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Gfms aug2009
 

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    Gfms aug2009 Gfms aug2009 Document Transcript

    • Base Metals Forecasting Monthly August 2009 Date of release: 6th August 2009 © Copyright GFMS Ltd - August 2009 All rights reserved. This report serves as a single user licence. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the prior written permission of the copyright owner. This data is released for general informational purposes only, and is not for use in documents with an explicit commercial purpose such as Initial Public Offerings (IPOs), offers to conduct business, background briefings on the precious metals markets associated with marketing a particular business or business offering, or similar such documents without prior written agreement of GFMS. GFMS retains all intellectual and commercial property rights associated with the data contained herein and any unauthorised use of this data is a violation of applicable international laws and agreements. By continuing to read this document, you agree to the above terms and conditions in their entirety. Published by GFMS Limited Hedges House 153-155 Regent Street London, W1B 4JE tel: +44 (0)20 7478 1777 fax: +44 (0)20 7478 1779 email: info@gfms.co.uk web: www.gfms.co.uk
    • Table of Contents Copper 3 Aluminium 6 Nickel 9 Zinc 12 Lead 15 Tin 18 Disclaimer Whilst every effort has been made to ensure the accuracy of the information in this document, GFMS Ltd cannot guarantee such accuracy. Furthermore, the material contained herewith has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient or organisation. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any commodities, securities or related financial instruments. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. GFMS Ltd does not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this document.
    • Base Metals Forecasting Monthly - August 2009 1. Copper Key Copper Market Developments: • The strength copper prices enjoyed throughout the better part of June was maintained throughout July, as after modest consolidations in the first half of the month, the spot price trended upwards over the second, peaking at $5,750/tonne at end-month, a 9% gain over June’s peak of $5,266/tonne. More recently, further gains have seen prices top $6,000/tonne, for the first time this year, during the first few trading days of August. • Concerns over tight supply conditions that could eventually fuel a shortage of metal continued to underpin the market, prompting investors to maintain and in fact extend their exposure on the metal. Coupled with healthy demand in China, this more than compensated what we perceive to have been a continued weakness of consumption in the majority of mature economies. • Looking at reported stocks and focusing on LME inventories, although the month saw these increase on a net basis, at 16,400 tonnes, this offset only a small part of the decline stocks suffered over the first half of the year. At end-month, LME inventories stood at 282,125 tonnes, amounting to just over one week’s Western World consumption. Outlook for Next Three Months: Investor sentiment towards copper has been very positive in the last few weeks and this continues to be the case at the time of writing. Although the basic argument of structural tightness in the copper market, on which this sentiment is founded upon, is undoubtedly sound in the medium-term, our projections continue to see consumption declines more than offsetting losses in production over the rest of the year, resulting in an overall surplus of 245,000 tonnes over 2009. Coupled with the price currently around the $6,000/tonne mark, this makes us cautious towards copper, at least over the next few weeks. We continue to see a noteworthy correction taking place before the end of the summer season, which could see spot prices falling to levels around $5,000/tonne. Thereafter, as consumption begins to recover sometime in the last quarter, so will prices, and we would not be surprised to see levels of $6,500/tonne breached before the end of the year. As such, we think that copper will trade in a $5,000-$6,500/t range from August to November. Copper Price and Forecast Trading Range Copper Supply & Demand (000 tonnes) 6500 2008 2009F 6000 W.World production 12,425 12,448 W.World consumption 11,473 10,815 Net East-West trade -700 -1,400 US$/tonne 5500 W/W balance 252 232 ROW production 5,846 5,820 5000 ROW consumption 6,534 7,208 4500 Global production 18,272 18,268 Global consumption 18,007 18,023 4000 Global balance 264 245 May Jun Jul Aug Sep Oct Sources: GFMS, LME Source: GFMS Independent - Informed - International 3
