Base Metals Update

Tuesday | October 8, 2012

Content
Base Metals Performance Copper Aluminum Nickel Zinc Lead 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

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Base Metals Update

Tuesday | October 8, 2012

Metals drawing strength from the stimulus measures The base metals pack is currently trading on a positive note extending gains of the last month. Significant gains were registered on account of stimulus measures popularly known as QE 3 by the US Federal Reserve amid rise in the risk appetite in the month of September. The World Bank cut its growth outlook for China to 7.7 percent from its forecast in the month of May at 8.2 percent. The regions biggest economy has shown a slowdown on the back of Europes recession and dismal economic recovery of the US thereby adding to the pressure in the prices. The weak sentiments, although got a boost through the US labour market where the unemployment rate fell to 7.8 percent in September from 8.1 percent in August. The Chinese manufacturing Purchasing Managers Index (PMI) expanded to 49.8 in September as against 49.2 in August. The National Development and Reform Commission of China has approved 60 infrastructure projects that includes building of highways, ports and air port runways to boost the slowing economic growth of the nation. This would further add luster to the base metals pack particularly, Copper. Copper Stimulus measures by the major central bankers around the globe led the entire base metals pack to gain strength in the month of September. The leader of the base metals pack, Copper gained 7.3 percent month on month taking cues from positive market sentiments. Investors anticipated that the rise in liquidity may see the key sectors befitting, which could in turn spur the economic growth. This would result in increase in the demand for the base metals, particularly copper. LME copper prices settled at $8,218 per tonne and are currently trading around $8,257 per tonne. Additionally, weakness in the US Dollar Index due to rise in the risk appetite also supported an upside in the copper prices in the last month. However, sharp gains were capped owing to rise in the warehouse stocks of copper at LME. LME copper stocks rose 2.14 percent month on month and stood at 2, 23,500 tonnes on the last day of the month. According to the latest Economist Intelligence Unit (EIU) report, Chinese apparent consumption has risen in the first seven months by 18.8 percent year to year due to persistent demand from the power sector there. However, demand from the US has taken a back seat during
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the first half of 2012 and declined 1.8 percent due to slowdown in the economy. Rise in the demand from the

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automotive industry in the coming months is however expected to support prices in the coming months. According to latest International Copper Study Group (ICSG), world refined copper market stood in a output deficit of 4.73

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Base Metals Update

Tuesday | October 8, 2012 lakh tonnes during the first half of the year compared to a deficit of 1.31 lakh tonnes in the same period previous year. Production of refined copper during January through June reached 9.913 million tonnes while consumption stood at 10.386 million tonnes. In the domestic markets, prices of Copper on MCX gained 3.4 percent month on month and are currently hovering around Rs.433.45 per kg. Appreciation in the Indian rupee capped sharp gains in the copper prices on MCX. Copper prices in the short term are expected to trade with positive bias anticipating stimulus measures from the Chinese economy after observing a weak manufacturing data along with some ease of debt concerns in the Euro zone region. Additionally, weakness in the DX might also add to the gains. However, sharp gains are likely to be capped on the back of rise in the LME inventories. Aluminum LME Aluminum, which gained in the last month extended earlier gains and settled 9.31 percent higher month on month taking cues from bullishness in other base metals pack. Prices which finished below the $2,000 mark since past three months have finally managed to cross the above mark and closed at $2,088 per tonne in the month of September. However, despite a rise of around 3 percent month on month in the LME inventories of Aluminum, prices observed a gain owing to rise in the demand from the major consuming nations particularly Asia and North America. The demand from automotive and transportation industries of the above nations has witnessed a revival in demand for the metal. Further, higher fuel costs have made consumers to shift to less fuel efficient car models to save fuel in US. This increased the demand for new cars by around 1.28 million in the last month. According to International Aluminum Institute (IAI), world unwrought aluminium stocks stood at 1.330 million tonnes in August against 1.358 million in the month of July. Also, average daily aluminum output for the month of August fell to 66,900 tonnes from 67,400 tonnes in July. Total production for the month of August stood at 2.074 million tonnes as against 2.090 million tonnes in June. Approval from the Chinese government on infrastructure spending and the US

quantitative easing may see the prices of Aluminum moving upwards. However,

Aluminum stocks have witnessed a rise in the last two months on the back of contracting demand from the consuming nations. Despite infusing liquidity by the major global central bankers, the major consuming economies are

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still not showing signs of recovery. China, the major consumer of the metal witnessed
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Base Metals Update

Tuesday | October 8, 2012 factory output languishing to 39 month lows in the month of August 2012 on the back of poor exports and imports growth. In India, apart from other non ferrous metals, Aluminum has significant applications in the areas of electrical and electronics segment. The electrical sector is expected to remain the largest user of the metal on the back of Twelfth Five Year plan in which it is emphasized to added new capacity to the tune of 80,000 MW. In the domestic markets, aluminum prices witnessed a rise of 5.7 percent taking cues from strength in the international prices and are currently trading around Rs.108.55 per kg. In the short term, we expect aluminum prices to trade with upward bias on the back of expectation that the demand from the major consumers might improve gradually with stimulus measures announced by the central bankers along with decline in the average daily production of aluminum as reported by IAI. However, still ample world aluminum stocks might cap sharp gains in the aluminum prices.

