a weekly report on metals - karvy commodities · announced banks more resilient to current economic...

METALS WEEKLY A Weekly Report on Metals

OUTLOOK

Base metals retreated for the week gone by and prices declined 1.04 to 2.36 percent at LME. The Indian rupee depreciated

0.30 percent against the greenback and restricted losses in metals complex at our domestic MCX platform. From US, Bernanke

announced banks more resilient to current economic turmoil while initial jobless claims slipped last week and trade release

showed March's imports hit a record high, which eased market sentiment slightly. Even, Spanish government successfully

nationalized Bankia, one of the country's largest banks, in a bid to attack rumors that it cannot solve problems for its banking

industry, while the Socialist leader Evangelos Venizelos in Greece is trying again to form a coalition government. Further, the

French Bank Natixis, one of the oldest ring-dealing member of LME plans to shut commodities brokerage unit and may further

deteriorate trade participation at LME. In this context, investor worries over the European debt crisis have remained firm and

resulted in weak price performance and may even continue in the coming week.

Fundamentally, metal inventories have witnessed stockpiling and cancelled warrants have also declined indicating weak spot

activities. Riskier assets including equities have retreated limiting gains in metals complex. In the coming week the Euro-zone

may continue to disappoint price gain however, better German GDP expectation and Euro-zone trade balance may provide

slight respite to the dwindling Euro currency extending optimism on to equities and commodities including metals. The

Chinese property prices may continue to disappoint after state’s price restriction and may restrict much upside in metals. But,

the economic expectation from Japan in the form of GDP, industrial production and capacity utilization may increase due to

increased easing and may add some gains in base metals. From US, Empire and Philadelphia manufacturing may increase and

may support gains in metals. Even business inventories and advanced retail sales may contract due to weak consumption and

may have negative impact. However, the markets might closely eye the FOMC minutes of the meeting and the comments of the

Fed’s chiefs would be read between lines and any boost in employment and consumption may support gains in metals. The US

industrial production may increase along with higher capacity utilization and may support gains in metals. Therefore, the US

releases may provide slight respite to the dwindling metals, while the Euro-zone and Asia might continue to drag down prices.

Overall, weak Euro-zone and China coupled with moribund FOMC forecast may continue to have negative impact on metals

and hence remaining short at every pullback might be recommended.

TECHNICAL RECOMMENDATIONS*

Commodity Series S3 S2 S1 CLOSE R1 R2 R3 Recommendations

LMEAluminiu

mm

Fwd 1961 1993 2019 2045 2078 2110 2136 Sell at 2050 TP 2010/1970 SL above 2085

MCX

AAluminium

May-

12

105.5 106.6 107.6 108.5 109.7 110.8 111.8 Sell at 108.50 TP 106 SL above 109.8

LME Copper Fwd 7567 7758 7886 8013 8205 8396 8524 Sell at 8080-8100 TP 7870/7790 SL 8190

MCX Copper May-

12

414.5 422.5 427.1 431.6 439.7 447.7 452.3 Sell at 434-435 TP 427/424 SL 440

LME Lead Fwd 1968 2006 2039 2072 2110 2148 2181 Range 2040-2120

MCX Lead May-

12

107.1 108.6 109.6 110.6 112.1 113.6 114.6 Range: 109.5-111.5

LME Nickel Fwd 1620

5

16605 1690

0

17195 1759

5

1799

5

18290 Range: 16800-17900

MCX Nickel May-

12

873.5 894.5 907.3 920.0 941.1 962.1 974.9 Range: 900-940

LME Zinc Fwd 1830 1878 1913 1948 1995 2043 2078 Sell at 1960 TP 1910/1870 SL above 1990

MCX Zinc May-

12

99.2 101.4 102.7 104.1 106.2 108.4 109.7 Sell at 104.5-105 TP 102/101 SL above 106.2

