03 October 2011

Base Metals

FOR PRIVATE CIRCULATION ONLY

03 October 2011

The Week That Was

Base Metals continued with its selling rout last week with copper marking worst quarter since the height of the financial crisis three years ago Copper prices hit lows of $6800 a ton at LME to end the session 4.64% lower at $7018.5 a ton. All the other base metals, barring Lead too ended in negative territory Prices fell as concerns over falling demand accentuated amid escalating concerns over double dip recession in western nations coupled with fears of waning demand from China Further risk aversion amid persistent fears and uncertainty over Euro Zone debt crisis also weighed on the prices Prices further faltered amid firmness in US Dollar and choppiness in equities US dollar index rose 0.6% last week marking its fourth weekly gain in last five weeks IN US DJIA index noted 1.3% last week, while S&P Index ended with 0.44% losses LME hiked copper margin to $750 a tonne from $630 a tonne German parliament voted to approve expanding the size and reach of EFSF

Physical Market News

Freeport McMoran Copper & Gold Inc is continuing to produce and ship copper concentrates at reduced levels from its Indonesian mine, the company said on Monday, while the union said it will extend the strike for another month. The strike is likely to be more costly for Freeport than the eight-day work stoppage in July, when the firm said it suffered production loss of 35 million pounds (15,876 tonnes) of copper Workers at Freeport-McMoRan's Cerro Verde mine in Peru went on strike for better pay on Thursday, but the company said there was no disruption from the mine that supplies 2 percent of the world's copper. Chile, which provides around a third of the world's copper, produced 427,420 tonnes of the metal in August, down 8.7% from the same month last year. Chile's July copper output fell 18% to 373,498 tonnes compared with the same period last year, the government reported last month Demand for U.S. and Canadian aluminum products, measured as shipments from domestic producers plus imports, fell by 1.6 percent in July from a year earlier, and slid 8.2% from June, an aluminum industry group said on Wednesday.

Weekly Price Movement

Base Metals

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03 October 2011

Base Metals
LME Stocks (tonnes) Aluminum Copper Lead Nickel Zinc 30-Sep 4567325 473700 373600 96738 821325 23-Sep 4588275 464550 374025 97242 830975 Change -20950 9150 -425 -504 -9650 % -0.46 1.97 -0.11 -0.52 -1.16

Stock Status

SHFE Stocks (tonnes) Aluminum Copper Zinc

23-Sep 77378 97911 401273

16-Sep 99479 102253 412097

Change -22101 -4342 -10824

% -22.22 -4.25 -2.63

COMEX Stocks Copper

23-Sep 86917

16-Sep 86917

Change 0

% 0.00

Market Analysis
Base metals continued to inch lower after sharp fall in previous week. LME Copper hit 14 month low of $6800 to end the session 6.64% lower at $7018.5 a ton. Copper prices shed 25.6% in the September quarter, its worst showing since the last quarter of 2008, when it lost more than 50% as the financial crisis took its toll on the economy. All the other industrial metals, barring Lead fell tracking weakness in copper prices. Lead managed to eke out $30 gains to end 1.53% higher after plummeting 17.34% in previous week. Base Metals opened on a weaker note on Monday in continuation with weaker session on previous Friday. Persistent worries over bleak economic outlook heightened fears about waning demand from western nations. Also fears over sovereign debt problems in Euro Zone dented market sentiments. Markets rose on Tuesday amid technical bounce back after falling for seven straight days. Also few better than expected macro economic data from US and Euro Zone lent support to the prices. However the gains were not sustainable as panic gripped markets turned increasingly bearish over industrial metals. Prices continued to reel under pressure amid uncertainty over global economic health. Concerns over weakening demand from developed nations viz. US and Europe weighed down the industrial metals. Also fears of reduce demand from top consuming nation China amid concerns over further monetary tightening weighed on the prices. Further escalating worries over sovereign debt crisis in Euro Zone dented market sentiment putting pressure on prices. Markets breathed a sigh of relief after Germany voted in favour of expansion of Euro Zone fund. However concerns over Greece's ability to qualify for next aid package lingered on. In Greece, ruling party forced through a deeply unpopular property tax on Tuesday to lure international lending inspectors back to Athens to release vital aid. However the move faced widespread opposition as Civil servants blockaded several ministries as Greece resumed talks with EU and IMF inspectors on an 8 billion euro aid tranche it needs to avoid bankruptcy. Concerns escalated after draft budget figures released on Sunday showed Greece will miss a deficit target set just months ago in a massive bailout package, and also suggesting that drastic steps taken to avert bankruptcy may not be enough. Greece budget deficit for 2011 is seen reaching 8.5 % of GDP this year, as against target of 7.6%. Base Metals Please See Disclaimer on the Last Page 2

