Metals may benefit by China\'s easing - Morgan Stanley
According to Morgan Stanley, Industrial metals will probably be the greatest beneficiaries of China's intensifying policy easing measures in the Q3.
Metals analysts including Mr Joel Crane said that Economic growth in China is set to improve helped by easing and stronger export markets
Morgan Stanley said that the LMEX Index of the six main metals traded on the London Metal Exchange has risen 3% this year. Beijing will step up policy easing measures this quarter to counter potential property market weakness and strengthen growth momentum.
The bank said that copper, lead and zinc supply demand balances are already in deficit. 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 USD 7,055 a metric tonne in the H2 of this year and USD 7,397 in 2015.
The bank said that a probe into metals warehousing in China's Qingdao port will not disrupt the copper market, 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 tonne as a result of unwinding financing since Beijing's initial crackdown in March.
The bank added that an acute shortage of scrap will continue this year, increasing demand for refined copper and driving the global market to remain in a deficit. Mined supply growth is struggling, with about 3%, or 600,000 tonne of mine production capability lost to disruptions and technical difficulties.
Nickel has jumped 40% 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.
The analysts said that prices caught a second wind in the Q2 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 bank said that Global supply will exceed demand by 44,200 tonne in 2014 before shifting to a deficit of 97,100 tonne in 2015, the first annual shortfall since 2010. Nickel for delivery in three months on the LME climbed 0.6% to USD 19,437 a tonne. Nickel ore and concentrate imports into China have slumped 36% this year.
The analysts said that China's nickel pig iron output will drop to 388,000 tonne in 2014 and to 212,000 tonne in 2015 from 472,000 tonne in 2013. Indonesia's pig iron production will rise from 1,000 tonne this year to 46,000 tonne in 2015 and about 150,000 tonnes in 2017.