June 2017 Economic Outlook Metals Market Economic Drivers

Transcription

1 June 217 Economic Outlook Metals Market Economic Drivers Frederick R. Demler, Ph.D. Executive Vice President, LME Metals INTL FCStone Financial Inc. FCM Division ;

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3 Economic Briefing & Metal Outlook This section of the page should be blank except when footnotes are present.

4 Share of Global Consumption China Up; US, Europe, & Japan Down % 4% 3% 2% 1% % 216 CP AL ZN PB NI SN China US Europe Japan Others 5% 4% 3% 2% 1% % China US Europe Japan Others CP AL ZN PB NI SN Source: World Bureau of Metal Statistics

5 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 China, GDP Growth % yoy GDP GDP Growth is Accelerating Fixed Investment Firming Retail Sales Steady Exports/Imports Slow from Early 17 Surge % yoy Exports Imports Mar-15 Sep-15 Mar-16 Sep-16 Mar %yoy Fixed Asset Investment vs Retail Sales Fixed Asset Investment Retail Sales 7 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Sources: Bloomberg, INTL FCStone estimates

6 China, Sector Growth 2 %yoy 15 1 %yoy Rail Traffic Growth Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Electricity Consumption Growth Underlying Strength in Metals- Using Sectors from Mid 216, BUT Some Recent Softening Credit Tightening Slows Construction Autos Hurt by Higher Taxes %yoy Passenger Car Sales Growth -1 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb %yoy 8 Real Estate Construction Growth Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Sources: Bloomberg, INTL FCStone estimates

7 China, IP and PMI %yoy PMI Index 47 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Industrial Production Govt Caixin Mixed Signals in PMIs Official Caixin Domestic Demand Slows External Demand Firm Construction Slowing Govt Efforts to Rein in Credit Growth (notably in Property) IP Steadies at 6.5% after Early 217 Surge Construction and Real Estate Slow but Firm Investment Growth Slows But Firm at 8% Private Investment Up 5 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Sources: Bloomberg, INTL FCStone estimates

8 China, Some Inflation Concerns % yoy New Residential Prices Jan/15 Jun/15 Nov/15 Apr/16 Sep/16 Feb/17 Inflation Accelerates end 16 But Some Recent Tapering Underpin by a Weaker Commodity Prices and Credit Tightening %yoy CPI Core CPI Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Sources: Bloomberg, INTL FCStone estimates

9 2 15 China, Credit Bubble 3 % of GDP Corporate Debt 25 Household Debt Govt Debt bn CNY Total Household Loans bn CNY Moody s Downgrades China but still Investment Grade Concern: Debt Growth Government Stimulus % of GDP, Social Financing Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q Med & Long Term(LHS) 17 Short Term(RHS) 15 May-15Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 trillion CNY Shadow Banking Loans 22 May-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb Officials Focused on Financial Risks and Maintaining Demand Focus: Slow Credit Growth Tighter Monetary Policy IR Up but Hold Steady Restrictions on Residential Home Purchases Regulatory Crackdown on Shadow Credit Regulators Slowing IPO Approvals (Good and Bad) Source: Bloomberg, INTL FCStone estimates

10 China, Summary Key Concern: High Debt (notably Private Debt) and Retain Growth Shift from Investment Growth to Consumer Economy & Structural Reforms SOE Debt Restructuring, Address Credit Risk/Property Bubble Investment to Consumer Econ; Clampdown on Pollution, Excess Cap Capital/Property Controls, Tighter Fiscal/Money Policies (Reign in Credit) Crackdown on Local Government Borrowing But Retain One Belt/One Road Growth Slowdown 15/16, Fiscal Stimulus Early 16, Firm End 16/Start 17, IR policy eased, credit growth boosts property sales, Strength in Construction & Fixed Investment (Power Grid, Railway) Business/Consumer Confidence Up, Imports Up, Corp Profits Up But Evidence of Recent Slowdown with Credit Tightening Auto Production/Sales Soft (with Tax Incentives cut) PMI mixed, IP slows, Construction Slows Overall: China Economy Growing at Steady Pace, Down from Late 16/Early 17 Pressure on RMB (But PBOC looks to hold Steady) Trump:: Softening/Delayed, Trump now working w China (Korea/own Problems)

