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1 : Daily Focus: Copper deviating from the dollar 01 November 2013 Since the middle of October, what had been a strong negative correlation between copper and the dollar index has deteriorated significantly. During the same time, a positive correlation between gold and the dollar index has since turned strongly negative. The base metals complex rallied strongly overnight on Friday and into the early afternoon on the back of stronger than anticipated Chinese PMI numbers. The complex came under selling pressure as the US opened, though a better than expected US ISM Manufacturing index has helped add a bit of stability. Research Strategists Walter de Wet, CFA* Walter.DeWet@standardbank.com Leon Westgate* Leon.Westgate@standardbank.com Melinda Moore* Melinda.Moore@standardbank.com The Chinese manufacturing PMI came in just above expectations at 51.4, while the final HSBC/Markit PMI rose to 50.9 from The figures are steady rather than spectacular, but remain consistent with manufacturing growth. The US ISM Manufacturing index also beat expectations, coming in at 56.4 in October from Sentiment continued to improve in China s steel and ore markets today, with the IO Swaps curve shifting further upwards, on the back of positive PMI manufacturing data for October. Commodity price data (31 October 2013) Base metals LME 3-month Open Close High Low Daily change Change (%) Change in cash Cash Settle settle Cash - 3m Aluminium 1,889 1,859 1,891 1, % 1, Copper 7,251 7,249 7,274 7, % 7, Lead 2,197 2,184 2,200 2, % 2, Nickel 14,650 14,615 14,678 14, % 14, Tin 23,150 22,875 23,150 22, % 23, Zinc 1,965 1,952 1,968 1, % 1, Energy Open Close High Low day/day Change (%) ATM 1m vol ATM 6m vol ATM 1y vol ICE Brent % NYMEX WTI % ICE Gasoil % API2 Q4' AM Fix PM Fix High bid Low offer Closing bid Change (d/d) EFP's Gold 1, , , , , /-0.1 Silver /+1 Platinum 1, , Palladium Sources: Standard Bank Research; LME; BBG Please refer to the disclaimer at the end of this document. This document is not investment research, as it has not been prepared in accordance with the requirements designed to promote the independence of research. It therefore constitutes a marketing communication as defined by the UK FCA Handbook, and must not be considered a Research Report under US or any other regulatory regime. U.S. Disclosure: Standard Bank Group Limited does and seeks to do business with companies covered in its reports. 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.

2 Focus: Copper deviating from the dollar LME Cu 3m price (LH axis) vs. Dollar Index (RH axis) Since the middle of October, what had been a strong negative correlation between copper and the dollar index has deteriorated significantly. During the same time, a positive correlation between gold and the dollar index has since turned strongly negative. Some of the change in copper s behaviour may well be due to recent tightness appearing in the nearby spreads, and some optimism over the metal s short to medium term price prospects. Overall however, copper finished October only 0.7% lower than where it started the month. During that period, implied volatility continued to fall, while the metal s Average True Range fell from around $100/day at the start of the month to less than $90 by the end. The change in copper s behaviour and relationship with the dollar is interesting, and seems to reinforce observations that copper is reacting asymmetrically to fluctuations in dollar strength. Stronger US economic data, which in turn sees the US dollar strengthen, appears to have much less of an impact on prices at the moment, with improved sentiment over the economy and demand for metals offsetting the currency effect. On the other hand, bad US data, implications for delayed tapering and subsequent dollar weakness still helps the copper price to rally. It isn't unusual for copper to trade the opposite way round from the dollar for periods of time, with the metal going just that during the summer, again a period dominated by speculation on Fed tapering. It looks like that mindset is back again, with the question being how long it will last this time around? By Leon Westgate Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 3m Cu Dollar Index Source: LME; Bloomberg LME Cu 3m price-dollar Index 30-day correlation Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Source: LME; Bloomberg Base metals The base metals complex rallied strongly overnight on Friday and into the early afternoon on the back of stronger than anticipated Chinese PMI numbers. The complex came under selling pressure as the US opened, though a better than expected US ISM Manufacturing index has helped add a bit of stability. The Chinese manufacturing PMI came in just above expectations at 51.4, while the final HSBC/Markit PMI rose to 50.9 from The figures are steady rather than spectacular, but remain consistent with manufacturing growth. The US ISM Manufacturing index also beat expectations, coming in at 56.4 in October from 55.0, though given yesterday s jump in the Chicago PMI, the market seemed a little nonplussed by the figure. Copper started strongly trading up to just shy of $7,300 heading into the morning before prices stalled and ran out of momentum, with prices falling back towards Thursday s closing levels heading into the afternoon.elsewhere, Nickel has fallen out of bed, though prices have stabilised around $14,500 and have managed to recover a little. Rising inventory remains a feature of the market, with headline inventory rising another 558 mt today. Lead and zinc meanwhile are back to moving in lock-step, with the differential between the two metals remaining in a $20 range for the past couple of weeks. Tin has seen tightness re-emerge in the nearby spreads, with the cash-3 month spread going from contango all the way into level. How protracted the tightness is remains to be seen, with the tightness perhaps a function of reduced liquidity rather than specific positioning. By Leon Westgate 2

