Morning Mumble: Friday is here...Oil will be grateful & Copper.

Good Morning, 

Its somewhat late that the FT runs with US oil price below $60 a barrel. Oil echoes the pains of all commodities. The simple explanation is companies (even Chinese) are better at managing supplies. More so, everything about the pricing contradicts those Chinese bulls with excessive forecasts, the demand from China simply isn't matching the forecasts no matter what the end figure (GDP%) is stated as (link) for the next 12 months at least.

So the economics of oversupply come in to play with what should be seen as a repricing or price correction in Oil, same forall commodities and just to be contrarian of Glencore (GLEN), copper is included. GLEN's mix of assets meant is was a short from the summer like most commodities save for Uranium. The distraction being the Rio/GLEN debacle which meant they had to be closed out. One simply cannot bet on the irrational actions of the Market. GLEN should perhaps tell Codelco who reduced their Chinese copper premium by circa 4% and potentially more for next year but amazingly price in higher default assumptions.

GLEN's asset mix, isn't great, they need some top assets (Rio was attempted). With the damage already done in their asset mix, Nickel down near 40% in 5 years), Copper (down 10% in 5 years but 25% in 4 years) and Zinc (down near 15-20% in 5 years) its no surprise that base metals are assumed as a safer bet if one assumes they've stabilised. Albeit they are a lot of assumptions in those prices. For example, the amount of second-hand deals (fire sales) coming to market for Copper its indicating a lower demand and leverage. 

There's also contradiction in the reporting of copper stocks both on the London Metal Exchange, Shanghai Copper Futures (CU) and within China, Standard Charter (STAN) can perhaps tell us a few things about copper not being in demand as much never mind their "copper loans." The press are suggesting stocks have dropped whereas the positions on the market imply otherwise including the views of GLEN being misinterpreted with more supply coming to market up to 2016 support any demand increases. Yes there's some restocking occurring but with most strategic purchases by the Chinese being conducted appropriately in the market, the stability is there. The caveat being any stimulus could drive copper.

If China are forced down the stimulus route rural areas are likely to benefit more so. If so this could push demand near 500k/t's higher in Asia assuming Asian countries follow suit (Thailand/Indonesia). Any surplus is going to be near 1m't for copper going through to 2016 January save for common-sense caveats. Admittedly this is near 500kt's above consensus. However this is completely justified in light of the BHP’s Growing Focus on Copper. Yet again the market needs to start paying attention!

The lack of leverage across ASIA has removed the majority of speculation (save for the big boys) in most commodities and this doesn't assist the consensus either. The just-in-time (JIT) market with limited stockpiles is set to stay and beneficially will give obvious signals to the traders looking for indicators of the health of the global or regional economies. The JIT is being misinterpreted as higher demand when in fact its  better prediction of cycles and management of stocks. This is where Kenmare (KMR) have suffered in their expectations including their over production carrying near one entire quarter in stock.

Zinc would be more favoured, with lesser downside and potentially some nice upside with supply interruptions in-conjunction with mines closing potentially pushing the price to $2.7k/t (a positive for GLEN). Fundamentally one would be wise to keep an eye on the all important $1/lb ($2.204k/t) support level; there's a little more to it than that but with that being 85% of the indicator being the pricing support at least one can assess the positives/negatives in an amateurs way. 

Zinc's performed well this year 10% (circa), demand isn't too throffy but more importantly there's mine closures coming which take around 1/2mt off the global table that is going to be harder to replace. So expect to hear of new projects enticing the finance soon. Over to Minco (MIO) et al on that one for those scratching their heads about AIM plays.

It was so nice of United Utilities to give the link for the Ofwat Final Determination due to time constraints due to its absence I won't have time to tuck in to it. Assuming nothing has gone seriously wrong with the process the draft is likely to be copied and pasted. 

We note the Chinese data but due to commitments more time is required. The data released yesterday shows a slowing of Chinese industrial production. The bulls will pin their hopes on factory closures for air quality measures as the main reasoning. Perhaps they would like to revisit the figures in $ terms for this assertion and come back to with some revisions.  Surprisingly for myself fixed asset and retail figures weren't as weak! 

Off to court goes PCI (Petroceltic) and Worldview, quite what Worldview want to achieve they might like to consider the realities of the market. Legal Proceedings Issued by Worldview without knowing much about this, PCI sum it all up with by stating they wish to avoid such actions etc...but more importantly they will "seek to recover from Worldview, to the maximum extent possible, all costs incurred by the Company in so doing." Group hug?

The final thought goes to Atlas Iron...no change, they can sleep well this Friday!

Atb Fraser