MAC: Mines and Communities

London (& Hong Kong) Calling on a "Market Mess"

Published by MAC on 2011-05-30
Source: Reuters

Dancing with the Bears and a lot of Bull

"The London Metal Exchange is a mess," according to a Swiss commodities trader.

Indeed it is - or at least it's between a rock and a number of hard places.

Aluminium is piling up in warehouses, yet the "market" is acting as if it were in short supply -  with big investors (notably JP Morgan and Goldman Sachs) apparently raking in profits as a result.

As the Swiss trader goes on to point out: "[Consumers] can see the world awash with metal, most of it in the United States... and yet the premium goes from six cents to 9 cents in a fortnight".

Meanwhile, another mining IPO on the Hong Kong stock exchange - by Clive Palmer's Resource house group - has been postponed (albeit for four days) as uncertainty grows over near-future prospects for mineral commodities.

This follows the distinctly lack-lustre performance by Glencore last week, when the world's biggest metals commodities' trader started trading on the Hong Kong exchange, just after its IPO in London.

According to Reuters, Glencore CEO, Ivan Glasenberg, marked the occasion by presenting a miniature metal truck to the Hong Kong bourse "as a memento".

In return he received a "crystal bull (sic)".

Sometimes, a small symbolic act like this conveys more than a thousand words...

* For more information on Clive Palmer, see:

[London Calling is published by Nostromo Research. Views expressed in this column do not necessarily represent those of any other individual or organisation. Reproduction is welcomed so long as it is accompanied by reference to the source.]

LME due to take further steps in addressing warehousing bottlenecks


25 May 2011

London -The London Metal Exchange is due to take further steps this week to address warehousing bottlenecks that critics say have unfairly allowed aluminium to be locked up and helped inflate prices.

Talk has swirled in recent weeks about recommendations from an independent report into the bottlenecks, which will be reviewed by the LME's warehousing committee on Friday.

Separately, a UK government committee has expressed its concern over possible "restrictive" behaviour by big LME dealers that own warehouses, which include bank JP Morgan, and has alerted anti-competition authorities.

The LME is being pressured by both consumers and traders who want warehouses to be forced to deliver metal more quickly and also by the warehouses which warn that tougher delivery rules would be impractical and costly.

The draft report by London-based consultants Europe Economics was commissioned last year and Friday's meeting will be a first step before the report's recommendations go before the LME board in June.

Getting supplies of aluminium can be difficult despite record LME stocks due to financing deals that have tied up material.

This has been exacerbated by logistical bottlenecks.

The LME's delivery system also has a minimum delivering out rate for aluminium from warehouses which some regard as insufficient.

Currently, that minimum is 1,500 tonnes per day per location and some people expect the LME to increase that to 2,500 tonnes.

"The situation is not sustainable. The LME, especially with the U.S., takes a risk (it) will be sued," a Swiss merchant said.

"The LME normally moves very slowly. I think they will move much less than people expect...but there will be some move."

Slow Deliveries

One of the exchange's key functions is to allow industry to sell excess stock in times of oversupply and as a source of material in times of extreme shortage.

But a Reuters survey last year found metals merchants, brokers and traders were worried about the speed at which LME-registered warehouses can deliver out metal.

Deliveries delayed for months from points such as Detroit have hiked financing and storage costs for fuming owners.

"The LME is a mess. They will be sued by warehousers if they make any changes or by consumers for denying access to metal," said another Swiss trader.

Mooted possibilities include changing the load-out rate to a percentage of total tonnage stored, or banning all future deliveries into Detroit, regarded as the most difficult delivery point, until the backlog is fixed.

A precedent already exists for capping inflows as the LME froze storage capacity in Los Angeles and Long Beach sheds in 1998.

Large Stocks at Detroit

Most of the market unhappiness centres on Detroit which accounts for around a quarter of LME aluminium, or 1.2 million tonnes, but where consumers may be waiting until 2012 for delivery and paying a premium of nearly 10 cents extra per pound.

Warehouser Metro, bought last year by U.S. investment bank Goldman Sachs (GS.N: Quote), controls 19 of Detroit's 23 warehouses.

"(Consumers) can see the world awash with metal, most of it in the United States... and yet the premium goes from six cents to 9 cents in a fortnight," said the second Swiss trader.

Goldman declined to make immediate comment.

U.S. Midwest spot aluminum premiums hit record highs earlier this month.

