Base Metals Monthly Report www.angelcommodities.com Monday, 07 November 2016 Base Metals Monthly Report Executive Summary In Oct’16, base metals on the LME traded mostly lower as China's government said it would strictly control the expansion of its non-ferrous metals industry, encourage consolidation and boost proven ore reserves as part of its five-year development plan for the industry, in a major blow to the metals demand outlook. Latest update of five-year plan dents metals demand Alongside, China’s Ministry of Industry and Information Technology (MIIT) said in the latest update of its five-year industry plan that the country’s apparent consumption of major base metals is set to slow over 2016-2020. Also, China's trade balance showed a surplus of $41.99 billion in September ’16, far narrower than the expected $53.00 billion. This could be mainly attributed to dent in China’s exports which unexpectedly fell to seven-month low, on the back of softer overseas demand and slowing internal growth. Besides, government data showed China’s foreign exchange reserves dropped around US$19 billion in September to a five-year low, with the central bank spending heavily to defend the Yuan against capital outflows. 0.90 -1.28 2.66 -2.91 -0.66 1.27 -0.96 3.93 -1.85 -1.10 LME Zinc LME Nickel LME Alu LME Lead LME Copper Base Metals performance in Oct'16 (%) LME MCX Source: Reuters, Angel Commodity Research Anticipation of US rate hike, loose monetary policy in the EU for longer boosts DX Another jolt came from latest FOMC meeting minutes wherein several policymakers felt a rate rise was warranted "relatively soon" if the US economy continued to strengthen. Also, Yellen suggested Fed may need to run a "high-pressure economy" to reverse damage from the 2008-2009 crisis. Dollar gained further momentum after the European Central Bank (ECB) kept its asset-purchase program at 80 billion Euros but signaled the program is likely to run past the currently scheduled end-date of March 2017. In his press conference, ECB president Mario Draghi said the bank hasn’t discussed tapering and didn’t provide a timeline for any potential changes. Stock scenario In October, Copper stocks at the LME declined the most by 14.1 percent whereas Zinc inventories gained the most by around 3 percent. Trend in the Shanghai stock exchange was somewhat different with only Copper stocks losing 9 percent whereas Aluminium, Zinc and lead inventories surged by 15, 6 and 19 percent respectively. Domestic markets MCX base metals trended lower in line with international markets. 0.28% -0.81% 2.75% -0.66% -14.07% -16% -12% -8% -4% 0% 4% LME Nickel LME Lead LME Zinc LME Aluminium LME Copper LME Inventory performance Source:Reuters, Angel Commodity Research China’s updated five year plan and upcoming US Presidential elections hurt metals in Oct’16
Transcript
Base Metals Monthly Report
Monday, November 07, 2016
www.angelcommodities.com
Monday, 07 November 2016
Base Metals Monthly Report
Executive Summary
In Oct’16, base metals on the LME traded mostly lower as
China's government said it would strictly control the
expansion of its non-ferrous metals industry, encourage
consolidation and boost proven ore reserves as part of its
five-year development plan for the industry, in a major
blow to the metals demand outlook.
Latest update of five-year plan dents metals demand
Alongside, China’s Ministry of Industry and Information
Technology (MIIT) said in the latest update of its five-year
industry plan that the country’s apparent consumption of
major base metals is set to slow over 2016-2020.
Also, China's trade balance showed a surplus of $41.99
billion in September ’16, far narrower than the expected
$53.00 billion. This could be mainly attributed to dent in
China’s exports which unexpectedly fell to seven-month
low, on the back of softer overseas demand and slowing
internal growth.
Besides, government data showed China’s foreign
exchange reserves dropped around US$19 billion in
September to a five-year low, with the central bank
spending heavily to defend the Yuan against capital
outflows.
0.90
-1.28
2.66
-2.91
-0.66
1.27
-0.96
3.93
-1.85 -1.10
LME
Zin
c
LME
Nic
kel
LME
Alu
LME
Lead
LME
Co
pp
er
Base Metals performance in Oct'16 (%)
LME MCX
Source: Reuters, Angel Commodity Research
Anticipation of US rate hike, loose monetary policy in the
EU for longer boosts DX
Another jolt came from latest FOMC meeting minutes
wherein several policymakers felt a rate rise was
warranted "relatively soon" if the US economy continued
to strengthen. Also, Yellen suggested Fed may need to run
a "high-pressure economy" to reverse damage from the
2008-2009 crisis.
