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Softs
US is busy unleashing the largest grain crop for many years. Corn has sold off significantly and should start recovering from here. SA prices have also sold off and expect farms to plant less for next season. Bread or other refined carb prices "should" come down on the back of this but millers never like to pass on price benefits, unless of course everyone starts Paleo / Banting / Noakes diet.

Metals - Precious & Base
Gold underperforming in current climate of fear as stocks sell off. Reason being that no-one expects interest rates to rise anytime soon and gold is really an interest rate trade. Similar for platinum although expect platinum : gold spread to widen further. Copper undervalued at moment but market still suffering from excess supply and weak Chinese housing market. However, supply / demand balance expected to come back into line and copper should start recovering from here, especially as LME and Shanghai stocks now on the low side versus historic levels. Chinese warehouse fraud still looming large in bank and physical traders minds... Aluminium, nickel and steel-feed stocks (chrome, nickel etc.) all quite weak as Chinese steel plants continue to close due to weak demand and pollution constraints.

Energy & Ores
Coal and Iron Ore continue to get decimated as Chinese demand evaporated and majors seem determined to oversupply market to drive out smaller, higher cost producers. Ivan Glasenberg must be pulling his hair out. This is not going according to his regular game plan.

Natgas prices climbing in Europe and stable in US. US crude now almost completely divorced from global crude markets and WTI:Brent spread to blow out further. European refinery runs being decimated as European refiners close. Refined product East of Suez reaching oversupplied situation and West African crudes looking for new homes now that US no longer taking their product. Dubai and Tapis to fall further but Brent probably reaching stable floor.

Overall, probably best returns to be had from copper and coal going forward, although coal could take years to recover from here. Expect many more coal miners to go out of business before then.

Yes, good to see. But expect default rates to be very high. When I lived in the UK I was one of the first adopters of Zopa.com and myC4.com . Average rates on both sites have been around 12% return with up to 20% defaults. But because the defaults are on small parcels of each loan the effective default rate comes down to around 5%. One issue with these offshore sites is that the loan is in Sterling and Euros which wasn't great as emerging market currencies did well. Better now.

Haven't tried the local SA sites because local guaranteed returns are so much higher than offshore. However, I hope they do well. They really need to partner with one of the big banks (as partial underwriter perhaps) to go mainstream.

Nice comprehensive commodity update from Standard Bank.....

Copper – Panic over? Pain to come

Copper turnover surged last week with fears over bond defaults in China, and the knock-on effect on both real demand and copper financing demand, seeing copper prices come under very heavy selling pressure. Copper’s tumultuous week saw average daily Select turnover come in at 33,688 lots/day for the 7th-14th March, vs. an average daily turnover of 17,165 lots/day so far this year (including last week). Open interest has also surged on the LME, Comex and SHFE markets, suggesting that large new short positions have been added across the board, though prices have started to stabilise.

The knock-on impact stemming from China, allowing various small privately held companies to default (with the emphasis very much on allowing), is hard to gauge, but will likely see a re-appraisal of risk by Chinese investors and banks. From a copper perspective, participants may well become choosier as to where they park their spare cash, while order books may also take a hit if property developers come under further strain. From a copper financing perspective, however, there is unlikely to be too much stress until the LCs come to maturity and need to be rolled/repaid. A more likely impact might instead be reduced fresh financing demand for a short period, as participants see how the market plays out, with this perhaps seeing any excess metal bound for China (outside contracted tonnages), head into LME warehouses instead.

Looking at the spreads, with May-June valued at $10 backwardation already and with June-Sep at $1 backwardation, the glut of new shorts added last week is likely to be positioned on either the May and June prompt dates. This suggests that further and potentially quite extreme tightness is likely to emerge, with May-Sept arguably looking the portion of the curve most susceptible to any tightness.

Right now, the market doesn’t like copper, be the Chinese speculators worried about liquidity and lower growth, or global macro players looking for China to implode. Wearing a short LME copper position over the summer, in the face of potential tightness in the spreads looks like it might be rather painful. Weaker shorts may well cover back, sparking a more sustained short covering rally. The key will be China and whether macro conditions and sentiment can really outweigh positioning.
By Leon Westgate
Base metals
The base metals complex is steadily heading into Tuesday afternoon, though nickel and aluminium have both managed to push higher into US trade. China is making attempts to contain the fallout from the collapse of the property developer Zhejiang Xingrun Real Estate Co. including a possible local government bailout of the company, boosting sentiment, while participants also look relaxed, so far at least, regarding tensions in Crimea. With tomorrow’s FOMC and possible tapering on the cards, however, the market looks like it is settling into wait and see mode once again.
Copper briefly traded higher, climbing above $6,550 before coming back under pressure heading into US trade. The main surprise this morning seemed to be a net 20,625 mt increase in on-warrant stocks. Rather than emerge in Asian locations however, the inflow went into Antwerp where 20,675 mt was delivered in. Tightness in the nearby spreads may be one reason for the delivery, though it is interesting to see it merge not long after a 12,025 mt jump in cancelled warrants in New Orleans on Friday.

