China gold imports up sharply, country set to become world’s biggest user of bullion |

Gold imports to China from Hong Kong were up 59% in March, according to the Hong Kong Census and Statistics Department.

Exports to China were 135.53 tonnes for the first three months of this year, up from 19.7 tonnes a year ago.

Analysts use import data from Hong Kong census department to gauge overall gold demand in China.

World Gold Council is projecting that China may become the world’s biggest user of gold.

Lawrence Williams at Mineweb wonders if gold is being used by China to reduce its central bank’s overweighting of US dollars.

“If historical precedent is being followed, a significant proportion of Chinese government-held gold may be being held in a secondary account which is not reported in the official reserve figures,” writes Williams.

Gold has not had a good week. Since the leadership changes in Europe over the weekend, gold has been off 2.49% to $1,601.29/oz.

Gold has moved sideways since the start of the year. It spiked at $1,783.93/oz in late February but has since slid to about the same price it started in January.

via China gold imports up sharply, country set to become world’s biggest user of bullion |

China wants to take over the world’s largest undeveloped iron ore project

A private group of Chinese magnates is planning to take Guinea’s Simandou, the world’s largest undeveloped iron ore project, from Rio Tinto (NYSE:RIO), reports The Australian.

According to The Sunday Times, China International Fund (CIF) and Angola’s state oil company would propose to take ownership of Simandou from Rio by having the Chinese-controlled and London-listed Bellzone Mining Plc (LON:BZM) offer Guinea $700 million in cash. The amount is equivalent to the sum Rio paid the West African country under an agreement reached last year.

But the World Bank’s private sector development financing arm, International Finance Corporation, is coming to Rio’s recue.

The Washington-based IFC, which acquired its stake in Simandou in 2006, has announced today its plans to invest $150 million of equity in the highly wanted project, as the joint venture between Rio and China’s Chalco races towards first production.

Rio Tinto has been exploring in Guinea since 1996, but intensified its plans for building Africa’s biggest mining development at Simandou in 2007, when markets were thriving and BHP Billiton tried an unsuccessful hostile $135 billion purchase offer.

Although the Anglo-Australian miner intended to be in production by next year, financial difficulties and the previous Guinea government’s decision to strip half of Rio’s tenements, threatening the one that holds the Simandou deposit, have delayed it.

The company is developing a railway, a mine and a port in order to ship its first cargo of the steelmaking raw ingredient by mid-2015, increasing iron ore output to 95 million metric tons a year from Simandou in the future.

Simandou will turn Guinea into the world’s third-largest iron ore producer after Australia and Brazil.

via China wants to take over the world’s largest undeveloped iron ore project |

Copper price: There’s something happening here. What it is ain’t exactly clear

Due to its widespread use in construction, communication and transport copper is a bellwether for the global metals industry.

Talk that the copper market is being manipulated by traders and that dramatic changes to global stockpiles of the red metal are distorting prices have become louder recently.

Like all industrial metals copper’s fortunes are largely determined by Chinese consumption. The recent slide in the copper price – down 3% last week to $3.72 a pound – is being driven by news that China is getting rid of its excess inventory to alleviate shortfalls elsewhere in the world.

Jiangxi Copper, China’s largest copper producer and smelter, is gearing up to export large quantities of the metal and up to last week when it fell 4%, copper stockpiles in Shanghai had almost doubled this year.

CRU, a London-based researcher, estimate that “China may hold as much as three quarters of the “spare” stock that is actually available to the market.”

These figures are in stark contrast to copper inventories in the rest of the world.

London Metal Exchange copper stocks have fallen roughly 135,000 tonnes this year to 235,200 tonnes, the lowest levels since the 2008 recession.

The LME handles around 80% of global trade in metals futures and manages 600 metal warehouses around the world. The 134-year old exchange will accept official takeover bids next and is keen to expand into China.

With copper prices in backwardness since March, meaning stocks for delivery in three months are cheaper than for immediate delivery, the developments have not gone unnoticed by regulators and industry observers. From Reuters:

They [LME regulators] have since fine-tuned rules to deny “dominant holders” – defined as those controlling over half of stocks in any metal and cash positions – from profiting from that position. They are instead forced to give their metal away at scant profit.

But now some traders are suspected of shifting millions of tonnes of stocks around the world and taking some tonnages off warrant at the LME to ensure their positions, or holdings, meet regulators’ requirements while cornering the market. Often they own the warehouses storing the metal which helps the operation.

“It’s a fine line. Increasingly operators are a lot more sophisticated in how they keep on the right side (of market abuse regulations),” said analyst Robin Bhar at Societe Generale in London.

Reuters also reports that “many of those interviewed say commodity house Glencore has amassed a dominant position on the LME in copper. Glencore declined to comment.”

The Swiss firm currently has a merger offer for Xstrata before shareholders to create a $90 billion mining and trading powerhouse.

It’s not the first time the copper market has been the target of rogue traders.

In 1996, Japan’s Sumitomo Corporation lost $2.6 billion after the chief of the company’s copper trading arm attempted to corner the market over a ten-year period.