03 October 2011

Base Metals

On data front, Euro-zone consumer confidence fell to -19.1 in Sept from -18.9 a month ago; economic confidence fell to 95 from 98.4; industrial confidence dropped to -5.9 from -2.7 and service confidence fell to 0 from 3.7. Also Germanys retail sales fell 2.9% in August while German Ifo Business Climate fell to a 15-month low of 107.5 in September. However on positive front, German Gfk Consumer Climate was unchanged at 5.2 in September but was better than market expectation 5.1. German Unemployment fell 26,000 to 2.92 million in August while unemployment rate fell to 6.9% Macro economic data from US was mostly positive; however it still failed to arrest losses. On positive front, the economy grew at 1.3% in the second quarter as against earlier estimates of 1%. Further S&P/CaseShiller index of property values in 20 cities fell 4.1% from July 2010, after 4.4% drop in the June while Initial Jobless claims fell by 37,000 to 391,000 in the week ended Sept. 24. Richmond Manufacturing Index improved to -6 from -10 in August while Chicago PMI rose to 60.4 in September from 56.5, marking its 24th month of expansion. Consumer Confidence rose slightly to 45.4 from 45.2 in August while University of Michigan Consumer Sentiment rose to 59.4 from 55.7 in August. On weaker front, Pending Home Sales fell 1.2% to 88.6 in August while New Home Sales fell 2.3%to 295,000. Also Durable goods orders fell 0.1% in August as against 4.1% gain in previous month. Industrial Metals further failed to seek support from improving manufacturing sector in China. Chinas official manufacturing index rose to 51.2 in September as against 50.9 in August. Copper prices further came under pressure amid higher stocks at exchange warehouses. Also lead stocks at LME continued to hover around record high levels putting pressure on the prices. Copper prices failed to seek support from supply concerns amid ongoing strikes at Peruvian and Indonesian copper mine. Similarly Aluminum, zinc and nickel failed to seek support from fall in stockpiles at LME and SHFE warehouses.

CFTC Data
The CFTC report as on September 27, 2011 showed a decrease of 4.49% in total OI, compared to September 20 levels. Net long commercial positions fell by 1.46% while commercial net short positions rose by 0.19%. Non-commercial long positions decreased by 5.66% and net short non-commercial positions fell by 10.38%.Net non commercial positions continued to be net shorts. Hedge funds and speculators turned net short to the tune of 1462 from 3299 in previous week, indicating bearish tone in the markets.
75000 65000 55000
90000

Non Commercial Positions

120000 110000 100000

Commercial Positions

45000 35000 25000 15000

5/ 20 1 5/ 0 20 3/ 1 5/ 0 2 4/ 010 5/ 20 5/ 1 0 5/ 20 6/ 1 0 5/ 20 7/ 1 0 5/ 2 8/ 010 5/ 20 9/ 1 0 5/ 10 201 /5 0 / 11 201 /5 0 / 12 201 /5 0 /2 1/ 010 5/ 2 2/ 011 5/ 2 3/ 011 5/ 2 4/ 011 5/ 2 5/ 011 5/ 2 6/ 011 5/ 20 7/ 1 1 5/ 2 8/ 011 5/ 20 9/ 1 1 5/ 20 11

