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Base Metals Monthly Report

Wednesday, December 07, 2016

www.angelcommodities.com

Wednesday, 07 December

2016


Executive Summary

In Nov’16, base metals on the LME gained momentum

owing to assurance by the President elect Donald Trump in

his victory speech that he would cut taxes and invest more

than $500 billion in infrastructure, the core demand area

for base metals.

Adding to the positive news was China’s National

Development and Reform Commission, which on 11th

Nov’16 said it has approved a total of 85.6 billion Yuan

($12.59 billion) for three railway projects.

Further supporting the prices was string of favorable data

releases from the US and China, major demand driving

nations for base metals.

Chinese Yuan too played a crucial role in the

unprecedented rally in base metals last month, as it

plunged to the lowest level since June 2008.

Temporary downside was however seen after Shanghai

Futures Exchange (ShFE) said it would raise margins and

trading limits on futures contracts including copper,

aluminium, zinc, lead, nickel and tin in an effort to ease

sharp movement.

MCX base metals trended higher in line with international

markets.

19.6

0.9

7.6

13.4 12.7

21.8

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Copper Aluminium Nickel Lead Zinc

Base Metals performance in Nov'16 (%)

LME MCX

Source: Reuters, Angel Commodity Research

LME Stock scenario (Nov’16)

Base metal Opening stock

(in tonnes)

Closing stock

(in tonnes)

Percent chg

Copper 3,71,775 3,19,475 -26%

Aluminium 21,54,825 21,40,550 0.17%

Zinc 4,38,675 4,50,725 -1.95%

Lead 1,90,250 1,88,700 -0.52%

Nickel 3,62,004 3,63,024 0.95%

Shanghai Stock scenario (Nov’16)

Base metal Opening stock as on 4th Nov’16

Closing stock as

on 2nd Dec’16

Percent chg

Copper 97839 135363 32.5%

Aluminium 97,561 72155 -30.2%

Zinc 167759 152731 -9.4%

Lead 31080 20310 -42.5%

Upcoming crucial events (Dec’16)

Data/ Event Date & time

ECB Press conference 8th Dec, 2016 – 7:00 pm

FOMC Statement 15th

Dec, 2016 – 12:30am

US Final GDP q/q 23rd

Dec, 2016 – 7:00 pm

Trump’s Infra- spending assurance leads to wild rally in base metals in Nov’16





2016


However, wild upward swings in the Copper prices

temporarily halted as dollar rallied to 14-year highs after

Fed Chair Janet Yellen affirmed in her testimony that

Trump’s victory in the Presidential elections will not

change anything. She will stay in office until her term

expires in January 2018 and reiterated that the Federal

Reserve remains on course of raising interest rates.

Another hit came from customs data showed refined

copper imports fell 45% year-over-year and 22% month-

over-month to the lowest level in over three years.

Further, Chinalco reached a deal with the Peruvian

government for a major expansion of Toromocho, one of

Peru’s biggest copper mines. Also, Peru’s National

Institute of Statistics said that national copper production

in Sep’16 grew 35.9% as compared to the same month of

2015.

Also, preliminary data released by the International

Copper Study Group showed the global refined copper

market showed an apparent production surplus of around

154,000 mt in August, mainly due to weaker Chinese

demand and seasonally weak usage in other regions. For

the January-August period, indications suggest a

production deficit of around 91,000 mt, and a seasonally

adjusted deficit of about 93,000 mt.

Despite falling from record high levels, the metal still

managed to gain 20 percent on the LME and 21 percent

on the MCX.

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Managed Net Copper

Source:Reuters, Angel Commodity Research

Net longs jump to fresh record high Copper

Price performance

In Nov’16, LME Copper prices jumped by 20 percent having

started the month at $4862/t and touched levels as high as

$6045.5/t during the course of the month before closing at

$5795/t.

