Commodity Outlook 2013

8/13/2019 Commodity Outlook 2013

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A n n u a l Co m m o d i t i e s Re se a r c h M a g a z i n e ( Fo r p r i v a t e c i r cu l a t i o n o n l y )

O U T L O O K 2 0 1

C M M O D IT Y

St a y a h e a d o f m a r k et s


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im Roger, the commodity guru, has rightly said Buy Commodities Now, Or Y

Hate yourself later. The notable return from commodities in past few yearsJproved that he is right. This hard asset class has outshined other asset classes

has generated a handsome return at the time when the world is facing tough time.

Subsequent to the turmoil of the second half of 2011, markets were relatively stab

2012 as fear of severe economic crisis faded away. However the absolute efforts o

central banks and governments for a solidifying recovery from ongoing c

economic growth was not as per the expectation, especially in the developed nat

Various interest rate cuts and bailouts bond purchases failed to bring the confiden

the economy to some extent. Economic crisis, events, elections in major countries

natural disasters kept investors on their toes throughout the year and they ha

churn their portfolio on regular basis. Victory of Mr. Obama gave some stability late

in commodities prices apart from other financial markets.

Demand continued to rise in the essential commodities whereas slo

manufacturing activities slashed the physical demand for some commodities to s

extent. But investment demand in commodities continued to increase terrific

especially of ETF's due to its easy usability.

The number of natural disasters such as hurricane, storm, flood, drought, earthqu

etc. which were the other costliest affair in 2012, sent some commodities price

record level, particularly agri commodities. It sent food inflation on alarming lev

2013, we expect flat movements with little upside in agri commodities.

In the year gone by, currency acted as a catalyst; the increase in Gold price is

burning example in this regard. Due to sharp depreciation in Indian currency,

made a historic high in the domestic market whereas in the International market it

far behind from its historic high of $1915. It made import costlier, especially p

crude oil, fertilizers, medicines, iron ore etc; increase in prices made a big ho

consumer's pocket. From here in 2013, rupee is most likely to trade in the range o

60. Furthermore, geopolitical tensions may remain a wild card for the energy cou

though we are expecting a range for this counter on mix fundamentals whereas nagas demand supply equilibrium is expected to be moderately tighten, which can

some strength to the prices. Again silver is likely to outperform gold this year. Bulls

continue to reign in some base metals. Though we do not expect any major Chi

stimulus in early 2013 but we expect big move in the later part of the year.

If global growth sustains above the mark of 3% in 2013, then we may see some rebo

coming in commodities, especially in the second half and vice a versa. China, whi

playing an outsized role in global commodity market, is slowing down

restructuring of growth model may weigh on commodities prices ahead. Its growt

2013 is projected to be 7.4%, lowest in 15 years. If economic activities improves th

will cushion up commodities in 2013.

Bull Run doesn't see the end in sightyet but the pace has slowed down. Momenand carry were the winning strategy for various asset classes. Wild swings in s

commodities couldn't be denied hence frequent churning of portfolio is advised.

Jagannadham Thunuguntla Head-Research

Commodity Fundamental Team

Vandana Bharti AVP Commodity Research

Sandeep Joon Sr. Research Analyst

Subhranil Dey Sr. Research Analyst

Shivanand Upadhyay Content Editor (Hindi)

Support Team

Kamla Devi Content Editor

Pramod Chhimwal Graphic Designer

Simmi Chibber Research Executive

Corporate Office

11 / 6B, Shanti Chamber, Pusa Road, New Delhi 110005.

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SMC Comtrade Ltd.

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Website: www.smctradeonline.com

Investor Grievance : [email protected]

Disclaimer:SMC Global Securities Limited is proposing, subject to receipt of requisite approvals, market conditions and other considerations, a further public issue of its equity shares and has filed a Draft Red Herring Pros(DRHP) with the Securities and Exchange Board of India (SEBI). The DRHP is available on the website of the SEBI at www.sebi.gov.in and the website of the Book Running Lead Managers i.e. Tata Securities Limwww.tatacapital.com and IL&FS Capital Advisors Limited at www.ilfscapital.com. Investors should note that investment in equity shares involves a high degree of risk. For details please refer to the DRHP and particularly thetitled Risk Factors in the Draft Red Herring Prospectus.

This report is for the personal information of the authorized recipient and doesn't construe to be any investment, legal or taxation advice to you. It is only for private circulation and use .The report is based upon information consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. No action is solicited on the basis of the contents of the report. The report should not be reproduced or redistto any other person(s)in any form without prior written permission of the SMC. The contents of this material are general and are neither comprehensive nor inclusive. Neither SMC nor any of its affiliates, associates, represendirectors or employees shall be responsible for any loss or damage that may arise to any person due to any action taken on the basis of this report. It does not constitute personal recommendations or take into account the parinvestment objectives, financial situations or needs of an individual client or a corporate/s or any entity/s. All investments involve risk and past performance doesn't guarantee future results. The value of, and incominvestments may vary because of the changes in the macro and micro factors given at a certain period of time. The person should use his/her own judgment while taking investment decisions. Please note that we and our af

officers, directors, and employees, including persons involved in the preparation or issuance if this material;(a) from time to time, may have long or short positions in, and buy or sell the commodities thereof, mentioned her(b) be engaged in any other transaction involving such commodities and earn brokerage or other compensation or act as a market maker in the commodities discussed herein (c) may have any other potential conflict of intererespect to any recommendation and related information and opinions. All disputes shall be subject to the exclusive jurisdiction of Delhi High court.

Page No.

1. Performance of 2012, FOMC & ECB

meeting schedule 2013 & Seasonality Index 4

2. Commodity performance 2012 5

3. Asset Class comparison 2012 64. Span of Price Movement 7

5. Fundamental Calls performance in 2012 8-9

6. Economic indicators 10-11

7. Base Metals and Bullions production graph 12

8. Currency Movements 13

9. Quantitative Easing & FOMC Statements 14

10. Flashback 2012 & Outlook 2013

i. Bullions 16-19

ii. Energy 20-23

iii. Base Metals 25-31

iv. Spices 33-37

v. Oilseeds 38-44

vi. Other Commodities 45-49

11. Crop Calendar 50

(Vandana Bh

Happy Investing in Commodities

Content COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20


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Seasonality IndexPerformance & Seasonality IndexSeasonality Index

We have used the annual average method, which generat

seasonal pattern and is helpful in predicting the future prices o

commodity. This seasonal price index is derived by calculating

annual average price, and then by expressing the price for month during the year as a percent of the annual average. Here

data used to derive the seasonal price patterns are the mon

prices. In every chart, line chart is showing the monthly p

movement of particular commodity in 2012 while bar cha

showing the seasonal trend. We hope that this will guide inves

to decide the proper time to invest into any particular commodi

4

Performance Of Calls Given In OurAnnual Magazine Commodity Outlook 2012

Range

(Annual Magz. '12) Low* High*

2012 2012

Gold (COMEX) 1400-2100 1528.20 1798.10

Gold (MCX) 24000-33000 27170.00 32464.00

Silver(COMEX) 23-50 26.07 37.48

Silver(MCX) 38000-75000 51000.00 65723.00

Crude Oil (NYMEX) 75-125 77.28 110.55

Crude Oil (MCX) 4200-6000 4448.00 5635.00

Natural gas(NYMEX) 2.50-4.80 1.90 3.93

Natural gas (MCX) 155-230 99.50 217.20

Copper 320-500 397.00 463.00

Zinc 85-120 96.30 115.20

Lead 85-150 99.10 127.40

Nickel 750-1350 848.00 1086.80

Aluminium 80-130 100.60 117.60

Turmeric 4000-7000 3336.00 6748.00

Pepper 27000-45000 28810.00 45880.00

Cummin 13000-20000 11275.00 16975.00

Chilli 4000-8500 4430.00 6748.00

Cardamom 550-1200 570.00 1508.00

Chana 2500-4200 3020.00 4999.00

Kapas 660-950 801.00 1184.00

Wheat 1050-1350 1111.00 1705.00

Sugar 2600-3500 2635.00 3672.00

Soybean (NCDEX) 2000-3200 2257.00 5064.50

Soybean (CBOT) 1000-1500 1150.00 1794.75

RM Seed 2600-4800 3235.00 4538.00

Ref. Soy oil 600-810 611.50 817.00

CPO (MCX) 440-700 393.00 632.20

CPO (BMD) 2600-4200 2040.00 3655.00* Up to 21 December 2012

World Interest Rates Of Key Central Banks At Present

Central banks Country Current interest rates Previous rates Date of changeinterest

