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Transcript of Commodity Outlook 2013
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A n n u a l Co m m o d i t i e s Re se a r c h M a g a z i n e ( Fo r p r i v a t e c i r cu l a t i o n o n l y )
O U T L O O K 2 0 1
C M M O D IT Y
St a y a h e a d o f m a r k et s
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im Roger, the commodity guru, has rightly said Buy Commodities Now, Or Y
Hate yourself later. The notable return from commodities in past few yearsJproved that he is right. This hard asset class has outshined other asset classes
has generated a handsome return at the time when the world is facing tough time.
Subsequent to the turmoil of the second half of 2011, markets were relatively stab
2012 as fear of severe economic crisis faded away. However the absolute efforts o
central banks and governments for a solidifying recovery from ongoing c
economic growth was not as per the expectation, especially in the developed nat
Various interest rate cuts and bailouts bond purchases failed to bring the confiden
the economy to some extent. Economic crisis, events, elections in major countries
natural disasters kept investors on their toes throughout the year and they ha
churn their portfolio on regular basis. Victory of Mr. Obama gave some stability late
in commodities prices apart from other financial markets.
Demand continued to rise in the essential commodities whereas slo
manufacturing activities slashed the physical demand for some commodities to s
extent. But investment demand in commodities continued to increase terrific
especially of ETF's due to its easy usability.
The number of natural disasters such as hurricane, storm, flood, drought, earthqu
etc. which were the other costliest affair in 2012, sent some commodities price
record level, particularly agri commodities. It sent food inflation on alarming lev
2013, we expect flat movements with little upside in agri commodities.
In the year gone by, currency acted as a catalyst; the increase in Gold price is
burning example in this regard. Due to sharp depreciation in Indian currency,
made a historic high in the domestic market whereas in the International market it
far behind from its historic high of $1915. It made import costlier, especially p
crude oil, fertilizers, medicines, iron ore etc; increase in prices made a big ho
consumer's pocket. From here in 2013, rupee is most likely to trade in the range o
60. Furthermore, geopolitical tensions may remain a wild card for the energy cou
though we are expecting a range for this counter on mix fundamentals whereas nagas demand supply equilibrium is expected to be moderately tighten, which can
some strength to the prices. Again silver is likely to outperform gold this year. Bulls
continue to reign in some base metals. Though we do not expect any major Chi
stimulus in early 2013 but we expect big move in the later part of the year.
If global growth sustains above the mark of 3% in 2013, then we may see some rebo
coming in commodities, especially in the second half and vice a versa. China, whi
playing an outsized role in global commodity market, is slowing down
restructuring of growth model may weigh on commodities prices ahead. Its growt
2013 is projected to be 7.4%, lowest in 15 years. If economic activities improves th
will cushion up commodities in 2013.
Bull Run doesn't see the end in sightyet but the pace has slowed down. Momenand carry were the winning strategy for various asset classes. Wild swings in s
commodities couldn't be denied hence frequent churning of portfolio is advised.
Jagannadham Thunuguntla Head-Research
Commodity Fundamental Team
Vandana Bharti AVP Commodity Research
Sandeep Joon Sr. Research Analyst
Subhranil Dey Sr. Research Analyst
Shivanand Upadhyay Content Editor (Hindi)
Support Team
Kamla Devi Content Editor
Pramod Chhimwal Graphic Designer
Simmi Chibber Research Executive
Corporate Office
11 / 6B, Shanti Chamber, Pusa Road, New Delhi 110005.
Tel: 91-11-30111000, Extn. 6976, 6954, 6944
Fax: 91-11-25754365
SMC Comtrade Ltd.
11/6B, Shanti Chamber, Pusa Road, New Delhi-110005
Website: www.smctradeonline.com
Investor Grievance : [email protected]
Disclaimer: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 Pros(DRHP) with the Securities and Exchange Board of India (SEBI). The DRHP is available on the website of the SEBI at www.sebi.gov.in and the website of the Book Running Lead Managers i.e. Tata Securities Limwww.tatacapital.com and IL&FS Capital Advisors Limited at www.ilfscapital.com. Investors should note that investment in equity shares involves a high degree of risk. For details please refer to the DRHP and particularly thetitled Risk Factors in the Draft Red Herring Prospectus.
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 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 redistto 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, represendirectors 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 parinvestment 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 incominvestments 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 af
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 her(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 intererespect to any recommendation and related information and opinions. All disputes shall be subject to the exclusive jurisdiction of Delhi High court.
Page No.
