FIGURE 1. CHINA S COMMODITY IMPORTS

Transcription

1 ANZ RESEARCH COMMODITY CALL 23 SEPTEMBER 216 CONTACT INSIDE Summary 1 Commodity Performance 2 Commodity Strategy 3 ANZ CCI 3 Investor Positioning 6 Prices 8 Inventories 1 Forward Curves 11 Forecasts 12 Daniel Hynes Senior Commodity Strategist Daniel.Hynes@anz.com Follow us on CHINESE CHECKERS Economics and government policies continue to have a big impact on demand in various commodity markets. China s recent release of production data showed that output of steel, copper, and aluminium rose strongly in August. Higher margins and prices for these commodities appear to be the reason behind the uplift. On the flip side, relatively low prices continue to put domestic crude oil production under pressure, while government policies around reducing overcapacity has seen coal output continue to fall. This has then played out in China s import demand. Copper and aluminium imports were weaker in August, while demand for nickel, coal, iron ore, and crude oil remain strong. This goes some way towards explaining the recent strength in coal and nickel prices and the relatively underperformance of the copper and aluminium prices. This also suggests we will continue to see China use underutilised refinery capacity by importing more raw materials (such as crude oil, iron ore, and copper concentrates). FIGURE 1. CHINA S COMMODITY IMPORTS % chg y/y Jun-16 Jul-16 Aug-16 Nickel Copper Aluminium Coal Oil Iron Ore Source: Argus, ANZ Research WHAT WE ARE WATCHING OPEC talks. While the group doesn't officially meet until 28 September to discuss production plans, discussions between Saudi Arabia and Iran this week suggest they are keen to get something done. We still don't expect a deal (neither do most investors), which raises the possibility of a sharp reaction to the upside in prices if an agreement is reached. COMMODITY SHORT TERM VIEW: 3 MONTH OUTLOOK Best Performers Worst Performers Brent 14% Hard Coking Coal -27% WTI 12% Thermal Coal -9% LNG 11% Iron Ore -7% Nickel 8% Zinc -4% Palladium 7% Tin -3% Note: Upside to current spot price based on ANZ forecast

2 Commodity Call / 23 September 216 / 2 of 14 COMMODITY PERFORMANCE FIGURE 2. ONE WEEK PERFORMANCE FIGURE 3. ONE MONTH PERFORMANCE Coking Coal Lead Iron Ore Thermal Wheat Copper Brent Gold Corn Platinum Nat Gas Zinc Aluminium WTI Sugar Nickel Iron Ore Wheat Brent Platinum WTI Aluminium Zinc Corn Gold Coking Coal Copper Nickel Lead Thermal Sugar Nat Gas % 5% 1% 15% FIGURE 4. CHANGE IN INVENTORY W/W - METALS 2.% 1.5% 1.%.5%.% -.5% -1% -5% % 5% 1% FIGURE 5. CHANGE IN INVENTORY W/W - ENERGY 2.% 1.5% 1.%.5%.% -.5% -1.% -1.5% -1.% Cu Al Ni Pb Zn Au Source: Bloomberg, LME, ANZ Research -2.% US Crude US US Gasoline Distillate Source: EIA, Bloomberg, ANZ Research US NatGas China Coal FIGURE 6. ANZ CCI VS USD Index Jun Jul Aug Sep CCI USD (RHS) Index FIGURE 7. ANZ CCI SUB SECTOR PERFORMANCE Aug 3-Aug 6-Sep 13-Sep 2-Sep ANZ CCI Bulks Agriculture Energy Precious Industrials Source: ANZ Research