Yasuo Hamanaka became known as ‘Mr. Copper’ and ‘Mr. 5%’, believed to be the percentage of the global copper trade he was said to control. He left prison in 2005. The copper price has increased 4-fold since 1996.

Not only the base metals market is prone to manipulation. In the 1970s, the Hunt brothers at one stage controlled almost half the world’s trade able silver, before changes in regulations caused the market to collapse.

It’s not just traders that are being fingered for market distortion.

Over and above trading stocks, including ‘strategic’ government reserves, China is estimated to have as much as 3 million tonnes of refined copper stockpiled – 40% more than just six months ago.

That’s led some industry watchers to conclude that the country has managed to corner the market, be that deliberately or not.

via Copper price: There’s something happening here. What it is ain’t exactly clear |

Red mettle: Has China cornered the copper market?

Due to its widespread use in construction, communication and transport copper consumption is considered one of the best indicators of economic activity.

At best, what is going in the global copper market seems to be counterintuitive.

At worst, it looks like market manipulation with serious consequences for consumers of the red metal worldwide.

The metal is up 6% since Monday last week and now trades at over $8,500 a tonne ($3.84 per pound).

Better manufacturing data from China and the US out on Tuesday is one explanation for the recent rise (although two surveys do not make a trend).

So is the rate at which copper held in LME warehouses around the world is being drawn down. Yesterday inventories were down to just 250,000 tonnes, the lowest since October 2008 and at levels that can only be described as very tight.

In contrast Chinese warehouses are bulging as construction slows and economic growth tapers off.

Which is why the country’s number one producer is gearing up to export large quantities of the metal according to a Reuters report on Monday and bonded warehouses in Shanghai recently started re-exporting some of the 600,000 tonnes held there.

About a fortnight ago – before the latest numbers were released – China’s stockpiling was already drawing attention during Cesco, the copper industry’s annual talk shop.

Financial Times (sub required) quoted data from CRU, a London-based metals researcher, that shows “58 per cent of the world’s refined copper is now being held in China” and including strategic government stocks China now sits on some 3 million tonnes – 40% more than just six months ago.

On top of that “traders say that China may hold as much as three quarters of the “spare” stock that is actually available to the market.”

A further complicating factor in judging where the copper price is heading is supply.

Supplies in the industry have been largely flat for a number of years. But according to the International Copper Study Group based on existing plants and announced project developments, annual mine production capacity is expected to grow at a 6.6% a year clip to to reach 26.2 million tonnes in 2015.

That’s up 30% from last year’s levels and should, all things being equal, wipe out any market deficit.

But there are also those who are saying this promised new supply – mostly from South America – will never materialize.

Apart from rising labour and electricity costs, political problems (vide Argentina’s seizure of energy firm YPF), and a scarcity of project finance, acute engineering skills shortages and tough environmental regulation are also hampering the industry.

Unthinkable not very long ago, a situation could now arise where the rest of the world has to import copper from China at inflated prices to meet rising demand.

via Red mettle: Has China cornered the copper market? |

Vale makes most bullish iron ore comments yet. $180 a tonne anyone?

The Financial Times reports Brazil’s Vale expects prices for the steelmaking ingredient to remain strong in 2012, “climbing as high as $180 a tonne” as economic growth in China “re-accelerates”.

“There is a new level of prices for iron ore globally,” Tito Martins, chief financial officer told the paper, “arguing that when prices drop below about $120 a tonne, higher-cost Chinese producers cease to be competitive.”

FT argues that “iron ore prices are, in effect, dictated by the highest cost producers who shut down output when prices tumble.”

Friday’s comments in a conference call with analyst follow that of the CEO of the number one iron ore exporter earlier this month. Murilo Ferreira told reporters at company HQ in Rio de Janeiro: “Those who have been betting against Chinese growth since the 1990s will be wrong again. China is just getting going.”

These are strong words from a company that has seen iron ore imports by China, its biggest customer, slump more than 9% last month. Vale alone controls more than a quarter of the 1 billion tonne seaborne iron ore trade and China represents 60% of global demand.

But Vale is definitely putting its money where its mouth is – the company plans to invest more than $50 billion to expand production of iron ore to a staggering 400 million tonnes per year.

The import price of 62% iron ore fines at China’s Tianjin port was $145.40 at tonne on Friday, levels it has been stuck at for most of 2012. Before staging a mini-crash in October last year, iron ore traded at over $180 a tonne, an-all time high.

The price of 62% iron ore never strayed from $10 – $14 a tonne for more than 20 years (1991 was a banner year – miners got all of $15.03 for their haul). The state of affairs was due to secretive negotiations and annual contracts.

Then at the end of 2004 all hell (for Chinese steelmakers that is) broke loose. The Big 3 – Vale, BHP Billiton and Rio Tinto – decided enough is enough and put up the price 72%, marking the start of a supercycle and the beginning of the end of the old pricing system.

via Vale makes most bullish iron ore comments yet. $180 a tonne anyone? |