Steel NCDEX May-

12

3208

7

32683 3307

7

33470 3406

7

3466

3

35057 Sell at 33600 TP 33000 SL above 33940

*NOTE: The calls shown above are purely WEEKLY Recommendations

Key Economic Events this Week Date Time Region Event Period Survey Actual Prior

05/14/2012 14:30 EC Euro-Zone Ind. Prod. sa (MoM) MAR 0.40% 0.50%

05/15/2012 18:00 US Empire Manufacturing MAY 9.5 6.56

05/16/2012 18:00 US Housing Starts APR 685K 654K

05/17/2012 10:00 JN Industrial Production (MoM) MAR F -- 1.00%

May 12, 2012


PERFORMANCE SNAPSHOT

Exchange Commodity Open High Low Close

Close

% Change Volume

Volume %

Change

Open

Interest

OI

% Change

Aluminium 2075 2084 2025.5 2045 -1.04 129,915 -15.99 3,697 3.76

Copper 8259 8268.75 7949.75 8013 -1.98 198,947 -9.03 3,099 -8.61

Lead 2093 2115 2044 2072 -1.57 43,839 -40.67 975 -51.30

Nickel 17700 17700 17005 17195 -2.16 31,944 -38.64 1,026 -46.89

Zinc 2000 2007.75 1925.25 1948 -2.36 122,395 -10.02 2,942 -35.28

Aluminium 109.65 109.9 107.8 108.5 -1.23 37,300 26.42 2,692 34.47

Copper 439.7 443.15 430.55 431.6 -1.98 757,871 33.48 40,797 -23.09

Lead 112.3 112.6 110.1 110.6 -1.56 98,636 -9.62 6,763 -26.13

Nickel 941.1 949.4 915.6 920 -2.46 229,869 -5.17 19,526 62.85

Zinc 106.65 107 103.5 104.1 -2.48 76,715 23.72 3,127 -32.13

LME 3-mth

Forward

(USD/tonne)

MCX Futures

( /̀Kg)

MARKET OVERVIEW

Base metals retreated 1.04 to 2.36 percent at LME due to weak economic development after France and Greece

elections coupled with declining equities, fall in price was witnessed amidst declining volumes and open

interest as traders might be opting for safe heaven investments due to weak economic activities

At MCX, the losses were elevated and Zinc was the top loser as prices declined 2.48 percent. The Indian rupee also

continued to depreciate and came down by 0.30percent against the Greenback

Trade participation has further weakened at LME while at MCX volumes and open interest have gained considerably

apart from Lead and Nickel indicating that traders are holding their positions expecting prices to decline further

SHANGHAI MARKET PERFORMANCE

Commodity Previous Week This Week Change % ChangeCopper 58360 58180 -180 -0.31%

Zinc 15435 15365 -70 -0.45%

Aluminum 16080 16165 85 0.53%

PRICES (CNY/MT)

COMEX MARKET PERFORMANCE

Commodity Previous Week This Week Change % Change

Copper 382 372.4 -9.6 -2.51%

PRICES (USD/LB)


Commodity Futures Trading Commission (CFTC) Report- Copper

Non-Commercial 5/1/2012 5/8/2012 Change % Change

Long 41404 42919 1515 3.66%

Short 37514 39388 1874 5.00%

Spreading 14451 13391 -1060 -7.34%

Commercial

Long 77181 78539 1358 1.76%

Short 70533 71298 765 1.08%

Total

Long 133036 134849 1813 1.36%

Short 122498 124077 1579 1.29%

CFTC Report - Copper (In contracts)

INVENTORY DETAILS

Commodity Previous week This week Change % Change

Copper 230625 221275 -9350 -4.05%

Zinc 925550 933325 7775 0.84%

Aluminium 4990075 4951125 -38950 -0.78%

Lead 358425 352525 -5900 -1.65%

Nickel 104280 106302 2022 1.94%

LME WAREHOUSE STOCKS (In tonnes)


Copper 72438 68154 -4284 -5.91%

COMEX WAREHOUSE STOCKS (In tonnes)


Copper 204762 196627 -8135 -3.97%

Zinc 358489 359916 1427 0.40%

Aluminium 349054 351203 2149 0.62%

SHANGHAI WAREHOUSE STOCKS (In tonnes)

The data released by CFTC on last

Thursday tells us that market is occupied

with nearly equal weights of buyers and

sellers; commercial buyers have increased

drastically compared to non-commercial

sellers indicating that producers and

manufacturers might have utilized the

opportunity and carried out their

procurements as the prices were falling

during the week. In the coming week,

buying side pressure may provide slight

support to the base metals pack. However,

declining participation and weak economic

development may continue to weaken base

metals complex.


