LONDON (Commodity Online): Prices were generally moderately higher across the complex yesterday. Nickel was the standout performer, however, rising by 8% on the day. A boost to broad market sentiment yesterday came from a better than expected US manufacturing ISM figure for September as well as an encouraging rebound in US auto sales for the same month.
Importantly, the overall picture for September's PMI's was interpreted by our economists as evidence of a stabilisation of industrial activity globally and maintaining our view that an industrial recession will be avoided at a global level. Price action this morning has seen a softer trend develop across metals as concerns over a Greek default have re-emerged.
Some support for Copper may come from news that LME cancelled warrants have now risen to represent 12.6% of total stocks, with the Asian dominance of the warrants supporting the perception that well-supported Chinese import demand is likely to suck in surrounding LME material. In terms of other metals news, Freeport McMoRan made two key announcements on Monday.
First, the company stated that it is continuing to produce and ship concentrate at reduced levels from its Grasberg mine rather than a complete cessation of activity. Shipment levels are constrained by the lower level of work force and hence there are still delays.
At the same time, however, union officials for the striking workers have announced that they are in the process of lodging an official extension to the strike action for another 30 days. The union, Freeport and government officials will meet again on Thursday to attempt to sort out a deal having had the previous 25% Freeport offer rejected.
The second announcement from Freeport came with regards to the broader issue of current supply-demand dynamics in the copper market and price performance. The company stated that the recent decline in prices is not fully reflective of the fundamentals and that it still holds a constructive view.
However, the company also stated that they "have the ability to adjust to adverse condition...but today we're not having to make changes to our operating plans or our capital expenditure'. The implication, therefore, is that operations closures or project deferrals akin to 2008/09 are not on the near-term horizon at current price levels. A more pressing tone was set by Rusal with regards to the Aluminium sector where it stated that “prices for aluminium, in contrast to copper, have reached their minimum”. In Rusal's view, the reason for this is that “at current prices, 30-40% of global production is either loss-making or close to breakeven. That applies to some Chinese producers and some plants in Europe and the United States” and “to sink further is not possible”.
The company also stated that it has yet to witness any “radical reduction” in demand levels. This positive tone on the current state of demand was reinforced by Anglo American this morning, which stated that it has yet to witness any order cancellations or impact on sales from current market volatility, explicitly referring to the Copper part of their business. Anglo also stated, similarly to Freeport, that from a fundamental perspective it fails to see full justification for the recent declines in price.
Finally, it was announced by the operators of the Taganito Nickel mine in the southern Philippines that the facility has been attacked by Maoist guerrillas. The attack by several hundred Maoists resulted in 3 deaths. In addition, Nickel Asia, the project operator, announced that it had suspended operations indefinitely at the facility. Nickel Asia is a major supplier of nickel ore to China, having announced back in late June this year that it expects to sell 10Mt of ore this year with 60% of this volume going to China.
In addition, Taganito high pressure acid leaching project had been anticipated to start production in 2013 with initial output of 4Kt before rising to 32Kt by 2016, and it remains unclear if that will now be achieved. This morning, however, Nickel Asia have played down the impact of the mine being off-line, stating that it will divert output from two of its other mines to cover ore shipments from the Taganito facility. Taganito had been expected to produce close to 500Kt of nickel ore during Q4 this year.
