#ChoiceBroking #BaseMetalsMonthly

1. Base Metals Monthly
22nd March 2017

2. Base Metals Monthly22nd March 2017
Outlook
Base Metals: For the coming month, we expect base metal prices to trade on a positive side after it
is estimated that Organization of Petroleum Exporting Countries will expand its cuts in production beyond
June and key events would be discussed in the meeting in a coming month. Since crude oil is a crucial
component of input cost for metals, the upside in oil prices will reflect in metals as well.
Copper: Copper prices are expected to trade higher in the coming month as supply disruption concerns
continue at BHP Billiton, which was supposed to restart production at Escondida in Chile using temporary
workers after the strike had surpassed 30 days on 10th Mar’17. Further, greater infrastructure spending in
China is likely to keep demand robust for the metal. Moreover, expansion in China’s manufacturing and
services activity will lead to a positive movement in the currency. Moreover, the weaker dollar as Fed is
unlikely to hike interest rates in next meeting will see positive movement in the red metal. We expect
MCX Copper prices in the range of Rs.364/kg to Rs.415/kg.
Aluminum: We expect Aluminum prices to trade lower for the month as negative momentum in the
crude oil prices may lead downside move in Aluminum prices. However, China’s "Air Pollution Control"
regulation came into effect on March 1, will force aluminum smelters in four provinces surrounding
Beijing to cut output by 30 percent over the winter heating season, which runs from the middle of
November through the middle of March. So this could likely provide a cushion to prices. We expect MCX
Aluminum prices in the range of Rs.120/kg to Rs.130/kg.
Nickel: We expect Nickel prices to trade lower on account of estimates that stringent laws on mining
industry will be relaxed in the Philippines. However, the rise in demand for the commodity from China
along with increasing usage in aerospace industry and in the battery sector will cushion sharp fall in the
prices. We expect MCX Nickel prices in the range of Rs.635/kg to Rs.720/kg.
Lead: For the month, lead prices are estimated to rise due to deficit production in the last month and
estimates of deficit production in coming months. According to International Lead and Zinc Study Group
(ILZSG) report, lead inventory is expected to fall in the near future thereby will lead to a positive
movement in the prices. We expect MCX Lead prices in the range of Rs.140/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.176/kg to Rs.200/kg.

3. LME and Shanghai Copper prices plunged marginally
in Feb’17. On the domestic bourses, prices dropped
more than international markets by more than 2
percent during the same month. Downside in the
Indian markets was seen as a result of appreciation
in the Indian Rupee.
The major turning point came after surprise talks on
the phone between the US President Trump and
Chinese President Xi Jinping wherein Mr. Trump
agreed to honor the “One China policy”, putting an
end to a cold war in the relation between the two
giants.
Further, supply disruption concerns worsened in
February, as workers at the Escondida mine in Chile,
the world's largest copper mine, began a strike on
9th Feb’17 after contract talks with BHP failed.
Despite government intervention, the matter could
not be resolved and BHP Billiton delayed its legal
right to replace striking workers, in a move seen as
sacrificing output to undermine the union's
position.
The falling output from this mine will have a bearing
on global supplies since it produced about 5 percent
of the world's copper in 2016.
Scenario at the world’s second-largest copper mine
in Indonesia was no different as Freeport McMoran
said it wouldn’t accept terms of a deal with the
government that would allow it to resume
shipments of copper concentrate at its Grasberg
mine, that have been halted since 12th Jan’17.
The matter just refuses to be resolved, given that
the company has warned the Indonesian
government of arbitration and seek damages over
a contractual dispute.
The above mentioned two deposits account for 8-
9 percent of global mined copper supply, about
1.7m tonnes of copper.
Besides, China's producer price inflation rose
more than estimated in January to near six-year
highs and consumer inflation also gained more
than forecasted, which was at three-year high as
fuel and food prices jumped.
On the contrary, General Administration of
Customs data showed China's imports of copper
fell 14 percent in January from a year ago as
demand from the world's top consumer and
producer slowed ahead of the Lunar New Year
holiday which began on 28th Jan’17 this year.
On a monthly basis too, China's Copper imports
were down 22 percent to 380,000 tonnes in
January.
But, the major factor that restricted copper prices
from sharp fall in February was persistent
hawkish comments from Fed members in the
latter part of the month. Influential Fed members
like William Dudley, Patrick Harker, Robert Kaplan,
Lael Brainard, Charles Evans, joined in to support
a case for three rate hikes in 2017.
This effect was seen in the trimming of net long
positions in Copper CFTC holdings. CFTC bullish
positions which reached a record 101,139
contracts in January end, plunged by 30,479
contracts to touch two-month low of 70,660
contracts.
Inventories at the LME plunged by 23 percent in
Feb’17, the most amongst base metals, whereas
Shanghai stocks jumped by a whopping 40
percent during the same time period.
Overall, supply disruption concerns cushioned the
metal prices in Feb’17 but rate hike anticipation
in the FOMC March meeting kept a check on the
prices.
Base Metals Monthly22nd March 2017
Source: Bloomberg
-0.30%
-0.04%
-2.03%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
LMECopper SHFECopper MCXCopper
Copper Performance in Feb'17 (%)