1. Performance of 2012, FOMC & ECB
meeting schedule 2013 & Seasonality Index 4
2. Commodity performance 2012 5
3. Asset Class comparison 2012 64. Span of Price Movement 7
5. Fundamental Calls performance in 2012 8-9
6. Economic indicators 10-11
7. Base Metals and Bullions production graph 12
8. Currency Movements 13
9. Quantitative Easing & FOMC Statements 14
10. Flashback 2012 & Outlook 2013
i. Bullions 16-19
ii. Energy 20-23
iii. Base Metals 25-31
iv. Spices 33-37
v. Oilseeds 38-44
vi. Other Commodities 45-49
11. Crop Calendar 50
(Vandana Bh
Happy Investing in Commodities
Content COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
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Seasonality IndexPerformance & Seasonality IndexSeasonality Index
We have used the annual average method, which generat
seasonal pattern and is helpful in predicting the future prices o
commodity. This seasonal price index is derived by calculating
annual average price, and then by expressing the price for month during the year as a percent of the annual average. Here
data used to derive the seasonal price patterns are the mon
prices. In every chart, line chart is showing the monthly p
movement of particular commodity in 2012 while bar cha
showing the seasonal trend. We hope that this will guide inves
to decide the proper time to invest into any particular commodi
4
Performance Of Calls Given In OurAnnual Magazine Commodity Outlook 2012
Range
(Annual Magz. '12) Low* High*
2012 2012
Gold (COMEX) 1400-2100 1528.20 1798.10
Gold (MCX) 24000-33000 27170.00 32464.00
Silver(COMEX) 23-50 26.07 37.48
Silver(MCX) 38000-75000 51000.00 65723.00
Crude Oil (NYMEX) 75-125 77.28 110.55
Crude Oil (MCX) 4200-6000 4448.00 5635.00
Natural gas(NYMEX) 2.50-4.80 1.90 3.93
Natural gas (MCX) 155-230 99.50 217.20
Copper 320-500 397.00 463.00
Zinc 85-120 96.30 115.20
Lead 85-150 99.10 127.40
Nickel 750-1350 848.00 1086.80
Aluminium 80-130 100.60 117.60
Turmeric 4000-7000 3336.00 6748.00
Pepper 27000-45000 28810.00 45880.00
Cummin 13000-20000 11275.00 16975.00
Chilli 4000-8500 4430.00 6748.00
Cardamom 550-1200 570.00 1508.00
Chana 2500-4200 3020.00 4999.00
Kapas 660-950 801.00 1184.00
Wheat 1050-1350 1111.00 1705.00
Sugar 2600-3500 2635.00 3672.00
Soybean (NCDEX) 2000-3200 2257.00 5064.50
Soybean (CBOT) 1000-1500 1150.00 1794.75
RM Seed 2600-4800 3235.00 4538.00
Ref. Soy oil 600-810 611.50 817.00
CPO (MCX) 440-700 393.00 632.20
CPO (BMD) 2600-4200 2040.00 3655.00* Up to 21 December 2012
World Interest Rates Of Key Central Banks At Present
Central banks Country Current interest rates Previous rates Date of changeinterest
Federal Reserve(FED) US 0.25% 1.00% 16-Dec-08
European Central Bank(ECB) Euro 0.75% 1.00% 5-Jul-12
Bank of England(BOE) England 0.50% 1.00% 5-Mar-09
Bank of Japan(BOJ) Japan 0.10% 0.10% 5-Oct-10
Reserve Bank of India(RBI) India 8.00% 8.50% 17-Apr-12
People Bank of China(PBOC) China 6.00% 6.31% 5-Jul-12
Reserve Bank of Australia(RBA) Australia 3.00% 3.25% 3-Dec-12
Brazil Central Bank(BACEN) Brazil 7.25% 7.50% 10-Oct-12
FOMC & ECB Meeting Schedule For 2013
Months 2013 FOMC meeting ECB meeting
January 30th 10th & 24th
February NA 7th & 21st
March 20th 7th & 21st
April NA 4th & 18th
May 1st 2nd & 16th
June 19th 6th & 20th
July 31st 4th & 18th
August NA 1st
September 18th 5th & 19th
October 30th 2nd & 17th
November NA 7th & 21st
December 18th 5th & 19th
COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
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Commodity Performance
5
-31.97
-25.15
-25.06
-7.76-2.23
0.84
9.19
10.73
11.39
11.65
12.15
13.53
13.73
18.63
22.12
23.27
25.30
31.07
32.33
42.57
-40.00 -30.00 -20.00 -10.00 0.00 10.00 20.00 30.00 40.00 5
Crude palm oil (BMD)
Crude palm oil(MCX)
Chilli
JeeraRef. Soy oil
Gur
RM Seed