Dollar gained further momentum after the European
Central Bank (ECB) kept its asset-purchase program at 80
billion Euros but signaled the program is likely to run past
the currently scheduled end-date of March 2017. In his
press conference, ECB president Mario Draghi said the
bank hasn’t discussed tapering and didn’t provide a
timeline for any potential changes.
Stock scenario
In October, Copper stocks at the LME declined the most
by 14.1 percent whereas Zinc inventories gained the most
by around 3 percent.
Trend in the Shanghai stock exchange was somewhat
different with only Copper stocks losing 9 percent
whereas Aluminium, Zinc and lead inventories surged by
15, 6 and 19 percent respectively.
Domestic markets
MCX base metals trended lower in line with international
markets.
0.28%
-0.81%
2.75%
-0.66%
-14.07% -16%
-12%
-8%
-4%
0%
4%
LME
Nic
kel
LME
Lead
LME
Zin
c
LME
Alu
min
ium
LME
Co
pp
er
LME Inventory performance
Source:Reuters, Angel Commodity Research
China’s updated five year plan and upcoming US Presidential elections hurt metals in Oct’16
Base Metals Monthly Report
Monday, November 07, 2016
www.angelcommodities.com
Monday, 07 November 2016
Base Metals Monthly Report
Also, customs data showed China's Copper imports
dropped by 26 percent from a year ago and 2.9 percent
from month ago. The mainland nation imported 340,000
metric tons of unwrought copper and copper products, a
yearly fall of more than 25%. Imports also fell on a
monthly basis for the sixth consecutive month in
September and were at their lowest since February 2015.
Despite falling demand, China's refined metal production
continued to surge and rose 7.2 percent in September
from a year ago. Overall output is up by 8.4 per cent this
year at 6.223 million tonnes.
However, sharp decline of 14 percent in LME stocks over
the month held the metals from falling sharply. Stock
withdrawals at the Gwangyang, Busan (South Korea),
Klang (Malaysia) and Singapore accounted for more than
60 percent of the total draw downs at LME warehouses.
On the contrary, 15 percent stocks addition was seen at
the Shanghai warehouses.
All in all, Copper was hurt from new restrictions in the
Chinese property market, but was cushioned from falling
LME stocks in October. Indecisive
-60000
-40000
-20000
0
20000
40000
60000
11
/1/2
01
5
12
/1/2
01
5
1/1
/20
16
2/1
/20
16
3/1
/20
16
4/1
/20
16
5/1
/20
16
6/1
/20
16
7/1
/20
16
8/1
/20
16
9/1
/20
16
10
/1/2
01
6
11
/1/2
01
6
Managed Net Copper
Source:Reuters, Angel Commodity Research
Investors in indecisive mode
Copper
Price performance
In Oct’16, LME Copper prices surged by 0.7 percent having
started the month at $4877.5/t and touched levels as low as
$4623.25/t during the course of the month before closing at
$4862/t.
LME Copper prices marginally fell in October 2016 as
China’s construction sector which accounts for around 15
percent of nation’s copper demand, was hurt by efforts by
the China Securities Regulatory Commission and the
National Development and Reform Commission to head off
a housing bubble.
In line with the efforts, local governments in China
announced new property market cooling measures, as fears
of real estate bubble intensified after more cities reported
big jumps in home prices in Sep’16. In response, four
Chinese cities starting with capital city Beijing, tightened
rules for home purchases, which increased the down
payment required on real estate purchases. More than 20
cities adopted restrictive measures aiming to tame fast-
rising prices, although 15 cities implemented them in the
first week of October following a summer of unusually high
house price growth.
China, which accounts for around 40 percent of the global
Copper demand, showed signs of weakness as Industrial
production fell to 6.1 per cent year-on-year in September,
the slowest pace since May. Also, growth at 6.7 percent in
the third quarter although met expectations, was expected
to be pulled down in the next quarter citing impending
slowdown in real estate owing to restrictions by the
government to cool the overheated property market.
