Platinum testing 200day MA. Daily. Global Commodities. 13 January 2014

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1 Daily Platinum testing 200day MA Platinum pushed towards the 200day MA of $1,434 after Friday s worse-than-expected US non-farm payrolls data. At the same time, the platinum/gold spread widened to $190/oz from a low of $110/oz at the start of December, implying that the strength in the platinum price is being driven by platinum-specific factors too, not only by the more common precious metals factors (such as US monetary policy). Marginally bullish is the latest CFTC data which indicates that for the week ending 7 January, the net speculative position as a percentage of open interest on NYMEX stood at 44.1%, a little below the 1-year and 5-year average levels of 47.6% and 52% respectively. From a futures market perspective, positioning is perhaps slightly underweight. In the options market, the NYMEX Feb contract, due for expiry this week, now has sizable open interest for calls with strikes at $1,380 (550 contracts), $1,370 (505 contracts), $1,350 (925 contracts) and close to the current price level of $1,430 (500 contracts. In February puts, there is large open interest at the $1,340 strike level (1,000 contracts). The OI at the above strike levels implies that, at least as far as the NYMEX Feb contract is concerned, there is likely to be resistance to higher prices. However, in the background, the threat of production stoppages in South Africa lingers. Northam Platinum and Num are back at the negotiation table today, while AMCU is set to hold meetings with members this week about any changes to wage demands. An underweight futures market going into the wage negotiations may push platinum towards $1,500. However, we view the market as well supplied with metal, and our tactical view remains unchanged: being short below $1,400 holds little value from a risk/return perspective, while adding longs above $1,500 is equally unattractive. NYMEX net spec length as % of OI % Source: NYMEX, Standard Bank Research By Walter de Wet 15 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Net speculative length as % of open interest 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 Base metals A poor US Nonfarm Payroll figure helped the dollar to weaken on Friday afternoon, supporting base metal prices into the weekend. Much of the complex has since drifted lower into Monday afternoon as Friday s momentum fades, though two notable exceptions have been nickel and lead which have both continued to rally strongly. Indonesia s ore export ban has come into force, impacting mainly on exports of nickel laterite ore and bauxite. Exports of copper, iron ore, lead, zinc and manganese concentrates are allowed to continue until 2017, though export taxes for those concentrates will be introduced and raised every 6 months until the 2017 deadline. Nickel prices gapped higher overnight and have continued to rally into Monday afternoon, boosted by confirmation of the ore export ban. Turnover has also been very strong, in spite of the event being well flagged. Overall, in our view the ban will be a slow burn in terms of its impact on NPI output and pricing. It isn t clear quite how flexible NPI smelting technology will prove to be, however a large overhang of Indonesian stocks in China, plus the potential at least to perhaps blend with lower grade Philippine ore (albeit incurring higher unit costs) will help reduce the immediate impact of the ban, with any tightness only likely to emerge later in the year. In the near term, nickel positioning is likely to have the biggest impact on prices and spreads. Short covering, added to the rolling of the hedges associated with the 262kt of LME inventory (plus other material held off-warrant) may add to the recent tightening seen in the nickel spreads and may trigger a more sustained short covering episode. We note however that given lacklustre demand, refined units can be delivered against short positions for the moment, with evidence of that being seen this morning with the rewarranting of 390 mt of previously cancelled material in Johor. Nevertheless, there is the potential for further spread tightness and a more sustained and aggressive short covering rally as we head into Q1. Lead has started to dig its heels in and stabilize relative to zinc prices. The metal found support around its 200-day MA late last week and, with the US coming out of hibernation, appears to have found its feet. Looking at the latest LME Futures Banding data, there are some significant short positions in both February and March, suggesting that tightness may emerge as those positions are rolled forward. Interestingly it s also worth noting that on-warrant LME inventory has dropped significantly for the first time since May 2013, Copper has drifted lower heading into Monday afternoon with prices retreating towards $7,270. Barrick s Zaldivar mine has declared force majeure on shipments of cathode from the Antofagasta International Terminal, while Codelco has noted that port strikes have delayed a 20kt shipment. Antofagasta has also noted shipments have been delayed by industrial action at the port which started late last year, though it also hasn t yet declared force majeure. The Chilean port strike is intermittent, though it may well serve to keep physical premia tight heading into the Chinese New Year, countering the impact of year-end liquidity issues in China. Spreads may also be impacted by a shortage of copper units, though it s worth noting that New Orleans has seen LME on-warrant stocks climb 13,550 mt, due almost entirely to the re-warranting of previously cancelled inventory. Aluminium prices have tended to track copper. What has been interesting is a 91,975 mt jump in cancelled warrants this morning. The cancellations were mainly seen in Europe and the US, with Detroit (30,675 mt) Baltimore (4,975 mt) and Vlissingen (57,350 mt) the main locations for the activity. By Leon Westgate 2