Tom/next tightness in zinc has eased significantly, coming in from a high of $30 backwardation on Monday to a $0.25 contango today. On-warrant zinc inventory has already picked up significantly since the beginning of March, climbing 78,950 mt (before Monday’s net 18,000 mt of warrant cancellations) as tightness in the nearby portion of the curve served its purpose in terms of attracting material into LME warehouses. With the tightness becoming persistent and occurring so close to the March prompt date, we would not be surprised to see further metal be delivered in against nearby short positions. In that regard, it’s worth noting that the latest LME warrant holding data (from March 14th) still shows the presence of a dominant holder of warrants in the 40-49% band.

Nickel has traded above $16,000 with the triggering ofd stops above this level helping prices trade up to $16,200. In terms of finding further shorts to cover, in 2012, shorts were put on from 22,000 down to 16,000, with some covering back as prices recovered to 18,000 over H2-2012. In 2013 large nickel shorts looked to have been put on from 19,000 down to 14,000. Nickel’s break above16,000 today should therefore see prices run higher; however, prices have moved a long way and it may need further fresh buying interest to give it a necessary shove.
Nickel open interest is certainly very high, reaching fresh record and ordinarily suggesting that the trade might be getting rather crowded. That said, however, with electronic trading of nickel really taking off this year, perhaps open interest is in the process of growth and may not be quite as constraining a factor as some might fear. Daily LME Select turnover so far this year is 4644 lots/day and some 44% higher than the daily average turnover seen on LME Select during 2013, with new avenues of trade and fresh participants seemingly getting involved.


Precious Metals
Gold dropped to $1,360 yesterday on positive US industrial production data. The 10-year US bond yield managed to creep back above its 200d MA at 2.67%. With a high correlation between the gold price and US real bond yields, combined with weak physical demand and our expectations of a further rise in the US government bond yield, we think that gold will back down. We would not trade event risk around the Ukraine, which would make adding longs unattractive from risk/return perspective, in our view.

Platinum is also under pressure, with what we believe is long liquidation in the futures market. We have seen from the latest CFTC data that longs have increased substantially, making it more difficult to find the marginal buyer in the futures market.

As pointed out in Commodities Daily 5 March, from a tactical perspective, we look for upside to extend further, targeting an initial spread of $200 relative to gold, e.g. with the gold price around $1,340, we would look for platinum to rally to $1,540. But, ultimately, it could rally to $1,600.
We have preferred to approach palladium from the long side, seeing value on approach of $690 - $670, with little value in adding new longs above $750. Although we believe that supply fears from Russia are overdone, we expect palladium to find support on approach of $750 as long as the strikes in the SA platinum sector continue.

We maintain that both the platinum and palladium price will sacrifice their current gains once the strikes inevitably end.


Bulks
Chinese financial markets finished flat-to-up today. Physical iron ore bids were slightly stronger, while physical steels traded mixed, with Shanghai finally showing the first signs of “Spring-step” strength this year. The PBOC’s further cash drain today of RMB 100bn took on less prominence as a result. 
We have mentioned many times previously that the real reason the Chinese steel sector’s performance has been so dire so far this year is due to the sickness of downstream sectors, particularly property. We reported last week of falling y/y property developer sales across Jan-Feb of more than c.2%, joined by falling property prices in several cities, including Beijing. As well, Jan-Feb construction starts dropped by a whopping -27% y/y. We also mentioned yesterday China’s first potential reported property sector default in Zhejiang. All these issues combined are gathering more prominence today in China, keeping SHA equities nervous.

Shanghai Equities rose just 0.08% to 2,025 points versus 2,024 yesterday on property default concerns, with developer bond yields all becoming more costly in response. While initially it was reported that the PBOC have held discussions with CBRC officials on how to contain the risks from the collapse of the Zhejiang developer covering $565m to over 15 banks, this was later denied. Meanwhile new-home price growth slowed in February, to the weakest pace since October 2012, with 57/70 cities showing rises vs 62 in January, and with averages up 8.7%, against 9.6% in January. Shanghai rose only 0.4%, while Beijing and Shenzhen rose 0.2% and Wenzhou fell 3.9% y/y. China’s FDI rose 10.44% y/y across Jan-Feb to $19.3bln, while outbound investment fell 37.2% y/y.

