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SPECIAL MONTHLY REPORT ONSPECIAL MONTHLY REPORT ON

Base MetalsBase Metals(July 2014)(July 2014)

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BA

SE

ME

TA

LS

July 2014

BASE METALS (30th May 2014 - 30th June 2014) (% change)PERFORMANCE

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4.39

9.30

4.45

5.13

0.02

1.90

7.21

2.49

2.40

1.01

2.14

3.81

0.11

0.75

0.00 2.00 4.00 6.00 8.00 10.00

Copper

Zinc

Aluminium

Lead

Nickel

Source: Reuters & SMCSHFE LME MCX

BASE METALS (Jan 2014 - June 2014) (% change)PERFORMANCE

Source: Reuters & SMCSHFE LME MCX

-8.60

4.75

2.50

-5.00

32.28

-5.06

7.62

5.11

-2.03

36.55

-3.35

2.62

-4.19

-3.64

-20.00 -10.00 0.00 10.00 20.00 30.00 40.00

Copper

Zinc

Aluminium

Lead

Nickel

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COPPER China May FDI falls by most in 16 months as

economy slows Copper prices traded on sideways with positive path

The amount of new foreign investment that China in the month of June 2014. Copper moved in range of

attracted in May shrank by the most in 16 months, 394-422 last month. U.S. consumer sentiment rose in

hurt partly by its cooling economy, though the trade June as consumers remained optimistic the sluggish

ministry said the outlook may be brightening for first quarter was due to difficult winter conditions.

exporters. The Ministry of Commerce said on that Euro zone economic sentiment fell unexpectedly in

China attracted $8.6 billion in foreign direct June on fears that fighting in Iraq would push up oil

investment (FDI) in May, down 6.7 percent from a prices and that any escalation of the Ukraine crisis

year ago and the weakest performance since January could drag on euro zone growth. On domestic bourses

2013. Cumulatively, China drew $49 billion of FDI in weaker local currency capped the downside to some

the first five months of 2014, up 2.8 percent from a extent. Supply short fall and encouraging data from

year earlier, also the worst showing in a year.US and China will continue to assist the prices in the

month of July 2014. The HSBC/Markit Flash China Copper output at Chile's Codelco drops slightly in first

Manufacturing Purchasing Managers' Index rose Output at the world's No. 1 copper producer, Chile's more than expected to 50.8 in June from May's final Corporacion Nacional del Cobre, slipped slightly in reading of 49.4. Copper prices can trade in range the first quarter and its profit dived as metal prices fell of 405-445 in near term. Copper in LME is set for and ore grades deteriorated. Codelco, as the company the biggest quarterly rise since September as is commonly known, posted a 0.3 percent drop in stockpiles fell and amid bets that the U.S. economy copper production to 383,000 tonnes in the quarter, will rebound from a first quarter contraction. while its pretax profit fell 38 percent to $539 million.Inventories monitored by the main exchanges in

London, Shanghai and New York have plunged to the Newmont halts copper concentrate output at lowest since 2008. Copper seasonal demand is Indonesian mineexpected to wane going into the third quarter, though

Newmont Mining Corp has halted copper concentrate the shortage in supply is expected to keep a floor

production at its Batu Hijau mine in Indonesia as a under prices. Doubts remain that major copper

deadlock continues over controversial mining rules miners will accept a new mining export tax being

that have halted concentrate exports since mid-drafted by Indonesia that could potentially end a five

January.month old dispute that has halted concentrate

shipments and eroding mine supply.

China Copper imports

U.S. housing regaining footing as supply Copper imports from the world's top consumer fell

improves 15.6 percent from a month ago to 380,000 tonnes in

May. The figure includes anode, refined, alloy and U.S. home resales rose more than expected in May

semi-finished copper products. High spot copper and the stock of properties for sale was the highest in

prices on the London Metal Exchange had prompted more than 1-1/2 years, suggesting the housing sector

some end-users to delay buying spot metal in May. was pulling out of a recent slump. The National

Going forward, imports could fall in the coming Association of Realtors stated recently that existing

months as an investigation into possible fraud in home sales increased 4.9 percent to an annual rate of

metal financing in the port of Qingdao has led some 4.89 million units. May's increase was the largest

major banks to suspend new metal financing to some since August 2011.

