INDUSTRIAL METALS! US DOLLAR WEAKENING OIL MARKET PRICE UP 2017 RECORD YEAR CHINA VERY GOOD PMI US ECONOMY TAX CUTS METALS UPDATE December 2017 performance % ALUMINIUM PALLADIUM AM PALLADIUM PM COPPER ZINC SILVER PLATINUM SILVER SILVER GOLD PLATINUM LEAD Source: LME cash, ekuota. Updated as at 29/12/2017 2017 A RECORD YEAR FOR INDUSTRIAL METALS Overall, industrial metals experienced their best year, as well as a profitable December, since a long time. Brent is approaching $70 per barrel, helped by the rising geo-political risk in Iran (3rd producer), the increased demand from the world economy and speculative investments made by hedge funds. The rise in world economic activity is apparent from the impressive PMI figures published by China, which experienced the fastest rate of growth in one year (PMI: 53.0), the Eurozone, which is growing at its fastest level since 2011 (PMI: 58.1) During December 2017, the attention was drawn by the US tax reform, whose uncertainty around the implementation played a role in driving the US Dollar lower coupled with strong manufacturing data released by European countries. In China, pollution curbs and the consequent diminished metals production are pushing demand higher and global stocks of metal are declining. CASH LME PRICES AS AT 29/12/2017 LME cash price as at 29/12/2017 and previous day % performance WWW.EKUOTA.COM!1
In this monthly report, we ve updated our models with new data to provide a current view on what is driving industrial metal prices (Nickel, Copper, Aluminum and Zinc) and what if any industrial buying strategies organizations may wish to consider. The projections are hypothetical in nature and are not guarantees of future results. Ekuota projections are based on a statistical analysis and on current market conditions only. Relevant factors in our model are the Forecasted Price Range and the Short Term Outlook for the next month. The Forecasted Price Range is composed by: -the 10th quantile, the low price level expected over the next month; -the 50th quantile, the expected average price over the next month. This price is a reference for budgeting purposes only, not for trading; -the 90th quantile, the higher price level expected over the next month. Consider hedging or buying long term when: 1. price of metals show strong outlook and positive short term outlook; 2. when prices break the Forecasted Price Range. Ekuota Price Range Forecasts for the beginning of February 2018 are as follows: Metal 10th percentile 50th percentile 90th percentile Price* as at 29/12/2017 Short term outlook Nickel 10.439 12.426 15.044 12.260 POSITIVE Copper 6.458 7.196 8.065 7.156,5 NEUTRAL Aluminium 2.055 2.265 2.501 2.241 POSITIVE Zinc 3.087 3.480 3.927 3.350 POSITIVE (*): LME cash prices. HISTORICAL ANNUAL VOLATILITY (%) ZINC COPPER ALUMINIUM WWW.EKUOTA.COM!2
Nickel in December was up 15.1% (Nickel price surged 22,5% during 2017), mainly pushed by strong Chinese demand, hardly satisfied by a supply which is now curbed due to the pollution cuts due to the new environmental policy. December s Asia Sector PMITM data, (IHS Markit-Nikkei), indicated that business activity increased in the majority of the 19 categories monitored. Automobiles & auto parts registered slower rates of output growth than in November, Metals & mining signal a decline in output. Nickel is indeed trading at its highest level since 2015, and the metal s deficit is expected to continue. The run towards electric vehicles production is the main reason of the rally, the so called Green Revolution, amplified by the scarcity of high quality metals suitable for electric batteries production. Our forecasts for the beginning of February are in a range of $10.439-15.044. The 50th percentile is estimated at $12,426, +1,3% compared with the end of December price ($12.260). The upward trend of volatility has persisted in December, reaching 34,16%, with respect to November s 33,23%. LME stocks decreased this month by 11.916 tonnes this month, settling at 366.612. In conclusion, Nickel short term outlook is positive. Source: ekuota model; updated as at 8/1/2018 WWW.EKUOTA.COM!3