Turmeric
Mentha Oil
Sugar
Potato
Maize
Cotton oilseed cake
Pepper
Soyabean (CBOT)
Chana
Kapas
Wheat
Soyabean
Cardamom
Return Of Agri Commodities From 1st Jan '12 Till 14th Dec '12
Source: Reuters & SMC Res
Return Of Bullions, Metals And Energy From 4th Jan '12 Till 14th Dec '12
Source: Reuters & SMC Res
% C
% C
COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
8.16
4.91
14.24
14.68
12.28
20.18
-13.01
-10.73
11.62
12.14
5.22
9.82
2.61
7.14
10.63
14.45
10.96
15.36
-6.29
-2.25
- 15.00 -10.00 -5.00 0.00 5.00 10.00 15.00 20.00 2
COMEX
LME Spot
MCX
COMEX
LME Spot
MCX
NYMEX
MCX
NYMEX
MCX
LME
MCX
LME
MCX
LME
MCX
LME
MCX
LME
MCX
Go
ld
Silver
Crude
Oil
Natural
Gas
Copper
Alumin
ium
Zinc
Lead
Nicke
l
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Asset Class Comparison
Momentum And Carry Were The Winning Strategy For Various Asset Classes
Optimism on monetary easing and various steps to revive the ailing economy by major countries gave some confidence to investors and thus
saw better return in the year 2012 as compared to 2011; but it is true that it was not a trouble-free year for investors.
Most of the year, the path of global growth shifted downwards and concerns about the sustainability of euro area government debt, electionmany countries amid various natural disasters, raised the fear of multi dip recession. Downbeat economic indicators from advanced econ
also triggered selling. Other global engines of growth also softened. Not only growth slowed in China and India, even Canada and other count
also witnessed slow down.
Despite the negative economic data's and other problems, buying returned as there was a firm belief that major countries would come with s
aggressive quantitative easing to rescue the economy. Confidence also returned into the market as it noticed serial quantitative easing in m
major countries. Many central banks loosened monetary policy, cutting interest rates or expanding unconventional policies and it triggered l
asset price reactions. The central banks of Brazil, China, Colombia, Czech Republic, Israel, Korea, Philippines, United Kingdom, Euro zone, S
Africa and many more countries lowered their policy rates.
Low or negative yields on advanced economy government bonds spurred investors to search for investment opportunities that offered s
extra return. It resulted in surge in equity and other riskier asset. Equity prices also reacted strongly to the announcements of additional ce
bank measures to support the economy. In 2011, capital outflow occurred in riskier assets and investors preferred to put their money into
and safe investment avenue. In 2012 trend was reverse, investors put their money in riskier assets associated with the performance of
economy. All the key equity markets gave whopping return; Hang Seng, Nifty and DAX gave more than 20% return whereas US market also clthe year in the positive territory. Strangely Chinese market gave negative return of more than 2.77%.
Victory of Obama was another buy trigger for the riskier asset classes. US treasury, which gave more than 18% return in 2011, only rose by 5
2012.
Commodity prices saw wide fluctuations over the past year as seen in the volatile course of energy, agricultural, and precious metal val
Multiyear Bull Run continued in bullions raised the concern that despite all efforts, fear prevailed in the financial market that's why investors
a chunk of their money in bullion counter, which is better known as Flight to Safety. Despite positive return, Gold is down by about 13%
silver is down by 35% from its all-time high. Furthermore, negative price movements of Baltic Dry Index, which is a strong indicator for shipp
activities, raised the question if the upside was on the back of investment demand or on core economic activities.