11 (1) (2) (3) (5) (1) (15) (2) United States Growth: Up % yoy % yoy GDP (4) Jun/ Feb/3 Oct/5 Jun/8 Feb/11 Oct/13 Jun/16 Mfg PMI Index Jul/14 Apr/15 Dec/15 Aug/16 Apr/17 Gross Private Fixed Investment Services (25) Jun/ Feb/3 Oct/5 Jun/8 Feb/11 Oct/13 Jun/ (2) (4) (6) Feb/ Jan/3 Nov/5 Sep/8 4 %yoy (5) (1) % yoy % yoy Vehicle Sales Housing Starts Jul/11 May/14 Apr/17 Industrial Production (15) Feb/ Jan/3 Nov/5 Sep/8 Jul/11 May/14 Apr/17 Growth Trends Up Economy is Resilient But Mixed Signals: Unemployment Low, AND Inflation low Core Growth Good Payrolls, PMI, ISM, Housing, Orders, Consumers, Invest, Apr IP Up (weak Q1), Weakness: Autos, Orders Money Policy (IR Up) ( 17: 3x +1; 18: 3x, 19: 3x Slow Purchases of Treasury /Mortgage Securities (no reinvest) Trump Factor? Less Optimism Chng Infrastructure, Regs, Trade,Tax Cuts, Health Political Headwinds Sources: Bloomberg, INTL FCStone estimates

12 Japan Growth: Up (2) (5) (1) % yoy (15) Jun/ Feb/3 Oct/5 Jun/8 Feb/11 Oct/13 Jun/ % yoy PMI Index GDP (4) Jun/ Jun/3 Jun/6 Jun/9 Jun/12 Jun/15 Gross Private Fixed Investment Mfg Services 4 % yoy (1) (2) (3) Housing Starts (4) Feb/ Jan/3 Nov/5 Sep/8 Jul/11 May/14 Apr/ %yoy Vehicle Sales -6 Feb/ Dec/2 Oct/5 Aug/8 Jun/11 Apr/14 Feb/17 Industrial Production 49 (1) (15) 48 (2) 47 Feb/ Jan/3 Nov/5 Sep/8 Jul/11 May/14 Apr/17 Jul/14 Apr/15 Dec/15 Sep/16 May/ (5) % yoy Although Debt/GDP Ratio High & Private Consumption Soft GDP Firms Manufacturing Sectors Improve PMI, Exports, Autos, Labor, IP, & Business, Investment Up, Inflation Low, & Biz/Consumer Sentiment Up, IR to Remain Low BoJ to Buy Assets w No Tightening til 18 Sources: Bloomberg, INTL FCStone estimates

13 Global IP/Economic Outlook Global Economy IP Forecast: G-3: (+2.4% in 17 & +1.8% in 18 vs -.3% in 16); China: +6.6/6.7% China (Concern is Debt and Retaining Growth) Strong End 16/Early 17 after Early 216 Stimulus, Managed Slowdown 17 (Credit/Policy Tightening) Focus Shifting from Short Term Growth Back to Structural Reforms Good Momentum; Growth to Remain Firm this Year IP: 6.6% in 17 & +6.7% in 18 United States (Economy Resilient, Employment Up BUT Inflation Low); IP: +1.8% 17 & +2.3% 18 Trumponomics Fading (Tax/Trade/Infrastructure/Regs, Political Turmoil): Fed Rate Incr/Bond Program Recovery Shows Momentum w GDP & Consumer Spending Up. Corp Profits Firm, & Stock Market Up. Although Biz Investment has Slowed, PMI & New Orders are Firm Underpinning IP Growth Japan (Healthier Growth); IP: +3.5% 17 & +1.5% 18 GDP, Business Investment Firming, Housing, Autos IP, & PMI up; But Private Consumption Soft IR to Remain Low; BoJ to Buy Assets, No Tightening til 18 Eurozone (Improving Momentum), IP: +1.8% 17 & +1.7% 18 Anti-Euro Sentiment is Waning Despite Inflation Uptick, Interest Rates to Stay Low: & Less Pressure to Cut Rates Labor & Sentiment Improving, Easy Money Policy, PMI/IP/GNP/Invest Up, Autos: Prod Up/Sales Soft