ECONOMIC REVIEW

The week gone by has started with jitters regarding the Euro area election. The Euro tanked after the Socialist

candidate clinched the French presidency from expelled incumbent Sarkozy. With jobless rate at a 12-year high and

public debt at a record level, Sarkozy’s defeat showed a negative impact on market sentiment although the newly elected

socialist member, Holland promised to start a pushback against German led austerity policies. However, this plan is hard

to materialize due to Holland and Merkel being polar opposites. As an add on, stalemate on Greek election raised risk for

bailouts as voters gathered to anti-bailout parties. German chancellor has made it clear that no renegotiation of fiscal

discipline will be encouraged while the newly elected French president raised eyebrows of a resultant slowing economic

growth followed from austerity measures decided earlier. Probability of a fresh ballot in Greece has increased as political

deadlock is continuing and a newly elected French leader may destabilize austerity plans which were a key to tackle the

region’s crisis Global equities also tumbled after the pitiable US jobs data inflated fresh fears about the US economic

health and the Euro tanked for the second straight week by 1.29% to near the three and half months low against the

dollar. The US trade deficit widens expectedly but jobless claims remained mostly near the prior numbers Chinese

releases however were showed some sort of improvement in terms of lowering inflation. Overall, it was a dreadful weak

for the global financial markets as the renewed worries regarding the shift in European politics wrecked havoc market

sentiments to dwindle. (Courtesy: KCTL’s Weekly Economic report)

Currency Last Week This Week % ChangeDollar Index 79.498 80.264 0.96%

EUR/USD 1.3084 1.2917 -1.28%

GBP/USD 1.6151 1.6069 -0.51%

USD/INR 53.475 53.635 0.30%

Bond Yields Last Week This Week Change (in bps)US 10 year bond 1.8786 1.8376 -4.1

German 10 year bond 1.584 1.516 -6.8

India 10 year bond 8.621 8.564 -5.7

Equity Indices Last Week This Week % Change

Dow Jones Ind. Avg. 13038.27 12820.60 -1.67%

S&P 500 Index 1369.10 1353.39 -1.15%

FTSE 100 Index 5655.06 5575.52 -1.41%

Nikkei 225 9380.25 8953.31 -4.55%

Shanghai Composite 2262.79 2306.55 1.93%

Nifty 5209.00 5086.85 -2.34%


CANCELLED WARRANT RATIO ON LME

1940

1960

1980

2000

2020

2040

2060

2080

2100

2120

2140

2.50%

7.50%

12.50%

17.50%

22.50%

27.50%

32.50%

37.50%

LM

E P

ric

es

($

/M

T)

Ca

nc

ell

ed

Ra

tio

Aluminium (Prices Vs Cancelled Ratio)

ALUMINIUM

India's state-run National Aluminium Co

Ltd has sold 12,000 ton of Aluminium

ingots at $160 per ton, a premium over the

average LME cash price on cost, insurance

and freight basis. Earlier in April NALCO

sold to South Korea at $ 152/ton

In the coming week, prices are expected to

remain weak, however better economic

outlook and increased manufacturing activity

may support slight gains. Further the FOMC

meet needs to be closely watched to see the

Fed’s stance on employment and inflation

BASIS CHART (LME 3 MTH FWD–LME CASH PRICES) {$/Tonnes)

0

5

10

15

20

25

30

35

40

45

50

27

-Fe

b

1-M

ar

6-M

ar

9-M

ar

14

-Ma

r

19

-Ma

r

22

-Ma

r

27

-Ma

r

30

-Ma

r

4-A

pr

11

-Ap

r

16

-Ap

r

19

-Ap

r

24

-Ap

r

27

-Ap

r

2-M

ay

8-M

ay

11

-Ma

y

AluminiumCONTANGO

BACKWARDATION

CALENDAR SPREAD ON MCX

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

19

-Ap

r

22

-Ap

r

25

-Ap

r

28

-Ap

r

1-M

ay

4-M

ay

7-M

ay

10

-Ma

y

Aluminium



6500

7000

7500

8000

8500

9000

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

LM

E P

ric

es

($

/M

T)

Ca

nc

ell

ed

Ra

tio

Copper (Prices Vs Cancelled Ratio)