Chinese customers.

July 2014

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July 2014

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Copper upside capped recently on port probe warranted in the LME network, data that would likely

add pressure to sliding prices. As much as 300,000 The end of the peak period for demand in top metals tonnes of copper, nearly twice the entire inventory consumer China and the prospect of additional held in the LME's global warehouses, could be supply weighed on copper prices. The probe at the released by September.Chinese port, where a third-party firm is suspected of

using single cargoes of metal multiple times to obtain

financing, has also shaken markets amid fears the Indonesia, Freeport make progress in copper problems could extend to other ports and force a export talkscrackdown on using metal as collateral for finance.

Indonesia and U.S. miner Freeport-McMoRan Concerns over the events in Qingdao may push

Copper & Gold Inc have agreed on the basic foreign banks to cut their commodity financing

framework for contract renegotiations for the world's business in China. The fear of fraudulent financing at

fifth-largest copper mine, a further step in efforts to some storage depots in Qing-dao port has prompted

resume copper exports. Indonesia's biggest copper some banks and merchants to cut credit for financing

producer and fellow miner Newmont Mining Corp deals or relocate metal to better-known warehousing

halted copper concentrate shipments in January firms, including some in South Korea and elsewhere

when the government introduced new mining rules, that are part of the LME's vast system. The shift away

including an escalating export tax that the two firms from China's opaque warehouses fueled concern

say violates their mining contracts.among traders of a potential rise in stockpiles

BHP, China smelter agree lower TC/RCs for

copper concentrate

At least one large Chinese copper smelter has agreed

with global miner BHP Billiton a 3.5 percent cut in

treatment and refining charges for term concen-trate

shipments in the second half of 2014, from January to

June shipments. The agreed treatment and refining

charges (TC/RC) are $95.5 per tonne and 9.55 cents

per pound for concentrate shipments between July

and December 2014.

In the month of July 2014 copper prices may

trade on sideways with positive path as

movement of various economic indicators

such as PMI data, homes sales and

employment data along with fed tapering and

Chinese demand will give further direction to

the copper prices.

Range

Copper

MCX: Rs 405-445 per kg

LME: $6900-7150 per tonne

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July 2014

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Source Kitco metals

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NICKEL up nearly 7%. According to INSG data, a significant

stock build has been recorded in 2012 and 2013. Nickel prices witnessed mixed movement in the

Reasons for the increase in stocks include the month of June as while Ukraine tensions supported

number of new nickel projects that have started up, the prices but prices profit booking at higher levels

existing projects that have ramped up production, capped the upside. Overall nickel traded in range of

including nickel pig iron production in China, and 1047-1159 in the month of June 2014. Nickel is

disappointing usage figures outside of China and getting support because of supply tightness from

India. INSG recognizes the significant impact of the Indonesia and concerns due Ukraine and Russia

current financial, economic and political tensions.

uncertainty in many parts of the world. The effects Nickel buyers in China and Japan are scrambling to of the above on both the supply and demand for secure supplies as roaring prices and a fear of nickel are not fully known though, said the group.shortages boost demand for both refined metal and

long-term ore contracts from stainless steel makers. New Caledonia allows conditional restart of Nickel prices can move in range of in the Vale nickel minemonth of 1060-1200 July 2014.

New Caledonia authorities have authorized a

conditional restart of Brazil-based Vale's nickel Global Primary Nickel Use To Increase

operations, which were suspended more than three Nearly 7% This Year

weeks ago after acid-tainted effluent spilled into a According to a latest update from the International river. Nickel Study Group (INSG), global Nickel usage

