Adamson Associates •China risks affect base metal basket •Copper under threat from structural unwinding of financing •Gold and Platinum benefit from Ukrainian tension •Most metals still too high for yearly target 11Mar2014 | Commodities Weekly, Metals SUBSCRIBE HERE | http://www.adamsoncommodities.myinstapage.com Or email us: [email protected]Weekly Metals Tracker
•China risks affect base metal basket •Copper under threat from structural unwinding of financing •Gold and Platinum benefit from Ukrainian tension •Most metals still too high for yearly target
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Adamson Associates
•China risks affect base metal basket •Copper under threat from structural unwinding of financing •Gold and Platinum benefit from Ukrainian tension •Most metals still too high for yearly target
11Mar2014 | Commodities Weekly, Metals
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• The first corporate bond default was coupled by surprising trade deficit in China, base metals and minerals prices hit; aluminium fundamentals do not help; solid contango
• Destocking driven by production cuts in Ex China undermined by China production gains; LME destocking pauses; open interests gains reflecting shorts
• Prices are better in March comparing to the previous month, however, still at very undervalued levels; Aluminium current pricing still too high for yearly target
• SHFE AL pricing fell sharply with no sign of picking up by weekend, reflecting strong bearish sentiments surrounding fate of economy and financing deals
• The supply tightness in an inverse forward curve has disappeared, turning into a normal contango; restocking has started, signalling re-emerging pressure on soft demand
Copper
• The biggest copper consumer – China, having its shadow financing sector curbed, means less demand for copper financing deals, discouraging pricing; LME supply tightness
• While destocking continues, it is happening at a slower pace, there are demand side concerns; open interests fell, reflecting long liquidation
• Undervaluation worsens for copper in March, the combo of bad news from China means the metal will remain depressed in the short term; pricing still too high for target
• SHFE copper pricing collapses similar to LME, capturing the correlating factors that are originating from China
• Forward curves show a slight contango; there is a slight degree of tightness in near-dated contracts; restocking starts to gain momentum, demand brought into question
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• Zinc’s rise was also affected by the latest economic developments, however, at a lesser degree than other base metals; there is supply tightness in near-dated contracts
• Zinc has seen its stock level to pick up for the first time in a while, signalling a hit on demand for base metals; open interests gained as long liquidations entered the market
• Zinc is still overvalued, and doing much better than the rest of the basket; as a result, it exceeds its price target quite a bit, with room for fall
• SHFE Zinc has not been performing at par with LME Zinc, price mainly fluctuated and fell in the recent week
• Zinc is in a normal contango with no supply side tightness; restocking is strong for the metal in SHFE warehouses, underlying pressure from demand
Lead
• Lead performs in along a similar pattern as Zinc, price fluctuated and fell; curve is normal with no supply side tightness
• Stocks have been rising for lead on the LME, underlying some pressure for the metal; open interests gained as long liquidations occured
• Lead has become undervalued after a brief month being overvalued; the price however is within its yearly target range
• SHFE lead deteriorated in February, undermined by worries over China’s economy
• There has been little change for lead stock; the metal is in a normal forward curve