    • Base Metals Forecasting Monthly - August 2009 Copper Market News: • Collahuasi said its projections see it suffering losses of around 5% or 20,000 tonnes over the year following power trouble in July. The mine said in a statement that repairs to the damaged control room that powers its main conveyor belt will take two months. • Chilean Antofagasta’s H1 output was down 6.6% y-o-y to 218,200 tonnes. Overall, the Chilean government stated production was down 2.6% in June, at 467,185 tonnes. • Moving to Russia, in line with past announcements, Norilsk Nickel recently said its first half copper production was down to 195,507 tonnes, compared to 208,046 tonnes last year. • In Japan, June copper cable shipments rose an estimated 20% compared with May in the latest data from the Japanese Electric Wire and Cable Makers’ Association. However, shipments were estimated at 53,600 metric tons in June and are therefore still down 25% compared with last June. • The latest International Copper Study Group (ICSG) bulletin suggests that over the January- April period the copper market was in deficit of 37,000 tonnes, comprising of 5.927m tonnes of consumption exceeding 5.891m tonnes of refined production. A closer look at the seasonally adjusted data though paints a completely different picture. On this basis, production over the four months in question stood at a monthly 1.51m tonnes, while seasonally adjusted monthly consumption amounted to 1.458m tonnes, pointing to a surplus of 141,000 tonnes over the period. Copper Daily Stocks vs Price Copper Premiums Jan 05 - to Present 250 1200 9000 High grade cathode 1000 200 Spot Price 7000 ($/tonne) 800 150 tonnes 000s US$/tonne 600 5000 100 400 3000 50 200 Stocks Grade A European 0 0 1000 01/05 01/06 01/07 01/08 01/09 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Source: Thomson Reuters Ecowin, LME Source: GFMS Daily Copper PriceCopper Volatility Price Volatility Copper Prices in Major Currencies in July Max Min Average YTD Avg 50 US$/t 5,750.0 4,821.0 5,202.8 4,220.0 Euro/t 4,091.4 3,447.5 3,691.9 3,126.3 Rolling 20-day volatility (%) Yen/t 549,413 447,071 491,458 403,287 40 Rmb/t 39,285 32,936 35,686 26,466 Source: Thomson Reuters EcoWin 30 20 May Jun Jul Aug Source: GFMS; Volatility is calculated using the LME cash prices from the prior 20 days. 4 Independent - Informed - International
    • Base Metals Forecasting Monthly - August 2009 Combined Gold ETF holdings LME Stocks vs Spot Price Jan 03 - July 09 Copper Open Interest vs LME Price 10000 300 9000 Spot Price 8000 (contracts, thousands) 250 7000 Jul 09 6000 $/tonne US$/tonne 200 5000 4000 150 3000 2000 Open Interest 100 1000 0 0 1 2 3 4 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Stocks (No. of Weeks Consumption) Sources: Thomson Reuters Ecowin, LME Sources: GFMS, LME LME Copper Cash - 3 Month Differential Shanghai Copper Stocks Daily Copper Cash - 3M 40 125 30 100 20 ($/tonne) 10 tonnes 000s 75 0 -10 50 -20 -30 25 -40 -50 0 May Jun Jul Aug Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Sources: GFMS, LME Source: SHFE Comex Net Non-Commercial Positions Chinese Refined Copper Imports 50 400 40 (contracts, thousands) 30 Long 300 20 tonnes 000s 10 200 0 -10 Short 100 -20 -30 2002 2003 2004 2005 2006 2007 2008 2009 0 2005 2006 2007 2008 2009 Source: CFTC Source: Chinese Customs; GFMS Independent - Informed - International 5
    • Base Metals Forecasting Monthly - August 2009 2. Aluminium Key Aluminium Market Developments: • After a subdued first half of July many market participants have been caught by surprise by the strength and speed of the rally for a metal, which at all times during this rally, has seen record, and rising, LME stocks. This trend has accelerated in the last few days of July, with cash prices ending July at an 8-month peak of $1,864/tonne on 31st July. At the start of August prices have rallied further, exceeding $2,000/tonne for the LME cash price on 5th August. • This steep increase in the aluminium price also represented the largest percentage increase of all the six LME metals, quite a turnaround for what has often been the laggard of the complex in recent years. Indeed, the cash price is now 61% higher than the lows of late February. • One supportive factor for the bullishness across base metals was the Chinese macro view, particularly following the Chinese announcing that Q2 GDP was up 7.9% year-on-year. • More importantly for aluminium, at least in the short term, is the continued inflow of primary metal into China over the past few months. Chinese import data for June showed that 267,681 tonnes of primary aluminium flowed into China, the second highest level on record. • Meanwhile data from many of the developed markets was also more supportive than for many months, as