Commodities weekly, market tracking 04032014

Adamson Associates

•Restocking are increasingly challenging base metals •Global macro risks are undermining demand side recoveries •Gold and platinum gain, silver left behind •Most metals are trading too high against their yearly targets

04Mar2014 | Commodities Weekly, Metals

Valuation sees zinc holding up a strong spot among base metals; Gold and Silver continue to be quite undervalued; forecasts see most metals will fall in 2014

Metals: Valuation Benchmark

Adamson

-6%

-10%

-3%

-10%

-4%

8%

-2%

-1%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10% %over/ Year-end Avg

undervaluation price forecast Current price

Gold -6% 1177 1330

Silver -10% 1628 2133

Platinum -3% 1382 1452

Aluminium -10% 1674 1724

Copper -4% 6484 7098

Zinc 8% 187 211

Lead -2% 206 212

Iron Ore -1% 120 136

A softer greenback supports trading; however, most metals continue to perform according to fundamental realities; world demand recovery consistently facing risks

Dollar Index: USD

Adamson

79

80

80

81

81

82

Fe

b 0

2, 2

01

4

Fe

b 0

3, 2

01

4

Fe

b 0

4, 2

01

4

Fe

b 0

5, 2

01

4

Fe

b 0

6, 2

01

4

Fe

b 0

7, 2

01

4

Fe

b 0

9, 2

01

4

Fe

b 1

0, 2

01

4

Fe

b 1

1, 2

01

4

Fe

b 1

2, 2

01

4

Fe

b 1

3, 2

01

4

Fe

b 1

4, 2

01

4

Fe

b 1

6, 2

01

4

Fe

b 1

7, 2

01

4

Fe

b 1

8, 2

01

4

Fe

b 1

9, 2

01

4

Fe

b 2

0, 2

01

4

Fe

b 2

1, 2

01

4

Fe

b 2

3, 2

01

4

Fe

b 2

4, 2

01

4

Fe

b 2

5, 2

01

4

Fe

b 2

6, 2

01

4

Fe

b 2

7, 2

01

4

Fe

b 2

8, 2

01

4

Ma

r 02

, 20

14

Ma

r 03

, 20

14

Transcript Aluminium

• Aluminium has been steadily gaining against a backdrop of continued destocking, more cuts in production in Ex-China provide a case for optimism; The metal is in solid contango

• Stocks continue to reduce with falling production; open interests pick up signally long positions for the depressed metal

• Current pricing puts aluminium in a severely undervalued position; we see the recoveries in pricing to fall back somewhat during 2014

• SHFE aluminium enjoyed some gains before falling again in February; stocks restarted to pile with more production, the threat of overcapacity returns

• Supply tightness provided support for aluminium pricing in January, this disappeared by late February with the forward curve looking normal

Copper

• Copper mostly fell in February with worsening data in China, emerging Asia and a cold winter in the US; there is supply tightness which supports spot pricing in the near term

• Stocks continued to fall, reflecting the continued recovery on the demand side, these fundamentals are however overshadowed by global macro factors; shorts dominated

• Undervaluation continues for Copper, however, at a manageable level; Copper is trading above its yearly target in our view, with room to fall

• Copper pricing plunged on the SHFE with macro performance; fundamentals are seeing restocking on the supply side, a sign of weakening demand against supply

• There is supply side tightness in the market, as evident in the near-dated contracts, which supports spot pricing; Copper is restocking, a case for worry, and deflationary pressure

Cont. Zinc

• Zinc continues to ride on very healthy fundamentals, demand recovery; there is supply side tightness in the near-dated contracts, further supporting spot pricing

• Destocking continues for Zinc, reflecting improving fundamentals for the metal; open interests grew, mostly in long positions

• Zinc is somewhat overvalued at its current level, helped by dismal performances in other metals; Zinc pricing is a long way above its yearly target, with room for fall

