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Medium term outlook on Lead July 217 2
Market Recap LME Lead remained weak last month but recovered towards the end to close higher Major price drivers Decline in LME stocks ILZSG SnD release Upbeat Chinese demand and import appetite Improvement in Chinese CIF premiums Slowdown in global auto production prospects for H2 217 from China weighed on sentiments Weak Dollar which fell to 1 month lows against the basket of currencies 2287 2223 2137 2153 2277 2231 2132 2131-18 -16.2-17.35-21 Feb Mar Apr May Jun Consulting Pvt Ltd Slide -3-6 -9-12 -15-1.22-2.8-3.91 LME Lead Price trend.79-1.91-2.2-4.46 -.2 Mar Apr May Jun Mar Apr May Jun LME 3M Monthly Avg (USD per ton) -.78 LME CSP M-o-M (%) Change LME Zinc Cash - 3M Forward spread (usd/t) -8.5-11.45 3
Summary price drivers Price driver Type 1 month 2-3 months Weight % Score (1-5) Weight % Score (1-5) China Physical/Exchange Stocks Stocks 15 2 2 3 Lead Refined Production China Supply 2 3 15 4 Lead Concentrate Imports China Raw Material 1 4 5 3 Exchange Inventories LME Stocks 25 2 25 3 Automobile Production - Global Demand 1 3 5 2 Lead Mine Production China Supply 5 2 1 4 Dollar Index Currency 5 3 5 4 ILZSG Monthly Release Supply-Demand 5 2 5 3 China Macroeconomic cues Demand 5 3 1 2 Total indexed score: 2.6 3.15 Index score (1-5, 3:consolidation, 1&2:bearish, 4&5:bullish) Consulting Pvt Ltd Slide 4
Global PMI trends portend to improving global conditions in unison US ISM manufacturing PMI for the month of June came in at 57.8, sharply higher than the market consensus and the May reading of 53.5 portending an upbeat growth outlook in US for AMJ 6 58 56 54 52 Manufacturing PMI Euro Zone continues to grow at a good pace and the upbeat manufacturing PMI for June (57.4 vs 57 in May) reinforces the same keeping the broad strength intact in the Euro China manufacturing PMI came in at 51.7 for June, higher than the market consensus and the May reading of 51.2, aiding positive growth sentiments in the economy. Services PMI continues to expand and for June came in at 54.9 compared to May s 54.5 5 48 US EU China India 46 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 6 58 56 54 52 5 Services PMI Indian PMIs although ebbed slightly after recovering from demonetization slump, continues to remain in expansion zone 48 US EU China India 46 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Consulting Pvt Ltd Slide 5
Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 With personal consumption slowing retail inventories are on the rise in US Retail sales have declined but improvement witnessed in capacity utilization rates in the last few months led to building up of inventories which shall eventually lead to manufacturing slowdown in the coming months Auto sales remained subdued despite discounts from car makers underpinning the higher inventory levels at the dealer front 1.34 Inventory to sales ratio 1.32 1.3 1.28 1.26 1.24 Total retail Motor vehicle and parts 1.22 2.3 2.25 2.2 2.15 2.1 2.5 2. 1.95 1.9 1.85 2 US Auto Sales 18 16 14 12 1 18.2 17.3 18.1 18.3 18.1 18.7 17.9 17.8 16.9 17.2 17. 17. 6% 4% 2% % -2% -4% -6% 77. US capacity utilization rates (%) 76.5 76. 75.5 75. 74.5 74. Manufacturing industry 73.5 Total industry Total Sales - SAAR (Million Units) Growth YoY Consulting Pvt Ltd Slide 6