Federal Reserve(FED) US 0.25% 1.00% 16-Dec-08

European Central Bank(ECB) Euro 0.75% 1.00% 5-Jul-12

Bank of England(BOE) England 0.50% 1.00% 5-Mar-09

Bank of Japan(BOJ) Japan 0.10% 0.10% 5-Oct-10

Reserve Bank of India(RBI) India 8.00% 8.50% 17-Apr-12

People Bank of China(PBOC) China 6.00% 6.31% 5-Jul-12

Reserve Bank of Australia(RBA) Australia 3.00% 3.25% 3-Dec-12

Brazil Central Bank(BACEN) Brazil 7.25% 7.50% 10-Oct-12

FOMC & ECB Meeting Schedule For 2013

Months 2013 FOMC meeting ECB meeting

January 30th 10th & 24th

February NA 7th & 21st

March 20th 7th & 21st

April NA 4th & 18th

May 1st 2nd & 16th

June 19th 6th & 20th

July 31st 4th & 18th

August NA 1st

September 18th 5th & 19th

October 30th 2nd & 17th

November NA 7th & 21st

December 18th 5th & 19th

COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20


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Commodity Performance

5

-31.97

-25.15

-25.06

-7.76-2.23

0.84

9.19

10.73

11.39

11.65

12.15

13.53

13.73

18.63

22.12

23.27

25.30

31.07

32.33

42.57

-40.00 -30.00 -20.00 -10.00 0.00 10.00 20.00 30.00 40.00 5

Crude palm oil (BMD)

Crude palm oil(MCX)

Chilli

JeeraRef. Soy oil

Gur

RM Seed

Turmeric

Mentha Oil

Sugar

Potato

Maize

Cotton oilseed cake

Pepper

Soyabean (CBOT)

Chana

Kapas

Wheat

Soyabean

Cardamom

Return Of Agri Commodities From 1st Jan '12 Till 14th Dec '12

Source: Reuters & SMC Res

Return Of Bullions, Metals And Energy From 4th Jan '12 Till 14th Dec '12


% C

% C


8.16

4.91

14.24

14.68

12.28

20.18

-13.01

-10.73

11.62

12.14

5.22

9.82

2.61

7.14

10.63

14.45

10.96

15.36

-6.29

-2.25

- 15.00 -10.00 -5.00 0.00 5.00 10.00 15.00 20.00 2

COMEX

LME Spot

MCX

COMEX

LME Spot

MCX

NYMEX

MCX

NYMEX

MCX

LME

MCX

LME

MCX

LME

MCX

LME

MCX

LME

MCX

Go

ld

Silver

Crude

Oil

Natural

Gas

Copper

Alumin

ium

Zinc

Lead

Nicke

l


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Asset Class Comparison

Momentum And Carry Were The Winning Strategy For Various Asset Classes

Optimism on monetary easing and various steps to revive the ailing economy by major countries gave some confidence to investors and thus

saw better return in the year 2012 as compared to 2011; but it is true that it was not a trouble-free year for investors.

Most of the year, the path of global growth shifted downwards and concerns about the sustainability of euro area government debt, electionmany countries amid various natural disasters, raised the fear of multi dip recession. Downbeat economic indicators from advanced econ

also triggered selling. Other global engines of growth also softened. Not only growth slowed in China and India, even Canada and other count

also witnessed slow down.

Despite the negative economic data's and other problems, buying returned as there was a firm belief that major countries would come with s

aggressive quantitative easing to rescue the economy. Confidence also returned into the market as it noticed serial quantitative easing in m

major countries. Many central banks loosened monetary policy, cutting interest rates or expanding unconventional policies and it triggered l

asset price reactions. The central banks of Brazil, China, Colombia, Czech Republic, Israel, Korea, Philippines, United Kingdom, Euro zone, S

Africa and many more countries lowered their policy rates.

Low or negative yields on advanced economy government bonds spurred investors to search for investment opportunities that offered s

extra return. It resulted in surge in equity and other riskier asset. Equity prices also reacted strongly to the announcements of additional ce

bank measures to support the economy. In 2011, capital outflow occurred in riskier assets and investors preferred to put their money into

and safe investment avenue. In 2012 trend was reverse, investors put their money in riskier assets associated with the performance of

economy. All the key equity markets gave whopping return; Hang Seng, Nifty and DAX gave more than 20% return whereas US market also clthe year in the positive territory. Strangely Chinese market gave negative return of more than 2.77%.

Victory of Obama was another buy trigger for the riskier asset classes. US treasury, which gave more than 18% return in 2011, only rose by 5

2012.

Commodity prices saw wide fluctuations over the past year as seen in the volatile course of energy, agricultural, and precious metal val

Multiyear Bull Run continued in bullions raised the concern that despite all efforts, fear prevailed in the financial market that's why investors

a chunk of their money in bullion counter, which is better known as Flight to Safety. Despite positive return, Gold is down by about 13%

silver is down by 35% from its all-time high. Furthermore, negative price movements of Baltic Dry Index, which is a strong indicator for shipp

activities, raised the question if the upside was on the back of investment demand or on core economic activities.

Asset Class Performance From 4th Jan'12 To 14th Dec'12


6

% Ch


-51.72

-13.01

-3.11

-2.77

-2.19

-0.72

2.23

3.68

4.51

5.22

5.53

6.22

7.77

8.16

10.28

10.34

11.62

13.59

13.9014.68

15.04

20.01

26.72

28.69

-60.00 -50.00 -40.00 -30.00 -20.00 -10.00 0.00 10.00 20.00 30.00 4

Baltic Dry Index

Crude Oil (NYMEX)

GSCI commodity index

Shanghai Composite

INR/USD

Dollar Index

Euro/USD

US Treasury

Bovespa

Copper (LME)

FTSE

LMEX

Dow Jones

Gold (COMEX)

Japanese Yen/USD

S&P 500

Natural Gas (NYMEX)

DJ EuroStoxx

NikkeiSilver (COMEX)

CAC

Hang Seng

Nifty

DAX


7/52

Span Of Price Movement (Agro Commodities)

Span Of Price Movement (Metals & Energy)

COMMODITY EXCHANGE LIFE TIME HIGH LIFE TIME LOW 2012 HIGH* 2012 LOW

Gold COMEX 1915.00 252.50 1798.10 1528.50

MCX 32464.00 5600.00 32464.00 27170.00

Silver COMEX 5035.00 194.50 3748.00 2607.00

MCX 73600.00 7551.00 65723.00 51000.00

Crude Oil MCX 6333.00 1626.00 5635.00 4448.00

NYMEX 147.27 9.75 110.55 77.28

Natural Gas MCX 591.80 99.50 217.20 99.50

NYMEX 15.78 1.04 3.93 1.90

Copper MCX 466.20 117.60 463.00 397.00

Aluminium MCX 151.50 62.20 117.60 100.60

Zinc MCX 208.30 49.85 115.20 96.30

Lead MCX 154.40 40.50 127.40 99.10

Nickel MCX 1416.00 442.30 1086.80 848.00


COMMODITY EXCHANGE LIFE TIME HIGH LIFE TIME LOW 2012 HIGH* 2012 LOW*

SPICES

OTHER COMMODITIES

OILSEEDS

Turmeric NCDEX 16350.00 1666.00 6748.00 3336.00

Jeera NCDEX 17520.00 4877.40 16975.00 11275.00Chilli NCDEX 10970.00 1731.00 6748.00 4430.00

Pepper NCDEX 45880.00 5350.00 45880.00 28810.00

Cardamom MCX 2097.00 218.20 1508.00 570.00

Chana NCDEX 4999.00 1331.00 4999.00 3020.00

Wheat NCDEX 1705.00 662.00 1705.00 1111.00

Mentha Oil MCX 2564.80 342.00 2564.80 1111.00

Gur NCDEX 1323.00 361.40 1323.00 1030.00

Sugar NCDEX 3672.00 2635.00 3672.00 2635.00

Kapas NCDEX 1262.00 398.90 1184.00 801.00

Crude Palm Oil MCX 632.20 154.20 632.20 393.00

Crude Palm Oil BMD 4298.00 425.00 3655.00 2040.00

Soybean NCDEX 5064.50 1104.50 5064.50 2257.00

Soybean CBOT 1794.75 401.50 1794.75 1150.00

RM Seed NCDEX 4538.00 1586.25 4538.00 3235.00

Ref. Soy Oil NCDEX 817.00 337.70 817.00 611.50

* Closing till 14 December 2012

* Closing till 14 December 2012 Source: Reuters & SMC Res

Performance COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20

7


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12/52

Scenario of Bullions Base MetalsProduction Scenario of Bullions & Base Metals COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20Zinc Production In World Nickel Production In World

Source: Reuters Sourc

Copper Production In World Lead Production In World


Primary Aluminium Production In World Gold Production In World


12


13/52

Currency Movement COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20

13

USD INR (Quarterly)


Absolute

42.91

46.80 48.58

50.56

47.74 47.72

46.40

44.80

46.44

44.56

44.70

44.52

44.69

49.01

53.01

50.87

55.50

52.84

40.00

42.00

44.00

46.00

48.00

50.00

52.00

54.00

56.00

58.00

1-Jun-08

1-Sep-08

1-Dec-08

1-Mar-09

1-Jun-09

1-Sep-09

1-Dec-09

1-Mar-10

1-Jun-10

1-Sep-10

1-Dec-10

1-Mar-11

1-Jun-11

1-Sep-11

1-Dec-11

1-Mar-12

1-Jun-12

1-Sep-12

Euro(Quarterly)


