LONDON (Commodity Online): Price movements were mixed across the complex on Monday. Amid elevated concerns over the global macro picture, Nickel and Zinc were the two base metals in positive territory, rising by 2% and 1%, respectively. The rest of the complex was softer on the day, however, with Copper falling just under 1% to close at its lowest level in a month. In terms of fundamental data, the Indonesian government released its Tin refined export data for August, which showed a 7.3% y/y increase to 8.6Kt.

This figure, however, also represented a close to 8% m/m decline from July levels. With no disruptions to production during the period, lower tin prices during the period were the likely constraint on output levels. This moderation in the level of Indonesian exports comes at time of an expected to shift to rising net refined imports into China, as the domestic market moves out of a phase of destocking.

Certainly the decline in overall LME tin stocks by close to 2Kt from mid-August to 21.6Kt currently, supports the view that a global market deficit had been previously masked by the aforementioned destocking cycle in China, and in turn should offer a clear signal for higher prices at least based on fundamentals alone. There were three positive announcements regarding copper projects in Peru. Southern Copper announced on Tuesday that it believes its $1 billion Tia Maria copper mine project in Peru will be approved by the end of this year, and in turn could be producing metal by H1 2013 (Reuters).

The mine could produce 120Kty of copper if it ramps up successfully, although the previous Peruvian government had rejected the environmental impact study which had resulted in protests by the local farming community over the potential effect on water supply. Also on the copper mine supply-side in Peru, Hudbay Minerals announced plans yesterday that it will invest at least $1 billion in its Costancia mine in Peru. The facility is likely to gain final approval in Q1 2012 and then start up production in 2016 with ultimate output capacity of 85Kty.

Finally, Buenventura and Newmont announced that their joint Conga copper and Gold mine project should start producing by 2014 or 2015. The project is expected to produce close to 35Kt of copper in its first year of production before ramping up to 70Kty thereafter. These announcements reflect the increasingly positive perspective mining companies have taken towards the new Humala government, which had initially been seen as potentially offering the threat of nationalisation.

On the nickel market, Norilsk Nickel stated yesterday that it believes that the nickel market is in a mild surplus currently with stocks having 'risen about 1-3% in the past 1.5 months'. However the company also added that prices are well supported at current levels since, if they fell by $3,000/t a sizeable number of producers would be forced to shut down.. Finally, the NBS production data released today again showed continued strength in production across the various metals.

Refined Copper production established yet another record high in August, up a significant 29.2% y/y to 518Kt. Along with such strong demand from copper smelters, the 7.3% m/m decline in domestic copper concentrate production could have aggravated the tightness in the concentrate market, further explaining why TC/RCs have declined. Nevertheless, we would pay more attention to concentrate imports as 85% of concentrate consumption are still being met by imports. The copper semis production data showed that the pace of growth in semis output increased in August, rising to 23% y/y (1Mt) up from 18% y/y in July.

This, together with the rise in refined production and imports, illustrates the strength of domestic demand. Primary Aluminium production strengthened by 21.9% y/y although the power cuts in Chinese provinces like Guangxi, Guizhou and Shanxi have curtailed any production upside on a m/m basis with the daily rate of production declining from July. Aluminium semis production rose 28% y/y to 2.364Mt, illustrating why domestic inventory has had to be drawn down. Refined Lead production also rose 11.3% m/m and 2% y/y to 394Kt, reversing July's decline, reflecting resumption of production after lead smelting capacity were earlier forced to shutdown due to environmental checks.

The key surprise in the production data would have to be lead-in-concentrate production, which has risen a surprising 345.3% m/m and 407% y/y to over 900Kt. This looks to us like either a mistake (since it is more than three times higher than the previous high of 262Kt) or that there has been a dramatic change in the survey scope. We know that the lead and Zinc mine production data have been troublesome for some time with a whole host of issues including smaller mines sporadically reporting production leading to historical distortions, and this data point further highlights that, in our view.

Refined Nickel production continued to rise 8% m/m and 92% y/y to 29Kt, which when taken with the robustness in imports illustrates the strength in domestic demand. Finally, refined zinc production declined in August. After two consecutive m/m declines, production is now back to levels last seen in January/February this year. Alongside persistent strength in zinc concentrate production, the fundamentals of the zinc market remain weaker compared to the rest of the complex, in our view .

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