Metals Post Huge Gains on Supply Squeeze

Industrial metals finished the year with huge gains, some more than doubling, as tight supply continued to attract investors to the market. Metals outperformed the FTSEurofirst 300 share index, which was up around 16 per cent on the year, and the MSCI All-Country World Index, up around 19 per cent. Three-months copper futures on the London Metal Exchange, the contract that has proved most popular among speculators in the financial markets, ended 2006 at US$6,330 per tonne, up 44 per cent from its closing price on the last trading day of 2005. The strongest performer was nickel, which ended the year up 140 per cent. Poorest performing of the base metals was aluminium, rising a comparatively slim 23 per cent.

All the base metals traded on the LME hit new highs this year as fund managers, encouraged by a fundamental picture of tight supply struggling to meet strong demand from China, bought futures contracts. Copper peaked in May while most other contracts came into their own in the second half of the year. Since the start of the commodities bull run earlier in the decade, the market has focused on demand, especially from the rapidly-growing economy of China, as the major force behind the price rise.

Fund managers, who between them have allocated billions of dollars to metals and other commodities, argue that demand is only one side of the equation, and supply is limited by the slow pace of building new mines and smelters. On top of this, strikes and accidents at mines all over the globe gave metals extra support.

More attention turned to the supply side in 2006, Societe Generale Corporate and Investment Banking said earlier last month. "2006 may mark the shift from demand-driven markets to supply-driven markets," the French investment bank said. "As 2006 has already showed a significant slowdown in most underlying demand growth rates, some investors ... have already revised downward their expectations of demand."

Stocks in LME-registered warehouses are often used as a gauge of demand for metal. By this measure, demand for copper has indeed fallen over the year. Stocks were 182,800 tonnes on the last trading day of 2006, more than double their level at the end of December the previous year. Cash copper peaked at US$8,800 per tonne in May, way ahead of the highest forecast by any analyst at the start of last year.

Tin charged to a 17-year high of US$11,850 in late December, spurred by expectations of lower shipments from Indonesia this year as the Government plans to crack down on unregulated mining. "Tin which has been in a market deficit according to our calculations of almost 6,000 tonnes is likely to remain in deficit this year, and indeed the deficit could grow further if these measures are put in place," Standard Bank said. Three-month tin ended the year up 77 per cent at US$11,510 while stocks were down 22.5 per cent.

Zinc, which many market observers picked as a good bet for 2006, ended the year at US$4,230, up 122 per cent. Its cash price peaked at US$4,603 per tonne in November, more than double analysts' expectations at the start of last year. Nickel stocks plunged from more than 35,000 tonnes at the end of the previous year to 6,648 at the end of 2006, and its three-months futures contract ended at $33,325 per tonne, up 140 per cent.

Three-months lead ended the year up 59 per cent at US$1,670 per tonne, after hitting a contract high of US$1,785 last December, supported by falling stocks and strong demand from battery makers. Aluminium ended the year at US$2,805 per tonne, up 23 per cent. Supply of the light metal is not as tightly constrained as are other industrial metals, analysts said.

(Source: New Straits Times, 1 January 2007)


Ringgit to Gain More Strength

The ringgit will strengthen further against the US dollar going into 2007, in tandem with other major regional currencies, mainly on a better outlook for Asian economies, said economists. RAM Consultancy & Services chief economist Dr Yeah Kim Leng told StarBiz he was "comfortable" with a 2% to 3% annual appreciation of the ringgit. He expected the local unit to touch 3.40 to 3.45 by end-2007.

"We expect the foreign exchange market to be fairly volatile this year, partly due to political pressure on the Chinese government to allow the renminbi to strengthen faster. With the Asian economies growing at a quick but differing pace, we think there will be some currency speculation this year as well," he said. Yeah added that improving economic fundamentals in many Asian countries, such as their rising current account surpluses, would mean investors would continue to expect strong performance in Asia and thus, a sustaining of capital inflows to the region. "Comparing the ringgit with the other regional currencies as well as the sterling and euro, we expect momentum from 2006 being carried forward into the year, depending on the fiscal fundamentals and the inflation risk premium of each country."

CIMB head of economics Lee Heng Guie said sentiments towards Asia remained positive, concurring with Yeah that the strengthening of economic fundamentals, the minimising of financial and external vulnerabilities as well as fairer asset valuations were among Asia's attractions. "Net Asia external debt levels have declined and there has been strong accumulation of foreign reserves; public sector fiscal positions have improved and banking systems have strengthened," Lee said, adding that these positive indicators attracted private capital flows of up to US$97.9bil to emerging Asia in 2006, up 53% from US$64bil in 2005. However, he said he expected capital flows to moderate to US$69bil in 2007 on global monetary tightening and the slowing global economy.

OSK Securities economist Sia Ket Ee, meanwhile, had a slightly more conservative forecast of 3.50 for the ringgit for end-2007, saying Malaysia's economic fundamentals supported a gradual appreciation in the ringgit. "The currency will support our trade surplus. However, we do see some pullback in the appreciation due to more positive financial results coming out of the US," he said.

Sia said the weakening of the dollar had been marginally "overdone", adding that monetary data showed that the US was performing economically and financially better than expected. "The Chinese monetary authorities recently said they would not be pressured into sharply appreciating the renminbi in 2007. So that is another reason we are expecting a mild slowdown in the appreciation of regional currencies," he added.