Absolute 1.5755

1.41021.3978

1.325

1.4033

1.4635

1.4316

1.351

1.2234

1.363

1.3377

1.4165

1.4504

1.3384

1.2955

1.3343

1.2658

1.2845

1.1

1.15

1.2

1.25

1.3

1.35

1.4

1.45

1.5

1.55

1.6

1-Jun-08

1-Sep-08

1-Dec-08

1-Mar-09

1-Jun-09

1-Sep-09

1-Dec-09

1-Mar-10

1-Jun-10

1-Sep-10

1-Dec-10

1-Mar-11

1-Jun-11

1-Sep-11

1-Dec-11

1-Mar-12

1-Jun-12

1-Sep-12

Dollar Index(Quarterly)


Absolute

72.46

79.45

81.15

85.51

80.16

76.65

77.86

81.07

86.02

78.72

79.03

75.86

74.30

78.80

80.21

78.95

81.60

80.00

65.00

70.00

75.00

80.00

85.00

90.00

1-Jun-08

1-Sep-08

1-Dec-08

1-Mar-09

1-Jun-09

1-Sep-09

1-Dec-09

1-Mar-10

1-Jun-10

1-Sep-10

1-Dec-10

1-Mar-11

1-Jun-11

1-Sep-11

1-Dec-11

1-Mar-12

1-Jun-12

1-Sep-12


1-Dec-08

1-Mar-09

1-Mar-10

1-Dec-10

1-Mar-11

1-Mar-12

Yuan(Quarterly) Absolute

6.8546.843

6.823 6.833 6.830 6.826 6.826 6.826

6.782

6.691

6.590

6.548

6.464

6.378

6.294

6.298 6.353

6.284

5.900

6.000

6.100

6.200

6.300

6.400

6.500

6.600

6.700

6.800

6.900

7.000

1-Jun-08

1-Sep-08

1-Jun-09

1-Sep-09

1-Dec-09

1-Jun-10

1-Sep-10

1-Jun-11

1-Sep-11

1-Dec-11

1-Jun-12

1-Sep-12


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tive Easing FOMC StatementQuantitative Easing & FOMC Statement COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20Quantitative Easing 1 (QE1, December 2008 To

March 2010)

On November 25, 2008, the Federal Reserve announced that it

would purchase up to $600 billion in agency mortgage-backed

securities (MBS) and agency debt. On December 16, theprogram was formally launched by the FOMC. On March 18,

2009, the FOMC announced that the program would be

expanded by an additional $750 billion in purchases of agency

MBS and agency debt and $300 billion in purchases of Treasury

securities.

Quantitative Easing 2 (QE2, November 2010 To

June 2011 )

On November 3, 2010, the Fed announced that it would

purchase $600 billion of longer dated treasuries, at a rate of $75

billion per month. That program, popularly known as "QE2",

concluded in June 2011.

Operation Twist (2011)

The Federal Open Market Committee concluded its September

21, 2011 meeting by announcing the implementation of

Operation Twist. This is a plan to purchase $400 billion of

bonds with maturities of 6 to 30 years and to sell bonds with

maturities less than 3 years, thereby extending the average

maturity of the Fed's own portfolio. This is an attempt to do

what Quantitative Easing (QE) tries to do, without printing

more money and without expanding the Fed's balance sheet,

therefore hopefully avoiding the inflationary pressure

associated with QE. This announcement brought a bout of risk

aversion in the equity markets and strengthened the US Dollar,

whereas QE I had weakened the USD and supported the equity

markets. Further, on June 20, 2012 the Federal Open Market

Committee announced an extension to the Twist programme by

adding additionally $267 billion thereby extending it

throughout 2012.

Quantitative easing 3 (QE3)

On September 13, 2012, the Federal Reserve announced a third

round of quantitative easing (QE3). This new round of

quantitative easing provided for an open-ended commitment

to purchase $40 billion agency mortgage-backed securities per

month until the labor market improves "substantially".

Key Points Of FOMC Statement From Meeting Held

11-12 December 2012

Consistent with its statutory mandate, the Committee seek

foster maximum employment and price stability.

Committee remains concerned that, without sufficient p

accommodation, economic growth might not be strong enou

generate sustained improvement in labor market conditions

Strains in global financial markets continue to pose signifi

downside risks to the economic outlook.

The Committee also anticipates that inflation over the med

term likely will run at or below its 2 percent objective.

Committee will continue purchasing additional age

mortgage-backed securities at a pace of $40 billion per mo

The Committee also will purchase longer-term Trea

securities after its program to extend the average maturity o

holdings of Treasury securities is completed at the end o

2012, initially at a pace of $45 billion per month.

The Committee will closely monitor incoming information

economic and financial developments in coming months. I

outlook for the labor market does not improve substantially

Committee will continue its purchases of Treasury and ag

mortgage-backed securities, and employ its other policy too

appropriate, until such improvement is achieved in a conte

price stability. In determining the size, pace, and compositio

its asset purchases, the Committee will, as always,

appropriate account of the likely efficacy and costs of

purchases.

Committee decided to keep the target range for the federal fu

rate at 0 to 1/4 percent and currently anticipates that

exceptionally low range for the federal funds rate wil

appropriate at least as long as the unemployment rate remabove 6-1/2 percent, inflation between one and two years ah

is projected to be no more than a half percentage point above

Committee's 2 percent longer-run goal, and longer-term infla

expectations continue to be well anchored. When the Comm

decides to begin to remove policy accommodation, it will ta

balanced approach consistent with its longer-run goal

maximum employment and inflation of 2 percent.

14


15/52


16/52

Annual Commentary - Gold

Annual Outlook

Gold

3,107 tonnes. As the hedge book shrank, the level of de-hedging

slowed: in 2009 the hedge book was cut by 249 tonnes, in 20Yellow metal Gold continued its relentless bull run since last 11 fell 96 tonnes, in 2011 it bucked the trend by climbing 6 tonnesyears, but it failed to break the 2011, high of above $1900 in COMEX. resumed the down trend in 2012 by falling 14 tonnes in the While it clocked life time high in MCX of above 32400 due to half. The slowdown down in the de hedging requirements

deprecating local currency Rupee amid bourgeoning fiscal deficit in capped the upside in Gold to some extent in the year 2012.India. Gold in a host of currencies has reached record highs in 2012

apart from Indian rupee including Euro, Swiss francs, and Brazilian

real and South African rand.

Gold managed to remain on firm footing as the declining Greenback

and growing investment demand coupled with safe haven demand

continue to assist its prices higher. The money pumping by various

central banks across the globe after the financial crises of 2008Glitter in the yellow metal may prolong in the 12th year also as

coupled with ultra loose monetary policies of west continue to lendexpansion of balance sheet by way of various stimulus measure

support to the prices.central banks will give investors another reason to park their fu

in safe haven assets like Gold. And until global central banks In the year 2012, COMEX Gold prices moved in volatile fashion and

gears in a major way and start pulling back on their huge balatook key support near $1530 but also failed to cross $1800. Centralsheets and historic printing of paper money, known as quantitabanks also continue to add this yellow metal in their reserves.easing, the bull run in Gold is far from over.Prices remained volatile in the first two quarters but appreciated

rapidly in the third quarter as Fed announced further monetaryPhysical demand from central banks has been climbing and

easing known as QE3.expected to remain firm as global bankers look to diversify rese

assets. With the global recovery is expected to take more time mDemand for Gold by central banks and official sector institutionsglobal central banks aren't changing the direction of their paccelerated during the second quarter. For the first half year, Goldanytime soon.reserves increased by 254.2 tonnes, compared with 203.2 tonnes in

H1 2011. At present the US is managing to keep the recovery going,Diversification of reserve assets remains the driving force beh

but the fact is that it had to provide a third tranche of QuantitativeGold demand by central banks. Gold is now considered a safe ha

Easing (QE3) highlights that the Fed was concerned that growthfor central banks, which have booked losses from the contin

was flagging. Fed has said it will purchase $40B per month ofdepreciation of US dollars, which made up 60 per cent of glmortgage-backed securities, indefinitely. FOMC decided to keep theinternational reserves. The US tops the list with a holding of 8,1

target range for the federal funds rate at 0 to 1/4 percent andtonnes, or 77 per cent, followed by Germany's 3,395.5 tonnes, o

currently anticipates that exceptionally low levels for the federalper cent. India Gold reserves stand at 11 position nearly 557 ton

funds rate are likely to be warranted at least through mid-2015.while China is at fifth with 1054 tonnes. Central Banks in the Mi

Meanwhile the SPDR Gold ETF holding surged to life time highEast are building up their Gold Reserves, while reducing thei

during November to nearly 1350 metric tonnes, which showed theDollar forex holding.

