Copper spreads too easy

Daily Copper spreads too easy The main focus in copper has been on the near-dated spreads, with Tom/Next recently trading out to $20 backwardation and with the Cash-3 month spread trading out to a $64.50 backwardation earlier this week. This spreads have since started to ease, in line with weaker prices and with the LME warrant holding data showing dominant holders of Cash and Tom warrants slipping down the percentage bandings. While the copper Cash-3 month spread has traded in line with historical norms in terms of its relation to LME on-warrant inventory, the farther dated 3-15 month spread has been relatively calm and arguably should be tighter. Looking over the past decade, at today s levels of on-warrant LME inventory, the 3-15 month spread has traded from the current ~$40 backwardation all the way out to $850 backwardation. Admittedly those values were reached in 2006, when the copper market was tightening up significantly in the aftermath of the Grasberg pit-wall failure, and a surge in Chinese refined copper demand, while headline inventory was also at very low levels. Nevertheless the 3-15 month spread is at least fair value and arguably should tighten further. The main question is how quickly and to what extent the increase in mine supply is drip fed into the refined market. Also, how tight do the forwards have to become to finally tempt some of the 180 kt of copper cancelled warrants back on-warrant? By Leon Westgate LME 3-15 month spread vs. on-warrant LME inventory $/mt 1350 1150 950 750 550 350 150-50 -250 0 200000 400000 600000 800000 1000000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: LME, Standard Bank Research Commodities Strategist Walter de Wet Walter.DeWet@standardbank.co.za +27-11-415-4176 Commodities Strategist Leon Westgate Leon.Westgate@standardbank.com +44-203-145-6822 Commodities Strategist Melinda Moore Melinda.Moore@standardbank.com +44-203-145-6887 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. www.standardbank.com/research

Base metals The base metals complex closed pretty weakly on Thursday evening, with only nickel managing to dig its heel s in after a bout of selling interest during Thursday afternoon. The trigger for the price weakness isn t entirely clear, but emerged as a coordinated sell-off across the main base metals. Emerging market stress has been cited as a trigger, though stability has returned to the base metals this morning with the metals strengthening into Friday afternoon. Copper has traded below $7,200, however, it has found support around its 100-day MA and is recovering heading into US trade. Worth noting meanwhile is that the latest LME warrant holding data no longer shows any holders of cash or tom warrants. This has been reflected in the tom/next spread which is back trading in a small contango. Also worth noting is that LME on-warrant stocks posted a 1,200 mt gain, with Johor accounting for the increase. Zinc has also managed to stabilise after initially coming under further pressure. Worth noting is that LME on-warrant stocks have continued to climb, with today s net 6,425 mt increase due mainly to a 7,625 mt increase at New Orleans. On-warrant inventory are now at the highest level since March 2013, though headline stocks are still around the lowest levels seen since March 2012. Nickel has continued to prove to be resilient, with the metal holding around $14,500 and climbing again heading into Friday afternoon. On-warrant stocks climbed a net 3,354 mt this morning, with Rotterdam (+2,700 mt) and Johor (+1,152 mt) the main locations for the activity. It s worth highlighting however that the Johor inflow was mostly due to the re-warranting of previously cancelled material. Elsewhere, Aluminium has managed to stabilise around $1,770 heading into Friday afternoon, while lead has also managed to pick itself up and trade back towards $2,170. Precious metals By Leon Westgate Platinum and palladium are under pressure. Negotiations between SA mines and AMCU, facilitated by the CCMA and the South African government, take place today. The market anticipates an end to the strikes sooner rather than later. Despite dollar prices for the PGM group under pressure, the ZAR keeps on sliding. The ZAR PGM basket price is currently at ZAR13,150/PGM oz. This is the highest level since July 2008. We maintain that platinum will struggle to sustain rallies above $1,500. We will scrutinize the CFTC data for the week up to Tuesday, due for release later today, to determine how the futures market positioning has changed for platinum and palladium. Last week s data indicated that few new long positions had been added to platinum, but that short positions were covered, driving prices higher. Should there again be little evidence of new long positions entering the market for especially platinum, we would read it as a bearish signal. After yesterday s strong performance, gold is once again running into selling pressure. The spike in the gold price yesterday has highlighted the price sensitivity of gold demand in China. This morning, the SGE premium traded as low as $7.62 the lowest level since mid-dec. To us, gold remains a sell into rallies in February. Technically, we still expect resistance in the $1,249 to $1,270 range, with an initial downside target of $1,180. 2

