fundamental views and calls on the base metals · 01--2015 01--2016 01--2016 01--2016 01--2016...

Sharekhan Commodity Special

October 22, 2016 1 Commodity

Visit us at www.sharekhan.com October 22, 2016

Fundamental views and calls on the base metals

Registered Office: Sharekhan Limited, 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai – 400042, Maharashtra. Tel: 022 - 61150000. Sharekhan Ltd.: SEBI Registration details: BSE – INB/INF/INE011073351; NSE – INB/INF/INE231073330; MSEI: INB/INF-261073333, CD - INE261073330; DP-NSDL-IN-DP-NSDL-233-2003; CDSL-IN-DP-CDSL-271-2004; PMS-INP000000662; Mutual Fund-ARN 20669 ; Commodity trading through Sharekhan Commodities Pvt. Ltd.: MCX-10080 ; (MCX/TCM/CORP/0425) ; NCDEX-00132 ; (NCDEX/TCM/CORP/0142) ; NCDEX SPOT-NCDEXSPOT/116/CO/11/20626 ; For any complaints email at [email protected] ; Disclaimer: Client should read the Risk Disclosure Document issued by SEBI & relevant exchanges and Do’s & Don’ts by MCX & NCDEX and the T & C on www.sharekhan.com before investing.

For Private Circulation only

Major macro-economic themes:

• Global economy losing momentum

• Lack of stimulus from China on ‘goldilocks’ economy

• Brexit concerns

• Jitters of Fed rate hike in December 2016, stronger US dollar

Metal-specific factors:

• China’s overproduction of aluminium

• Concerns over China’s property market

• Real consumption not justifying implied demand

• Metals still in ‘Over Supply’

• Copper inventories at LME warehouses rising

• China’s copper production rising even as imports fall amid weak demand

• Copper, aluminium to fall

• Nickel likely to rise 30%

• Zinc likely to be range-bound in a wide range

• Lead to rise on winter demand amid tight inventories

In this report, we have analysed base metals like Aluminium, Copper, Nickel, Zinc and Lead. We have considered two major factors influencing the prices: macro-economic scenario and metal-specific fundamentals.

Based on our analysis, we have formed our views on the prices of these metals going forward. We have come out with five calls on three metals.

A: Macro-economic factors

B: Metal-specific factors

Both the factors have been described in detail in the following sections of the report.



A. Macro-Economic factors

To analyse the fundamentals of metals, we need to focus on China, it is the world’s biggest consumer of base metals.

a) China’s economy

China’s accounts for nearly 48% of total global aluminium consumption.

1. China’s trade balance data shows weak domestic and global economy

China, a country largely depending on its exports of goods, has been hit by falling exports. China’s exports have been continuously falling YoY for the last 21 months.

Also, Chinese imports remain lackluster amid weak domestic demand.

China’s imports turned positive on a YoY basis in August 2016 after 21 months of decline. Also, the September imports have been positive on YoY basis.

China’s trade surplus for September 2016 stood at $41.99 billion as against expectations of a $53 billion surplus.

China’s exports and imports reflect the fact that domestic as well as global demand remains subdued.

2. China’s real estate getting a bit too hotChina’s home prices rose by 9.2% in August YoY but in Shenzhen, they increased by ~37%; in Beijing home prices climbed by more than 23% and in Shanghai the increase topped 30%. This has prompted the Chinese government to swing into action, with at least 21 cities introducing purchase restrictions and toughening mortgage lending since late September 2015, reversing two years of easing to support home buyers. The risk of a sharp property downturn in China threatens to derail an economy that’s gaining momentum (reports have shown improvement in manufacturing, new lending, industrial output, fixed-asset investment and retail sales).Actions by China’s policymakers to rein in over-heated property prices may prove so effective that the economy’s growth rate could be affected next year.Our expectation is that growth in China will continue to moderate. The largest headwind on the horizon for China is the housing sector, which peaked in April 2016, and it is now in a correction phase of its cycle.

3. China’s FDI slows downAs economic growth weakens, more investments have flown out of China than coming in during the first eight months of 2016. China’s non-financial outbound direct investment (ODI) jumped 53.3% YoY to over 775 billion Yuan ($116 billion).

China’s FDI inflows have been negative in two out of the last five months till September 2016 on YoY basis.

China Exports y-o-y (%)

-30

-20

-10

0

10

20

30

40

50

01-0

1-20

14

01-0

3-20

14

01-0

5-20

14

01-0

7-20

14

01-0

9-20

14

01-1

1-20

14

01-0

1-20

15

01-0

3-20

15

01-0

5-20

15

01-0

7-20

15

01-0

9-20

15

01-1

1-20

15

01-0

1-20

16

01-0

3-20

16

01-0

5-20

16

01-0

7-20

16

01-0

9-20

16

China imports y-o-y %

-25

-20

-15

-10

-5

0

5

10

15

01-0

1-20

14

01-0

3-20

14

01-0

5-20

14

01-0

7-20

14

01-0

9-20

14

01-1

1-20

14

01-0

1-20

15

01-0

3-20

15

01-0

5-20

15

01-0

7-20

15

01-0

9-20

15

01-1

1-20

15

01-0

1-20

16

01-0

3-20

16

01-0

5-20

16

01-0

7-20

16

01-0

9-20

16

China FDI y-o-y (%)

-10

-5

0

5

10

15

20

25

01-0

2-20

15

01-0

3-20

15

01-0

4-20

15

01-0

5-20

15

01-0

6-20

15

01-0

7-20

15

01-0

8-20

15

01-0

9-20

15

01-1

0-20

15

01-1

1-20

15

01-1

2-20

15

01-0

1-20

16

01-0

2-20

16

01-0

3-20

16

01-0

4-20

16

01-0

5-20

16

01-0

6-20

16

01-0

7-20

16

01-0

8-20

16

01-0

9-20

16

Chinese Trade Balance



4. Manufacturing improves but only marginally

China’s factory activity expanded in September, as domestic and export orders picked up pace, but the improvement was marginal and manufacturers continued to shed jobs.

China’s Caixin manufacturing index crept back into expansion zone in July 2016 after languishing in the contraction zone for 16 months.

5. China’s GDP

Chinese GDP expanded by 6.9% in 2015 - it’s weakest in 25 years, and the Chinese government has targeted a growth rate in a range of 6.5-7.0% for 2016.

As the Chinese economy is currently a Goldilocks type of economy, we don’t except any stimulus in near term.

b) The US economy

1. US GDP

As per the latest “World Economic Outlook” report of the International Monetary Fund released in October 2016, the US economy is expected to grow by 1.6% in 2016 followed by a pick-up in growth in 2017 to 2.2%.