• Zinc gained before returning to early February levels; there is restocking, meaning that demand recovery is beginning to be challenged, production is getting ahead

• There is no apparent supply side tightness to support spot pricing; restocking is beginning to challenge the fundamental scenarios of Zinc

• warehouses

Lead

• Lead pricing followed Zinc performance, with relatively attractive fundamentals, the metal is holding its current pricing against macro headwinds; in contango

• Destocking has paused, with further developments to occur in the coming weeks; open interests gained, reflecting a mixture of shorts and longs through the last two weeks

• Lead is slightly undervalued; it is very close to the yearly forecast range, with some downward pressure down the line

• SHFE lead pricing mostly fell during February, with disappointing PMI numbers painting a gloomy picture for the economy

• The metal is in a normal forward curve on the SHFE; stocks have changed little

Cont.

Gold

• Gold continued to pick up with a falling dollar and higher inflation, Asian demand continues to be strong; near-term contracts are mostly flat, supporting spot pricing

• Gold saw declining inventory in February; while open interests reflected strong long positions on the precious metal

• Undervaluation eases further in February; however, we see gold pricing getting too ahead of itself, with room to fall in 2014

Silver

• Silver did not benefit from any buying momentum in Gold; pricing sustained at around 21.5; the precious metal is in a solid contango

• Inventories continued to gain for Silver; while open interests fell steadily, reflecting long liquidation

• Pricing is still quite undervalued for silver, however, it is doing much better in February; its pricing is too high in our view, measuring against its yearly target in 2014

Cont.

Platinum • Platinum spot continued to gain throughout February;

the precious metal is in solid contango • Inventories gained in February; while open interests

also picked up quite significantly, reflecting long positions

• Platinum is slightly undervalued; its current pricing is not too far from its yearly target range, however, it is still too high

Additional Data • Steel pricing fell on the SHFE, with softer construction,

softer pricing and softer PMIs

Aluminium

Aluminium has been steadily gaining against a backdrop of continued destocking, more cuts in production in Ex-China provide a case for optimism; The metal is in solid contango

Aluminium: Spot and 3M Price, USD/t

Source: LME, Adamson

1724

1765.5

1,500

1,550

1,600

1,650

1,700

1,750

1,800

Spot 3M

Aluminium: Futures Curve (USD/t)


1724

1765.5

1922

1995

2063

1713

1757

1923

2000

2075

1,600

1,650

1,700

1,750

1,800

1,850

1,900

1,950

2,000

2,050

2,100

28/02/2014 28/01/2014

Stocks continue to reduce with falling production; open interests pick up signally long positions for the depressed metal

Aluminium: Open Interest, Lots


711,942

729,806

749,306

774,645

600,000

620,000

640,000

660,000

680,000

700,000

720,000

740,000

760,000

780,000

800,000

Aluminium: Stock and Cancelled Warrants, T


5311300

2483300

2250000

2300000

2350000

2400000

2450000

2500000

2550000

5200000

5250000

5300000

5350000

5400000

5450000

5500000

5550000

Stocks Cancelled Warrants

Current pricing puts aluminium in a severely undervalued position; we see the recoveries in pricing to fall back somewhat during 2014

Aluminium: Valuation benchmark

Adamson

19

-5

-58

-47

-78 -82

-204 -201

-239

-110 -108

-198

-166

-300

-250

-200

-150

-100

-50

0

50

2013M

01

2013M

02

2013M

03

2013M

04

2013M

05

2013M

06

2013M

07

2013M

08

2013M

09

2013M

10

2013M

11

2013M

12

2014M

02

Aluminium: Current Year Model Fundamental

Adamson

1606

1674

1709

1,540

1,560

1,580

1,600

1,620

1,640

1,660

1,680

1,700

1,720

Conservative Avg Less Conservative

SHFE aluminium enjoyed some gains before falling again in February; stocks restarted to pile with more production, the threat of overcapacity returns