300000
320000
340000
360000
380000
4600
4650
4700
4750
4800
4850
4900
9/3
0/2
01
6
10
/2/2
01
6
10
/4/2
01
6
10
/6/2
01
6
10
/8/2
01
6
10
/10
/20
16
10
/12
/20
16
10
/14
/20
16
10
/16
/20
16
10
/18
/20
16
10
/20
/20
16
10
/22
/20
16
10
/24
/20
16
10
/26
/20
16
10
/28
/20
16
10
/30
/20
16
LME Copper V/s stocks
prices stocks
Source:Reuters, Angel Commodity Research
Base Metals Monthly Report
Monday, November 07, 2016
www.angelcommodities.com
Monday, 07 November 2016
Base Metals Monthly Report
Aluminium
Price performance
In Oct’16, LME Aluminium prices rose 2.7 percent to close
the month at $1736.5/t. The light metal was moving lower
till 20th Oct’16 after which it surged to a high of 1738/t.
Aluminium prices gained momentum for the second
consecutive month in October 2016 and gained by around
3.8 percent on the LME and 3.7 percent on the MCX.
Brighter demand prospects by the major producer
companies spurred buying in the light metal. Novelis Inc,
the world's largest maker of rolled aluminum products, sees
demand for the metal growing 4-5 percent in 2017, boosted
by sales to carmakers and can manufacturers. Asia would
be the leader in both automobiles and cans demand growth
due to population growth and increasing environmental
awareness.
Another producer giant, Norsk Hydro, affirmed their global
aluminum demand growth by 4-5 percent in 2016 with the
CEO indicating that actually it is more likely to be in the
higher end of this range.
Besides, Aluminum stocks in China’s five major markets fell
for three consecutive weeks ending October 31 and are
likely to remain near multi-year low for the foreseeable
future citing low shipments from northwest China.
Scenario at Shanghai and LME warehouses is no different.
Over the year, Shanghai aluminium stocks have plunged by
a whopping 124 percent to near 85,000 tonnes whereas
LME stocks declined 30 percent towards 214,000 tonnes.
2060000
2080000
2100000
2120000
2140000
2160000
2180000
2200000
1600
1650
1700
1750
9/3
0/2
01
6
10
/2/2
01
6
10
/4/2
01
6
10
/6/2
01
6
10
/8/2
01
6
10
/10
/20
16
10
/12
/20
16
10
/14
/20
16
10
/16
/20
16
10
/18
/20
16
10
/20
/20
16
10
/22
/20
16
10
/24
/20
16
10
/26
/20
16
10
/28
/20
16
10
/30
/20
16
LME Aluminium Vs stocks
prices stocks
Source:Reuters, Angel Commodity Research
But all is not well in the Aluminium market as rising
Chinese production has become a cause of concern for
other producing countries. Data from the International
Aluminium Institute (IAI) showed World Aluminium
production in Sep’16 was 4.9 million tonnes, of which
China produced at least 2.8 million tonnes.
The next largest producing region was the Gulf
Cooperation Council (GCC), with output of 426,000
tonnes, 70 to 80 per cent of which must find a market
outside the region. GCC is political and economic alliance
of six Middle Eastern countries namely Saudi Arabia,
Kuwait, the United Arab Emirates, Qatar, Bahrain, and
Oman. Emirates Global Aluminium, a member of GCC and
one of the world’s top 10 aluminium producers, openly
expressed distress regarding the chronic oversupply from
China and added that they don’t expect good prices for
the next couple of years.
These apprehensions are not unfounded, especially
looking at the recent numbers from the IAI. Daily average
primary aluminum output hit a record high in September,
to 164,600 tonnes from 159,800 in the prior month.
Primary reason being, surge in total Chinese output for
the month to 2.75 million, the highest in 15 months. In
line with the same, total global primary aluminum
production increased to 4.937 million tonnes, up 1.2
percent from the same month last year, but North
American output fell 11 percent to 325,000 tonnes.