COPPER

Chinese Copper imports have declined

19 percent while on the other hand

production from Peru the second largest

producer increased 0.9 percent last

month and may further pull down red-

metal prices

Better economic releases in the form of

Empire and Philadelphia manufacturing

may restrict downside, however weak

fundamentals may continue to weigh on

prices


-160

-140

-120

-100

-80

-60

-40

-20

0

20

27

-Fe

b

1-M

ar

6-M

ar

9-M

ar

14

-Ma

r

19

-Ma

r

22

-Ma

r

27

-Ma

r

30

-Ma

r

4-A

pr

11

-Ap

r

16

-Ap

r

19

-Ap

r

24

-Ap

r

27

-Ap

r

2-M

ay

8-M

ay

11

-Ma

y

CopperCONTANGO

BACKWARDATION


0.00

1.00

2.00

3.00

4.00

5.00

6.007

-Ap

r

10

-Ap

r

13

-Ap

r

16

-Ap

r

19

-Ap

r

22

-Ap

r

25

-Ap

r

28

-Ap

r

1-M

ay

4-M

ay

7-M

ay

10

-May

Copper

Copper LME 3M forward prices continued its downtrend

in last week by extending the previous losses. We are still

holding our bearish outlook and expected to continue its

downtrend for this week. Immediate support is at 7950

levels (38.2% retracement of the range 6635-8765)

supported by trend channel. Break below 7950 would

trigger fresh selling towards 7860/7780 levels. WEMA

(8, 21 & 34) crossover signals bearish outlook for short

term. Key resistance level to watch for the week is at

8190 levels, which is likely to hold downside view.

Trading range expected to be 7860-8130 with negative

bias. We suggest selling on pullbacks and add more lots

when the price breaches the 7950 support levels.

Copper June MCX future prices are expected to remain

lower for the week ahead as long as 440 resistances hold.

We suggest selling on pullbacks.



1500

1600

1700

1800

1900

2000

2100

2200

2300

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

LM

E P

ric

es

($

/M

T)

Ca

nc

ell

ed

Ra

tio

Lead (Prices Vs Cancelled Ratio)

LEAD

Doe Run Co restored its primary lead smelter in Herculaneum, Missouri, this week to its full production capacity of 130,000 short tons a year and is on track to meet its production target for the month of May. This may act as a dampener in the coming week for prices

Prices are expected to mostly remain weak due to higher production and declining warrants and may restrict gains in the coming week


-15

-10

-5

0

5

10

15

20

25

30

35

24

-Fe

b

29

-Fe

b

5-M

ar

8-M

ar

13

-Ma

r

16

-Ma

r

21

-Ma

r

26

-Ma

r

29

-Ma

r

3-A

pr

10

-Ap

r

13

-Ap

r

18

-Ap

r

23

-Ap

r

26

-Ap

r

1-M

ay

4-M

ay

10

-Ma

y

LeadCONTANGO

BACKWARDATION


0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

9-A

pr

12

-Ap

r

15

-Ap

r

18

-Ap

r

21

-Ap

r

24

-Ap

r

27

-Ap

r

30

-Ap

r

3-M

ay

6-M

ay

9-M

ay

Lead



15000

15500

16000

16500

17000

17500

18000

18500

19000

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

LM

E P

ric

es

($

/M

T)

Ca

nc

ell

ed

Ra

tio

Nickel (Prices Vs Cancelled Ratio)

NICKEL

Vale , the world's second biggest nickel producer, declared force majeure and suspend sales and purchase agreements at its Goro project on the French Pacific island of New Caledonia due to an accident at the mine's sulfuric acid plant

Arcelor Mittal has also forecasted increased

Steel demand of 6.5 to 7 percent from

North America coupled with better

economic releases may support price gain

in the coming week


0

20

40

60

80

100

120

27

-Fe

b

1-M

ar

6-M

ar

9-M

ar

14

-Ma

r

19

-Ma

r

22

-Ma

r

27

-Ma

r

30

-Ma

r

4-A

pr

11

-Ap

r

16

-Ap

r

19

-Ap

r

24

-Ap

r

27

-Ap

r

2-M

ay

8-M

ay

11

-Ma

y

NickelCONTANGO

BACKWARDATION


0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

17

-Ap

r

20

-Ap

r

23

-Ap

r

26

-Ap

r

29

-Ap

r

2-M

ay

5-M

ay

8-M

ay

11

-Ma

y

Nickel



1500

1600

1700

1800

1900

2000

2100

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

LM

E P

ric

es

($

/M

T)

Ca

nc

ell

ed

Ra

tio

Zinc (Prices Vs Cancelled Ratio)