By Walter de Wet Bulks A quieter day today, consolidating after the week's liquidity-led volatility. Chinese holidays begin next week, while in Australia, tropical lows are developing in the northern regions of both east and west coasts. Dalian iron ore futures fell RMB 1/t to RMB 877/t, while SHFE May rebar futures rose RMB 24/t to RMB 3,487/t. CSRC has approved HRC to be traded on the SHFE. Shanghai Dazong April HRC futures rose RMB 24/t to RMB 3,447/t. Tangshan billet prices rose RMB 10/t to RMB 2,840/t. The TSI 62 index rose 40 cents to $124.3/t, while its 58 index fell to $113.9/t. The MB 62 Index fell 32 cents to$124.29/t, while its 58 Index rose 5 cents to $108.82/t. The Platts 62 index rose 25 cents to $124.75. Zhengzhou coal futures also firmed today, closing the day at RMB 541.8/t, up RMB 3.6/t. By Melinda Moore 3

Commodity Prices Base Metals LME 3 month Open Close High Low Daily Change (%) Cash Settle Change in Cash - 3m change cash settle Aluminium 1 783 1 763 1 787 1 763-20 -1.11 1 732.00-15 -44.00 Copper 7 292 7 206 7 315 7 190-86 -1.17 7 285.00-42 24.00 Lead 2 195 2 153 2 202 2 147-42 -1.89 2 155.00-27 -20.00 Nickel 14 798 14 670 14 825 14 419-128 -0.86 14 635.00-10 -50.00 Tin 22 150 22 025 22 250 22 000-125 -0.56 22 175.00-65 24.00 Zinc 2 084 2 046 2 084 2 041-39 -1.85 2 051.00-24 -11.75 Daily LME Stock Change (mt) Metal Today Yesterday In Out One day change YTD change (mt) Cancelled warrants (mt) Cancelled warrants (%) Contract turnover Aluminium 5 459 775 5 466 875 0 7 100-7 100 1 700 2 502 800 46 156 922 Copper 327 400 328 375 2 025 3 000-975 -39 025 181 725 56 121 595 Lead 207 950 208 850 0 900-900 -6 500 41 650 20 37 970 Nickel 261 396 260 700 996 300 696-240 106 902 41 50 043 Tin 9 170 9 260 0 90-90 -515 2 715 30 7 373 Zinc 870 925 875 150 0 4 225-4 225-62 550 293 000 34 89 807 Shanghai 3-month Open Last 1d Change COMEX Open Close Change Change (%) Aluminium 13725 13675-60 Ali Feb'14 - - - - Copper 51350 51280-170 Cu Feb'14 328.55 329.4 0.85 0.26 Zinc 22 150 22 025 0 ZAR metal prices Aluminium Copper Lead Nickel Tin Zinc ZAR/USD fix Cash 18 974 79 807 23 608 160 326 242 927 22 469 10.9550 3-month 19 552 79 915 23 877 162 690 244 257 22 685 11.0900 Precious metals AM Fix PM Fix High bid Low offer Closing bid Daily EFP's change Gold 1 244.25 1 263.00 1 266.51 1 231.85 1 263.92 22.55-0.9/-0.5 Silver - 1 258.11 20.32 19.66 20.03 0.15-2/0 Platinum 1 452.00 2 011.00 1 470.38 1 441.33 1 455.00 6.00 +1.5/+3.5 Palladium 747.00 19.99 748.45 742.80 744.30-3.50 +0.0/+1.0 Forwards (%) 1 month 2 months 3 months 6 months 12 months Gold 0.025 0.035 0.04167 0.09 0.16333 Silver 0.62 0.616 0.618 0.612 0.568 USD Libor 0.158 0.20435 0.2386 0.335 0.5725 Technical Indicators 30-day RSI 10-day MA 20-day MA 100-day 200-day Support Resistance MA MA Gold 51.25 1 249.21 1 236.45 1 276.62 1 318.05 1 255.43 1 262.61 Silver 48.13 20.13 19.96 20.89 21.35 19.95 20.08 Platinum 57.86 1 448.60 1 425.05 1 409.95 1 433.31 1 454.55 1 462.35 Palladium 56.8 744.67 737.22 725.00 723.00 745.00 748.45 Active Month Future COMEX COMEX SLV NYMEX NYMEX DGCX GLD TOCOM CBOT GLD GLD PAL PLAT GLD Settlement 1260 20.035 746.55 1463.2 1259 4189 1262.6 Open Interest 408535 139510 39656 60410 1588 84062 147 Change in Open Interest 14103 6223 3318-624 322-18680 -166 Energy Energy futures pricing 1 month Change 2 month Change 3 month Change 6 month Change Sing Gasoil ($/bbbl) 121.926 0.02 122.799 0.47 122.127 0.42 120.784 0.22 Gasoil 0.1% Rdam ($/mt) 921-1.50 915.25-2.00 910.25-2.25 901-2.00 NWE CIF jet ($/mt) 982.11 1.52 984.3 5.05 980.75 4.17 972.17 2.47 Singapore Kero ($/bbl) 122.208-0.07 123.419 0.47 122.747 0.42 120.704 0.21 3.5% Rdam barges ($/mt) 559.932-0.42 565.9-5.52 568.7-4.76 569.37-4.02 1% Fuel Oil FOB ($/mt) 588.66 1.19 589.81-2.46 592.9-2.45 596.37-2.96 Sing FO180 Cargo ($/mt) 613.322 1.56 611.52-5.58 605.13-5.52 598.87-5.02 Thermal coal Q1 14 Change Q2 14 Change Q3 14 Change Cal 14 Change API2 (CIF ARA) 81.70 0.20 80.30 0.25 80.75 0.00 81.35 0.15 API4 (FOB RBCT) 80.25-0.25 78.40-0.35 78.90-0.25 79.40-0.15 Source: LME, NYMEX, COMEX, SHFE, Standard Bank Research 4