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• Gold benefits from Ukrainian uncertainties, greater inflation and Chinese buying; seen as a safe haven, the precious metal has a rather flat near-dated curve
• Gold stocks gained somewhat over the week; open interest fell slightly, with a mixture of long liquidation and short covering
• Gold is almost at value given current pricing; its pricing however, has far exceeded its yearly target, with room for fall
Silver
• Silver has been unable to cash in on the geo-political volatilities that have been positively driving other precious metals, silver continues to perform poorly
• Inventories continue to pile up for silver; open interests fell as long liquidation dominated
• Silver has been recovering from its massive undervaluation; its current pricing is however too high for its yearly target
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• Platinum has been a beneficiary of the Russian-Ukrainian tension, being the largest supplier of the precious metal, volatilities have been driving prices up
• Inventories reduced slightly over the week; open interests gained as shorts drove prices down
• Platinum is slightly undervalued at its current level; it is also still higher than its yearly target range
Additional Data
• Steel prices continued to fall, dragging Iron Ore and the Aussie Dollar
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The first corporate bond default was coupled by surprising trade deficit in China, base metals and minerals prices hit; aluminium fundamentals do not help; solid contango
Aluminium: Spot and 3M Price, USD/t
Source: LME, Adamson
1729.5
1771
1,500
1,550
1,600
1,650
1,700
1,750
1,800
1,850
Spot 3M
Aluminium: Futures Curve (USD/t)
Source: LME, Adamson
1729.5
1771
1918
1987
2053
1641.5
1686.5
1848
1925
2000
1,600
1,650
1,700
1,750
1,800
1,850
1,900
1,950
2,000
2,050
2,100
7/03/2014 4/02/2014
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Prices are better in March comparing to the previous month, however, still at very undervalued levels; Aluminium current pricing still too high for yearly target
Aluminium: Valuation benchmark
Adamson
-58
-47
-78 -82
-204 -201
-239
-110 -108
-132
-63
-192
-109
-300
-250
-200
-150
-100
-50
0
2013M
03
2013M
04
2013M
05
2013M
06
2013M
07
2013M
08
2013M
09
2013M
10
2013M
11
2013M
12
2014M
01
2014M
02
2014M
03
Aluminium: Current Year Model Fundamental
Adamson
1561
1630
1668
1,500
1,520
1,540
1,560
1,580
1,600
1,620
1,640
1,660
1,680
Conservative Avg Less Conservative
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SHFE AL pricing fell sharply with no sign of picking up by weekend, reflecting strong bearish sentiments surrounding fate of economy and financing deals
SHFE Aluminium: Spot and 3M Price, RMB
Source: SHFE, Adamson
13070
13230
12,700
12,800
12,900
13,000
13,100
13,200
13,300
13,400
13,500
13,600
13,700
Spot 3M
Aluminium: Spot and 3M Price, USD
Source: LME, Adamson
1729.5
1771
1,500
1,550
1,600
1,650
1,700
1,750
1,800
1,850
Spot 3M
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The supply tightness in an inverse forward curve has disappeared, turning into a normal contango; restocking has started, signalling re-emerging pressure on soft demand
SHFE Aluminium: Stock, T
Source: SHFE, Adamson
309654
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
SHFE Aluminium: Futures Curve (USD/t)
Source: SHFE, Adamson
Wee
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The biggest copper consumer – China, having its shadow financing sector curbed, means less demand for copper financing deals, discouraging pricing; LME supply tightness
Copper: Spot and 3M Price, USD
Source: LME, Adamson
6931
6915.5
6,750
6,800
6,850
6,900
6,950
7,000
7,050
7,100
7,150
7,200
7,250
Spot 3M
Copper: Futures Curve (USD/t)
Source: LME, Adamson
7107
7060
7000
6975
6950
6930.5
6915.5
6895
6880 6870
6,750
6,800
6,850
6,900
6,950
7,000
7,050
7,100
