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David Hargreaves on Exchange Traded Metals, week 41 2013

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Traders on the exchange

Traders on the exchangeA week which saw warehouse stocks directionless, but a further fall in tin and prices of all bar copper nudge up, also had London hosting “LME Week”. Once a year in come the great and the good whose livelihoods depend on the market for the most important traded base metals, via the world’s largest clearing house, the London Metal Exchange.

It culminates n a dinner where traditionally the speakers attempt to outdo each other in the boring stakes. This year it was a bit different because the exchange is now owned by the Chinese. Its CEO, Charles Li, spoke of looking beyond the offering of base metals, partnering with other bourses and increased access to China. Opinions were mixed on the direction of the metals, but most agreed the aluminium surplus will only be corrected by production cutbacks, that nickel, too, has a long term malaise look about it and copper supply, also, has been overdone. The warehousing system rightly came under fire. There are long delays getting materials out and consequently delivery premiums have risen. In the first nine months of 2013, over 3Mt moved in and out.

Aluminium. America’s Alcoa (AA.N $8.32; Hi-Lo $9.37-7.64) maintains its position in the top three for bauxite, alumina and refined metal and managed to turn out some credible results for the financial year end. Net income was $24M (2012 loss $134M) on slightly decreased sales. Noted was that the metal price has halved since 2008, so this performance was all about productivity gains. Well done.

Back to the LME. Its most valuable contract by value is probably aluminium. It was only launched in the early 1980s. Prior to that the US producer price held sway. It was never very popular since its mechanism was mostly unions asking for a wage increase, management conceding and sticking it on the price. Also, and still persisting, is the nonsensical habit of quoting in dollars per pound weight. With 40Mtpa mined, bought and sold (that is $80 bn) and the swap unit being tonnes, it makes no sense at all. Still, the Chicago Mercantile Exchange or CME intends to launch a rival contract to the London-based one. They have grounds given the recent problems but it could lead to a disorderly market or great arbitrage opportunities.

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WIM says and we remember: The LME had the good sense to start pricing in dollars, the universal currency. If you, CME do launch, PLEASE make it tonnes and not lbs. If you insist on the latter, why not step-up to the plate with kilograms (don’t miss And Now Some Things… this week).

Nickel. It is the conference season in mining. They have just had one on nickel in Australia. Why not, world No 4 with 11% of production? Most of it comes from WA so that state’s Mines Minister had to put a spin on it. He says the price will return to its ‘former glory in the coming years’. Nothing like hedging your bets. He then SOTBOed his way through State and Federal reforms, innovation and have another tinnie. With respect, we would remind Mr Marmian (for it is he), that the price of nickel has had only two spikes above its present level since 1957. The unprecedented one of 2006-09 saw it transiently top $50,000/tonne (OK, CME 90c/lb), followed by an Eiger-like fall below $10,000. Today’s c.$13,800 is not life threatening. Just live within your means. Speaking of which, G-X and Vale who together have a grip on the production from the starter and most prolific area, Canada’s Sudbury basin, are said to be talking about joint activities. That could make sense as they speak for half of the country’s output. At Australia’s Paydirt Conference, one analyst nailed $8/lb (here we go, that’s c. $18,000/t) to the mast for post-2014

WIM says: Don’t rely on the post.

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Copper will not go gently. It is nosing into surplus as Chinese demand softens but new developments continue apace. Chile’s CODELCO, at 12% of world output from the second largest producing country (17%) is gearing up. It is stateowned.

The government has sold $950M in international bonds, on a 5.775% yield, to help the cash-strapped miner. CODELCO has a $27 bn (no misprint) investment plan to keep it ahead of the game. This year, however, it will only be $4.0-4.5bn. Chile expects to produce c.5.7Mt of copper this year, 5% up on 2012, or 5.53Mt.

Peru’s Las Bambas Mine. This country remains a good jurisdiction although the natives are getting a little restless and el presidente has a colourful capitalist history (mining mostly) for a born-again socialist. The country houses the potentially major Las Bambas copper mine, on which we have reported previously. It belonged to Glencore, which has been forced to divest as part of China agreeing to the merger with Xstrata. OK, so far? So it is on the blocks. Well under development, they speak of it being worth $6 bn to date. Open to bidders, the favourites are Chinalco and Minmetals. Wonder where they spring from? Las Bambas is slated to produce 0.45Mt per year in its first five years and 300,000tpa thereafter. That puts it right up there with Antofagasta and Norilsk; also said to be sniffing is Newmont.