14 G-3 (+ China), IP Outlook moderate growth projected: +/- 2% 15% US WE JP G-3 1% China 5% % -5% -1% -15% US WE JA W World China % -2.1%.8%.6% 1.% % -1.2% -1.5% -.2% 9.6% %.9% 2.8% 2.2% 8.3% % 1.9% -1.2%.2% 6.1% % 1.3% -.7% -.3% 6.% % 1.8% 3.5% 2.4% 6.6% % 1.7% 1.5% 1.8% 6.7% '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 18 Sources: Bloomberg, INTL FCStone est

15 This section of the page should be blank except when footnotes are present. Role of Funds

16 Metals Volumes: Funds vs Trade excludes broker crosses Funds Trade/Other funds account for 6+% of client volumes '9 '91 '92 '93 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 Sources: BarclayHedge, Bloomberg, CFTC, LME, INTL FCStone estimates

17 Hedge/Macro Funds, $b AUM Hedge Funds: Hedge Equity/Bond Exposures, Long or Short Macro $26 $24 $22 $2 $18 $16 $14 $12 $1 $8 $6 $4 $2 $ Convertible Arbitrage Distressed Securities Emerging Markets Equity Long Bias Equity Long Only Equity Long-Short Equity Market Neutral Event driven Fixed Income Macro Merger Arbitrage Multi-Strategy Other Sector Specific 3% 1% 5% 7% 12% 11% 1% 9% 17% 11% 6% 2% 8% 8% Macro Hedge '9 '91 '92 '93 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 Hedge $4, $3,5 $3, $2,5 $2, $1,5 $1, $5 Sources: BarclayHedge, Bloomberg, INTL FCStone estimates $

18 CTA Assets, $b AUM Commodity Trading Advisors: Registered, Trend Following, F&O $35 $3 Agricultural Traders Diversified Traders Discretionary Traders 47% Currency Traders Financial/Metal Traders Systematic Traders $25 % 3% $2 $15 4% $1 14% 32% $5 $ ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 17 Sources: BarclayHedge, Bloomberg, INTL FCStone estimates

19 Index Funds, $b AUM Index of Commodities, Commodity Super Cycle, Diversification $25 $2 $15 $1 Energy Agric PrecM IndusM GSCI 7% 2% 4% 7% DJ-UBS 33% 36% 13% 19% Rodgers 46% 33% 7% 14% Merrill Lynch 6% 25% 5% 1% Average 52% 28% 7% wtd avg 12% Copper Alum Zinc Nickel Lead GSCI 48.2% 28.9% 7.2% 9.6% 6.% DJ-UBS 42.9% 29.% 13.2% 14.9%.% Rodgers 28.6% 28.6% 14.3% 7.1% 14.3% Merrill Lynch 52.6% 29.6% 8.4% 9.5%.% Average 43.1% 29.% 1.8% 1.3% 5.1% $5 $ ' '1'2'3'4 '5'6'7'8'9 '1'11'12'13'14 '15'16'17 Sources: BarclayHedge, Bloomberg, INTL FCStone estimates

20 $25 $2 ETF/ETN Assets, $b AUM Commodity ETFs Energy Industrial Metals Precious Metals Agriculture Global 2% 1% 4% 1% ETF/ETN Assets ($b) Industrial Metals Industrial Metals $2.25 $1.75 $15 $1.25 $1 83% $.75 $5 $.25 $ -$.25 Q1 6 Q3 6 Q1 7 Q3 7 Q1 8 Q3 7 Q1 9 Q3 9 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 Q3 12 Q1 13 Q3 13 Q1 14 Q3 14 Sources: BarclayHedge, Bloomberg, INTL FCStone estimates Q1 15 Q3 15 Q1 16 Q3 16 Q1 17

21 Industrial Metals, Fund Alloc, $b $5 $45 $4 $35 $3 $25 $2 $15 $1 $5 Macro Index CTA ETF/ETN $ ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 Sources: BarclayHedge, Bloomberg, CFTC, INTL FCStone estimates

