SMC Global Monthly Report on Bullions & Energy


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In this report we mention the price movements of bullions and energy and major events occurred in international as well as domestic market of previous month. Furthermore it contains the expected trend and range of current month, demand supply pattern, trends of various ETF’s, Gold Silver ratio in bullion counter whereas in Energy counter we analyze the monthly trend and range for both crude oil and natural gas, demand supply equilibrium, inventories, spread of brent crude oil and sweet crude oil etc. We generate long terms calls on these commodities as and when, based upon opportunities.

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SMC Global Monthly Report on Bullions & Energy

  1. 1. SPECIAL MONTHLY REPORT ON Bullions & Energy (April 2014)
  2. 2. 2 BULLIONS&ENERGY April 2014 BULLIONS AND ENERGY PERFORMANCE ( - 31st March 2014) (% change)28th February 2014 Source: Reuters and SMC Research COMEX/NYMEX MCX -5.16 -7.67 -3.96 -8.89 -2.97 -6.81 -1.15 -3.08 -10.00 -9.00 -8.00 -7.00 -6.00 -5.00 -4.00 -3.00 -2.00 -1.00 0.00 Gold Silver Crude oil Natural Gas
  3. 3. 3 BULLIONS In the month of March bullion counter ended on negative note as rise in greenback and fed statement that interest rates may increase from next year pressurized the prices lower. Fed Chair Janet Yellen stated that interest rates could rise “around six months” after asset purchases end. Policy makers cut monthly bond buying by $10 billion at the conclusion of their two day meeting, leaving purchases at $55 billion. However some strength in the domestic rupee pressurized the prices lower. Overall gold traded in range of 28119-30737 in MCX and $1285-1387 in COMEX. Dollar index faced key support near 79.26 levels and rebounded higher in the month of March. Silver traded in range of $19.55-21.75 in COMEX and 42411-47877 in MCX. Russia has increased its gold holdings by 7.247 tonnes to 1042 tonnes in February. Hong Kong's net gold exports to China jumped 25% in February after a small drop in the previous month. China imported about 1158.16 tonnes from Hong Kong alone in 2013 whichismorethandoubleits557.48tonnesin2012. In the month of April 2014 bullion counter can move sideways with weak bias. On domestic bourses the movements of local currency Rupee will be key factor to watch out which can move in range of 58.5- 61.5 in the month of April. Gold can trade in range of Rs 27300-29800 in MCX and $1250- 1380 in COMEX. Silver can trade in range of 41500-45000 in MCX and $19-22.50 in COMEX. The gold/silver ratio has moved up from 60 to 66.3 which showed that silver fell at faster pace than gold recently. This ratio can hover in range of 63-69 in the month of April. Recovery in US economy has also led to reduced safe haven demand in bullion counter. The U.S. economy grew more rapidly in the fourth quarter than previously estimated, and applications for jobless benefits unexpectedly fell last week. Meanwhile Fed Chair Janet Yellen stated that interest rates could start increasing six months after the Fed ends its asset purchasing program. Geopolitical tensions in Middle East and in any other part of the globe will have positive impact on gold prices as it is considered safe haven in times of geopolitical uncertainty. Escalating tension in Ukraine and concern that a slowdown in China is deepening BULLIONS April 2014 increased demand for a protection of wealth will increasethesafehavendemandofgold. India tightenschecks to curb gold smuggling India has started to make physical checks of gold stocks held by wholesalers to ensure inventories match the amount imported by banks and state-run traders. To tackle a widening trade deficit, India - the world's second biggest gold consumer behind China - has put in place measures to dissuade gold buying, including a 10 percent import tax. Imports have fallen sharply, leading to shortages and triggering smuggling. India imported about 750 tonnes of gold in 2013, while up to another 200 tonnes was believed to have been smuggled into the country,accordingtotheWorldGoldCouncil. WGC Demand summary The third quarter of 2013 saw a 21% contraction in gold demand from the third quarter of 2012, to 868.5 tonnes. Outflows from ETF positions were in pace than the previous quarter, were the main reason for the weaker quarterly total. However, demand at the consumer level was resilient; eastern markets remained the driving force behind growth in demand for gold jewellery, bars and coins. Central bank net purchases, which slowed in line with our predictions, were again a solid pillar of demand. The supply of gold was down by 3%, to 1,145.5 tonnes as a reduction in recycling activity more than offsetamodestincreaseinmineproduction. Gold investmentdemand Q3 of 2013 was another mixed quarter for the investment sector, as the two key elements of gold continued to diverge: demand for bars and coins increased by 6% while ETFs saw a third consecutive quarter of net outflows. The net result was a 56% decline in Q3 of 2013 investment demand. Inclusive of OTC investment and stock flows (which represents the less visible elements of institutional investment, as-yet unquantifiable stock changes and any statistical residual),totalinvestmentdemandisbroadlyflat,down just1%year-on-year.
