Copper spreads too easy

Transcription

1 Daily Copper spreads too easy The main focus in copper has been on the near-dated spreads, with Tom/Next recently trading out to $20 backwardation and with the Cash-3 month spread trading out to a $64.50 backwardation earlier this week. This spreads have since started to ease, in line with weaker prices and with the LME warrant holding data showing dominant holders of Cash and Tom warrants slipping down the percentage bandings. While the copper Cash-3 month spread has traded in line with historical norms in terms of its relation to LME on-warrant inventory, the farther dated 3-15 month spread has been relatively calm and arguably should be tighter. Looking over the past decade, at today s levels of on-warrant LME inventory, the 3-15 month spread has traded from the current ~$40 backwardation all the way out to $850 backwardation. Admittedly those values were reached in 2006, when the copper market was tightening up significantly in the aftermath of the Grasberg pit-wall failure, and a surge in Chinese refined copper demand, while headline inventory was also at very low levels. Nevertheless the 3-15 month spread is at least fair value and arguably should tighten further. The main question is how quickly and to what extent the increase in mine supply is drip fed into the refined market. Also, how tight do the forwards have to become to finally tempt some of the 180 kt of copper cancelled warrants back on-warrant? By Leon Westgate LME 3-15 month spread vs. on-warrant LME inventory $/mt Source: LME, Standard Bank Research Commodities Strategist Walter de Wet Walter.DeWet@standardbank.co.za Commodities Strategist Leon Westgate Leon.Westgate@standardbank.com Commodities Strategist Melinda Moore Melinda.Moore@standardbank.com This material is "non-independent research". Non-independent research is a "marketing communication" as defined in the UK FCA Handbook. It has not been prepared in accordance with the full legal requirements designed to promote independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

2 Base metals The base metals complex closed pretty weakly on Thursday evening, with only nickel managing to dig its heel s in after a bout of selling interest during Thursday afternoon. The trigger for the price weakness isn t entirely clear, but emerged as a coordinated sell-off across the main base metals. Emerging market stress has been cited as a trigger, though stability has returned to the base metals this morning with the metals strengthening into Friday afternoon. Copper has traded below $7,200, however, it has found support around its 100-day MA and is recovering heading into US trade. Worth noting meanwhile is that the latest LME warrant holding data no longer shows any holders of cash or tom warrants. This has been reflected in the tom/next spread which is back trading in a small contango. Also worth noting is that LME on-warrant stocks posted a 1,200 mt gain, with Johor accounting for the increase. Zinc has also managed to stabilise after initially coming under further pressure. Worth noting is that LME on-warrant stocks have continued to climb, with today s net 6,425 mt increase due mainly to a 7,625 mt increase at New Orleans. On-warrant inventory are now at the highest level since March 2013, though headline stocks are still around the lowest levels seen since March Nickel has continued to prove to be resilient, with the metal holding around $14,500 and climbing again heading into Friday afternoon. On-warrant stocks climbed a net 3,354 mt this morning, with Rotterdam (+2,700 mt) and Johor (+1,152 mt) the main locations for the activity. It s worth highlighting however that the Johor inflow was mostly due to the re-warranting of previously cancelled material. Elsewhere, Aluminium has managed to stabilise around $1,770 heading into Friday afternoon, while lead has also managed to pick itself up and trade back towards $2,170. Precious metals By Leon Westgate Platinum and palladium are under pressure. Negotiations between SA mines and AMCU, facilitated by the CCMA and the South African government, take place today. The market anticipates an end to the strikes sooner rather than later. Despite dollar prices for the PGM group under pressure, the ZAR keeps on sliding. The ZAR PGM basket price is currently at ZAR13,150/PGM oz. This is the highest level since July We maintain that platinum will struggle to sustain rallies above $1,500. We will scrutinize the CFTC data for the week up to Tuesday, due for release later today, to determine how the futures market positioning has changed for platinum and palladium. Last week s data indicated that few new long positions had been added to platinum, but that short positions were covered, driving prices higher. Should there again be little evidence of new long positions entering the market for especially platinum, we would read it as a bearish signal. After yesterday s strong performance, gold is once again running into selling pressure. The spike in the gold price yesterday has highlighted the price sensitivity of gold demand in China. This morning, the SGE premium traded as low as $7.62 the lowest level since mid-dec. To us, gold remains a sell into rallies in February. Technically, we still expect resistance in the $1,249 to $1,270 range, with an initial downside target of $1,180. 2