Copper prices on the LME jumped to 17-month highs and

crossed the crucial $6000/t mark before closing at $5795/t

in Nov’16 on anticipation of increased infrastructure

spending in view of US President elect Trump’s plan to fix

inner cities and rebuild highways. In his victory speech, he

pledged to at least double Hilary Clinton’s estimated $275

billion, five-year plan for roads, airports and bridges.

Also, manufacturing activity in the main consumer nations

i.e. the US and China showed robust improvement. US

Manufacturing PMI print for the month of November was

53.2, higher from October's 51.9 while Chinese PMI came in

at 51.7 in November, the highest since the 53.3 hit in April

2012.

Other data sets too showed stabilization in the Chinese

economy, thereby boosting the metal. China’s annual fixed-

asset investment, a proxy for long-term spending, increased

8.3% in the January-October period although industrial

production and retail sales grew less than expected in

October. Official data showed foreign direct investment

(FDI) into the Chinese mainland rose 4.2 percent year on

year to reach 666.3 billion Yuan (around 98 billion U.S.

dollars) in the first ten months of this year.

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LME Copper Vs stocks

prices stocks






2016


Aluminium

Price performance

In Nov’16, LME Aluminium prices have declined marginally

(-0.3%) to $1731 per tonne, after two consecutive monthly

gains while on the MCX, it prices gained by 2 percent to

Rs.117.45/kg as rupee weakness supported the rise.

The light metal witnessed a paltry downside in Nov’16,

largely on account of weakness in the crude oil prices in the

first half of the month just before the contentious OPEC

meeting which was scheduled on Nov.30, 2016. The

uncertainty spurred by shaky prospect of major producers

being able to agree on output cuts weighed on Aluminum

prices, since crude oil accounts for around 30 percent of

input costs for the metal.

On the supply front, International Aluminium Institute data

showed total Chinese output slipped from the highest in

fifteen months of 2.75 million tonnes in Sept’16, to 2.727

million tonnes in Oct’16. Daily average output fell to 88,000

tonnes in Oct’16 against 91,700 tonnes in the Sep’16.

Excluding China, Global production for Oct’16 rose to 2.169

million tonnes, from 2.096 million tonnes recorded in

Sep’16 while daily average primary aluminium output

excluding China rose to 70,000 tonnes in Oct’16, from

69,900 tonnes in the previous month.

Demand scenario too looks good as Aluminum imports into

the United States excluding those from Canada totaled

179,521 tonnes in September, up from the previous

month's total of 160,450 tonnes. This is the third-highest

monthly total of imports for the year, exceeded only by

193,345 tonnes in March and 212,797 tonnes in June.

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LME Aluminium V/s stocks

prices stocks


Besides, LME inventories are down by more than 26

percent this year whereas stocks at the Shanghai

exchange warehouses are at the lowest level since 2007.

Aluminium stocks at three major Japanese ports stood at

278,200 tonnes at the end of October, down 2.9 percent

from the previous month.

Overall, crude oil was the only spoiler for Aluminium in

Nov’16 while demand-supply balance and stocks favored

the metal.

Base metal in focus for Dec’16

Nickel

Nickel, the silvery white metal mainly used in production

of Stainless Steel, has been out of spotlight for some time

now. That may well change for good in December as

Philippines’ Environment and Natural Resources Secretary

Regina Lopez reiterated on 2nd Dec’16 that the mine

suspension still remains on her priority list adding they

will release the final audit result very soon.

In the initial audit result released September 27, the DENR

named 40 mining firms, with 11 mines (including 5 nickel

mines) passing the audit, 9 mines (including 7 nickel

mines) shutting down and 20 mines (including 15 nickel

mines) being recommended for suspension. These 20

were sent out show-cause letters in late October.

As a result of this mining crackdown, the Philippines’

output of nickel ore fell 16 percent in the third quarter

from a year earlier. Data from the Mines and Geosciences

Bureau showed output of nickel ore for direct shipping fell

to 9.34 million tonnes in July-September from 11.09

million tonnes in the same period last year.

