Commodities | Apr 30 2010
By Chris Shaw
For some time infrastructure constraints have been an issue in the major coal producing nations, with the latest episode being the potential for strike action by workers at the main rail and port network at Richards Bay (RBCT) in South Africa.
This stems from the inability of state-owned rail and port operator Transnet to reach an agreement with the unions over annual wage negotiations. A strike could come early in May and could precede a 10-day maintenance period, which would lock in coal exports for most of the month.
The potential strike in South Africa reflects a bigger issue in that market in Barclays Capital's view, which is the inability to coordinate rail capacity expansions to keep pace with port developments.
The Phase V expansion at RBCT should lift capacity by 15 million tonnes per year to 91 million tonnes. But as Barclays notes, Transnet freight rail fell far short of its 65 million tonne capacity last year as there is still a lack of capacity to the port.
Transnet suggests the issue as a lack of private sector investment in capacity expansion but as Barclays points out, the private sector is currently dealing with additional costs as the poorly performing rail network is forcing the use of more road haulage.
In the view of Barclays there needs to be a better defined private-public partnership, as without this these issues are likely to continue. This means South African export capacity will continue to fall short of demand, creating a structural deficit in the market. This will support coal prices.
In copper, Standard Bank notes the sharp price falls on the London metals Exchange (LME) as a result of Europe's sovereign credit issues has not to date resulted in much in the way of Asian buying interest.
As the bank notes, Shanghai Futures exchange prices have followed LME prices lower as the price arbitrage between the two markets remains largely closed. This lack of Chinese buying activity is seen as capping copper's price upside at present, which suggests prices are in consolidation mode.
Commerzbank remains of the view copper is at risk of a deeper correction, as while Chinese demand has settled of late, production in Chile in March was 5% higher than for the same month last year. This increase in supply leads the group to suggest the copper market could remain oversupplied in 2010, increasing the chance of prices coming down. Commerzbank analysts are a bit of a stand-out in the sector as most peers are bullish on copper, but Commerzbank is not, and has been in this position for a while.
On a medium to longer-term view Standard Bank remains bullish on the outlook for copper prices. From a technical perspective Jyske Bank suggests support for 3-month forward copper at present is at US$7,300 per tonne and then at US$7,000 per tonne, while resistance is at US$8,000 per tonne then US$8,200 per tonne. From a shorter-term view, Karvy Comtrade sees support at US$7,383 and then US$7,301 per tonne, while resistance is at US$7,525 and US$7,584 per tonne.
Among the other metals, Jyske sees technical support for aluminium at US$2,100 per tonne and then US$2,000 per tonne, while resistance is at US$2,200 and then US$2,300 per tonne. For nickel it suggests support is at US$20,000 and then at US$17,000 per tonne, while resistance is at US$30,000 and then US$33,000 per tonne.
Again from a shorter-term perspective, Karvy has aluminium support at US$2,145 and then US$2,075 per tonne, with resistance at US$2,250 and then US$2,285 per tonne. For nickel Karvy suggests support stands at US$25,093 and then US$24,372 per tonne, with resistance at US$26,868 and then US$27,922 per tonne.
In lead Karvy suggests technical support currently stands at US$2,200 and then US$2,235 per tonne, while resistance stands at US$2,290 and then US$2,310 per tonne. For zinc it has support at US$2,305 and then US$2,255 per tonne, while resistance is at US$2,385 per tonne and then US$2,415 per tonne.
MF Global has also offered an update on support and resistance levels for the base metals, suggesting for copper support stands at US$7,300 per tonne and resistance at US$8,042. For aluminum it sees support at US$2,070 per tonne and resistance at US$2,494 per tonne.
In zinc MF Global suggests support stands at US$2,330 and resistance at US$2,550 per tonne, while in lead its suggests US$2,180 and US$2,370 per tonne are the respective support and resistance levels.
For Nickel MF Global sees support at US$23,80 per tonne and resistance at US$27.250 per tonne, while for tin it has US$17,200 per tonne and US$19,300 per tonne as the respective support and resistance points.
Gold continues to benefit from the Eurozone sovereign debt problems given its safe haven status. In Commerzbank's view the potential for the debt crisis to extend to other Eurozone nations means interest in gold should remain high, which it expects will support prices.
Standard Bank agrees, suggesting the longer it takes to finalise a rescue package for Greece the more gold will benefit. The key will be May 19th when Greece is due to roll over its debt, as the bank points out if no deal is agreed before that date the euro is likely to come under additional pressure.
Short-term Standard Bank suggests technical support for gold is at US$1,160 per ounce and then US$1,152, while resistance stands at US$1,173 per ounce and then US$1,180. Jyske Bank sees the technical support levels as almost identical at US$1,160 and then US$1,150 per ounce, while its suggests resistance is at US$1,200 and then US$1,225 per ounce.