Metals May Benefit by China’s Easing: Morgan Stanley


Industrial metals will probably be the greatest beneficiaries of China’s intensifying policy-easing measures in the third quarter, according to Morgan Stanley.

Economic growth in China is set to improve, helped by easing and stronger export markets, metals analysts including Joel Crane wrote in a report today, citing the bank’s chief economist for China, Helen Qiao.

The LMEX Index of the six main metals traded on the London Metal Exchange has risen 3 percent this year. Beijing will step up policy-easing measures this quarter to counter potential property market weakness and strengthen growth momentum, Morgan Stanley said.

“Copper, lead, and zinc supply-demand balances are already in deficit,” the bank said, adding that nickel and aluminum are headed in that direction. The bank maintained its positive outlook on copper amid a global shortage and expects prices to average $7,055 a metric ton in the second half of this year and $7,397 in 2015.

Copper for delivery in three months rose 0.7 percent to $7,171.25 a ton at 5:01 p.m. in Tokyo, paring this year’s loss to 2.6 percent. The metal is the worst performer among six metals on the LME this year.

Qingdao Port

A probe into metals warehousing in China’s Qingdao port will not disrupt the copper market, the bank said, adding it doesn’t believe inventory financing behavior will have any lasting effect on supply and demand fundamentals. Bonded warehouse stockpiles in Shanghai declined “sharply” to about 600,000 tons as a result of unwinding financing since Beijing’s initial crackdown in March, the bank said.

An acute shortage of scrap will continue this year, increasing demand for refined copper and driving the global market to remain in a deficit, the bank said. Mined supply growth is struggling, with about 3 percent, or 600,000 tons, of mine production capability lost to disruptions and technical difficulties, it said.

Morgan Stanley raised its nickel price forecast by 13 percent to $17,640 a ton for this year and 6 percent to $19,346 for 2015, anticipating a supply squeeze caused by Indonesia’s ban on ore exports.

Ore Exports

Nickel has jumped 40 percent in 2014, the most among six main metals on the LME, after Indonesia barred exports of unprocessed ores in January. China is the biggest consumer of the metal, with Indonesia its most important supplier of ore to make nickel pig iron, a cheaper alternative to refined metal for making stainless steel.

“Prices caught a second wind in the second quarter after production at two key projects in New Caledonia, Glencore Xstrata Plc’s Koniambo and Vale SA’s VNC, failed to meet expectations, likely accelerating the impending supply-demand imbalance,” the analysts wrote.

Global supply will exceed demand by 44,200 tons in 2014 before shifting to a deficit of 97,100 tons in 2015, the first annual shortfall since 2010, the bank said. Nickel for delivery in three months on the LME climbed 0.6 percent to $19,437 a ton.

Nickel ore and concentrate imports into China have slumped 36 percent this year, the bank said. China’s nickel pig iron output will drop to 388,000 tons in 2014 and to 212,000 tons in 2015 from 472,000 tons in 2013, it said. Indonesia’s pig iron production will rise from 1,000 tons this year to 46,000 tons in 2015 and about 150,000 tons in 2017, the analysts wrote.

Stainless steel orders in the U.S. remain strong, with some mills booking as far out as November to December, the bank said, citing Wood Mackenzie Ltd. In Europe, consumption of stainless products is strong because of a substantial pick-up in demand from the construction and auto industries, it said.

Morgan Stanley also raised its average price estimates for aluminum by 7 percent to $1,830 a ton in 2014 and 6 percent to $1,913 in 2015, while the bank increased its estimates for zinc by 3 percent to $2,123 in 2014 and 1 percent to $2,348 in 2015.

Source from : Bloomberg