Commodity Online
Base metal prices have generally consolidated over the past week, with a shortage of decisive economic or metals data points providing a catalyst for sustained direction in performance. Nickel and tin were the two exceptions during the period, rising 1.7% and 6.2% respectively.

In the case of nickel, LME cash prices are now at the highest level since March this year at just under $19,000/t and up close to 15% from their lows in August. Ostensibly providing some fundamental support for this move has been emerging evidence of a recent improvement in stainless mill activity in China.

A rise in Chinese stainless product prices in September has improved stainless mill margins enough to support higher operating rates early this month. In Europe, stainless producers have also started to look at higher product prices basis the nickel price rise and how that feeds into the alloy surcharge, which in turn could also trigger some restocking.

Undoubtedly such signs of life in the stainless sector after a very quiet mid-2012 are not a negative, although we caution on the sustainability of this dynamic’s support for higher nickel prices.

Focus in the copper market this week has been on initial signals regarding annual contract negotiations. It was reported that Codelco is seeking just a $5/t reduction in its 2013 physical copper premiums for Asian clients, while the European levels will likely remain flat or have a very small reduction.

For Chinese clients, this could mean a $105/t premium offer. Another producer, Pan Pacific Copper, Japan’s largest smelter, has offered its Asian customers a 15% premium reduction to just an $85/t premium.

There has apparently not been universal agreement yet with their customers over this offer, compared with a general conclusion of negotiations by the end of September during the previous two years. The outcome of these negotiations will be important to the outlook for the copper market next year, particularly with regards to the how long-term contracted refined import flows moderate and affect LME stock levels.

Another important aspect of the outlook for the copper market, as well as all base metals, is how demand conditions in China are expected to evolve.

One area of increasing focus in this respect is how to evaluate the potential for the CCP Congress to provide support when it is held on 8 November.

“Our economists’ view is that based on current evidence as well as historical patterns for previous Congresses, the event is likely to be a modest positive for Chinese GDP growth, but that this will largely not be noticeable until after the NPC in early March next year.” Barclays said.

This shows limited support to base metal prices as a result, although there are upside risks in terms of pro-growth policy anouncements.

In that respect, Barclays believes the pre-emptive impact of position squaring on prices will be far more limited than the dynamic in the run-up to the Fed’s announcement of QE3.

During August-September, uncertainty about the outcome flushed a significant portion of shorts from the market, which has left the complex flat to a small net-long.