Asset Class Performance From 4th Jan'12 To 14th Dec'12
COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
6
% Ch
Source: Reuters & SMC Res
-51.72
-13.01
-3.11
-2.77
-2.19
-0.72
2.23
3.68
4.51
5.22
5.53
6.22
7.77
8.16
10.28
10.34
11.62
13.59
13.9014.68
15.04
20.01
26.72
28.69
-60.00 -50.00 -40.00 -30.00 -20.00 -10.00 0.00 10.00 20.00 30.00 4
Baltic Dry Index
Crude Oil (NYMEX)
GSCI commodity index
Shanghai Composite
INR/USD
Dollar Index
Euro/USD
US Treasury
Bovespa
Copper (LME)
FTSE
LMEX
Dow Jones
Gold (COMEX)
Japanese Yen/USD
S&P 500
Natural Gas (NYMEX)
DJ EuroStoxx
NikkeiSilver (COMEX)
CAC
Hang Seng
Nifty
DAX
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Span Of Price Movement (Agro Commodities)
Span Of Price Movement (Metals & Energy)
COMMODITY EXCHANGE LIFE TIME HIGH LIFE TIME LOW 2012 HIGH* 2012 LOW
Gold COMEX 1915.00 252.50 1798.10 1528.50
MCX 32464.00 5600.00 32464.00 27170.00
Silver COMEX 5035.00 194.50 3748.00 2607.00
MCX 73600.00 7551.00 65723.00 51000.00
Crude Oil MCX 6333.00 1626.00 5635.00 4448.00
NYMEX 147.27 9.75 110.55 77.28
Natural Gas MCX 591.80 99.50 217.20 99.50
NYMEX 15.78 1.04 3.93 1.90
Copper MCX 466.20 117.60 463.00 397.00
Aluminium MCX 151.50 62.20 117.60 100.60
Zinc MCX 208.30 49.85 115.20 96.30
Lead MCX 154.40 40.50 127.40 99.10
Nickel MCX 1416.00 442.30 1086.80 848.00
Source: Reuters & SMC Res
COMMODITY EXCHANGE LIFE TIME HIGH LIFE TIME LOW 2012 HIGH* 2012 LOW*
SPICES
OTHER COMMODITIES
OILSEEDS
Turmeric NCDEX 16350.00 1666.00 6748.00 3336.00
Jeera NCDEX 17520.00 4877.40 16975.00 11275.00Chilli NCDEX 10970.00 1731.00 6748.00 4430.00
Pepper NCDEX 45880.00 5350.00 45880.00 28810.00
Cardamom MCX 2097.00 218.20 1508.00 570.00
Chana NCDEX 4999.00 1331.00 4999.00 3020.00
Wheat NCDEX 1705.00 662.00 1705.00 1111.00
Mentha Oil MCX 2564.80 342.00 2564.80 1111.00
Gur NCDEX 1323.00 361.40 1323.00 1030.00
Sugar NCDEX 3672.00 2635.00 3672.00 2635.00
Kapas NCDEX 1262.00 398.90 1184.00 801.00
Crude Palm Oil MCX 632.20 154.20 632.20 393.00
Crude Palm Oil BMD 4298.00 425.00 3655.00 2040.00
Soybean NCDEX 5064.50 1104.50 5064.50 2257.00
Soybean CBOT 1794.75 401.50 1794.75 1150.00
RM Seed NCDEX 4538.00 1586.25 4538.00 3235.00
Ref. Soy Oil NCDEX 817.00 337.70 817.00 611.50
* Closing till 14 December 2012
* Closing till 14 December 2012 Source: Reuters & SMC Res
Performance COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
7
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Scenario of Bullions Base MetalsProduction Scenario of Bullions & Base Metals COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20Zinc Production In World Nickel Production In World
Source: Reuters Sourc
Copper Production In World Lead Production In World
Source: Reuters Sourc
Primary Aluminium Production In World Gold Production In World
Source: Reuters Sourc
12
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Currency Movement COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
13
USD INR (Quarterly)
Source: Reuters & SMC Res
Absolute
42.91
46.80 48.58
50.56
47.74 47.72
46.40
44.80
46.44
44.56
44.70
44.52
44.69
49.01
53.01
50.87
55.50
52.84
40.00
42.00
44.00
46.00
48.00
50.00
52.00
54.00
56.00
58.00
1-Jun-08
1-Sep-08
1-Dec-08
1-Mar-09
1-Jun-09
1-Sep-09
1-Dec-09
1-Mar-10
1-Jun-10
1-Sep-10
1-Dec-10
1-Mar-11
1-Jun-11
1-Sep-11
1-Dec-11
1-Mar-12
1-Jun-12
1-Sep-12
Euro(Quarterly)
Source: Reuters & SMC Res
Absolute 1.5755
1.41021.3978
1.325
1.4033
1.4635
1.4316
1.351
1.2234
1.363
1.3377
1.4165
1.4504
1.3384
1.2955
1.3343
1.2658
1.2845
1.1
1.15
1.2
1.25
1.3
1.35
1.4
1.45
1.5
1.55
1.6
1-Jun-08
1-Sep-08
1-Dec-08
1-Mar-09
1-Jun-09
1-Sep-09
1-Dec-09
1-Mar-10
1-Jun-10
1-Sep-10
1-Dec-10
1-Mar-11
1-Jun-11
1-Sep-11
1-Dec-11
1-Mar-12
1-Jun-12
1-Sep-12
Dollar Index(Quarterly)
Source: Reuters & SMC Res
Absolute
72.46
79.45
81.15
85.51
80.16
76.65
77.86
81.07
86.02
78.72
79.03
75.86
74.30
78.80
80.21
78.95
81.60
80.00
65.00
70.00
75.00
80.00
85.00
90.00
1-Jun-08
1-Sep-08
1-Dec-08
1-Mar-09
1-Jun-09
1-Sep-09
1-Dec-09
1-Mar-10
1-Jun-10
1-Sep-10
1-Dec-10
1-Mar-11