3 Commodity Call / 23 September 216 / 3 of 14 COMMODITY STRATEGY CHINESE CHECKERS CHINESE COMMODITY OUTPUT IMPACTING MARKETS Low prices and government policies continue to drive China s import demand for many commodities. Falling output in commodities such as copper and aluminium have seen import demand weaken in August. However, significant falls in production of crude oil and iron ore has continued to support apparent demand for those commodities. FIGURE 9. Y/Y CHANGE IN CHINA'S COMMODITY IMPORTS % chg y/y Jun-16 Jul-16 Aug-16 Nickel Copper Zinc Oil Iron Ore Aluminium Source: NBS, ANZ Research A slew of production data from various commodities released over the past week suggests higher prices are inducing more supply back into the market. This could go some way towards explaining the recent strength in zinc and nickel prices and the relative underperformance of the copper price. They also suggest this will continue to see China use underutilised refinery capacity by importing more raw materials (such as crude oil, iron ore, and copper concentrates). The International Aluminium Institute (IAI) released its estimate of global aluminium output for August this week, which fell.2% y/y. But the devil is in the detail, with its estimate of Chinese production climbing 2% m/m. Meanwhile, daily output rose to 87,5 tonnes. As we highlight recently (Commodity Call weighty matters, published 5 August 216), smelters have been announcing the restart of previously closed capacity on the back of higher prices and premia. This has evolved into by strong growth in production in recent months. China s output in August was 2.72Mt, down.8% y/y. However, on a sequential and production-per-day basis, August output (88kt/d) is up 23% from the year low of 71kt/d in February of this year. FIGURE 1. CHINA S ALUMINIUM OUTPUT Million Tonnes ANZ CHINA COMMODITY INDEX (CCI) The ANZ-CCI jumped 1.5% this week, with all sectors except agriculture ending the week higher. A weaker USD boosted risk appetite amongst investors, while supply issues continue to have an impact. Bulk commodities were the best performers, driven by strong gains in coking and thermal coal prices. Industrials were also strong as the impact of better than expected economic data in China lingers on. Further discussions about a production freeze and lower inventories in the US continued to support oil prices. However fears of a recovery of supply in Nigeria and Libya kept the gains limited. Gold rebounded after the Fed lowered its outlook for rates in 217. FIGURE 8. ANZ CCI WEEKLY PERFORMANCE Ags Precious ANZ-CCI Industrials Energy Bulks % Performance as of 22 September Source: ANZ Research 2. Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Monthly output Daily output Source: IAI, NBS, ANZ Research Chinese copper refineries also recorded another strong month of production. Refined copper production increased 3% m/m to 734kt in August. Production is being supported by strong imports of concentrate as projects in Peru ramp up. Year to date (ytd) (January-August) imports of copper concentrate and ore are up 34% y/y to 1.9 million tonnes. However, the strong increase in refined copper has seen import demand weaken kt/d

4 Commodity Call / 23 September 216 / 4 of 14 COMMODITY STRATEGY After a strong start to the year, growth in primary copper imports fell to only.8% y/y in August. This compares with an increase of 17% y/y in January- August. FIGURE 13. CHINA STEEL PRODUCTION FIGURE 11. REFINED COPPER OUTPUT Thousand Tonnes Nickel output was down sharply as the country struggles with sourcing nickel ore and cheap refined nickel imports. The relatively high cost base of the country s nickel pig iron (NPI) industry is also playing its part in contributing to weaker output. Primary nickel production fell by 2% y/y in August to 36.3kt (Figure 12). A group of Chinese NPI producers announced earlier this year that they would reduce output by 2% due to weak prices. This has seen imports surge in 216. In the eight months to August, imports of refined nickel are up 68% y/y. Total primary nickel imports (which include refined nickel and non-lme traded ferronickel) were up 53% y/y during the same period. FIGURE 12. CHINA'S PRIMARY NICKEL OUTPUT Thousand Tonnes Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Output % chg y/y (RHS) Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Output % chg y/y (RHS) Source: WBMS, NBS, ANZ Research Steel production also climbed higher despite efforts to close capacity ahead of the G2 summit in Hangzhou. Crude steel output rose 2.6% m/m to 68.6 million tonnes in August. This was also up 2.4% from August % chg y/y % chg y/y Million Tonnes Source: NBS, ANZ Research Output of steel marking raw materials remain under pressure. Iron ore production has been falling for nearly two years as low prices made most of the industry uneconomic. August data showed that runof-mine output fell 7% y/y to 115 million tonnes. This is also down nearly 2% over the past two years. Coal output is also weaker; however, this has been a result of government-forced closures rather than price-related issues. As we highlighted recently (Commodity Insight - China revives seaborne coal, published 28 July 216), China s ongoing effort to reduce overcapacity has seen domestic supply fall. August data shows this has continued, with production down 1% y/y. FIGURE 14. CHINA'S COAL OUTPUT Million Tonnes Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul Output Source: NBS, ANZ Research % chg y/y (RHS) 2 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Output % chg y/y (RHS) Crude oil production fell 9.5% y/y in August, which continues a trend that started early this year. August output fell to 3.8mb/d, the lowest daily average since October 211. Both Sinopec and PetroChina, China s two largest producers, reduced their 216 production guidance as a result of the closures of uneconomic fields. This has seen import demand grow strongly. Imports in August rose 32.5% y/y to 35.2 million tonnes (8.33 mb/d), while ytd imports are up 17% y/y. However, in addition to weak domestic output, the stockpiling of strategic reserves has also increased demand for international crude. Wood Mackenzie estimates strategic and commercial reserves capacity are currently at 61 million barrels, up 8 million barrels from % chg y/y % chg y/y

