SPECIAL MONTHLY REPORT ON

Bullions & Energy(July 2014)

2

BU

LL

ION

S &

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July 2014

BULLIONS AND ENERGY PERFORMANCE ( - 30th June 2014) (% change)30th May 2014

Source: Reuters and SMC Research

3.26

13.31

3.82

-0.55

5.72

10.61

2.37

-1.55

-4.00 -2.00 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00

Gold

Silver

Crude oil

Natural Gas

COMEX/NYMEX MCX

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BULLIONS

In the month of June bullion counter moved with

positive bias tracking weaker greenback and

increased safe haven demand due to Iraq tensions.

Overall gold traded in range of 25755-27870 in MCX

and $1240-1325 in COMEX. Silver traded in range of

$18.64-21.20 in COMEX and 39465-44970 in MCX.

Geo-political turmoil going in Iraq pushed gold

higher as part safe haven demand as Brent crude oil

rising above $115 supported bullion as an inflation

hedge. Besides we had the FOMC meeting wherein

the Fed Chairman sounded comfortable about the

outlook for inflation and probably was not keen

uptill middle 2015 to hike interest rates.

Nonetheless, physical demand continued to be

lower while the investment demand has also been

muted. Geo-political uncertainty and good

industrial demand can be treated as one of the major

rationales behind performance in the silver which

have outperformed gold in June 2014. Holdings in

the SPDR Gold Trust, the biggest bullion-backed

exchange-traded product, stood near 785.02 tonnes

as assets are set to decrease this quarter and have

dropped 1.7 percent this year.

In the month of July bullion counter can move

sideways with upside bias. On domestic bourses the

movements of local currency rupee will be key factor

to watch out which can move in range of 59-61 in the

month of July. Gold can trade in range of Rs

26500-28500 in MCX and $1230-1370 in

COMEX. Silver can trade in range of 40000-

48000 in MCX and $19.5-23 in COMEX. The

gold/silver ratio fell from nearly 66 to below 63 as

silver jumped at faster pace than gold. This ratio can

hover in range of 60-65 in the month of July.

Recovery in US economy has also led to reduced safe

haven demand in bullion counter. Bullion got

support as Federal Reserve stated that it will keep

interest rates at almost zero for a considerable time

even as the economy improved. But upside is limited

in gold as concerns over weak physical demand in

top consumer China and the discovery of $15 billion

of loans tied to falsified gold deals in the country.

Chinese gold processing firms have used falsified

gold transactions since 2012 to borrow 94.4 billion

yuan ($15.2 billion) from banks. China's gold

imports from Hong Kong are already at lower levels,

with overseas purchases in May dropping to their

lowest since January last year as the pace of buying BU

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SJuly 2014

calms after a record 2013. Chinese demand has been

quiet in recent months as a weaker yuan has dulled the

appeal of the metal. Demand in major consumer India

has also been subdued as the industry awaits a possible

roll back of import rules. According to the China Gold

Association” The global flow of gold from west to east

that helped to make China the world's largest user will

probably last for up to two decades as rising incomes

spur demand”

Iraq and Ukraine tensions

Gold was also supported by safe-haven bids from

geopolitical tensions. Iraqi troops battled to dislodge an

al Qaeda splinter group from the city of Tikrit recently

after its leader was declared caliph of a new Islamic state

in lands seized this month across a swath of Iraq and

Syria. Ukrainian President Petro Poroshenko stated

that government forces would renew offensive

operations against pro-Russian rebels and "free our

lands", hours after a ceasefire to make way for peace

talks with the rebels had expired. Tensions in Ukraine

and Iraq have largely been responsible for gold's 10

percent gain this year.

Fall in ETF Gold holdings

Holdings of exchange-traded funds, which issue

securities backed by physical gold and had proved a

popular way to invest in bullion since their inception in

2003, fell around 750 tonnes last year and by more than

50 tonnes so far this year.

Mali's first gold refinery to start in mid-2015

Mali's first gold refinery should start production in mid-

2015 after construction work was delayed by two years

during political turmoil sparked by a northern Tuareg

uprising.

