During this week's Invast Insights we cover: ► Fundament drivers behind the Commodities ► The China slowdown effect ► The future of the Copper GRAB A 4 WEEK INVAST INSIGHTS FREE TRIAL (WEEKLY NEWSLETTER) http://invast.com.au/insights CONNECT WITH INVAST TODAY Facebook ► https://www.facebook.com/invastglobal Twitter ► http://twitter.com/InvastGlobal Linkedin ► http://www.linkedin.com/company/invast Invast ► http://www.invast.com.au Google+ ► https://plus.google.com/+InvastAu/

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This week…
• Fundament drivers
behind the Commodities
• The China slowdown
effect
• The future of the Copper

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General Advice & Risk Warning
Please note that any advice given by Invast staff is deemed to be GENERAL advice, as the information or
advice given does not take into account your particular objectives, financial situation or needs.
Therefore at all times you should consider the appropriateness of the advice before you act further.
CFDs and Forex are leveraged products and carry a high level of risk and are not suitable for everyone. You
can lose more than your initial deposit so you should ensure CFD and Forex trading meets your investment
objectives. We recommend you seek independent advice. Strategies and charts used in this presentation are
for example only. You are reminded that past performance is not indicative of future performance.
Invast Financial Services is regulated by ASIC. It's important for you to read and consider the relevant Product
Disclosure Statement and Financial Services Guide which contains details of our fees and charges before you
decide whether or not to acquire any financial products. These documents are available at www.invast.com.au
Invast Financial Services Pty Ltd ABN: 48 162 400 035. Australian Financial Services Licence No.438 283

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This week we look at the following topics:
• Fundament drivers behind the Commodities
• The China slowdown effect
• The future of the Copper

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Dear Readers,
Throughout the monthly of October we will be
publishing our views and insights on commodity
prices after they have been absolutely savaged
during the month of September. We thought this
would be a great opportunity to run through
some of the key markets that Invast quotes on its
MT4 platform and compare price action against
fundamental information. Invast clients will also
have access to a webinar presented by Invast
Insights editor Peter Esho on Tuesday 28
October at 6:30PM.

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Our focus will be on base metals and bulk commodities this month, all under savage
price action as of the time of writing as global investors anticipate higher interest rates in
the United States and drive up bond yields, in turn adding upward pressure to the US
dollar. As a general summary, we think of commodities in the following two ways:
1. Industrial commodities – These are commodities like oil, copper, iron ore, nickel, zinc,
tin and natural gas which are used in the production of goods and services (industry);
and
2. Currency commodities – These are commodities like gold, silver and platinum which
have little industrial use and more currency elements.

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Our weekly summary will be as follows:
• Week commencing 6 October 2014 – a quick look over the price performance of
key commodities
• Week commencing 13 October 2014 – fundamental drivers behind the industrial
commodities
• Week commencing 20 October 2014 – the impact of China on the bulk
commodities, namely iron ore and coal
• Week commencing 27 October 2014 – medium to long term trading ranges for the
key commodities and also a look at cross pairs like the gold to silver or gold to oil ratio.

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As we write this week, all major industrial commodities are heading lower. The big
surprise has been the fall in the Brent crude price as traders start factoring in slower
than expected short term demand from Europe and potentially China. We have spent a
fair bit of time in recent months talking about energy prices and for the purpose of this
report, our discussion on industrial commodities will instead focus on base metals and
bulk commodities. China is really the largest marginal consumer of base metals and
bulks in recent years.
To put things into perspective, here are some facts that highlight just how large China
plays a part in the global demand of both base metals and bulk commodities.

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• Between 2001 and 2011, China’s copper usage increased by 5.1 million metric tons
(million mt), or 215%.2. By 2002, China surpassed the United States to become the
world’s largest copper consumer. In 2011, China consumed 7.9 million mt of refined
copper products, accounting for 40% of the global demand. China’s copper consumption
is projected to rise to 9.7 million mt in this year, accounting for 84% of global copper
demand growth between 2011 and 2014.
• According to Goldman Sachs, this trend is starting to taper. Consumption of the
metal will fall with the weakening of China’s property sector, which accounts for 50
percent of the nation’s copper demand. Goldmansestimate that global production of the
metal used in wiring and pipes will exceed consumption by 385,000 tons this year and
454,000 tons in 2015.

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• China accounted for over 50% of world steel production in 2013. Iron ore and
coking coal are key inputs into the steel manufacturing process and so the slowdown in
China in recent months has put huge pressure on these two key commodities. "Over the
next 10 years, according to our studies, China's steel production can be over 800
million tonnes for a long time, but it cannot go over 900 million tonnes," said China’s
key steel industry source Li Xinchuang.
• There is no doubt some element of China talking point the iron ore price here and
trying to but as cheap as they can, although the reducing in steel manufacturing
intensity we have seen in recent years is significant. Chinese production is growing
slower than last year’s rate. May shows that crude steel production rose 4.5% on year in
June to 69.29 million tons, up from 2.6% growth in May, according to National Statistics
Bureau data. Production was up 3% in the first six months rose to 411.91 million tons
but with much more supply coming into the global iron ore production market, the
growth rates have not been large enough to capture the increased ore.

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• While China has been slowing its rate of growth, the pace of Indian growth in bulk
commodity imports has surprised to the downside. Many in the industry had hoped the
quick emergence of India’s economy would help cushion the impact of lower demand
from China, but this has not occurred as expected. It costs about US$1bn to add one
million tons of capacity in India at the moment and equipment accounts for 30% of that
cost, which means India will create a market valued at USD$66bn for steel production
equipment in the next 15 years – but not yet! The numbers look good going forward but
they don’t necessarily provide any short term catalysts for the bulk commodities.