  4. 4. 4 BULLIONS April 2014 World official gold holdings (March 2014) Source: WGC
  5. 5. 5 BULLIONS April 2014 China Overtakes India In Gold Consumption- WGC: According to world Gold Council “China became the largest gold market in the world for the first time in 2013”.Demand for gold in China set a remarkable new record of 1,066 tonnes, a rise of 32% year on year. Gold consumption in China grew to 1,176.40 tonnes last year, with jewellery demand climbing 43% to 716.50 tonnes and bullion demand soaring 57% to 375.73 tonnes. China's gold output in 2013 rose 6.2 % from the previous year to a record high 428.163 tonnes, making the country the world's biggest producer for a seventh straight year. China's foreign exchange reserves, the world's largest, rose to$3.82trillionattheendof2013. Gold and emerging markets Over the past decade, emerging markets have benefited from strong growth and cheap funding. Investors have increased their exposure and, given the positive long-term view of these economies, there is a strong rationale for investors to have EM in their portfolios. However, given recent market volatility and concerns about the sustainability of EM growth, it is more pressing than ever for investors to understand how to hedge exposure to the asset class and, even if they don't have direct holdings, how to reduce the effects of a spillover in their portfolios. While EM crises may have been regionally contained in the past, the increasing weight of these markets in global GDP and international trade could increase the risk of contagion in any future crisis. In that context, there is a strong argument for using gold to enhance EM hedgingstrategies. Ukraine tensions and Gold Recently escalating military tension between Ukraine and Russia bolstered demand for assets such as gold which is perceived to be relatively safe haven. Tensions between West and Russia since the end of the Cold War increases demand for the metal as a haven. As a result of the escalation of this conflict and the damages it's going to do to the European economy, people are going to continue to rotate out of the stock market into the gold market. The uncertainty surrounding Ukraine could push gold prices higher in the next few weeks although diplomatic and political solutions are going to be sought alotwillalsodependoninvestorpositioning. China economy and Gold While there is wide consensus that developed markets are in recovery mode, there is less certainty about the state of the Chinese economy. Following more than a decade of strong growth, some market participants fear the economy could continue to lose steam and that easy creditmayhaveformedassetbubblesthatcouldburstat any time. However, there is also an alternative view in the market: concerned with growth suitability, the Chinese government will continue a pro-market shift to economic policies, including financial reform and improving the budget management and tax systems, in the hope of structurally improving long term growth. Further, a recovery in developed markets could strengthen exports and reignite growth in various economicsectors. WGC Gold demand scenario The gold market became polarised in 2013 as 21% growth in demand from consumers and value-seeking investors contrasted with large-scale outflows from ETFs. The net result was a 15% decline in full-year gold demand in a year where jewellery, bar and coin demand reached an all-time high. Chinese consumers set a new annual record, while India was resilient in the face of import restrictions. The sharp fall in the gold price in the second quarter elicited a strong and swift response from consumers in Asia and the Middle East, an effect that extended out to western markets in the final quarteroftheyear. Gold supply Gold supplied to the market during the third quarter of 2013 totalled 1,145.5t, 3% below the same period in 2012. The year-on-year contraction is largely explained by lower levels of recycling, outweighing modest growth in mine supply. Year-to-date the supply of gold is 4% lower than the same period of 2012 at 3,196t. The primary driver is a contraction in the supply of gold fromrecyclingalmosttopre-crisislevels.
  6. 6. 6 BULLIONS April 2014
  7. 7. 7 BULLIONS April 2014 Gold Silver Ratio Source: Reuters Analysis: Steady rise in the gold silver ratio from nearly 60.5 to above 66 recently indicates that silver fell at fasterpacethangold.Thisratiocanmoveinrangeof63-69inthemonthofApril.