5 Commodity Call / 23 September 216 / 5 of 14 COMMODITY STRATEGY Assuming it s all filled, that equates to an additional 21kb/d (on an annual basis) of crude demand. FIGURE 15. CHINA'S CRUDE OIL PRODUCTION Million Tonnes Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul % chg y/y Output % chg y/y (RHS) Source: NBS, ANZ Research

6 Commodity Call / 23 September 216 / 6 of 14 INVESTOR POSITIONING FIGURE 16. LME COPPER 15 Thousand Contracts Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Longs Shorts Net Source: Bloomberg, LME, ANZ Research FIGURE 18. WTI m bbls Sep 15 Dec 15 Mar 16 Jun 16 Short Long Net FIGURE 17. LME ALUMINIUM ' Contracts Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Longs Shorts Net Source: Bloomberg, LME, ANZ Research FIGURE 19. BRENT m bbls Sep 15 Dec 15 Short Mar 16 Long Jun 16 Net Source: Comex, CFTC, ANZ Research FIGURE 2. GOLD 1,4 1,2 1, 8 tonnes Sep 15 Dec 15 Mar 16 Jun 16 Short Long net Source: Comex, CFTC, ANZ Research FIGURE 21. CORN 3, 2, m bushels 1, -1, -2, -3, Sep 15 Dec 15 Mar 16 Jun 16 Short Long Net Source: Comex, CFTC, ANZ Research