22 Copper Prices, Fundamental & Fund Impact copper prices 1, copper stocks, weeks use -18 9, 8, 7, 6, 5, 4, 3, 2, 1, Copper Prices Weeks Use '94 '95'96'97'98'99''1'2'3'4'5'6'7'8'9'1'11'12'13'14'15'16'17 Sources: BarclayHedge, Bloomberg, CFTC, LME, WBMS INTL FCStone estimates

23 Copper Prices, Fundamental & Fund Impact copper prices 1, copper stocks, weeks use -18 9, 8, 7, 6, 5, 4, 3, 2, 1, Copper Prices Weeks Use '94 '95'96'97'98'99''1'2'3'4'5'6'7'8'9'1'11'12'13'14'15'16'17 Sources: BarclayHedge, Bloomberg, CFTC, LME, WBMS INTL FCStone estimates

24 Copper Prices, Fundamental & Fund Impact copper prices, fund index ($AUM, metals) 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, Copper Prices Funds $ Index Weeks Use copper stocks, weeks use '94 '95'96'97'98'99''1'2'3'4'5'6'7'8'9'1'11'12'13'14'15'16'17 Sources: BarclayHedge, Bloomberg, CFTC, LME, WBMS INTL FCStone estimates

25 Copper Prices, Fundamental & Fund Impact copper prices, fund index ($AUM, metals) 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, Copper Prices Funds $ Index Weeks Use copper stocks, weeks use '94 '95'96'97'98'99''1'2'3'4'5'6'7'8'9'1'11'12'13'14'15'16'17 Sources: BarclayHedge, Bloomberg, CFTC, LME, WBMS INTL FCStone estimates

26 Funds, AUM Trends $b $3,5 $4 $3, $2,5 Hedge Funds $35 $3 CTA $2, $25 $2 $1,5 $15 $1, $3 $25 $2 Jan-6 Jan-8 Jan-1 Jan-12 Jan-14 Jan-16 Macro $1 $3 $25 $2 Jan-6 Jan-8 Jan-1 Jan-12 Jan-14 Jan-16 Index Funds $15 $15 $1 $1 $5 Jan-6 Jan-8 Jan-1 Jan-12 Jan-14 Jan-16 $5 Jan-6 Jan-8 Jan-1 Jan-12 Jan-14 Jan-16 Sources: BarclayHedge, Bloomberg, CFTC, INTL FCStone estimates

27 Aggregate Lots Aggregate Lots LME Commitment of Traders Money Managers 8, Money Managers' Aggregate Positions Net Shorts Longs Source: LME 7, 6, 5, 4, 3, 2, 1, Aug-14 Oct-14 Jan-15 Mar-15 Jun-15 Sep-15 Nov-15 Feb-16 Apr-16 Jul-16 Oct-16 Dec-16 Mar-17 Jun-17 Money Managers' Aggregate Positions Past Year Net Shorts Longs 8, 7, 6, 5, 4, 3, 2, 1, Jan-17 Feb-17 Mar-17 Mar-17 May-17 Jun-17

28 LME Commitment of Traders Net Positions Index LME Non-Ferrous CoT Source: LME Brokers Money Managers Producer/Merchant/Processor Index 4, 12 2, , 8-4, 7-6, August-14 April-15 December-15 August-16 April-17 6

29 Longer Term LME Prices $1, $9, $8, $7, $6, $5, $4, $3, $2, $1, Bullish Pattern Holds Uptrend Support Breaks Downtrend Rounded Bottom Sources: LME, Bloomberg, INTL FCStone estimates

30 This section of the page should be blank except when footnotes are present. Metals Outlook

31 LME Price Review $1, $9, copper $8, $7, $6, $5, $4, $3, $2, $1, ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 ' $3,2 $3, $2,8 aluminum $2,6 $2,4 $2,2 $2, $1,8 $1,6 $1,4 $1,2 ''1'2'3'4'5'6'7'8'9'1' Sources: LME, Bloomberg

32 LME Price Review $4,5 $4, $4, $3,5 $3,5 $3, $2,5 zinc $3, $2,5 $2, lead $2, $1,5 $1,5 $1, $1, $5 $5 $ $55, $38, $5, $45, $4, '9 '8 '7 '6 '5 '4 '3 '2 '1 ' nickel '17 '16 '15 '14 '13 '12 '11 '1 $33, $28, tin $35, $3, $23, $25, $2, $15, $18, $13, $1, $5, $8, $ $3, ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '17 '16 '15 '14 '13 '12 '11 '1 '9 '8 '7 '6 '5 '4 '3 '2 '1 ' Sources: LME, Bloomberg