80000 70000 60000

Long Short

Long

Short
50000

Base Metals

Please See Disclaimer on the Last Page

1/ 5/ 2/ 201 5/ 0 3/ 201 5/ 0 4/ 201 5/ 0 5/ 201 5/ 0 6/ 201 5/ 0 7/ 201 5/ 0 8/ 201 5/ 0 9/ 201 5/ 0 10 20 /5 1 0 11 /20 /5 10 12 /20 /5 10 / 1/ 201 5/ 0 2/ 201 5/ 1 3/ 201 5/ 1 4/ 201 5/ 1 5/ 201 5/ 1 6/ 201 5/ 1 7/ 201 5/ 1 8/ 201 5/ 1 9/ 201 5/ 1 20 11

1/

2/

03 October 2011

Base Metals

Other Market Drivers

US Dollar Index, a gauge of dollars strength against six major currencies, continued to strengthen hitting highs of 79.073 to end the session 0.63% higher at 78.796. Dollar continued to seek support from increase in safe haven demand amid failing global economic health and persistent worries over Euro Zone Debt issues. Further Euro came under pressure hitting lows of 1.332 against US Dollar to end the session 0.83% lower at 1.3384. Global equity indices witnessed mixed movement last week. Uncertainty over global outlook coupled with fears of debt contagion in Euro Zone weighed on the sentiments. However, better than expected data from US and Euro Zone lent support. In US, the Dow Jones Industrial average rose 141.9 points to close 1.32% higher at 10913.38 while S&P slid 5.01 points to close 0.44% lower at 1131.42.

The Week Ahead. Base Metals may continue to trade with a weaker bias this week Risk aversion may continue to deter investors from equities and commodities, while safe haven demand of US Dollar lend support to the currency Prices may further be under pressure amid bleak global sentiments and lingering fears over Euro Zone debt crisis Also lack of buying by China due to week long holiday may weigh on the prices The downside may however be capped amid ongoing supply concerns in copper mine and falling stocks of other industrial metals at exchange warehouses Market may further take cues from economic releases from US and Euro Zone. Focus will be on Manufacturing PMI from US, UK and Euro Zone. Also focus will be on US labour data and Euro Zone GDP data Overall, prices may trade with a negative bias amid bleak global outlook. Prices will further track movement in global equities and currency markets for price trend.
Commodity MCX Aluminium MCX Copper MCX Lead MCX Nickel MCX Zinc MCX Steel Contract
31-Oct-11 30-Nov-11 31-Oct-11 31-Oct-11 31-Oct-11 20-Oct-11

R2
113 370 105 980 103 31000

R1
110 355 101 935 97 30500

S1
103 327 92 840 87 29300

S2
100 315 87 800 83 28500

Base Metals

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03 October 2011

Base Metals

Economic Data Releases for the Week

Base Metals

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03 October 2011

Base Metals

Faiyaz Hudani

Sr. Research Analyst- Spices, Edible Oil faiyaz.hudani@kotakcommodities.com +91-22-66528837

Dharmesh Bhatia
Associate Vice-President- Technical Research dharmesh.bhatia@kotakcommodities.com +91-22-66528846

Sudha R. Acharya

Research analyst- Edible Oil, Pulses sudha.acharya@kotakcommodities.com +91-22-66528809

Amit Sajeja

Sr. Research Analyst- Technical Analyst amit.sajeja@kotakcommodities.com +91-22-66528847

Madhavi Mehta

Ajay Baheti

Research analyst- Energy, Bullion madhavi.mehta@kotakcommodities.com +91-22-66528809

Associate Research- Technical Analyst ajay.baheti@kotakcommodities.com +91-22-66528845

Priyanka Jhaveri

Research analyst- Base Metals priyanka.jhaveri@kotakcommodities.com +91-22-66528848

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Base Metals

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