the statistics were up month-on-month, even if still down heavily year-on-year. A prime example was North American aluminium mill products were up 5.8% in May from April. Noticeably the previously hard hit extruded products sector which experienced a substantial recovery as shipments jumped 10.1% to 221.7m lbs in May, from 201.5m lbs in April. Outlook for Next Three Months: In our recently published Three Year Aluminium Quarterly GFMS has revised its projections for aluminium supply and demand as well as our price forecasts for the year. Our largest revision for 2009 is to raise our projection for Chinese demand significantly higher. However, even with this change our forecast is still for a surplus of 1.705m tonnes in 2009. Our projections though show the market, especially outside China, to be tighter in the second half of the year than through the first six months and this is supportive to the price. That said, the current strength of the rally given the fundamentals is somewhat exaggerated, while the market remains so well stocked and with vast restarts occurring in China. Thus, GFMS expects the price to come under downward pressure in the weeks ahead, although prices will not get close to lows seen in February. In conclusion, over the next three months we expect aluminium to trade in a $1,550-$2,150 range. Aluminium Price and Forecast Trading Range Aluminium Supply & Demand (000 tonnes) 2008 2009F 2150 2050 W.World production 21,148 19,734 W.World consumption 23,729 20,321 1950 Net East-West trade 3,750 2,440 W.World balance 1,169 1,853 US$/tonne 1850 1750 ROW production 18,332 17,135 ROW consumption 14,391 14,843 1650 Global production 39,479 36,869 1550 Global consumption 38,120 35,164 1450 Global balance 1,360 1,705 1350 May Jun Jul Aug Sep Oct Oct Source: GFMS Sources: GFMS, LME 6 Independent - Informed - International
    • Base Metals Forecasting Monthly - August 2009 Aluminium Market News: • Two smelters have moved closer to shutting during the past month. Ormet’s 270,000 tonne Hannibal smelter in Ohio handed out redundancy notices to its workers following the (premature) end of a contract with Glencore, where all production had previously been sold forward. Despite increasingly desperate government attempts the 148,000 tonne Anglesey smelter in Wales also appears set for closure, when its existing power contract finishes at the end of September. • Chinese production levels are continuing somewhat of a rollercoaster ride over the past 12 months. Output in June was up 8% month-on-month, to an annualised 12.592 million tonnes. This represented a dramatic continuation of the surge in restarts, as more than 930,000 tonnes of capacity came on stream in just one month. This has included smelters in Guangxi, Guizhou and Hubei entering into agreements with power companies on preferential power rates. • In Japan, May saw another rise in aluminium shipments month-on-month according to the Japanese Aluminium Association. These shipments rose by 1.7% compared to April to 139,723 tonnes, however just like in the US this still means a sharp year-on-year decline (of 28.7% to be precise). However, aluminium rolled products shipments in Japan dropped at the slowest pace in 7 months in June. • Italy’s non-ferrous metal association, Assomet, stated that output of aluminium product output plunged 36 percent to 330,000 tonnes in the first six months of this year. Indeed, the industry association estimates for aluminium semis consumption are for a decline of 20-25 percent in the first six months of 2009. On a brighter note, Assomet talked of a recent pick-up in orders for aluminium products for the July-September period. Aluminium Daily Stocks vs Price Aluminium Premiums Jan 05 - to Present 5000 3500 200 4000 Spot Price 3000 150 99.7% ingot duty Paid tonnes 000s ($/tonne) 3000 2500 US$/tonne 100 2000 2000 Cif Japan 50 1000 1500 99.7% ingot duty Unpaid Stocks 0 1000 0 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 01/05 01/06 01/07 01/08 01/09 Sources: Thomson Reuters EcoWin, LME Source: GFMS Aluminium Price Volatility Aluminium Prices in Major Currencies in July 50 Max Min Average YTD Avg US$/t 1,863.5 1,531.5 1,668.0 1,458.9 Rolling 20-day volatility (%) Euro/t 1,326.0 1,096.1 1,178.7 1,083.7 40 Yen/t 178,057 141,051 156,923 139,078 Rmb/t 12,732 10,464 11,413 9,088.0 Source: Thomson Reuters EcoWin 30 20 May Jun Jul Aug Source: GFMS; Volatility is calculated using the LME cash prices from the prior 20 days. Independent - Informed - International 7
