China scraps tax on gold contained in copper imports

As expected the currency markets continued to boss the metals yesterday, to such an extent that at times, you could only differentiate the spot dollar/euro chart from the 3-month copper chart by looking at the scale on the axis. The dollar has continued to govern direction for the likes of copper this morning, however, very thin volumes elsewhere in the complex have somewhat lessened the overall impact the dollar is having on the other metals.

Aside from shadowing the dollar, the other recurring theme in the copper market has been rising LME inventories, particularly into Asian warehouses - see focus section. This has continued this morning with on-warrant stocks climbing 5,125 mt to 400,225 mt.

The main locations for the increase this morning were Busan (+2,400 mt) and New Orleans (+2,000 mt). Copper still remains rangebound however, with participants still looking to play the ranges. In the background however, on-going industrial action at BHP Billiton’s Spence mine, and reports that rioting workers at Vedanta’s Konkola copper operation had disrupted production are lending support to prices.

In other news, China has scrapped the 17% VAT on gold contained in imports of crude (blister) copper. Although gold recovery rates for some Chinese refineries still lag western operations in terms of gold recovery rates, at the current gold price, for every tonne of gold they recover, the cancellation of the VAT potentially gives them an extra ~$5-6 million in revenue.

While the move may help the Chinese smelter/refineries ride out the very low spot refining charges at the moment, it will also likely see the premium for blister with a higher gold content increase substantially over material with a lesser gold content.

Zinc is looking to copper for direction, however volumes have dropped off substantially this morning, with turnover on LME
Select still less than 800 lots by midday London time, compared to just over 1,000 lots for Nickel. Aluminium and Lead are also suffering form a lack of turnover.

In other news, the Quatalum greenfield aluminium smelter in Qatar is in the process of installing its carbon anodes and is on track for first production next month. The 585 ktpy capacity operation is owned 50% by Hydro and 50% by Qatar Petroleum, with full production capacity expected to be reached by Q3-2010.

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