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While demand out of China is slowing in the short term, our focus is also on supply
constraints. The recent falls in commodity prices and global uncertainty has seen huge
price falls in the major global miners. There has been large reduction in capital
expenditure for new mines and capital is very difficult to source. This will eventually lead
to more supply shortages and support prices – particularly copper – over the medium
term. Many coal mines have already started to shut down in the Bowen Basin of
Australia which accounts for more than half of the country’s coal exports.
Late last month, the Sydney Morning Herald announced global miners Vale and
Sumitomo would shut down their Bowen Basin mines “Hundreds of workers at a
Queensland mine are set to lose their jobs as the Australian coal sector continues to
contract sharply. The Isaac Plains coalmine near Moranbah will cease production within
months, after low coal prices forced the mine's owners, Brazilian miner Vale and
Japanese trader Sumitomo, to act.

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It is believed the final decision was made on Monday, and news trickled out after
Sumitomo informed the Tokyo Stock Exchange of the decision. Sumitomo announced the
mine, which produces both thermal and coking coal and employs 300 workers, would
be placed on "care and maintenance" early in 2015…”
We don’t doubt the ability of metal prices to continue falling, we just don’t see them
falling for ever…particularly copper. We spoke last week about the huge increase in
nickel prices at LME warehouses and the relatively low levels of copper on hand in our
analysis of charts via kitcometals.com
The charts below illustrate the supply shortage issues facing copper. Grades are an issue
and as the copper price continue to trend down towards US$3/lb, many mining
companies like Rio Tinto, BHP Billiton are finding it extremely difficult to invest in their
copper assets at an adequate enough return.

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Source: Rio Tinto presentations, Brook Hunt, National Institute of Statistics Chile and Peru

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Source: Rio Tinto presentations, Brook Hunt, National Institute of Statistics Chile and Peru

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The supply constraints in copper are enough for us to stick with our view that long term support levels
near US$3/lb or thereabouts should hold in the coming months. We have seen a previous test of this
level earlier this year and the support level held that time. The chart below shows the importance of
US$3/lb for copper in a historical context.
Chart: Five year spot copper price chart sourced through kitcometals.com

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Bottom line: Industrial commodities are falling because of doubts over China and the
slowdown in the European economy. The situation around iron ore is difficult to predict
because of the vast volumes of production moving in and out of China. The copper price
is perhaps a more transparent market to trade and production will continue to struggle
– both in terms of grades and volumes – over the medium term. Poor sentiment and a
reduction in new expenditure from the major miners will make it difficult for copper
production to match expectations.

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Copper is has wide industrial applications. It is used as a
conductor of heat and electricity, a building material, and
a constituent of various metal alloys.
The table to the left shows the copper instrument quoted on Invast MT4 platform. During the
webinar later this month, we will be talking through the key technical levels of this instrument
and the recent price action. We will also have the long term chart up on the screen to help
indicate key support levels. Details to the webinar are below.

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Commodities outlook: Join the webinar to discuss these points
Invast Insights editor and contributing author Peter Esho will summarise the October outlook
guide for key commodities – copper, nickel, gold and silver - in this exclusive webinar. Esho is a
regular contributor on CNBC, Bloomberg and host of ‘Your Money Your Call’. In his webinar he
will outline:
Current price actions on the key commodities
Fundamental drivers behind demand and supply
The impact of China – are things about to change?
Trading key cross pairs like the gold to silver ratio and gold to oil
Peter’s webinar will cover both the fundamental and technical outlook on key commodities
quoted on Invast’s MT4 platform, plus the key drivers to look out for when trading. This
webinar is expected to fill fast. Q&A will be open straight after the presentation. Register now
by clicking here.

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Go to www.invast.com.au/insights to get a
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insights as they are published to our live clients.

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Disclaimer
Please note that you are receiving this report complimentary from Invast Financial Services Pty Ltd
(AFSL 438 283). Invast staff members may from time to time purchase securities which are
included in this or future reports. The authors of this report may or may not be holding a position
in the securities mentioned. Please note that the information contained in this report and Invast's
website is of a general nature only, and does not take into account your personal circumstances,
financial situation or needs. You are strongly recommended to seek professional advice before
opening an account with us.
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person who downloaded it. You should not disseminate, distribute or copy this newsletter. Invast
does not accept liability for any errors or omissions in the contents of this newsletter which arise
as a result of downloading this newsletter. This newsletter is provided for informational purposes
and should not be construed as a solicitation or offer to buy or sell any financial product. Invast
Financial Services Pty Ltd is regulated by ASIC (AFSL 438 283 | ABN 48 162 400 035).

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Risk Warning: It's important for you to read and consider the relevant Product Disclosure
Statement, and any other relevant Invast Financial Services Pty Ltd documents before you
decide whether or not to acquire any financial products listed in this email. Our Financial
Services Guide contains details of our fees and charges. All these documents are available here
on our website, or you can call us on +612 8036 7555. CFDs and Foreign Exchange are
leveraged products and carry a high level of risk and you can lose more than your initial deposit
so you should ensure CFD and Foreign Exchange trading meets your personal circumstances.
General Advice Warning: Being general advice, this newsletter does not take account of your
objectives, financial situation or needs. Before acting on this general advice you should
therefore consider the appropriateness of the advice having regard to your situation. We
recommend you obtain financial, legal and taxation advice before making any financial
investment decision.

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