  8. 8. 8 BULLIONS April 2014
  9. 9. 9 BULLIONS April 2014 Gold supply The annual supply of recycled gold declined for the sixth consecutive year to the lowest level since 2008. Annual gold mine production grew by 154.4t (5%) in 2013, the bulk of which came through in the second half of the year. The fourth quarter saw a clear continuation of the trend that was in place throughout much of the year: new mines either coming on stream or building up to full capacity and growthinproductionofexistingoperations. Growing Industrial Demand of Silver Silver conducts heat and electricity better than any other metal on Earth. It is also anti-bacterial. These amazing properties make silver indispensable in a vast array of modern industrial and technological applications. This industrial demand has been shifting dramatically since the turn of the century, as defunct applications for silver like photographic film have been replaced by new technologies like photovoltaic power. The evolution of silver's industrial applications continues unabated, with new uses being developed every year. In spite of a recent dip in demand for industrial silver due to global economic volatility, the fundamentals of the industriesconsumingsilverlookpromising. Biotechnology Recent advances in biotechnology have brought a renewed focus on silver's centuries old history as an important medical weapon. The Silver Institute observed that the medical use of silver has helped reduce the growing threat of antibiotic-resistant germs spreading through a hospital. Today, the need to combat antibiotic-resistant superbugs and to suppress hospital-acquired infections has increased the importance and number of uses of silver-infused products. In the month of April 2014 bullion counter will remain sideways with weak bias. Ukraine tensions and movement of greenback may support the prices to some extent. Moreover condition of global economy and movement of local currency rupee coupled with Physical, ETF demand will also influence its prices. Range Gold MCX Rs 27300-29800 per 10 gms COMEX $1250-1380 per troy ounce GoldHedge NCDEX Rs 24000-26500 per 10 gms Silver MCX Rs 41500-45000 per kg COMEX $19-22.50 per ounce SilverHedge NCDEX Rs 3500-4500 per 100 gms
  11. 11. 11 ENERGY ENERGY COMPLEX Crude Oil In the month of March crude oil prices was subdued on rising greenback and increasing stockpiles. On domestic bourses stronger local currency rupee has kept the prices under pressure. Meanwhile Ukraine and Russia tensions supported the prices. Last month U.S. announced sanctions on Russia after it seizedcontrolofCrimeafromUkraine.Pricestraded in range of nearly $97.28- 105.21 in NYMEX and 5975-6547 in MCX. According to the Energy Information Administration “Total U.S. crude inventories expanded by 6.62 million barrels to 382.5 million” The Organization of Petroleum Exporting Countries will curtail exports by 620,000 barrels a day, or 2.5 percent, to 23.78 million a day in the four week to April 12 in response to lower seasonal demand from refiners in Asia, according to tanker-trackerOilMovements. Crude oil futures can move on mixed path with some short covering can be seen in the April 2014 month of April .Fall in stockpiles and rising demand in US supported the prices while rising greenback can curtail the upside. Economic data from US and Europe will give direction to the crude oil prices. Middle East tensions may result in reduced supplies which may also give support to the crude oil prices. Crude oil can move in range of 5900-6350 in the month of April. The situation in Ukraine and Russia will be closely watched by the crude oil investors. The U.S. Senate and House passed separate bills imposing additional sanctions on Russian officials for the nation's annexation of Crimea from Ukraine. The House measure would codify sanctions already announced by Obama. It would encourage imposing more penalties on Russians with “significant influence over the formation and implementation of Russian foreign policy” involving Crimea. Meanwhile any U.S. and Russia diplomatic solution to the Ukraine situation can keep theupsidecapped. Brent WTI Spread Source: Reuters Analysis: Brent WTI spread has narrowed recently to below 7 after testing high of nearly 15 in beginning of this year .This spread can hover in range of 5-9 in near term. The spread has narrowed down as 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 of Cushing, Oklahoma, to the Gulf Coast. The increased transportation capacity from inland U.S. crude production regions to demand centers (such as refineries on the Gulf Coast) is bullish for WTI crude oil prices. The expanded pipeline is reported to be able to movemorethan850,000barrelsperdayofcrudeoil.