4. In Feb’17, LME Aluminum prices surged by more
than 5.5 percent to $1921 per tonne, while on the
MCX, prices gained 3.2 percent to Rs.126.55/kg as
Rupee appreciation restricted sharp upside.
Aluminum, prices for the second consecutive
month, has benefited due to anticipated supply
shortages cropping up from China, as the mainland
nation stepped up its war towards smog.
Recent reports suggested that China will remove
30 percent of aluminum smelting capacity in three
provinces namely Henan, Shandong and Shanxi, as
the nation’s northeast battled some of the worst
pollution in years owing to emissions from heavy
industry, coal burning and increased transport.
The proposal involved the suspension of alumina
production in three provinces that would affect
about 50 percent of running capacity operations
which account for about 28 Mt of the annual
production or 40 percent of the nation’s total.
Further, a surge in crude oil prices, which is an
important cost component for Aluminum, boosted
the light metal. Oil prices gained momentum as
the International Energy Agency put OPEC's
average compliance at a record 90 percent in
January, showing OPEC's greater compliance with
its output cut deal with other producers including
Russia.
However, smelters continued to export large
volumes of metal in semi-manufactured forms to
take advantage of zero duties on these products.
As a result, China’s exports of unwrought
aluminum and aluminum products rose 2.6%
year-on-year to 390,000 tonnes in January 2017.
Data from the International Aluminum Institute
(IAI) showed that the average daily global primary
aluminum production increased to 169,900 tons
in January 2017 from 168,100 tons and 154,500
tons in the previous month and the same period
last year respectively, driven by high production
growth in China.
Besides, the latest WBMS figures suggest that the
Aluminum market balance was in a deficit of
985,000 tonnes in 2016 after recording a deficit
of 659,000 tonnes in the whole of 2015.
On the inventory front, LME inventories fell by 3.6
percent in Feb’17 whereas stocks at the Shanghai
exchange warehouses jumped by a whopping 54
percent.
Overall, Chinese output concerns along with a
surge in crude oil prices pushed Aluminum
towards gains in February 2017 despite rising
Chinese exports.
Base Metals Monthly22nd March 2017
Source: Bloomberg
Source: Bloomberg
5.77%
-0.04%
3.22%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
LMEAluminum SHFEAluminum MCX Aluminum
Aluminum Performance in Feb'17 (%)
10.30%
12.09%
8.82%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
LMENickel SHFENickel MCXNickel
Nickel Performancein Feb'17(%)

5. Nickel, mainly used as an anti-corrosive in steel
alloys, has seen the most volatile performance so
far in 2017, given the never-ending spectacle from
the Philippines.
This metal gained by more than 10 percent in
Feb’17 as the stern President Rodrigo Duterte's
government ordered the closure of 23 mines
mostly nickel, including mines run by Hinatuan
Mining Corp, a unit of top Philippine nickel ore
producer Nickel Asia Corp, and BenguetCorp Nickel
Mines Inc.
In the initial audit result which was released on
27th Sep’16, the DENR named 40 mining firms,
with 11 mines (including 5 nickel mines) passing
the audit, 9 mines (including 7 nickel mines)
shutting down and 20 mines (including 15 nickel
mines) being recommended for suspension. These
20 were sent out show-cause letters in late
October.
The above factor was expected to boost Nickel
prices given the closures affect roughly half of the
Philippines‘ annual mining output, or around 8
percent of world nickel supply. Also, these
disruptions will probably take care of partial lift off
Indonesian ore supply.
However, the rally stalled earlier this month itself
as latest news from the nation showed the
otherwise stern Philippine President Rodrigo
Duterte’s softening stance on the mining industry.
Recently, he stated that he hopes there will be a
"happy compromise" between the mining industry
and protecting the environment, thereby providing
a ray of optimism to the shattered mining industry.
As a result, Nickel prices plunged as much as 9
percent within 2 days to $10080/t as on 9th
Mar’17, wiping off the entire 10 percent gains seen
in Feb’17.
As per the International Lead and Zinc Study
Group (ILZSG) report, published on 15th Mar’17
global lead supply deficit deepened to 15,000
tonnes in January 2017 on a monthly basis. And
the data was 7,000 tonnes in December 2016
after revising. Global lead supply saw a 30,000 mt
of a deficit in January 2016.
ILZSG indicated that lead inventory at consumers,
producers and bourse expanded to 490,000
tonnes in January 2017 from 480,000 tonnes in
December 2016.
The global zinc market was in deficit by 27,000
tonnes in January as per the latest report from
ILZSG. Chinese data showed that its base metals
output rose quickly in the first two months of the
year as producers responded to higher prices.
Base Metals Monthly22nd March 2017
Source: Bloomberg
-4.81%
-1.99%
-5.23%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
LMELead SHFELead MCX Lead
Lead Performance in Feb'17 (%)
-1.22%
0.22%
-2.21%
-2.50%
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
LMEZinc SHFEZinc MCX Zinc
Zinc Performance in Feb'17 (%)

6. SEBI Certified – Research Analyst www.choiceindia.com
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information contained in this recommendation or any action taken on basis of this information. Technical analysis studies market psychology, price patterns and volume levels. It is used to forecast
future price and market movements. Technical analysis is complementary to fundamental analysis and news sources. The recommendations issued herewith might be contrary to recommendations
issued by Choice Broking in the company research undertaken as the recommendations stated in this report is derived purely from technical analysis. Choice Broking has based this document on
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Base Metals Monthly22nd March 2017
www.choicebroking.incustomercare@choiceindia.com
www.choicebroking.in
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: 2017.03.22 11:39:56 +05'30'