    • Base Metals Forecasting Monthly - August 2009 LME Stocks vs Spot Price Jan 03 - July 09 LME Aluminium Cash - 3 Month Differential Combined Gold ETF holdings 3500 50 3000 40 2500 ($/tonne) $/tonne 30 Jul 09 2000 20 1500 Contango 10 1000 May Jun Jul Aug 0 2 4 6 8 10 12 Stocks (No. of Weeks Consumption) Sources: GFMS, LME Sources: GFMS, LME Shanghai Aluminium Stocks Chinese and IAI Primary Production 250 100 L.America E.Europe Asia Africa Aust'sia W.Europe 200 80 tonnes (thousands) tonnes 000s 150 60 100 40 North America 50 20 China 0 0 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Source: SHFE Source: IAI and CNIA Chinese Primary Aluminium Imports Aluminium Open Interest vs LME Price 1000 3500 400 800 Spot Price 3000 300 tonnes 000s tonnes 000s 600 2500 US$/tonne 200 400 2000 100 200 1500 Open Interest 0 1000 0 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 2005 2006 2007 2008 2009 Sources: Thomson Reuters EcoWin, LME Source: Chinese Customs; GFMS 8 Independent - Informed - International
    • Base Metals Forecasting Monthly - August 2009 3. Nickel Key Nickel Market Developments: • Nickel prices in July represent a vast improvement on levels seen earlier in the year. The July monthly average at $15,984/tonne is almost 7% up on June and 64% higher than the March low of just under $10,000/tonne. More recently, on July 31, the spot price climbed by $775/tonne in the space of one day to $17,625/tonne, breaching levels not seen since Q3 last year. Further sharp gains have been seen in early August, with cash prices exceeding $20,000/tonne for the first time in almost a year. • The fundamentals have had little to do with nickel’s progress, and instead it has been the investment community that has been setting the direction for prices, encouraged by the increasing perception of a recovery in economic activity and the stainless steel sector in particular. These investors were buoyed by the latest PMI data, especially from the US, with the ISM manufacturing index for July up by 4.1 to 48.94. This was the slowest pace of contraction since August 2008. • Stocks on the LME have recently started to show some support falling by around 3,800 tonnes to 105,864 tonnes on August 3, after having reached a one-month high of 109,716 tonnes on July 9. However this figure, by historical standards still represents a very large stockpile. LME inventories represent 7.1 weeks of “Western World” consumption, which is the second highest stock/consumption ratio among LME base metals. Outlook for Next Three Months: Over the past month or so, the nickel market has started noting improvements in some of its fundamentals. Output at a number of stainless mills outside of China have been increasing as orders from consumers and service centres are picking up, a trend we are likely to see accelerate over H2. A tight scrap market should also help boost demand for primary nickel. More recently, stocks on the LME have started falling, which signals an improving demand-side scenario. However, with prices well above the marginal cost of production, it is likely that producers will start bringing back on idled capacity, which in theory should put a cap on any excessive price rise. Consequently, nickel will trade in a $14,000-$21,000 range from August to November. Nickel Price and Forecast Trading Range Nickel Supply & Demand 21000 (000 tonnes) 2008 2009F 19000 W.World production 873 716 W.World consumption 943 772 US$/tonne 17000 Net East-West trade 130 90 W.World balance 60 34 15000 ROW production 489 491 ROW consumption 352 408 13000 Global production 1,362 1,207 Global consumption 1,294 1,180 11000 May Jun Jul Aug Sep Oct Sources: GFMS, LME Global balance 67 27 Source: GFMS Independent - Informed - International 9
    • Base Metals Forecasting Monthly - August 2009 Nickel Market News: • Planned strike action was commenced on Saturday 1st August by 120 workers at the Voisey’s Bay nickel mine in Canada, run by Vale, the company has announced. This operation had been due to reopen on 1st August after a one-month shut-down. • Global mine production growth according to the WBMS fell by 4.8% y-o-y to 584,200 tonnes in the first five months of the year. Mine output slipped in every region, except in Asia (+17.7%), where output was primarily lifted on the back of 223% y-o-y growth in the Phillippines. This reflects higher ore production to feed Chinese nickel pig iron producers as well as the expansion at Coral Bay. • Recovery in stainless demand over the last few months has led to a 25% m-o-m increase in the Acerinox’s order book in June, and has also consolidated price increases. It has been reported that orders at German stainless mills doubled in June from May, to over 200,000 tonnes. • Japanese mills are raising stainless output in Q3. For example, Nisshin Steel has announced plans to produce 140,000 tonnes, up from a low of 90,000 tonnes in Q1. By October, it plans to be operating at a capacity utilisation rate of 50%. Nickel