Gold imports norms may be relaxed further

For Indian gold market, further relaxation in gold

import norms is on cards. Reserve Bank's move to ease

gold import norms is unlikely to exert upward pressure

on the current account deficit, according to industry

body Assocham. The RBI had earlier eased gold import

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norms by allowing select trading houses, in addition

to already permitted banks, to procure the precious

metal to boost exports. India's current account

deficit (CAD) narrowed to 1.7% of GDP in FY14, from

4.7% in FY13. The CAD contracted even more March

quarter – coming in at 0.2% of GDP – it's lowest

since March 2009. India's Gold availability is set to

increase as the RBI has allowed star trading houses -

big importers and exporters - to import gold under

its existing 20:80 scheme. India, the world's second

biggest consumer of gold after China, imposed curbs

on bullion imports last year, including a record 10%

duty on gold imports in a bid to control its

burgeoning current account deficit . The

government also introduced further measures,

including the so-called 80-20 rule that required a

fifth of all imports to be exported. The restrictions

are likely to be eased further by the country's new

government led by Narendra Modi. The new Prime

Minister has said any action on gold should take into

account the interests of the public and traders, not

just economics and policy.

World gold council –First quarter review

Gold demand had a robust start to 2014 virtually

unchanged year-on-year at 1,074.5 tonnes. Jewellery

demand made moderate gains of 3% largely due to

lower gold prices compared with Q1 2013 and seasonal

factors, notably Chinese New Year, which contributed

to record first-quarter jewellery demand in China.

Movements within the investment space were more

striking: net ETF flows were zero, compared with 177

tonnes of outflows in Q1 2013, while bar and coin

investment unsurprisingly fell far short (-39%) of the

record levels of demand seen a year ago. The net impact

on Q1 investment demand was minimal: it was down by

just 6 tonnes (2%) year-on-year.

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Investment demand On the one hand, tensions in Ukraine brought gold's

risk-hedging properties into focus. This resulted in Q1 investment demand for gold was just 6 tonnes

positive monthly inflows to ETFs in February, for (2%) lower year-on-year at 282.3 tonnes. However,

the first time in over a year, which were repeated in the picture of stability at the aggregate level

March. However, expectations for continued US conceals a more marked divergence in the different

and global economic recovery and possible elements of demand within the sector: bar and coin

increases in US interest rates over coming years had demand was significantly weaker while ETF

a contrasting effect, which neutralized these outflows dwindled. Net ETF gold demand was zero,

inflows.with limited activity from both sides during the

quarter. This had a positive impact on year-on-year

comparisons, given outflows of 176.5t in Q1 2013.

Analysis: Bar and coin investment suffered the most negative year-on-year comparisons for Q1, in part because

the base period was a record first quarter for bar and coin demand, but also due to uncertainty in the outlook for

the gold price. Bar and coin investment across Europe remained within its broad post-financial crisis range,

although very much at the lower end. Indian bar and coin investment was very restrained in the first quarter, well

below both year-earlier levels and the five-year quarterly average as the government's import limits continued to

suppress demand. Demand for gold investment products in the US was relatively muted in the first quarter, 30%

below 2013's elevated levels.

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Range

Gold MCX Rs 26500-28500 per 10 gms

COMEX $1230-1370 per troy ounce

Gold Hedge NCDEX Rs 24200-26400 per 10 gms

Silver MCX Rs 40000-48000 per kg

COMEX $19.5-23 per ounce

Silver Hedge NCDEX Rs 3700-4700 per 100 gms

Gold Silver ratio

Source: Reuters

Analysis: The gold/silver ratio has moved to down from 65 to below 63 recently as silver rose at faster pace than

gold. This ratio can hover in range of 61.5-65.5 in the month of July 2014.

In the month of July 2014 bullion counter

will remain with upside bias. Ukraine and

Iraq tensions and movement of greenback

will give further direction to the prices.

Moreover condition of global economy and

movement of local currency rupee coupled

with Physical, ETF demand will also

influence its prices.

ENERGYENERGYCRUDE OIL & NATURAL GASCRUDE OIL & NATURAL GAS

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ENERGY COMPLEX

Crude Oil

In the month of June crude oil prices traded

sideways with positive path amid tensions in Iraq

and Ukraine. On domestic bourses weakening local

currency rupee has kept the prices downside

capped. Overall crude oil moved in range of $101.60-

107.60 in NYMEX and 6013-6499 in MCX. Oil rose

in initial part of the June month on Iraq tensions but

some profit booking was seen during latter half of

the month amid speculation that violence in Iraq

may not disrupt supply from OPEC's second largest

oil suppliers. Recently as per the Department of

Energy reading US crude stocks increased 1.7

million barrels with total inventories remaining in

the upper half of the average range for this time of

year. Gasoline and distillate inventories too

increased and despite decent demand staying for

particularly gasoline commodity in the US.

