LONDON (Commodity Online): Nickel was the stand out strong performer on Wednesday, rising more than 3% on the day though all the metals are lower on Thursday morning. This price action has been confined within recent ranges and suggests that the market is consolidating until fresh impetus is found – most likely from the macro environment, said Barclays Capital in a research note.
Further evidence of a supply-side response to lower prices came from Rio Tinto Alcan on Wednesday, which announced the closure of its 176Ktpy Lynemouth, UK smelter. In particular, this is an illustration of how higher energy costs are affecting the industry with the company stating that “it is clear the smelter is no longer a sustainable business because its energy costs are increasing significantly”.
The production response by metals producers is emerging at much higher price levels than during the 2008/09 price collapse, which should help to give downside support to prices at higher levels. Meanwhile, another Copper mine strike has got underway, at 120Ktpy Batu Hijau in Indonesia, though production is not believed to have been affected.
The latest International Lead and Zinc Study Group (ILZG) data showed that the surpluses in both markets reduced in September.
According to the ILZG, the monthly surplus in the refined lead market reduced slightly to 11Kt in September and for the year to date the surplus sits at 170Kt. Refined lead production continued to grow in September, though the pace of growth slowed to 2.4% y/y from 5.6% the previous month. Usage weakened though due to contractions across a number of regions. Barclays believes that the usual seasonal Q4 strengthening has begun to emerge though with LME inventories drawing almost every day in October.
The picture for raw materials improved in September though with impressive mine production growth 20% y/y to a record high of 419Kt due to strong growth in China, Europe and Asia. Anecdotal reports of production cuts at some small Chinese mines recently suggest that this strength might be short lived. There was a sharp reduction in the monthly global refined Zinc surplus to 2Kt in September, while for the year to date the ILZG estimates a surplus of 275Kt. Mine production rebounded strongly rising 9% y/y due to growth across a number of regions suggesting that while lower prices are eating into mine margins they have not yet led to non- China production cuts.
In China, Barclays believes that in the past few weeks there have been some cuts at smaller mines. Refined production came in line with expectations rising 1% y/y after contracting the previous month, while demand surprised to the upside. The ILZG’s usage data showed a 4% y/y rise in September due to double-digit growth in the US and the Americas both of which came in well ahead of expectations. Metals demand in general in the US had a robust Q3, which has continued into Q4.
