Commodities Daily 22 April 2009 Walter de Wet +44 (20) 7815 2759 Walter.DeWet@standardbank.com Leon Westgate +44 (20) 7815 4090 Leon.Westgate@standardbank.com Focus US money still not multiplied: The US money multiplier remains stubbornly below 1. We are interested in the money multiplier because it signals the ability of the US economy to convert money into credit. Gold is finding it increasingly hard to break above $890. While scrap selling has dried up, buying activity in the physical market has not picked-up substantially. But ETF buying continues. Should gold make a break lower, combined with base metals under pressure, both platinum and palladium could see a sharp decline in value. Tin has again been solid this morning, holding above the $12,000 level. The latest Chinese import figures show that the country imported a record 296.8 kt of refined NYMEX light sweet crude closed at $45.88 yesterday after rebounding from Monday s five week low. The ICE Brent contract is supported by improving NWE refining margins (led by high sulfur fuel oil and gasoline cracks). Both the US and Japan the two largest economies continue to post weak energy demand figures. Commodity price data (21 April 2009) Base metals LME 3-month Open Close High Low Daily change Change (%) Cash Settle Change in cash settle Cash - 3m Aluminium 1,428 1,459 1,460 1,450 19 1.32 1,398.50-21 -37.25 Copper 4,404 4,509 4,578 4,466-271 -5.79 4,402.50-234 3.50 Lead 1,415 1,463 1,474 1,450-3 -0.21 1,438.00-71 10.00 Nickel 11,475 11,510 11,700 11,475-570 -4.72 11,470.00-760 -65.00 Tin 11,839 12,150 12,200 12,000 105 0.87 11,920.00-480 190.00 Zinc 1,415 1,476 1,468 1,431-10 -0.67 1,396.00-77 -28.50 Sources: Standard Bank; LME; Bloomberg Open Close High Low day/day Change (%) ATM 1m vol ATM 6m vol ATM 1y vol ICE Brent 49.82 49.88 50.21 49.82 0.06 0.12% 76.79% 52.71% 42.5% NYMEX WTI 48.68 48.55 49.09 48.53 0.00 0.00% 70.46% 52.55% 42.47% ICE Gasoil 432.50 430.25 433.00 430.25 1.25 0.29% 68.30% 47.35% 38.16% API2 Q2'09 63.90 62.98 - - -0.92-1.14% - - - ICE EUA Dec09 13.18 13.25 - - 0.07 0.05% - - - AM Fix PM Fix High bid Low offer Closing bid Change (d/d) EFP's Gold* 888.75 888.75 895.10 881.80 881.70 4.30 0.6/1.0 Silver - 12.10 12.23 12.00 12.05 0.07-4.5/-2.5 Platinum 1,171.00 1,158.00 1,167.00 1,149.00 1,154.00 8.00 3/7 Palladium 227.00 227.00 227.00 224.00 223.00 5.00 0/3 *Gold aftermarket low offer in NY $880
Focus: US money still not multiplied The US M1 money multiplier still drifting below 1 The US money multiplier remains stubbornly below 1. We are interested in the money multiplier because it signals the ability of the US economy to convert money into credit. While the Fed is expanding its balance sheet to increase liquidity the effect on the economy is smaller than a 1:1 relationship. 2.10 1.80 Ratio Part reason for the fall in the multiplier has been credit problems which has supported gold. Once credit problems ease, which could still be a few months away, the money multiplier should rise. But we believe, once the massive amounts of liquidity the Fed has pumped into banks is released into the economy, the resultant dollar weakness and rising inflationary pressures will support the gold price. In fact, it should support all commodities. Our analysis shows that gold should be the first to react, followed by energy and then industrial metals. 1.50 1.20 0.90 Mar-99 Nov-99 Jul-00 Mar-01 Nov-01 Jul-02 Mar-03 Nov-03 Jul-04 Mar-05 Nov-05 Source: Standard CIB Global Research Jul-06 Mar-07 Nov-07 Jul-08 Mar-09 Base metals A recovery in equity markets and a stable dollar gave the metals a bit of respite yesterday, with comments, from US Treasury Secretary Timothy Geithner that the vast majority of US banks had more capital than needed, also helping to soothe recent fears. Overall however, the metals had a mixed day with Aluminium making decent gains on one hand, but Copper and Nickel coming under heavy and sustained selling pressure on the other. The morning has been dominated by overnight selling activity in Copper and Zinc which has dragged the wider base metals complex lower. Aside from those two metals, turnover has been pretty disappointing elsewhere, with the other base metals again struggling for direction. Given the absence of significant economic data, technical signals and currency fluctuations will likely dominate intraday trading patterns. Tin has again been pretty solid so far this morning, holding above the $12,000 level. A widening backwardation in the nearby spreads appears to be shielding it from some of the weakness seen elsewhere. Also adding to the metal s resilience, are comments from the Indonesian Ministry of and Mineral Resources that Tin production may be less than the planned limit of 105 kt this year. The limit will stay in place, however production may now be less than 90 kt. The latest Chinese import figures show that