Aggressive measures by China spur buying in metals

Aggressive measures by China spur buying in metals Angel Commodities Broking Pvt. Ltd. Kaynat Chainwala Research Analyst kaynat.chainwala@angelbroking.com (022) 2921 2000 Extn :6136 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 CX 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

LME Zinc LME Nickel LME Alu LME Lead LME Copper LME Nickel LME Lead LME Zinc LME Aluminium LME Copper Price Performance 10% 8% 6% 4% 2% 0% -2% 9.09% Base Metals performance in Feb 2016 (%) -0.93% 3.96% Source: Reuters, Angel Commodity Research 2.59% 2.87% LME base metals apart from Nickel traded higher in Feb 16 as the major consumer China took aggressive measures to support the economy. Chinese banks armed with fresh lending quotas extended a record 2.51 trillion Yuan of new loans in January suggests that Beijing is keeping monetary policy loose to counter a protracted economic slowdown, supported the pack. Further, Chairman of the China Securities Regulatory Commission Xiao Gang was replaced by central bank veteran Liu Shiyu on Saturday, adding to signs that the government was stepping up its economic stimulus efforts. Also, China announced that it will reduce deed and business taxes for home buyers in many of the country s cities, in a bid to reduce the glut on the property market. Further, China cut taxes on property purchases and restricted sales of land for new developments in areas with an oversupply of unsold property, in a series of moves designed to boost its flagging real estate market. Also, China's foreign reserves fell for a third straight month in January, as the central bank dumped dollars to defend the Yuan and prevent an increase in capital outflows. However, thin volumes due to Lunar New Year holiday in China will cushion sharp fall. 15.00% 10.00% 5.00% 0.00% -5.00% -10.00% -15.00% -20.00% LME Inventory performance in Feb'16-1.51% 12.41% 0.65% Source:Reuters, Angel Commodity Research -1.44% -19.18% On the inventory front, Copper declined the most by 19.18 percent whereas Lead stocks gained the most by 12.4 percent in February. On the MCX, base metals traded higher in February in line with international trends. Another positive factor was minutes of the Fed's January meeting which showed that the FOMC saw more downside risks for the US economy. Even recent statement by Yellen in her testimony indicates Fed is still thinking about raising its benchmark interest rate again as soon as March. However, China s industry ministry said during a separate press conference in Beijing that China s exports and currency remain under pressure, adding the ministry would invest 100 billion Yuan ($15 billion) over two years to relocate workers during China s industrial restructuring.

Performer of the month - Zinc Copper Zinc mainly used for galvanizing steel, gained the most in February 2016 as demand prospects remained bright with Chinese trade data showing refined imports of zinc soared by 150 per cent in January. Zinc imports surged by 440 percent in December after shipments nearly quadrupled in November and almost tripled in October. Treatment charges (TCs) or fees paid by miners to smelters to process raw material into metal has tumbled to around $125 a tonne from $220 a few months ago. The closure of major zinc mines such as Century in Australia and Lisheen in Ireland has reduced supply, which has resulted in lower treatment fees charged by smelters. Additionally, Closures or output announced in recent months by major miners such as Glencore and smaller players such as Australia's CBH Resources and Horsehead in the United States have stoked the shortage. Zinc smelter treatment charges have been falling, showing that concentrate is not as readily available as last year but imports show a positive trend as steel mills gear up for the post-chinese New Year production of galvanized steel products. In line with this, Mitsui Mining & Smelting Co, forecasts the zinc market will have a deficit of 440,000 metric tons this year, the most in more than a decade. Global automotive market is a large component of demand for zinc and numbers show the industry remains robust. Chinese car sales were up 9 percent year-on-year in January after rising 13.4 percent in the fourth quarter of 2015 from the corresponding period of last year. Zinc is used to galvanise steel with about 14m tonnes of the metal consumed worldwide every year. Demand relies on steel output, which globally fell 7.1 percent in January from a year ago, the largest drop since July 2009, according to the World Steel Association. In Feb 16, LME Copper prices gained 2.9 percent owing to weakness in the DX after comments from the U.S. Federal Reserve's chairwoman, Janet Yellen, that tighter credit markets, volatile financial markets and uncertainty over Chinese economic growth have raised risks for the U.S. economy. in addition, news from the London Metal Exchange, where copper stocks in the LME s warehouses dipped below the 200,000 ton mark for the first time in over a year indicates solid demand for the metal. China s January s copper imports were 437,000 tonnes, up 5.3 percent on the same month a year ago, but down 17 percent from December. However, sharp gains were capped as latest ICSG data showed refined copper balance for the first 11 months of 2015 indicates a production surplus of around 50,000 mt compared with a production deficit of around 545,000 mt for the same period of 2014. Peru s central bank said the country s copper output will increase 19 per cent in 2016 to 1.9 million tons as Melbourne-based MMG ramps up to full production in the second quarter at Las Bambas. The company said it expects to produce 275,000 to 330,000 tons from the mine this year. The nation is likely to surpass China as the world's second-largest copper producer after the South American country's biggest new mine, Las Bambas, began shipments last month. Further, Swiss-based mining and trading company Glencore reported that fourth-quarter copper output fell 5.7% to 374,700 tonnes after it shut down mines to counter sliding prices of the metal. Output for the whole year fell 3 percent to 1.5 million tons. The company announced plans last September to suspend 400,000 tonnes of copper output at its Katanga Mining unit in Democratic Republic of Congo and at Mopani Copper Mines in Zambia over an 18-month period. The copper cuts have taken about 300,000 metric tons of annualized production out of the market.