LME aluminium inventories MAL-STOCKS hit a record peak of 4.71 million tonnes last week.

Resourcehouse's IPO launch delayed due to decline in commodity prices


25 May 2011

Hong Kong - Australian mining company Resourcehouse, controlled by billionaire Clive Palmer, has delayed by four days the launch of its Hong Kong initial public offering, according to a term sheet seen by Reuters on Wednesday.

The company, which is seeking to raise $3.6 billion, expects to launch the IPO on May 30, from a previous tentative date of May 26. Pricing was postponed to June 3 from May 31.

Resourcehouse last week started meeting with investors to gauge demand for the IPO, its fourth attempt to go public in Hong Kong. The company postponed a road show in March, citing unfavorable market conditions, after previous attempts in 2009 and 2010.

BOC International, HSBC Holdings Plc , Royal Bank of Scotland Group Plc and UBS AG are joint global co-ordinators and joint bookrunners for the offering.

Prices for oil, metals and other commodities have slumped in recent weeks because of concerns over higher interest rates in China, continued worries over a debt crisis in Europe, and tensions in the Middle East.

The 19-commodity Reuters-Jefferies CRB index has fallen in 11 of the 17 past sessions, highlighting the volatility in commodities since the end of April.

Despite the recent downturn, Ivan Glasenberg, chief executive of the world's largest diversified commodities trader Glencore International Plc , said on Wednesday that he remained bullish on commodities prices because of tight supply.

"We're still bullish on commodities. We believe there's still strength in the commodity market," Glasenberg said at a news conference after Glencore's debut in Hong Kong.

Hong Kong initial trading sees fall in price below listing

By Denny Thomas and Elzio Barreto


25 May 2011

Hong Kong - Shares in Glencore International Plc fell as much as 3 percent on their Hong Kong trading debut on Wednesday, dented by concerns over valuations and the outlook for commodities after a lacklustre start in London the previous day.

The dual listing in London and Hong Kong puts an end to the drawn-out process of taking the 37-year old commodities trader public at a time when prices for copper, oil and other raw materials have been falling sharply.

Glencore CEO Ivan Glasenberg -- an intense and ambitious former coal trader -- sounded bullish on the outlook for commodities and blamed the first day performance to general weakness in stock markets around the world.

"Commodity prices have decreased considerably the past few weeks," Glasenberg told reporters after the listing ceremony at the downtown offices of Hong Kong Exchanges and Clearing Ltd.

"As you know all markets around the world have decreased in prices. I think we're just following the rest of the markets," said Glasenberg, whose 15.8 percent stake is worth more than $9 billion on paper.

By 0336 GMT, Glencore shares were trading at HK$65.15 compared with the offer price of HK$66.53. Last week, Glencore raised $10 billion through a London and Hong Kong initial public offering, giving the Swiss commodities trader firepower for acquisitions.

Hong Kong's Hang Seng index has fallen about 2 percent since it set the final price late on May 18.

Glencore's London-listed shares were stuck under water on their Tuesday debut, dashing hopes of a strong start after it set a mid-range flotation price for London's largest-ever offering.

Glasenberg, who flew straight after the London listing ceremony to attend the Hong Kong event, handed a miniature metal truck to the Hong Kong stock exchange as a memento. In return, Glasenberg received a crystal bull.

He delivered a short message ahead of the debut, saying he hoped Glencore would give Hong Kong investors the return they expect.

However, retail investors in Hong Kong were not overly excited, saying they found the price expensive.

"Retail investors are not too enthusiastic about Glencore as they have been more focused on penny stocks with small market capitalisations recently," said Joseph Fong, an associate with Ping An China Securities.

"Glencore is too big for retail investors to have big profit on day one," added Fong, who owns less than 1,000 shares in Glencore.

Founded in 1974 by Marc Rich, a trading sensation who fell afoul of U.S. authorities, Glencore has grown into the world's largest diversified commodities trader, with subsidiaries employing tens of thousands and an oil division with more ships than Britain's Royal Navy. It owns 34.5 percent of London-listed miner Xstrata.

Commodities price volatility in recent weeks prompted market worries over the IPO, but Glasenberg said two weeks ago that the decline in commodities was "due to some froth", playing down the impact on the listing.

Citigroup , Credit Suisse and Morgan Stanley are the joint global coordinators for the offer. In all, 23 banks were involved in the IPO, with a potential fee pool of $275 million.

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