the country imported a record 296.8 kt of refined Copper in March, compared to 270.9 kt in February. The March figure brings total refined imports for Q1 to over 748 kt, nearly double the level for the same period in 2008. Given the wide SHFE-LME arbitrage, the large differential in regional premia, and the shortage of Copper scrap, the numbers were not too surprising. Scrap imports also increased, coming in at 329.6 kt in March compared to 218.2 kt in February. However, and in direct contrast to the refined import figures, Q1 scrap imports are down by 48% y-o-y. Nickel has continued to fall this morning after nearby technical resistance crumbled yesterday. Since threatening to break through the $13,000 level at the end of last week, prices have since fallen by 13%. Nickel has bounced a little this morning, however the metal is again struggling for direction. In other news, PT Aneka Tambang has said it will carry out maintenance work at its No 3. Ferronickel smelter earlier than expected in order to take advantage of an expected rally in price towards the end of this year. The work will take around 3-4 months to complete. The company s production target of 12 kt of contained Nickel remains unchanged. BHP Billiton expects output at its Escondida mine to fall by 30% y-o-y for the fiscal year ending June 2009, following a steep - 55% y-o-y - drop in production during the March 2009 quarter. The reduction is due mainly to processing lower grade ores and problems at the Laguna Seca mill. The mill s electric motor problems are now expected to be resolved during the September 2009 quarter. Escondida produced around 1.22 million tonnes of copper in calendar 2008 (~960 kt of payable metal in concentrates and ~260 kt of SX-EW cathode), equivalent to around 6% of global output, however the second half showed a marked drop in production levels. Production has since continued to decline further. The impact of falling mine production has already been felt by the smelting industry and has been evidenced by falling spot TC/RCs. Looking ahead however, a further reduction in TC/RCs due to a tightening concentrates market, combined with very low prices for sulphuric acid at the moment, and the cost incurred in storing any unsold acid, may result in smelters perhaps having to start cutting refined output. 2 By Leon Westgate
Gold is finding it increasingly hard to break above $890. And with the Dow Jones managing to close in positive territory in New York yesterday, we believe gold is on the back foot. Yesterday s comments by US Treasurer Timothy Geithner s that most US banks are well capitalised, have taken the edge of financial markets risk aversion. However, the market appears confused on where it will gold go next. The metal has attempted to break above $886 a few times already this morning but has failed. This could see momentum fading for gold as we head towards the US trading session. We would keep a close eye on where the Dow opens today which will provide initial direction. US equity futures indicates the initial move in the Dow could be down today. While scrap selling has dried up, buying activity in the physical market has not picked-up. But ETF buying continues. The latest data showed ETF s have added 74,621oz to there gold holdings. While gold is struggling right now, we believe the metal will move higher once dollar weakness sets in (refer to Focus on page 1). We see support for gold at $880 and $877 with resistance at $889 and $900. With gold range-bound, platinum and palladium is still looking for direction from base metals. Platinum should be protected from a major move lower by ETF buying. The latest figure shows ETF holdings at 511,085oz. But we note that should gold make a break lower, combined with base metals under pressure, both platinum and palladium could see a sharp decline in value. Auto demand alone would not support the price. For platinum tomorrow s release of Euro-zone PMI manufacturing index is of interest. While recent comments by the ECB remain bearish on the euro-zone economy, the PMI index would signal whether the slowdown in manufacturing has bottomed. Europe is the largest consumer of platinum. Support for platinum is at $1,150 with resistance at $1,172. Palladium support and resistance is at $220 and $228 respectively. Silver remains rang-bound. Resistance is at $11.90 and support at $12.22. By Walter de Wet NYMEX light sweet crude closed at $45.88 yesterday after rebounding from Monday s five week low. The approaching expiry of the contract and the 742k bbls drop in Cushing stockpiles (to the lowest level since the week ending 26 December) has eased some of the pressure on the front-month contract. Depending on the day, the energy market continues to take its cue from the US stock market, the value of the dollar, or inflation fears more than supply/demand fundamentals. But right