Crude oil futures can move sideways with upside

path in the month of July. Economic data from US

and Europe along with geopolitical tensions will give

direction to the crude oil prices. Crude oil can

move in range of 6150-6550 in the month of

July. The drivers behind the positive momentum

are the combination of the annual pickup up in

demand from refineries as production of gasoline

escalates and geopolitical concerns mostly related to

Ukraine and Iraq. Iraqi forces held the Baiji oil

refinery in the north of the country after repelling

the latest attack by Islamist militants. Meanwhile

fighting hasn't spread to Iraq's south, home to more

than three quarters of its production. Fighters from

the Islamic State in Iraq and the Levant captured the

northern city of Mosul and advanced south toward

Baghdad. Iraq pumped 3.3 million barrels last

month, more than any other OPEC producer except

Saudi Arabia. Geopolitics in the Middle East has

recently introduced concerns about supply

disruptions and, consequently, led to a sharp

increase in global crude oil prices. The crisis has

rocked the global oil market because Iraq is the

July 2014

second-biggest producer within the 12-nation

Organization of Petroleum Exporting Countries

(OPEC). Iraq has more than 11 percent of the world's

proven resources and produces 3.4 million barrels a

day.

Iraq tensions

Tensions in the crude-producing Middle East are likely

to keep crude prices well supported. Oil prices had

soared to nine-month peaks in mid-June on fears that

violence in Iraq would slash output from OPEC's

second-biggest oil exporter. However, they have since

fallen as supply fears faded.

China crude imports

China, the world's largest energy consumer, imported

26.08 million tonnes, or 6.14 million barrels per day

(bpd) of crude oil in May, bringing total shipments in

the first five months of this year to 128.7 million tonnes.

On a daily basis, crude imports of 6.14 million barrels

per day (bpd) was 9.4 percent lower than the record high

in April, as refineries cut production during the peak

maintenance season.

OPEC sees oil market balanced for rest of 2014

Oil markets should be balanced during the second half

of this year with extra production sufficient to meet

growing demand; OPEC stated last month, suggesting

oil prices may be fairly stable despite worries over lost

supply. Organization of the Petroleum Exporting

Countries, which supplies a third of the world's oil, said

rising oil production should be more than sufficient to

meet demand. The cartel of 12 exporters stated that

global oil inventories were comfortable. U.S. stockpiles

were high and commercial stocks in the large developed

economies were sufficient at the end of April to meet

almost two months of consumption.

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July 2014

Libya's El Feel pumps 95,000 bpd, lifts

national output to 270,000 bpd-NOC

Libya's western El Feel oilfield currently produces

95,000 barrels a day, lifting the country's oil

production to around 270,000 bpd. Output at the

western El Feel field had resumed after a protest

had ended there more than a week ago.

Asia's diesel demand growth seen at 2nd lowest

since 1998 crisis

Asia's diesel demand is expected to grow this year at the

second lowest rate since the 1998 financial crisis as

slowing economies and subsidy cuts squeeze

consumption and help build a surplus for which there

are few markets. Demand in top regional consumers

China, India and Indonesia is expected to remain

stagnant or fall. And as new refining capacity is added in

Asia and the Middle East, excess diesel is seen hitting an

annual average of more than a million barrels per day

(bpd) in 2014, according to one oil and gas consultancy.

Brent WTI Spread

Source: Reuters

Analysis: Brent WTI spread rose from 5.6 to above 8 in initial part of the June month but dipped lower during

latter part of the month. This spread can hover in range of 5-9 in July 2014. One of the indicators that have caused

the spread to move narrower has been continually decreasing inventories at Cushing, Oklahoma. This could

signal that WTI crude oil is moving out of the inland U.S. and towards end refining markets more effectively, with

help from new infrastructure coming online. New infrastructure that transports more crude from Cushing to the

Gulf Coast opened up primarily, the Marketlink pipeline operated by TransCanada (TSX). Also, Enterprise

Products Partners (EPD) said it would more than double the capacity of its Seaway pipeline in mid-2014. The

Seaway pipeline currently brings crude oil from the inland U.S. oil hub in Cushing, Oklahoma, to the Gulf Coast.

