Base Metals Monthly Report

Transcription

1 LME Zinc LME Nickel LME Alu LME Lead LME Copper LME Nickel LME Lead LME Zinc LME Aluminium LME Copper China s updated five year plan and upcoming US Presidential elections hurt metals in Oct 16 Executive Summary Base Metals performance in Oct'16 (%) Source: Reuters, Angel Commodity Research LME MCX In Oct 16, base metals on the LME traded mostly lower as China's government said it would strictly control the expansion of its non-ferrous metals industry, encourage consolidation and boost proven ore reserves as part of its five-year development plan for the industry, in a major blow to the metals demand outlook. Latest update of five-year plan dents metals demand Alongside, China s Ministry of Industry and Information Technology (MIIT) said in the latest update of its five-year industry plan that the country s apparent consumption of major base metals is set to slow over Also, China's trade balance showed a surplus of $41.99 billion in September 16, far narrower than the expected $53.00 billion. This could be mainly attributed to dent in China s exports which unexpectedly fell to seven-month low, on the back of softer overseas demand and slowing internal growth. Besides, government data showed China s foreign exchange reserves dropped around US$19 billion in September to a five-year low, with the central bank spending heavily to defend the Yuan against capital outflows. Anticipation of US rate hike, loose monetary policy in the EU for longer boosts DX Another jolt came from latest FOMC meeting minutes wherein several policymakers felt a rate rise was warranted "relatively soon" if the US economy continued to strengthen. Also, Yellen suggested Fed may need to run a "high-pressure economy" to reverse damage from the crisis. Dollar gained further momentum after the European Central Bank (ECB) kept its asset-purchase program at 80 billion Euros but signaled the program is likely to run past the currently scheduled end-date of March In his press conference, ECB president Mario Draghi said the bank hasn t discussed tapering and didn t provide a timeline for any potential changes. Stock scenario In October, Copper stocks at the LME declined the most by 14.1 percent whereas Zinc inventories gained the most by around 3 percent. 4% 0% -4% -8% -12% -16% 0.28% Trend in the Shanghai stock exchange was somewhat different with only Copper stocks losing 9 percent whereas Aluminium, Zinc and lead inventories surged by 15, 6 and 19 percent respectively. Domestic markets LME Inventory performance -0.81% 2.75% Source:Reuters, Angel Commodity Research -0.66% % MCX base metals trended lower in line with international markets.

2 9/30/ /2/ /4/ /6/ /8/ /10/ /12/ /14/ /16/ /18/ /20/ /22/ /24/ /26/ /28/ /30/ /1/ /1/2015 1/1/2016 2/1/2016 3/1/2016 4/1/2016 5/1/2016 6/1/2016 7/1/2016 8/1/2016 9/1/ /1/ /1/2016 Monday, Copper November 07, 2016 Price performance In Oct 16, LME Copper prices surged by 0.7 percent having started the month at $4877.5/t and touched levels as low as $ /t during the course of the month before closing at $4862/t LME Copper V/s stocks Source:Reuters, Angel Commodity Research prices stocks LME Copper prices marginally fell in October 2016 as China s construction sector which accounts for around 15 percent of nation s copper demand, was hurt by efforts by the China Securities Regulatory Commission and the National Development and Reform Commission to head off a housing bubble. In line with the efforts, local governments in China announced new property market cooling measures, as fears of real estate bubble intensified after more cities reported big jumps in home prices in Sep 16. In response, four Chinese cities starting with capital city Beijing, tightened rules for home purchases, which increased the down payment required on real estate purchases. More than 20 cities adopted restrictive measures aiming to tame fastrising prices, although 15 cities implemented them in the first week of October following a summer of unusually high house price growth. Also, customs data showed China's Copper imports dropped by 26 percent from a year ago and 2.9 percent from month ago. The mainland nation imported 340,000 metric tons of unwrought copper and copper products, a yearly fall of more than 25%. Imports also fell on a monthly basis for the sixth consecutive month in September and were at their lowest since February Despite falling demand, China's refined metal production continued to surge and rose 7.2 percent in September from a year ago. Overall output is up by 8.4 per cent this year at million tonnes Investors in indecisive mode Managed Net Copper Source:Reuters, Angel Commodity Research However, sharp decline of 14 percent in LME stocks over the month held the metals from falling sharply. Stock withdrawals at the Gwangyang, Busan (South Korea), Klang (Malaysia) and Singapore accounted for more than 60 percent of the total draw downs at LME warehouses. On the contrary, 15 percent stocks addition was seen at the Shanghai warehouses. All in all, Copper was hurt from new restrictions in the Chinese property market, but was cushioned from falling LME stocks in October. Indecisive China, which accounts for around 40 percent of the global Copper demand, showed signs of weakness as Industrial production fell to 6.1 per cent year-on-year in September, the slowest pace since May. Also, growth at 6.7 percent in the third quarter although met expectations, was expected to be pulled down in the next quarter citing impending slowdown in real estate owing to restrictions by the government to cool the overheated property market.