33 LME Price Review, Copper Sources: LME, Bloomberg

34 LME Price Review, Aluminum Sources: LME, Bloomberg

35 LME Price Review, Zinc Sources: LME, Bloomberg

36 LME Price Review, Lead Sources: LME, Bloomberg

37 LME Price Review, Nickel Sources: LME, Bloomberg

38 LME Price Review, Tin Sources: LME, Bloomberg

39 Consumption Growth Trends (1) % yoy Copper Zinc Aluminum (2) (3) Jan/1 Jan/11 Jan/12 Jan/13 Jan/14 Jan/15 Jan/16 Jan/17 Jan/1 Jan/11 Jan/12 Jan/13 Jan/14 Jan/15 Jan/16 Jan/17 1 % yoy 4 % yoy (5) (1) (15) Jan/1 Jan/11 Jan/12 Jan/13 Jan/14 Jan/15 Jan/16 Jan/ (1) (2) (2) (4) % yoy Nickel (6) Jan/1 Jan/11 Jan/12 Jan/13 Jan/14 Jan/15 Jan/16 Jan/17 China Continues to Dominate Metals Consumption Growth; Slower than Historically Global Consumption Growth Strong in 216, but Recent Slowdown Sources: WBMS, INTL FCStone est

40 Mine and Refined Production Copper Zinc Aluminum Copper Production Curtailed By Mine Strikes /Other but New & Expanded Capacity Aluminum Grows with China (but Govt Mandated Cuts Soon?) Zinc: significant cuts in 216 (Glencore)? Nickel Nickel: significant cuts in 215/16; Indo and Phil supply? Sources: WBMS, INTL FCStone est

41 China s Net Metal Trade Reduced: Exports Imports Copper 5, -5, -1, -15, -2, -25, -3, -35, Tons -4, Aluminum 1, 5, -5, -1, -15, -2, -25, -3, -35, -4, Tons Zinc 6, 3, -3, -6, -9, -12, , 5, 25, -25, Tons Lead -5, Tons -1, -2, Nickel -3, -4, -5, , Tin 2, 1, -1, -2, -3, Sources: WBMS, INTL FCStone est

42 $1, $9, Copper Prices vs 7th %-tile Cost $8, $7, $6, $5, $4, $3, $2, $1, $ 8' 82' 84' 86' 88' 9' 92' 94' 96' 98' ' 2' 4' 6' 8' 1' 12' 14' 16 $8, $7, Copper Cost Curves $6, $5, $4, $3, $2, $1, $ Sources: LME, WBMS, INTL FCStone est

43 4 LME Aluminum Prices vs 7th Percentile Costs ' 82' 84' 86' 88' 9' 92' 94' 96' 98' ' 2' 4' 6' 8' 1' 12' 14' 16' Aluminum Monthly Avg Price $3,5 Al Costs (7th percentile) Aluminum Cost Curve $3, $2, $2, $1,5 $1, Sources: LME, WBMS, INTL FCStone est

44 $6, $5, LME Nickel Prices vs 7th Percentile Cost $4, $3, $2, $1, $ 8' 82' 84' 86' 88' 9' 92' 94' 96' 98' ' 2' 4' 6' 8' 1' 12' 14' 16' $3, $25, $2, $15, $1, $5, $ Nickel Cost Curve Sources: LME, WBMS, INTL FCStone est

45 5,. 4,5. 4,. 3,5. 3,. 2,5. 2,. 1,5. 1, LME Zinc Prices vs 7th Percentile Costs 8' 82' 84' 86' 88' 9' 92' 94' 96' 98' ' 2' 4' 6' 8' 1' 12' 14' 16' $4, $3,5 $3, $2,5 $2, $1,5 $1, $5 Zinc Cost Curve Sources: LME, WBMS, INTL FCStone est $

46 Inventory Trends 1,4 Producer Consumer 1,2 1, LME SHFE Mrchnt zinc Producer 7 Consumer copper 6 Comex 5 LME SHFE , 5, 4, 3, 2, 1, LME Comex IPAI Shang alum LME Prod Cons Shang nickel 5 Sources: LME, WBMS, INTL FCStone est