2. US non-farm payroll data

The three-month rolling average in September 2016 was 191,000, which is decent enough for the Fed to consider one more rate hike in 2016.

3. US earnings:

The average of the US average hourly earnings for the last seven months is 0.21%, which is yet again a decent figure.

China Caixin manufacuring Index

44

45

46

47

48

49

50

51

52

01-0

1-20

14

01-0

3-20

14

01-0

5-20

14

01-0

7-20

14

01-0

9-20

14

01-1

1-20

14

01-0

1-20

15

01-0

3 -20

15

01-0

5-20

15

01-0

7-20

15

01-0

9-20

15

01-1

1-20

15

01-0

1-20

16

01-0

3-20

16

01-0

5-20

16

01-0

7-20

16

01-0

9-20

16

China GDP (annualized %)

6.2

6.4

6.6

6.8

7

7.2

7.4

7.6

01-0

3-20

1401

-04-

2014

01-0

5-20

1401

-06-

2014

01-0

7-20

1401

-08-

2014

01-0

9-20

1401

-10-

2014

01-1

1-20

1401

-12-

2014

01-0

1-20

1501

-02 -

2015

01-0

3-20

1501

-04-

2015

01-0

5-20

1501

-06-

2015

01-0

7-20

1501

-08-

2015

01-0

9-20

1501

-10-

2015

01-1

1-20

1501

-12-

2015

01-0

1-20

1601

-02-

2016

01-0

3-20

1601

-04-

2016

01-0

5-20

1601

-06-

2016

US GDP annualized q-o-q (%)

-2

-1

0

1

2

3

4

5

6

01-0

3-20

11

01-0

6-20

11

01-0

9-20

11

01-1

2-20

11

01-0

3-20

12

01-0

6-20

12

01-0

9-20

12

01-1

2-20

12

01-0

3-20

13

01-0

6-20

13

01-0

9-20

13

01-1

2-20

13

01-0

3-20

14

01-0

6-20

14

01-0

9-20

14

01-1

2-20

14

01-0

3-20

15

01-0

6-20

15

01-0

9-20

15

01-1

2-20

15

01-0

3-20

16

01-0

6-20

16

US Non-farm payroll data(‘000)

0

50

100

150

200

250

300

350

01-0

1-20

1201

-03-

2012

01-0

5-20

1201

-07-

2012

01-0

9-20

1201

-11-

2012

01-0

1-20

1301

-03-

2013

01-0

5-20

1301

-07-

2013

01-0

9-20

1301

-11 -

2013

01-0

1-20

1401

-03-

2014

01-0

5-20

1401

-07-

2014

01-0

9-20

1401

-11-

2014

01-0

1-20

1501

-03-

2015

01-0

5-20

1501

-07-

2015

01-0

9-20

1501

-11-

2015

01-0

1-20

1601

-03-

2016

01-0

5-20

1601

-07-

2016

01-0

9-20

16

US average hourly earnings montly %

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

01-0

1-20

1201

-03-

2012

01-0

5-20

1201

-07-

2012

01-0

9-20

1201

-11-

2012

01-0

1-20

1301

-03-

2013

01-0

5-20

1301

-07-

2013

01-0

9-20

1301

-11-

2013

01-0

1-20

1401

-03-

2014

01-0

5-20

1401

-07-

2014

01-0

9-20

1401

-11-

2014

01-0

1-20

1501

-03-

2015

01-0

5-20

1501

-07-

2015

01-0

9-20

1501

-11-

2015

01-0

1-20

1601

-03-

2016

01-0

5-20

1601

-07-

2016

01-0

9-20

16



4. US jobless claims

The weekly US job claims have fallen below 250,000 in the last two weeks. It shows that the American jobs market is tight.

5. US ISM manufacturing index

The US ISM manufacturing index bounced back into the expansion zone in September after slipping into a contraction zone following six straight months of expansion.

6. US ISM non-manufacturing index

The US ISM non-manufacturing composite Index reached 11-month high in September.

7. US core PCE ore

The US core PCE index is close to the Fed’s target of 2% inflation, though some of the FOMC members have doubts on whether sufficient inflationary pressure would emerge going ahead. Nonetheless, some of the FOMC members are concerned that the inflationary pressure could pick up quite fast if the Fed waits too long for increasing the rates, more so as the US economy appears to be nearing full employment.

The possibility of a rate hike by the Fed in near-term:

Presently, world markets are discounting ~65% probability of a rate hike by the Fed in December 2016. Many Fed officials, who were earlier in the dovish camp, have turned vocal about a rate hike sooner rather than later.

The minutes of the September 20-21 FOMC meeting released on October 12 showed that the Fed is willing to hike interest rate relatively soon should the US economy continue to strengthen as per its expectations.

For further reading on the possibility of a rate hike in the US, kindly read the report on selling gold titled as “Sell gold as markets are under-estimating Fed rate hike probability; no major concerns currently”. The report was released on August 26.

Impact of a stronger US dollar on commodities:

The US dollar will gain if the rate hike by the Fed

US initial jobless claims(‘000)

US ISM manufacturing

0

10

20

30

40

50

60

01-0

1-20

1201

-03-

2012

01-0

5-20

1201

-07-

2012

01-0

9-20

1201

-11-

2012

01-0

1-20

1301

-03-

2013

01-0

5-20

1301

-07-

2013

01-0

9-20

1301

-11 -

2013

01-0

1-20

1401

-03-

2014

01-0

5-20

1401

-07-

2014

01-0

9-20

1401

-11-

2014

01-0

1-20

1501

-03-

2015

01-0

5-20

1501

-07-

2015

01-0

9-20

1501

-11-

2015

01-0

1-20

1601

-03-

2016

01-0

5-20

1601

-07-

2016

01-0

9-20

16

US ISM non-manufacturing composite

-8

2

12

22

32

42

52

62

01-0

1-20

1201

-03-

2012

01-0

5-20

1201

-07-

2012

01-0

9-20

1201

-11-

2012

01-0

1-20

1301

-03-

2013

01-0

5-20

1301

-07-

2013

01-0

9-20

1301

-11-

2013

01-0

1-20

1401

-03-

2014

01-0

5-20

1401

-07-

2014

01-0

9-20

1401

-11-

2014

01-0

1-20

1501

-03-

2015

01-0

5-20

1501

-07-

2015

01-0

9-20

1501

-11-

2015

01-0

1-20

1601

-03-

2016

01-0

5-20

1601

-07-

2016

01-0

9-20

16

US core PCE QoQ (%)