3 Bulks Sentiment continued to improve in China s steel and ore markets today, with the IO Swaps curve shifting further upwards, on the back of positive PMI manufacturing data for October. China s official manufacturing PMI rose to c.18-month high of 51.4, up from 51.1 in September, while the HSBC Markit survey rose from 50.2 to Steel PMIs however fell from 49.2 in September to 47.5 in October, as growth continues to contract from August highs. Shanghai Equities rise 0.37% to 2150 points, led by financials after yesterday s sell-off. Shanghai 7-day interbank rates fell to 4.4% today, as the month rolled over, ending end-of month corporate tax payments. Shanghai Rebar Futures Jan-14 contract closed up RMB RMB 3,542/t, while the May-14 active contract closed up RMB RMB 3,671/t. Dazong HRC Dec-13 futures shifted RMB33/t higher to RMB 3,562/t. Among physical steels, Tangshan billet prices again traded flat today at RMB2,990/t, up RMB 20/t over the course of the week however. Rebar prices rose RMB 20/t in Beijing and RMB 10/t in Shanghai (up RMB 40/t for the week) today. HRC prices however were unchanged in both Shanghai and Beijing today and down RMB 10/t across the week. Shagang will keep its HRC list prices flat for early November, at RMB 3,550/t ex works, VAT incl. Dalian Commodity Exchange IO active May-14 contract price rose RMB 20/t to RMB 942/t, on large volumes. Over the week, the contract has risen RMB 24/t. Among physical iron ore, RioT concluded a PB Fe 61.4% fines tender at $134.20/t. Vale sold a Carajas Fe 64.89% cargo at $148.50/t. An BHPB Mac fines Fe 61% cargo traded at $134/t on CBMX. The Rizhao platform traded at Fe 63.24% cargo at RMB 945/t. On globalore, a MNP Fe 62% cargo was stuck in a bid/offer spread of $134:$135.20/t. PB fines port stocks were trading up RMB 10/t at RMB 910/t. The TSI Fe 62% China CFR price index jumped $3.40/t to $135.30/t on the first of the new month. The Platts Fe 62% index rose $2.75/t to $135/t, while the TSI Fe 58% index rose $1.10/t to $121/t. The Metal Bulletin Fe 62% index rose $5.01/t to $137.26/t, while its Fe 58% index rose $2.83/t to $118.88/t. Mysteel s Fe 62% index rose $2/t to $134/t, while its Fe 58% index rose $2/t to $122/t. In IO supply news, Venezuela is to conduct international IO tenders from FMO on an FOB basis, with a Fe grade of 63.37% and 0.11% phosphorous content. New Millenium-Tata plans to reach 8mtpa from its DSO Canadian project by 2017/18, up from 1-2mt this year. Gerdau is targeting 4-5mt of 3P sales in 2014, up from 0.7mt this year, with aims of producing 18mt by The Baltic Exchange Cape index shifted up 5.5% to $17,978/day, with $20.44/t and $8.25/t For Q1:14 thermal coal prices, API 2 is trading at $80.65/t; API 4 is trading at $84.30/t; while Newcastle is trading at $85.20/t. Zhengzhou Futures Jan-13 thermal contract price closed up RMB 3.8/t to RMB 559/t. Domestic Chinese physical prices continue to shift higher also, trading RMB /t for 5500NAR, with vessel queues continuing to grow in QHD. Total port stocks rose 0.6% w/w to 12.48mt. Coking coal spot prices are trading in the $ /t Qld FOB range, with trading said to be slow. On the Dalian Exchange, Jan-14 coke price traded up RMB 14/t to RMB 1,536/t, while HCC prices closed up RMB4/t to RMB 1,072/t. By Melinda Moore 3