7 Commodity Call / 23 September 216 / 7 of 14 INVESTOR POSITIONING US ETF Flows Report Period: 16/9/216-23/9/216 Commodity US ETFs 5 Net Flows Beg Mkt Cap % Funds Asset Class # Funds 4 (MM) (MM) Mkt Cap 3 Broad Based 29 (82.22) 6, % 2 Energy , % Agriculture 31 (8.1) 1, % 1 Livestock Industrial Metals Precious Metals Commodity (.92) (.98) , , % -.3%.7%.6% (1) (2) USD million Currency: USD Broad Based Energy Agriculture Livestock Industrial Metals Precious Metals Top 1 Creations - All Commodities Bottom 1 Redemptions - All Commodities Net Flows Beg Mkt Cap Net Flows Beg Mkt Ticker Name % Ticker Name % (MM) (MM) (MM) Cap (MM) GLD US SPDR Gold Shares , % IAU US ishares Gold Trust , % PowerShares DB USO US United States Oil Fund LP , % DBC US Commodity Index , % VelocityShares 3x Long United States Natural UWTI US Crude E , % UNG US Gas Fund % ProShares Ultra United States UCO US Bloomberg Crud % USCI US Commodity Index % ipath Bloomberg SLV US ishares Silver Trust , % DJP US Commodity Inde % ipath Goldman Sachs PowerShares DB OIL US Crude Oil % DBA US Agriculture Fun % ishares S&P GSCI ETFS Physical Platinum GSG US Commodity Ind % PPLT US Shares % ETFS Physical Swiss ETFS Physical Swiss SGOL US Gold Share - 1,16.85.% SGOL US Gold Share. 1,16.85.% ETFS Physical Platinum ishares S&P GSCI PPLT US Shares % GSG US Commodity Ind % PowerShares DB ipath Goldman Sachs DBA US Agriculture Fun (4.9) % OIL US Crude Oil % Top 1 Performers - All Commodities Bottom 1 Performers - All Commodities Ticker Name Net Flows Period Net Flows Period TR Ticker Name (MM) Volume (MM) Volume TR VelocityShares 3x Long ETFS Physical Swiss UWTI US Crude E ,396,47 1.9% SGOL US Gold Share. 38, % ProShares Ultra UCO US Bloomberg Crud ,643, % IAU US ishares Gold Trust ,387, % SLV US ishares Silver Trust ,8, % GLD US SPDR Gold Shares ,94, % ipath Goldman Sachs United States Natural OIL US Crude Oil 8.1 3,238,86 4.1% UNG US Gas Fund ,298, % PowerShares DB USO US United States Oil Fund LP ,22, % DBA US Agriculture Fun ,39 2.2% ipath Bloomberg PowerShares DB DJP US Commodity Inde , % DBC US Commodity Index ,39, % ishares S&P GSCI ETFS Physical Platinum GSG US Commodity Ind. 16, % PPLT US Shares. 46, % United States United States USCI US Commodity Index ,32 2.3% USCI US Commodity Index ,32 2.3% ETFS Physical Platinum ishares S&P GSCI PPLT US Shares. 46, % GSG US Commodity Ind. 16, % PowerShares DB ipath Bloomberg DBC US Commodity Index ,39, % DJP US Commodity Inde , % Ticker Name Top 1 Volume Spikes - All Commodities Period Avg Volume 3D Avg Volume Period Avg Volume / 3D Avg Volume SGOL US ETFS Physical Swiss Gold Share 38,469 31, % USO US United States Oil Fund LP 44,22,316 36,699, % IAU US ishares Gold Trust 6,387,582 5,512, % OIL US ipath Goldman Sachs Crude Oil 3,238,86 2,838, % GLD US SPDR Gold Shares 11,94,918 1,464, % UWTI US VelocityShares 3x Long Crude E 26,396,47 23,268, % UCO US ProShares Ultra Bloomberg Crud 9,643,251 9,49, % DBA US PowerShares DB Agriculture Fun 414,39 451,7-8.1% SLV US ishares Silver Trust 8,8,112 9,453, % UNG US United States Natural Gas Fund 4,298,752 5,327, %