0

0.5

1

1.5

2

2.5

3

01-0

3-20

11

01-0

6-20

11

01-0

9-20

11

01-1

2-20

11

01-0

3-20

12

01-0

6-20

12

01-0

9-20

12

01-1

2-20

12

01-0

3-20

13

01-0

6-20

13

01-0

9-20

13

01-1

2-20

13

01-0

3-20

14

01-0

6-20

14

01-0

9-20

14

01-1

2-20

14

01-0

3-20

15

01-0

6-20

15

01-0

9-20

15

01-1

2-20

15

01-0

3-20

16

01-0

6-20

16

US Dollar Index

90

92

94

96

98

100

102

13-0

1-20

15

13-0

2-20

1513

-03-

2015

13-0

4-20

15

13-0

5-20

15

13-0

6-20

15

13-0

7 -20

15

13-0

8-20

15

13-0

9-20

15

13-1

0-20

15

13-1

1-20

15

13-1

2-20

15

13-0

1-20

16

13-0

2-20

16

13-0

3-20

16

13-0

4-20

16

13-0

5-20

16

13-0

6-20

16

13-0

7-20

16

13-0

8-20

16

13-0

9-20

16

13-1

0-20

16

0

50

100

150

200

250

300

350

400

08-1

1-20

13

08-0

1-20

14

08-0

3-20

14

08-0

5-20

14

08-0

7-20

14

08-0

9-20

14

08-1

1-20

14

08-0

1-20

15

08-0

3-20

15

08-0

5-20

15

08-0

7-20

15

08-0

9-20

15

08-1

1-20

15

08-0

1-20

16

08-0

3-20

16

08-0

5-20

16

08-0

7-20

16

08-0

9-20

16



happens in December 2016. It is to be noted that other major central bankers like Bank of Japan (BOJ), Bank of England (BOE) and the European Central Bank (ECB) are in an easing mode.

The strength in the US dollar will make the dollar-denominated metals costlier for non-US companies. Also, the increase in interest rate in the US is likely to put a downward pressure on commodities, as it could adversely affect demand for metals.

B. Metal-specific theme

1. Aluminium

Call: Sell LME Aluminium 3-month at $1688, MCX October aluminium at Rs112.40; Hedge currency risk by buying 10 lots of USDINR at Rs66.88 (spot)

We recommended selling one lot of LME aluminium at 3-month forward price of $1688 (MCX October aluminium at Rs112.40) for targets of $1500 and $1420 with a stop loss (SL) of $1800. We also advised to hedge the currency risk by buying 10 lots of USDINR at Rs66.88 (spot). The timeframe of the call is 6-9 months, and hence rollover is required. This call was generated on October 13.

Aluminum prices have rallied this year due to the appearance and anticipation of a tighter market, strong Chinese demand (fueled by credit and construction boom) and lower-than-expected production. The metal traded in Shanghai has surged 18% in 2016 and is near the highest level since April.

In London, aluminium prices are up 9% in 2016.

a. China’s primary aluminium production to rise further

China is the largest contributor of primary aluminum to the world, accounting for 55% of the global production in 2015. Although Chinese output at 20.472 million tonne during January-August 2016 is down 2.8% YoY, the overall production level is still ~38% above the average production level in the last eight years.

It has been reported that China’s aluminium production in September 2016 stood at a 15-month high, with the production rising to 2.75 million tonne, which is 1.2% above the level seen a year ago.

China’s production to rise further: China’s production is expected to rise further, as the smelters restart their operations - bringing some two million tonne more of the metal to the market.

Some of the China’s provinces like the Gansu region give subsidy to the local aluminium producers in terms of discount in power expenses, access to low interest rate loans etc to keep people employed. Thus, aluminium prices will remain under pressure, as market forces take into accounts extra production and producers’ margins.

The subsidies lead to higher Chinese production and exports of aluminium.

China will also continue to relax policies, which have been designed to shrink coal production capacity, by allowing some mines to boost output to control rising prices. This will be negative for aluminium prices, as coal is used to power aluminum smelters.

Prospects of increase in Indonesian bauxite supply: It has been reported in September 2016 that some of the Indonesian bauxite producers will ask the government to lift an export ban of the material, which is one of the raw ingredients used to make aluminum. They are asking the Indonesian government to grant an annual export quota of 40 million tonne. Indonesia banned bauxite ore exports in 2014 to support the domestic processing industry. If the ban is lifted, it will be negative for aluminium prices, as some of the supply concern will ease. Indonesia used to be the top supplier of bauxite to China before the ban.

b. China’s net aluminium exports

Although China’s total primary aluminium exports are down 8% in the January-July 2016 period on YoY basis, exports are likely to recover on increased aluminium production.

Aluminium price ($/ton)

1400

1500

1600

1700

1800

1900

2000

2100

2200

06-0

1-20

14

06-0

3-20

14

06-0

5-20

14

06-0

7-20

14

06-0

9-20

14

06-1

1 -20

14

06-0

1-20

15

06-0

3-20

15

06-0

5-20

15

06-0

7-20

15

06-0

9-20

15

06-1

1-20

15

06-0

1-20

16

06-0

3-20

16

06-0

5-20

16

06-0

7-20

16

06-0

9-20

16

China total primary aluminium production (tonne)

550000

1050000

1550000

2050000

2550000

3050000

01-1

1-20

0801

-03-

2009

01-0

7-20

0901

-11-

2009

01-0

3-20

1001

-07-

2010

01-1

1-20

1001

-03-

2011

01-0

7-20

1101

-11-

2011

01-0

3-20

1201

-07-

2012

01-1

1-20

1201

-03-

2013

01-0

7-20

1301

-11-

2013

01-0

3-20

1401

-07-

2014

01-1

1-20

1401

-03-

2015

01-0

7-20

1501

-11-

2015

01-0

3-20

1601

-07-

2016

China total aluminium exports(tonne)

10000

20000

30000

40000

50000

60000

70000

80000

90000

01-0

1-20

11

01-0

4-20

11

01-0

7-20

11

01-1

0-20

11

01-0

1 -20

12

01-0

4-20

12

01-0

7-20

12

01-1

0-20

12

01-0

1-20

13

01-0

4-20

13

01-0

7-20

13

01-1

0-20

13

01-0

1-20

14

01-0

4-20

14

01-0

7-20

14

01-1

0-20

14

01-0

1-20

15

01-0

4-20

15

01-0

7-20

15

01-1

0-20

15

01-0

1-20

16

01-0

4-20

16

01-0

7-20

16



c. Aluminium : cash-to-3 month spread

LME aluminium cash-to-3 month spread remains in contango of ~$10, which doesn’t reflect any supply concerns in the immediate terms.

d. Falling premium in Japan

Japanese premiums, the price that Japanese aluminum buyers will pay over the LondonMetal Exchange (LME) cash price, fell to $75/mt. This price will serve as the benchmark for Asian physical markets in Q4 of 2016, down 20% from Q3 and the lowest level since 2009.

e. Brexit concerns

“Hard Brexit (Britain exiting EU) would have a negative impact on both, the UK and the European economy. The British pound is down by ~20% after the UK voted for an exit from the European Union (EU) on June 23.