3 9/30/ /2/ /4/ /6/ /8/ /10/ /12/ /14/ /16/ /18/ /20/ /22/ /24/ /26/ /28/ /30/2016 Monday, Aluminium November 07, 2016 Price performance In Oct 16, LME Aluminium prices rose 2.7 percent to close the month at $1736.5/t. The light metal was moving lower till 20 th Oct 16 after which it surged to a high of 1738/t LME Aluminium Vs stocks Source:Reuters, Angel Commodity Research prices stocks Aluminium prices gained momentum for the second consecutive month in October 2016 and gained by around 3.8 percent on the LME and 3.7 percent on the MCX. Brighter demand prospects by the major producer companies spurred buying in the light metal. Novelis Inc, the world's largest maker of rolled aluminum products, sees demand for the metal growing 4-5 percent in 2017, boosted by sales to carmakers and can manufacturers. Asia would be the leader in both automobiles and cans demand growth due to population growth and increasing environmental awareness. Another producer giant, Norsk Hydro, affirmed their global aluminum demand growth by 4-5 percent in 2016 with the CEO indicating that actually it is more likely to be in the higher end of this range. Besides, Aluminum stocks in China s five major markets fell for three consecutive weeks ending October 31 and are likely to remain near multi-year low for the foreseeable future citing low shipments from northwest China. But all is not well in the Aluminium market as rising Chinese production has become a cause of concern for other producing countries. Data from the International Aluminium Institute (IAI) showed World Aluminium production in Sep 16 was 4.9 million tonnes, of which China produced at least 2.8 million tonnes. The next largest producing region was the Gulf Cooperation Council (GCC), with output of 426,000 tonnes, 70 to 80 per cent of which must find a market outside the region. GCC is political and economic alliance of six Middle Eastern countries namely Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman. Emirates Global Aluminium, a member of GCC and one of the world s top 10 aluminium producers, openly expressed distress regarding the chronic oversupply from China and added that they don t expect good prices for the next couple of years. These apprehensions are not unfounded, especially looking at the recent numbers from the IAI. Daily average primary aluminum output hit a record high in September, to 164,600 tonnes from 159,800 in the prior month. Primary reason being, surge in total Chinese output for the month to 2.75 million, the highest in 15 months. In line with the same, total global primary aluminum production increased to million tonnes, up 1.2 percent from the same month last year, but North American output fell 11 percent to 325,000 tonnes. Rising Chinese production in turn has given way to more exports. China exported 390,000 metric tons of unwrought aluminum, rising by 10.6 percent on year-onyear basis in Sep 16. This was preceded by yearly rises of 20.4% and 9.3%, respectively, in August and July. Overall, declining stocks kept afloat the light metal in Oct 16 while rising Chinese supply bothers global investors. Scenario at Shanghai and LME warehouses is no different. Over the year, Shanghai aluminium stocks have plunged by a whopping 124 percent to near 85,000 tonnes whereas LME stocks declined 30 percent towards 214,000 tonnes.

4 Outlook For Nov 16, we expect base metal prices to trade lower as investors will be highly cautious in the earlier part of the month given the upcoming Presidential elections in the US. However, latest Chinese annual growth, manufacturing activity and services activity all have shown signs of stabilization, thereby providing a cushion to prices. Copper prices will likely trade lower as new restrictions in the property market to avert a bubble is likely to hurt Chinese growth since it accounts for around 15% of gross domestic product. However, investor sentiment seemed to be in favor of the metal as latest CFTC data showed bullish bets in Copper rose to highest level since 2006 for the week ending November 1. Aluminium prices are likely to trade higher in Nov 16 as China Hongqiao, the world's largest aluminium producer, has been ordered by the nation's environmental regulator to shutter more than half of its capacity. However, Alcoa reduced its deficit projection for aluminum markets further to 615,000 metric tons from the previous guidance of 775,000 million metric tons. LME Stock analysis (Oct 16) Base metal Opening stock (in tonnes) Closing stock (in tonnes) Copper 3,71,775 3,19,475 Aluminium 21,54,825 21,40,550 Zinc 4,38,675 4,50,725 Lead 1,90,250 1,88,700 Nickel 3,62,004 3,63,024 Source: Reuters

