Base Metals Update

Friday | December 14, 2012

Content
Performance Outlook

Nalini Rao Sr. Research Analyst Nalini.rao@angelbroking.com (022) 2921 2000 Extn. 6135 D. Vijiya Rao - Research Analyst Vijiya.d@angelbroking.com (022) 2921 2000 Extn. 6134 Anish Vyas - Research Associate anish.vyas@angelbroking.com (022) 2921 2000 Extn. 6104

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 commodities@angelbroking.com

Page

www.angelcommodities.com

Base Metals Update

Friday | December 14, 2012

Base metals on revival track on the back of strong macro economic indicators Base metals after staying in the negative region in the month of October has moved to positive territory taking strength from the supportive monetary policies from the key consuming nations and favorable economic indicators from the regions. Non ferrous metals copper, aluminum, lead and zinc has demonstrated an uptrend on the announcement of quantitative easing by the US Federal Reserve in the month of September but this uptrend quickly lost sheen in the month of October. However, the base metals pack has displayed revival in the recent trades there by recording gains in the month of November.

Copper The prices of copper on LME after remaining weak in the month of October, gained momentum and settled on a positive note in November, thereby posting gains of around 2 percent. Improvement in the manufacturing sector growth measured by HSBC Purchasing Managers Index posted an increase at 49.5 levels in October as compared to 47.9 in September. The manufacturing activity in the US also expanded with the Institute for Supply Managements (ISM) factory index rising a five month high of 51.7 levels in October as against 51.5 in
Reuters, Angel Research

September. The red metal rose on the optimism that the global economy is recovering from the slowdown. Further, positive signs of progress from the Euro zone to curtail the debt crisis also pushed prices upwards. European Finance Ministers along with International Monetary Fund agreed on providing aid to Greece thereby creating positive market sentiments. The aid package also got approval from the German lower house which raised hopes that the demand would again revive. The other factor attributable for the rise in the prices is the deficit faced by the world market during January to August Page

ii

2012. According to the latest report by the International Copper Study Group (ICSG), the world copper market was at a deficit of 5.22 lakh tonnes as compared to a deficit of 77,000 tonnes in the

www.angelcommodities.com

Base Metals Update

Friday | December 14, 2012

corresponding period last year. However, rise in the LME inventories have capped sharp gains in the copper prices. Prices of Copper are currently trading around $8,076 per tonne levels. According to Economist Intelligence Unit (EIU), the global copper demand is expected to grow by 3.7 percent in 2013 and by 4.3 percent in 2014. These growth projections are derived by the improvement in the global growth along with acceleration of the Chinese economy on account of the announcement of the infrastructure projects worth US$157 billion. In the domestic markets, prices of copper on MCX gained 3 percent tracing the global trend in the prices and are currently hovering at around Rs.445.30 per kg owing to depreciation in the Indian rupee.

Outlook In the short term, copper prices are expected to gain strength on hopes of reviving demand from the major consuming nations particularly the US and China. Favorable economic indicators from the key nations is displaying that the economies are on the recovery path which may lend support to the prices. Apart from the above factors, world copper market is also witnessing a deficit. This is expected to support an upside in the copper prices. According to National Energy Administration of China, the power consumption of the nation rose 7.6 percent in the month of November as compared to the previous year to 413.9 billion kilowatt-hours. This was the fastest pace since February 2012 as the economy showed revival in the macroeconomic conditions which would translate into higher demand for the industrial metal. The demand for the red metal is also expected to pick up as the infrastructure projects in the country realize. The announcement of the Euro zone finance ministers to release more aid to Greece to the tune of 49.1 billion would support an upside in the metal prices. The metal is expected to gain on the back of fresh monetary easing measures by the US in its FOMC meet. The central bank has cut the economic growth forecast and inflation rate for the next year. It has also expanded its asset purchases of further $45 billion in treasuries apart from $ 40 billion per month in mortgage-backed bonds. But the dark clouds of the sovereign debt crisis continue to hang over the economic recovery of the Euro

iii
Page

zone nations and would have a bearing on the demand for the metal although Greece has been given some relief but other nations are still reeling under the crisis. Further, the persistent US fiscal cliff issue

www.angelcommodities.com

Base Metals Update

Friday | December 14, 2012

with no resolution seen yet may restrict gains in the copper prices. Also, the swelling of the copper inventories on LME in the next year would impact the copper prices. Additionally, strength in the DX is likely to exert downside pressure on the copper prices. Aluminum LME Aluminum prices erased losses of previous month and displayed gains of around 7 percent in the month of November and settled above the $2,000 per tonne mark at the end of the month. The metal gained momentum on the optimism that demand for the metal may witness a rise on the revival of growth in the key consuming nations. According to World Bureau of Metal Statistics (WBMS), consumption in US is estimated to rise by 10.8 percent in the year 2012. In the first seven months of the year, the consumption demand in the US is expected to rise 16.6 percent.
Reuters, Angel Research