7,150
4/02/2014 7/03/2014
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Undervaluation worsens for copper in March, the combo of bad news from China means the metal will remain depressed in the short term; pricing still too high for target
Copper: Valuation benchmark
Adamson
-173
-327 -316
-504
-875
-747 -731
-372
-248 -216
143
-326 -339
-1,000
-800
-600
-400
-200
0
200
2013M
03
2013M
04
2013M
05
2013M
06
2013M
07
2013M
08
2013M
09
2013M
10
2013M
11
2013M
12
2014M
01
2014M
02
2014M
03
Copper: Current Year Model Fundamental
Adamson
6268
6536
6687
6,000
6,100
6,200
6,300
6,400
6,500
6,600
6,700
6,800
Conservative Avg Less Conservative
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Forward curves show a slight contango; there is a slight degree of tightness in near-dated contracts; restocking starts to gain momentum, demand brought into question
SHFE Copper: Futures Curve (USD/t)
Source: SHFE, Adamson
47,500
48,000
48,500
49,000
49,500
50,000
50,500
51,000
51,500
0 1 2 3 4 5 6 7 8 9 10 11
7-Mar-14 27-Jan-14
SHFE Copper: Stock, T
Source: SHFE, Adamson
0
50,000
100,000
150,000
200,000
250,000
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Zinc’s rise was also affected by the latest economic developments, however, at a lesser degree than other base metals; there is supply tightness in near-dated contracts
Zinc: Spot and 3M Price, USD
Source: LME, Adamson
2094.5
2067.5
1,850
1,900
1,950
2,000
2,050
2,100
2,150
2,200
Spot 3M
Zinc: Futures Curve (USD/t)
Source: LME, Adamson
1965 1965
2018
2038 2033
2094.5
2067.5
2103 2108
2103
1,850
1,900
1,950
2,000
2,050
2,100
2,150
4/02/2014 7/03/2014
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Zinc has seen its stock level to pick up for the first time in a while, signalling a hit on demand for base metals; open interests gained as long liquidations entered the market
Zinc: Stock and Cancelled Warrants, T
Source: LME, Adamson
Zinc: Open Interest, Lots
Source: LME, Adamson
292,563
287,378
296,121
319372
270,000
280,000
290,000
300,000
310,000
320,000
330,000
776000
166450
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
500000
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
1000000
Stocks Cancelled Warrants
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Gold benefits from Ukrainian uncertainties, greater inflation and Chinese buying; seen as a safe haven, the precious metal has a rather flat near-dated curve
Gold: Spot Price, USD
Source: CME, Adamson
1341.1
1,290
1,300
1,310
1,320
1,330
1,340
1,350
1,360
Spot
Gold: Futures Curve (USD/oz)
Source: LME, Adamson
1,336
1,338
1,340
1,342
1,344
1,346
1,348
1,350
1,352
Ma
r-14
Ma
y-1
4
Jul-1
4
Sep-1
4
Nov-1
4
Jan-1
5
Ma
r-15
Ma
y-1
5
Jul-1
5
Sep-1
5
Nov-1
5
Jan-1
6
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Silver has been unable to cash in on the geo-political volatilities that have been positively driving other precious metals, silver continues to perform poorly
Silver: Spot Price, USD
Source: CME, Adamson
20.875
18.5
19.0
19.5
20.0
20.5
21.0
21.5
22.0
22.5
Spot
Silver: Futures Curve (USD/oz)
Source: LME, Adamson
20.20
20.40
20.60
20.80
21.00
21.20
21.40
21.60
21.80
22.00
22.20
Ma
r-14
Apr-1
4
Ma
y-1
4
Jun-1
4
Jul-1
4
Sep-1
4
Dec-1
4
Jan-1
5
Ma
r-15
Ma
y-1
5
Jul-1
5
Sep-1
5
Dec-1
5
Jan-1
6
Jul-1
6
Dec-1
6
Jul-1
7
Dec-1
7
Jul-1
8
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Platinum has been a beneficiary of the Russian-Ukrainian tension, being the largest supplier of the precious metal, volatilities have been driving prices up
Platinum: Spot Price, USD
Source: CME, Adamson
1476
1,320
1,340
1,360
1,380
1,400
1,420
1,440
1,460
1,480
1,500
Spot
Platinum: Futures Curve (USD/t)
Source: LME, Adamson
1,474
1,475
1,476
1,477
1,478
1,479
1,480
1,481
1,482
1,483
Ma
r-14
Apr-1
4
Ma
y-1
4
Jun-1
4
Jul-1
4
Aug-1
4
Sep-1
4
Oct-1
4
Nov-1
4
Dec-1
4
Jan-1
5
Wee
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