Nickel Nickel prices on LME registered gains of 13.6 percent month on month. Prices of nickel settled at $18,400 per tonne after trading around $16,200 per tonne in the beginning of the month. Supply disruptions as a result of ban of shipping unprocessed low grade nickel from Indonesia have supported an upside in the prices. The price rise was also due to the firming demand in the overseas market as the stimulus measures bought in some positive sentiments on the revival of economic growth and approval of infrastructure projects by the Chinese government.
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However, still the global nickel market stands at a surplus of 26,000 tonnes during January to July 2012 as reported by the International Nickel Study Group (INSG) for a third year. Further, it reported that that the world nickel consumption totaled 948,700 tonnes in January to July, while primary nickel output was 974,700 tonnes and stocks held by the producers summed to 87,900 tonnes in the month of June as compared to 88,800 tonnes in May. The prices of nickel in the coming month is expected to trade with upward bias owing to the expectations that the stimulus measures announced could support the consumption from the major consuming nations. Additionally, Chinese government approving infrastructure projects in the country might also support an upside in the metal.

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However, surplus in the global nickel market is expected to cap sharp gains in the nickel prices. Of all the base metals pack, nickel has been the worst performer losing around 7 percent year to date amongst the pack due to

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Base Metals Update

Tuesday | October 8, 2012 destocking by the stainless steel producers and purchasing the metal on hand to mouth basis on the cues of global uncertainty. In the domestic markets nickel prices gained 9.2 percent are trading around Rs. 950.10 per kg. Appreciation in the Indian rupee has however capped sharp gains in the metal prices in the last month. Nickel prices in the short term are expected to trade with upward bias anticipating rise in the consumption from the key consuming nations triggered by the stimulus measures announced. Additionally, Chinese government approving infrastructure projects in the country might support an upside in the metal. However, surplus in the global nickel market is expected to cap sharp gains in the nickel prices. In the domestic market, the upside in the metal is expected on the grounds of increase in the demand from the alloy makers. However appreciation in the Indian rupee is expected to cap sharp gains in the nickel prices. Zinc LME prices of zinc gained by 12.4 percent month on month mirroring strength in the other base metal pack and settled $2,099.75 per tonne in the month of September. Despite rise in the global zinc mined production, reduction in the refined output has supported an upside in the zinc prices. According to International Lead and Zinc Study Group (ILZG) refined output in Belgium, Brazil, Canada, China and South Africa more than increased output in Japan China and South Africa which has caused global output of the metal to reduce by 1.4 percent. On the other hand, a marginal increase in the global refined zinc usage is
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being seen due to rise in demand from India, China and South Africa. Additionally, Chinese zinc smelters, the largest global suppliers cutting the production might reduce the glut thus aiding the prices. According to a research firm Beijing Antaike Information Development Co in China, the output of metal fell 6.8 percent in the first seven months of the year. In the domestic markets zinc prices gained 8.1 percent month and are currently hovering around 106.05 per kg. In the short term, zinc prices are expected to trade firm taking cues from the output short fall in the China along with rise in the demand triggered by stimulus measures offered by the major central bankers. However sharp upside in the metal is expected to cap as production is likely to rise in the coming months. In the domestic markets zinc prices are expected to trace the international prices. Appreciation in the Indian rupee is expected to cap sharp rise in the MCX prices.

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Base Metals Update

Tuesday | October 8, 2012 Lead Lead prices on LME outshined the most in the base metals pack, posting gains of 14.6 percent month on month. Gains were registered taking cues from firmness in the other base metals along with sharp decline in the LME inventories of the same. Inventories of lead at LME have declined to yearly lows and currently stand at 2.55 lakh tonnes currently. Rising demand from the battery industry resulted in sharp rise in the prices. Prices of lead at LME touched a monthly average of $2,291 per tonne. According to International lead and Zinc Study Group demand for lead is expected to increase by 4.8 percent to 10.78 million tonnes in 2012. Further, according to the latest report by the International Lead and Zinc Study Group (ILZSG) the global
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lead market is at surplus of 49,000 tonnes during January to July 2012. On the other hand refined lead use of the world has risen to 6.114 million tonnes in the first seven months as compared to 5.965 million tonnes during the same period previous year. In the domestic markets prices witnessed a rise of 10 percent month on month and are currently hovering around Rs. 118.05 per kg. In the coming month, we expect Lead prices to trade with upward bias expecting rise in demand on the favorable performance by the automotive sector in the US. Further, with weakness in the DX, prices are expected to find support.

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