This is a major blow as earlier ban on 8 mines and

potential ban on 20 more would likely hit Nickel ore

supplies harder since they accounted for more than half

of the Philippines’ nickel ore output last year.

So, one can expect the metal to outperform in the

coming months as Indonesia too is reluctant to ease its

ore ban, blocking Nickel supplies to China.





2016


Outlook

For Dec’16, we expect base metal prices to trade higher as the Organization of Petroleum Exporting

Countries finalized a deal to cut production by 1.2 million barrels a day starting in January 2017, its first

reduction since 2008. Since crude oil is a crucial component of input cost for metals, the upside in oil

prices will reflect in metals as well. However, potential US rate hike on 15th Dec’16 for the first time in

nearly a decade would be keenly watched by global investors.

Copper prices will likely trade higher this month as lofty infrastructure spending in China is likely to keep

demand robust for the metal. China has already splurged $1.4 trillion on roads, railways, bridges,

telecom networks and other infrastructure in the ten months through October. However, cautious

stance ahead of crucial FOMC statement and persistently falling Chinese forex reserves to $3.051tn in

November to defend the Yuan will limit upside.

Aluminium prices are likely to trade higher in Dec’16 as positive momentum in crude oil prices would be

a reason to cheer for Aluminium. Another favorable factor would be indications that the Aluminium

market would be tight going forward was seen as some big aluminum producers seek a premium of $95-

$110 per ton from Japanese buyers for primary metal shipments in the January to March period, up 27-

47 percent from $75 per ton in the previous quarter. However, restricted upside would be seen as global

aluminum production expanded to a record high of 4.986 million tons in October, despite fall in Chinese

production.

Technical Levels (December 2016)

Commodity Support 2 Support 1 CMP Resistance 1

Resistance 2

LME Copper ($/tonne) 4800 5530 5921 6550 7420

MCX Copper (Rs./kg) 330 380 403.4 450 510

LME Aluminium ($/tonne) 1620 1670 1729.5 1790 1850

MCX Aluminium (Rs./kg) 110 114 117.1 123 127

LME Nickel ($/tonne) 9400 10300 11685 12100 13000

MCX Nickel (Rs./kg) 680 740 789.5 840 890

LME Lead ($/tonne) 1790 2060 2386.5 2595 2850

MCX Lead (Rs./kg) 120 139 161.4 180 195

LME Zinc ($/tonne) 2130 2410 2846 2980 3260

MCX Zinc (Rs./kg) 142 165 191.7 205 225





2016


Study group updates

Copper surplus jumps to 154 000 t in August’16 - ICSG

New analysis by the International Copper Study Group

(ICSG) has shown an apparent production surplus of around

154,000 metric tonnes in August, mainly owing to weaker

Chinese demand and seasonally weak use in other regions.

The Lisbon, Portugal headquartered think tank said in a

statement Monday that when making seasonal adjustments

for world refined production and use, August showed a

production surplus of about 56,000 t.

During the eight-month period since the start of the year,

data suggests a production deficit of about 91 000 t, and a

seasonally adjusted deficit of about 93,000 t, compared

with a production surplus of about 10,000 t (a seasonally

adjusted surplus of about 19,000 t) for the same period in

2015.

In the same eight-month period, world apparent refined use

is estimated to have increased by about 3.8% (570 000 t),

compared with the same period in 2015, while World

refined output is estimated to have increased by about

3.1% (470 000 t). Output in Chile and Japan, the second-

and third-leading refined copper producers, increased by

around 2% and 3% during the period, respectively.

Surplus in global lead market narrows in September -

ILZSG

A global surplus of lead narrowed to 4,400 tonnes in

September from a revised surplus of 8,900 tonnes in

August, data from the Lisbon-based International Lead and

Zinc Study Group (ILZSG) showed on Monday.

For the year to September, the market saw a surplus of

38,000 tonnes versus a deficit of 37,000 tonnes in the first

nine months of last year.

