BASE METALS PERFORMANCE IN SEPTEMBER 2017

10.0%

5.0%

0.0%

-5.0%

-10.0%

-15.0%-11.0%

-8.7%

-4.5%

Nickel Copper Zinc Aluminium Lead

LME MCX

-1.5%

0.5%

4.2%

-0.7%

1.9%3.8%

8.0%

Source : Reuters, Angel Commodity Research

Base MetalsPrice Performance

ase metals traded mixed in BSep’17as simmering tensions between the US and North Korea limited global risk appetite.

Along with this, renewed strength in the DX post latest FOMC meeting minutes release only added to woes of dollar denominated commodities. The Federal Reserve said it would start to reduce the portfolio of Treasuries and mortgages it acquired through its quantitative easing (QE) program after the financial crisis. New projections after the Fed meeting showed 11 of 16 officials favored higher benchmark U.S. interest rates by year-end.

However, sharp downside was restricted as Chinese environmental crackdown started way earlier in Sep’17 rather than expected timeline of Nov’17, indicating the seriousness of the mainland nation’s government against violations.

Talking about inventories, Aluminium stocks at the LME plunged the most by around 7 percent while Nickel stocks gained the mostby 3.1 percent. At Shanghai exchange, Lead stocks slipped by a whopping 53 percent in Sep’17.

Overall, global risk aversion coupled with a stronger DX weighed on the base metals in Sep’17 although Chinese output cuts provided a cushion.

In Sep’17, LME Copper prices declined4.5 percent to $6481 per tonne, similarly on the MCX, prices fellaround 1.5 percent to Rs.427.95/kg.

Copper prices plunged to one month low of $6366/t as tensions between the US and North Korea ceased to ease after the latter warned of retaliation to new sanctions by the US with a Hydrogen bomb in the Pacific, thereby sending a wave of risk aversion across the globe.

To add to the woes of base metals, S&P Global Ratings downgraded China's long-term sovereign credit rating to A+ from AA-, less than a month ahead of

Communist Party Congress, one of the country's most awaited events, citing increasing financial risks from its credit fueled stimulus.

Not only this, Chinese economy showed signs of cooling in August with Industrial production, fixed asset investment, or spending on infrastructure and property, and retail sales, all slowing down from levels seen in July. As a result, Chinese imports did not show any significant upside with unwrought copper inward shipments totaled 390,000 tonnes in August, down for the third month in a row.

However, sharp downside was restricted as strict environmental crackdown in China resulted in production of 10 nonferrous metals including copper, aluminium, lead, zinc and nickel, falling 2.2 percent to 4.42

million tonnes in Aug’17.

Besides, world’s biggest Copper producer, Chile's Codelco, said first half production from its eight copper operations fell by 5.3% to 798kt from 843kt during the first six months of 2016.

Data from the International Copper Study Group showed a deficit of 75,000 mt in the global copper market in the first half of 2017. The global world refined copper market showed a 70,000 ton deficit in June, compared with a 50,000 ton deficit in May. World mine production is estimated to have declined by around 2% in the first half of 2017 hurt by decline in Chilean output citing strike at the Escondida mine and lower output from Codelco mines. While on the other hand, World apparent refined usage is estimated to have declined by around 2% in the first half of 2017 although

October 201738

Commodity

LME Copper ($/tonne)

MCX Copper (Rs./kg)

LME Aluminium ($/tonne)

MCX Aluminium (Rs./kg)

LME Nickel ($/tonne)

LME Nickel (Rs./kg)

LME Lead ($/tonne)

MCX Lead (Rs./kg)

LME Zinc ($/tonne)

MCX Zinc (Rs./kg)

Support 1 Support 2 Resistance 2Resistance 1

Technical Levels (30 Days)

refined output remained unchanged.

LME Copper stocks remained steady at 295,500 tonnes with cancelled warrants down to 20 percent while Shanghai inventories plunged by a whopping 40 percent in Sep’17.

Overall, global uncertainty along with mixed signals from the Chinese economyhurt the metal inSep’17.

In Sep’17, LME Aluminium prices fell by 0.7 percent to close at $2102 per tonne, while on the MCX, the light metal traded higher by around 2 percent at Rs.137.8/kg buoyed by sharp Rupee depreciation.

Aluminium had a sluggish start in Sep’17 following escalating tensions between the US and North Korea in the very first week as the latter tested sixth nuclear missile possibly a hydrogen on September 3.

Prices remained under slight pressure till 20th Sep’17 after which LME

Aluminium prices jumped to fresh five year highs of $2191.5/t while MCX Aluminium prices touched Rs.139.2/kg, highest level since 2006 on reports that two companies in Henan province in China have started with output cuts much before the official winter restrictions. According to the report, Chinalco, China's largest state-run aluminium producer, and Jiaozuo Wanfang were to start reducing production by more than 30 percent ahead of time on 19th Sep’17 and will last until March 15, 2018 while the official curtailment period runs from 15th Nov’17 – 15th Mar’18. This pushed Shanghai Aluminium prices to 17055 yuan per tonne, highest since 2011.

The positive momentum did not stay for long either as the rally was soon disturbed by news of China’s credit downgrade and North Korea’s retaliation warning, thereby sending global investors away from riskier assets.

Talking about stocks, LME inventories plunged by around 7 percent to near 10 year lows of 1259025 tonnes while on the other hand Shanghai stocks surged by 11 percent to 562,911 tonnes. Besides, China’s Nonferrous Metals Industry Association (CNIA) data showed national output was 2.64 million tonnes last month, the lowest figure since February and the lowest average production per day run rate since March last year.

As per latest figures by the World Bureau of Metal Statistics (WBMS), the

calculated primary aluminium market balance for January to July 2017 shows a deficit of 1381 kt following a shortfall of 751 kt for the whole of 2016. Demand for primary aluminium for January to July 2017 was 35.93 million tonnes while production rose by 1504 kt compared with 2016. Total stocks held in four exchanges in London, Shanghai, USA and Tokyo were 1840 kt at the end of July 2017, lower by 487 kt than December 2016 total.

Overall, global uncertainty with regards to North Korea and US coupled with some profit taking in base metals hurt the metal in September 2017.

Outlook

Copper prices are likely to trade higher in Oct’17as this month is peak season for the red metal and more buyers are expected to come on line post Golden Week holiday. Also, supply disruption concerns fueled by earthquake in Chile will provide support.

We expect Aluminium prices to trend higher in Oct’17 asearlier than expected output cuts coupled with sharp decline in LME stocks point towards a tight market balance, thereby boosting the metal. Besides, a favorable outcome in the upcoming China’s National Congress for the mainland economy will boost demand outlook.

CMP

6250

420

2050

135

9698

642

2350

154

3030

207

6000

395

1900

128

8872

595

2200

140

2900

201

6660

438

2156

140

108.75

708.4

2511

163.8

3256

214.3

6850

450

2250

144

11866

765

2650

175

3370

219

7200

470

2400

149

11207

842

2800

182

3410

224

Compiled by : Kaynat ChainwalaResearch Analyst, Base Metals

Angel Commodities Pvt. Ltd.

October 201739