(consumption) will continue to increase this year, Nickel supplies steady in Europe, market although at a lower rate than in recent years, with deficit eyed next year China being the main growth market. The

implementation of the Indonesian export ban on Physical supply of nickel has stabilized in Europe as nickel ore which took effect in January 2014 is consumers slowed a burst of stockpiling triggered expected to reduce production in that country and by fears an Indonesian export ban would make ore could result in a further increase in nickel ore scarce, although the market is expected to swing exports from the Philippines. into deficit next year as inventories dwindle. A ban

on unprocessed ore exports from top producer A recovery in global economic growth, in particular Indonesia in mid-January sparked concerns of a in the US and Western Europe, has improved nickel shortage of the raw material, used in the production demand in early 2014 relative to the latter part of of stainless steel. Coinciding with the ore export ban 2013, and remains generally supportive in Asia. A were worries that hefty sanctions could be imposed possible reduction in nickel pig iron production in on Russia, home to the world's largest nickel miner China, due to the lower level of nickel ore imports Norilsk Nickel , following Russia's intervention in from Indonesia, could adversely affect worldwide Ukraine. So far Norilsk is not among the 17 nickel production despite the range of new nickel companies that the United States sanctioned last projects that will come on stream.month.

World primary nickel production was 1.75 Mt in

2012, and increased to 1.94 Mt in 2013. INSG

projects a largely unchanged production of around Ukraine and Russia tensions lifting prices 1.94 Mt in 2014. There is a degree of uncertainty in higherthese figures in regard to Chinese nickel pig iron

Tensions in Russia and Ukraine resulted in production, particularly in latter years. The sanctions on Russia by Ukraine which resulted in estimates do not include any general adjustment disruption of nickel supply as Russia is second factor for possible production disruptions.largest exporter of nickel in the world. Russia is

World primary nickel usage (consumption) was 1.75 home to OAO GMK Norilsk Nickel, the leading Mt in 2012 and increased to 1.77 Mt in 2013. For producer of refined metal.2014 INSG estimates an increase to around 1.89 Mt,

July 2014

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July 2014

In the month of July 2014 Nickel trend will

depend on the stainless steel sector demand

along with availability of Nickel ore.

Movement of local currency is likely to

influence its prices on domestic bourses.

Range

Nickel

MCX: Rs 1060-1200 per kg

LME: $18600-19800 per tonne

Source Kitco metals

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LEAD

Lead prices ended in green zone in the month of

June 2014.Overall its prices moved in range of

121.85-130.40 in MCX. Growing demand from

replacement battery sector and falling stockpiles are

expected to support the prices. But there are

concerns about Lead demand from top consumer

China as the country grapples with slow growth and

credit problems. Investors fear that credit upheaval

in China could unwind financing deals that use the

metal as collateral. Overall it can move in range

of 124-135 in the month of July 2014.

China's May HSBC services PMI rose in June

China's official purchasing managers index (PMI)

for June came in at a six-month high of 51, in line

with expectations and up from 50.8 in May.

Meanwhile, HSBC's final PMI reading for June rose

to 50.7, weaker than a preliminary reading of 50.8

but higher than May's 49.4 figure.

Global lead mine output

Global lead mine output, meanwhile, was 1.3%

higher during first four months of 2014 as compared

the corresponding period in 2013 due primarily to

increases in Australia, Mexico and the United States

that more than balanced reductions in Canada and

China. A reduction world refined lead output of 4%

was primarily a consequence of falls in production in

China and the United States. Similarly, a sharp drop

in Chinese apparent demand for refined lead metal

of 10.3% was the main influence on a reduction in

global demand of 4.6%. Usage in Europe increased

by 3.9% and in the United States, fell by 2.6%.

Chinese net imports of lead contained in lead

concentrates increased by 12% to total 270kt.

ILZSG forecast

Global demand for refined lead metal will increase by

4.4% in 2014 to 11.73 million tonnes. This will be

driven mainly by growth in China where usage is

forecast to increase by 7.4%. In 2013, China accounted

for 45.2% of total global lead usage.

Meanwhile, demand in the United States is forecast to

rise by a modest 0.6% after increasing by 14.1% in

2013. In Europe, a rise of 2.2% is anticipated driven

mainly by a forecast recovery in Italian demand.

On supply side- Global lead mine production is

expected to increase by a further 5.2% to 5.66 million

tonnes in 2014 following a rise of 7.5% in 2013,

primarily as a consequence of higher output in

Australia and China. Chinese net imports of lead

contained in lead concentrates are expected to exceed

three quarters of a million tonnes for the seventh year

in succession.

