Monsters of Rock: Base metal traders say copper, zinc, and aluminium stocks getting dangerously low – ‘people will panic’
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All base metals stocks currently stand at multi-year lows, with some market participants telling Fastmarkets “that they are currently at their lowest level in the 21st century”.
Base metals stocks in LME warehouses totalled 400,302 tonnes on Wednesday August 17 – a gigantic 58% decrease since the beginning of the year.
The gravity of the current supply situation has not reached all consumers, traders say.
“My concern is that some people in the market, particularly consumers, are sleepwalking at the moment,” one told Fastmarkets, adding that they were especially worried that “when the markets get back to normal activity in September, people are going to panic.”
The situation is particularly acute in copper, where tight stock levels has been exacerbated by a market increasingly avoiding Russian metal.
It’s estimated that more than half the copper warrants in LME warehouses could be of Russian origin, but “none of our customers are willing to take Russian material, which limits what we can offer,” a trader told Fastmarkets.
“While stocks have rallied from the 2021 lows, things in copper could get nasty again,” another trader said.
“Going back to the 2021 levels is not out of the question.”
There are also significant concerns around LME zinc and aluminium stocks as smelter production cuts bite.
“In this market, one day [zinc stocks] all could just go,” a trader noted.
As of Wednesday, just 276,875 tonnes of aluminium were in LME sheds; a far cry from the +1Mt regularly seen in the system over the past few years.
“The levels of aluminium stocks in the warehouses are unbelievable, when you look at it as the ‘market of last resort’ it should scare people,” a trader said.
“The concern is about what will be left in the system – will it just be old units that were produced a long time ago, high-carbon units, or unpreferred brands,” another market source said.
Minerals sand miner Iluka (ASX:ILU) shot up ~9% today after announcing a solid half year result and an interim divvy of 25c per share.
Mineral sands revenue was up 30%, reflecting higher prices, while margins also increased from 41% to 53%. What inflation?
ILU had a net cash position of $600 million at 30 June 2022; up from $295 million at 31 December 2021.
“Supply-side dynamics remained the dominant feature of mineral sands markets,” the company says.
“For both zircon and high grade titanium feedstocks, scarcity has been exacerbated by the war in Ukraine and challenges in South Africa, with little by way of new production coming online.
“Global inventories of these products are low. In these circumstances, customers are prioritising security of supply; and Iluka is well placed.”
The spin out of Sierra Rutile (ASX:SRX) was completed August 4 as ILU’s diversification into rare earths continued apace.
“We passed a key milestone in our FID for Australia’s first fully integrated rare earths refinery at Eneabba,” the company says.
“This confirmed a long planned, substantial diversification for Iluka, funded via a risk sharing partnership with the Australian Government.
“Eneabba positions the company at the forefront of the global shift to electrification and a low carbon economy.”
The $4.36bn stock is up 3.5% in 2022.