The document provides an outlook and analysis of various base metals for the coming month. It expects base metal prices to trade positively due to an OPEC deal to cut oil production and improving global manufacturing activity. Copper prices are expected to increase due to rising Chinese infrastructure spending. Aluminum prices may rise with crude oil prices but gains will be capped by a stronger dollar. Nickel prices are forecast to increase due to growing stainless steel and battery sector demand. Lead prices may decline due to surplus production while zinc prices could rise from global deficits and falling inventories.
2. Base Metals Monthly22nd December 2016
Outlook
Base Metals: For the coming month, we expect base metal prices to trade on a positive side after
the Organization of Petroleum Exporting Countries finalized a deal to cut production by 1.2 million barrels
a day starting from January 2017, its first reduction since 2008. Since crude oil is a crucial component of
input cost for metals, the upside in oil prices will reflect in metals as well. Further, Chinese economy
expanding and manufacturing activity across the globe on a favorable side will keep the prices in positive
territory. However, estimates of further US rate hike in near term will cap sharp gains in the prices.
Copper: Copper prices are expected to trade higher in the coming month as greater infrastructure
spending in China is likely to keep demand robust for the metal. China has already invested around $1.4
trillion on roads, railways, bridges, telecom networks and other infrastructure in the ten months till
October.
However, the sharp upside will be capped due to a stronger dollar and persistently falling Chinese forex
reserves to $3.051tn in November to defend the Yuan. We expect MCX Copper prices in the range of
Rs.340/kg to Rs.392/kg.
Aluminum: We expect Aluminum prices to trade higher for the month as positive momentum in crude
oil prices will help upside in Aluminum prices. Another favorable factor would be indications that the
Aluminum market will be tight going forward as some big aluminum producers seek a premium of $95-
$110 per ton from Japanese buyers for primary metal shipments in January to March period, up 27- 47
percent from $75 per ton in the previous quarter. We expect MCX Aluminum prices in the range of
Rs.113/kg to Rs.120/kg.
Nickel: We expect Nickel prices to trade higher on account of estimates of increase in demand for the
commodity. Further, rise in demand for the commodity from China along with increasing usage in
aerospace industry and in the battery sector will keep the prices in positive territory. We expect MCX
Nickel prices in the range of Rs.710/kg to Rs.805/kg.
Lead: For the month, lead prices are estimated to decline due to surplus production in the current year
and estimates of surplus production in coming months. According to International Lead and Zinc Study
Group (ILZSG) report, lead inventory is expected to rise in the near future thereby will keep the pressure
on the prices. We expect MCX Lead prices in the range of Rs.136/kg to Rs.160/kg.
Zinc: In the coming month, we expect zinc prices to trade on a positive side as a result of the global
deficit in the commodity. Further, drop in inventories of the commodity will lead to upside movement in
the zinc prices. Additionally, rising demand and fall in mine output will keep the prices in positive territory.
We expect MCX Zinc prices in the range of Rs.165/kg to Rs.192/kg.
3. LME Copper prices surged to 17-month high in
Nov’16 on expectations of a rise in infrastructure
spending by the newly elected US President
Trump’s which plan to fix inner cities and rebuild
highways. In his victory speech, he pledged to at
least double Hilary Clinton’s estimated $275 billion,
five-year plan for roads, airports and bridges.
Further, manufacturing activity in the major
consuming nations i.e. the US and China showed
strong improvement. US Manufacturing PMI for
the month of November was 53.2, higher from
October's 51.9 while Chinese PMI came in at 51.7
in November, which was at the highest point since
the 53.3-mark seen in April 2012.
Moreover, other data sets showed stabilization in
the Chinese economy, which boosted demand for
the metal. China’s annual fixed asset investment, a
proxy for long-term spending, jumped around 8.3%
in the January-October period but industrial
production and retail sales grew less than
estimates in October.