SHFE Aluminium: Spot and 3M Price, RMB

Source: SHFE, Adamson

13105

13350

12,600

12,800

13,000

13,200

13,400

13,600

13,800

14,000

Spot 3M

Aluminium: Spot and 3M Price, USD


1724

1765.5

1,500

1,550

1,600

1,650

1,700

1,750

1,800

Spot 3M

Supply tightness provided support for aluminium pricing in January, this disappeared by late February with the forward curve looking normal

SHFE Aluminium: Stock, T


283574

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

SHFE Aluminium: Futures Curve (USD/t)


12,600

12,800

13,000

13,200

13,400

13,600

13,800

14,000

0 1 2 3 4 5 6 7 8 9 10 11

28-Feb-14 20-Jan-14

Copper

Copper mostly fell in February with worsening data in China, emerging Asia and a cold winter in the US; there is supply tightness which supports spot pricing in the near term

Copper: Spot and 3M Price, USD


7098

7026

6,900

6,950

7,000

7,050

7,100

7,150

7,200

7,250

Spot 3M

Copper: Futures Curve (USD/t)


7215

7172

7110

7080

7045

7097.5

7026

6970 6955

6935

6,750

6,800

6,850

6,900

6,950

7,000

7,050

7,100

7,150

7,200

7,250

28/01/2014 28/02/2014

Stocks continued to fall, reflecting the continued recovery on the demand side, these fundamentals are however overshadowed by global macro factors; shorts dominated

Copper: Stock and Cancelled Warrants, T


Copper: Open Interest, Lots


264,627

256,412

258,687

268,946

250,000

252,000

254,000

256,000

258,000

260,000

262,000

264,000

266,000

268,000

270,000

276225

146625

0

50000

100000

150000

200000

250000

300000

0

50000

100000

150000

200000

250000

300000

350000

400000


Undervaluation continues for Copper, however, at a manageable level; Copper is trading above its yearly target in our view, with room to fall

Copper: Valuation benchmark

Adamson

67

-94

-173

-327 -316

-504

-875

-747 -731

-372

-248

-430

-271

-1,000

-800

-600

-400

-200

0

200

2013M

01

2013M

02

2013M

03

2013M

04

2013M

05

2013M

06

2013M

07

2013M

08

2013M

09

2013M

10

2013M

11

2013M

12

2014M

02

Copper: Current Year Model Fundamental

Adamson

6221

6484

6621

6,000

6,100

6,200

6,300

6,400

6,500

6,600

6,700


Copper pricing plunged on the SHFE with macro performance; fundamentals are seeing restocking on the supply side, a sign of weakening demand against supply

SHFE Copper: Spot and 3M Price, RMB


49250

49280

47,500

48,000

48,500

49,000

49,500

50,000

50,500

51,000

51,500

52,000

52,500

Spot 3M

Copper: Spot and 3M Price, USD


7098

7026

6,900

6,950

7,000

7,050

7,100

7,150

7,200

7,250

Spot 3M

There is supply side tightness in the market, as evident in the near-dated contracts, which supports spot pricing; Copper is restocking, a case for worry, and deflationary pressure

SHFE Copper: Futures Curve (USD/t)


47,500

48,000

48,500

49,000

49,500

50,000

50,500

51,000

51,500

52,000

52,500

0 1 2 3 4 5 6 7 8 9 10 11

28-Feb-14 20-Jan-14

SHFE Copper: Stock, T


0

50,000

100,000

150,000

200,000

250,000

Zinc continues to ride on very healthy fundamentals, demand recovery; there is supply side tightness in the near-dated contracts, further supporting spot pricing

Zinc: Spot and 3M Price, USD


2110

2075

1,850

1,900

1,950

2,000

2,050

2,100

2,150

Spot 3M

Zinc: Futures Curve (USD/t)


1997.5

2010

2067

2083 2078

2110

2075

2088 2088 2083

1,940

1,960

1,980

2,000

2,020

2,040

2,060

2,080

2,100

2,120

28/01/2014 28/02/2014

Destocking continues for Zinc, reflecting improving fundamentals for the metal; open interests grew, mostly in long positions

