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1 : Daily Focus: New yuan loans supportive of commodities 14 April 2011 Focus: Today s release of new yuan loans data for March 2011 showed an additional RMB679.4bn of credit extension. This was well above market expectations and also a relatively strong figure from a seasonally adjusted perspective. It could provide some short-term support for commodities in 2011 but not quite to the same extent as it did in The base metals have come under further pressure this morning, with yesterday afternoon s sell-off continuing into Thursday afternoon. A stronger dollar is also weighing on the metals as the focus switches to this afternoons US PPI data and tomorrows raft of Chinese economic figures. The Fed s Beige Book was read as favourable to maintaining the current course of monetary accommodation. To this end, the impact on precious metals was minimal. In light of tomorrow s release of Eurozone and China s price data, the threat of rising inflation is front of mind for many investors. This is supportive of precious metals, in particular gold and silver which have benefited the most from inflation-hedge buying Strategists Walter de Wet, CFA* Walter.DeWet@standardbank.com Leon Westgate* Leon.Westgate@standardbank.com James Zhang* Jinzhong.Zhang@standardbank.com Marc Ground, CFA* Marc.Ground@standardbank.com Oil recovered yesterday from heavy losses in the previous two sessions. Front-month WTI gained 86c/bbl, to settle at $107.11/bbl. Front-month Brent moved $1.96/bbl higher, to close at $122.88/bbl, ahead of May contract s expiry today. Commodity price data (13 April 2011) Base metals LME 3-month Open Close High Low Daily change Change (%) Change in cash Cash Settle settle Cash - 3m Aluminium 2,665 2,643 2,652 2, % 2, Copper 9,615 9,510 9,516 9, % 9, Lead 2,755 2,680 2,700 2, % 2, Nickel 26,650 26,255 26,450 26, % 26, Tin 32,600 32,250 32,644 32, % 32, Zinc 2,463 2,422 2,444 2, % 2, Open Close High Low day/day Change (%) ICE Brent % NYMEX WTI % ICE Gasoil 1, , , , % API2 Q2' % ICE EUA Dec % AM Fix PM Fix High bid Low offer Closing bid Change (d/d) EFP's Gold 1, , , , , /1.1 Silver /2.0 Platinum 1, , , , , /4.0 Palladium /1.5 Sources: Standard Bank; LME; BBG Please refer to the disclaimer at the end of this document.

