23 January 2014

Daily
Commodities Strategist Walter de Wet Walter.DeWet@standardbank.co.za +27-11-415-4176 Commodities Strategist Leon Westgate Leon.Westgate@standardbank.com +44-203-145-6822 Commodities Strategist Melinda Moore Melinda.Moore@standardbank.com +44-203-145-6887 This material is "non-independent research". Non-independent research is a "marketing communication" as defined in the UK FCA Handbook. It has not been prepared in accordance with the full legal requirements designed to promote independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. www.standardbank.com/research
Nov 2011

With Chinas January flash manufacturing PMI falling below 50, the focus for commodities is back on China, where mixed data signals are the norm rather than the exception. Firstly, looking at electricity production data, indications are that economic activity has recovered well from H1:13, with growth rates rising from a meagre 2% y/y in Mar 13 to a consistent growth rate of 10% y/y every month from September to December (see Figure 1). Rail freight volumes have also improved consistently over the course of 2013, ending last year at a record high, indicating that more goods are being moved across the country than before (Figure 2). During May and June last year, the slowdown in economic activity in China was quite evident in slower electricity production and rail freight volumes. However, when one looks at more recent indicators, such as thermal coal stockpiles at ports, a picture similar to todays flash PMI emerges (Figure 3). This suggests that economic activity was off to a poor start in January. There has been a strong build in thermal coal port inventories. The rise in inventory could be because of slower demand from Chinese electricity producers, or because of greater imports. However, Pacific coal price performance since the start of the year does not suggest that demand or imports into China have necessarily increased substantially, with e.g. Newcastle coal prices declining from just below $85/mt at the start of January to around $81 this week (Figure 4). Therefore, rising port stockpiles suggest that electricity productio n mightve slowed to below the expected levels. This would be in line with todays PMI data. As always, data could be distorted by Chinas New Year holidays and, as a result, we would not be surprised to see a further slowdown in February. This is likely to cap upside for many industrial commodities. The important question is: will economic indicators such as rail freight volumes and electricity production revert to strong growth trajectories in March, or will the current slowdown linger? We expect a seasonal improvement in economic activity in March, which should provide support for industrial metals. However, heading into H2:13, our China macroeconomist foresees that growth could head south again. By Walter de Wet

Fig 1: China electricity production

kWh (bn) 460 360 260 Jan Mar 2010 2012
Source: NBS, Standard Bank Research

China rail freight volumes

bn mt km 250.5 230.5 210.5 190.5

May

Jul

Sep

Nov 2011 2013

170.5 Jan Mar May Jul 2010 2013 Sep 2009 2012

Source: NBS, Standard Bank Research

Global | Commodities

Chinas mixed slowdown

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Global | Commodities 23 January 2014

Fig 3: China thermal coal port stockpiles

mt ('0000) 3000 2500 2000 1500 1000 Jan Feb Mar Apr Apr May Jul Jul Aug Sep Oct Nov Dec 2010 2011 2012 2013 2014
Source: Steelhome, Standard Bank Research

Fig 4: Newcastle thermal coal

$/mt 89 87 85 83 81 79 77 75 Mar-13 May-13 Jul-13 Sep-13 Nov-13

Source: McCloskey, Bloomberg

Base metals
The base metals complex has continued to drift lower, with weaker than expected Chinese PMI data weighing on prices, in spite of decent European economic data and a stronger euro. Volumes remain fairly light overall, though the price dip is starting to attract interest heading into US trade. The HSBC Flash Manufacturing PMI for January slipped below the 50-level to 49.6. Expectations had been for a modest decline to 50.3, from the 50.5 reported in December. Lower domestic demand ahead of the holiday period, along with a perceived unreliability in some of the data owing to the variable timing of Chinese New Year, have been cited as reasons for the decline, though the data nevertheless has had a negative impact on base metal prices during Thursday morning. Copper has seen the very nearby tightness in the spreads ease off considerably, with tom/next trading out to a $1.50 contango. The reason appears to be a scaling back in the latest LME Warrant Holding data, with the report now showing only one holder of cash warrants in the 40-49% band and one holder of Tom warrants in the 50-79% band. The cash-3 month spread nevertheless remains in a pronounced backwardation, though this too has eased from a valuation of $35.87 backwardation as of last night to around $23/28 backwardation during the second ring session. Most of the shift has come in the cash-Feb spread which has come into level/$2 backwardation heading into the early afternoon, from a valuation of $7.25 backwardation. Inventory-wise, onwarrant stocks have increased by 2,200 mt this morning, with the bulk of that entering Johor. Copper prices have traded back towards $7,250 heading into Thursday afternoon, coming under pressure from the weaker Chinese data overnight. Volumes have also continued to decline, with participants seemingly stepping back and looking for a break (higher or lower) as the metal settles into sideways trading. Comments from Freeport McMoran yesterday that permit resolution issues in Indonesia may potentially lead to a suspension of mining activities at its Grasberg operation and the deferral of production have had little impact on prices. The 2014 export permits have been delayed by the new Indonesian regulations with concentrates already being held back. At the moment, the company looking at deferring 18kt/mth of copper until the permits are issued and the situation with regards to permits are resolved. Given the well supplied nature of the concentrates market, any issues will be felt in the spot TC/RC market first and are unlikely to impact on outright prices unless there is a protracted halt to mining and exports. Lead has come under heavy pressure, in spite of decent European data and strong auto sales figures, with the metal trading down towards $2,170. Zinc has also fallen, though at a slower pace to that of lead, seeing the price differential between the pair narrow back towards $115.