Rising Chinese production in turn has given way to more
exports. China exported 390,000 metric tons of
unwrought aluminum, rising by 10.6 percent on year-on-
year basis in Sep ’16. This was preceded by yearly rises of
20.4% and 9.3%, respectively, in August and July.
Overall, declining stocks kept afloat the light metal in
Oct’16 while rising Chinese supply bothers global
investors.
Base Metals Monthly Report
Monday, November 07, 2016
www.angelcommodities.com
Monday, 07 November 2016
Base Metals Monthly Report
Outlook
For Nov’16, we expect base metal prices to trade lower as investors will be highly cautious in the earlier
part of the month given the upcoming Presidential elections in the US. However, latest Chinese annual
growth, manufacturing activity and services activity all have shown signs of stabilization, thereby
providing a cushion to prices.
Copper prices will likely trade lower as new restrictions in the property market to avert a bubble is likely
to hurt Chinese growth since it accounts for around 15% of gross domestic product. However, investor
sentiment seemed to be in favor of the metal as latest CFTC data showed bullish bets in Copper rose to
highest level since 2006 for the week ending November 1.
Aluminium prices are likely to trade higher in Nov’16 as China Hongqiao, the world's largest aluminium
producer, has been ordered by the nation's environmental regulator to shutter more than half of its
capacity. However, Alcoa reduced its deficit projection for aluminum markets further to 615,000 metric
tons from the previous guidance of 775,000 million metric tons.
LME Stock analysis (Oct’16)
Base metal Opening stock (in tonnes)
Closing stock (in tonnes)
Copper 3,71,775 3,19,475
Aluminium 21,54,825 21,40,550
Zinc 4,38,675 4,50,725
Lead 1,90,250 1,88,700
Nickel 3,62,004 3,63,024
Source: Reuters
Base Metals Monthly Report
Monday, November 07, 2016
www.angelcommodities.com
Monday, 07 November 2016
Base Metals Monthly Report
Study group updates
Copper to move into surplus in 2017 - ICSG
The International Copper Study Group (ICSG) is forecasting
copper to have a market surplus next year.
Lisbon-based ICSG said that in 2017 the copper market will
have a surplus of approximately 160,000t, higher than its
previous forecast in March, when the agency was
forecasting a surplus for 2017 of just 20,000t.
In the case of its 2016 projection, ICSG is forecasting the
market to be essentially balanced, with a deficit of 8,000t,
compared to its previous forecast of a 55,000t deficit.
ICSG said that world mine production is expected to rise by
around 4% this year to 19.88Mt; while for next year it is
expected to be flat at 19.87Mt. Refined production is
projected to increase 2.2% in 2016 and 1.7% in 2017.
World apparent refined usage in 2016 is projected to
advance by 1.5% to 23.4Mt due to apparent demand in
China, which is also expected to increase by 1.5%, "although
underlying 'real' demand growth in China is estimated by
others at around 4%," ICSG said. For 2017, world apparent
refined usage is expected to expand around 1% to 23.6Mt.
Lead to be in deficit by 42,000 tonnes in 2016 - ILZSG
Global demand for refined lead metal is forecast to rise by
2.8% to 11.19 million tonnes in 2016 and a further 1.3% to
11.34 million tonnes in 2017.
In China, strong growth in vehicle production and sales have
helped to balance declining demand for lead-acid batteries
in the e-bike sector where sales of lithium-ion batteries are
reported to be rising. It is anticipated that Chinese lead
usage will rise by 2.5% in 2016 and 1.1% in 2017.
After declining in 2015, European usage of lead metal is
forecast to increase by 5.3% this year assisted by a positive
performance by the automotive sector. However, demand
in 2017 is predicted to remain flat. The Group anticipates
that in 2016, supply will exceed demand in the global
refined lead metal market by 42,000 tonnes.
Zinc market balance to remain in deficit in 2016 and 2017
- ILZSG
The International Lead and Zinc Study Group anticipated
that global demand for refined zinc metal will rise by a
marginal 0.6% to 13.57 million tonnes in 2016 followed by
a 2.1% increase to 13.85 million tonnes in 2017.