2 Daily 14 April 2011 Focus: New yuan loans supportive of commodities Today s release of new yuan loans data for March 2011 showed an additional RMB679.4bn of credit extension. This was well above market expectations (RMB600bn) and a marked improvement on the previous month s increase of RMB535.6bn. It is also a relatively strong figure from a seasonally adjusted perspective. Together with a strong set of money supply numbers (M2 rose 16.6% y/y, besting expectations of a 15.4% y/y increase and considerably stronger than February s 15.7% y/y growth), the loans data could provide some short-term support for commodities in that it might ease investor fears over increasingly aggressive Chinese monetary tightening. The new loans data should provide some relief from the 25 bps increase in deposit and lending rates which raised fears over monetary tightening hurting real demand for commodities. In addition, we have determined that not all policy actions should be treated equally with respect to their impact on commodities. Of all the tightening measures used by the PBOC, we find that interest rates have the smallest impact on commodity prices. Furthermore, given the monetary transmission mechanism, we also find interest rates impact commodity prices with a substantial lag relative to other measures. Rationing of the credit extended by financial institutions (new yuan loans) was revealed by our analysis as the most threatening of inflation combating measures. This makes today s numbers particularly encouraging. However, while today s increase in new yuan loans might provide short-term support for commodities, we don t believe that it changes the long-term prospects. As can be seen in the graph, it is in line with the target of RMB7trn-7.5trn set Cumulative new yuan loans 10,000 7,500 5,000 2,500 0 Yuan (mln) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Target band for 2011 Sources: Standard Bank; PBOC out by the Chinese government for As such, the data should already be largely discounted in commodity prices. What could affect the long-term outlook is tomorrow s Chinese inflation data. An unexpected increase (particularly for producer inflation which has been trending upwards) could spell trouble for China s general inflation outlook over the medium term, which could warrant more aggressive monetary conservatism. For now, we don t foresee a collapse in new yuan loans, but we reiterate that credit expansion in China is unlikely to provide the same support for commodities in 2011 as it did in By Marc Ground Base metals The base metals have come under further pressure this morning, with yesterday afternoon s sell-off continuing into Thursday afternoon. A stronger dollar is also weighing on the metals as the focus switches to this afternoons US PPI data and tomorrows raft of Chinese economic figures. Copper continues to struggle, falling below technical support at $9,550-9,600 yesterday, and dropping below trendline support at $9,425 this morning. A recent shift in general sentiment towards the metal has been compounded by fears over Chinese tightening measures and a stronger dollar this morning, which is now bringing technical resistance levels at $9,190 and $9,125 into view. How the US equity markets perform this afternoon will be key, however, the Chinese economic data due to be released overnight looks set to be the difference between a bounce back or further deterioration in prices. Lead has seen another large inflow of metal into LME warehouses this morning, with a 3,825 mt increase in on-warrant stocks bringing the total build this week to 9,175 mt. The inflows have been focused on Asia, with Johor the main location for the activity. The tightness in the nearby forwards, particularly the April-May spread, appears to be the main reason for the increase stock activity, with the backwardation attracting metal into warehouses. The inflows, along with the weaker copper price and stronger dollar, has weighed on lead prices with the metal amongst the heaviest fallers this morning. Lead is trading around $2,620 heading into the early afternoon, around the level it was trading at towards the end of March, albeit nearly $300/mt below its recent highs. 2 Zinc has also seen a large increase in LME stocks, with 26,700 mt going into New Orleans. However, with the general sense that the metal is being parked there, maybe as part of a financing deal, and the fact that zinc prices have been left behind the recent price rally seen in many of the other metals, prices have fallen in-line with copper and nickel, rather than suffering form the LME inventory data. By Leon Westgate

3 Daily 14 April 2011 In general, the Fed s Beige Book was read as favourable to maintaining the current course of monetary accommodation. To this end, the impact on precious metals was minimal. The report showed that manufacturing continued to improve modestly, with slight gains in consumer spending. While inflation pressures off the back of rising commodity prices was mentioned, the lack of wage pressure implies no significant change to the Fed s outlook for inflation. Consequently, this does not warrant any consideration being given to withdrawing monetary stimulus, as yet. The release of Chinese monetary supply and credit extension data this morning, in that it bested market expectations should provide some short-term support (see Focus) for commodities. In addition, the unexpected increase in China s foreign reserves (currently $3,044.7bn, from $2,991.4bn) should provide support for precious metals from a global liquidity perspective. Investor speculation that the Fed will lag the ECB in raising interest rates has led to a weaker dollar (both in relation to the euro and from a trade-weighted perspective), which is broadening the appeal of precious metals as an alternative investment. In light of tomorrow s release of Eurozone and China s price data, the threat of rising inflation is also front of mind for many investors. Again, this is supportive of precious metals, in particular gold and silver which have benefited the most from inflation-hedge buying. Gold support is at $1,451 and $1,446. Resistance is at $1,463 and $1,468. Silver support is at $40.32 and $39.81, resistance is at $41.06 and $ Platinum support is at $1,771 and $1,759, resistance is at $1,792 and $1,802. Palladium support is at $762 and resistance at $777. By Marc Ground Oil recovered yesterday from heavy losses in the previous two sessions. Front-month WTI gained 86c/bbl, to settle at $107.11/ bbl. Front-month Brent moved $1.96/bbl higher, to close at $122.88/bbl, ahead of May contract s expiry today. Middle distillates lagged crude moves, while RBOB gasoline charged ahead on the back a massive 7MB gasoline inventory draw in the US. The term structure for WTI and Brent strengthened slightly as flat prices rose, while the term structure for ICE GO continued to weaken after the structure moved swiftly into contango for the summer months, right after the April contract expired on Tuesday. The DOE reported US oil inventory change for crude/gasoline/distillate at +1.6/-7.0/-3.0MB w/w. Following API, DOE also reported a large decline in refinery run rate, which most took place in PADD1 and PADD3 and was largely caused by unplanned refinery maintenance work. Of the hefty 7MB gasoline draw, 3MB occurred at PADD1, which should particularly support the Nymex RBOB contract due to its delivery location. The total US gasoline inventories have moved decisively below the fiveyear average. In addition, PADD1 gasoline inventory has fell to 5-year seasonal low level. The implied demand for gasoline rose by 88kbd on a 4-week average basis, but still set a new seasonal low. The implied demand for distillates fell by 28kbd and was sitting just above 5-year seasonal low level. As we noted yesterday, heating demand for distillates during Q1:11 has been 140kbd higher than 5-yr average. Excluding that, distillate demand would have been setting seasonal lows. Overall, the US oil demand remains weak relative to historical levels, but is yet to show clear signs that demand has been dampened significantly by high prices. It has been reported that the Libyan rebels have started exporting some crude and aim to increasing production. Although this is positive for oil supply, it s difficult to be confident that Libya s oil production will be fully restored anytime soon. While protests in Yemen and Syria still persist, the market now appears to be less concerned with the geopolitical risks in the MENA region, as contagion risks to the other major oil producing countries has dissipated. In the financial market, the euro continues to climb higher since the rate increase last week. The US dollar index is hitting the lowest level since November 2009, which have provided support to US dollar denominated commodity prices. Meanwhile, US retail sales for March grew by 0.4% m/m, slightly below the market consensus of 0.5%. Nevertheless, the number was taken as positive by the market, especially in the context of high gasoline prices. Looking ahead, the oil market is likely to be in a correction mode for a while in the absence of any new headline development; then we expect the oil market to regain its upward momentum on tightening market fundamentals. By James Zhang 3