Daily Stocks vs Price Nickel premiums Jan 05 - to Present 150 60000 2500 50000 US melting premium 120 Spot Price 2000 40000 tonnes 000s ($/tonne) 90 Briquettes US$/tonne 1500 30000 60 1000 4*4 cathode 20000 30 500 10000 Stocks 0 99.7% uncut cathode 0 0 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 01/09 02/05 01/06 01/07 01/08 Sources: Thomson Reuters Ecowin, LME Source: GFMS Nickel Price Volatility Nickel Prices in Major Currencies in July Daily Nickel Price Volatility Max Min Average YTD Avg 80 US$/t 17,650 14,360 15,945 12,344 Euro/t 12,559 10,278 11,316 9,140 Rolling 20-day volatility (%) 70 Yen/t 1,686,457 1,322,556 1,506,537 1,176,517 60 Rmb/t 120,587 98,118 109,269 76,956 Source: Thomson Reuters EcoWin 50 40 30 May Jun Jul Aug Source: GFMS; Volatility is calculated using the LME cash prices from the prior 20 days. 10 Independent - Informed - International
    • Base Metals Forecasting Monthly - August 2009 LME Nickel Stocks vs Spot Price Jan 03 - July 09 Nickel Open Interest vs LME Price 60000 100 60000 50000 Spot Price 50000 80 40000 $/tonne 40000 tonnes 000s US$/tonne 60 30000 Jul 09 30000 40 20000 20000 10000 20 10000 Open Interest 0 0 0 0 1 2 3 4 5 6 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Stocks (No.of Weeks Consumption) Sources: GFMS, LME Source: Thomson Reuters Ecowin, LME LME Nickel Cash - 3 Month Differential Chinese Nickel Imports 250 40 200 30 tonnes 000s 150 ($/tonne) 100 20 50 10 Contango 0 Backwardation 0 -50 2005 2006 2007 2008 2009 May Jun Jul Aug Sources: GFMS, LME Source: Chinese Customs; GFMS Global Stainless Steel Production Major FX Rates and World Stock Indices in July Max Min Average YTD Avg Asia Americas US$/EUR 1.42 1.39 1.41 1.34 8000 W.Europe/Afr. C.+ E.Europe JPY/US$ 96.67 92.24 94.43 95.33 7000 US$/Rmb 6.83 6.83 6.83 6.83 6000 DJ AIG 9,172 8,147 8,680 8,145 Tonnes (thousands) 5000 S&P 500 987 879 936 864 4000 Source: Thomson Reuters EcoWin 3000 2000 1000 0 2004 2005 2006 2007 2008 2009 Source: ISSF Independent - Informed - International 11
    • Base Metals Forecasting Monthly - August 2009 4. Zinc Key Zinc Market Developments: • Zinc prices maintained and in fact expanded their gains over the course of July. Having started the month in the mid-1,500s, prices suffered a correction in the first half of the month that saw the spot price bottoming at $1,461/tonne. From then on, the price trended upwards to an end-month $1,748/ tonne, which marked a fresh year-to-date peak (breached again by recent advances over $1,850/ tonne). The average price for the month, at $1,579/tonne, was virtually unchanged from June. • Investor interest has continued, in our view, to be the principal driver of the strength prices have enjoyed recently. In line with the wider base metals sector, optimism over the prospects of consumption recovering has supported the rally. The metal’s fundamentals on the other hand remain uninspiring and, similarly to the wider complex, talk of ‘green shoots’ has yet to translate in any material recovery in galvanized steel demand and by implications zinc consumption. • Looking at the LME inventory growth of July, the market seems to still be in surplus. Specifically, stocks rose by 54,575 tonnes over the month to reach 407,950 tonnes, equivalent to a little over three weeks’ Western World consumption. Interestingly, the bulk of the rise in LME stocks took place in the last week of July, as price broke through the $1,700/tonne barrier. There were further additions to LME stocks in early August, but again did not stop further price gains to over $1,850/tonne. Outlook for Next Three Months: The last few months have seen zinc prices rocket from a low of $1,060/tonne to current levels above $1,850/tonne. In the past, we had considered the former levels to represent unsustainably low levels which call for a recovery. Although the argument may be less clear, it is our view that the current levels will prove similarly difficult to maintain in the short-term, given the zinc market’s fundamentals and anecdotal evidence pointing to an speculative overhang having been built in base metals over the last few weeks. By implication, we would be surprised if a noteworthy correction did not materialise at some point over the remainder of the summer period. In conclusion, we think that zinc will trade in a $1,450-$2,000 range from August to November. The upper end of this range may be hit if the cur- rent labour negotiations at the Antamina copper-zinc mine lead to a strike. Zinc Price and Forecast Trading Range Zinc Supply & Demand (000 tonnes) 2000 2008 2009F 1800 W.World production 6,712 6,480 W.World consumption 6,958 6,246 Net East-West trade 375 -75 US$/tonne 1600 W.World balance 129 159 1400 ROW production 4,953 4,881 ROW consumption 4,529 4,995 1200 Global production 11,665 11,361 Global consumption 11,487 11,201 1000 August Jul Aug Global balance 178 160 May Jun July Sources: GFMS, LME Source: GFMS 12 Independent - Informed - International
