base metals monthly report203.199.89.36/brand_comm/commodities/base metals monthly repo… · base...

Base Metals Monthly Report

Friday, April 07, 2017

www.angelcommodities.com

Friday, 07 April 2017


Executive Summary

Base metals traded mostly lower in Mar’17 as the Federal

Reserve increased its benchmark interest rate for the

second time in three months by 0.25 percent to a target

range of 0.75 percent to 1 percent and maintained its

stance on three rate hikes this year. The forecast for 2017

GDP was kept unchanged at 2.1 percent, while 2018 was

pushed up one-tenth to 2.1 percent.

Risk aversion mode stood out in Mar’17 as a host of

uncertain global events kept investors appetite under

check. World’s biggest economies at the G20 summit

dropped a pledge to keep global trade free and open,

thereby fuelling protectionism fears. The formal statement

issued after the meeting contained only a bland reference

to "working to strengthen the contribution of trade to our

economies" and the phrase "we will resist all forms of

protectionism" was conspicuous by its absence.

Besides, failure of Donald Trump to "repeal and replace"

the Obamacare health insurance reforms in the US

Congress raised questions on his ability to proceed with tax

cuts and infrastructure spending.

Amidst the ambiguous global environment, favorable

Chinese economic data provided a cushion. Chinese

industrial production increased at a faster-than-expected

6.3 percent pace in the first two months of the year, while

profits of Chinese industrial firms surged almost 32 percent

in the first two months of 2017, the fastest pace in nearly 6

years.

-8.7%

-2.3% -1.9%

2.0% 3.7%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

Nickel Copper Zinc Aluminium Lead

Base Metals performance in Mar'17 (%)

LME MCX

Source:Reuters, Angel Commodity Research

Talking about inventories, Copper stocks at the LME

jumped the most by 44 percent and Aluminium stocks

plunged the most by 14 percent. At Shanghai exchange,

Aluminium stocks jumped by a whopping 50 percent in

Mar’17.

Overall, March 2017 was an eventful month owing to the

much anticipated US rate hike and trade protectionism

concerns at the G20 summit.

Stock Dynamics in Mar’17

LME Stock scenario

Base metal Opening stock (in tonnes)

Closing stock (in tonnes)

Percent chg

Copper 200725 283900 41%

Aluminium 2188400 1877300 -14.22%

Zinc 384100 370950 -3.42%

Nickel 377778 376476 -0.34%

Lead 189600 184275 -2.81%

Shanghai Stock scenario

Copper 289899 312584 8%

Aluminium 221058 332326 50%

Zinc 199033 183086 -8%

Lead 68419 72218 6%

Upcoming crucial events (April’17)

Data/ Event Date & time

US Non-Farm Employment Change April 6th

, 2017 – 6:00 pm

China’s GDP q/y April 17th

, 2017 – 7:30 am

OPEC Meeting April 22nd, 2017

Japan’s Monetary Policy Statement April 27th

, 2017

ECB rate decision April 27th

, 2017 – 5:15 pm

US Advance GDP q/q April 28th

, 2017 – 6:00 pm

Macroeconomic ambiguity plays spoiler in Mar’17






On the macroeconomic front, the Federal Reserve hiked

its benchmark interest rate for the second time in three

months in Mar’17, signaling that any further hikes this

year will be gradual. The central bank said in a statement

that a strengthening job market and rising prices moved it

closer to its targets for employment and inflation.

In its latest monthly bulletin, the International Copper

Study Group said the global copper market deficit had

fallen back to about 50,000 t in December, following a

deficit of about 90,000 t in November. Supply gains are

attributed to rise in Peruvian concentrate output and a

recovery in production levels in Canada, Indonesia and the

US, and expanded capacity in Mexico.

Overall, easing of supply disruption concerns along with

broader risk aversion in the global markets hurt the metal

in Mar’17.