In 2014, world production of refined lead metal is

forecast to rise by 4.3% to 11.68 million tonnes. Output

in the Republic of Korea, currently the world's third

largest producer of lead metal behind China and the

United States, is expected to rise by 5.7% to reach half a

million tonnes. Elsewhere in Asia increases are

forecast in China, India and Kazakhstan. In the United

States, the closure of Doe Run's primary operation at

Herculaneum in December last year will be partially

offset by a rise in secondary output, however, overall

production is expected to decline by 5.3%. A predicted

increase in Europe of 4.4% is mainly a consequence of

forecast rises in production in Belgium, France and

Italy.

World Refined Lead Metal Balance- After having taken

into consideration the latest information reported by

its member countries, ILZSG expects that the world

market for refined lead metal will remain in modest

deficit in 2014 with the extent of the shortage

estimated at 49,000 tonnes.

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July 2014

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ZINC

Zinc prices traded with upside bias in June 2014 as

supply tightness and good demand supported its

prices. Overall zinc prices moved in range of

121.70-132.10 in MCX. Zinc has emerged as the

"poor man's copper" in terms of loan collateral in

China, partly because of its lower price and partly

because of the increasing regulatory scrutiny on the

copper collateral trade.

In the month of July renewed galvanizing demand

can give support to the prices but slow Chinese

growth concerns can cap the upside. Overall it can

move in range of 123-136 in the month of July 2014.

Strong demand for zinc coupled with the imminent

closure of several large mines is tipping the market

towards deficit and enticing producers to restart

mothballed operations.

Increase in China Zinc demand

Chinese zinc demand is seen growing by 8 percent

this year, the fastest since 2010, driven by auto sales.

It is expected to push the market into a deficit for the

first time in several years.

Zinc Hits 16-month high in June as

Inventories Fall

Zinc metal prices spurred sharply in June 2014 after

ILZSG data indicated that the zinc deficit is growing.

It stated that from January to March of this year, the

global zinc market recorded a deficit of 17000 tonne,

however, from January to April, the deficit came to

107000 tonne, a fairly steep increase. The

International Lead Zinc Study Group reported that

the zinc market technically went into deficit at the

end of 2013.

Zinc – a base metal that's been priced low for many

years – might be positioned for a sharp price rise,

thanks to a combination of rapidly rising vehicle

sales in emerging economies – along with

resurgence in automobile sales in the developed

world.

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Additionally, many large zinc mines from around the

world are closing, due to high costs and mineral

exhaustion. Some major mine closures include-The

major Brunswick and Perseverance Mines in Canada

last year, which are owned by Glencore PLC; the

Lisheen Mine in Ireland, owned by Vedanta Resources

PLC; and the Century Mine in Australia, owned by

China Minmetals, will cease production next year. All

of this is adding up to a massive zinc supply shortage.

Zinc production

Global zinc mine production was a marginal 0.4%

higher during first four months of 2014 as compared

the same period in 2013 with decreases in Canada,

Ireland and Peru almost balancing increases in China,

Mexico and the United States. A rise in world output of

refined zinc metal of 4.1% was primarily a consequence

of higher production in Belgium, China and India.

Increases in apparent demand of 12.4% in China and

23.8% in the Republic of Korea were the main drivers

behind an increase in the global usage of refined zinc

metal of 7.5%. Demand in Europe declined by 0.9%

and in the United States, rose by 2.8%. Chinese net

imports of refined zinc metal increased by 38.8% to

261kt.

ILSG Zinc forecast

International Lead and Zinc Study Group forecasted

anticipated that world usage of refined zinc metal will

increase by a further 4.5% to 13.58 million tonnes in

2014 after having risen by 4.9% in 2013.

Usage in China, which currently accounts for 44% of

total world zinc demand, is forecast to rise by 5.8%. In

Europe and the United States, increases of 3% and

1.7% respectively are anticipated. Elsewhere further

growth is forecast in India, the Republic of Korea and

Turkey, however, demand in Japan is expected to

remain at a similar level to that in 2013.

