeping a close eye on India. The market isn't as big as China, but it is developing quickly and could soon be importing more natural resources to keep up with its own demand. With regard to iron ore, that would make Vale, BHP, Rio, and their shareholders very happy. 

Source: The Motley Fool

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