Zinc: Stock and Cancelled Warrants, T


Zinc: Open Interest, Lots


298,423

292,563

287,378

296,121

280,000

282,000

284,000

286,000

288,000

290,000

292,000

294,000

296,000

298,000

300,000

761725

195100

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

1000000


Zinc is somewhat overvalued at its current level, helped by dismal performances in other metals; Zinc pricing is a long way above its yearly target, with room for fall

Zinc: Valuation benchmark

Adamson

7.3

10.6

-1.3 -2.3

-5.7

-4.0

-13.5 -13.2

-17.8

-7.0

-2.8

-0.1

15.9

-20

-15

-10

-5

0

5

10

15

20

2013M

01

2013M

02

2013M

03

2013M

04

2013M

05

2013M

06

2013M

07

2013M

08

2013M

09

2013M

10

2013M

11

2013M

12

2014M

02

Zinc: Current Year Model Fundamental

Adamson

180

187

191

174

176

178

180

182

184

186

188

190

192

194


Zinc gained before returning to early February levels; there is restocking, meaning that demand recovery is beginning to be challenged, production is getting ahead

SHFE Zinc: Spot and 3M Price, RMB


14995

15135

14,700

14,800

14,900

15,000

15,100

15,200

15,300

15,400

Spot 3M

Zinc: Spot and 3M Price, USD


2110

2075

1,850

1,900

1,950

2,000

2,050

2,100

2,150

Spot 3M

There is no apparent supply side tightness to support spot pricing; restocking is beginning to challenge the fundamental scenarios of Zinc

SHFE Zinc: Futures Curve (USD/t)


14,700

14,800

14,900

15,000

15,100

15,200

15,300

15,400

15,500

0 1 2 3 4 5 6 7 8 9 10 11

28-Feb-14 20-Jan-14

SHFE Zinc: Stock, T


265838

200,000

210,000

220,000

230,000

240,000

250,000

260,000

270,000

Lead pricing followed Zinc performance, with relatively attractive fundamentals, the metal is holding its current pricing against macro headwinds; in contango

Lead: Spot and 3M Price, USD


2115.5

2137

2,020

2,040

2,060

2,080

2,100

2,120

2,140

2,160

2,180

2,200

Spot 3M

Lead: Futures Curve (USD/t)


2127

2137

2175

2197 2200

2115.5

2137

2170

2188 2190

2,060

2,080

2,100

2,120

2,140

2,160

2,180

2,200

2,220

28/01/2014 28/02/2014

Destocking has paused, with further developments to occur in the coming weeks; open interests gained, reflecting a mixture of shorts and longs through the last two weeks

Lead: Stock and Cancelled Warrants, T


Lead: Open Interest, Lots


114,742 114,350

121,129

125,167

108,000

110,000

112,000

114,000

116,000

118,000

120,000

122,000

124,000

126,000

202225

33375

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

190000

195000

200000

205000

210000

215000

220000


Lead is slightly undervalued; it is very close to the yearly forecast range, with some downward pressure down the line

Lead: Valuation benchmark

Adamson

24.4

19.6

6.8

-2.1 -3.6

1.8

-14.5

-9.5

-18.5

-8.1

-4.0

-7.0

-4.2

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

2013M

01

2013M

02

2013M

03

2013M

04

2013M

05

2013M

06

2013M

07

2013M

08

2013M

09

2013M

10

2013M

11

2013M

12

2014M

02

Lead: Current Year Model Fundamental

Adamson

199

206

210

192

194

196

198

200

202

204

206

208

210

212


SHFE lead pricing mostly fell during February, with disappointing PMI numbers painting a gloomy picture for the economy