1-Jun-11
1-Sep-11
1-Dec-11
1-Mar-12
1-Jun-12
1-Sep-12
Source: Reuters & SMC Res
1-Dec-08
1-Mar-09
1-Mar-10
1-Dec-10
1-Mar-11
1-Mar-12
Yuan(Quarterly) Absolute
6.8546.843
6.823 6.833 6.830 6.826 6.826 6.826
6.782
6.691
6.590
6.548
6.464
6.378
6.294
6.298 6.353
6.284
5.900
6.000
6.100
6.200
6.300
6.400
6.500
6.600
6.700
6.800
6.900
7.000
1-Jun-08
1-Sep-08
1-Jun-09
1-Sep-09
1-Dec-09
1-Jun-10
1-Sep-10
1-Jun-11
1-Sep-11
1-Dec-11
1-Jun-12
1-Sep-12
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tive Easing FOMC StatementQuantitative Easing & FOMC Statement COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20Quantitative Easing 1 (QE1, December 2008 To
March 2010)
On November 25, 2008, the Federal Reserve announced that it
would purchase up to $600 billion in agency mortgage-backed
securities (MBS) and agency debt. On December 16, theprogram was formally launched by the FOMC. On March 18,
2009, the FOMC announced that the program would be
expanded by an additional $750 billion in purchases of agency
MBS and agency debt and $300 billion in purchases of Treasury
securities.
Quantitative Easing 2 (QE2, November 2010 To
June 2011 )
On November 3, 2010, the Fed announced that it would
purchase $600 billion of longer dated treasuries, at a rate of $75
billion per month. That program, popularly known as "QE2",
concluded in June 2011.
Operation Twist (2011)
The Federal Open Market Committee concluded its September
21, 2011 meeting by announcing the implementation of
Operation Twist. This is a plan to purchase $400 billion of
bonds with maturities of 6 to 30 years and to sell bonds with
maturities less than 3 years, thereby extending the average
maturity of the Fed's own portfolio. This is an attempt to do
what Quantitative Easing (QE) tries to do, without printing
more money and without expanding the Fed's balance sheet,
therefore hopefully avoiding the inflationary pressure
associated with QE. This announcement brought a bout of risk
aversion in the equity markets and strengthened the US Dollar,
whereas QE I had weakened the USD and supported the equity
markets. Further, on June 20, 2012 the Federal Open Market
Committee announced an extension to the Twist programme by
adding additionally $267 billion thereby extending it
throughout 2012.
Quantitative easing 3 (QE3)
On September 13, 2012, the Federal Reserve announced a third
round of quantitative easing (QE3). This new round of
quantitative easing provided for an open-ended commitment
to purchase $40 billion agency mortgage-backed securities per
month until the labor market improves "substantially".
Key Points Of FOMC Statement From Meeting Held
11-12 December 2012
Consistent with its statutory mandate, the Committee seek
foster maximum employment and price stability.
Committee remains concerned that, without sufficient p
accommodation, economic growth might not be strong enou
generate sustained improvement in labor market conditions
Strains in global financial markets continue to pose signifi
downside risks to the economic outlook.
The Committee also anticipates that inflation over the med
term likely will run at or below its 2 percent objective.
Committee will continue purchasing additional age
mortgage-backed securities at a pace of $40 billion per mo
The Committee also will purchase longer-term Trea
securities after its program to extend the average maturity o
holdings of Treasury securities is completed at the end o
2012, initially at a pace of $45 billion per month.
The Committee will closely monitor incoming information
economic and financial developments in coming months. I
outlook for the labor market does not improve substantially
Committee will continue its purchases of Treasury and ag
mortgage-backed securities, and employ its other policy too
appropriate, until such improvement is achieved in a conte
price stability. In determining the size, pace, and compositio
its asset purchases, the Committee will, as always,
appropriate account of the likely efficacy and costs of
purchases.