3 By Walter de Wet Bulks A quieter day today, consolidating after the week's liquidity-led volatility. Chinese holidays begin next week, while in Australia, tropical lows are developing in the northern regions of both east and west coasts. Dalian iron ore futures fell RMB 1/t to RMB 877/t, while SHFE May rebar futures rose RMB 24/t to RMB 3,487/t. CSRC has approved HRC to be traded on the SHFE. Shanghai Dazong April HRC futures rose RMB 24/t to RMB 3,447/t. Tangshan billet prices rose RMB 10/t to RMB 2,840/t. The TSI 62 index rose 40 cents to $124.3/t, while its 58 index fell to $113.9/t. The MB 62 Index fell 32 cents to$124.29/t, while its 58 Index rose 5 cents to $108.82/t. The Platts 62 index rose 25 cents to $ Zhengzhou coal futures also firmed today, closing the day at RMB 541.8/t, up RMB 3.6/t. By Melinda Moore 3

4 Commodity Prices Base Metals LME 3 month Open Close High Low Daily Change (%) Cash Settle Change in Cash - 3m change cash settle Aluminium Copper Lead Nickel Tin Zinc Daily LME Stock Change (mt) Metal Today Yesterday In Out One day change YTD change (mt) Cancelled warrants (mt) Cancelled warrants (%) Contract turnover Aluminium Copper Lead Nickel Tin Zinc Shanghai 3-month Open Last 1d Change COMEX Open Close Change Change (%) Aluminium Ali Feb' Copper Cu Feb' Zinc ZAR metal prices Aluminium Copper Lead Nickel Tin Zinc ZAR/USD fix Cash month Precious metals AM Fix PM Fix High bid Low offer Closing bid Daily EFP's change Gold /-0.5 Silver /0 Platinum /+3.5 Palladium /+1.0 Forwards (%) 1 month 2 months 3 months 6 months 12 months Gold Silver USD Libor Technical Indicators 30-day RSI 10-day MA 20-day MA 100-day 200-day Support Resistance MA MA Gold Silver Platinum Palladium Active Month Future COMEX COMEX SLV NYMEX NYMEX DGCX GLD TOCOM CBOT GLD GLD PAL PLAT GLD Settlement Open Interest Change in Open Interest Energy Energy futures pricing 1 month Change 2 month Change 3 month Change 6 month Change Sing Gasoil ($/bbbl) Gasoil 0.1% Rdam ($/mt) NWE CIF jet ($/mt) Singapore Kero ($/bbl) % Rdam barges ($/mt) % Fuel Oil FOB ($/mt) Sing FO180 Cargo ($/mt) Thermal coal Q1 14 Change Q2 14 Change Q3 14 Change Cal 14 Change API2 (CIF ARA) API4 (FOB RBCT) Source: LME, NYMEX, COMEX, SHFE, Standard Bank Research 4

5 Commodity Prices Latest Price 1-week 1-month 3-month 6-month 1-year Bulks Steel Physical Turkish Scrap 80:20 (Iskinderun CFR) $/t % 1.96% 10.61% 10.86% -0.80% China Tangshan Steel Billet $/t % -0.20% 1.43% -0.60% -7.81% China HRC export (Shanghai FOB) $/t % 0.19% 0.57% 6.18% -6.16% North Europe HRC domestic (ex-works) $/t % 0.00% -1.71% -1.71% -8.51% North America HRC domestic (Midwest FOB) $/t % 0.15% 6.21% 8.06% 8.40% Steel Futures LME Billet Cash $/t % 23.53% 50.00% % 7.51% LME Billet Futures (1-mth) $/t % 23.53% 48.58% % 6.78% LME Steel Billet Stocks change Shanghai Rebar Futures (Active contract) $/t % -7.66% -4.07% 3.15% % Shanghai Rebar Futures On-Warrant Stocks change SHFE Rebar - Open Interest SHFE Rebar - Total Volume China Steel Inventory (million tonnes) % 0.39% % % 1.55% Iron ore China Iron Ore Fines (62% Fe; CFR Tianjin) $/t % -5.67% -0.23% 6.31% % China Iron Ore Fines (58% Fe; CFR Tianjin) $/t % -3.02% -0.33% 6.82% % SGX AsiaClear IO Swaps 62% Fe $/t (1-mth) % -5.31% 0.88% 7.58% % Platinum China Iron Ore Inventory (million tonnes) % 0.73% 16.30% 12.62% 11.69% Coking coal Premium Hard Coking Coal (Qld FOB) $/t % -1.70% -9.02% -4.39% % Capesize freight Saldanha South Africa-Beilun China % % % 31.48% 42.00% Financials pricing RMB Currency % -0.29% -1.06% -1.22% -2.75% China 7-day repo % % % 11.67% 34.45% API2 (CIF ARA) % -9.26% -8.18% 3.33% % Source: LME, SGX, McCloskey, SHFE, Bloomberg 5

