Looking for price support from China PT imports. Daily. Global Commodities. 16 May 2014

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1 Looking for price support from China PT imports While the strikes in South Africa continue, we await China s platinum and palladium import data for April, due for release in the next few days. April is the first month of data in the wake of the seasonal demand distortions caused by the China New Year in February and March. For the three months January to March, China imported 651Kozs of platinum, up from 540Kozs in the same period last year. China s platinum imports ended last year on a high note, too; 369Kozs of imports in December, up from 260Kozs in November. In both cases, we believe the rise in imports was triggered by a decline in the platinum price, underscoring the price-sensitivity of China s platinum demand. In Q1:13, platinum averaged $1,630 and in Q1:14 the price averaged $1,430. Also, in December, platinum averaged $1,356, while in November the average price was $1,417/ozs. Daily We reiterate that China s platinum imports have become much more price-sensitive since 2012; and we maintain that Chinese demand for platinum currently serves as swing demand in the market, with demand strengthening at low prices and declining if the platinum price rises too fast and too high. As a result, the role of jewellery demand from China is becoming more important, especially with the platinum price below $1,500. Almost all Chinese platinum imports go to jewellery, with the Chinese jewellery market accounting for almost 80% of the world platinum jewellery demand, and jewellery demand in turn accounts for almost 30% of total platinum demand. This is also one of the main drivers of our long-held tactical view that upside for platinum above $1,500 is limited, for now. Nevertheless, note that between China and platinum ETFs, more than 850Kozs of platinum have shifted ownership thus far this year. The platinum price has moved broadly sideways, and this, combined with our estimate that the platinum market will be in deficit this year, and the ongoing mine strikes, indicates that much of the metal must have come from above-ground inventory. Clearly, this inventory was loosely held, with platinum sold at relatively low prices. The question is whether the platinum that has relocated to ETFs and the platinum that now resides in China are more tightly held than before. We believe so, with the price at current level and should provide price support on approach of $1400. China platinum imports vs. price Kozs Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 China platinum imports (3m avg) Source: Standard Bank Research, China customs Plat spot (3m avg) By Walter de Wet USD 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 Bulks Chinese financial steels took the full brunt of further economic slowing today, gapping lower again to a new record low for rebar derivatives, as the industry looks ahead to the traditionally seasonally weaker June-July period, particularly for construction steels. Without Beijing support to negate property s ongoing downward spiral, we could see steel head into negative growth territory. Today s sentiment was also spooked by news that CISA member mill output continued to grow over the first 10-days of May by 1.57% p/p, inferring the chief cause of recent steel price declines, while mill inventories fell only 0.3% to mt. As a result of the rout, physical ore broke through the all-important $100/t mark today on Platts, causing brief mass panic in the IO swaps market as buyers pulled away, asking themselves whether ore is now falling back to $88/t as the next stop, as it did in Sept-112. In other negative news, China s bad loans rose RMB 54bn in Q1, to RMB 646.1bn, the highest level since Sept Shanghai Equities rose just 0.08% to 2025 points, bouncing off an intra-day low of Shanghai 7-day interbank rates rose back up to 3.4% today. The spot currency traded up at , with the RMB reference rate set at today, down from yesterday. Shanghai Rebar Futures Oct-14 contract closed off RMB 41/t at RMB 3,090/t in another ugly day s trading, while the SHFE HRC Oct futures fell RMB 28/t to RMB 3,272/t. Among physical steels, Tangshan billet prices fell RMB 20/t to RMB 2,820/t, dropping RMB 70/t across the week. Rebar prices fell RMB 30/t in Shanghai and RMB 10-30/t in Beijing. HRC prices fell RMB 10/t in Shanghai and RMB 10/t in Beijing. Angang is rolling its HRC May pricing into June, while Hebei and Shougang are following suit. As noted earlier this week, Bao cut its prices for HRC by RMB 80/t. Dalian Commodity Exchange IO active Sept-14 contract prices fell RMB 21/t to RMB 717/t, while the Jan-15 contract closed RMB 14/t lower at RMB 705/t. Chinese IO port stocks rose 2.15mt w/w to mt, highlighting both higher arrivals from Australia s massive April shipment increase, as well as mill destocking momentum, due to falling steel prices. Among physical iron ore, Vale tendered a Carajas fines (IOCJ) Fe 64.63% July-cargo at MBIO (Average Fe 62%+Fe 65% index) less $1/t. On globalore, June Fe 62% PB fines was seeing a spread of $99.50: $100/t, which helped drag the indices lower. The TSI Fe 62% China CFR price index fell $2.10/t to $100.70/t (MTD: $103.94/t). The Platts Fe 62% index fell $3.50/t at $99.75/t, while the TSI Fe 58% index fell 30 cents to $88.90/t (MTD: $92.60/t). The Metal Bulletin Fe 62% index fell $3.07/t to $100.74/t, while its Fe 58% index fell 89 cents to $83.44/t. Mysteel s Fe 62% index fell $2.50/t to $100.50/t, while its Fe 58% index fell $2.50/t to $87.25/t. In IO supply news, India s Supreme Court is ordering the temporary closure of 26/56 operating ore mines in Orissa (30-35mtpa / c.50%), due to lease renewal issues. With less than 1mt/mth of exports, we expect little impact on seaborne prices. Local steel mills (e.g. Tata/SAIL) are likely to be most affected, with the potential to impact the equivalent of c.20mtpa of steel, equivalent to 25% of the country s output. This could cause additional imports to be required, particularly with mills in Karnataka also restricted by a lack of local raw materials. The BJP government may move to change recent bans; however, wheels are still likely to turn slowly. The Baltic Exchange Cape index shifted up 1.3% to $11,205/day, with C3 at $19.459/t and C5 at $7.873/t. FFA Q3 capes are trading in the $21,800/day range. 2