Committee decided to keep the target range for the federal fu
rate at 0 to 1/4 percent and currently anticipates that
exceptionally low range for the federal funds rate wil
appropriate at least as long as the unemployment rate remabove 6-1/2 percent, inflation between one and two years ah
is projected to be no more than a half percentage point above
Committee's 2 percent longer-run goal, and longer-term infla
expectations continue to be well anchored. When the Comm
decides to begin to remove policy accommodation, it will ta
balanced approach consistent with its longer-run goal
maximum employment and inflation of 2 percent.
14
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Annual Commentary - Gold
Annual Outlook
Gold
3,107 tonnes. As the hedge book shrank, the level of de-hedging
slowed: in 2009 the hedge book was cut by 249 tonnes, in 20Yellow metal Gold continued its relentless bull run since last 11 fell 96 tonnes, in 2011 it bucked the trend by climbing 6 tonnesyears, but it failed to break the 2011, high of above $1900 in COMEX. resumed the down trend in 2012 by falling 14 tonnes in the While it clocked life time high in MCX of above 32400 due to half. The slowdown down in the de hedging requirements
deprecating local currency Rupee amid bourgeoning fiscal deficit in capped the upside in Gold to some extent in the year 2012.India. Gold in a host of currencies has reached record highs in 2012
apart from Indian rupee including Euro, Swiss francs, and Brazilian
real and South African rand.
Gold managed to remain on firm footing as the declining Greenback
and growing investment demand coupled with safe haven demand
continue to assist its prices higher. The money pumping by various
central banks across the globe after the financial crises of 2008Glitter in the yellow metal may prolong in the 12th year also as
coupled with ultra loose monetary policies of west continue to lendexpansion of balance sheet by way of various stimulus measure
support to the prices.central banks will give investors another reason to park their fu
in safe haven assets like Gold. And until global central banks In the year 2012, COMEX Gold prices moved in volatile fashion and
gears in a major way and start pulling back on their huge balatook key support near $1530 but also failed to cross $1800. Centralsheets and historic printing of paper money, known as quantitabanks also continue to add this yellow metal in their reserves.easing, the bull run in Gold is far from over.Prices remained volatile in the first two quarters but appreciated
rapidly in the third quarter as Fed announced further monetaryPhysical demand from central banks has been climbing and
easing known as QE3.expected to remain firm as global bankers look to diversify rese
assets. With the global recovery is expected to take more time mDemand for Gold by central banks and official sector institutionsglobal central banks aren't changing the direction of their paccelerated during the second quarter. For the first half year, Goldanytime soon.reserves increased by 254.2 tonnes, compared with 203.2 tonnes in
H1 2011. At present the US is managing to keep the recovery going,Diversification of reserve assets remains the driving force beh
but the fact is that it had to provide a third tranche of QuantitativeGold demand by central banks. Gold is now considered a safe ha
Easing (QE3) highlights that the Fed was concerned that growthfor central banks, which have booked losses from the contin
was flagging. Fed has said it will purchase $40B per month ofdepreciation of US dollars, which made up 60 per cent of glmortgage-backed securities, indefinitely. FOMC decided to keep theinternational reserves. The US tops the list with a holding of 8,1
target range for the federal funds rate at 0 to 1/4 percent andtonnes, or 77 per cent, followed by Germany's 3,395.5 tonnes, o
currently anticipates that exceptionally low levels for the federalper cent. India Gold reserves stand at 11 position nearly 557 ton
funds rate are likely to be warranted at least through mid-2015.while China is at fifth with 1054 tonnes. Central Banks in the Mi
Meanwhile the SPDR Gold ETF holding surged to life time highEast are building up their Gold Reserves, while reducing thei
during November to nearly 1350 metric tonnes, which showed theDollar forex holding.
continuous rise in investment demand for Gold. Total ETF holding
Movement of Greenback will also be key factor in 2013 as itof Gold was above 2500 tonnes .The Bank of Japan joined the Fed,
finished flat in 2012. Greenback generally has inverse correlaECB, China, South Korea and others by announcing an aggressive
with Gold prices. Greenback can move in range of 76-86 in 2013stimulus program and this proved to be extremely inflationary and
bullish for Gold.Indian Gold imports dipped in the first two quarter as demand
not that great following economic downturn, monsoon deficit, dOn the domestic bourses, Gold managed to scale higher in first threeissues and jewellers strike, high prices etc. World Gold Couquarter but finished flat in the last quarter of 2012. According to the
forecasts 800 tonnes of Gold in 2012 as third quarter demWorld Gold Council (WGC) India's net Gold import for domestic
surged in India due to marriage season. Against the backdroconsumption is likely to be about 800 tonnes this year following a
slowing economy and persistent inflation, this upward trpick-up in demand during the festive season
encouraged by India's socio-cultural affinity and Gold's significaThe global de hedging also supported the bullish sentiments in the
as an effective store of wealth is likely to continue in 2013.beginning of the bull market for Gold in late 2001, which roughly
India jewellery demand the world's biggest Gold market rebouncoincided with the start of de-hedging, the total hedge book stood at
Range: MCX: Rs 28000-350
COMEX: $1530-195
Commentary Outlook : BullionsAnnual Commentary & Outlook : Bullions COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
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Commentary Outlook : BullionsAnnual Commentary & Outlook : Bullions
8% to 223.1 tonnes as buying picked up again following strikes by
jewelers, fewer auspicious marriage days and a new import duty in
the first half of the year. Meanwhile Jewelry demand in India
increased by 7 per cent to 136.1 tonnes in the third quarter of 2012
as compared to third quarter of 2011.