3 Precious metals Gold rallied strongly after the weak employment data in the US on Friday. Nevertheless, gold will likely struggle to break through resistance. We still view the metal from a tactical perspective as a sell into rallies. Per Commodities Daily of 7 January 14, we believe that once current seasonal demand from Asia fades as we head into February, new longs in the futures market are likely to be liquidated and, combined with ETF gold liquidation (which we expect to continue throughout Q1:14), this should see the current rally in gold fade. Technically, we would look for resistance in the $1,249 $1,270 range, with an initial downside target of $1,180. According to the latest CFTC data, the net speculative position for gold, silver, platinum and palladium in the futures market increased in the week ending 7 January. However, most of the rise in the net position has been due to short positions being covered rather than new longs entering the market. As a result, given that recent price action is partially driven by short-covering, we would expect the rallies to fade once shortcovering has run its course. Fundamentally, we remain bearish on silver, and here, too, we expect rallies to fade. The $20.46 $20.55 range has been providing strong resistance. Support for the metal should be around $ Bulks By Walter de Wet Steel and Iron Ore markets in China remain weak today, with demand dropping due to persistently high borrowing costs; lower winter construction demand; nervousness over property market changes and the upcoming Chinese holidays. Chinese iron ore port stockpiles rose 2.14mt w/w to 91.44mt, while weekly shipments from Australia and Brazil dropped by a huge 9mt to 9.5mt, due to poor weather conditions, particularly ongoing heavy rains in Brazil and last week s cyclone Christine in WA. By rights, with domestic concentrates falling due to winter (<1mt/yr operating in the 55-60% utilisation range), ore availability should be tighter than it is. Weak steel demand is the primary contributor. We would still expect stronger steel restocking demand ahead of March s construction restart however, given relatively low industry holdings. Shanghai Equities fell 0.19% to 2010, hovering just above key support of 2000, as fresh IPOs continue to weigh on sentiment, together with slowing economic growth (Dec Mfg PMI at 51 versus 51.4 in Nov; while HSBC services fell from 52.5 in Nov to 50.9 in Dec). Shanghai 7-day interbank rates marked at 4.02%, down from the recent peak of 8.8% on 23-Dec. Markets are hopeful the PBOC will conduct reverse repos again tomorrow, for the first time since 24-Dec 9RMB 29bln). Meanwhile the currency was officially pegged at :1, the highest since July 2005, while spot trading priced the currency at , on the back of strengthening trade balances. Shanghai Rebar Futures May-14 contract closed off RMB 30/t at RMB 3,462/t, trading higher in the morning, before sinking into the afternoon session. Dazong HRC April-14 futures shifted off RMB 20/t to RMB 3,480/t. Among physical steels, Tangshan billet prices weakened by RMB 30/t over the weekend to RMB 2,910/t, following the recent cash squeeze. Rebar prices fell RMB 20/t in Beijing while remaining stable in Shanghai at RMB 3,350/t. Shagang has cut its rebar prices by RMB 130/t from 11-Jan, while Hebei Steel is to keep its prices unchanged. HRC prices traded flat in Shanghai and Beijing today, impacted by falling local inventories. Shougang is to keep its HRC prices unchanged, with Q235 at RMB 3,260/t ex VAT, while Baosteel has increased its list prices for February by RMB 80/t, with its Q235 materials marked at RMB 4,552/t (ex works; ex VAT), after increasing Jan 3