continuous rise in investment demand for Gold. Total ETF holding

Movement of Greenback will also be key factor in 2013 as itof Gold was above 2500 tonnes .The Bank of Japan joined the Fed,

finished flat in 2012. Greenback generally has inverse correlaECB, China, South Korea and others by announcing an aggressive

with Gold prices. Greenback can move in range of 76-86 in 2013stimulus program and this proved to be extremely inflationary and

bullish for Gold.Indian Gold imports dipped in the first two quarter as demand

not that great following economic downturn, monsoon deficit, dOn the domestic bourses, Gold managed to scale higher in first threeissues and jewellers strike, high prices etc. World Gold Couquarter but finished flat in the last quarter of 2012. According to the

forecasts 800 tonnes of Gold in 2012 as third quarter demWorld Gold Council (WGC) India's net Gold import for domestic

surged in India due to marriage season. Against the backdroconsumption is likely to be about 800 tonnes this year following a

slowing economy and persistent inflation, this upward trpick-up in demand during the festive season

encouraged by India's socio-cultural affinity and Gold's significaThe global de hedging also supported the bullish sentiments in the

as an effective store of wealth is likely to continue in 2013.beginning of the bull market for Gold in late 2001, which roughly

India jewellery demand the world's biggest Gold market rebouncoincided with the start of de-hedging, the total hedge book stood at

Range: MCX: Rs 28000-350

COMEX: $1530-195

Commentary Outlook : BullionsAnnual Commentary & Outlook : Bullions COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20

16


17/52

Commentary Outlook : BullionsAnnual Commentary & Outlook : Bullions

8% to 223.1 tonnes as buying picked up again following strikes by

jewelers, fewer auspicious marriage days and a new import duty in

the first half of the year. Meanwhile Jewelry demand in India

increased by 7 per cent to 136.1 tonnes in the third quarter of 2012

as compared to third quarter of 2011.

On the investment front the massive holding of ETF only signifies

the ever increasing demand of Gold. The investment demand in

India for January to September 2012 stood at 207.3 tonne. Global

ETF holding which was 500 tonnes in 2005 went up above 2500

tonnes in 2012 that is amazing increase of nearly 400 percent.

Investment demand for bar and coins also shot up above 1400

tonnes in 2011 as compared to 1200 tonnes in 2010.And in 2012

this figures can end up near 1300 tonnes.

On the supply front, Gold supply has climbed in recent years as high

prices have encouraged a supply response from miners. Whereas in

the recent years supply has also been boosted by rising levels of

scrap, this was not the case in 2011 as scrap supply fell around 3%to 1,665 tonnes. Mine output showed higher figures in 2012 as new

production comes on stream, but this will to some extent be

countered by falling production at existing mines as producers have

encountered lower ore grades, adverse weather and production

disruptions. Mine output is expected to climb around three percent

in 2013 to 2,940 tonnes. China became the world's largest Gold

producer in 2007 and has held that position each year since, with

output in 2011 climbing 5.9% to around 361 tonnes.

Apart from being the largest consumer of industrial raw materials,

China is also the largest buyer of Gold worldwide as Chinese Gold

imports surged to 582 tonnes till October 2012.

Globally, central banks have broadly started increasing their

balance sheets with zero interest rate policies and bond purch

in the US. This increases the inflation expectations of investors,

they will soon shift their wealth into tangible assets.

Euro debt problem will continue to be in focus in 2013 as it se

impossible to resolve it properly in 2012 despite some bail out g

to Spain and Greece.

Continuation of Presidentship by Mr. Barack Obama is also bu

signal for Gold, as Quantitative easing is likely to be continued a

will give upper hand to Gold due to printing of more money. US

ceiling limit that expires in Feb. 2013 will be closely watche

Gold investors. Given the extent to which debt has grown an

growing, creditors may well start to get worried and then th

could start to find itself in a similar situation to Europe.

Given the monetary and political strains in Europe, the uncerta

over whether the US will avoid tripping over the 'fiscal cliff'

whether China will avoid a hard landing it will be another volyear for Gold in 2013.

Meanwhile the rupee dollar movement will also be keenly wat

as its deprecation has largely supported the domestic prices in

in 2012. Going forward in 2013 rupee dollar can move in rang

50-60.

Gold prices in COMEX have taken key support of $1530 in 2012

it will also act as key support in 2013 while $1800 will be

resistance. On the domestic bourses if rupee manages to

strength in 2013 then it will pressurize Gold prices in MCX.28

will be key support for Gold and 32000 will be key resistanc

2013.

Gold Futures (MCX) Seasonal Index V/sMonthly Closing Price 2012

0.91

0.95

0.93

0.94

0.97 0.98 0.98

1.03

1.05 1.05

1.111.10

26000.00

27000.00

28000.00

29000.00

30000.00

31000.00

32000.00

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Seasonal Index Monthly closing price 2012

Yearly Return Of VariousGold Exchange Traded Funds

11.7311.93

12.74 12.8413.14

14.161

5.00

7.00

9.00

11.00

13.00

15.00

17.00

Kotak Gold

Exchange

Traded Fund

Uti Gold

Exchange

Traded Fund

Gold

Benchmark

Exchange

Traded Scheme

ICICI

Prudential

Gold Exchange

Traded Fund

Axis Gold

Exchange

Traded Fund

Reliance

Gold Exchange

Traded Fund

HDFC

Exch

Traded


Source: Reuters & SMC Research Source: Reuters & SMC Re

% c

17


18/52


Annual Commentary - Silver

White metal Silver also showed positive return last year as the

bullish momentum which started in 2004 continued. Silver prices

did not mange to test the life time high of nearly $49.5 in COMEX and

above 73500 in MCX hit in 2011 as it consolidated in the range after

taking key support near $26 and 51000 in COMEX and MCX

respectively.

Like Gold, first and third quarter also favored bulls in Silver, but in

second quarter some profit booking was witnessed. August and

September were the months where Silver appreciated the most

during the period when fed announced QE3.

Silver, which also behave as industrial metal was also impacted by

the global economic events including Euro zone crises and US fiscal

cliff.

Investors' confidence has returned in 2012 having been shaken

during the post-April 2011 sell-off. ETF investors' holdings are near

all time highs and funds' interest has returned.

Gold Silver ratio, which was nearly 48 in February 2012 scaled

higher above 58 during middle of the year but declined below 52 in

second half of 2012. In the first half Gold outperformed Silver whileduring second half it underperformed the latter.

The emergence of the ETFs in 2006 has absorbed much of the

surplus as the ETFs hold around 18,615 tonnes of metal. While

industrial demand accounts for around 55% of overall Silver

demand, investment demand has been the main driver of price

strength in 2012. COMEX warehouses have risen by 21%, an

indication that industrial demand remained soft in 2012. The

weakness in industrial demand has been borne out by the S

Institute's estimated 6% downturn in industrial demand this ye

Household demand for Silver like cutlery, flatware, and candles

rose in ten years but the technology sector demand continue

give support to the prices. The growing imports by key consu

China also kept the physical demand upbeat. China's net impor

Silver hit a record high as it quadrupled to 3,500 tonnes in 2011

according to country's official trade data, the total inflow in the

10 months of 2012 slumped by 28 percent. China was a net expo

of Silver for many years and the Chinese export used to be a m

component of global Silver supply. This scenario changed in 2when China became a net importer of Silver.

White metal Silver is also known as poor man Gold and grow

middle classes and savers in China, India and other Asian coun

have been investing in Silver which also act as store for value. A

have seen Gold has risen above its historical nominal high in

currency terms internationally and Silver is seen by many

cheaper alternative.

The industrial use of Silver will also determine the future p

direction. According to the Silver Institute's latest report, indus

demand for Silver is expected to rebound in 2013 after lo

ground in 2012. The electronics industry is expected to be

mainstay of industrial demand over the next two years, with gro

Annual Outlook

Silver Range : MCX: Rs 51000-750

COMEX: $26-48

Dow & Gold Ratio

4.00

5.00

6.00

7.00

8.00

9.00

10.00

2-Jan-11

2-Feb-11

2-Mar-11

2-Apr-11

2-May-11

2-Jun-11

2-Jul-11

2-Aug-11

2-Sep-11

2-Oct-11

2-Nov-11

2-Dec-11

2-Jan-12

2-Feb-12

2-Mar-12

2-Apr-12

2-May-12

2-Jun-12

2-Jul-12

2-Aug-12

2-Sep-12

2-Oct-12

2-Nov-12

2-Dec-12

10.00

12.00

14.00

16.00

18.00

20.00

22.00

24.00

2-Jan-11

2-Feb-11

2-Mar-11

2-Apr-11

2-May-11

2-Jun-11

2-Jul-11

2-Aug-11

2-Sep-11

2-Oct-11

2-Nov-11

2-Dec-11

2-Jan-12

2-Feb-12

2-Mar-12

2-Apr-12

2-May-12

2-Jun-12

2-Jul-12

2-Aug-12

2-Sep-12

2-Oct-12

2 N

1 2

Gold & Crude Ratio (COMEX)


Source: Reuters & SMC Research Source: Reuters & SMC Res

18


19/52


in emerging Asia the predominant force.

Industrial demand for Silver fell 2.7 percent in 2011, as industry

destocked and growth slowed. In 2013 also the pace of global

growth especially electronic industry will impact its industrial

demand. Silver being a precious metal it also has many industrialapplications and therefore will always have demand, especially

when the global economy comes fully out of recession.