Risk to our sell call:

The following factors pose a risk to our sell aluminium call:

a. Globalaluminiumsurplus/deficit

Global aluminum production fell by 1.2% to 33.12 million tonne (MT) in the first seven months of 2016. Total

shipments till end-September reached 3.47 MT, down from 3.56 MT a year ago. It’s an unexpected outcome but goes some way in explaining aluminum’s equally unexpected price strength so far in 2016.

The primary aluminium market is in a deficit for the last five months up to July. The deficit is worth half a day of daily global primary aluminium consumption.

The global deficit in aluminium is one of the risk factors to our call. However, the equation can flip into a surplus if China’s aluminium production rises.

b. Dwindling inventories at SHFE and LME warehouses

Assumptions that supply from top producer China would ease had been reinforced by falling stocks of aluminum in warehouses monitored by the Shanghai Futures Exchange (ShFE), which are down more than 75% since March to near 85,000 tonne.

The LME inventories have fallen more than 25% in the first nine months of 2016 to ~2,093,250 tonne, the lowest since around eight years.

c. China’s inflation benign - room for further ratecuts

Since 2012, the Chinese economy has been hit hard and its GDP growth rate has declined from over 10% a year

-50

-40

-30

-20

-10

0

10

20

30

06-0

1-20

15

06-0

2-20

1506

-03-

2015

06-0

4-20

15

06-0

5-20

15

06-0

6-20

15

06-0

7-20

15

06-0

8-20

15

06-0

9-20

15

06-1

0-20

15

06-1

1-20

15

06-1

2-20

15

06-0

1-20

16

06-0

2-20

16

06-0

3-20

16

06-0

4-20

16

06-0

5-20

16

06-0

6-20

16

06-0

7-20

16

06-0

8-20

16

06-0

9-20

16

06-1

0-20

16

Global Aluminium surplus/deficit

-200000

-100000

0

100000

200000

300000

400000

500000

600000

700000

01-0

1-20

1101

-04-

2011

01-0

7-20

1101

-10-

2011

01-0

1-20

1201

-04-

2012

01-0

7-20

1201

-10-

2012

01-0

1-20

1301

-04-

2013

01-0

7-20

1301

-10-

2013

01-0

1-20

1401

-04-

2014

01-0

7-20

1401

-10-

2014

01-0

1-20

1501

-04-

2015

01-0

7-20

1501

-10-

2015

01-0

1-20

1601

-04-

2016

01-0

7-20

16

LME Aluminium stocks(tonne)

2000000

2200000

2400000

2600000

2800000

3000000

3200000

3400000

25-0

9-20

15

16-1

0-20

15

06-1

1-20

15

27-1

1-20

15

18-1

2-20

15

08-0

1 -20

16

29-0

1-20

16

19-0

2-20

16

11-0

3-20

16

01-0

4-20

16

22-0

4-20

16

13-0

5-20

16

03-0

6-20

16

24-0

6-20

16

15-0

7-20

16

05-0

8-20

16

26-0

8-20

16

16-0

9-20

16

07-1

0-20

16

China CPI %(y-o-y)

0.50

1.00

1.50

2.00

2.50

3.00

01-0

1-20

14

01-0

3-20

14

01-0

5-20

14

01-0

7-20

14

01-0

9-20

14

01-1

1-20

14

01-0

1-20

15

01-0

3-20

15

01-0

5-20

15

01-0

7-20

15

01-0

9-20

15

01-1

1-20

15

01-0

1-20

16

01-0

3-20

16

01-0

5-20

16

01-0

7-20

16

01-0

9-20

16



to under 7% in 2016. China’s falling exports, along with contraction in its manufacturing and industrial activities has prompted the Chinese central bank to cut the key lending rate six times starting November 2014. The People’s Bank of China (PBOC) has held the rate at 4.35% since October 2015.

The Chinese central bank has cut the RRR to a five-year low of 17% from 20% early last year in five reductions.

As China’s inflation remains low, the PBOC has still some room left to cut interest rates. If that happens, it can support the base metals. However, since China’s debt-to-GDP ratio is at an alarming level of 250% (with non-financial corporate sector debt-to-GDP ratio of 150%+), the Chinese central bank is unlikely to lower interest rates anytime soon. It is to be noted that bad loans are estimated to be between 15% and 19%, which is a cause for concern.

d. Crude oil prices:

Towards the end of September 2016, OPEC announced that the oil cartel, along with other major global oil producers, was working toward an agreement to reduce oil production by 0.75 million barrels per day (bpd) by November30. The markets’ reaction to this announcement was immediate and unsurprising, with Brent and WTI rising sharply. If OPEC can finalise an agreement in November to cut production, it is highly likely that it will have a strong positive effect on oil prices in the short term.

A sharp rally in crude oil prices would put an upward pressure on aluminium production cost, as energy constitutes ~40% of total input cost for an aluminium producer. However, crude oil prices would find it difficult to rise meaningfully from the current levels unless OPEC comes out with a satisfying plan for output freeze.

Also, it is to be noted that a rate hike by the Fed would weigh on crude oil prices. A rally in crude oil prices would bring US shale oil supply online, which would cap oil prices.

Conclusion of aluminium market analysis:

Considering both the pros and cons of our call, we surmise that a rate hike by the Fed, and rising production in China (consequently a pick-up in Chinese exports of aluminium) would outweigh the risk factors like a possible rally in crude oil prices and the slight deficit in the aluminium market being currently seen. Thus, we recommend selling aluminium.

2. Copper: Likely to fall on rising production in China amid weak demand

Call: Sell LME 3-month copper at $4602 (MCX November copper at Rs311.60); Hedge currency risk by buying 5 lots of USDINR at Rs66.89 (spot)

We recommended selling one lot of copper at LME 3-month price of $4602 (MCX November copper at Rs311.60) for a target of $4000 with SL of $4930. We also advised hedging the currency risk by buying 5 lots of USDINR at Rs66.89 (spot).The timeframe of the call is six months and hence rollover is required. This call was generated on September 12.