4 pricing by RMB 50/t. Stronger auto demand is cited as the key reason. China is believed to have made 22m vehicles in 2013, up 14.2% y/y, with a further 10% growth anticipated for 2014, subject to pollution (registration) controls in larger cities. China is also expecting to build 6,600km of new rail lines this year, up from c. 6000km in 2013, adding to >100,000 km totals. CISA estimated that daily average crude steel output for late-december fell 2.7% to 1.96mt. India was a slight net exporter of steel for the April-December period, due to rupee volatility and poor domestic demand circumstances (up only 0.5% y/y), despite difficulties accessing ore in the Karnataka region. Dalian Commodity Exchange IO active May-14 contract prices fell RMB 10/t to RMB 871/t, its lowest level since debuting in Oct. Chinese iron ore port stocks have climbed 2mt w/w to their highest level since Nov-12. China imported a total of 820.3mt of iron ore in 2013 (73.38mt in December up 3% y/y), up 10% y/y from 745.5mt prior, with Chinese steel output likely to have reached 775mt last year, up from 720mt in CISA predicts China will produce 800mt in Nucor has begun the first phase of its Convent DRI plant in Louisiana, with ore to be supplied from Brazil. Among physical iron ore, the year s first tender was conducted today by RioT, with a Fe 61.7% PB fines cargo concluded at $130.88/t (laycan 27-Jan). globalore saw no trades completed. The TSI Fe 62% China CFR price index rose 20 cents to $130.90/t (MTD: $132.84/t). The Platts Fe 62% index fell 25 cents to $131/t (MTD: $132.53/t), while the TSI Fe 58% index fell $1/t to $120/t (MTD: $121.40/t). The Metal Bulletin Fe 62% index lifted $1.77/t to $132.82/t, while its Fe 58% index rose 1 cent to $116.09/t. In IO supply news, weekly shipments from Australia and Brazil dropped by 9.4mt w/w to 9.5mt, following heavy rainfalls in Brazil and cyclone disruptions in Western Australia (with Pilbara ports recovering from Cyclone Christine which struck late last month). Vale declared FM from 27-Dec until 6-Jan, following the negative impact of floods and landslides to its SES system into Tubarao. In total, Vale believes 2.5mt were lost, with 1.3mt potentially recoverable during Q1:14. Total December shipments for Brazil were 29.59mt, down only 0.3mt from November s 29.8mt. RioT will be undergoing some berth maintenance for the next 3 days. India is estimated to have shipped 14.1mt of ore during calendar 2013, slightly above our 12mt forecasts, partly helped by higher prices in 2H, which allowed better marginal exports from the Odisha region. Goa e-auctions remain next on the country s export supply agenda, with 11mt of stockpiled materials first on the list. On the other hand, India s Chamber of Commerce is pushing to ban the export of iron ore pellets or at least be hit with export duties of 30%, in line with lump and fines. NMDC has rolled over its Dec-13 prices into Jan-14, with lump at Rs 4,500/wmt. The situation for Indonesia cargoes remains confused, following the government s ban on raw ore exports beginning as of yesterday, 12-Jan. While in theory exports of iron ore will be allowed to continue, according to the Mines Ministry, a progressive export tax is planned for introduction, for all non-refined materials, however as yet, the percentage is uncertain to gain customs clearance. Meanwhile the grade of material to be exported may be limited to above Fe 62%, whereas most Indonesian materials grade Fe 49-55%. Either way, with c.1mt/month being shipped, we don t expect much material impact on seaborne prices. 4