SHFE Lead: Spot and 3M Price, RMB


13800

13945

13,500

13,600

13,700

13,800

13,900

14,000

14,100

14,200

14,300

Spot 3M

Lead: Spot and 3M Price, USD


2115.5

2137

2,020

2,040

2,060

2,080

2,100

2,120

2,140

2,160

2,180

2,200

Spot 3M

The metal is in a normal forward curve on the SHFE; stocks have changed little

SHFE Lead: Futures Curve (USD/t)


13,400

13,600

13,800

14,000

14,200

14,400

14,600

0 1 2 3 4 5 6 7 8 9 10 11

28-Feb-14 20-Jan-14

SHFE Lead: Stock, T


86188

0

20,000

40,000

60,000

80,000

100,000

120,000

Gold continued to pick up with a falling dollar and higher inflation, Asian demand continues to be strong; near-term contracts are mostly flat, supporting spot pricing

Gold: Spot Price, USD

Source: CME, Adamson

1343.2

1,250

1,260

1,270

1,280

1,290

1,300

1,310

1,320

1,330

1,340

1,350

Spot

Gold: Futures Curve (USD/oz)


1,200

1,250

1,300

1,350

1,400

1,450

1,500

Ma

r-14

Jul-1

4

Nov-1

4

Ma

r-15

Jul-1

5

Nov-1

5

Ma

r-16

Jul-1

6

Nov-1

6

Ma

r-17

Jul-1

7

Nov-1

7

Ma

r-18

Jul-1

8

Nov-1

8

Ma

r-19

Jul-1

9

Nov-1

9

Gold saw declining inventory in February; while open interests reflected strong long positions on the precious metal

Gold: Inventories, Troy ounce


Gold: Open interest, futures positions


379,550

383,021

415,426

410,959

382,739

368,279

376,973

390,535

340,000

350,000

360,000

370,000

380,000

390,000

400,000

410,000

420,000

7,764,151 7,777,823 7,809,244

7,463,277

7,141,392 7,143,618

6,800,000

7,000,000

7,200,000

7,400,000

7,600,000

7,800,000

8,000,000

Undervaluation eases further in February; however, we see gold pricing getting too ahead of itself, with room to fall in 2014

Gold: Valuation Benchmark

Adamson

-2

-73

-54

-115

-186

-231

-322

-265

-240

-193

-161

-204

-77

-350

-300

-250

-200

-150

-100

-50

0

2013M

01

2013M

02

2013M

03

2013M

04

2013M

05

2013M

06

2013M

07

2013M

08

2013M

09

2013M

10

2013M

11

2013M

12

2014M

02

Gold: Current Year Model Outlook

Adamson

1131

1177

1202

1,080

1,100

1,120

1,140

1,160

1,180

1,200

1,220


Silver

Silver did not benefit from any buying momentum in Gold; pricing sustained at around 21.5; the precious metal is in a solid contango

Silver: Spot Price, USD


21.508

17.5

18.0

18.5

19.0

19.5

20.0

20.5

21.0

21.5

22.0

22.5

Spot

Silver: Futures Curve (USD/oz)


20.50

21.00

21.50

22.00

22.50

23.00

Ma

r-14

Jun-1

4

Sep

-14

Dec-1

4

Ma

r-15

Jun-1

5

Sep

-15

Dec-1

5

Ma

r-16

Jun-1

6

Sep

-16

Dec-1

6

Ma

r-17

Jun-1

7

Sep

-17

Dec-1

7

Ma

r-18

Jun-1

8

Sep

-18

Dec-1

8

Inventories continued to gain for Silver; while open interests fell steadily, reflecting long liquidation

Silver: Inventories, Troy ounce


Silver: Open interest, futures positions


132,475

131,294

136,158

139,468

144,244

149,163

147,988 147,035

120,000

125,000

130,000

135,000

140,000

145,000

150,000

155,000

173,215,363

176,502,272

177,109,451

178,499,380

179,408,695

181,755,486

168,000,000

170,000,000

172,000,000

174,000,000

176,000,000

178,000,000

180,000,000

182,000,000

184,000,000

Pricing is still quite undervalued for silver, however, it is doing much better in February; its pricing is too high in our view, measuring against its yearly target in 2014