In China increased demand from the automotive sector is
expected to be partially balanced by a decline in exports
of galvanized sheet steel and demand is forecast to
increase by 1.8% in 2016. A further rise of 1.3% is
predicted in 2017.
Usage in Europe has been flat over the past four years and
this trend is predicted to continue in 2016 and 2017 with
limited growth of 0.7% and 0.5% respectively. In the
United States, an anticipated fall in apparent consumption
of 8.7% this year will be influenced by draw downs in
unreported inventories. However, in 2017 demand is
forecast to rebound by 11.8%.
The Group anticipates that world zinc mine production
will fall by 5.6% to 12.47 million tonnes in 2016 and then
recover by 5.9% to 13.20 million tonnes in 2017. On an ex
China basis output this year is expected to fall by 11.7%,
equivalent to almost a million tonnes of contained zinc,
before partially recovering in 2017.
In 2017, the market is expected to remain in deficit with
the extent of the shortage forecast at 248,000 tonnes.
Daily avg primary aluminum output surged in Sep’16 - IAI
Data from the International Aluminium Institute (IAI)
showed that daily average primary aluminum output hit a
record high in September, driven by buoyant output in top
producer China.
The global daily average rose to 164,600 tonnes from
159,800 in August while total Chinese output for the
month increased to 2.75 million, the highest in 15 months.
Total global primary aluminum production increased to
4.937 million tonnes, up 1.2 percent from the same
month last year, but North American output fell 11
percent to 325,000 tonnes, IAI data showed.
Base Metals Monthly Report
Monday, November 07, 2016
www.angelcommodities.com
Monday, 07 November 2016
Base Metals Monthly Report
Technical Levels (November 2016)
Commodity Support 2 Support 1 CMP Resistance 1
Resistance 2
LME Copper ($/tonne) 4540 4700 5062 5150 5550
MCX Copper (Rs./kg) 303 314 339 348 355
LME Aluminium ($/tonne) 1565 1651 1724 1780 1823
MCX Aluminium (Rs./kg) 105 111 115.1 119 121
LME Nickel ($/tonne) 9643 10030 10940 11300 11800
MCX Nickel (Rs./kg) 648 672 730.7 764 790
LME Lead ($/tonne) 1880 1970 2113.5 2148 2234
MCX Lead (Rs./kg) 126 130 141.5 144 150
LME Zinc ($/tonne) 2105 2268 2477 2536 2642
MCX Zinc (Rs./kg) 142 153 165.3 170 176
Important data and events
Data/ Event Date & time
US Presidential Election 8th Nov, 2016 – All day
China Trade Balance 8th Nov, 2016 – Tentative
Japan Prelim GDP q/q 14th Nov, 2016 – 5:20 am
US Prelim GDP q/q 29th Nov, 2016 – 7:00 pm
OPEC meeting 30th Nov, 2016 – Tentative
Base Metals Monthly Report
Monday, November 07, 2016
www.angelcommodities.com
Monday, 07 November 2016
Base Metals Monthly Report
MCX NICKEL – CMP – 729
In the weekly price chart of MCX Nickel, it can be clearly seen that Nickel trend is positive from last 2
weeks after making a low of 667.40 levels. Today, we have noticed that price have breached the down
trend line and made a new yearly (2016) high of 735.50 levels and currently trading above it. Prices have
formed bullish candlestick pattern following Open and High were the same levels. On the chart prices
are forming “Higher top Higher bottom” which is the sign of up-trend.
As per the EMA (Exponential Moving Average) Prices are trading above its 5, 20, 50 and 100 weeks EMA
which is the indication of positive trend.
14 Week RSI is rising and MACD Showing positive divergence which signaling optimism.
Nickel prices to find support in the range of 700 – 690 levels. Trading consistently below 690 levels
would lead towards the strong support at 640 levels and then finally towards the major support at 600
levels. Resistance is now observed in the range of 780 – 800 levels. Trading consistently above 800 levels
would lead towards the strong resistance at 860 levels, and then finally towards the major resistance at
920 levels.
Looking towards positive chart structure and indicators indicating optimism we recommend buy in
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