4 Daily 14 April 2011 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 4,571,200 4,575, ,050-4, , , ,977 Copper 449, ,700 4,325 1,100 3,225 72,375 11, ,334 Lead 280, ,450 5, ,950 72,125 3, ,462 Nickel 122, ,518 1, ,614 9, ,461 Tin 18,795 18, , ,505 Zinc 737, , ,625 5, ,691 Shanghai 3-month forward prices COMEX active month future prices Metal Open Last 1d Change Open Close Change Change (%) Aluminium 16,760 16, Ali May' Copper 71,180 71, Cu May' % Zinc 18,450 18, ZAR metal prices Aluminium Copper Lead Nickel Tin Zinc ZAR/USD fix Cash 17,759 64,871 18, , ,045 16, month 18,057 64,972 18, , ,332 16, 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) 1, , , , , NWE CIF jet ($/mt) 1, , , , , Singapore Kero ($/bbl) % Rdam barges ($/mt) % Fuel Oil FOB ($/mt) Sing FO180 Cargo ($/mt) Thermal coal Q2-11 Q3-11 Q4-11 Cal 12 Cal 13 API2 (CIF ARA) API4 (FOB RBCT) 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 Jun'11 May'11 Jul'11 Jul'11 Jun 11 Feb'12 Jun'11 Settlement 1, , , , , Open Interest 514, ,670 22,073 35,727 1, ,962 2,190 Change in Open Interest 2,697 1, ,160-8 Sources: Standard Bank; LME; Bloomberg 4

5 Daily 14 April 2011 Forecasts Base metals Base metals LME cash prices (US$/mt) Q1:11 Q2:11 Q3:11 Q4:11 Avg Avg Aluminium 2, Copper 9, Lead 2, Nickel 26, Tin 29, Zinc 2, front-month prices Q1:11 Q2:11 Q3:11 Q4:11 Avg Avg WTI ($/bbl) Brent ($/bbl) ICE Gasoil ($/mt) Nymex RBOB Gasoline (c/gal) API2 Coal Cif ARA ($/mt) API4 Coal Fob Richards Bay ($/mt) spot prices (US$/oz) Q1:11 Q2:11 Q3:11 Q4:11 Avg Avg Gold 1,388 1,440 1,500 1,435 1,430 1,450 Silver Platinum 1,793 1,800 1,750 1,950 1,850 2,000 Palladium Rhodium 2,400 2,300 2,400 2,700 2,500 3,000 Source: Standard Bank 5

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