According to the Official data, foreign direct
investment (FDI) into the China rose around 4.2
percent year on year to reach at 666.3 billion Yuan
(around 98 billion U.S. dollars) during the first ten
months of the current year.
However, sharp upside in the red metal prices
halted as the dollar rallied to 14-year highs after
Fed Chair Janet Yellen confirmed in her testimony
that Trump’s victory in the Presidential elections
will not lead to any major changes in the economy.
Further, she stated to stay in office until her term
expires in January 2018 and reiterated that the
Federal Reserve remains on a course of raising
interest rates.
Another blow to copper prices came from
customs data which reported that refined copper
imports fell 45% year-over-year and 22% month-
over-month which was at the lowest level in over
three years.
Also, Chinalco reached a deal with the Peruvian
government for a major expansion of Toromocho,
one of Peru’s biggest copper mines. Also, Peru’s
National Institute of Statistics said that national
copper production in Sep’16 grew 35.9% as
compared to the same month of 2015.
According to the International Copper Study
Group (ICSG) new analysis, there was production
surplus of around 154,000 metric tonnes in
August, which occurred mainly to weaker Chinese
demand and seasonally weak usage in other
regions.
The Lisbon, Portugal headquartered agency said
in a statement that when making seasonal
adjustments for world refined production and
use, August showed a production surplus of
about 56,000 t.
During the initial eight-month period of the
current year, data reported a production deficit of
about 91 000 t, and a seasonally adjusted deficit
of about 93,000 t, compared with a production
surplus of about 10,000 t (a seasonally adjusted
surplus of about 19,000 t) when compared to
same period in 2015.
In the same eight-month timeframe, world
apparent refined use is estimated to increase by
about 3.8% (570 000 t), compared to the same
period in last year.
While world refined output is estimated to
increase by about 3.1% (470 000 t). Output in
Chile and Japan, the second and third-leading
refined copper producers, increased by around
2% and 3% respectively during the same period.
Base Metals Monthly22nd December 2016
Source: Bloomberg
20.03%
20.27%
21.39%
19.0%
19.5%
20.0%
20.5%
21.0%
21.5%
LMECopper SHFECopper MCX Copper
Copper Performance in Nov'16 (%)
4. LME Aluminum prices dropped marginally in
Nov’16 after gaining for two straight months.
Moreover, SHFE Aluminum prices plunged by more
than 3 percent during the same period. However,
on the domestic bourses downside pressure on the
commodity was not witnessed due to depreciation
in the Indian Rupee.
The light metal witnessed a downside in Nov’16,
mainly on account of weakness in the crude oil
prices in the first half of the month just before the
cautious OPEC meeting which was scheduled on
30th Nov’16. The uncertainty in the prices was seen
due to a shaky prospect of major producers being
able to agree on output cuts weighed on
Aluminum prices since crude oil accounts for
around 30 percent of input costs for the metal.
In respect to supply scenario, International
Aluminum Institute data reported that total
Chinese output slipped from the highest level seen
in fifteen months at 2.75 million tonnes in Sept’16,
to 2.727 million tonnes in Oct’16. Daily average
output fell to 88,000 tonnes in Oct’16 against
91,700 tonnes in the Sep’16.
Coming to global production apart from China, for
the month of Oct’16, it rose to 2.169 million
tonnes, from 2.096 million tonnes recorded in
Sep’16 while daily average primary aluminum
output excluding China rose to 70,000 tonnes in
Oct’16, from 69,900 tonnes in the previous month.
On the demand front, the situation is quite
favorable as Aluminum imports into the United
States excluding those from Canada totaled at
179,521 tonnes in September, which was up from
160,450 tonnes in the previous month. It
registered the third-highest monthly total of
imports for the year, the previous highs were at
193,345 tonnes in March and 212,797 tonnes in
June.