Silver: Valuation Benchmark

Adamson

-17

-127

-157

-392

-598

-725

-912

-698

-548

-438

-385 -4

57

-215

-1000

-900

-800

-700

-600

-500

-400

-300

-200

-100

0

2013M

01

2013M

02

2013M

03

2013M

04

2013M

05

2013M

06

2013M

07

2013M

08

2013M

09

2013M

10

2013M

11

2013M

12

2014M

02

Silver: Current Year Model Fundamental

Adamson

1539

1628

1673

1,450

1,500

1,550

1,600

1,650

1,700


Platinum

Platinum spot continued to gain throughout February; the precious metal is in solid contango

Platinum: Spot Price, USD


1452

1,320

1,340

1,360

1,380

1,400

1,420

1,440

1,460

Spot

Platinum: Futures Curve (USD/t)


1,443

1,444

1,445

1,446

1,447

1,448

1,449

1,450

1,451

1,452

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

Fe

b-1

5

Ma

r-15

Apr-1

5

Inventories gained in February; while open interests also picked up quite significantly, reflecting long positions

Platinum: Inventories, Troy ounce


Platinum: Open interest, futures positions


62,037

59,561

58,636

60,358

60,923

61,388

63,300 63,376

56,000

57,000

58,000

59,000

60,000

61,000

62,000

63,000

64,000

250,821 250,568 250,518

250,216

245,469

249,568

242,000

243,000

244,000

245,000

246,000

247,000

248,000

249,000

250,000

251,000

252,000

Platinum is slightly undervalued; its current pricing is not too far from its yearly target range, however, it is still too high

Platinum: Valuation benchmark

Adamson

72

61

35

-9

-42

-80

-181

-131

-163

-133

-68

-152

-49

-200

-150

-100

-50

0

50

100

2013M

01

2013M

02

2013M

03

2013M

04

2013M

05

2013M

06

2013M

07

2013M

08

2013M

09

2013M

10

2013M

11

2013M

12

2014M

02

Platinum: Current Year Model Fundamental

Adamson

1323

1382

1413

1,260

1,280

1,300

1,320

1,340

1,360

1,380

1,400

1,420


Additional Data

Steel pricing fell on the SHFE, with softer construction, softer pricing and softer PMIs

SHFE Steel Rebar: Spot and 3M Price, RMB


3,200

3,250

3,300

3,350

3,400

3,450

3,500

3,550

Spot 3M

SHFE Steel Wire: Spot and 3M Price, RMB


3,200

3,250

3,300

3,350

3,400

3,450

3,500

3,550

3,600

Spot 3M

SHFE Aluminium: Open Interest, Lots


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

SHFE Copper: Open Interest, Lots


420,000

440,000

460,000

480,000

500,000

520,000

540,000

560,000

580,000

600,000

SHFE Zinc: Open Interest, Lots


0

50,000

100,000

150,000

200,000

250,000

300,000

SHFE Gold: Open Interest, Lots


0

50,000

100,000

150,000

200,000

250,000

DISCLAIMER This publication is produced by Adamson Associates Limited and/or its affiliates, and distributed by Adamson Associates Limited and/or its affiliates, except to the extent expressly provided herein.

This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying,

printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Adamson Associates Limited nor any of its respective parent, holding,

subsidiaries or affiliates, nor any of its respective directors, officers, and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of

other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication,

nor any content hereof, constitute, or are to be constructed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor,

unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of

Adamson Associates Limited, and/or its affiliates nor any of its respective directors, officers, and employees except where the publication states otherwise. This research report is not to be relied

upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment

objectives, financial situation and particular needs of any person.

Commodities weekly, market tracking 04032014

Business

Transcript of Commodities weekly, market tracking 04032014