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July 2014

Some key points from EIA estimates

Liquid Fuels Consumption

Total U.S. liquid fuels consumption rose by an

estimated 400,000 bbl/d (2.1%) in 2013. Total

consumption growth slows to 50,000 bbl/d in both

2014 and 2015. Consumption of hydrocarbon gas

liquids (HGL) registered the largest gain in 2013,

increasing by 150,000 bbl/d (6.4%). HGL

consumption increases by 80,000 bbl/d between

2013 and 2015, led by increasing ethane use as a

feedstock in ethylene production units. Motor

gasoline consumption grew by 90,000 bbl/d (1.1%)

in 2013, the largest increase since 2006. Motor

gasoline consumption grows by 30,000 bbl/d in

2014 and declines by 10,000 bbl/d in 2015 as

improving new vehicle fuel economy increasingly

offsets highway travel growth. Distillate fuel

consumption increased by 90,000 bbl/d (2.5%) last

year, reflecting colder weather and economic

growth. Consumption of that fuel rises by 130,000

bbl/d and 40,000 bbl/d in 2014 and 2015,

respectively. The increases in HGL, gasoline, and

distillate consumption are partially offset by

declines in consumption of residual fuel oil and

unfinished oils.

Liquid Fuels Supply

Forecast total U.S. crude oil production increases

from an estimated 7.4 million bbl/d in 2013 to 8.4

million bbl/d in 2014 and 9.3 million bbl/d in 2015.

The highest previous annual average U.S.

production level was 9.6 million bbl/d in 1970.

Recent U.S. crude oil production growth has

consisted primarily of lighter, sweet crude (a

description of crude quality, as measured by API

gravity and sulfur content) from tight resource

formations. Roughly 96% of the 1.8-million-bbl/d

growth in production between 2011 and 2013

consisted of sweet grades with API gravity of 40 or

above.

Non‐OPEC Supply

EIA estimates that non-OPEC liquids production

grew by 1.4 million bbl/d in 2013, averaging 54.1

million bbl/d for the year. EIA expects non-OPEC

liquids production to grow by 1.5 million bbl/d in 2014

and 1.2 million bbl/d in 2015. EIA forecasts production

from the United States and Canada to grow by a

combined annual average of 1.4 million bbl/d and 1.2

million bbl/d in 2014 and 2015, respectively. Forecast

production increases by 0.17 million bbl/d in 2014 in

countries of the Former Soviet Union, led by Russia.

However, oil production growth in the region slows to

0.05 million bbl/d in 2015. The forecast completion of

phase 1 of U.S. Energy Information Administration.

Kazakhstan's Kashagan field has been pushed back to

the second half of 2015 because of continued problems

delaying the start of commercial production.

OPEC Supply

EIA estimates that OPEC crude oil production averaged

29.9 million bbl/d in 2013, a decline of 1.0 million bbl/d

from the previous year, primarily reflecting production

declines in Iran, increased unplanned outages in Libya,

Nigeria, and Iraq, and strong non-OPEC supply growth.

EIA expects OPEC crude oil production to fall by 0.1

million bbl/d in 2014 and an additional 0.1 million

bbl/d in 2015 to accommodate growing production in

non-OPEC countries. EIA revised downward its

estimate for Iranian total liquid fuels production in 2013

by 0.2 million bbl/d to 3.2 million bbl/d, based on a

review of annual production and exports data from

multiple sources. The revision was made to Iran's

production of crude oil and natural gas plant liquids.

EIA estimates that Iran's total liquid fuels production

averaged 3.4 million bbl/d in May.

EIA expects that OPEC surplus capacity, which is

concentrated in Saudi Arabia, will average 2.2 million

bbl/d in 2014 and 3.5 million bbl/d in 2015. This build in

surplus capacity mainly reflects a reduction in

production cutbacks by some OPEC members to

accommodate higher supply from Iraq, Angola, and

Libya as well as some non-OPEC countries. These

estimates do not include additional capacity that may be

available in Iran but is currently offline because of the

effects of U.S. and European Union sanctions on Iran's

oil sector.

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Global Petroleum and Other Liquids

Consumption

EIA estimates that global petroleum and other

liquids consumption grew by 1.3 million bbl/d in

2013, averaging 90.5 million bbl/d for the year. EIA

expects global consumption to grow by 1.3 million

bbl/d in both 2014 and 2015. Projected global oil-

consumption-weighted real GDP, which increased

by an estimated 2.6% in 2013, grows by 3.0% and

3.5% in 2014 and 2015, respectively.