8 Commodity Call / 23 September 216 / 8 of 14 PRICES COMMODITIES Close 1 week 1 mth 3 mth 6 mth 12 mth LME Base Metals Copper ($/lb, ) 2.21 / % 3.% 1.5% -1.9% -4.% Aluminium ($/lb, ).74 / % -2.2% -.5% 1.4% 3.6% Nickel ($/lb, ) / % 3.8% 15.6% 22.6% 9.3% Zinc ($/lb, ) 1.4 / % -.3% 12.5% 24.9% 38.9% Lead ($/lb, ).88 / 195.2% 4.8% 12.7% 9.6% 14.8% Steel Making Raw Materials Iron Ore ( CFR China) % -8.8% 8.6% -2.6% 1.9% Premium HCC ( FOB Aus) 26.4.%.2% 3.3% 78.2% 152.3% Precious Metals Gold ($/oz) 1, %.% 6.3% 9.5% 18.5% Silver ($/oz) % 5.7% 15.% 3.4% 34.5% Platinum ($/oz) 1, % -4.5% 9.2% 9.9% 13.2% Palladium % -.6% 22.8% 19.4% 6.9% Energy Oil - WTI ($/bbl) % -3.7% -7.6% 16.4% 4.1% Oil - Brent ($/bbl) % -5.1% -6.9% 17.1% -.7% Natural Gas (HH, $/bcf) % 8.4% 1.9% 66.8% 16.5% Thermal Coal (Newc, ) % 6.6% 35.% 37.% 24.% Soft Commodities Soybeans ($/bu) % -3.7% -11.3% 6.5% 12.2% Corn ($/bu) % -.1% -15.3% -12.8% -17.3% Wheat ($/bu) % -5.1% -16.6% -18.1% -25.5% Coffee ($/lb) % 5.4% 6.7% 13.9% 21.1% Sugar (c/lb) % 7.1% 16.4% 33.2% 87.2% INVENTORIES Close 1 week 1 mth 3 mth 6 mth 12 mth LME Metals (kt) Copper 346,5 -.8% 44.1% 78.% 129.7% 5.8% Aluminium 2,153, % -3.6% -11.1% -23.9% -32.9% Nickel 364,92 -.6% -2.3% -4.9% -15.7% -19.6% Zinc 443,85 -.1% -2.5% 7.3%.9% -25.9% Lead 191,25 1.7% 1.8% 2.9% 19.5% 15.9% Energy DOE Crude Oil (' bbl) 54, % -3.6% -4.9% -5.2% 1.2% DOE NatGas (bcf) 3,1 1.5% 6.% 14.4% 42.4%.4% Thermal Coal - China (Mt) % -.5% -4.3% -7.% -37.9% Other Iron Ore - China Ports (Mt) % -2.% 2.5% 8.3% 28.2% China Steel (Mt) % -6.1% -22.4% 24.9% 1.2% Gold ETF Holdings (Moz) % -.4% 6.3% 14.5% 33.3% Platinum ETF Holdings (Moz) % -1.% -5.9% -4.4% -2.% MACRO DATA Close 1 week 1 mth 3 mth 6 mth 12 mth Key Indices S&P % -.4% 3.% 6.9% 12.3% VIX % -2.9% -3.3% -19.5% -45.7% CRB Index % -.3% 2.3% 1.1% 6.7% LME Index % 1.7% 4.1% 5.9% 4.6% ANZ CCI % -.3% 2.3% 1.1% 6.7% MSCI World Metals & Mining Index %.2% 11.7% 22.3% 3.9% MSCI World Energy Sector Index % -1.9% -.9% 6.4% 8.6% Currencies AUD %.4%.4% 1.5% 9.2% EUR % -.8% -1.5%.3%.2% JPY %.5% -5.1% -1.3% -16.2% CAD % 1.1% 2.3% -1.2% -2.% ZAR % -2.5% -5.3% -11.1% -1.6%

9 Commodity Call / 23 September 216 / 9 of 14 PRICES 6,2 Copper 5,7 5,2 4,7 4,2 1,8 1,7 1,6 1,5 1,4 Sep-15 Aluminium Jan-16 May-16 14, Nickel 13, 12, 11, 1, 9, 8, 2,6 Zinc 2,4 2,2 2, 1,8 1,6 1,4 2,1 1,9 1,7 Lead 2, 18, 16, 14, Tin $/oz 1,4 1,3 1,2 1,1 Gold $/oz Silver 1,5 12, 1, 13 $/oz 1,2 Platinum 1,1 1, 9 8 Sep-15 Mar-16 $/oz Sep-15 Palladium Jan-16 May Iron Ore ,3 China Rebar 2,8 2,3 1,8 22 FOB Coking Coal 78 Thermal Coal 65 $/bbl Brent $/bbl WTI Sep-15 Jan-16 May $/mcf US Nat Gas 8 $/mmbtu Spot LNG $/bu 1,2 Soybeans $/bu 5 Corn ,1 1, $/bu 6 Wheat 85 c/lb Cocoa 26 c/lb Sugar MYR/t 2,9 Palm Oil , ,9 Spot price 5d moving average 2d moving average Note: Forecast prices are end of period. Historical data are actuals.

10 Commodity Call / 23 September 216 / 1 of 14 INVENTORIES 37 kt LME Copper 2 kt SHFE Copper 3,3 kt LME Aluminium , kt SHFE Aluminium kt LME Zinc ,9 2,7 2,5 2 kt SHFE Zinc kt Nickel kt Lead Mt Iron Ore (China) 35 Sep-15 Dec-15 Mar-16 Jun Sep-15 Dec-15 Mar-16 Jun mt China Steel Jun-12 Sep-12 Dec-12 Mar-13 3 Mt China Thermal Coal Moz Gold ETF Holdings k bbl DOE Crude Oil Moz Platinum ETF Holdings k bbl DOE Gasoline Note: Forecast prices are end of period. Historical data are actuals.