Silver has many applications such as in Coins, Jewelry, Silverware,

Dentistry, Photography Electronics, Mirrors and Optics, Musical

instruments, Medical devices, instruments, Textiles and

Nanotechnology. The biggest growth area is in technology and that

is where a lot of demand will be generated as we further delve into

an era dominated by apple, iPhones, iPads etc. Silver is utilized

heavily in these high-tech devices. On an average, 6 cents of Silver is

used in each cell phone, according to industry reports. Since 1999,

consumption in electronics has increased 120%. Silver use in solarpanels began in 2000, and its usage is up 640% since then. Silver

was first used in biocides (antibacterial agents) in 2002 and, while a

small percentage of total Silver use, it has grown six-fold. New

applications will drive growth and offset slower growth from the

more traditional industrial uses such as electronics and

photography in 2013. Another new application that looks

promising and has potential to become a major user of the metal in

2013 is Silver zinc batteries. These rechargeable batteries are being

considered for the next generation of high performance batteries

for laptops and mobile electronic devices.

Silver demand in China, the world's second-largest user, may jumpas much as 10 percent in 2013 to a record as investors look to

preserve wealth. Consumption may climb to as much as 7

metric tonnes, after gaining 6 percent to 8 percent in 2012.

China's jewelry sales have jumped by 19.3 percent in the first e

months of 2012 from a year earlier. According to China Nonfer

Metals Industry Association Output in China, the third-bigproducer may reach a record 13,000 tonnes in 2012 from min

smelting, refining and recycling.

Silver investment demand is also key factor to affect its price

2013. Global Silver ETF holding from nearly 5000 tonnes in 2

has gone up to nearly 18000 tonnes in 2011 that is growth of m

than 250 per cent, but it remained flat in 2012.

On the supply front, mine output rose 1.4 percent in 2011, to a

record of 23,688 tonnes according to the World Silver Sur

Primary Silver mines provided 28 percent of mined metal

percent came from by-products of lead and zinc, 21 percent f

copper mines and 14 percent from Gold mines. In the year 2013

product output in India, Indonesia, Canada and Mexico

replenish the supply of Silver.

Silver has dual properties of precious and base metals so it wi

impacted by global macro scenario in 2013 as well.

Gold Silver ratio is expected to tumble lower towards 45 in 2

thus indicating that Silver can outpace Gold. Silver prices can

key support of $26 in COMEX and 51000 in MCX in 2013. Silver

face resistance at $36 and 66000 in COMEX and MCX. If it brea

66000 then it may try to touch the high of 72000 levels in 2013.

Silver Futures (MCX) Seasonal Index V/sMonthly Closing Price 2012

40000.00

45000.00

50000.00

55000.00

60000.00

65000.00

0.80

0.85

0.90

0.95

1.00

1.05

1.10

0.90

0.96 0.96

1.04

0.98

0.97

1.01

1.04

1.02

1.04

1.06 1.06



25.00

30.00

35.00

40.00

45.00

50.00

55.00

60.00

1-Jan-11

1-Feb-11

1-Mar-11

1-Apr-11

1-May-11

1-Jun-11

1-Jul-11

1-Aug-11

1-Sep-11

1-Oct-11

1-Nov-11

1-Dec-11

1-Jan-12

1-Feb-12

1-Mar-12

1-Apr-12

1-May-12

1-Jun-12

1-Jul-12

1-Aug-12

1-Sep-12

1-Oct-12

Gold & Silver Ratio (COMEX)



19


20/52

Commentary Outlook : EnergyAnnual Commentary & Outlook : Energy

Annual Commentary - Crude Oil

Crude oil which is also known as life blood of every economy,

showed wild swings as it traded in range of nearly $77-110 in

NYMEX and 4450-5600 in MCX in 2012. Crude oil prices managed

to remain flat during the first quarter but tumbled sharply lower in

second quarter due to rising greenback and Greece concerns.

During the second quarter, prices fell from nearly 28 % from $107

to below $77 in NYMEX and approx 20 percent from 5600 to below

4450 in MCX. In third and fourth quarter Crude prices managed to

recover but rather remained in volatile range as the uncertainty

over Euro zone crisis and slow down in emerging countries dented

the demand for Crude oil in these countries.

While tensions in the Middle East supported Crude prices,

particularly for the Brent contract but during the second half focusshifted more toward the demand outlook in the world's two biggest

economies namely U.S. and China. China imported 250 million

tonnes of Crude oil in 2011, constituting 13.4 percent of global

Crude oil trade volume.

Meanwhile in 2012, the spread between Brent and WTI Crude oil

widened and tested above 23. In the beginning of 2012, the spread

was hovering near 8 and it accelerated towards 19 in March and 23

in November 2012. This spread hiked as Middle East tension

affected Brent Crude oil prices while ample supplies at Cushing

pressurized the WTI prices lower.

West Texas Intermediate Crude prices climbed in 2012 on concern

that tension with Iran would lead to military conflict in the Middle

East, where more than half the world's oil reserves are located.

Dispute between Iran and the West intensified recently during the

second half of 2012 as Tehran refused to permit the International

Atomic Energy Agency (IAEA) from visiting a nuclear site which is

suspected of being used to develop nuclear weapons. Iranian oil

exports fell significantly in 2012 due to western sanctions.

In 2012, tropical storm and hurricane season which began on June 1

and extended to Nov. 30 also impacted Crude oil refinery as

hurricane sandy did worst damage. Hurricane sandy made some

refinery to shut down their operation in US thus pressuring the

prices lower in October 2012. Storm Sandy tore through the eastern

coast of the United States and forced the shutdown of refineries

roads and airports.

Annual Outlook

Crude Oil Range: MCX: Rs 4400-58

NYMEX $75-105

Crude oil often known as black gold, can trade on volatile pat2013 as the key factors which will be impacting the inves

sentiment in Crude oil are the geopolitical tensi

macroeconomic data and euro zone concerns along with movem

of Greenback. Tensions over Iran will also be the guiding facto

the Crude oil prices.

Global recovery from slowdown will also be playing a vital ro

determining Crude oil prices in 2013. International Monetary F

(IMF) trimmed its global economic growth forecasts for 2012

2013. The IMF forecasts a shrinking of the euro zone economy o

percent in 2012 and a small positive growth of 0.2 percent this y

The IMF cut its forecast for China to 8.2 percent, for India

percent and for Brazil to 4 percent. According to the IMF w

economy will grow 3.3 percent in 2012 and 3.6 percent in 2013.

Euro zone and US debt problem will be at centre stage in 2013.

ECB's rate cut in 2012 and lagged effects of previous non-stand

measures are unlikely to offset negative economic tre

sufficiently to improve the near-term growth outlook. As

Europe, it is facing a whole array of problems pertaining to the

GDP worth of more than 16 trillion dollars.

Organization of the Petroleum Exporting Countries (OPEC) has

its forecast for growth in world demand in 2013 almost unchan

reducing it by 10,000 barrels per day (bpd) to 770,000 bpd.

forecasted oil demand growth has a notable downside

especially in the first half of the 2013. OPEC, which pumps m

than a third of the world's oil, reiterated a warning that fac

including economic weakness could shave 20 percent from 2

global demand growth assessment.

OPEC production fell by 67,000 bpd in October 2012 to 3

million bpd led by declines in output in Nigeria, Saudi Arabia

Iran. Meanwhile Energy Information Administration (EIA)

reduced its 2013 global demand growth estimated by 30,000 bp

890,000 bpd.

The spread between WTI and Brent can remain in range of 15-2

2013. If the Middle East situation worsens further this spread

also exceed 27 in 2013.


20


21/52


Regarding oil prices at present times, it's not simply a supply and

demand equation. If it was, oil would be selling for $60 and not

nearly $90. There has not been a sustained disruption in oil's supply

anywhere in the world last year despite Iran tensions whereas

demand increased in China and other emerging countries. It was

seen that Middle East tension sustained for second half of 2012 and

that will continue to haunt Crude investors in year 2013.

Furthermore ongoing civil unrest in the Middle East (Syria, Egypt)

near major oil producing nations, has placed a geopolitical risk

premium on the price of oil, adding roughly $10-15 per barrel to

oil's price. Add the above to the possibility of supply disruptions in

Venezuela and Nigeria, and U.S. /E.U. sanctions imposed on oil

producer Iran over its nuclear program the underlying risk

premium can boost Crude prices going forward in 2013.

According to IEA new drilling techniques will continue to increaseU.S. oil production, and will play a role in increasing international

oil production, boosting global oil production by 9.3 million bpd to

102 million bpd by 2017. Meanwhile, global oil demand is expected

to rise to 95.7 million bpd by 2017

Moreover oil is not just an energy form; it's an alterna

investment, particularly for institutional investors (hedge fu

investment funds, and other high-net-worth investors) as the m

of portfolio allocation of these entities in Crude oil will also im

its prices in 2013.