As per the Economist Intelligence Unit (EIU), global consumption of refined copper will expand by an average 2.9% a year in 2017-18. The previous estimate was a growth of 4.1% in 2016. The EIU sees copper consumption on an upward trend in the EU and the US. China’s demand is better in 2016 compared with 2015, but this has happened on a low base. Collateral financing and buying by China’s Strategic Reserve Bureau have inflated copper demand in China.

The global copper production is estimated to record a growth of 2.8% for 2016. For the period 2017-18, the growth is likely to be 2.5%. It appears that China’s smelters have put the plan of cutting copper production by 3,50,000 tonne in 2016 on hold due to firmer prices and improved treatment charges (TC).

Copper prices are up by nearly 1.5% in 2016 so far.

US WTI crude oil price ($/barrel)

30

40

50

60

70

80

90

20-1

0-20

1420

-11-

2014

20-1

2-20

1420

-01-

2015

20-0

2-20

1520

-03-

2015

20-0

4-20

1520

-05-

2015

20-0

6-20

1520

-07-

2015

20-0

8-20

1520

-09-

2015

20-1

0-20

1520

-11-

2015

20-1

2-20

1520

-01-

2016

20-0

2-20

1620

-03-

2016

20-0

4-20

1620

-05-

2016

20-0

6-20

1620

-07-

2016

20-0

8-20

1620

-09-

2016

LME Copper price ($/ton)

4000

4500

5000

5500

6000

6500

7000

7500

06-0

1-20

14

06-0

3-20

14

06-0

5-20

14

06-0

7-20

14

06-0

9-20

14

06-1

1-20

14

06-0

1-20

15

06-0

3-20

15

06-0

5-20

15

06-0

7-20

15

06-0

9-20

15

06-1

1-20

15

06-0

1-20

16

06-0

3-20

16

06-0

5-20

16

06-0

7-20

16

06-0

9-20

16



The following metal specific factors are likely to put a downward pressure on copper.

a. China’s refined copper imports

China’s refined copper imports fell to 19-month low in August 2016 amid weak domestic demand and rising production in China.

b. China’s refined copper production

China’s refined copper production rose to nearly the highest level in 2016 in July.

c. LME copper stocks

LME copper stocks are up by nearly 145% since April 1, as China’s demand weakened. Most of the stock increase has happened in the Asian warehouses, which reflects a weak regional demand.

d. Global copper surplus/deficit

Global refined copper slipped back into a surplus market in July 2016 after four straight months of deficit.

e. Copper cancelled warrants

LME copper cancelled warrant % has moved from ~17% on April 1 to ~27% in mid-October, while the inventories have gone up by 143% in the same period. It confirms subdued physical demand.

f. LME copper cash-to-3 month spread

LME copper cash-to-3 month spread stands at $21 (contango), which reflects no major supply concerns presently.

China refined copper imports (tonne)

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

01-0

1-20

0801

-05-

2008

01-0

9-20

0801

-01-

2009

01-0

5-20

0901

-09-

2009

01-0

1-20

1001

-05-

2010

01-0

9 -20

1001

-01-

2011

01-0

5-20

1101

-09-

2011

01-0

1-20

1201

-05-

2012

01-0

9-20

1201

-01-

2013

01-0

5-20

1301

-09-

2013

01-0

1-20

1401

-05-

2014

01-0

9-20

1401

-01-

2015

01-0

5-20

1501

-09-

2015

01-0

1-20

1601

-05-

2016

China refined copper production (tonne)

450000

500000

550000

600000

650000

700000

750000

800000

850000

01-1

0-20

13

01-1

2-20

13

01-0

2-20

14

01-0

4-20

14

01-0

6-20

14

01-0

8-20

14

01-1

0-20

14

01-1

2-20

14

01-0

2-20

15

01-0

4-20

15

01-0

6-20

15

01-0

8-20

15

01-1

0-20

15

01-1

2-20

15

01-0

2-20

16

01-0

4-20

16

01-0

6-20

16

LME copper stocks (tonne)

100000

150000

200000

250000

300000

350000

400000

25-0

9-20

1509

-10-

2015

23-1

0-20

1506

-11-

2015

20-1

1-20

1504

-12-

2015

18-1

2-20

1501

-01-

2016

15-0

1-20

1629

-01-

2016

12-0

2-20

1626

-02 -

2016

11-0

3-20

1625

-03-

2016

08-0

4-20

1622

-04-

2016

06-0

5-20

1620

-05-

2016

03-0

6-20

1617

-06-

2016

01-0

7-20

1615

-07-

2016

29-0

7-20

1612

-08-

2016

26-0

8-20

1609

-09-

2016

23-0

9-20

1607

-10-

2016

Global copper surplus/deficit(tonne)

-300000

-250000

-200000

-150000

-100000

-50000

0

50000

100000

150000

200000

01-0

1-20

14

01-0

3-20

14

01-0

5-20

14

01-0

7-20

14

01-0

9-20

14

01-1

1-20

14

01-0

1 -20

15

01-0

3-20

15

01-0

5-20

15

01-0

7-20

15

01-0

9-20

15

01-1

1-20

15

01-0

1-20

16

01-0

3-20

16

01-0

5-20

16

01-0

7-20

16

LME copper Cancelled warrant (%)

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

04-0

1-20

16

18-0

1-20

16

01-0

2-20

16

15-0

2-20

16

29-0

2-20

16

14-0

3-20

16

28-0

3-20

16

11-0

4 -20

16

25-0

4-20

16

09-0

5-20

16

23-0

5-20

16

06-0

6-20

16

20-0

6-20

16

04-0

7-20

16

18-0

7-20

16

01-0

8-20

16

15-0

8-20

16

29-0

8-20

16

12-0

9-20

16

26-0

9-20

16

10-1

0-20

16LME copper cash to 3 month spread($/ton)

-50

-30

-10

10

30

50

70

90

07-0

1-20

15

07-0

2-20

1507

-03-

2015

07-0

4-20

15

07-0

5-20

15

07-0

6-20

15

07-0

7-20

15

07-0

8-20

15

07-0

9-20

15

07-1

0-20

15

07-1

1-20

15

07-1

2-20

15

07-0

1-20

16

07-0

2-20

16

07-0

3-20

16

07-0

4-20

16

07-0

5-20

16

07-0

6-20

16

07-0

7-20

16

07-0

8-20

16

07-0

9-20

16

07-1

0-20

16



Risk to our copper sell call

a. Low level of SHFE stocks

Depleting deliverable SHFE copper stocks pose a risk to our sell recommendation.

b. Expected surplus is small

The refined copper market is likely to be in the surplus of ~2 lakh tonne for the next one year. This amounts to a global consumption worth four days. This small surplus can disappear in case of strikes at copper mines or natural calamities affecting production.