Housing demand remain strong but slowdown likely with increasing monetary costs and higher house prices Although sales declined marginally in April, broad strength in housing remained intact in the recent months amid benefits discounts from mortgage lenders However, with increasing monetary costs as FED continues to push ahead with its monetary tightening shall lead to credit tightness and is expected to result in slowing sales in the coming months In line with the same, even housing starts and build permits have been declining in the last few months underpinning the expected slowdown in US housing.7.65.6.55.5.45.4.57.577.579.548.599.615.644.593.61 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 New Homes Sold(SAAR mln units) 3 yr Mortage rate Avg(%) 1.29 1.33 1.26 1.27 1.15 US - Housing Market US - Housing Market (SAAR mln units) 1.27 1.3 1.24 1.22 1.29 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Building Permits Housing Starts 1.26 1.19 1.23 1.16 1.17 4.4% 4.2% 4.% 3.8% 3.6% 3.4% 3.2% 3.% 1.9 Consulting Pvt Ltd Slide 7
Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Upbeat growth momentum in China Aided by fiscal boost, Chinese growth momentum remained stable Amid upbeat industrial activity and 4 improvement seen in export momentum price 2 sentiments in commodities shall remain strong 14 12 1 8 6 China industrial production and fixed asset investment IP growth (%YoY) FAI growth (%YoY) 7.3% OND 214 7.% 7.% 6.9% 6.8% JFM 215 AMJ 215 JAS 215 China GDP growth YoY OND 215 6.7% 6.7% 6.7% JFM 216 AMJ 216 JAS 216 6.8% 6.9% 6.9% OND 216 JFM 217 AMJ 217 7 China trade balance (net exports in usd bln) 6 5 4 3 2 1-1 -2 Consulting Pvt Ltd Slide 8
ILZSG Lead Forecast: Lead market to remain in balance in 217 with steady demand to aid sentiments. 4 3 2 1 1 2 3 4 5 17 17 26 22 3 15 1 5 Global Lead Surplus/Deficit (KT) 37 8 1 18 2 17 23 13 18 2 215 216 217 23 8 1 8 14 13 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 24 3 217(MT) ILZSG global Lead market forecast Oct 16 forecast Apr 17 forecast Mine Production 4.91 4.92 Refined Production 11.36 11.39 Refined Consumption 11.34 11.39 Balance 23 - All units in million tons, Source: ILZSG Jan-Mar 17 Jan-Mar 16 Change (%) Global Mine Production 1.31 1.16 18.44% Global Refined Metal Production 2.94 2.673 9.8% Global Refined Metal Usage 2.984 2.658 12.26% Refined Lead Balance -.44.15 *All units in million tons, Source : ILZSG Consulting Pvt Ltd Slide 9
Lower concentrate availability creating tightness leading to higher refined imports 14 12 1 8 6 4 2 767 China Lead Concentrate Imports (KT) 1134 Lower mine supply witnessed since end of 215 due to closure of major mines in Australia and Ireland had led to lower concentrate imports in the same period. Tightness in Concentrate markets in China is leading to higher refined imports seen since JFM 17. 792 651 625 215 216 217P H1 H2 75 2 18 16 14 12 1 8 6 4 TCs for imported Lead concentrates in China (usd/t) Source: SMM, Reuters 2 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 Quarter Refined Imports(KT) JFM'16.9 AMJ'16.125 JAS'16.86 OND'16.854 JFM'17 23.36 Consulting Pvt Ltd Slide 1
31-May-14 31-Jul-14 3-Sep-14 3-Nov-14 31-Jan-15 31-Mar-15 31-May-15 31-Jul-15 3-Sep-15 3-Nov-15 31-Jan-16 31-Mar-16 31-May-16 31-Jul-16 3-Sep-16 3-Nov-16 31-Jan-17 31-Mar-17 31-May-17 Stability in Lead prices seen along with improvement in secondary lead availability since H2 216 to keep refined production steady for H1 217. 16 China Refined Production (KT) 14 12 1 8 6 4 2 156 115 15 165 995 172 952 977 961 157 178 1166 1284 135 4% 3% 2% 1% % -1% -2% 215 195 175 155 135 115 SHFE Lead Prices (CNY/Ton) Refined Production(KT) % YoY Growth - Global refined metal output in 216 remained at around 1.5 % higher as compared to 215 mainly on account of higher output from U.S & Republic of Korea. Meanwhile Lead output in China during H1 217 could remain steady as higher prices seen in H2 216 could lead to improved availability of scrap in spot markets. Consulting Pvt Ltd Slide 11
Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Stocks remain higher in China despite improved refined imports indicating lack of consumption demand for H1 217. Lead exchange Inventories (KT).5 China Stocks to Consumption Ratio 67 74 64 48 194 225 222 233 LME SHFE 26 13 32 26 29 72 83 12 2 173 162 191 156 185 19 195 184 183.4 China Stocks to Consumption Ratio.3.2.1. 3-Jun-14 31-Dec-14 3-Jun-15 31-Dec-15 3-Jun-16 31-Dec-16 26-May-17 Change in Lead Inventory at Chinese physical markets (KT) LME Stocks v/s Cash-3M Forward Spread 2 12.9 1. 22 1.5 2 18-1 -4.8-5.3-2.4-9.2 16-2 14-3 -26.4 12-4 -5-41.2 AMJ JAS OND JFM AMJ JAS OND JFM AMJ 215 Consulting 215 Pvt Ltd 215 216 216 216 216 217 217P LME Total Inventories (' tonnes) Slide 5 4 3 2 1-1 -2-3 Cash - 3M Spread (usd/tonne) 12
Global automobile sector prospects Auto demand to remain lower in China on reduced tax incentive partially offset by steady demand from Europe during H2 217 6% 5% China automobile production growth (YoY %) Automobile Production in Major Markets ( units) 49% 15 38% 4% 32% 32% 29% 3% 5% 11% 18% 2% 19% 25% 2% 18% 12% 14% 9% 1% 6% 1% 3% 2% % -1% -2%-4% -3% Commercial vehicles Passenger vehicles 1 318 383 382 3156 2973 1481 3125 155 155 1644 151 2395 1695 2389 2536 215 2248 217 5 8382 6584 6284 6481 7133 652 JFM 216 AMJ 216 JAS 216 OND 216 JFM 217 AMJ 217P China Japan Germany US Auto sales in China is expected to slowdown during H2 217 after double digit growth witnessed in same period a year ago on reduced tax incentives from government. Decline in China auto demand could be partially offset by steady demand in Europe & U.S during H2 217. Consulting Pvt Ltd Slide 13
Lead Effective Balance Sheet 2.75 Global Lead P-C balance Description 215 216E 217 P Refined Lead Production 1.655 1.818 1.87 Apparent Consumption 1.631 1.764 1.93 P-C Balance.24.54 -.62 Ending Stocks (Producer and Consumer).19.2.14 Ending Stocks (Exchange).185.185.17 No. of Weeks of Consumption 1.81 1.86 1.38 Source: ILZSG, Reuters, TG Estimates, * All figures are in Million tons unless mentioned otherwise 6 5 4 3 2 1 1.83 1.86.9.24.54 Production surplus / deficit (Mln Tons) No. of Weeks of Consumption 1.38 -.62 214 215 216E 217P 3.27 3.19 3.37 3.34 Global Lead Supply and demand 3.17 3.16 3.47 3.41 2.2 2.7 2.17 2.16 2.3 2.9 2.1 2.18 Prod. Cons. Prod. Cons. Prod. Cons. Prod. Cons. H1 216 H2 216 H1 217 H2 217 All Units in Million Tons China RoW Consulting Pvt Ltd Slide 14
Technical Analysis 15
LME Lead SELECT 3 Month Forward Elliott Wave Analysis LME Lead 3 month forward prices have culminated primary wave A around USD 2575 and witnessing correction as intermediate flat wave B within primary wave B, which likely to place top around USD 255 in the coming 3-5 months. Consulting Pvt Ltd Slide 16
LME Lead SELECT 3 Month Forward Mother Chart Analysis LME Lead 3 M Forward prices are likely to witness minor correction towards USD 22 before resuming the positive trend towards USD 25 in the Consulting coming Pvt 2-3 Ltd months. Slide 17
Price outlook summary Commodity Last Closing (USD/ton) (as on July, 217) Range Price outlook summary for next 2-3 months Direction LME Lead 3- month forward 2318 22 25 Prices are likely to witness minor correction towards USD 22 before resuming the positive trend towards USD 25 in the coming 2-3 months Note: Price close below USD 21 will negate the upside potential and extend the weakness towards USD 18. Consulting Pvt Ltd Slide 18
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