Copper prices are likely to trade lower in April’17 as

lineup of crucial events this month starting right from

Trump – Jinping meeting on 6th-7th April will limit risk

appetite. Also, Indonesia's Energy and Mineral Resources

Ministry granted a temporary permit to Freeport’s

Grasberg to resume its previous annual quota of exports

up to 1.1 million tons of copper concentrate. However,

sharp downside will be restricted as Japan's biggest

copper smelter Pan Pacific Copper plans to cut its April-

September output of refined copper by 19.9 percent from

the same period last year due to long maintenance at

one of its plants.

-60000

-40000

-20000

0

20000

40000

60000

80000

100000

120000

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15

1-D

ec-1

5

1-J

an-1

6

1-F

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6

1-M

ar-1

6

1-A

pr-

16

1-M

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6

1-J

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-16

1-J

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16

1-A

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16

1-S

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6

1-O

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6

1-N

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6

1-J

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7

1-F

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7

1-M

ar-1

7

1-A

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17

Managed Net Copper

Source:Reuters, Angel Commodity Research

Investor interest shows recovery in Mar'17

Copper

In Mar’17, LME Copper prices declined by 2.3 percent to

$5837.5 per tonne, while on the MCX, prices plunged by

around 4.3 percent to Rs.380.75/kg hurt by sharp

appreciation in the Rupee.

Copper prices touched a two-month low of $5652/t in

Mar’17 as supply disruption concerns, which acted as a

cushion for the metal since Jan’17, were put to ease

following restart of production at the two major mines,

accounting for almost 8-9 percent of global mined copper

supply.

The 43-day strike at Escondida, the world's largest copper

mine in Chile, ended after the workers decided to invoke a

legal provision that allows them to extend their old contract

for 18 months, following which both sides must again try to

reach a new agreement. Also, Freeport McMoRan's

Grasberg mine in Indonesia resumed production of copper

concentrate, readjusting its operations to 40% of normal

capacity and ending a stoppage that began February 11

after Indonesia prevented it from exporting the material

used to make refined copper.

Further, General Administration of Customs data showed

Chinese Copper imports accounting for nearly half of global

consumption estimated at around 23 million tonnes this

year, totalled 340,000 tonnes in February, down 10.5 per

cent from January and down 19 per cent from a year ago.

Although the slowing demand from the world’s top

consumer and producer was a result of Lunar New Year

holiday.

Besides, Global exchange stocks of copper surged by

around 167,000 tonnes in Mar’17 to 750,000 tonnes, the

highest level since mid-2013. Stocks at the LME-exchange

warehouses jumped by a whopping 41 percent while

Shanghai inventories rose 8 percent last month.

In addition to supply-demand dynamics, overall global risk

aversion mode too, weighed on the metal. Global investors

were taken aback after financial leaders of the world's

biggest economies at the G20 meeting dropped a pledge to

keep global trade free and open, accepting an increasingly

protectionist US after failed bids for consensus.






Aluminium

In Mar’17, LME Aluminium prices gained marginally by 0.7

percent to $1962.5 per tonne, while on the MCX, prices

plunged by around 3 percent to Rs.126.1/kg as Rupee

appreciation restricted upside.

Aluminium, in Mar’17 enjoyed gains as a joint statement

from the Chinese Ministry of Environmental Protection

(MEP), Finance Ministry, National Development and Reform

Commission (NDRC) and the National Energy Bureau, in

conjunction with local governments, in order to contain

smog, have called upon aluminium producers in over two

dozen cities to cut their production significantly over the

winter months. Cuts in aluminium capacity by over thirty

percent and alumina by nearly the same amount in Hebei,

Henan, and Shandong provinces are particularly significant,

given they account for seventy percent of China’s total

aluminium production.

Further, demand side looked bright as Chinese home sales

rebounded in the first two months of the year with an

increase in new starts, resisting previous government curbs

to contain volatile prices in big cities such as Beijing.

Data from the International Aluminium Institute (IAI)

showed daily average primary aluminium output in China

fell to 90,500 tonnes in February from 95,200 tonnes in

January. Annualized Chinese Al output fell to 33 million

tonnes in February from 34.7 m tonnes in January. Besides,

Russian Aluminium giant Rusal anticipates the global

market deficit to widen to 1.1 million tonnes from 700,000

tonnes in 2016 whereas US’ biggest Aluminium producer

Alcoa expects the global aluminium market to end up with

a modest surplus of 0.4 to 0.8 million tonne.