Conclusion of copper market analysis

Looking at a surplus in the refined copper market, weak domestic demand in China, rising copper production in China and fragile global economy, we infer that copper prices are likely to fall further before production cuts or a revival in the global economy brings the market in balance.

3. Zinc: dips to remain well supported

Zinc prices are up by nearly 40% in 2016 so far.

As per EIU, the global consumption rate is likely to increase to 1.8% in 2017-18 from 0.9% in 2016. The demand in the US is likely to rise after contracting 10% in 2016. European and Chinese demand growth rate is likely to decelerate.

The global refined zinc demand is likely to lag behind consumption in 2017-18, as nearly one million tonne of global capacity has been lost due to aging mines being closed down. Global production growth rate is likely to rise by less than 1%.

The following factors are likely to support zinc prices:

1. Decline in global zinc ore production

World’s biggest zinc producer Vedanta shutting down its Lisheen mine (300,000 tonne annual capacity) in Ireland and MMG’s Century mine shutdown (350,000 tonne annual production) in Australia have affected the global output of primary ore production. The closure of the two zinc mines and Glencore’s cutback has removed ~8.5% of the global zinc supply.

The global zinc ore production is down by ~13% from a three-year peak level of 12.73 lakh tonne seen in June 2014.

c. Declining LME stocks

LME stocks of zinc are down by ~60% from the four-year peak level of 12.35 lakh tonne seen in June 2016.

As zinc moved into a supply deficit, LME inventories started declining, thereby triggering a rally in zinc prices.

SHFE copper stocks

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

22-1

0-20

1505

-11-

2015

19-1

1-20

1503

-12-

2015

17-1

2-20

1531

-12-

2015

14-0

1-20

1628

-01-

2016

11-0

2-20

1625

-02-

2016

10-0

3-20

1624

-03-

2016

07-0

4-20

1621

-04-

2016

05-0

5-20

1619

-05-

2016

02-0

6-20

1616

-06-

2016

30-0

6-20

1614

-07-

2016

28-0

7-20

1611

-08-

2016

25-0

8-20

1608

-09-

2016

22-0

9-20

1606

-10-

2016

LME zinc price ($/ton)

140015001600170018001900200021002200230024002500

07-0

1-…

07-0

2-…

07-0

3-…

07-0

4-…

07-0

5-…

07-0

6-…

07-0

7-…

07-0

8-…

07-0

9-…

07-1

0-…

07-1

1-…

07-1

2-…

07-0

1-…

07-0

2-…

07-0

3-…

07-0

4-…

07-0

5-…

07-0

6-…

07-0

7-…

07-0

8-…

07-0

9-…

07-1

0-…

global zinc ore production monthly (tonne)

800000

850000

900000

950000

1000000

1050000

1100000

1150000

1200000

1250000

130000001

-01-

2014

01-0

3-20

14

01-0

5-20

14

01-0

7-20

14

01-0

9-20

14

01-1

1-20

14

01-0

1-20

15

01-0

3-20

15

01-0

5-20

15

01-0

7-20

15

01-0

9-20

15

01-1

1-20

15

01-0

1-20

16

01-0

3-20

16

01-0

5-20

16

01-0

7-20

16

LME zinc stocks (tonne)

300000

400000

500000

600000

700000

800000

900000

1000000

1100000

1200000

1300000

06-0

1-20

12

06-0

4-20

12

06-0

7-20

12

06-1

0-20

12

06-0

1 -20

13

06-0

4 -20

13

06-0

7-20

13

06-1

0 -20

13

06-0

1-20

14

06-0

4-20

14

06-0

7-20

14

06-1

0-20

14

06-0

1-20

15

06-0

4-20

15

06-0

7-20

15

06-1

0-20

15

06-0

1-20

16

06-0

4-20

16

06-0

7-20

16

06-1

0-20

16



d. Stocks at Shanghai metal exchange

The stocks at Shanghai exchanges have been falling continuously, pointing to a clear trend that falling imports of primary ores for smelting made zinc users to seek the metal from Shanghai warehouses.

e. China’s net zinc imports

China’s net refined zinc imports started rising around two years back.

f. China’s zinc production

The Chinese smelters that churn out more than 40% of the world’s zinc may cut production for the first time in four years because they can’t get enough raw material, further lifting prices of one of this year’s strongest-performing commodities. Production of refined zinc in China is set to drop by ~6% in 2016 YoY to 5.65 MT amid the biggest shortage in supply of mined concentrate on record.

Bearish points for zinc

a. Some of the Chinese smelters that have shut down production earlier are likely to restart production if the prices rise further

b. LME cancelled warrants as a percentage of total LME stocks are quite low, which indicates somewhat subdued real demand

c. Some zinc mines can restart: Nyrstar announced on September 27 that it is re-activating its Middle Tennessee mines. Antamina mine in Peru updated in a conference call that the mine will likely double its zinc output to between 340,000 and 360,000 tonne in 2017.

d. IISI Total Global Steel Production

Total global steel production fell to seven-month low in July 2016.

Conclusion of zinc market analysis

The rally in zinc has been robust and there have been only limited pullbacks along the way. The physical market is quiet but much of that may be due to consumers being covered by long-term contracts. With negotiations for 2017 starting, the tighter fundamentals may well give premiums and sentiment a boost.

Given the sharp gains, we do not expect too much room for any incremental upside. Still, zinc producers may want to see LME zinc stocks fall further before they restart idle capacity so the market could run hot for a while. Producers may well increase hedge selling before announcing restart of production. Therefore, we need to be wary of that.

The MCX zinc contract is likely to trade between Rs140 and Rs165 in the foreseeable future.