  12. 12. 12 ENERGY April 2014 Some key points from EIA estimates Global Crude Oil and Liquid Fuels Consumption EIA estimates that global consumption grew by 1.2 million bbl/d in 2013, averaging 90.4 million bbl/d for the year. EIA expects global consumption to grow 1.2 million bbl/d in 2014 and 1.4 million bbl/d in 2015. Projected global oil-consumption-weighted real GDP, which increased by an estimated 2.3% in 2013, grows by 3.1% and 3.5% in 2014 and 2015, respectively. Non-OECD countries as a group are expected to account for all of the consumption growth in 2014 and nearly all of the growth in 2015. China is the leading contributor to projected global consumption growth, with consumption increasing by 400,000 bbl/d in 2014 and 430,000 bbl/d in 2015. However, China's economic and oil consumption growth rates have moderated compared with rates before 2012, when annual GDP growth exceeded 9% and oil consumption growth averaged 700,000 bbl/d from 2009 through 2012. EIA expects lower OECD consumption in 2014, led by projected consumption declines in both Japan and Europe. EIA expects Japan's oil consumption to fall by an annual average of 150,000 bbl/d in 2014 and 2015, as the country continues to increase natural gas consumption in the electricity sector and returns some nuclear power plants to service. EIA projects that OECD Europe's consumption, which fell by 60,000 bbl/d in 2013, will decline by another 60,000 bbl/d in 2014 and then remain mostly flat in 2015. U.S. liquids consumption, which increased by 400,000 bbl/d in 2013, is expected to remain flat in 2014andthenincreaseby100,000bbl/din2015. Non‐OPEC Supply EIA estimates that non-OPEC liquids production grew by 1.3 million bbl/d in 2013, averaging 54.0 million bbl/d for the year. EIA expects non-OPEC liquids production to grow by 1.8 million bbl/d in 2014 and 1.5 million bbl/d in 2015. EIA forecasts production from the United States and Canada to grow by a combined annual average of 1.3 million bbl/d in 2014 and 1.2 million bbl/d in 2015. Brazil's production is expected to increase by an annual average of 0.15 million bbl/d over the next two years, attributable to new deepwater fields. EIA estimates that Asia and Oceania's production will rise by an annual average of 0.18 million bbl/d over the forecastperiod,ledbyChina. OPEC Supply EIA estimates that OPEC crude oil production averaged 30.0millionbbl/din2013,adeclineof0.9millionbbl/d from the previous year, primarily reflecting increased outages in Libya, Nigeria, and Iraq, and strong non- OPEC supply growth. EIA expects OPEC crude oil production to fall by 0.5 million bbl/d and 0.3 million bbl/d in 2014 and 2015, respectively, as some OPEC countries, led by Saudi Arabia, reduce production to accommodate the non-OPEC supply growth in 2014. In recent months, EIA revised upward historic data for OPEC non crude liquids supply. Projected OPEC noncrude oil liquids production, which averaged an estimated 6.3 million bbl/d in 2013, increases to an averageof6.5millionbbl/din2015. Unplanned crude oil supply disruptions among OPEC producers averaged more than 2.3 million bbl/d in February 2014, almost 0.1 million bbl/d higher than the previous month. Libya continues to experience swings in its production, contributing to changes in the OPEC disruptionestimate. U.S. Liquid Fuels Consumption Total U.S. liquid fuels consumption rose by an estimated 400,000 bbl/d (2.1%) in 2013. Consumption of hydrocarbon gas liquids registered the largest gain, increasing by 150,000 bbl/d (6.4%). Motor gasoline consumption grew by 90,000 bbl/d (1.1%), the largest increase since 2006. Stronger-than-expected growth in highway travel during the second half of 2013 contributed to that increase. Distillate fuel consumption increased by 90,000 bbl/d (2.5%), reflecting colder weather and domestic economic growth. U.S. Liquid Fuels Supply Harsh winter conditions over the past few months negatively affected well completion activity in the northern U.S. plays. As more evidence of this seasonal slowdown has appeared in the data, EIA has revised downward initial estimates for December 2013 and January 2014 U.S. crude oil production. Because the weather effects are temporary, much of the production slowdown is expected to be made up by accelerated completionactivityoverthenextfewmonths.