On the investment front the massive holding of ETF only signifies
the ever increasing demand of Gold. The investment demand in
India for January to September 2012 stood at 207.3 tonne. Global
ETF holding which was 500 tonnes in 2005 went up above 2500
tonnes in 2012 that is amazing increase of nearly 400 percent.
Investment demand for bar and coins also shot up above 1400
tonnes in 2011 as compared to 1200 tonnes in 2010.And in 2012
this figures can end up near 1300 tonnes.
On the supply front, Gold supply has climbed in recent years as high
prices have encouraged a supply response from miners. Whereas in
the recent years supply has also been boosted by rising levels of
scrap, this was not the case in 2011 as scrap supply fell around 3%to 1,665 tonnes. Mine output showed higher figures in 2012 as new
production comes on stream, but this will to some extent be
countered by falling production at existing mines as producers have
encountered lower ore grades, adverse weather and production
disruptions. Mine output is expected to climb around three percent
in 2013 to 2,940 tonnes. China became the world's largest Gold
producer in 2007 and has held that position each year since, with
output in 2011 climbing 5.9% to around 361 tonnes.
Apart from being the largest consumer of industrial raw materials,
China is also the largest buyer of Gold worldwide as Chinese Gold
imports surged to 582 tonnes till October 2012.
Globally, central banks have broadly started increasing their
balance sheets with zero interest rate policies and bond purch
in the US. This increases the inflation expectations of investors,
they will soon shift their wealth into tangible assets.
Euro debt problem will continue to be in focus in 2013 as it se
impossible to resolve it properly in 2012 despite some bail out g
to Spain and Greece.
Continuation of Presidentship by Mr. Barack Obama is also bu
signal for Gold, as Quantitative easing is likely to be continued a
will give upper hand to Gold due to printing of more money. US
ceiling limit that expires in Feb. 2013 will be closely watche
Gold investors. Given the extent to which debt has grown an
growing, creditors may well start to get worried and then th
could start to find itself in a similar situation to Europe.
Given the monetary and political strains in Europe, the uncerta
over whether the US will avoid tripping over the 'fiscal cliff'
whether China will avoid a hard landing it will be another volyear for Gold in 2013.
Meanwhile the rupee dollar movement will also be keenly wat
as its deprecation has largely supported the domestic prices in
in 2012. Going forward in 2013 rupee dollar can move in rang
50-60.
Gold prices in COMEX have taken key support of $1530 in 2012
it will also act as key support in 2013 while $1800 will be
resistance. On the domestic bourses if rupee manages to
strength in 2013 then it will pressurize Gold prices in MCX.28
will be key support for Gold and 32000 will be key resistanc
2013.
Gold Futures (MCX) Seasonal Index V/sMonthly Closing Price 2012
0.91
0.95
0.93
0.94
0.97 0.98 0.98
1.03
1.05 1.05
1.111.10
26000.00
27000.00
28000.00
29000.00
30000.00
31000.00
32000.00
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Seasonal Index Monthly closing price 2012
Yearly Return Of VariousGold Exchange Traded Funds
11.7311.93
12.74 12.8413.14
14.161
5.00
7.00
9.00
11.00
13.00
15.00
17.00
Kotak Gold
Exchange
Traded Fund
Uti Gold
Exchange
Traded Fund
Gold
Benchmark
Exchange
Traded Scheme
ICICI
Prudential
Gold Exchange
Traded Fund
Axis Gold
Exchange
Traded Fund
Reliance
Gold Exchange
Traded Fund
HDFC
Exch
Traded
COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
Source: Reuters & SMC Research Source: Reuters & SMC Re
% c
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Commentary Outlook : BullionsAnnual Commentary & Outlook : Bullions
Annual Commentary - Silver
White metal Silver also showed positive return last year as the
bullish momentum which started in 2004 continued. Silver prices
did not mange to test the life time high of nearly $49.5 in COMEX and
above 73500 in MCX hit in 2011 as it consolidated in the range after
taking key support near $26 and 51000 in COMEX and MCX
respectively.