LME zinc CW %

IISI Total world steel production(‘000 tonne)

120000

125000

130000

135000

140000

145000

01-0

1-20

12

01-0

4-20

12

01-0

7-20

12

01-1

0 -20

12

01-0

1 -20

13

01-0

4 -20

13

01-0

7-20

13

01-1

0-20

13

01-0

1 -20

14

01-0

4-20

14

01-0

7-20

14

01-1

0-20

14

01-0

1-20

15

01-0

4-20

15

01-0

7-20

15

01-1

0-20

15

01-0

1-20

16

01-0

4-20

16

01-0

7-20

16

Shangai Stock Tones

China’s net zinc imports (tonne)

-20000

0

20000

40000

60000

80000

100000

01-1

1-20

13

01-0

1-20

14

01-0

3-20

14

01-0

5-20

14

01-0

7-20

14

01-0

9-20

14

01-1

1-20

14

01-0

1-20

15

01-0

3-20

15

01-0

5-20

15

01-0

7-20

15

01-0

9-20

15

01-1

1-20

15

01-0

1-20

16

01-0

3-20

16

01-0

5-20

16

01-0

7-20

16

0

5

10

15

20

25

30

35

40

23-1

2-20

14

23-0

1-20

15

23-0

2-20

1523

-03-

2015

23-0

4-20

15

23-0

5-20

15

23-0

6-20

15

23-0

7-20

15

23-0

8-20

15

23-0

9-20

15

23-1

0-20

15

23-1

1-20

15

23-1

2-20

15

23-0

1-20

16

23-0

2-20

16

23-0

3-20

16

23-0

4-20

16

23-0

5-20

16

23-0

6-20

16

23-0

7-20

16

23-0

8-20

16

23-0

9-20

16



4. Nickel

As per EIU, the apparent consumption of nickel in 2016 was 2 million tonne, which is up by 11.8% over 2015. The revival in nickel consumption came on a turnaround in the stainless steel sector and massive re-stocking, especially in China.

Nickel prices are up by nearly 15% in 2016 so far.

The global nickel production is likely to grow by 5.4% in 2017-18 due to the increase in Russian production and a pick-up in Chinese production.

Positive points for nickel market

a. Supply concerns coming from Indonesia and Philippines

Due to the ban on mineral-ore exports from Indonesia in January 2014, once the world’s biggest nickel producer, Indonesian mined nickel production slumped from 834,000 tonne in 2013 to 177,000 tonne in 2014. This drop in Indonesian production led to a rise in nickel exports from the neighboring Philippines.

However, the Philippines is now walking on the same path as Indonesia once did. Since coming into power in June, the new Philippines administration has already suspended 10 nickel mines, including eight nickel ore producers. Around 20 more nickel mines can be asked to shut down. The ban is in connection with the norms pertaining to environmental concerns.

Last year, the Philippines produced 465,000 tonne of nickel, representing over 20% of world mined output. The Philippines’ nickel production fell by 24% to 215,900 tonne in the first seven months of 2016.

Meanwhile, Indonesian nickel production is gradually recovering. After imploding to just 130,000 tonne contained nickel last year, production jumped by 30% to 98,000 tonne in the first seven months of 2016. According to the Indonesian Smelter & Minerals Processing Association, Indonesia’s nickel output could climb by 36% to 217,500 tonne this year, and to 363,000 tonne in 2017.

b. Nickel stocks at LME

Due to production cut-backs amid low prices, nickel LME stocks are down by ~25% from the cyclical peak seen 15 months back.

c. China’s nickel based stainless production in an upswing

Rising nickel based stainless production is positive for the alloying metal.

Nickel ore Exports Philipines tones

China nickel-based Stainless steel total production (tonne)

LME nickel price ($/ton)

7000

8000

9000

10000

11000

12000

13000

14000

15000

16000

07-0

1-20

15

07-0

2-20

15

07-0

3-20

15

07-0

4-20

15

07-0

5-20

15

07-0

6-20

15

07-0

7-20

15

07-0

8-20

15

07-0

9-20

15

07-1

0-20

15

07-1

1-20

15

07-1

2-20

15

07-0

1-20

16

07-0

2-20

16

07-0

3-20

16

07-0

4-20

16

07-0

5-20

16

07-0

6-20

16

07-0

7-20

16

07-0

8-20

16

07-0

9-20

16

07-1

0-20

16

LME nickel stocks (tonne)

350000

370000

390000

410000

430000

450000

470000

490000

07-0

1-20

15

07-0

2-20

1507

-03-

2015

07-0

4-20

15

07-0

5-20

15

07-0

6 -20

15

07-0

7-20

15

07-0

8-20

15

07-0

9-20

15

07-1

0-20

15

07-1

1-20

15

07-1

2-20

15

07-0

1-20

16

07-0

2-20

1607

-03-

2016

07-0

4-20

16

07-0

5-20

16

07-0

6-20

16

07-0

7-20

16

07-0

8-20

16

07-0

9-20

16

07-1

0-20

16

Primary Nickel production (Philipines) tones

1000000

1100000

1200000

1300000

1400000

1500000

1600000

1700000

1800000

01-0

3-20

14

01-0

5-20

14

01-0

7-20

14

01-0

9-20

14

01-1

1-20

14

01-0

1-20

15

01-0

3-20

15

01-0

5-20

15

01-0

7-20

15

01-0

9-20

15

01-1

1-20

15

01-0

1-20

16

01-0

3-20

16

01-0

5-20

16

01-0

7-20

16



businessmen, who built nickel smelters in the wake of the ore ban, have protested. If the Indonesian government allows some nickel ore exports, it would be bearish for the nickel market.

Conclusion of nickel market analysis

The problem for nickel bulls is that the deficit is still small relative to the stock build-up that has taken place over the last two years. Still, refined nickel is likely to appreciate by ~30% in the next one year due to ongoing deficit and export bans in Indonesia and the Philippines.

Moreover, lower ore output has fed through to lower refined production, which combined with strong demand, particularly from China’s stainless sector, has pushed the market into cumulative 42,500-tonne supply deficit so far this year.

5. Lead

Lead prices faced tough times, as the metal fell to a six-year low in November 2015. It wasn’t surprising as the global refined-lead demand declined 3% in 2015 due to weak demand in China and the US. However, demand for lead recovered in 2016, increasing by 2% to 10.83 MT. China is a key factor for lead, as the country accounted for 39% of the world’s refined-lead consumption in 2015.

As per Bloomberg analysis, global mined lead output declined 4.2% during January-July following a 20% contraction in 2015. Global refined lead demand may increase by 2% during 2016, according to the International Lead & Zinc Survey Group. In the longer term, demand for lead may begin to wane, as alternative metals such as Lithium and Graphene may be used for power storage, which is currently 80% of all lead use.

Call: Lead - MCX October - Buy at Rs132.90 (LME 3-month at $2000). Stop Loss at $1880. Target $2200/$2280. Rollover required as timeframe is 6-9 months.

We recommended buying one lot of lead on October 20; the equivalent price of LME 3-month is $2000. We look for a target of $2200 and $2280 in the next 6-9 months. Rollover is required. The recommended stop loss is $1880.

Lead prices are up by nearly 14% so far this year.

China nickel ore production (tonne)

China Nickel imports Tones

d. China’s nickel ore production

China’s nickel ore production is taking a hit due to low nickel prices and reduced exports from Indonesia and the Philippines.

China’s imports of nickel ore imports has picked up since 2014.

e. Nickel market in deficit

As per World Bureau, the global refined nickel market has been in deficit of 75,000 tonne in January-August 2016. The refined nickel market is expected to be in a deficit through 2020.

f. Reduced mine supply

Global mine supply is still down on YoY basis to the tune of 6.5%, according to the INSG.