The US auto sales growth rose to 15 percent touching a five year high in the month of November and stood at 1.14 million vehicles which offered support to the aluminum prices. The countrys ISM factory index also rose in October thus further boosting the metal demand. Additionally, the announcement by the European Finance Ministers along with the International Monetary Fund approving aid to Greece also added to the gains in the aluminum prices. Expectation of growth in demand from the automotive sector in the US and Japan along with infrastructure development in China has resulted in surge in prices. The domestic market demand is also expected to improve. According to WBMS, during January to July 2012, Aluminum consumption in India rose 11.6 percent but for the whole year consumption might be lower around 7 percent levels on account of slow growth in the nation along with slack automotive sales and industrial growth. But, the industrial production for the month of November rose 8.2 percent in October 2012 as compared a decline in September. Page

iv

www.angelcommodities.com

Base Metals Update

Friday | December 14, 2012

However, Aluminum stockpiles in China have risen to a two year high as supply outpaced the demand. New capacities in the western region of China have resulted in rise in the supply adding to the glut scenario which has weighed on the prices. According to Economist Intelligence Unit (EIU), primary aluminum output is estimated to increase to 48,228 thousand tonnes in 2013 a rise of 4.2 percent as compared to expectation of 46,278 thousand tonnes in 2012. Rise in the LME stocks weighed on the market. The LME stocks of aluminum rose by around 2 percent and stood at 50.72 lakh tonnes in the month of October. Over supply in the major producing companies, with prices falling below the $2,000 mark have caused the earnings to decline prompting them to reduce the output. In the domestic market, MCX aluminum prices took cues from strength in the international prices and gained more than LME aluminum prices and settled 8.86 percent higher month on month and are currently trading around Rs.114.70 per kg. Depreciation in the Indian rupee pushed prices upwards. Apart from this, domestic market also faces supply concerns of bauxite, the source of a raw material for the aluminum along with power supply constraints which have caused prices to remain in the uptrend.

Outlook Aluminum prices are expected to trade upwards attributed by the improved demand driven by the increase in consumption of light weight fuel efficient cars and aircrafts. Optimism that the demand might improve from China, the largest user of the metal due to infrastructure developments is likely to support an upside in the aluminum prices. However, sufficient stocks of the metal on LME are expected to restrict gains in the prices of aluminum. In the domestic markets, with supply side constraints and firmness in the international prices, the prices on MCX are expected to trade upwards.

Nickel LME nickel prices gained around 7 percent in the month of November 2012. Prices in the previous month showed a decline of 14 percent. The prices in the domestic market also gained tracking the international prices thus rising around 5 percent in the month of November and are currently trading

v
Page

around Rs. 968.10 per kg . The metal seems to be rebounding on the signs of revival of worlds largest

www.angelcommodities.com

Base Metals Update

Friday | December 14, 2012

economy, the US and the largest consumer of industrial metals, China. With manufacturing in China expanding, the demand for the metal also displayed signs of growth. According to the National Bureau of Statistics of China, the nations industrial production rose 9.6 percent in October from 9.2 percent in September. This lent support to the prices to move upwards. According to International Nickel Study Group (INSG), the primary nickel consumption stood at 1,220,000 tonnes in January through August 2012 whereas
Reuters, Angel Research

the production was 1,279,800 tonnes. Nickel global market stands in a surplus of 58,000 tonnes during January to September 2012. Rising demand for the austenitic (nickel-containing) stainless steel in 2011, witnessed capacity additions. The demand for nickel rose in 2012 but was limited due to falling demand from the European Union. The growth of nickel demand will depend on the faster recovery of China, the largest user of industrial metal. According to Economist Intelligence Unit (EIU), global consumption of refined nickel stood at 1,670,000 tonnes in 2011 a rise of around 17 percent year on year. For 2012, refined nickel consumption is expected to increase by 4.8 percent. EIU expects, the global output to rise around 16 percent reaching 1,666,000 tonnes in 2011.