Latest statistics from the World Bureau of Metal Statistics

(WBMS) showed that the global Aluminium market

witnessed a shortage of 985,000 tons, as compared to a

deficit of 659,000 tons. In 2016, the global demand for

primary aluminum increased by 748,000 tons to 58.74

million tons whereas China's primary aluminum production

of 31.87 million tons, accounted for 55% of the global

proportion.

However, gains were limited by a sharp plunge in crude oil

prices. Oil prices came under pressure as US oil stocks

witnessed gains for nine consecutive weeks in a row, to

record high of 528 million barrels, thereby igniting

concerns that the supply cut by OPEC will be overpowered

by rising supplies from the US. Crude oil production in the

US has already risen 8.3 percent since mid-2016 to 9.13

million barrels per day (bpd). On the inventory front, LME

Aluminum inventories fell by 14.2 percent in Mar’17

whereas stocks at the Shanghai exchange warehouses

jumped by a whopping 50.3 percent.

Overall, Chinese output concerns continued to support

prices for second month in a row in Mar’17 although

weakness in crude oil prices limited upside.

We expect Aluminium prices to trend higher in April’17

as China’s Air pollution control, which has given rise to

expectation of tightness in the Aluminium market, is

likely to provide a cushion for prices this year. As a result,

Japan's aluminium premium for shipments during the

April to June quarter has been set at $128 per tonne, up

35 percent than the $95 per tonne premium in the

previous quarter.

46

47

48

49

50

51

52

53

54

55

1850

1870

1890

1910

1930

1950

1970

1990

28

-Feb

-17

7-M

ar-1

7

14

-Mar

-17

21

-Mar

-17

28

-Mar

-17

4-A

pr-

17

Falling crude oil limited Aluminium gains

LME Aluminium ($/t) WTI crude oil ($/bbl)






Technical Levels (April 2017)

Commodity Support 2 Support 1 CMP Resistance 1 Resistance 2

LME Copper ($/tonne) 5430 5650 5804 6080 6300

MCX Copper (Rs./kg) 345 365 374.5 395 415

LME Aluminium ($/tonne) 1800 1890 1939.5 2020 2065

MCX Aluminium (Rs./kg) 118 122 124.6 131 135

LME Nickel ($/tonne) 8850 9430 10020 10800 11700

MCX Nickel (Rs./kg) 565 610 644.4 725 795

LME Lead ($/tonne) 2100 2220 2260.5 2420 2510

MCX Lead (Rs./kg) 140 145 145 157 164

LME Zinc ($/tonne) 2520 2640 2686.5 2900 3030

MCX Zinc (Rs./kg) 168 172 172.2 190 198

Technical outlook - MCX Copper (CMP Rs.374/kg)

On the above monthly prices chart of Copper, it is clearly seen that prices are trading in down

side after making a high of 414.75 levels in Feb.

2017. Last month prices have touched the high of

409.25 levels and made a low of 370.15 levels and

finally closed 4.30% lower at 380.75 levels. As per

the chart structure prices have formed “Lower Top

Lower Bottom” formation which is the sign of

down trend.

Technical Indicator 14 month RSI is falling from

over bought zone and currently hovering around

54 levels. MACD is also near to zero line and

showing negative divergence. Both indicators

suggesting sideways to down trend in the copper

prices.

Support could be seen at 365 levels and the next strong support could be seen at 345 levels.

Resistance could be observed at 395 levels and the next resistance could be at 415 levels.

Looking after negative chart structures and indicators suggesting down trend, we recommend

sell in copper.

Sell Copper between 390 – 395, SL – 415, Target – 365 / 360 levels.






Research Team

Kaynat Chainwala Research Analyst (Base Metals) [email protected] (022) 3935 8136 Extn :6136 Prathamesh Mallya Chief Analyst (Non-Agro Commodities & Currency) [email protected] (022) 3935 8134 Extn :6134

Anuj Gupta Head– Technical Research (Commodity & Currency) [email protected] (011) 4916 5954

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 [email protected]

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