5 Monday, Study group November updates 07, 2016 Copper to move into surplus in ICSG The International Copper Study Group (ICSG) is forecasting copper to have a market surplus next year. Lisbon-based ICSG said that in 2017 the copper market will have a surplus of approximately 160,000t, higher than its previous forecast in March, when the agency was forecasting a surplus for 2017 of just 20,000t. In the case of its 2016 projection, ICSG is forecasting the market to be essentially balanced, with a deficit of 8,000t, compared to its previous forecast of a 55,000t deficit. ICSG said that world mine production is expected to rise by around 4% this year to 19.88Mt; while for next year it is expected to be flat at 19.87Mt. Refined production is projected to increase 2.2% in 2016 and 1.7% in World apparent refined usage in 2016 is projected to advance by 1.5% to 23.4Mt due to apparent demand in China, which is also expected to increase by 1.5%, "although underlying 'real' demand growth in China is estimated by others at around 4%," ICSG said. For 2017, world apparent refined usage is expected to expand around 1% to 23.6Mt. Lead to be in deficit by 42,000 tonnes in ILZSG Global demand for refined lead metal is forecast to rise by 2.8% to million tonnes in 2016 and a further 1.3% to million tonnes in In China, strong growth in vehicle production and sales have helped to balance declining demand for lead-acid batteries in the e-bike sector where sales of lithium-ion batteries are reported to be rising. It is anticipated that Chinese lead usage will rise by 2.5% in 2016 and 1.1% in After declining in 2015, European usage of lead metal is forecast to increase by 5.3% this year assisted by a positive performance by the automotive sector. However, demand in 2017 is predicted to remain flat. The Group anticipates that in 2016, supply will exceed demand in the global refined lead metal market by 42,000 tonnes. Zinc market balance to remain in deficit in 2016 and ILZSG The International Lead and Zinc Study Group anticipated that global demand for refined zinc metal will rise by a marginal 0.6% to million tonnes in 2016 followed by a 2.1% increase to million tonnes in In China increased demand from the automotive sector is expected to be partially balanced by a decline in exports of galvanized sheet steel and demand is forecast to increase by 1.8% in A further rise of 1.3% is predicted in Usage in Europe has been flat over the past four years and this trend is predicted to continue in 2016 and 2017 with limited growth of 0.7% and 0.5% respectively. In the United States, an anticipated fall in apparent consumption of 8.7% this year will be influenced by draw downs in unreported inventories. However, in 2017 demand is forecast to rebound by 11.8%. The Group anticipates that world zinc mine production will fall by 5.6% to million tonnes in 2016 and then recover by 5.9% to million tonnes in On an ex China basis output this year is expected to fall by 11.7%, equivalent to almost a million tonnes of contained zinc, before partially recovering in In 2017, the market is expected to remain in deficit with the extent of the shortage forecast at 248,000 tonnes. Daily avg primary aluminum output surged in Sep 16 - IAI Data from the International Aluminium Institute (IAI) showed that daily average primary aluminum output hit a record high in September, driven by buoyant output in top producer China. The global daily average rose to 164,600 tonnes from 159,800 in August while total Chinese output for the month increased to 2.75 million, the highest in 15 months. Total global primary aluminum production increased to million tonnes, up 1.2 percent from the same month last year, but North American output fell 11 percent to 325,000 tonnes, IAI data showed.

6 Technical Levels (November 2016) Commodity Support 2 Support 1 CMP Resistance Resistance 2 1 LME Copper ($/tonne) MCX Copper (Rs./kg) LME Aluminium ($/tonne) MCX Aluminium (Rs./kg) LME Nickel ($/tonne) MCX Nickel (Rs./kg) LME Lead ($/tonne) MCX Lead (Rs./kg) LME Zinc ($/tonne) MCX Zinc (Rs./kg) Important data and events Data/ Event US Presidential Election China Trade Balance Japan Prelim GDP q/q US Prelim GDP q/q OPEC meeting Date & time 8 th Nov, 2016 All day 8 th Nov, 2016 Tentative 14 th Nov, :20 am 29 th Nov, :00 pm 30 th Nov, 2016 Tentative

7 MCX NICKEL CMP 729 In the weekly price chart of MCX Nickel, it can be clearly seen that Nickel trend is positive from last 2 weeks after making a low of levels. Today, we have noticed that price have breached the down trend line and made a new yearly (2016) high of levels and currently trading above it. Prices have formed bullish candlestick pattern following Open and High were the same levels. On the chart prices are forming Higher top Higher bottom which is the sign of up-trend. As per the EMA (Exponential Moving Average) Prices are trading above its 5, 20, 50 and 100 weeks EMA which is the indication of positive trend. 14 Week RSI is rising and MACD Showing positive divergence which signaling optimism. Nickel prices to find support in the range of levels. Trading consistently below 690 levels would lead towards the strong support at 640 levels and then finally towards the major support at 600 levels. Resistance is now observed in the range of levels. Trading consistently above 800 levels would lead towards the strong resistance at 860 levels, and then finally towards the major resistance at 920 levels. Looking towards positive chart structure and indicators indicating optimism we recommend buy in Nickel. Buy MCX Nickel between , SL 640, Target 800 / 860

8 Research Team Kaynat Chainwala Research Analyst (Base Metals) (022) Extn :6136 Anuj Gupta Head Technical Research (Commodity & Currency) (011) Angel Commodities Broking Pvt. Ltd. Registered Office: G-1, Ackruti Trade Centre, Rd. No. 7, MIDC, Andheri (E), Mumbai Corporate Office: 6th Floor, Ackruti Star, MIDC, Andheri (E), Mumbai Tel: (022) MCX Member ID: / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX: Member ID / FMC Regn No: NCDEX / TCM / CORP / 0302 Disclaimer: The information and opinions contained in the document have been compiled from sources believed to be reliable. The company does not warrant its accuracy, completeness and correctness. The document is not, and should not be construed as an offer to sell or solicitation to buy any commodities. This document may not be reproduced, distributed or published, in whole or in part, by any recipient hereof for any purpose without prior permission from Angel Commodities Broking (P) Ltd. Your feedback is appreciated on commodities@angelbroking.com