47 Inventory Trends Comex LME SHFE zinc copper , 3,5 3, 2,5 2, 1,5 1, 5 alum nickel Sources: LME, WBMS, INTL FCStone est

48 Copper, Supply-Demand Balance, k tonnes Copper Supply/Demand Annual Balances (k tonnes) Jan-Mar'17 217f 218f Total Consumption 21,154 22,72 22,83 23,331 5,614 23,914 24, % 7.3%.6% 2.2% 2.5% 3.% China 9,83 11,33 11,353 11,642 2, % 15.%.4% 2.5% World less China 11,324 11,399 11,477 11,689 2, %.7%.7% 1.9% Total Mine Prod 18,188 18,548 19,325 2,719 4,966 21,755 22, % 2.% 4.2% 7.2% 5.% 5.% Total Refined Prod* 2,975 22,426 22,968 23,527 5,762 24,116 24,598 3.% 6.9% 2.4% 2.4% 2.5% 2.% China Refined 6,667 7,649 7,964 8,436 2, % 14.7% 4.1% 5.9% World less China 14,38 14,777 15,4 15,91 3, % 3.3% 1.5%.6% Apparent Balance Reported Balance Unreported Balance Producers Merchants Consumers Exchange Total Stocks** ,176 1,186 1,152 Weeks Use Supply: New Mine Builds in 15/ 16 to Slow w Little in Pipeline Recent Mine Strikes/Losses More Labor Contracts this Yr Shuttered Capacity High Prices: High Scrap Demand Hope for China demand Questions on Trump Investing Europe Steady Fund Index Buying Stocks/Premiums Stocks Up (notably China) Premiums Low Forecast: deficit deficit Reuters: 17: -17k, 18: -72k Sources: LME, WBMS, INTL FCStone est

49 Aluminum, Supply-Demand Balance, k tonnes Aluminum Supply/Demand Annual Balances (k tonnes) Jan-Mar'17 217f 218f Total Consumption 46,584 54,129 57,42 58,85 14,892 59,363 6, % 16.2% 6.1% 1.2% 2.2% 2.5% China 21,955 28,3 31,68 31,615 8, % 27.5% 1.9% 1.8% World less China 24,629 26,125 26,352 26,47 6,75-4.2% 6.1%.9%.4% Total Refined Prod* 52,81 53,786 57,336 57,546 14,691 59,1 6, % 3.3% 6.6%.4% 2.7% 2.5% China Refined 26,534 28,317 31,41 31,87 8, % 6.7% 1.9% 1.5% World less China 25,547 25,469 25,926 25,676 6,49-1.7% -.3% 1.8% -1.% Apparent Balance 5, Reported Balance ,64-1, Unreported Balance 5, , Producers 1,593 1, Exchange 5,578 4,445 3,232 2,324 2,238 Total Stocks** 7,171 6,428 3,787 2,76 2,671 2,497 2,227 Weeks Use Production China pledge to clampdown on Pollution, But expansions/new capacity online elsewhere in China Consumption Optimism with Trump infrastructure plans fund buying and further LME stock drawdowns (deficit market) Stocks/Balances China inventories up (1.3mt) Stocks down but still high Forecast deficit, deficit Reuters: 17: +82k, 18: -2k Sources: LME, WBMS, INTL FCStone est

50 Zinc, Supply-Demand Balance, k tonnes Zinc Supply/Demand Annual Balances (k tonnes) Jan-Mar'17 217f 218f Total Consumption 12,973 13,814 13,796 13,884 3,322 13,968 14, % 6.5% -.1%.6%.6% 2.% China 5,962 6,41 6,483 6,693 1,59 1.5% 7.3% 1.3% 3.2% World less China 7,11 7,414 7,312 7,192 1, % 5.7% -1.4% -1.6% Total Mine Prod 13,662 13,613 13,247 12,858 3,87 12,986 13, % -.4% -2.7% -2.9% 1.% 2.% Total Refined Prod* 13,29 13,513 13,895 13,65 3,47 13,99 14, % 3.7% 2.8% -1.8% 1.9% 2.% China Refined 5,28 5,87 6,151 6,273 1, % 1.% 5.9% 2.% World less China 7,75 7,76 7,744 7,376 1,921.3% -.6%.5% -4.8% Apparent Balance Reported Balance Unreported Balance Producers Merchants Consumers Exchange 1, Total Stocks** 1,554 1,192 1,86 1, Weeks Use Production Mine production down sharply w closures; recent strikes But production to rise with China build, restarts, expns Glencore? Consumption Infrastructure spending China: construction/autos up Stocks LME stocks down, cancelled warrants (46%) Spreads tighten, TCRCs low Forecast: balance (deficit/deficit) Reuters: 17: -337kt, 18: -182kt Sources: LME, WBMS, INTL FCStone est