Shanghai 7-day interbank rates rose again to 2.88%, with 1-year rates at 4.31%. The PBOC conducted another bout of repurchases today, amounting to RMB 100bn of 28-day contracts at 4% again. While further currency depreciation is helping cash liquidity improve for restocking activities, short-term rate rises over the past few days need to be monitored very closely. China’s spot currency traded as high as 6.195 today.
Shanghai Rebar Futures May-14 contract closed up RMB 24/t at RMB 3,147/t, while the Oct-14 contract closed up RMB 11/t at RMB 3,240/t. Dazong HRC April-14 futures shifted up RMB 23/t to RMB 3,324/t. The SHFE will launch its much-touted HRC futures contract on Friday, covering 12 local flat producer brands, including Baosteel, Wugang and Angang, with 14 delivery warehouses approved, particularly in Jiangsu province. July-14 will be the front-contract initially. China produces c.180mt of HRC a year. SHFE will begin trading HRC futures from 21 March (ie this Friday). While we expect this contract to become popular, we would expect rebar volumes to be higher due to the greater underlying physical consumption patterns.

Among physical steels, Tangshan billet prices fell RMB 10/t to RMB 2,860/t. Rebar prices rose RMB 20-30/t in Shanghai as Spring weather finally kicks in, but fell again by RMB 10/t in Beijing. HRC prices rose RMB 10/t in Shanghai, but fell RMB 10/t in Beijing. China produced 2.0968 mt/day of crude steel during the first ten days of March, up 0.7% from late February. CISA members held combined finished steel inventories of 16.6622 mt, up 2.52% from late February, up more than output growth rates.Dalian Commodity Exchange IO active May-14 contract prices rose RMB 2/t to RMB 754/t, while the Sept contract rose RMB 3/t to RMB 732/t. Volumes reached 823,000 lots.

Among physical iron ore, globalORE traded 2 May-cargoes of MNP materials at $108.80/t, while local Chinese platform CBMX saw RioT trade a PB Fe 61.4% fines early April cargo at $110.50/t, down from $110.80/t initially, supporting today’s improved IO swaps trading levels.
The TSI Fe 62% China CFR price index rose 90 cents to $110.50/t (MTD: $111.75/t). The Platts Fe 62% index rose 50 cents to $110.75/t (MTD $111.67/t), while the TSI Fe 58% index rose 50 cents to $99.60/t (MTD: $101.07/t). The Metal Bulletin Fe 62% index fell 76 cents to $108.82/t, while its Fe 58% index fell $1/t to $98.81/t. The Argus Fe 62% index rose 15 cents to $108.50/t. Mysteel’s Fe 62% index remained flat at $109.75/t, while its Fe 58% index was also unchanged at $99.50/t.In IO supply news, Brazil had another poor shipping week, slipping back under 5mt last week, down from 5.8mt the prior week and 6.6mt 3 weeks ago, offsetting Australian increases. Vale did have a better day yesterday, however.

Goa is booking its first cape in nearly 2 years, following the start of recent e-auctions covering stockpiled materials, with first ore movements expected later this week back into international markets. It remains uncertain when mining may or may not restart in the region, however. This week’s e-auction has been cancelled, however, due to falling prices; port congestion; disputes over government fees and various auction payment processing/ore releasing bottlenecks.
LKAB has suffered a train stoppage on a section of rail between its Kiruna mine and the port of Narvik, with the line expected to be out of action for a week, impacting 0.45mt of ore. Shougang Peru produced 0.644mt in January, compared to 0.59mt last January. Metinvest says the Ukrainian turmoil has yet to impact its ore export operations, via Odessa and Yuzhniy, with currency devaluation assisting margins. IMIC is planning a $500m 4mtpa fast-track mine at Ntem in Cameroon, planned for mid-2017. Iron Ore Holdings has secured road haulage licences in the Pilbara for 105km of private and 70km of public road use. The Baltic Exchange Cape index shifted up 5.8% to $22,195/day, with C3 up 1.2% at $26.809/t and C5 up 6.1% at $10.486/t. Q2 FFAs have rallied up to over $25,000/day.
Putin is calling for the annexation of Crimea from Ukraine across to Russia, under “friendly” terms. For Q2:14 thermal coal prices, prices are off today. API 2 is trading at $76.25/t; API 4 is trading at $74.45/t; while Newcastle is trading at $75/t. Glencore has reputedly been supporting the Newcastle out to Q1:15, in a bid to assist with annual April benchmark contract volume negotiations. Physical trades have included June-14 at $75.50/t; Q4:14 at $78.75/t and Q1:15 at $79/t, suggesting NEWC prices may settle in the $77-78/t range. Meanwhile NAR 5500 materials are trading c. $61.50/t. ARA saw physical trades for April of $76.25/t and July at $77.50/t. Indonesia may raise royalties on mining coal from 3% to 13.5% in April.