Recovery in the China's economy is expected to have a signifi

impact on global demand as it consumed 480 million tonnes o

products in 2012 and can consume over 500 million tonnes in 2

Other energy forms have made inroads (Natural gas, nuc

renewable) on oil's dominance in the modern/postmodern era

barring a major energy or technological breakthrough oil

remain the dominant fuel. Crude oil prices in NYMEX has

support at $76 and 4500 in MCX while it has key resistance n

$100 in NYMEX and 5650 in MCX.


Crude Futures (MCX) Seasonal Index V/sMonthly Closing Price 2012

0.87

0.94

0.98

1.04

1.05

1.07

1.05 1.05

1.01

0.97

1.00

0.98

4200.00

4400.00

4600.00

4800.00

5000.00

5200.00

5400.00

5600.00

0.80

0.85

0.90

0.95

1.00

1.05

1.10



Brent & Light Sweet Crude Oil Spread($)

5

10

15

20

25

30

1-Jan-11

1-Feb-11

1-M

ar-11

1-Apr-11

1-M

ay-11

1-

Jun-11

1

-Jul-11

1-Aug-11

1-

Sep-11

1-

Oct-11

1-N

ov-11

1-Dec-11

1-Jan-12

1-Feb-12

1-M

ar-12

1-Apr-12

1-M

ay-12

1-

Jun-12

1

-Jul-12

1-Aug-12

1-

Sep-12

1-

Oct-12


21


22/52


Annual Commentary - Natural gas

Natural gas prices have registered life time low of nearly 100 in MCX

and below $2 in NYMEX in April 2012 as the excessive supply and

feeble demand kept the prices on back foot. But since May 2012

bulls stepped back with a vengeance and took its prices above $4 in

NYMEX and 216 in MCX in November 2012 ,which is just the double

the prices present in April 2012.

Natural gas prices which have shown steep rise after testing 10 year

low of below $2 in NYMEX rebounded sharply higher due to

production cuts by some producers and decline in rig count. Strong

coal to gas switching helped prices rebound to a 3-1/2-month high

of $2.76 in NYMEX and above 155 in MCX in second quarter of 2012.

Prices hit low of nearly $2 in NYMEX and 100 in MCX due to warm

weather last winter which resulted in Natural gas working

inventories to set new record seasonal highs. Natural gas supplies

reached currently more than 50 per cent above the five-year

average in April 2012 due to a boom in production in Pennsylvania,

Ohio, Texas and others states. Record low coal prices also resulted

in lower demand for Natural gas in the beginning of the year 2012. A

mountain of excess U.S. coal supplies squashed spring's recovery in

Natural gas prices that came as power plants snatched up the fuel as

it plumbed 10-year lows. According to Baker Hughes, the Natural

gas rig count was 613 as of April 27, 2012, down from a 2011 high of

936 in mid-October, making it the lowest rig count since 2002.

Lower prices resulted in production cuts during the second and

third quarter of 2012 as extremely low prices made it unprofitable

for producers to extract Natural gas. The mild winter and bountiful

supply from the new production technique of hydro fracturing, or

"fracking," shale formations has resulted in Natural gas supplies at

more than 50 per cent above the five-year average in April 2012.

That's due to a boom in production in Pennsylvania, Ohio, Texas and

others states.

Meanwhile hurricane sandy also increased the power demand in USdue to massive power outages in New Jersey, New York and

Pennsylvania in November 2012.But with decline in rig counts, a

slowdown in production and increasing demand from companies,

involved in electricity, utilities, chemicals, steel, aluminum and

fertilizers which used cheaper Natural gas prices as compared with

the coal prices. These factors continued to support the gas prices in

the second half of 2012.

Annual Outlook

Natural gas Range : MCX: Rs 160-2

NYMEX $3.3-4

After witnessing amazing recovery in 2012 as Natural gas prose more than 100 percent, the journey in 2013 bulls will

upper hand going forward as decline rig count and increasing u

will induce more Natural gas instead of other energy resource

as coal and nuclear energy.

Natural gas in particular has witnessed unconventional Natura

stemming from new hydraulic fracturing or fracking techno

which has become a comparatively cheap, abundant sourc

energy in the United States. Meanwhile new supply additions

also possible in Europe, Russia, and the Middle East in 2013.

Furthermore, rising oil prices have hurt consumers and busine

at the gas pump have looked to Natural gas as the alternative

With over 10 million trucks in the U.S. consuming 35 million ga

of diesel a year, a shift to Natural gas could be extremely c

efficient. With the gap between Natural gas and diesel prices w

than ever, trucks and cars powered by Natural gas are increasi

popular for company fleets.

IEA anticipates that the US, China and Japan's consumptio

Natural gas will grow at an annual average rate of 2%, 13.1%

1.1%, respectively, from 2011 to 2017. Global deman

anticipated to rise at an annual average rate of 2.7% over the s

period. Countries outside of the U.S have higher gas prices of ab

$10 Natural gas. And the reason for the enormous disparit

prices is due to the lack of a global trading market in Natural gas

the difficulty or near impossibility of shipping the commodity.

During the latter part of 2012 Natural gas horizontal and vertica

counts have been continuously falling as many rigs have stop

operating and this may lead to price hike. Increasing usag

Natural gas will support the prices in near term. Meanwhile Ch

gas output climbed 6.4 percent year-on-year to 87.8 billion c

meters between January and October 2012.

Reduced supply levels will have a significant impact on pr

Imports of Natural gas from Canada are expected to fall in 2

while exports to Mexico are projected to be higher as a result

loss of gas processing capability after an explosion at the Reyn

plant. Meanwhile, power plants are likely to switch from coal to

putting additional pressure on supply levels.


22


23/52


The huge increases in Natural gas's supply are subjected to fracking

technology deployed safely. In some areas, fracking has led to

environmental damage and it is not appropriate for all, potential

drilling areas to perform fracking and that will restrict supply.

Natural gas is also making in-roads in transportation, in the fleet

vehicle market or where vehicles return to the same site to re-fuel.

Furthermore Natural gas will continue to displace oil in factories,

home heating, and displace coal (and other fuels) in electric power

generation. Comparatively cheap, abundant Natural gas is

displacing oil in the United States for several energy uses,

decreasing oil demand.

Weather conditions also dictate the trend of Natural gas in 2013

and the temperatures present in winter and summer induce

heating demand in winter and cooling demand in summers.

Natural gas prices will face resistance near $4.7 in NYMEX and 260

in MCX. While key support is near 160 in MCX and $2.6 in NYMEX.

Natural Gas Futures (MCX) Seasonal Index V/sMonthly Closing Price 2012

0.99 0.99

0.92

0.95

1.05

1.10

1.02

0.91

1.00

1.051.03

0.99

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15



Natural Gas (Weekly) Rig Count & Average Spot Henry Hub Pr

Source: Baker H



10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

55.00

60.00

2-Jan-11

13-Feb-11

27-Mar-11

8-May-11

19-Jun-11

31-Jul-11

11-Sep-11

23-Oct-11

4-Dec-11

15-Jan-12

26-Feb-12

8-Apr-12

20-May-12

1-Jul-12

12-Aug-12

23-Sep-12

4-Nov-12

16-Dec-12

Crude Oil & Natural Gas Ratio (NYMEX)

Source: Reuters & SMC Research

23


24/52


25/52

Commentary Outlook : Base MetalsAnnual Commentary & Outlook : Base Metals

Annual Commentary - Base Metals

Base metals prices managed to end the year 2012 in a positive

territory except Nickel which ended on flat note. In the year 2012,

the euro zone concerns and U.S debt concerns kept the investors on

cautious note while the stimulus measures from various banks lendunderlying support. However the weakness in the local currency

rupee also aided the bullish sentiments.

Base metals got boost in 2012 from the news of European Central

Bank commitment to buying sovereign bonds in the short term,

fiscal stimulus package implemented by the U.S. Federal Reserve

Bank, and major spending program unveiled by China. The People's

Bank of China, for its part, effected massive liquidity injections

worth US$57.92 billion. These measures had a strong impact on

investor expectations and played a key role in driving gains.

In the year 2012, lot of events taking place in the Euro zone, notably

political turmoil in Greece as well as the strong penalty imposed on

Spain by financial markets took centre stage which affected risk

sentiment.

Copper, the Leader of base metals pack, tested life time high of

above 460 in September when fed announced QE3. Overall Copper

prices traded in thin range of nearly 397-460 in 2012. Supply

tightness supported due to mining strikes supported the prices.

Copper market recorded a deficit of 267000 tonnes in January to

September 2012 which follows a surplus of 248000 tonnes in the

whole of 2011. Its prices registered positive gains in all three

quarters in 2012, except the second quarter.

Aluminum witnessed robust growth in second half of 2012 while

first half proved to be flat. Its prices managed to rise above 117 in

September while its prices took solid support near 100 in MCX.

Global Aluminium consumption during the first half grew around 3

percent as compared to 7 percent a year ago. Aluminium

consumption in the domestic market continues to outpace

production, making the country a net importer of the commodity.

Oversupply concerns made Nickel worst performing metal in 2012.

Nickel prices hovered in thin range as its prices took key support

near 850 and faced resistance near 1000 in MCX. Anglo American

Plc and Vale SA invested in new mines and expanded the existing

ones in order to get benefit from the better prices in 2007. As a

result there was huge surplus with the addition of new mines.