The Group anticipates that in 2016 supply will exceed

demand in the global refined lead metal market by 42,000

tonnes. In 2017, an even closer balance is predicted with

current data indicating that the market will be in surplus by

23,000 tonnes.

Daily average aluminium output rise to 70,000 T in Oct -

IAI - Reuters

LONDON, Nov 21 (Reuters) - Daily average primary

aluminium output excluding China rose to 70,000 tonnes

in October, from 69,900 tonnes in September, data from

the International Aluminium Institute (IAI) showed on

Monday.

Global production for October, excluding China, was 2.169

million tonnes, up from 2.096 million tonnes recorded in

September. In China, daily average output fell to 88,000

tonnes in October against 91,700 tonnes in the

September.

Total Chinese production in October was 2.727 million

tonnes from 2.751 million tonnes in September, the IAI

said.

Nickel market to witness deficit in 2016, 2017 - INSG

The International Nickel Study Group (INSG) estimates

nickel usage will continue to grow in both 2016 and 2017

due to the increase in production of the austenitic

stainless steel grades in all main markets despite the

challenging economic environment world.

According to the International Stainless Steel Forum (ISSF)

world stainless steel melting production, after reaching

41.5 Mt in 2015, has recorded a 4.1% increase during the

first half of 2016 setting the stage for a strong

performance for the full year.

China recorded a 7.9% increase driven by an increase in

domestic demand and sustained export mainly to other

Asian countries. In the non-stainless steel sectors primary

nickel demand will maintain a positive trend in the

aerospace industry and in the battery sector.

World primary nickel production was 1.973Mt in 2015,

and decreased to 1.934Mt in 2016. World primary nickel

usage was 1.881Mt in 2015 and increased to 2.001Mt in

2016. For 2017 INSG estimates an increase to around

2.113Mt.





2016


MCX Copper - CMP – 401.95 / $ 5,851

As clearly seen on the above monthly price chart of MCX Copper, we observed that last month prices

have rallied sharply and made a high of 18th month high of 414.80 levels. Last month prices have

breached the long term down trend line and now trading above it.

As per the technical chart structure prices are in positive trend followed by bullish candlestick patterns.

Prices are trading above its 5, 20, 50 and 100 (Monthly basis) EMA, Exponential moving average, which

is supportive for the prices.

Technical indicator, 14 Month RSI is rising and MACD showing positive divergence and both indicators

shows optimism.

We expected Copper prices to find support at 385 – 380 ($ 5,530) levels. Trading below consistently

below 380 levels would lead towards the strong support at 330 ($ 4,800) levels and then finally towards

the major support at 300 levels ($ 4,350)

Resistance is now observed at 450 – 460 ($ 6,550) levels. Trading consistently above 460 levels would

lead towards the strong resistance at 510 ($ 7,420) levels and then finally towards the major resistance

at 550 ($ 8,000) levels.

Looking towards positive chart structure and indicators supports positive trend we recommend to buy in

Copper.

Buy Copper between 380 – 385, SL – 330, Target – 450 / 460





2016


Research Team

Kaynat Chainwala Research Analyst (Base Metals) [email protected] (022) 3935 8136 Extn :6136

Anuj Gupta Head– Technical Research (Commodity & Currency) [email protected] (011) 4916 5954

Angel Commodities Broking Pvt. Ltd.

Registered Office: G-1, Ackruti Trade Centre, Rd. No. 7, MIDC, Andheri (E), Mumbai - 400 093.

Corporate Office: 6th Floor, Ackruti Star, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 2921 2000

MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX: Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

Disclaimer: The information and opinions contained in the document have been compiled from sources believed to be reliable. The company does not warrant its accuracy,

completeness and correctness. The document is not, and should not be construed as an offer to sell or solicitation to buy any commodities. This document may not be reproduced,

distributed or published, in whole or in part, by any recipient hereof for any purpose without prior permission from “Angel Commodities Broking (P) Ltd”. Your feedback is

appreciated on [email protected]

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