3 For Q3:14 thermal coal prices, API 2 is trading at $77.90/t; API 4 is trading at $75.45/t; while Newcastle is trading at $76.20/t. Eskom is back suffering shortages, with rolling blackouts predicted for later today. The strong euro is negatively impacting EU trade flows, which could hurt industrial electricity demand. The BJP has declared victory in the Indian elections, with early numbers suggesting the biggest win in 30 years, although the final results are still being tallied. Modi from north-western Gujurat province will lead the country. Indian power plant coal demand is expected to rise to 567mt this year, while domestic supplies may reach only 473mt, leaving a net gap of nearly 100mt to fill, assuming they operate at capacity. Last year, plants consumed only 498mt of coal, against a budgeted 522mt. Coal accounts for 60% of India s generating capacity. Adani expects coal exports from its 60mtpa Qld project will begin in Zhengzhou Futures Sept-14 contract price fell RMB 4.8/t to RMB 523.8/t, while the Jan-15 contract fell RMB 3.6/t to RMB /t. Total port stocks rose 14.63mt, up 6.4% w/w and up 1.1 d/d. GZ stocks were up 2.5% w/w at 3.47mt. Rising stocks at plant and port, together with growing contributions from southern hydro power and slowing industrial output rates are keeping a lid on Chinese thermal demand. Premium Hard Coking Coal spot prices are trading in the $ /t Qld FOB range, with China CFR prices ranging $ /t, with weakness developing in both steel and thermal coal markets. On the Dalian Exchange, Sept-14 coke price traded off RMB 38/t to RMB 1,148/t, while the Jan-15 contract fell RMB 39/t to RMB 1,202/t. Among Dalian HCC prices, Sept-14 contract prices closed RMB 21/t lower at RMB 811/t, while the Jan-15 contract fell RMB 27/t to RMB 846/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 Q2 14 Change Q3 14 Change Q4 14 Change Cal 15 Change API2 (CIF ARA) API4 (FOB RBCT) Source: LME, NYMEX, COMEX, SHFE, Standard Bank Research 4

5 Commodity prices Bulks Steel Physical Latest Price 1-day 1-week 1-month 3-month 6-month Turkish Scrap 80:20 (Iskinderun CFR) $/t % 0.13% 10.20% -2.72% 3.08% China Tangshan Steel Billet $/t % -4.36% -2.95% -6.30% -8.53% China HRC export (Shanghai FOB) $/t % -0.96% -3.18% -0.58% -2.26% North Europe HRC domestic (ex-works) $/t % -1.15% -3.37% 0.00% -6.01% North America HRC domestic (Midwest FOB) $/t % 2.07% 5.83% 2.07% 19.17% Steel Futures LME Billet Cash $/t % -0.39% 7.22% 68.56% % LME Billet Futures (1-mth) $/t % -1.03% 7.22% 68.56% % LME Steel Billet Stocks change Shanghai Rebar Futures (Active contract) $/t % 1.73% 2.26% -4.73% -3.23% Shanghai Rebar Futures On-Warrant Stocks change SHFE Rebar - Open Interest SHFE Rebar - Total Volume China Steel Inventory (million tonnes) % -8.59% % 17.63% % Iron ore China Iron Ore Fines (62% Fe; CFR Tianjin) $/t % % % % % China Iron Ore Fines (58% Fe; CFR Tianjin) $/t % % % % % SGX AsiaClear IO Swaps 62% Fe $/t (1-mth) % % % % % Platinum China Iron Ore Inventory (million tonnes) % -0.27% 7.62% 36.23% 52.87% Coking coal Premium Hard Coking Coal (Qld FOB) $/t % 1.76% -8.19% % % Capesize freight Saldanha South Africa-Beilun China % -9.68% 1.82% % 10.24% Financials pricing RMB Currency % 0.17% 2.78% 2.31% 1.36% China 7-day repo % 13.55% % % -3.43% API2 (CIF ARA) % -4.28% -5.64% -8.30% % Source: LME, SGX, McCloskey, SHFE, Bloomberg 5

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