4 Base metals Daily LME Stock Movement (mt) Metal Today Yesterday In Out One day change YTD change (mt) Cancelled warrants (mt) Cancelled warrants (%) Contract turnover Aluminium 5,368,950 5,375, ,775-6, ,900 2,154, ,432 Copper 476, ,150 3,925 3, , , ,688 Lead 233, , ,125 54, ,494 Nickel 238, , ,226 69, ,476 Tin 12,830 12, , ,378 Zinc 1,027,375 1,030,125 2,500 5,250-2, , , ,852 Shanghai 3-month forward prices COMEX active month future prices Metal Open Last 1d Chnge Open Close Change Change (%) Aluminium 14,385 14, Ali Sep' Copper 51,730 52, Cu Sep' % Zinc 14,970 15, ZAR metal prices Aluminium Copper Lead Nickel Tin Zinc ZAR/USD fix Cash 18,353 71,467 21, , ,636 19, month 18,799 73,306 22, , ,323 19, Energy Energy futures pricing Price Change Price Change Price Change Price Change Price Change 1 month 2 month 3 month 6 month 1 year 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 Q2 14 Q3 14 Cal 14 Cal 15 API2 (CIF ARA) API4 (FOB RBCT) Precious metals 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 MA 200-day MA Support Resistance Gold , , , , , , Silver Platinum , , , , , , Palladium Active Month Future COMEX GLD COMEX SLV NYMEX PAL NYMEX PLAT DGCX GLD TOCOM GLD CBOT GLD Settlement 1, , , , , Open Interest 396, ,296 38,248 58, , Change in Open Interest 12,792 5,020 3,734-4, , Date: 28/10/2013 Sources: Standard Bank; LME; Bloomberg 4

5 Bulks Percentage change Latest Price Steel Physical 1-day 1-week 1-month 3-month 6-month 1-year Turkish Scrap 80:20 (Iskinderun CFR) $/t % 4.96% 2.76% 1.72% -0.39% China Tangshan Steel Billet $/t % -1.01% -2.39% -5.22% -6.49% China HRC export (Shanghai FOB) $/t % 1.94% -5.91% -2.78% North Europe HRC domestic (ex-works) $/t % -4.40% 1.16% -7.45% -5.43% North America HRC domestic (Midwest FOB) $/t % 3.77% 1.69% 11.86% 11.86% Steel Futures LME Billet Cash $/t % 4.76% 69.23% 65.73% % LME Billet Futures (1-mth) $/t % 5.14% 63.04% 64.23% % LME Steel Billet Stocks change Shanghai Rebar Futures (Active contract) $/t % -2.98% -6.61% -5.40% -5.98% % Shanghai Rebar Futures O/W Stocks change -3, SHFE Rebar - Open Interest SHFE Rebar - Total Volume China Steel Inventory (million tonnes) % -2.26% -6.27% % 9.59% Iron ore China Iron Ore Fines (62% Fe; CFR Tianjin) $/t % -1.93% 0.30% 0.08% -1.72% 9.83% China Iron Ore Fines (58% Fe; CFR Tianjin) $/t % -1.93% -0.16% 0.33% -1.93% 9.24% SGX AsiaClear IO Swaps 62% Fe $/t (1-mth) % 0.14% -1.26% 4.60% -3.15% 16.74% SGX AsiaClear IO Swaps 62% Fe Open interest 43, China Iron Ore Inventory (million tonnes) % 5.81% 4.32% 10.29% % Coking coal Premium Hard Coking Coal (Qld FOB) $/t % 9.71% -1.48% -2.12% Capesize freight Tubarao Brazil-Beilun China (C3) Pilbara Australia-Qingdao China (C5) Saldanha South Africa-Beilun China % % % 35.71% 52.00% 11.76% Tubarao Brazil to Rotterdam Europe Saldanha South Africa-Rotterdam Europe Financials pricing RMB Currency % -0.14% -0.57% -0.76% -1.28% -2.53% China 7-day repo % 53.0% 31.8% 9.4% 87.9% 29.6% Shanghai Equities Composite 2, % -4.28% -1.88% 7.97% -2.02% 3.64% Sources: Standard Bank; LME; Bloomberg 5

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