Outlook Nickel prices are expected to gain in the coming month supported by the positive macro economic indicators from the key consuming nations such as the US and China. Positive news from the Euro zone with Greece being granted an aid would add strength to the nickel prices. However, the persistent worries over the US fiscal cliff would continue to weigh on the nickel prices. Additionally, surplus of the metal in the global market is also expected to exert downside pressure on the nickel prices.

Page

vi

www.angelcommodities.com

Base Metals Update

Friday | December 14, 2012

Zinc Zinc prices on LME gained around 8 percent in the month of November after demonstrating a decline of around 11 percent in the previous month. The domestic markets also traced the strength in the international markets and gained around 9 percent in the month of November and are hovering around Rs. 112.25 per kg. The factors that attributed
Reuters, Angel Research

for this rise were the expansion in the Chinese HSBC Flash Manufacturing Purchasing Managers Index and improvement with Markit Flash Manufacturing Purchasing Managers Index of the US. The US prelim GDP grew at 2.7 percent in the third quarter as compared to 2.0 percent in the second quarter. The Economist Intelligence Unit (EIU) in its latest quarterly outlook has revised down the global consumption growth to 1.7 percent in 2012 from the earlier forecast of 2 percent. Global refined consumption of zinc fell 0.8 percent in the first eight months of 2012. Chinese consumption is expected to rise around 3 percent would help in reinforcing demand for the metal. According to the International Lead and Zinc Study Group (ILZSG), the global zinc market is in surplus by 128,000 tonnes in the first eight months of the year.

Outlook Zinc prices are expected to gain in the coming month on the expectations of growth revival of the Chinese economy due to realization of the infrastructure projects. The metal price might take support from stimulus measures by the US and the favorable decision coming on the Euro zone. However, worries amongst market participants over the fiscal cliff US along with persistent debt worries of the Euro region might cap sharp gains in the zinc prices.

Page

vii

www.angelcommodities.com

Base Metals Update

Friday | December 14, 2012

Lead Lead prices on LME gained around 5 percent in the month of November after witnessing a decline in the previous month. MCX lead displayed a larger gain than the international market, surging around 10 percent in the month. The prices are currently trading around Rs.124.25 per kg. According to Economist Intelligence Unit (EIU), the global lead consumption rose by 6.3 percent in 2011 due to growing demand for the industrial batteries and consumer restocking. The lead usage is
Reuters, Angel Research

expected to grow at a slower pace and the consumption growth for the months of January through August was modest around 3 percent, according to International Lead and Zinc Study Group (ILZSG). The Chinese automotive market got off to a slower start thus translating into softer demand for the batteries in the largest automotive market. The US car market rebounded strongly with sales averaging around 14.3m units from January through September as against 12.63m units in 2011 but the lead consumption remained subdued in the wake of consumer destocking. According to EIU, the world demand is estimated to grow at 3.4 percent in 2012 and for 2013-2014 it forecasts a growth of around 4 to 5 percent each year. The emerging markets are expected to remain the growth drivers for the global lead market through the surge in the demand for the vehicle batteries. Recent downgrades by the International Monetary Fund (IMF) of the emerging economies may act as a dampener to the growth of lead market. The International Monetary Fund (IMF) in its latest report of October 2012 has revised its growth forecast for the advanced economies to 1.5 percent from 2.0 percent in 2013. The emerging economies are expected to grow 5.6 percent down from 6.0 percent. The global economy is projected to grow at 3.3 percent and 3.6 percent in 2012 and 2013 respectively.

Page

viii

www.angelcommodities.com

Base Metals Update

Friday | December 14, 2012

Outlook Lead prices are expected to trade with an upward bias on the back of favorable data from the major consuming nations particularly US and China. Positive economic data is indicating that the major consuming nations are on the path of recovery. Further, stimulus package announced by the US Federal Reserve along with infrastructure investment by the Chinese government may also push prices upwards. Infrastructure investments would cause demand for the metal to increase. Optimism that the new elected government in Japan might also announce stimulus measures to boost the economy may lend support to the lead prices. Decline in the LME inventories are also expected to be supportive for the lead prices in the coming month. In the domestic market improved demand from the auto sector might keep the prices firm. However, fluctuation in the rupee is likely to determine the prices broadly on the MCX.

Page

ix

www.angelcommodities.com