  13. 13. 13 ENERGY April 2014 EIA expects strong crude oil production growth, primarily concentrated in the Bakken, Eagle Ford, and Permian regions, continuing through 2015. Forecast production increases from an estimated 7.5 million bbl/d in 2013 to 8.4 million bbl/d in 2014 and 9.2 million bbl/d in 2015. The highest historical annual average U.S. production level was 9.6 million bbl/din1970. Range Crude Oil MCX Rs 5900-6350 per barrel NYMEX $96-105 per barrel Crude oil may remain on mixed path with some short covering can be seen amid Ukraine tensions. Global macroeconomic numbers along with weekly inventory data in US will also affect the overall sentiments.
  14. 14. 14 ENERGY April 2014
  15. 15. 15 Natural Gas from 24.9 Bcf/d in 2012 to 22.3 Bcf/d in 2013 andNatural gas prices also witnessed selling pressure in 22.0 Bcf/d in 2014. In 2015, total natural gasthe month of March on warmer weather conditions consumption falls by 0.3 Bcf/d as a decline inand declining demand. Overall it traded in range of residential and commercial consumption more$4.24-4.73inNYMEXand260.30-291inMCX. than offsets consumption growth in the industrial Natural gas prices have been under heavy selling and electric power sectors. EIA expects natural gas pressure in recent sessions amid concerns that the consumption in the power sector to increase to 22.6 arrival of spring will bring warmer temperatures Bcf/d in 2015 with the retirement of some coal throughout the U.S. and cut into demand for plants. heating. Natural gas can move in range of 250-290 in the month of April. Movement of stockpiles and weather conditions will give further direction to U.S. Natural Gas Production and Trade natural gas prices. Investors are betting seasonably mild weather typical of this time of year will curb EIA expects natural gas marketed production will demand for both heating and air conditioning grow at an average rate of 2.5% in 2014 and 1.1% in acrossmuchoftheU.S. 2015. Rapid natural gas production growth in the Marcellus formation is causing natural gas forward Spring see the weakest demand for natural gas in prices in the Northeast to fall even with or below the U.S, as the absence of extreme temperatures Henry Hub prices outside of peak-demand winter curbs demand for heating and air conditioning. The months. Consequently, some drilling activity may heating season from November through March is move away from the Marcellus back to Gulf Coast the peak demand period for U.S. gas consumption. plays such as the Haynesville and Barnett, where Approximately 52% of U.S. households use natural pricesareclosertotheHenryHubspotprice. gas for heating, according to the Energy Department. Liquefied natural gas (LNG) imports have declined over the past several years because higher prices in Europe and Asia are more attractive to sellers than the relatively low prices in the United States.Ukraine tensions and natural gas Several companies are planning to build Natural gas can get support from the tensions in liquefaction capacity to export LNG from the Ukraine as Russia, which provided 30 percent of United States. Cheniere Energy's Sabine Pass Europe's natural gas last year, sends half of its facility is planned to be the first to liquefy natural supplies via Ukraine. So far, Russian gas shipments gas produced in the Lower 48 states for export. The to Ukraine and the rest of Europe haven't been facility has a total liquefaction capacity of 3 Bcf/d disruptedduringthecrisis. and is scheduled to come online in stages beginning inlate2015. Natural gas prices will depend uponEIA Natural gas estimates weather conditions and power generation U.S. Natural Gas Consumption demand coupled with its consumption pattern and inventory position in the EIA expects total natural gas consumption will month of April 2014. average 71.3 Bcf per day (Bcf/d) in 2014, a drop of 0.1 Bcf/d from 2013. The projected year-over-year increasesinnaturalgaspricescontributetodeclines innaturalgasusedforelectricpowergeneration ENERGY April 2014 Range Natural gas NYMEX $4.20- $4.70 per mmBtu MCX Rs250-290 per mmBtu
  16. 16. 16 ENERGY April 2014
  17. 17. 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 and the website of the Book Running Lead Managers i.e. Tata Securities Limited at and IL&FS Capital Advisors Limited at 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. Disclaimer: 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 that we 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 redistributed to 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, representatives, directors 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 particular investment 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 income from investments 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 affiliates, 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 here in or (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 interest with respect to any recommendation and related information and opinions.All disputes shall be subject to the exclusive jurisdiction of Delhi High court. Your valuable feedback will be appreciated For further queries Pls. Contact Sandeep Joon Senior Research Analyst Phone 011-30111000 Extn - 683 E-mail Supportive team Pramod Chhimwal Graphic Designer April 2014