Bearish point for nickel

a. LME inventory overhang

Among all the base metals, nickel has the worst LME stocks to global daily usage ratio. The inventories suffice for nearly four months of global consumption.

b. Indonesia might allow some relaxation for nickel ore exports

In October, the Indonesian government mulled over the idea of allowing some nickel exports, but Chinese

6900

7100

7300

7500

7700

7900

8100

8300

8500

01-0

1-20

14

01-0

3-20

14

01-0

5-20

14

01-0

7-20

14

01-0

9-20

14

01-1

1-20

14

01-0

1-20

15

01-0

3-20

15

01-0

5-20

15

01-0

7-20

15

01-0

9-20

15

01-1

1-20

15

01-0

1-20

16

01-0

3-20

16

01-0

5-20

16

01-0

7-20

16

LME lead price ($/tonne)

1500

1600

1700

1800

1900

2000

2100

2200

07-0

1-20

15

07-0

2-20

1507

-03-

2015

07-0

4-20

15

07-0

5 -20

15

07-0

6-20

15

07-0

7-20

15

07-0

8-20

15

07-0

9-20

15

07-1

0-20

15

07-1

1-20

15

07-1

2-20

15

07-0

1-20

16

07-0

2-20

16

07-0

3-20

16

07-0

4-20

16

07-0

5-20

16

07-0

6-20

16

07-0

7-20

16

07-0

8-20

16

07-0

9-20

16

07-1

0-20

16



Positive points for lead:

a. SHFE Lead stocks

SHFE lead stocks are down by nearly 30% from their July 2016 level.

b. Winter demand:

Batteries are still the bedrock of the lead market and are going to remain so for the foreseeable future. Nearly 80% demand for lead comes from the battery sector. The demand for the heavy metal rises in winter, as the older or weaker batteries tend to fail in the winter, thus making drivers to stock up on new batteries.

c. LME Lead stocks

Lead inventories are up 20% in last seven months, though they are down slightly from the level seen at the start of 2016. However, overall, the inventory overhang is not severe, as the LME stocks would suffice for nearly five days of global consumption. In case of a severe winter, the inventory level can easily fall to critically low level.

d. Auto sales in major economies healthy

Growth in global auto sales was predominantly the result of strength in sales in the EU and China, which negated the decline in other regions. Sales were up in the first

nine months of 2016, compared to the same period of 2015, which was again largely driven by Chinese sales.

China’s passenger vehicle sales climbed for a sixth consecutive month in September, which were 22.5% above August sales. China’s new car sales are at 16.75 million vehicles, an increase of 15% from the same period of last year.

The US auto sales are going strong too.

New car sales in Europe grew by 7.3% in September; Nine-month European sales are up 7.7% at 11.6 million. European car sales have been increasing since 2013, rebounding from a two-decade low in the aftermath of the 2008 financial crisis.

China Auto Sale Units

US Auto Sales Y-o-Y Million Units

European Autosales monthly units

SHFE lead stocks

0

20000

40000

60000

80000

100000

120000

140000

160000

15-12-2011 15-12-2012 15-12-2013 15-12-2014 15-12-2015

LME lead stocks

100000

150000

200000

250000

300000

350000

07-01-2013 07-01-2014 07-01-2015 07-01-2016



e. China’s refined lead production

The refined lead metal production declined sharply in China. China’s primary lead mine production has seen a continuous fall over the past three years after rising for a decade. As the Chinese administration gets serious about the environmental issue, the local government has shut down the power to 26 zinc and lead mines in the sensitive areas due to safety and environmental concerns. The ban will be in place until June 2017.

The following points are bearish for lead.

a. LME lead stocks CW (%)

LME cancelled tonnage at 17% is not really high.

b. Lead in surplus

The latest ILZSG preliminary data indicates that global refined lead market was in surplus of 43,000 tonne during the first seven months of 2016. The total reported lead inventories increased by 54,000 tonne during the same period.

Conclusion of lead market analysis:

Analysing both positive and negative factors for lead prices, we conclude that due to healthy global auto sales, relatively low level of lead stocks and challenged mining production, the price of the metal is likely to rise in the winter - a strong seasonal demand period. The risk can come from a mild winter.

Call 4: On October 21, we recommended ‘sell’ on Aluminium October 2016 at Rs108.70 (LME 3-month aluminium at $1627) and to ‘buy’ 3 lots of Nickel October 2016 at Rs666.60 (LME 3-month nickel at $9980) against the ‘sell’ position in Aluminium. The stop loss spread advised is Rs50,000 while the target spread is Rs1,00,000. Timeframe of the call is nine months to one year, and therefore rollover is required.

Rationale for the call: Analysing the factors as mentioned in the report, we are bearish on Aluminium and bullish on Nickel.

Call 5: On October 21, we recommended ‘buy’ on Nickel October 2016 at Rs666.60. The stop loss advised is $8500 while the target is $12500. The timeframe for this call is 9-12 months and hence rollover will be required.

Rationale for the call: Based on our analysis articulated in the report, we are bullish on Nickel.

China’s Refined Lead Production tonne

LME lead CWS (%)

0

10

20

30

40

50

60

70

23-1

2-20

1423

-01-

2015

23-0

2-20

1523

-03-

2015

23-0

4-20

1523

-05-

2015

23-0

6-20

1523

-07-

2015

23-0

8-20

1523

-09-

2015

23-1

0-20

1523

-11-

2015

23-1

2-20

1523

-01-

2016

23-0

2-20

1623

-03-

2016

23-0

4-20

1623

-05-

2016

23-0

6-20

1623

-07-

2016

23-0

8-20

1623

-09-

2016



For Private Circulation only

Visit us at www.sharekhan.com Home

“This document has been prepared by Sharekhan Commodities Pvt. Ltd. and is intended only for the person or entity to which it is addressed to and may contain confidential and/or privileged material and is not for any type of circulation. Any review, retransmission, or any other use is prohibited. Kindly note that this document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. If you have received this in error, please contact the sender and delete the material immediately from your computer/mailbox. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may from time to time have positions in, or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned. Any comments or statements made herein do not necessarily reflect those of Sharekhan Commodities Pvt. Ltd.”

http://www.tradingacademy.com/ptwmumbai/default2.aspx?campaignid=70140000000L2Kv&campaigncode=INWB4NA001010CDPEPR_Web_Banner_New

fundamental views and calls on the base metals · 01--2015 01--2016 01--2016 01--2016 01--2016...

Documents