12/2/2014 1/6/2015 2/10/2015 3/17/2015 4/21/2015 5/26/2015 6/30/2015 8/4/2015 9/8/2015 10/13/2015 11/17/2015 12/22/2015 1/26/2016 3/1/2016 Despite falling prices, Sumitomo Metal plans to lift its ore production interest at the copper mines in its portfolio to 300,000 tons in 2021 from 2015's 170,000 tons. The Japanese company is boosting its interest in an Arizona copper mine in a bet that global demand will bounce back. It will acquire another 13% of the Morenci copper mine from U.S. partner Freeport-McMoRan. The Morenci mine produces 480,000 tons per year, putting it among the top three in the world. 50000 40000 30000 20000 10000 0-10000 -20000-30000 -40000-50000 All in all, expectations of delay in the US rate hike along with decline in LME stocks buoyed prices. Aluminum Investor sentiment improves further in Feb'16 Source:Reuters, Angel Managed Net Copper LME Aluminium prices continued their positive momentum in Feb 16 and gained around 4 percent as Russian aluminium producer Rusal said it said it expects a 1.2m tonnes market deficit in 2016 compared to a slight surplus last year. The giant is considering further production cuts and said it won t restart idled smelters as prices of the light metal was struggling near lowest levels since 2009 in the earlier part of last month. Also, it added that China is likely to add an extra 3m tonnes of new capacity in 2016 and close around 1.5m tonnes. Also, rise in Japanese premiums indicated optimism regarding demand. Some big aluminium producers are seeking a premium of $125-$130 per tonne from Japanese buyers for April-June primary metal shipments, up 14 percent to 18 percent from the previous quarter. For the January-March quarter, Japanese buyers agreed to pay a premium of $110 per tonne, up 22 percent from the prior quarter. they are also seeking an increase in surcharges of 14-18 percent for physical delivery to Japanese buyers for April-June primary metal shipments. Stock situation is also favorable as Aluminium stocks at three major Japanese ports stood at 368,100 tonnes at the end of January, down 6.5 percent from a month earlier. However, sharp gains were restricted as Norsk Hydro, one of the world's largest aluminium producers, cut its 2016 forecast for aluminium global demand, including China, to 3-4 percent from 4-5 percent previously. Further, China Nonferrous Metals Industry Association in late 2015 estimated total aluminium production costs in China at an average around 12,000 Yuan ($1,841) per tonne whereas prices on the Shanghai Futures Exchange is around 11,000 Yuan. Another setback was Indonesia s energy minister said that the country may relax its ban on unprocessed minerals, including bauxite, as it reviews the country s mining policies. However, bullish trend in the metal continued thanks to expectation of deficit and decline in LME stocks. Additionally, Noranda Aluminum Inc. filed for chapter 11 bankruptcy protection, with plans to sell a business segment that is one of the largest aluminum foil producers in North America. Further, data from the International Aluminium Institute (IAI) showed China's daily average primary aluminium output fell to 80,000 tonnes in January.

Outlook For Mar 16, we expect base metal prices to trade higher as expectations of more stimulus and structural reforms from China and Euro Zone will be supportive. Also, increased likelihood of consensus between OPEC producers and Russia in the upcoming meeting over freezing output will buoy the risk sentiment. Copper prices will likely trade sideways as Peru s Energy and Mines Ministry (MEM) reported domestic copper production expanded by 40.61% in January 2016, compared to the same month in 2015. Peru managed to improve its position in world copper production in 2015 and is likely to overtake Asian nation this year thanks to the full operation of Las Bambas and Cerro Verde projects. While on the other hand, rising bets of delay in US rate hike and expectations of furthermore stimulus measures from China and Euro Zone will be supportive. We expect Aluminium prices to trade higher in Mar 16 as recent steps by China to buoy its flagging economy by way of RRR cuts will be supportive and recent weak data only paved way for further stimulus from the biggest consumer. Along with this, spurt in crude oil prices in anticipation of output freeze in the upcoming meeting between OPEC members and Russia will act as a positive factor for the light metal as energy accounts for about 30 per cent of output costs. Technical Levels (15 Days) Commodity Support 1 Support 2 CMP Resistance 1 Resistance 2 LME Copper ($/tonne) 4462 4231 4915 4852 5026 MCX Copper (Rs./kg) 309 293 335 336 348 LME Aluminium ($/tonne) 1496 1424 1568 1613 1671 MCX Aluminium (Rs./kg) 103 98 106 111 115 LME Nickel ($/tonne) 7860 7133 8814 9025 9534 MCX Nickel (Rs./kg) 540 490 595 620 655 LME Lead ($/tonne) 1677 1575 1848 1838 1940 MCX Lead (Rs./kg) 115 108 125 126 133 LME Zinc ($/tonne) 1625 1510 1804 1844 1932 MCX Zinc (Rs./kg) 111 103.2 121 126 132