Copper price was up 8,82% during December. Reached its highest level in 4 years, trading at $7.157 on the last day of the month. The metal closed the year up more than 30%, boosted by the strong global economic growth and by the strong Chinese demand. Indeed, imports of refined copper to China increased by 19% in one month. Global miners like Glencore and Rio Tinto have now forecasted scarcity of the red metal by 2019 due to Chinese demand, and are now focusing on increasing production. The Chinese economy finished last year on a strong note, marking its best year since 2010, according to the Caixin China PMI surveys. The IHS Markit survey data suggest that economic activity showed no severe adverse reaction to ongoing efforts by the government to reduce excess housing and industrial capacity as well as to tackle pollution, as initially feared. Official data likewise showed the economy expanded by a robust annual rate of 6.9% in the first three quarters of 2017. LME reserves of copper increased by 18.225 tonnes this month, closing at 200.650. The weakening of the USD (Dollar Index at 91,826, down 1,1 from the beginning of December) favors the demand for metals priced in USD. Our forecasts for the beginning of February range from $6.458 to $8.065. The 50th percentile is set at $7.196 (+0,5% vs end of December price) Volatility is surging; indeed, it reached 17%, up 1.5% with respect to the previous month. In conclusion, copper short term outlook is neutral. Source: ekuota model; updated at 8/1/2018 US Dollar Index compared with Copper LME cash price WWW.EKUOTA.COM!4
Aluminium price increased by 10,48% in December. The metal closed the year up more than 30%, boosted by the strong global economic growth and by the strong Chinese demand. The metal joined the run which characterized commodities during the year, as the conjunction of increased Chinese demand due to the pollution cuts and of the global growth boosted demand. Better economic prospects will likely increase demand for those industrial metals, which led Rio Tinto to announce it will start producing aluminium as well, though in modest quantities initially. LME stocks of aluminium decreased by 3.175 tonnes, ending the month at 1.101.375. Our forecasts for the beginning of February are in a range $2.055-2.501. The 50th percentile is expected to be $2.265, 1,% higher than the end of December price ($2.241). Volatility has moderated with respect to last month (17,64%); it is now 17,37%. In conclusion, our short term outlook about aluminium is positive. WWW.EKUOTA.COM!5
Zinc price increased 6,8% in December, reaching again levels above $3.300 as in October. Prices could however be subject to some levelling pressure in the long run as Glencore announced it plans a phased restart of the share of production which was reduced in 2015. This pressure is though expected not to be too strong, as Chinese producer cannot increase production, nevertheless the higher price, due to the environmental restrictions. LME reserves of zinc have continued decreasing: this month, they went down 28.725 tonnes, reaching 180.975. Our forecasts for the beginning of February are in an interval from $3.087 to $3.927. The 50th percentile is estimated at $3.480, +5% vs the end of December price of $3350. Risk is moderately lower than the previous month, reaching 22,07%. In conclusion, zinc short term trend is positive. WWW.EKUOTA.COM!6
2017 PERFORMANCE OF INDUSTRIAL METALS PRICES BRENT PRICE WWW.EKUOTA.COM!7
PAST FORECAST ACCURACY WWW.EKUOTA.COM!8
Important Disclosures Additional information available upon request Forecasts. The Forecasts have been made with a proprietary statistical model, which has a reliability index (100 - Mape) of 98,15%, at one month, of 96,6% at three months, of 94,7% at six months. Analysts can use this prediction to determine the direction of future trends, however ekuota recommends to always use this analysis together with analysis of fundamentals such as macroeconomy growth and monetary policy expectations. Although forecasting may provide an important future outlook, we recommend to always cross-verify it against solid analysis of financial quotes risks associated with finding meaningful patterns of metals prices fundamentals over time. Disclaimer CONTENT NOT TO BE CONSTRUED AS A SOLICITATION OR RECOMMENDATION OF ANY KIND. The opinions expressed in this report are subject to change without notice. This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. This report has been published for informational purposes only. Ekuota does not intend the information in this report to be construed to be personalized advice, or recommendations to buy, hold, or sell securities and/or financial derivatives of any kind. The risk of loss in trading can be substantial, and investors should carefully consider all potential outcomes and the inherent risks in light of their particular financial condition prior to making any investment. The information presented should not be relied upon as the sole basis for making any investment decision. Please consult your business advisor, attorney, and tax and accounting advisors concerning any contemplated transaction. Market Research clienti@ekuota.com Tel. +39 3408134995 FinTech for Businesses WWW.EKUOTA.COM!9