July 2014

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July 2014

On supply side- Global zinc mine production is

predicted to rise by 2.6% to 13.57 million tonnes in

2014. This is mainly a consequence of further

growth in Chinese output and increases in Australia

driven primarily by increases in production at

Glencore Xstrata's Mount Isa and McArthur River

operations and Perilya's Broken Hill mine. In Latin

America, expected increases in Mexico and Peru will

be partially offset by a reduction in Bolivia.

Similarly, in Europe, rises in Portugal and Sweden

will be largely balanced by a decrease in Ireland.

Chinese production of refined zinc metal is expected

to rise by 7.3% in 2014 after having remained

relatively stable for the past four years and this is the

main factor behind an anticipated overall increase in

global production of 4.4% to 13.46 million tonnes.

Production in the United States will be boosted by

the opening of Horsehead Holding's new solvent

extraction plant in North Carolina and is forecast to

increase by 10.4%. Rises in Belgium, Italy and

Norway are the principal drivers behind an expected

increase in European output of 3.6%.

Higher production is also anticipated in India, the

Republic of Korea, Mexico and Namibia, where

operations at Vedanta's Skorpion refinery were

adversely affected by an unscheduled maintenance

shutdown at the end of 2013.

World Refined Zinc Metal Balance- Overall, the

detailed information recently collected from the

Group's member countries indicates that, as in

2013, global demand for refined zinc metal will

exceed supply in 2014. It is anticipated that the size

of the deficit will be 117,000 tonnes.

Mine closures on the cards

Zinc mines, with an estimated 1.3MT of production,

are expected to get depleted over the next two-to-

three years, leading to a tight supply situation in the

refined zinc market

Mining companies are shutting down key zinc-

output facilities in Canada and Australia, because

reserves in those mines have largely been depleted.

Glencore Xstrata PLC's Brunswick and Perseverance

mines in eastern Canada, which had combined

capacity of 400,000 tons of zinc, closed in 2013. And

output from MMG Ltd. Century mine in Australia's

Queensland State is slowing as the world's third-

biggest open-pit zinc mine is slated for closure by 2016.

New mining projects for zinc aren't as large as those

that recently closed. Glencore officials have said they

expect its new Perkoa mine in Burkina Faso to produce

90,000 tons of zinc next year. Output at Hudbay

Minerals' Lalor Lake mine in Manitoba province,

Canada, is forecast at 40,000 tons in 2014.

Indian industry expansion plans dominate global

leadership position

Indian industry next phase expansion plans at a time of

closure of world biggest mines within 2-3 years

coupled with low cost positioning reinforcing them to

dominate the global leadership position going

forward.

Mining companies are shutting down key zinc-output

facilities in Canada and Australia, because reserves in

those mines have largely been depleted. Glencore

Xstrata and Perseverance mines in eastern Canada,

which produced a combined 335,000 tons of zinc in

2011, closed earlier this year. And output from MMG

Ltd. Century mine in Australia's Queensland State is

slowing as the world's third-biggest open-pit zinc mine

is slated for closure by 2016.

The Hindustan Zinc (HZL) has planned to increase the

Zawar mine capacity (zinc and lead) from the current

1.5 million tonne to about 5 million tonne in the

coming years and double the mined metal production

from Kayad mine from current 12 kt of mined metal on

ore production in FY2015E. Ore production from

Rajpura Dariba mine will be progressively increased to

1.2 mtpa. The increase in mined metal production will

boosts up higher volumes and also help in bringing

down the mining cost.

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July 2014

Range

Lead

MCX: Rs124-135 per kg

LME: $2060-2230 per tonne

Zinc

MCX: Rs 123-136 per kg

LME: $2100-2300 per tonne

Lead and Zinc spread

Source: Reuters

Analysis

Lead and Zinc spread dipped in June from nearly-1 to below -4 .This spread can move in range of -5 to 0 in July 2014.

In July 2014, Zinc and Lead prices will depend u p o n a u t o m o b i l e , c o n s t r u c t i o n a n d infrastructure demand. Moreover situation of cancelled warrants along with stock position will impact the prices.