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LME and commodity price movements

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About David Hargreaves

David Hargreaves

David Hargreaves

David Hargreaves is a mining engineer with over forty years of senior experience in the industry. After qualifying in coal mining he worked in the iron ore mines of Quebec and Northwest Ontario before diversifying into other bulk minerals including bauxite. He was Head of Research for stockbrokers James Capel in London from 1974 to 1977 and voted Mining Analyst of the year on three successive occasions.

Since forming his own metals broking and research company in 1977, he has successfully promoted and been a director of several public companies. He currently writes “The Week in Mining”, an incisive review of world mining events, for stockbrokers WH Ireland. David’s research pays particular attention to steel via the iron ore and coal supply industries. He is a Chartered Mining Engineer, Fellow of the Geological Society and the Institute of Mining, Minerals and Materials, and a Member of the Royal Institution. His textbook, “The World Index of Resources and Population” accurately predicted the exponential rise in demand for steel industry products.

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Vetepriset kommer att gå upp – hur man än vrider och vänder på det

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Vete i närbild

Priset på vete har halverats på två, samtidigt sjunker vetelagren. Torbjörn Iwarson på Centaur Commodity Fund säger i DiTV att priset måste upp för att motivera bönder att odla mer. Han konstaterar att hur man än vrider och vänder på det så måste priset gå upp för världen kan inte vara utan vete.

Torbjörn Iwarson kommenterar vete och apelsinjuice.
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Bra start för Centaur Commodity Fund

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Tre olika råvaror

Centaur Commodity Fund är den nya råvarufonden i Sverige som förvaltas av den erfarna råvaruprofilen Torbjörn Iwarson. Fonden har en bred exponering mot råvarumarknaden och mäter sig mot det etablerade indexet Bloomberg Commodity Ex Energy Total Return Index.

Fonden har fått en bra start och presterade bäst jämfört med sina närmaste konkurrenter. Förvaltaren skriver på LinkedIn med glimten i ögat ”Nybörjartur med råvarufonden.” En fond ska självklart utvärderas över längre tid, inte en enskild månad, men det måste ändå vara trevligt att börja med att vara bäst.

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Vinregionen Champagne drabbad av hagelstorm

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Hagelskadad vinodling i Champagne

Den 12 maj bröt våldsamma hagelstormar ut i vid Champagnes vingårdar i Frankrike. Särskilt drabbat är området Vitry-le François där odlare har fått mellan 50-100 procent av sina odlingar förstörda.

Vingårdarna i södra Aisne hade 70-100 mm regn och stora översvämningar.  Svåra hagelskador drabbade regionerna Courcelles, Barzy-sur-Marne, Passy-sur-Marne och Trélou-sur-Marne som hade hagelstormar som varade i hela 45 minuter.

– Det är väldigt ovanligt att en enda storm drabbar ett sådant stort område. Detta är givetvis en stor katastrof för odlarnas ekonomi, deras familjer och anställda.  För odlare som säljer sin skörd är detta ofta den enda inkomstkällan. Medan odlare och producenter som skapar sin egen champagne oftast kan fylla ut med reserv-vin som man sparar tillbaka från bättre skördeår, säger Fredrik Schelin, vinexpert i Sverige.

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– Vi har inget hagel just nu men vi har det besvärligt med vädret just nu. Massor av regn, och möglet har redan satt sina spår. Det är svårt för oss att arbeta med jorden, men förhoppningsvis blir det bättre till sommaren, säger Jean-Paul Hébrart, Champagne Marc Hébrart – Mareuil sur AŸ.

Det är svårt att bedöma de övergripande skadorna av stormen. Mellan 450-500 hektar vinstockar, det vill säga ca 1,4 procent av hela Champagnes vinodlingar har drabbats i varierande grad, från 50 till 100%. Fram till skörden är Champagne-regionen fortsatt utsatt för risk för hagel och storm.

Isabelle Diebolt från Champagne Diebolt-Vallois – Cramant rapporterar:
– Vi har inget hagel, men oändligt mycket regn, så det är svårt att odla och jobba med vin just nu.

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