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Global | Commodities 23 January 2014

Nickel has also drifted lower, though in spite of failing to break above $14,800 yesterday after running into heavy selling interest, it nevertheless remains resilient with the metal stabilising around $14,680. Turnover remains relatively strong, however, with LME Select turnover on a par with lead heading into US trade. By Leon Westgate

Bulks
Another RMB 120bln cash injection by the PBOC today (net RMB 375bln this week) put further positive fuel into Chinese steel markets, offsetting the negativity witnessed by the HSBC flash manufacturing result falling into contraction, down to 49.6, a 6month low. This result was not surprising to us, given the recent panicked steel destock and our estimates that pig iron output could be off 6% y/y for January. We still anticipate a February re-stock, however, supporting higher ore prices back above $130/t. The TSI Fe 62% index rose to $123.9/t, while its 58% index fell to $114.10/t. The MB 62 index rose $2.15/t to $124.61/t, while its 58 index fell $1/t to $108.77/t. Platts 62 rose to $124.50/t. An early-Feb cargo of Newman Fe 62.7% fines traded $123/t on CBMX. globalORE sold a RioT cargo at $125.30/t, among 4 cargoes traded today. Dalian IO May futures rose RMB 26/t to RMB 878/t. Physical Tangshan billet traded flat at RMB 2,830/t. Shanghai and Beijing rebar also traded flat, while HRC in both cities fell RMB 10/t. Dazong HRC April futures traded up just RMB 2/t, while Shanghai May rebar rallied RMB 39/t to RMB 3,463/t. Zhenzhou May steam coal futures traded off RMB 0.2/t to RMB 540.8/t, with port stocks up 1.7% at 15.7mt.Coke and cocking coal futures followed steel futures higher. Capes dropped 11.6% today.

By Melinda Moore

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Global | Commodities 23 January 2014

Commodity Prices
Base Metals LME 3 month Aluminium Copper Lead Nickel Tin Zinc Daily LME Stock Change (mt) Metal Aluminium Copper Lead Nickel Tin Zinc Shanghai 3-month Aluminium Copper Zinc ZAR metal prices Cash 3-month Precious metals AM Fix Gold Silver Platinum Palladium Forwards (%) Gold Silver USD Libor Technical Indicators Gold Silver Platinum Palladium Active Month Future Settlement Open Interest Change in Open Interest Energy Energy futures pricing Sing Gasoil ($/bbbl) Gasoil 0.1% Rdam ($/mt) NWE CIF jet ($/mt) Singapore Kero ($/bbl) 3.5% Rdam barges ($/mt) 1% Fuel Oil FOB ($/mt) Sing FO180 Cargo ($/mt) Thermal coal API2 (CIF ARA) API4 (FOB RBCT) 1 247.75 1 456.00 746.00 1 month 0.01 0.62 0.157 30-day RSI 48.08 47.01 57.09 56.5 COMEX GLD 1239.1 414732 20300 PM Fix 1 238.00 1 239.57 2 003.00 19.85 2 months 0.02167 0.616 0.20235 10-day MA 1 244.87 20.11 1 441.97 743.41 COMEX SLV 19.825 138423 5136 High bid 1 256.15 20.36 1 469.50 749.70 3 months 0.03 0.618 0.2366 20-day MA 1 231.66 19.95 1 415.77 733.12 NYMEX PAL 745.25 39198 2860 Low offer 1 235.84 19.68 1 436.75 741.15 6 months 0.065 0.612 0.3341 100-day MA 1 279.02 20.96 1 410.52 723.90 NYMEX PLAT 1453.5 60759 -275 Closing bid 1 241.37 19.88 1 449.00 747.80 12 months 0.15333 0.568 0.5726 200-day MA 1 319.42 21.38 1 432.96 722.27 DGCX GLD 1239.4 1575 309 Support 1 237.23 19.77 1 447.96 744.08 TOCOM GLD 4162 83634 -19108 Resistance 1 243.45 19.95 1 459.58 748.43 CBOT GLD 1241.8 147 -166 Daily change -13.07 -0.42 -15.00 -0.30 EFP's -0.9/-0.5 -2/0 +1.5/+3.5 +0.0/+1.0 Open 1 806 7 319 2 201 14 556 22 339 2 078 Close 1 799 7 339 2 212 14 725 22 165 2 089 High 1 806 7 349 2 220 14 755 22 339 2 093 Low 1 781 7 267 2 184 14 430 21 927 2 061 Daily change -8 20 11 169 -174 11 Change (%) -0.42 0.27 0.50 1.16 -0.78 0.54 Cash Settle 1 742.50 7 332.00 2 176.50 14 565.00 22 150.00 2 069.50 Change in cash settle -25 -8 -11 130 -140 -6 Cash - 3m -44.50 64.50 -24.50 -49.00 16.00 1.50