ZINC Zinc production from Peru has increased

2.91 percent in the month of March from

a year ago and may have negative

impact on prices due to declining spot

demand and higher supply

However, basis difference is heading

towards backwardation and the economic

releases may also turn out to be positive

and may restrict prices to retreat


-10

-5

0

5

10

15

20

25

30

27

-Fe

b

1-M

ar

6-M

ar

9-M

ar

14

-Ma

r

19

-Ma

r

22

-Ma

r

27

-Ma

r

30

-Ma

r

4-A

pr

11

-Ap

r

16

-Ap

r

19

-Ap

r

24

-Ap

r

27

-Ap

r

2-M

ay

8-M

ay

11

-Ma

y

ZincCONTANGO

BACKWARDATION


0.00

0.20

0.40

0.60

0.80

1.00

1.20

17

-Ap

r

20

-Ap

r

23

-Ap

r

26

-Ap

r

29

-Ap

r

2-M

ay

5-M

ay

8-M

ay

11

-Ma

y

Zinc

Zinc LME 3M forward prices were seen trading negative in

the last week extending the previous losses. As indicated

above technical chart clearly suggests some downside

pressure for the week ahead as the prices have breached the

trend line support at 1970 and posted a lower closing at

1948. Trading range expected to be 1910-1970 with

negative bias. Break below 1910 may extend its downside

correction further. Hovering below the WEMA (8, 21&34)

suggests prices to remain lower. For weekly traders we

suggest selling on pullbacks around 1950-1960.

Zinc MCX May future prices are likely to continue its

downtrend as long as 105.5 resistance holds.


DATA RELEASES SCHEDULED FOR THE WEEK AHEAD

Date Time Region Event Period Survey Prior

05/14/2012 11:30 GE Wholesale Price Index (MoM) APR -- 0.90%

05/14/2012 14:30 EC Euro-Zone Ind. Prod. sa (MoM) MAR 0.40% 0.50%

05/15/2012 11:30 GE GDP s.a. (QOQ) 1Q P 0.10% -0.20%

05/15/2012 14:30 EC Euro-Zone GDP s.a. (QoQ) 1Q A -0.20% -0.30%

05/15/2012 14:30 GE Zew Survey (Current Situation) MAY 39 40.7

05/15/2012 14:30 EC ZEW Survey (Econ. Sentiment) MAY -- 13.1

05/15/2012 14:30 GE ZEW Survey (Econ. Sentiment) MAY 19 23.4

05/15/2012 18:00 US Consumer Price Index (MoM) APR 0.00% 0.30%

05/15/2012 18:00 US Empire Manufacturing MAY 9.5 6.56

05/15/2012 18:00 US Advance Retail Sales APR 0.20% 0.80%

05/15/2012 18:30 US Total Net TIC Flows MAR -- $107.7B

05/15/2012 18:30 US Net Long-term TIC Flows MAR $32.5B $10.1B

05/15/2012 19:30 US Business Inventories MAR 0.40% 0.60%

05/15/2012 19:30 US NAHB Housing Market Index MAY 26 25

05/16/2012 14:30 EC Euro-Zone CPI (MoM) APR 0.50% 1.30%

05/16/2012 14:30 EC Euro-Zone Trade Balance MAR 4.0B 2.8B

05/16/2012 16:30 US MBA Mortgage Applications 11-May -- 1.70%

05/16/2012 18:00 US Housing Starts APR 685K 654K

05/16/2012 18:00 US Building Permits APR 728K 747K

05/16/2012 18:45 US Industrial Production APR 0.60% 0.00%

05/16/2012 18:45 US Capacity Utilization APR 79.00% 78.60%

05/16/2012 23:30 US Minutes of FOMC Meeting

05/17/2012 05:20 JN GDP Annualized 1Q P 3.50% -0.70%

05/17/2012 10:00 JN Capacity Utilization (MoM) MAR F -- -1.70%

05/17/2012 10:00 JN Industrial Production (MoM) MAR F -- 1.00%

05/17/2012 18:00 US Initial Jobless Claims 12-May 365K 367K

05/17/2012 18:00 US Continuing Claims 5-May 3235K 3229K

05/17/2012 19:30 US Philadelphia Fed. MAY 10 8.5

05/17/2012 19:30 US Leading Indicators APR 0.10% 0.30%

05/18/2012 11:30 GE Producer Prices (MoM) APR 0.30% 0.60%


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The report contains the opinions of the author, which are not to be construed as investment advice. The author, directors and other employees of Karvy and

its affiliates cannot be held responsible for the accuracy of the information presented herein or for the results of the positions taken based on the opinions

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