Prices came under pressure as surplus started in the year 2011 and

slower growth weakened demand for stainless steel, which

accounts for 65 percent of Nickel consumption. According to INSG,

production of Nickel is forecasted to rise to 1.69 million tonnes in

2012, up 5.6% from 1.60 million tonnes in 2011. The Group

highlighted that the global refined Nickel markets was likely to be in

surplus of 50000 metric tonnes in 2012. With the export ba

Indonesia and 20% export duty that have started since May m

have tightened supply on the Nickel market in 2012. But Ch

importers of laterite ores used to make Nickel have switched to

Philippines as industry curbs reduced shipments from Indones

Battery metal Lead was more or less flat in the first half of the y

2012 but prices moved swiftly higher in the second half of the

from 102 to high of nearly 127 as the large queues in

warehouses coupled with decline in Lead production and b

demand from battery manufactures have supported the Lead pr

higher. According to ILSG China, Lead-acid battery production

exports have recovered strongly after the wide-ran

environmentally motivated cutbacks in the year 2011 and

metal usage grew by 4.8% in 2012. Better data from vehicle sal

China, which climbed 5.3 percent in October from a year ea

along with U.S, supported Lead prices in second half. Metal st

up in bank financing deals also gave boost to Lead prices. Finandeals are considered to be good for the metal as they tend to sup

the price of underlying asset without any thought on t

fundamentals.

Zinc metal also traded in a narrow range in the year 2012 a

prices moved nearly in range of 96-115. Zinc showed steady gro

in all the quarters with the last two quarter showed quick g

China also started to build its state reserve purchases of Zinc bu

pretty lower quantity as compared to 2011 during last the qua

of 2012. The fall in purchase percentage is due to very high st

already available in the markets that are unused due to lac

demand. Zinc stockpiles rose to record highs for fifth consecu

years. According to the International Lead and Zinc Study Gr

(ILZSG) Zinc markets were in surplus of 137000 tonnes in

period of Jan-Sep 2012. The total reported inventories increase

81000 tonnes during the first three quarters of 2012.

Macroeconomic uncertainties affected the base metals price

larger extent in the year 2012. Global PMI indicators along with

survey affected the sentiments. China PMI improved during

course of 2012 as the stimulus measures started taking e

Meanwhile U.S. manufacturing shrank from 51.7 points in Octo

to 49.5 points in November 2012 following two consecutive mo

of growth China's manufacturing PMI for November stood at

points. Driven mostly by new business and manufactu

increases, this 13-month high in China PMI suggests that

Chinese economy is gradually rebounding.

2012 proved to be the year with full of global economic turbule

with the euro zone one crises took centre stage for most part o

year followed by the US debt crises and slowdown in Ch

Combined efforts from the troika IMF, ECB and EU have also he

in euro zone recovery in 2012.


25


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Annual Outlook

Copper Range: MCX: Rs 370-520

LME: $7200-9000

Red metal Copper is expected to remain on volatile path as various

stimulus measures by central banks and global recovery prospects

can support the prices while euro zone and U.S debt concerns can

cap the upside.

Copper, which is also known as Dr Copper will be impacted by the

changes in global economic conditions in 2013. The three key risks

will be sharp rebound in sovereign risk in Europe, Greece and Spain,

US fiscal cliff issue and possible US sovereign downgrade.

Despite the international backdrop and the European crisis, China

is expected to continue growing at above 7.5% and the supply

demand tightness in Copper will continue.

Structurally, the Copper market has shown a deficit throughout

2012 notwithstanding the uncertainty affecting the global

economy. While financial market volatility may keep demand down

in the early part of 2013 the structural surge in demand is expected

to persist in the long term.

China and India currently have an urban population of 50 percent

and 30 percent, respectively. As such, both countries have launched

massive construction projects designed to bring urban population

levels closer to the 70 percent prevailing in more developed

nations. These plans bode well for long-term Copper price

prospects. In a sign that metals demand is weak, Chile's Codelco, the

world's top Copper producer, has offered its Japanese Copper

customers a 2013 term premium of $85 a tonne, down 9 percent

from its 2012 premium. The labour disputes in key Chile mines like

Escondida and Codelco will affect Copper output in 2013.

U.S and China, the two main engines of global growth, are now

showing signs of recovery but Europe will take more time to

recover. The world's major developed economy central banks are

committed to maintaining low interest rates and providing

extraordinary amounts of liquidity to the world's financial system.

Concern is that consumption of Copper cathode is likely to grow

more slowly in China in 2013, cooling further after the pace of

growth looks set to drop by at least a third this year. Demand for

industrial metals such as Copper has weakened in 2012 as China's

economic growth slows, largely due to a decline in manufacturing

activity in its main export market Europe. China's Copper smelting

capacity is expected to rise by about 420,000 tonnes to around 5.6

million tonnes in 2012 compared with about 5.18 million tonn

2011 and the capacity can grow at similar pace in 2013. Howe

increasing housing inflation in China could prompt the Chi

government to refrain from relaxing curbs on the property ma

which in turn would be bearish for Copper.Copper demand also comes from the building and construc

sectors, and the utilities sector (power generation

transmission). The slowdown in the global economy as pred

by IMF in 2013 will also affect the demand. The reduction in cr

rating of key euro zone countries will also affect Copper prices.

On positive side, recovery in US housing sector may continu

assist the prices higher. US housing starts jumped to an 872

annual rate in October 2012 the most since July 2008, boos

demand prospects for the metal used in pipes and wi

Meanwhile flat forward curves of Copper also points towards

fact that the market fundamentals are tight at present but fu

looks uncertain in 2013.

The International Monetary Fund cut global growth forecast

2013 to 3.6 percent even after central banks from the US to Ja

continue to pledge more action to bolster economies. But

predictions of China's growth at 8.2 percent next year will be m

than double the global pace. Meanwhile it is expected

slowdown in the demand from the west will be compensated by

growth from the emerging countries like China.

Each metal's forward curve is a snapshot of future expectat

anchored on the current price. Copper that exhibit tightnes

supply, both at present and expected in the future, display alm

flat forward curves in middle of 2012 but during last part

forward curve has become steeper indicating supply coming ba

markets.

According to the Copper Study Group, Copper supply will out

demand by 458,000 metric tonne in 2013, the first glut in four y

and the biggest in more than a decade. For any upside movem

from the current levels, Copper prices want to see quantita

easing translate into demand for Copper.

Copper has maintained a narrow trading range for many mo

and it will be interesting to note that when it will break the

resistance of 470 in MCX and $8500 in LME. The key support wi

395 in MCX and $7200 in LME.


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27/52


Copper Futures Seasonal Index V/sMonthly Closing Price 2012

0.91

0.97

1.00 1.010.99

1.01

1.05

1.07

1.01

0.98

0.99

1.02

0.80

0.85

0.90

0.95

1.00

1.05

1.10



Annual Outlook

Nickel Range: MCX: Rs 800-1250

LME: $15200-22000

Nickel can prove to be the dark horse in 2013 as it underperformed

other base metals in 2012. Nickel prices can get support from the

tightness in its ore supply and some production cut in mines. But

feeble demand for stainless steel sector can limit the upside in

Nickel.

INSG predicted that Nickel oversupply can increase up to 70000

metric tonnes in 2013. The production of refined Nickel is further

expected to increase to 1.78 million tonnes in 2013. The growth

contributors in these two years will be ramp up of operation of

Xstrata Koniambo in Caledonia and Barro Alto Mine of Anglo

America. Demand for refined Nickel is expected to increase to 1.71

million tonnes in 2013 as compared to 1.64 million tonnes in 2012.

More than 800,000 tonnes of planned or existing production

capacity is under threat of disruption in the next 12 to 18 months.

Mining operations will continue to give further direction to theprices as the Xstrata announced that it has suspended operations at

its Cosmos Nickel mine in Western Australia in 2012.

Last year in May 2012 ban on Indonesia ore exports have affected

the ore supply as Indonesia's Nickel ore exports increased in

October 2012 due to buying by China. But slowly ore miners

resumed production after meeting tough government rules that

battered shipments in 2012 from the world's top exporter of

metal. Nickel market will be affected by the ore export ban in 2

also but to smaller extent as China has resorted to Philippine

ores instead of Indonesia's. Indonesia imposed curbs and a ta

exports as miners will no longer be able to export unprocessed

beyond a 2014 deadline.

China pig iron production is also one of the greatest threats to

recovery in Nickel prices, which is a substitute made from lo

grade ores. Given the likely surge in Nickel-pig-iron production

the next three to six months it will hamper the recovery in Ni

prices. NPI output may be curtailed by curbs to Nickel-ore exp

from Indonesia, where the government is trying to spur

development of the domestic refining industry. But China may

to importing more refined Nickel than relying to the same exten

NPI in 2013. The use of Nickel for non-stainless applications

increased the most rapidly, by 8 percent in 2012. Chinese Nicke

Iron (NPI) has held relatively steady in spite of an Indonesian ba

exports in 2012 and increased export duties on Nickel ore.