Today 5 466 875 328 375 208 850 260 700 9 260 875 150 Open 13770 51490 22 339 Aluminium 18 915 19 779

Yesterday 5 468 900 330 675 209 450 260 832 9 510 876 650 Last 13765 51660 22 165 Copper 79 589 80 711

In 2 925 25 0 216 0 0 1d Change -45 10 -1 Lead 23 626 24 326

Out 4 950 2 325 600 348 250 1 500

One day change -2 025 -2 300 -600 -132 -250 -1 500 COMEX Ali Feb'14 Cu Feb'14

YTD change (mt) 8 800 -38 050 -5 600 -936 -425 -58 325 Open 335.1

Cancelled warrants (mt) 2 509 700 184 900 42 550 106 290 2 670 296 925 Close 333.65

Cancelled warrants (%) 46 56 20 41 29 34 Change -1.45

Contract turnover 157 224 130 184 33 140 56 754 5 579 67 139 Change (%) -0.43

Nickel 158 103 161 938

Tin 240 438 243 760

Zinc 22 464 22 974

ZAR/USD fix 10.8550 10.9975

1 month 121.911 915.75 980.59 122.276 560.352 587.47 611.758 Q1 14 84.10 84.30

Change 0.01 -3.25 0.50 -0.07 0.86 -1.10 -0.89 Change 0.00 -0.10

2 month 122.241 910.5 978.69 122.861 563.92 583.52 608.54 Q2 14 81.60 81.30

Change 0.35 -2.25 1.84 0.35 0.14 -4.66 -2.80 Change 0.05 -0.05

3 month 121.456 905.75 974.92 122.076 565.98 586.88 602.11 Q3 14 81.95 80.75

Change 0.27 -1.50 2.34 0.27 -0.04 -4.16 -1.73 Change -0.20 -0.30

6 month 120.12 897.75 966.31 120.04 565.98 591.79 596.23 Cal 14 82.85 81.85

Change 0.16 -0.50 1.32 0.16 -0.12 -2.62 -0.70 Change -0.05 -0.15

Source: LME, NYMEX, COMEX, SHFE, Standard Bank Research

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Global | Commodities 23 January 2014

Commodity Prices
Latest Price Bulks SteelPhysical Turkish Scrap 80:20 (Iskinderun CFR) $/t China Tangshan Steel Billet $/t China HRC export (Shanghai FOB) $/t North Europe HRC domestic (ex-works) $/t North America HRC domestic (Midwest FOB) $/t SteelFutures LME Billet Cash $/t LME Billet Futures (1-mth) $/t LME Steel Billet Stocks change Shanghai Rebar Futures (Active contract) $/t Shanghai Rebar Futures On-Warrant Stockschange SHFE Rebar - Open Interest SHFE Rebar - Total Volume China Steel Inventory (million tonnes) Iron ore China Iron Ore Fines (62% Fe; CFR Tianjin) $/t China Iron Ore Fines (58% Fe; CFR Tianjin) $/t SGX AsiaClear IO Swaps 62% Fe $/t (1-mth) Platinum China Iron Ore Inventory (million tonnes) Coking coal Premium Hard Coking Coal (Qld FOB) $/t Capesize freight Saldanha South Africa-Beilun China Financials pricing RMB Currency China 7-day repo API2 (CIF ARA)
Source: LME, SGX, McCloskey, SHFE, Bloomberg

1-week 0.14% -1.59% 0.00% 0.00% 0.29% 9.95% 9.95% -3.20% 1.25% -2.59% 1.08% -1.55% 0.26% 0.00% -6.58% 0.07% -19.28% -3.72%

1-month 1.96% -0.20% 0.19% 0.00% 0.15% 23.53% 23.53% -7.66% 0.39% -5.67% -3.02% -5.31% 0.73% -1.70% -13.41% -0.29% -10.67% -9.26%

3-month 10.61% 1.43% 0.57% -1.71% 6.21% 50.00% 48.58% -4.07% -10.12% -0.23% -0.33% 0.88% 16.30% -9.02% -21.98% -1.06% -10.67% -8.18%

6-month 10.86% -0.60% 6.18% -1.71% 8.06% 120.28% 115.75% 3.15% -18.71% 6.31% 6.82% 7.58% 12.62% -4.39% 31.48% -1.22% 11.67% 3.33%

1-year -0.80% -7.81% -6.16% -8.51% 8.40% 7.51% 6.78% -14.09% 1.55% -17.03% -16.71% -13.11% 11.69% -15.90% 42.00% -2.75% 34.45% -10.74%

392.98 496.00 533.00 430.00 684.00 315.00 315.00 0.00 532.14 0.00 6420.00 1020.00 12.98 131.50 122.10 131.31 37358.00 81.50 136.25 17.75 6.06 4.02 2030.93

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Global | Commodities 23 January 2014

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Global | Commodities 23 January 2014

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