5 FerrExpo produced 10.8mt of pellets in 2013, up from 9.7mt in Alderon s Kami project has been released from providing a provincial environmental assessment, although is still required to submit federal assessments, which are in the final stages, which comment expected in Feb-14. Iran looks to have exported c.20mt last year, in line with 2012 levels. SNIM Mauritania produced 13mt in 2013, compared to 12mt in The Baltic Exchange Cape index shifted 22% to $13,611/day, with C3 at $19.71/t and C5 at $7.06/t. As expected, freight has been weaker into Q1, exacerbated by difficult weather events in Australia and Brazil, as well as the Drummond situation in Colombia. For Q1:14 thermal coal prices, API 2 is trading at $83/t; API 4 is trading at $83/t; while Newcastle is trading at $82.40/t. Indonesia is anticipating mining as much as 450mt of coal in 2014, up from c.390mt in The country s export ban beginning yesterday excludes coal, however China s threatened ban of low-ranked coals <4000 kcal (Ash>20%; sulphur >1%) (c.25mtpa) is still being monitored. Drummond s situation in Colombia continues to dominate API2 trading. Zhengzhou Futures May-14 contract price fell RMB 3/t to RMB /t. Coal port stocks lifted 4.6% to 14.74mt today, up from 12mt in mid-dec. NAR5500 spot coals are trading at RMB 585/t, with weak buying due to the cash squeeze and upcoming holiday period. China imported 330mt of coal in 2013, up 13.4% y/y, while exports amounted to only 7.51mt, down 19.1% y/y. Premium Hard Coking Coal spot prices are trading in the $ /t Qld FOB range. China CFR prices are trading in the $ /t range, with freight rates in the $9-12/t ex-qld range. February contract volume price negotiations are expected to begin this week. On the Dalian Exchange, May-14 coke price traded off RMB 10/t to RMB 1,372/t, while HCC prices closed RMB 2/t to RMB 982/t. China exported 4.67mt of coke in 2013, up 3.58 times on 2012 levels, following export policy changes. Total port stocks of coking coal have dropped to 12.52mt, off 1.9% w/w. By Melinda Moore 5

6 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 Q1 14 Change Q2 14 Change Q3 14 Change Cal 14 Change API2 (CIF ARA) API4 (FOB RBCT) Source: LME, NYMEX, COMEX, SHFE, Standard Bank 6

7 Commodity Prices Latest Price 1-week 1-month 3-month 6-month 1-year Bulks Steel Physical Turkish Scrap 80:20 (Iskinderun CFR) $/t % 1.96% 10.61% 10.86% -0.80% China Tangshan Steel Billet $/t % -0.20% 1.43% -0.60% -7.81% China HRC export (Shanghai FOB) $/t % 0.19% 0.57% 6.18% -6.16% North Europe HRC domestic (ex-works) $/t % 0.00% -1.71% -1.71% -8.51% North America HRC domestic (Midwest FOB) $/t % 0.15% 6.21% 8.06% 8.40% Steel Futures LME Billet Cash $/t % 23.53% 50.00% % 7.51% LME Billet Futures (1-mth) $/t % 23.53% 48.58% % 6.78% LME Steel Billet Stocks change Shanghai Rebar Futures (Active contract) $/t % -7.66% -4.07% 3.15% % Shanghai Rebar Futures On-Warrant Stocks change SHFE Rebar - Open Interest SHFE Rebar - Total Volume China Steel Inventory (million tonnes) % 0.39% % % 1.55% Iron ore China Iron Ore Fines (62% Fe; CFR Tianjin) $/t % -5.67% -0.23% 6.31% % China Iron Ore Fines (58% Fe; CFR Tianjin) $/t % -3.02% -0.33% 6.82% % SGX AsiaClear IO Swaps 62% Fe $/t (1-mth) % -5.31% 0.88% 7.58% % Platinum China Iron Ore Inventory (million tonnes) % 0.73% 16.30% 12.62% 11.69% Coking coal Premium Hard Coking Coal (Qld FOB) $/t % -1.70% -9.02% -4.39% % Capesize freight Saldanha South Africa-Beilun China % % % 31.48% 42.00% Financials pricing RMB Currency % -0.29% -1.06% -1.22% -2.75% China 7-day repo % % % 11.67% 34.45% API2 (CIF ARA) % -9.26% -8.18% 3.33% % Source: LME, SGX, McCloskey, SHFE, Bloomberg 7

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