6 Disclaimer This material is non-independent research. Non-independent research is a "marketing communication" This material is "non-independent research". Non-independent research is a "marketing communication" as defined in the UK FCA Handbook. It has not been prepared in accordance with the full legal requirements designed to promote independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Additional information with respect to any security referred to herein may be made available on request. This material is for the general information of institutional and market professionals clients of Standard Bank Group (SBG) only. Recipients who are not market professionals or institutional investor customers of SBG should seek advice of their independent financial advisor prior to taking any investment decision based on this communication or for any necessary explanation of its content. It does not take into account the particular investment objectives, financial situation or needs of individual clients. Before acting on any advice or recommendations in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The information, tools and material presented in this marketing communication are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This material is based on information that we consider reliable, but SBG does not warrant or represent (expressly or impliedly) that it is accurate, complete, not misleading or as to its fitness for the purpose intended and it should not be relied upon as such. The information and opinions contained in this document were produced by SBG as per the date stated and may be subject to change without prior notification Opinions expressed are our current opinions as of the date appearing on this material only. We endeavour to update the material in this report on a timely basis, but regulatory compliance or other reasons may prevent us from doing so. SBG or its employees may from time to time have long or short positions in securities, warrants, futures, options, derivatives or other financial instruments referred to in this material. Where SBG designates NON- INDEPENDENT Research to be a marketing communication, that term is used in SBG s Research Policy. This policy is available from the Research Compliance Office at SBG. SBG does and seeks to do business with companies covered in its non-independent research reports including Marketing Communications. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. SBG has published a Conflicts of Interest Policy that is available upon request which describes the organisational and administrative arrangements for the prevention and avoidance of conflicts of interest. Further disclosures required under the FCA Conduct of Business Sourcebook and other regulatory bodies are available on request from the Research Compliance Department and or Global Conflicts Control Room, unless otherwise stated, share prices provided within this material are as at the close of business on the day prior to the date of the material. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of SBG. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of SBG or its affiliates. SBG believes the information and opinions in the Disclosure Appendix of this report are accurate and complete. Information and opinions presented in the other sections of this communication were obtained or derived from sources SBG believes are reliable, but SBG makes no representations as to their accuracy or completeness. Additional information is available upon request. SBG accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to SBG. The services, securities and investments discussed in this material may not be available to nor suitable for all investors. Investors should make their own investment decisions based upon their own financial objectives and financial resources and it should be noted that investment involves risk, including the risk of capital loss. Past performance is no guide to future performance. In relation to securities denominated in foreign currency, movements in exchange rates will have an effect on the value, either favourable or unfavourable. Some investments discussed in this marketing communication have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment, in such circumstances you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make them investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realize those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. 6

7 This report is issued and distributed in Europe Standard Bank PLC. 20 Gresham Street, London EC2V 7JE which is authorised by the Prudential Regulation Authority ( PRA ) and regulated by the Prudential Regulation Authority (PRA ) and the Financial Conduct Authority ( FCA ). This report is being distributed in the United States by Standard New York Securities (USA) LLC; in Kenya by CfC Stanbic Financial Services Ltd; in Nigeria by Stanbic IBTC; in Angola by Standard Bank de Angola S.A.; in Brazil by Banco Standard de Investimentos S.A.; in China by Standard Resources (China) Limited;; in Botswana by Stanbic Bank Botswana Limited; in Democratic Republic of Congo by Stanbic Bank Congo s.a.r.l.; in Ghana by Stanbic Bank Ghana Limited;in Isle of Man by Standard Bank Isle of Man Limited; in Jersey by Standard Bank Jersey Limited; in Madagascar by Union Commercial Bank S.A.; in Mozambique by Standard Bank s.a.r.l.; in Malawi by Standard Bank Limited; in Namibia by Standard Bank Namibia Limited; in Mauritius by Standard Bank (Mauritius) Limited; in Taiwan by The Standard Bank of South Africa; in Tanzania by Stanbic Bank Tanzania Limited; in Singapore by Standard Merchant Bank (Asia) Limited; in Swaziland by Standard Bank Swaziland Limited; in Zambia by Stanbic Bank Zambia Limited; in Zimbabwe by Stanbic Bank Zimbabwe Limited; in UAE by Standard Bank Plc Dubai branch In jurisdictions where SBG is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Standard Bank Group Ltd Reg.No.1969/017128/06) is listed on the JSE Limited.SBSA is an Authorised Financial Services Provider and it also regulated by the South African Reserve Bank. Copyright 2014 SBG. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Standard Bank Group Ltd. 7