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Source Kitco metals

July 2014

Source Kitco metals

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ALUMINUM Indonesian miners delay alumina refinery

plans on legal uncertaintyWhite metal Aluminum ended the month of June on

Bauxite producers are delaying plans to build positive path as rising premium and low bauxite

alumina refineries in Indonesia due to legal stockpiles supported the prices higher. Overall it

uncertainty over a mineral ore export ban imposed moved in range of 107.15-113.35. Dwindling

five months ago. Indonesia's Constitutional Court bauxite stockpiles in China could support the

has yet to decide on a legal challenge against a Jan. aluminium prices in near term.

12 export ban on bauxite, nickel and other mineral Aluminum prices can hover in range of 107-116 in

ores imposed by the government to force miners to the month of July 2014. According to Alcoa” Global

build refineries and processing plants. Before the demand for primary aluminium is set to rise 7

ban, Indonesian bauxite exports accounted for percent in 2014 on the back of solid growth in China

about 12 percent of global aluminium production, “Aluminum metal showed a decline in the inventory

with China taking the bulk of shipments for at LME and the cancelled warrant ratio improved

processing into alumina, an intermediate stage in suggesting the metal may remain higher.

the production of aluminium. As many as five

alumina refinery projects are underway in

Drop in Aluminum stocks—Rusal Plc Indonesia but the legal uncertainty means firms

have slowed their construction plans for the United Company Rusal Plc, one of the world's refineries, which can cost as much as $1 billion each.biggest aluminium producers stated that LME

aluminium stocks have dropped to the lowest levels

in 13 months. LME stocks have declined 5.5 percent China to phase out high-cost, outdated

so far this year, but are still at 5.15 million tonnes. aluminium capacity in 2-3 yrs

Rusal has previously forecast that the market is China will phase out its high cost and outdated

expected to have a market deficit of about 1.2 primary aluminium capacity within two to three

million tonnes this year and a further deficit of years, bringing total capacity to around 40 million

985,000 tonnes in 2015 due to strong demand and tonnes.

capacity cutbacks by producers. Rusal also sees the

declining LME cash-three month spread as

indicating tighter conditions that are supporting the Aluminium producers seek record

market. The contango - when nearby prices are premium of $405-410 from Japan buyers

weaker than forward ones has declined to $24 a Top aluminium producers have pushed up the

tonne from $45.50 a month ago.premiums proposed on primary metal for July-

September shipments to Japan to a record as

smelter shutdowns and financing deals have Qingdao port sealed Dagang bonded storage

squeezed supplies.area

Qingdao Port has sealed its Dagang bonded metal

storage area and suspended delivery of metals from Aluminium premiums poised for record

the section, as authorities investigate an alleged highs

fraud into financing of aluminium and alumina.European aluminium consumers are expected to

pay record amounts to get hold of physical metal in

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July 2014

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July 2014

the second half of 2014, as an improved economic record highs in February as smelter shutdowns and

backdrop triggers extra demand. Persistent financing deals that lock vast amounts of metal

appetite for financing deals and logjams in releasing away from the market choked supplies in the spot

aluminium from storage are also seen supporting market.

the outlook for premiums, as the LME battles to In July 2014 aluminum prices are expected push-through reforms aimed at freeing-up metal to trade on sideways with upside bias as stuck in queues at its warehouses. Aluminium demand from auto and construction sector premiums in Europe are already trading at around along with shortage of bauxite to give record high levels of $350-380 a tonne for duty- support to the prices.paid material. The premium, paid over the London

Metal Exchange (LME) cash price, covers the cost of

freight and insurance, and reflects regional demand

and supply. Aluminium premiums first shot to

Range

Aluminum

MCX: Rs 107-116 per kg

LME: $1850-1960 per tonne

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Some Key US Economic indicator charts

US Homes sales

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July 2014

Source: Reuters

Source: Reuters

US Personal consumption

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July 2014

Source: Reuters

US First quarter GDP

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E-mail sandeepjoon@smcindiaonline.com

Supportive team

Pramod Chhimwal Graphic Designer

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July 2014