11 Commodity Call / 23 September 216 / 11 of 14 FORWARD CURVES 2,1 Aluminium 52 Copper 12, Nickel 1,9 1, , 1,5 M 25M 49M 73M 97M 2,1 Lead 2, 1,9 1,8 1,7 1,6 M 25M 49M M 1,5 1,4 1,3 1,2 M $/oz $/bbl Gold 12M WTI 38 M 25M 49M 73M 5 4 CFR China $/bu 3 M Iron Ore 25M Corn 12M 46 M 2,4 2,3 2,2 2,1 2, 1,9 1,8 1,7 1, M M 49M 73M 97M Zinc M 25M 49M $/oz $/bbl Thermal Coal (Newc) 35 M 25M 49M Silver 12M Brent 3 M 25M 49M 57 $/bu M Wheat 12M 8, M 25M 49M 2, 19, 18, 17, 16, M Tin 12M 41 US Coal M 12M 1,1 $/oz Platinum 1,5 1, M 3M 4. $/MMBtu Gas M 25M 49M 73M 75 c/lb 65 M Cotton 12M Note: Forecast prices are end of period. Historical data are actuals.

12 Commodity Call / 23 September 216 / 12 of 14 ANZ FORECASTS COMMODITY Unit Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar F 217F 218F BASE METALS Aluminium USD/t 1,58 1,64 1,65 1,66 1,65 1,66 1,68 1,58 1,65 1,71 Copper USD/t 4,8 4,85 5,1 5,3 5,5 5,56 6,1 4,8 5,28 6,13 Nickel USD/t 1, 11,5 12,225 12,5 13,5 15, 16,53 9,48 12,87 16,34 Zinc USD/t 2,25 2,19 2,2 2,2 2,225 2,25 2,3 2,1 2,21 2,38 Lead USD/t 19, 19,5 19,75 19, 19,5 19,75 2, 1,82 1,84 1,92 PRECIOUS METALS Gold USD/oz 1,325 1,375 1,39 1,375 1,4 1,425 1,43 1,286 1,391 1,439 Platinum USD/oz 1,3 1,1 1,15 1,2 1,25 1,275 1, ,197 1,225 Palladium USD/oz Silver USD/oz ENERGY WTI NYMEX USD/bbl Dated Brent USD/bbl LNG (Japan contract) USD/mmBtu BULKS Iron ore (CIF China) USD/t Coking coal - Premium USD/t Coking coal - Semi-soft USD/t PCI coal USD/t Newc Thermal (Spot) USD/t Note 1: Base/precious metals, energy and bulk forecasts are end of period prices; agriculture forecasts are average prices. Note 2: Historical data are actuals. Source: ANZ Research COMMODITY Unit Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar F 217F 218F BASE METALS Aluminium USD/t 1,58 1,64 1,65 1,66 1,65 1,66 1,68 1,58 1,65 1,71 Copper USD/t 4,8 4,85 5,1 5,3 5,5 5,56 6,1 4,8 5,28 6,13 Nickel USD/t 1, 11,5 12,225 12,5 13,5 15, 16,53 9,48 12,87 16,34 Zinc USD/t 2,25 2,19 2,2 2,2 2,225 2,25 2,3 2,1 2,21 2,38 Lead USD/t 19, 19,5 19,75 19, 19,5 19,75 2, 1,82 1,84 1,92 PRECIOUS METALS Gold USD/oz 1,325 1,375 1,39 1,375 1,4 1,425 1,43 1,286 1,391 1,439 Platinum USD/oz 1,3 1,1 1,15 1,2 1,25 1,275 1, ,197 1,225 Palladium USD/oz Silver USD/oz ENERGY WTI NYMEX USD/bbl Dated Brent USD/bbl LNG (Japan contract) USD/mmBtu BULKS Iron ore (CIF China) USD/t Coking coal - Premium USD/t Coking coal - Semi-soft USD/t PCI coal USD/t Newc Thermal (Spot) USD/t Note: Forecast prices are end of period. Historical data are actuals.

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