 "Metals rise on output cut news")
Copper drove base metal prices on Monday, after production cuts by major producers improved sentiment in the sector, though analysts term the production shift insufficient to compensate weaker demand from China.
The benchmark three-month copper jumped 0.8 per cent to trade at $5,329.5 a tonne in early Monday trade, after closing at $5,356 a tonne, a nearly three-week high, on Friday. After Glencore announced a 500,000-tonne production cut, zinc jumped 10 per cent on Friday. The upsurge continued on Monday with the metal recording a 1.8 per cent jump in early trade to $1,881.5 a tonne, before declining a bit to $1,870 a tonne on profit booking.
The overall sentiment in metals suddenly turned bullish after Glencore said recently that it was suspending some operations at its Katanga mining unit in Congo and the Mopani copper mines in Zambia.
"With producers starting to cut production, supply-side disruptions have made the fundamentals supportive. Therefore, a combination of dollar weakness, as well as fundamentals slowly turning positive, would see a metals' rally for the next couple of months. When talk of an interest rate hike by the US (central bank) re-emerges, probably in December, base metals could see some pressure. By then, however, bullish sentiment in base metals would continue," said Gnanasekar Thiagarajan, Director, Commtrendz Research.
A recent report by Thomson Reuters says a further downside to commodity prices will be much tougher to absorb. The result will be better discipline on the supply side, with meaningful cuts to marginal cost production, which should provide support for prices of a number of base metals. Further, project deferrals and capital expenditure cuts will dent supply growth. In turn, sowing the seed for the next mining boom as supply falls out of sync with global demand growth.
"We look forward to substantial price hikes in the medium termbut as for 2016, it will be a largely muted affair, as the rebalancing continues," said the report.
The corporate sector has fallen in step with the slump in prices. The top 10 mining companies have a combined market value of just over $280 billion, roughly half of what it was some 12 months earlier and almost a quarter of the reading at the peak of the super-cycle in early 2011. Overall, the landscape for the mining sector looks rugged. The clock has turned back commodity prices and revenue to levels earlier seen in 2008-09. While, over the same period, debt on the combined balance sheets of the 10 miners is at least 50 per cent higher. Free cash flow is holding up but only thanks to drastic cuts to capex, which will partly impact mining flexibility and growth plans.
The report forecast nickel price to rise on supply constraints, coinciding this time with stronger consumption from the stainless steel sector. "The copper market is close to bottoming out and we expect it to finally turn the corner next year, as the surplus contracts to a little more than 100,000 tonnes," it said.
Most base metals are forecast to face tepid demand in China in 2016 as the economy grows at a slower pace in the world's largest consumer of the commodities, used in everything from jet engines to cooking utensils, although there is some hope that appetite will strengthen later in the year.