now, equities and the US dollar is providing main support to crude oil. Brent s 10-day correlation with US equities and the euro/dollar are both at 0.62.. Tying its fate to the US equity market on Monday, NYMEX front month crude lost 8.8% as the DJI dropped nearly 300 points only to rebound yesterday as financial market sentiment improved. ICE Brent for May-09 delivery expired last Wednesday at $51.79. The new front month Jun-09 contract closed at $49.82 on Tuesday, barely changed from Monday s close. The ICE Brent contract is supported by improving NWE refining margins (led by high sulfur fuel oil and gasoline cracks). The Jun-09 Atlantic Basin differential closed at -$3.31 on Tuesday. NYMEX crude had clung to the $50 level for most of this month despite weak demand and high crude inventory levels (now at their highest level since 1990 in the US) which suggested fundamentals still lag the price. Both the US and Japan the two largest economies continue to post weak demand figures. Total US daily fuel demand was down 1.1m bpd in 1Q09 over an already weak 4Q08. Over the last four weeks, it is down 5.2%. Japanese demand was down 22% in February and although gasoil/diesel demand posted a sharp increase last week, demand is still down about 6% year-on-year. In the coal market the API2 Q2 09 contract ended the day almost unchanged at $62.98. API4 closed at $65.00. There has been reports indicating China has increased coal imports from Newcastle. There are sings of a rise in economic activity in China especially in the electricity heavy manufacturing sector. But the country s electricity consumption remains well below last year s highs which could cap price rallies in thermal coal. In the carbon market the Dec 09 CER contract closed at 10.95 up 0.1. The Dec 09 EUA contract closed 0.07 up at 13.25. By Walter de Wet 3
Base metals Daily LME Stock Movement (mt) Metal Today Yesterday In Out One day change YTD change (mt) Contract turnover Aluminium 3,650,000 3,660,025 3,750 13,775-10,025 1,321,100 71,425 1.96 160,989 Copper 457,300 462,325 675 5,700-5,025 117,525 72,375 15.83 100,712 Lead 63,425 61,275 2,175 25 2,150 18,275 2,650 4.18 22,730 Nickel 106,518 105,846 696 24 672 28,128 3,678 3.45 28,669 Tin 11,995 11,915 155 75 80 4,205 1,020 8.50 13,821 Zinc 343,175 345,400 400 2,625-2,225 89,675 21,375 6.23 59,761 Sources: Standard Bank; LME; Bloomberg Cancelled warrants (mt) Cancelled warrants (%) Shanghai 3-month forward prices COMEX active month future prices Metal Open Last 1d Chnge Open Close Change Change (%) Aluminium 12,670 12,740 180 Ali May'09 66 66.25 0.75 1.15% Copper 37,310 37,420-90 Cu May'09 208 205.50-2.50-1.20% Zinc 12,820 12,625-260 ZAR metal prices (21 April 2009) Aluminium Copper Lead Nickel Tin Zinc ZAR/USD fix Cash 12,779 40,230 13,140 104,813 108,925 12,757 9.1380 3-month 13,568 41,931 13,605 107,035 112,986 13,726 9.2993 futures pricing Price Change Price Change Price Change Price Change Price Change 1 month 2 month 3 month 6 month 1 year Sing Gasoil ($/bbbl) 59.17 1.00 56.61-0.12 57.03-0.29 59.87-0.46 66.21-0.39 Gasoil 0.1% Rdam ($/mt) 430.25 1.25 438.25 2.50 444.25-3.00 471.75-3.25 520.00-3.50 NWE CIF jet ($/mt) 474.09 0.48 469.50-7.33 478.66-7.32 512.39-7.83 567.48-6.91 Singapore Kero ($/bbl) 60.02-1.18 57.81-0.02 58.63-0.29 62.52-0.46 69.36-0.39 3.5% Rdam barges ($/mt) 264.41-7.79 261.31-1.81 263.91-1.55 271.10-2.04 290.08-2.96 1% Fuel Oil FOB ($/mt) 275.05-8.66 275.06-1.06 280.66-1.55 303.10-1.29 331.58-3.96 Sing FO 380 Cargo ($/mt) 282.31-3.31 280.66-3.05 281.54-3.11 288.16-2.60 308.02-2.46 Sing FO180 Cargo ($/mt) 295.00-2.07 286.25-3.31 285.75-3.05 291.00-2.79 308.02-2.46 Thermal coal Q2-09 Q3-09 Q4-09 Cal 10 Cal 11 API2 (CIF ARA) 62.98 64.29 71.04 82.81 89.68 API4 (FOB RBCT) 60.17 60.05 65.00 74.29 80.43 Carbon Spot Dec-09 Dec-10 Dec-11 Dec-12 ICE - ECX EUA ( /mt) 12.95 0.10 13.25 0.07 13.93 0.10 14.55 0.11 15.40 0.08 ICE - ECX CER ( /mt) 11.00 0.10 10.95 0.10 11.10 0.10 11.30 0.10 11.60 0.00 Forwards (%) 1 month 2 months 3 months 6 months 12 months Gold 0.57286 0.67571 0.77429 0.84286 0.88286 Silver 0.06000 0.06714 0.07857 0.12857 0.20000 USD Libor 0.44125 0.88125 1.10000 1.65063 1.94938 Technical Indicators 30-day RSI 10-day MA 20-day MA 100-day MA 200-day MA Support Resistance Gold 47.28 882.99 896.55 889.56 856.36 880.00 890.00 Silver 45.76 12.36 12.65 12.17 12.30 11.93 12.25 Platinum 56.79 1,200.10 1,171.03 1,011.79 1,107.07 1150.00 1200.00 Palladium 55.39 232.73 226.40 199.53 229.38 220 230 Active Month Future COMEX GLD COMEX SLV NYMEX PAL NYMEX PLAT DGCX GLD TOCOM GLD CBOT GLD Jun'09 May'09 Jun'09 Jul'09 Apr'09 Feb'10 Jun'09 Settlement 885.20 12.0450 226.80 1,157.60 886.50 2,809.00 886.00 Open Interest 336,376 96,699 14,726 20,437 1,258 87,059 3,487 Change in Open Interest 2,331-1,156 176 68 464 2,011 227 Date: 22/04/2009 4
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