Besides, LME inventories plunged sharply by
more than 26 percent in the current year. While
on the other hand, stocks at the Shanghai
exchange warehouses are at lowest level since
2007. Aluminum stocks at three major Japanese
ports stood at 278,200 tonnes at the end of
October, down 2.9 percent from the previous
month. Overall, crude oil was the only spoiler for
Aluminum in Nov’16 while demand-supply
balance and stocks were favorable for the metal.
LME Nickel and MCX Nickel prices surged by more
than 7 percent and around 9 percent respectively
in Nov’16. Further, the silvery white metal
jumped sharply by more than 12 percent on the
Shanghai futures in the month of November.
As per the latest International Nickel Study Group
(INSG) report, it is estimated that nickel usage will
continue to grow in both 2016 and 2017 due to
the increase in production of the austenitic
stainless steel grades in all major markets despite
challenging economic environment across globe.
Base Metals Monthly22nd December 2016
Source: Bloomberg
Source: Bloomberg
-0.12%
-3.18%
2.22%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
LMEAluminum SHFEAluminum MCX Aluminum
Aluminum Performance in Nov'16 (%)
7.40%
12.07%
8.94%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
LME Nickel SHFENickel MCX Nickel
Nickel Performance in Nov'16 (%)
5. According to the International Stainless Steel
Forum (ISSF), world stainless steel melting
production, reached around 41.5 Mt in 2015, has
seen a record rise of 4.1% during the first half of
2016 which has set the stage for a strong
performance for the remaining of the year.
China registered an increase of 7.9% in domestic
demand and it was mainly sustained from export
to other Asian countries. In the non-stainless steel
sectors, primary nickel demand will maintain a
positive trend in the aerospace industry and in the
battery sector.
According to INSG, world primary nickel
production was 1.973Mt in 2015, and dropped to
1.934Mt in 2016. World primary nickel usage stood
at 1.881Mt in 2015 and increased to 2.001Mt in
2016. Further, for next year the agency estimates
an increase to around 2.113Mt.
A global surplus of lead narrowed to 4,400 tonnes
in September from a revised surplus of 8,900
tonnes in August, data from the Lisbon-based
International Lead and Zinc Study Group (ILZSG)
showed.
For the year to September, the market saw a
surplus of 38,000 tonnes versus a deficit of
37,000 tonnes in the first nine months of last
year.
The Group anticipates that in 2016, supply will
exceed demand in the global refined lead metal
market by 42,000 tonnes.
In 2017, an even closer balance is predicted with
current data indicating that the market will be in
surplus by 23,000 tonnes.
The International Lead and Zinc Study Group
anticipated that global demand for refined zinc
metal will rise by a marginal 0.6 percent to 13.57
million tonnes in 2016 followed by a 2.1 percent
which increased to 13.85 million tonnes in 2017.
In China, increased demand from the automotive
sector is expected to be partially balanced by a
decline in exports of galvanized sheet steel and
demand is forecast to increase by 1.8 percent in
2016. A further rise of 1.3 percent is predicted in
2017. Usage in Europe has been flat over the past
four years and this trend is predicted to continue
in 2016 and 2017 with limited growth of 0.7
percent and 0.5 percent respectively.
In the United States, an anticipated fall in
apparent consumption of 8.7 percent this year
will be influenced by draw downs in unreported
inventories. However, in 2017, demand is forecast
to rebound by 11.8 percent.
Base Metals Monthly22nd December 2016
Source: Bloomberg
14.53%
31.80%
15.40%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
LMELead SHFELead MCX Lead
Lead Performance in Nov'16 (%)
9.75%
20.09%
12.20%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
LMEZinc SHFEZinc MCX Zinc
Zinc Performance in Nov'16 (%)
6. SEBI Certified – Research Analyst www.choiceindia.com
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Base Metals Monthly22nd December 2016
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Anish Vyas
Digitally signed by Anish Vyas
DN: cn=Anish Vyas, o=Choice Merchandise
Broking Pvt. Ltd, ou=Sr. Research Associate,
email=anish.vyas@choiceindia.com, c=IN
Date: 2016.12.22 11:28:06 +05'30'