Most of the 2012 Nickel prices were entangled between weak gl

steel sector and growing substitution to Chinese Nickel pig iron

movement of cancelled warrants and stock position in LME

impact the prices in 2013. Fundamentally, the supply side weig

on demand as Nickel market can remain in surplus in 2013.

surplus of Nickel in first three quarters of 2012 stood at 89


27

Source: Reuters & SMC ResSource: Reuters

Chinese Copper Imports


28/52


metric tonnes.

But the stainless steel alloy (consumes nearly 65% of the metals) is

also expected to continue the seasonal growth with higher

European demand and the same may also support Nickel prices

higher.

Nickel has steady upward sloping forward curve, which suggests

that the metal is characterized by chronic oversupply.

The monetary stance of China in 2013 and stimulus will also have

impact on the prices. Last year Chinese central bank injected a

record high of 395 billion Yuan (62.7 billion US dollars) into the

financial system.

It is anticipated that demand in China may slow as the country is

moving from a re-stocking to a de-stocking phase in 2013. Nickel

could suffer from a forecasted 44,000 mt surplus as delayed

projects start to ramp-up production in 2013. However scope for

accelerated consumption of NPI in China, and the stockpiles

accumulated in 2012 can keep the prices under stress.

Meanwhile the scale of supply disruptions and disappointments

may spring an upside surprise in Nickel prices in 2013. If the euro

crisis recedes and the U.S avoids falling off its own fiscal cliff then

the sentiment can be positive for Nickel in 2013.

China imports remain high with consumption surging which can lift

Nickel prices in 2013. Significant primary capacity build u

expected in next couple years, but output is somewhat restra

due to cutbacks and delays in mines.

Nickel prices have key resistance of 1000 in MCX and $2200

LME while 850 is the key support in MCX and $15800 in LME.

Nickel Future Seasonal Index V/sMonthly Closing Price 2012

1.03

1.07

1.04

1.07

0.980.99

1.00

1.03

0.98

0.93

0.89

0.97

1

1

1

0.80

0.85

0.90

0.95

1.00

1.05

1.10



Annual Outlook

Zinc Range: MCX: Rs 95-130

LME: $1800-2400

Zinc, which proved to be quite volatile in the year gone by will

continue to remain choppy in 2013. Zinc is used mainly as an anti-

corrosive to galvanize steel for the construction and auto sectors

and the growth in steel sector will impact prices in 2013.

The International Lead & Zinc Study Group expects that Zinc supply

may continue to exceed demand in the world refined Zinc metal

market both in 2012 and 2013. A surplus of 153,000 mt is

forecasted in 2012 with a more significant excess of 293,000 mt

anticipated in 2013. It is anticipated that there will be a small

decline in world demand for refined Zinc metal of 0.3% to 12.71

million mt in 2012 followed by a 3.8% increase to 13.19 millio

in 2013. Global Zinc mine output is forecasted to increase by 5%

2012 to 13.60 million mt and a further 2.7% in 2013 to 1

million mt. In 2013, a further forecast increase in mine outp

China by 2.7% is expected to be supplemented by additi

production in a number of other countries including Austr

Burkina Faso, Kazakhstan, Mexico, Portugal and the US.

Silver-Zinc vehicle SLI batteries, which have 45 percent more po

and a 30-percent longer life, are also commercially available

competitively priced. So demand for SLI batteries can pent up

demand in 2013. China is also trying to cut the production leve

Zinc in order to curtail steady growth in unused Zinc. Sim

production declines are noted in world markets but the pac

decline is on a lower side.


28



29/52


LME inventories are in Zinc at all time highs thanks to rising

financing deals that are acting as a last resort for producers and

stakeholders. Due to the problems ranging from debt to steady

supplies LME inventories are expected to swell further and

therefore putting additional pressure on the prices. Zinc will also beclosely watched as financing deals are considered good for the

metal as they tend to support the price of underlying asset without

any thought on their fundamentals. It is also notable that financing

deals happen only in case of oversupply of particular metal. Spot

premiums prevailing in LME will also impact Zinc prices in 2013.

Nearly fifty percent of Zinc is used for galvanizing to protect steel

from corrosion. So the galvanizing demand along with die casting

demand will affect its prices in 2013. More than two thirds of metal

demand comes in the form of steel galvanization. If steel supply and

demand takes a further hit, it would be detrimental for the basic

fundamentals of Zinc. Constructive and continuous improvement in

demand from steel sector is going to influence the prices.

China has in recent times shifted from exporter to importer of Zinc

with consumption surging & production flattening. Imports of Zinc

have increased in the China due to its usage in Steel industries for

galvanizing. China's Zinc ore and concentrate imports rose by 5.9%

month on month in October 2012. The country imported 203,022

tonnes of Zinc concentrate in Oct 2012 up 4.6% from the same

month in 2011.

Mine capacity has built up globally and refined production

increased. The pace of production will also impact Zinc price

2013. There has been rise in new capacity addition in Neves ,Co

Ozernoye, Almagrera mines in Europe and Rampura-Agu

Shaimerden, Duddar, Khandiza mines in Asia along with Q

Amizour, Perkoa in Africa. The pace of buying by the China S

reserves will influence Zinc prices in 2013. State reserve purch

of Zinc were lower quantity in 2012 as compared to 2011. The f

purchase percentage is due to very high stocks already availab

the markets that are unused due to lack of demand. Zinc has ste

upward sloping forward curve which suggest that the met

characterized by chronic oversupply.

Demand from some sectors like construction, transport, consu

goods and electrical appliances and general engineering will

guide Zinc prices in 2013. Meanwhile in 2013 , the euro zone

problems along with pace of recovery in US and China is like

affect the price movement of Zinc.

Zinc will face key support of 95 in MCX and $1800 at LME while

resistance will be 116 in MCX and $2200 in LME.


29

Zinc Futures Seasonal Index V/sMonthly Closing Price 2012

0.98

1.03

1.011.00

0.97

0.95

1.011.01 1.01

0.98

1.01

1.06

90.00

95.00

100.00

105.00

110.00

115.00

0.88

0.90

0.92

0.94

0.96

0.98

1.00

1.02

1.04

1.06

1.08



MCX Lead Zinc Spread (Monthly)

-4.00

1.00

6.00

11.00

16.00

21.00

1-J

an-1

1

1-F

eb

-11

1-M

ar-

11

1-A

pr-

11

1-M

ay-1

1

1-J

un-1

1

1-J

ul-11

1-A

ug-1

1

1-S

ep-1

1

1-O

ct-11

1-N

ov-1

1

1-D

ec-1

1

1-J

an-1

2

1-F

eb

-12

1-M

ar-

12

1-A

pr-

12

1-M

ay-1

2

1-J

un-1

2

1-J

ul-12

1-A

ug-1

2

1-S

ep-1

2

1-O

ct-12

Source: Reuters & SMC Research Source: Reuters & SMC Res


30/52


Annual outlook

Lead Range: MCX: Rs 100-150

LME: $1800-2650

Battery metal Lead has been favored by the bulls in the year gone byand will continue to shine in 2013 as well on the back of increased

demand from battery manufacturers.

In 2013, outlook for the Lead market remains positive, with good

demand growth expected from the industrial battery sector and for

Sealed Lead Acid batteries (SLA), which are used to power e-bikes.

Lead is majorly used in car batteries, mobiles and e bikes. Its

corrosion resistant quality makes it suitable to store sulfuric acid.

Due to its malleability and anti corrosion characteristics it is also

used in building construction. The regime to follow carbon

emission norms has also hit Lead production. Replacement battery

demand is growing in India along with that the power shortages has

increased options for alternative energy. Steady growth inautomobile battery demand in Asia Pacific, especially India and

China are expected to keep the Lead prices well supported in 2013.

Pace of auto sales in 2013 will also influence the Lead prices.

Meanwhile vehicle sales in China in the first eight months of the

2012 were up by 3.3 percent. The steady increase in automotive

demand in regions other than Europe, more so importantly in

developing markets such as Asia Pacific and Latin America and

subsequent rise in automotive production, will give support to the

Lead acid batteries market. Global market for Automotive Lead Acid

Batteries is projected to reach US$43.9 billion by 2018, primarily

driven by increase in automotive production, particularly in

developing markets such as China and India and growing

integration of start stop technology in new age automobiles.

Meanwhile stringent pollution norms in key producing countries

will influence its demand in 2013. Heightened concerns about

global warming, urban pollution, rising fuel prices and government

legislations to curb emissions are the key factors driving the

adoption of hybrid electric vehicles (HEVs) and electric vehicles

(EVs). With electric car manufacturers focusing on incorporating

innovative battery technologies in their cars as Lead acid batteries

can improve efficiency, lengthen the discharge cycle, and enhance

the storage capacity of batteries are poised to benefit, which will

support the Lead prices.

The pick-up in mine output and the probable restart of the 115,000-

tonne-per-year La Oroya smelter in Peru and the 80,000-tonne-per-

year Portovesme smelter in Italy in 2013 will lead to more primary

refined production. While China seems to be able

Commodity Outlook 2013

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