    • Base Metals Forecasting Monthly - August 2009 Zinc Market News: • Bulgaria’s second largest zinc and lead smelter, OTZK, stated in late July that its production declined 11.2 percent in the first half of the year, citing technical reasons. However, the company confirmed that it still plans to produce 27,000 tonnes in the whole of 2009. • The latest International Lead and Zinc Study Group bulletin suggests producers’ stocks rose at the margin during May, to 402,000 tonnes, compared to 390,000 tonnes at end-April. • In Germany, demand fell by a third for the first five months of 2009 compared to the same period a year earlier. A 31% decline was also recorded for Italian consumption, which stood at 99,000 tonnes over the same period, while a more measured 17% drop was suffered by Belgium, where 134,000 tonnes were used. Overall, European consumption fell by 27% to reach 803,000 tonnes. • Apparent consumption in China over the first six months of the year, excluding confirmed SRB purchases of 159,000 tonnes, amounted to an impressive 2.192m tonnes, marking a 13% increase over the same period last year. The increase was in large measure fuelled by the exceptionally high net imports into the country, which amounted to 473,393 tonnes over the period. Zinc Daily Stocks vs Price Zinc Premiums Jan 05 - to Present 800 5000 300 Spot Price 250 4000 600 200 tonnes 000s ($/tonne) US$/tonne 3000 150 US high grade 400 Stocks 2000 100 200 1000 50 LME warehouse Singapore 0 0 0 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 01/05 01/06 01/07 01/08 01/09 Sources: Thomson Reuters Ecowin, LME Source: GFMS Zinc Price Volatility Zinc Prices in Major Currencies in July Daily Zinc Price Volatility Max Min Average YTD Avg 60 US$/t 1,748.0 1,461.0 1,574.5 1,360.4 Euro/t 1,189.5 1,028.4 1,088.7 963.60 Rolling 20-day volatility (%) Yen/t 167,021 134,558 148,743 129,874 50 Rmb/t 11,942 9,982.6 10,795 8,499.0 Source: Thomson Reuters EcoWin 40 30 May Jun Jul Aug Source: GFMS; Volatility is calculated using the LME cash prices from the prior 20 days. Independent - Informed - International 13
    • Base Metals Forecasting Monthly - August 2009 Combined Gold ETF holdings LME Zinc Stocks vs Spot Price Jan 03 - July 09 Zinc Open Interest vs LME Price 4700 250 5000 Spot Price 4000 (contracts, thousands) 3700 200 US$/tonne 3000 $/tonne Open Interest 2700 2000 150 Jul 09 1700 1000 100 0 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 700 0 1 2 3 4 5 6 Stocks (No.of Weeks Consumption) Sources: Thomson Reuters Ecowin, LME Sources: GFMS, LME LME Zinc Cash - 3 Month Differential Shanghai Zinc Stocks 50 125 40 100 tonnes 000s 30 75 ($/tonne) 20 50 10 25 Contango 0 0 May Jun Jul Aug Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Sources: GFMS, LME Source: SHFE Chinese Zinc Imports 125 100 tonnes 000s 75 50 25 0 2005 2006 2007 2008 2009 Source: Chinese Customs; GFMS 14 Independent - Informed - International
    • Base Metals Forecasting Monthly - August 2009 5. Lead Key Lead Market Developments: • Prices have surged over recent days, to $1,949/tonne on August 3, representing the highest level since September 2008. We continue to believe that prices are way ahead of the fundamentals, with demand in the mature economies remaining weak and production recovering in China. • Consequently, this latest surge is difficult to justify on real supply/demand grounds and is largely due to intense speculative buying on the exchanges. We also believe this speculative activity was at the forefront of the strength in prices through June and July, with the monthly average largely unchanged on the previous month, at $1,679/tonne in July from $1,674/tonne in June. • LME stock levels have picked up over past couple of months in line with the onset of the summer slowdown, increasing by 11,650 in June and around 15,500 tonnes in July. This trend may continue over the near future, taking into account the fact that we are entering a traditionally weak period for lead demand and there have been significant restarts of previously idled capacity in China. Having said this, at 110,550 tonnes on August 3, stocks still remain relatively low in comparison to the other base metals at just over one week’s consumption. • Lead was also boosted in the closing days of July by news that the US scrappage scheme had completely been utilised in just 7 days, and that Congress was looking to extend the package. Outlook for Next Three Months: The fundamentals in the immediate term are weaker than prices would suggest. Chinese