Commodity Prices Latest Price 1-week 1-month 3-month 6-month 1-year Bulks Steel Physical Turkish Scrap 80:20 (Iskinderun CFR) $/t 392.98 0.14% 1.96% 10.61% 10.86% -0.80% China Tangshan Steel Billet $/t 496.00-1.59% -0.20% 1.43% -0.60% -7.81% China HRC export (Shanghai FOB) $/t 533.00 0.00% 0.19% 0.57% 6.18% -6.16% North Europe HRC domestic (ex-works) $/t 430.00 0.00% 0.00% -1.71% -1.71% -8.51% North America HRC domestic (Midwest FOB) $/t 684.00 0.29% 0.15% 6.21% 8.06% 8.40% Steel Futures LME Billet Cash $/t 315.00 9.95% 23.53% 50.00% 120.28% 7.51% LME Billet Futures (1-mth) $/t 315.00 9.95% 23.53% 48.58% 115.75% 6.78% LME Steel Billet Stocks change 0.00 - - - - - Shanghai Rebar Futures (Active contract) $/t 532.14-3.20% -7.66% -4.07% 3.15% -14.09% Shanghai Rebar Futures On-Warrant Stocks change 0.00 - - - - - SHFE Rebar - Open Interest 6420.00 - - - - - SHFE Rebar - Total Volume 1020.00 - - - - - China Steel Inventory (million tonnes) 12.98 1.25% 0.39% -10.12% -18.71% 1.55% Iron ore China Iron Ore Fines (62% Fe; CFR Tianjin) $/t 131.50-2.59% -5.67% -0.23% 6.31% -17.03% China Iron Ore Fines (58% Fe; CFR Tianjin) $/t 122.10 1.08% -3.02% -0.33% 6.82% -16.71% SGX AsiaClear IO Swaps 62% Fe $/t (1-mth) 131.31-1.55% -5.31% 0.88% 7.58% -13.11% Platinum 37358.00 - - - - - China Iron Ore Inventory (million tonnes) 81.50 0.26% 0.73% 16.30% 12.62% 11.69% Coking coal Premium Hard Coking Coal (Qld FOB) $/t 136.25 0.00% -1.70% -9.02% -4.39% -15.90% Capesize freight Saldanha South Africa-Beilun China 17.75-6.58% -13.41% -21.98% 31.48% 42.00% Financials pricing RMB Currency 6.06 0.07% -0.29% -1.06% -1.22% -2.75% China 7-day repo 4.02-19.28% -10.67% -10.67% 11.67% 34.45% API2 (CIF ARA) 2030.93-3.72% -9.26% -8.18% 3.33% -10.74% Source: LME, SGX, McCloskey, SHFE, Bloomberg 5

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