India power demand outpaced supplies by 3.3% in February, according to ICEA data, the lowest in 15 years due to stagnating economic growth conditions. Coal of India may miss its 2014 482mt output rate by just 12mt. SAIL expects to raise output from 12.4mt to 20.2mt, adding 2 new blast furnaces. 
Zhengzhou Futures May-14 contract price was up RMB 0.4/t to RMB 514.4/t, while the Sept contract rose RMB 0.6/t to RMB 523.6/t. Total port stocks rose 0.03% to 17.26mt. Market support is appearing, given the upcoming Daqin rail maintenance season and the end to recent de-stocking activities caused by credit default and lending restriction worries. Premium Hard Coking Coal spot prices are trading in the $110-115/t Qld FOB range, with China CFR prices ranging $123-128/t. Canada exported 2.1mt of coal in January, down from 3.48mt in December, largely due to tougher weather conditions. Aquila is trying to sell a stake in its Qld coking mine to Asian mills. Japanese Q2 price negotiations are reportedly starting at c. $115/t QLD FOB, in line with spot market trading conditions, but well below Q1 settlements of c.$143/t.

On the Dalian Exchange, May-14 coke price traded up RMB 12/t to RMB 1,159/t, while the Sept contract rose RMB 11/t to RMB 1,214/t. Among Dalian HCC prices, May contract prices closed up RMB 4/t to RMB 820/t, while the Sept contract rose RMB 10/t to RMB 847/t.

Just one word 'GOLD'

I don't buy the gold argument this time. First of all, investors never did as well as they thought they might last time the world looked like collapsing. Plus many Chinese investors have used physical gold as collateral to finance their wheeling and dealing. Now that the wheels are coming off I expect a lot of physical gold to get dumped into the market to cover real cash margin calls.

At the end of the day gold will probably go sideways in dollar terms and down in Rand terms i.e. I expect short term ZAR weakness but longer term ZAR strength as hot money flows into SA on the back of a new carry trade.

I would like to be bullish about corn prices but unfortunately even that looks set to move lower as well. The US has just recorded its biggest grain crop. However, traders have been caught as they expected farmers to deliver into their grain storage but US farmers have been cleverly building their own storage instead. The problem for a farmer is that it is not too wise to farm and store at the same time. This coming harvest all on-farm storage will have to be dumped at once forcing down the spot price again.

Expect the Rand to weaken of course against all of the negative commodity and emerging markets news out there. Then again, maybe we can expect more of those lovely hot money flows into SA as investors realise the only yield to be had is the carry trade and the USD:ZAR carry is one of the best ones out there....

Commodities are getting whacked upside the head right now. Glencore has huge copper exposure in Zambia and the DRC and copper is falling out of bed since the Chinese have all been using it as a carry trade on the USD:RMB. Now that the banks are calling margin every man and his dog in China is dumping copper. Same story for iron ore - Kumba shares should soon be taking a big hit... Chinese steel mills are closing left, right and centre. The commodity and credit crunch in China could spill over to the housing sector bubble as well... Remember that the Chinese have also traditionally used gold as a financing means... When copper is done I expect that gold will be dumped as well if the margin calls continue....

The iron ore and steel crunch also affects alloys so expect SA chrome, manganese and nickel producers to suffer as well.... Assmang and Xstrata alloys are not going to be reporting decent profits this coming year I can tell you that now..... However, European and US demand for alloys is a little better than Asian demand although it can't soak up all the excess supply.

Resources have started the year off well but they look like ending this year in worse shape than last. Maybe gold and platinum will do OK but basic materials will get hammered on a hard Chinese landing.

Here's an interesting thought on Cyril Ramaphosa...... Glencore is Shanduka's paymaster (or in more politically correct terms, Shanduka is Glencore's BEE partner). Glencore has huge oil interests in South Sudan but have been having huge problems getting their oil out of the state producer, what with the pesky war and kick-backs and all the usual commodity trading stuff..... In Zuma's recent state of the nation address Cyril Ramaphosa is being deployed to South Sudan to negotiate peace on the spurious notion that he can handle conflict from his days with the NUM. How utterly convenient for Glencore. I don't know why this is not being shouted from the rooftops but watch the news stories from South Sudan concerning Glencore's oil after Mr. Ramaphosa's visit...... There are some wonderful stories about Glencore from across the globe concerning ladies of the night, brown paper bags, incriminating photographs slipped into contracts to be signed etc... But then again, Mercuria, Trafigura, Vitol, Freepoint, Cargill etc. are not all exactly blameless either..... This is the wonderful world of physical commodities....

After such a big move we should see a bounce (of the dead cat variety) today. Very short term buying opportunity i.e. buy on the open and sell by end of day because tomorrow should resume the negativity......