restarts of previously idled capacity could pose some problems over the short term, and import buying is expected to ease over the summer months. Additionally, with conditions in the mature economies remaining weak, we envisage prices dropping back slightly from current levels. However, with the traditionally strong “battery season” coming into force as we enter Q4, lead prices should recover towards the end of the year. However, given the recent surge, prices are likely to consolidate before climbing further and will trade in a $1,400-$2,050 range over the next three months. Lead Price and Forecast Trading Range Lead Supply & Demand 2050 (000 tonnes) 2008 2009F 1950 W.World production 4,955 4,905 1850 W.World consumption 5,168 5,108 US$/tonne 1750 Net East-West trade 250 250 W.World balance 37 47 1650 ROW production 3,603 3,801 1550 ROW consumption 3,344 3,537 1450 Global production 8,558 8,706 Global consumption 8,512 8,645 1350 May Jun Jul Aug Sep Oct Global balance 46 61 Sources: GFMS, LME Source: GFMS Independent - Informed - International 15
    • Base Metals Forecasting Monthly - August 2009 Lead Market News: • Bolivian production was strong, with production at 38,000 tonnes for the first five months and up 46.2% year-on-year. This strength looks likely to continue as the San Cristobal mine is now reported to be back operating at full capacity. However, in the rest of the Americas production was weak, with output declining 5.6% to 437,000 tonnes for the first five months, on falls in Canada, Peru and the US. Peruvian weakness continued into June, with output down 11.9% y-o-y to 25,148 tonnes according to the Peruvian mining ministry. • Chinese concentrate production in June has risen further to 124,559 tonnes, up from the May level of 112,019 tonnes, according to the China Non-ferrous Industry Association. • Chinese demand has found significant support from its auto sector. Over the first six months of the year, vehicle sales climbed to 6.099m units, up 17.7% y-o-y. June sales of 1.14m units gained on May levels and approached those seen in April. This figure was up a significant 36% y-o-y. • Doe Run Peru has told regulators it plans to restructure its operations after months of financial difficulty, company and government officials have said. Lead Daily Stocks vs Price Lead Premiums Jan 05 - to Present 250 250 4000 US high grade ingot 200 200 Spot Price 3000 150 tonnes 000s ($/tonne) 150 US$/tonne 2000 100 100 European warehouse Rotterdam 1000 50 50 Stocks 0 0 0 01/05 01/06 01/07 01/08 01/09 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Sources: Thomson Reuters Ecowin, LME Source: GFMS Lead Price Volatility Lead Prices in Major Currencies in July 70 Max Min Average YTD Avg US$/t 1,842.5 1,567.0 1,674.3 1,381.9 Rolling 20-day volatility (%) 60 Euro/t 1,311.0 1,121.2 1,188.3 1,024.0 Yen/t 176,051 144,321 158,188 131,951 50 Rmb/t 12,558 10,707 11,462 8,623.2 Source: Thomson Reuters EcoWin 40 30 May Jun Jul Aug Source: GFMS; Volatility is calculated using the LME cash prices from the prior 20 days. 16 Independent - Informed - International
    • Base Metals Forecasting Monthly - August 2009 LME Lead Stocks vs Spot Price Jan 03 - July 09 Lead Open Interest vs LME Price 125 4000 4000 100 Spot Price 3000 (contracts, thousands) 3000 Jul 09 US$/tonne $/tonne 75 2000 2000 50 1000 1000 Open Interest 25 0 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 0 0.0 0.5 1.0 1.5 2.0 Sources: Thomson Reuters Ecowin, LME Stocks (No.of Weeks Consumption) Sources: GFMS, LME LME Lead Cash - 3 Month Differential Commodity Indices 30 9500 500 20 S&P GSCI DJ AIG 9000 450 10 ($/tonne) S&P GSCI Contango 8500 DJ AIG 0 Backwardation 400 -10 8000 -20 7500 350 May Jun Jul Aug May Jun Jul Sources: GFMS, LME Source: Thomson Reuters EcoWin Chinese Lead Imports 50 40 tonnes 000s 30 20 10 0 2005 2006 2007 2008 2009 Source: Chinese Customs; GFMS Independent - Informed - International 17
    • Base Metals Forecasting Monthly - August 2009 6. Tin Key Tin Market Developments: • Having fallen to $12,450/tonne on July 10 – residing to levels last noted in late April – from the year-high of $15,725/tonne on June 10, the cash quote has picked up and at present is trading above $15,500/tonne in early August. The increases seen in recent days are the result of positive economic data, coupled with improving financial markets. • Nonetheless, out of all of the base metals on the LME, tin was the only metal to see its July monthly cash quote, which came in at $14,039/tonne, fall m-o-m, by 6.3%. • The intensity of the speculation has been highlighted by the movement of spreads between the cash and three month price. The premium for cash material over three months on 6th August for example was $305/tonne, which compares to around $40/tonne in mid-June. The premium is even larger when compared to contracts dated further out. • Indeed, the tin market, for some time now, has been in backwardation suggestive of the market being in a short-term deficit. However, this seems at odds with the current market situation, particularly as it is widely perceived to be over-supplied. Stocks on the LME increased by 1,275 tonnes over July to end the month on 18,405 tonnes, which largely reflects the weakness in demand more than a pickup in supply, although Chinese production is increasing. Nevertheless, at least for prices, it can be said that the pace in the acceleration of stocks has slowed down in comparison to the previous month when they surged by 2,650 tonnes. Outlook for Next Three Months: Tin’s price performance to date is a reflection of speculative activity rather than any sort of improvement in its fundamentals. Demand remains weak, and in our view will not recover any time before September when the slow summer months come to an end. On the supply side, we have the problem of low output in Indonesia versus rising output in China with the restart of operations at Yunnan Tin. However, in the medium-term the shortage of new projects leads us to believe that prices could rise considerably from current levels if consumption returns to pre-recession levels. As such, we think that tin will trade in a $12,000-$17,000/t range over the next three months. Tin Price and Forecast Trading Range Tin Supply & Demand 17000 (000 tonnes) 2008 2009F 16000 15000 W.World production 210.1 213.4 W.World consumption 206.9 218.0 US$/tonne 14000 Net East-West trade -10.0 5.0 Stockpile sales 7.0 7.0 13000 W.World balance 0.2 7.4 12000 ROW production 136.7 154.8 ROW consumption 142.5 146.5 11000 Global production 346.8 368.2 10000 Global consumption 349.4 364.5 May Jun July Aug Sept Oct Sources: GFMS, LME Global balance -2.6 3.7 Source: GFMS 18 Independent - Informed - International
    • Base Metals Forecasting Monthly - August 2009 Tin Market News: • In an effort to further clamp down on illegal operation in Indonesia, the country approved its 30th export license in July. The ministry approved a permit for CV Nujanah. The latest data released by the Indonesian trade ministry shows that the volumes checked for exports up to June remained strong amounting to 50,575 tonnes, up 9.2% y-o-y. • Global mine production over January-May waned significantly by 10% y-o-y to 117,400 tonnes, largely the result of falls in excess of 12% in the two largest producers, China and Indonesia. Combined, these fell by 15% y-o-y, which is largely the reflection of wet weather and earlier price- related cutbacks. • According to the WBMS, global refined tin production in the first five months of the year fell by around 10%. The largest producer, China, saw production decline 13.7% to 44,287 tonnes, while Indonesia registered output at just 27,000 tonnes, down 12.9%. A shortage of concentrate feed has also translated to lower refined output in these regions. • Domestic Brazilian shipments of tinplate fell by 20.3% y-o-y for the first five months of 2009, to 206,300 tonnes. Tin Daily Stocks vs Price Tin Premiums Jan 05 - to Present 600 50000 30000 US Grade A 25000 500 40000 Spot Price ($/tonne) 20000 tonnes 000s 400 30000 3-month US$/tonne 15000 300 20000 10000 Spot 200 10000 5000 Stocks 0 100 0 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 01/05 01/06 01/07 01/08 01/09 Source: GFMS Sources: Thomson Reuters EcoWin, LME Tin Price Volatility Tin Prices in Major Currencies in July Daily Tin Price Volatility Max Min Average YTD Avg 60 US$/t 15,050 12,450 14,013 12,530 Euro/t 10,673 8,947 9,945 9,297 Rolling 20-day volatility (%) 50 Yen/t 1,433,250 1,150,006 1,324,197 1,195,087 Rmb/t 102,807 85,068 95,781 78,027 40 Source: Thomson Reuters EcoWin 30 20 May Jun Jul Aug Source: GFMS; Volatility is calculated using the LME cash prices from the prior 20 days. Independent - Informed - International 19
    • Base Metals Forecasting Monthly - August 2009 LME Tin Stocks vs Spot Price Jan 03 - July 09 Tin Open Interest vs LME Price 25000 50 30000 20000 25000 40 Spot Price Jul 09 (contracts, thousands) 20000 15000 30 $/tonne US$/tonne 15000 10000 20 10000 10 5000 5000 Open Interest 0 0 0 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06Jan 07 Jan 08 Jan 09 0 1 2 3 4 5 6 Stocks (No.of weeks consumption) Sources: Thomson Reuters EcoWin, LME Sources: GFMS, LME LME Tin Cash - 3 Month Differential Chinese Tin Imports 100 Contango 5000 0 4000 -100 ($/tonne) -200 3000 kg -300 2000 -400 Backwardation 1000 -500 May Jun Jul Aug 0 Source: GFMS, LME 2005 2006 2007 2008 2009 Source: Chinese Customs; GFMS 20 Independent - Informed - International