51 Nickel, Lead Supply-Demand Balance, k tonnes Nickel Lead Nickel Supply/Demand Annual Balances (k tonnes) Lead Supply/Demand Annual Balances (k tonnes) Q1'17 217f 218f Total Consumption 1,81 1,587 1,741 1, ,91 1, % -11.9% 9.7% 7.2% 1.8% 2.% China % -28.1% 27.8% 4.4% World less China % 4.7% -3.% 9.8% Total Mine Prod 2,539 2,63 2,125 1, ,1 2,41 12.% -18.7% 3.% -6.8% 1.% 2.% Total Refined Prod* 1,979 1,831 1,83 1, ,823 1, % -7.4% -.1% -1.4% 1.% 2.5% China Refined % -24.4% -16.9% -7.7% World less China 1,268 1,294 1,384 1, % 2.1% 6.9%.7% Apparent Balance Reported Balance Unreported Balance Producers Merchants/Cons Exchange Total Stocks** Weeks Use Q1'17 217f 218f Total Consumption 11,34 1,919 1,199 11,291 3,69 11,44 11, % -3.4% -6.6% 1.7% 1.% 2.% China 4,927 4,682 3,84 4,655 1,36 6.7% -5.% -18.8% 22.4% World less China 6,377 6,237 6,396 6,636 1, % -2.2% 2.5% 3.8% Total Mine Prod 5,294 5,269 4,999 4,71 1,365 4,71 4,757 4.% -.5% -5.1% -5.8%.% 1.% Total Refined Prod* 11,312 1,932 1,182 11,119 2,965 11,342 11, % -3.4% -6.9% 9.2% 2.% 2.% China Refined 4,935 4,74 3,845 4,665 1, % -4.7% -18.3% 21.3% World less China 6,377 6,227 6,337 6,454 1, % -2.3% 1.8% 1.8% Apparent Balance Reported Balance Unreported Balance Producers Consumers Exchange Total Stocks** Weeks Use Sources: LME, WBMS, INTL FCStone est

52 Metals Outlook Prices recover in late 216/early 217 after 5 year bear market Global economy (IP) expected to grow slowly (no recession, no boom) Labor markets improving, low inflation, monetary/fiscal policy favorable China expansion continues but slows from early this year US economy growing, Trump infrastructure delayed, some Fed tightening Europe holds steady to higher; reduced political uncertainties Prices slip below production costs in 216, forcing cutbacks Unplanned production losses offset reduced cap builds, China cuts? Inventories starting to decline Market shifts into deficit with mine cutbacks and economic recovery Fund investment high, albeit down from prior years, but growing Prices expected to hold steady to modestly recover over next 2 yrs Downside limited with prices below mine cash costs Upside capped w still surplus stocks and only modest economic growth Supply-demand fundamentals to play important role in base metal prices

53 Analysts Price Forecasts Current Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 CP $5,64 $5,817 $5,746 $5,794 $5,816 $5,841 $5,857 $5,946 AL $1,865 $1,833 $1,881 $1,861 $1,85 $1,843 $1,853 $1,857 ZN $2,5 $2,84 $2,782 $2,779 $2,762 $2,731 $2,694 $2,69 PB $2,8 $2,23 $2,175 $2,148 $2,116 $2,98 $2,76 $2,99 NI $8,83 $1,475 $1,655 $1,975 $11,88 $11,295 $11,281 $12,67 SN $19,5 $2,219 $2,39 $2,232 $2,419 $2,36 $2,414 $2,52 Source: Consensus Economics