On Friday, the ringgit closed at 3.5280 against the greenback, its strongest level since the July 2005 de-pegging.

(Source: The Star, 2 January 2007)


November Exports may Rise Sharply

Malaysia's exports are expected to rebound sharply in November on stronger orders for electrical and electronic (E&E) products and commodities which surged following the month of festivities. The longer working month to meet year-end orders will most likely improve the exports outlook and trade activity for November. Economists polled by the Business Times expect exports to post a 16.49 per cent average growth year-on-year compared with imports at 16.5 per cent growth and trade balance to average RM10 billion.

The Ministry of International Trade and Industry (MITI) is due to release the data tomorrow. Exports in October saw the first drop in almost five years when it fell 3.4 per cent from a year ago while imports also saw a small growth of 1.4 per cent year-on-year. MITI attributed the drop to lower exports in refined petroleum products, machinery, appliances and parts, E&E as well as chemical products. Liquefied natural gas, crude petroleum and palm oil, however, recorded increases.

CIMB Securities chief economist Lee Heng Guie said another reason for the better showing in November is due to the CPO prices in November which surged to RM1,689 per tonne compared to RM1,550 in October. Tracking regional exports in November, Lee said most trading economies have also posted strong growths including Thailand (22 per cent in November from 21 per cent in October), Indonesia (29.6 per cent in November from 9.6 per cent in October) and Singapore (8 per cent in November from 2.7 per cent in October).

K&N Kenanga economist Wan Suhaimi Saidi however warned that the underlying demand for E&E products is weakening because of slower demand from the US, which is Malaysia's largest market. "Any spike (in E&E exports) would be due to inventory adjustment," he said.

Economists were also concerned about the appreciation of the ringgit this year, which may affect export competitiveness. The ringgit, which rose by 7 per cent last year, has been trailing other currencies as they strengthened against the US dollar.

(Source: New Straits Times, 4 January 2007)


Tin Takes a Breather

Tin took a breather on the Kuala Lumpur Tin Market yesterday to finish US$160 lower at US$12,100 per tonne after closing at a new all-time high of US$12,260 last Friday. Last week, the metal hit historic highs of above US$ 12,000 per tonne in line with its strong showing on the London Metal Exchange (LME), the benchmark for the global tin market. A dealer told StarBiz that market fundamentals remained intact as fear over supply constraints from Indonesia as well as strong demand from China and India continued to support the metal's price outlook. He expected tin to trade at US$12,100 to US$12,300 per tonne within two weeks.

After clamping down on illegal tin mining operations late last year, Indonesia last Tuesday banned unregistered companies from exporting refined tin. The Indonesian government said refined tin for export must be produced from ore obtained from legal mining contractors. It also said that the shipment of refined tin would only be allowed after exporters had paid royalties. Dealers said world tin supply could likely be disrupted by Indonesia's decision to close down its illegal tin mines. The illegal mines, mostly in the Bangka-Belitung islands, account for almost half of the republic's refined tin exports.

This could result in a shortfall of about 5,000 tonnes in production, dealers said. Indonesia-based PT Timah, one of the world's largest tin companies, is also reducing production by about 4,000 tonnes this year. The move was to support the trading of the metal on the international market.

An industry source said the LME tin stocks were currently running low, at 12,520 tonnes, down from 16,725 tonnes at the start of last year. He said there was a growing switch to tin solders from lead among manufacturers globally. This year's global tin consumption is pegged at 364,500 tonnes, up 12% from last year.

On Bursa Malaysia, tin-related counter Malaysia Smelting Corp Bhd added 5 sen to RM7.20 and Perusahaan Sadur Timah Malaysia Bhd rose 22 sen to RM3.22.

(Source: The Star, 30 January 2007)


6 per cent Growth this Year

The Malaysian economy is poised to grow by six per cent this year from 5.9 last year. Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz said yesterday domestic demand, which would remain resilient, would continue to drive economic growth this year. "While the private sector, particularly private investment, continues to provide the impetus, the public sector is expected to play more significant role in 2007," she told a Press conference after releasing Bank Negara's Annual Report 2006.

The mining and construction sectors are expected to turn around with positive growth this year. The construction sector, in particular, would benefit from higher public expenditure on Ninth Malaysia Plan projects as well as strong demand in the non-residential properties segment. The electrical and electronics sector is expected to moderate in the first half of the year before picking up in the later part of the year.

Zeti said that although demand from overseas was expected to moderate this year, growth in the Asian region was expected to remain favourable, supported by domestic demand particularly in China and India.

The manufacturing sector is envisaged to record a sustainable expansion of 6.6 per cent, from seven per cent last year, supported by resource-oriented industries and industries related to the construction sector. In the services sector, growth will be underpinned by the finance, insurance, real estate and business services sub-sectors, with higher contributions from the Islamic financial services sector and the newly-formed investment banks.

The sector's growth at 6.3 per cent would be further spurred by the expected higher tourist arrivals during the Visit Malaysia 2007, Zeti said. Meanwhile, the agriculture sector is expected to grow at a moderate pace of 3.2 per cent this year while commodities are expected to benefit from the continued high prices. Zeti also said that inflation was expected to moderate to average between two and 2.5 per cent this year.

(Source: New Straits Times, 22 March 2007)