Crude oil may remain on volatile path with

upside bias. Ukraine and Iraq tensions can

give support to the prices while increase in

stockpiles can cap the upside. Global

macroeconomic numbers along with weekly

inventory data in US will also affect the overall

sentiments.

Range

Crude Oil

MCX Rs 6150-6550 per barrel

NYMEX $102-110 per barrel

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Natural Gas billion cubic feet, above forecasts for an increase of

102 billion cubic feet. The five-year average build Natural gas prices plunged lower in the month of the

for the week is 81 billion. Total U.S. natural gas month of June on low demand as the absence of

storage stood at 1.829 trillion cubic feet. Stocks extreme temperatures curbs demand for heating

were 690 billion cubic feet less than last year at this and air conditioning. Overall it traded in range of

time and 822 billion cubic feet below the five-year $4.35-4.88 in NYMEX and 264-288.70 in MCX.

average of 2.651 trillion cubic feet for this time of Expectations of cooler temperatures across the US

year. Natural gas stockpiles have grown by more Central and some parts of East pressurized the

than 100 billion cubic feet for seven consecutive prices. Meanwhile inventory number from the EIA

weeks, a record streak since 1994.was a dampener as storage for the week ended June

20th increased by 110 BCF against expectations of

addition near 102 BCF. Weather forecasts

Natural gas can move on volatile path in Natgasweather.com called for very warm to hot range of 245-285 in the month of July as temperatures during the second week of July, which weather concerns and position of stockpiles will should offset the effects that pockets of cooler air give further direction to the prices. Recently might have on trading. "Much of interior California inventories rose by 110 billion cubic feet in the week will also experience temperatures 100-110F as well ended June 20 to 1.829 trillion. Supplies have for the next several days. Even with the weather expanded by more than 100 billion cubic feet for system over the northern U.S., accumulated seven consecutive weeks, the longest streak of population weighted Cooling Degree Days for week triple-digit gains in data going back 20 years. will come in above average." Demand for natural Supplies, which fell to 822 billion cubic feet in gas tends to rise in the summer months as warmer March, will rebound to 3.424 trillion by the end of temperatures increase the need for gas-fired October, which would be the lowest start to the peak electricity to power air conditioning.heating-demand season since 2008. According to

MDA Weather Services in Gaithersburg, Maryland

“Heat will build from the US Midwest to the

Northeast over the next five days” Rising EIA Natural gas estimatestemperatures spur the heating demand of natural

U.S. Natural Gas Consumptiongas demand in US”

EIA expects total natural gas consumption will

average 72.5 Bcf/d in 2014, an increase of 1.7% from U.S. energy regulator approves Sempra LNG 2013, led by the industrial sector. In 2015, total export project natural gas consumption falls by 0.2 Bcf/d as a

return to near-normal winter weather contributes U.S. regulators approved Sempra Energy's bid to to lower residential and commercial consumption. build a liquefied natural gas export terminal in Higher natural gas prices this year contribute to a Louisiana, opening the door to a significant 0.5% decline in natural gas consumption in the expansion of the American role in global gas trade. power sector to 22.2 Bcf/d in 2014. EIA expects Sempra's Cameron LNG facility was the second gas natural gas consumption in the power sector to export project to get the green light to begin increase to 23.0 Bcf/d in 2015 with lower natural construction from the Federal Energy Regulatory gas prices and the retirement of some coal plants. Commission and the first since 2012, when FERC

permitted Cheniere's Sabine Pass project.

U.S. Natural Gas Production and Trade

EIA expects natural gas marketed production to

grow by an average rate of 4.0% in 2014 and 1.3% in Latest inventory report2015. Rapid natural gas production growth in the

The U.S. Energy Information Administration Marcellus formation is contributing to falling

Stated in its recent report that natural gas storage in natural gas forward prices in the Northeast, which

the U.S. in the week ended June 20 rose by 110 EN

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often fall below Henry Hub prices outside of peak weather conditions and power generation

winter demand months. Consequently, some demand coupled with its consumption

drilling activity may move away from the Marcellus pattern and inventory position in the

back to Gulf Coast plays such as the Haynesville and

Barnett, where prices are closer to the Henry Hub

spot price.

Natural gas prices will depend upon

Range

Natural gas

NYMEX $4.30- $4.70 per mmBtu

MCX Rs245-285 per mmBtu

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July 2014

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 Prospectus (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 Limited at www.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 the section titled Risk Factors in the Draft Red Herring Prospectus.

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July 2014