Like Gold, first and third quarter also favored bulls in Silver, but in
second quarter some profit booking was witnessed. August and
September were the months where Silver appreciated the most
during the period when fed announced QE3.
Silver, which also behave as industrial metal was also impacted by
the global economic events including Euro zone crises and US fiscal
cliff.
Investors' confidence has returned in 2012 having been shaken
during the post-April 2011 sell-off. ETF investors' holdings are near
all time highs and funds' interest has returned.
Gold Silver ratio, which was nearly 48 in February 2012 scaled
higher above 58 during middle of the year but declined below 52 in
second half of 2012. In the first half Gold outperformed Silver whileduring second half it underperformed the latter.
The emergence of the ETFs in 2006 has absorbed much of the
surplus as the ETFs hold around 18,615 tonnes of metal. While
industrial demand accounts for around 55% of overall Silver
demand, investment demand has been the main driver of price
strength in 2012. COMEX warehouses have risen by 21%, an
indication that industrial demand remained soft in 2012. The
weakness in industrial demand has been borne out by the S
Institute's estimated 6% downturn in industrial demand this ye
Household demand for Silver like cutlery, flatware, and candles
rose in ten years but the technology sector demand continue
give support to the prices. The growing imports by key consu
China also kept the physical demand upbeat. China's net impor
Silver hit a record high as it quadrupled to 3,500 tonnes in 2011
according to country's official trade data, the total inflow in the
10 months of 2012 slumped by 28 percent. China was a net expo
of Silver for many years and the Chinese export used to be a m
component of global Silver supply. This scenario changed in 2when China became a net importer of Silver.
White metal Silver is also known as poor man Gold and grow
middle classes and savers in China, India and other Asian coun
have been investing in Silver which also act as store for value. A
have seen Gold has risen above its historical nominal high in
currency terms internationally and Silver is seen by many
cheaper alternative.
The industrial use of Silver will also determine the future p
direction. According to the Silver Institute's latest report, indus
demand for Silver is expected to rebound in 2013 after lo
ground in 2012. The electronics industry is expected to be
mainstay of industrial demand over the next two years, with gro
Annual Outlook
Silver Range : MCX: Rs 51000-750
COMEX: $26-48
Dow & Gold Ratio
4.00
5.00
6.00
7.00
8.00
9.00
10.00
2-Jan-11
2-Feb-11
2-Mar-11
2-Apr-11
2-May-11
2-Jun-11
2-Jul-11
2-Aug-11
2-Sep-11
2-Oct-11
2-Nov-11
2-Dec-11
2-Jan-12
2-Feb-12
2-Mar-12
2-Apr-12
2-May-12
2-Jun-12
2-Jul-12
2-Aug-12
2-Sep-12
2-Oct-12
2-Nov-12
2-Dec-12
10.00
12.00
14.00
16.00
18.00
20.00
22.00
24.00
2-Jan-11
2-Feb-11
2-Mar-11
2-Apr-11
2-May-11
2-Jun-11
2-Jul-11
2-Aug-11
2-Sep-11
2-Oct-11
2-Nov-11
2-Dec-11
2-Jan-12
2-Feb-12
2-Mar-12
2-Apr-12
2-May-12
2-Jun-12
2-Jul-12
2-Aug-12
2-Sep-12
2-Oct-12
2 N
1 2
Gold & Crude Ratio (COMEX)
COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
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Commentary Outlook : BullionsAnnual Commentary & Outlook : Bullions
in emerging Asia the predominant force.
Industrial demand for Silver fell 2.7 percent in 2011, as industry
destocked and growth slowed. In 2013 also the pace of global
growth especially electronic industry will impact its industrial
demand. Silver being a precious metal it also has many industrialapplications and therefore will always have demand, especially
when the global economy comes fully out of recession.
Silver has many applications such as in Coins, Jewelry, Silverware,
Dentistry, Photography Electronics, Mirrors and Optics, Musical
instruments, Medical devices, instruments, Textiles and
Nanotechnology. The biggest growth area is in technology and that
is where a lot of demand will be generated as we further delve into
an era dominated by apple, iPhones, iPads etc. Silver is utilized
heavily in these high-tech devices. On an average, 6 cents of Silver is
used in each cell phone, according to industry reports. Since 1999,
consumption in electronics has increased 120%. Silver use in solarpanels began in 2000, and its usage is up 640% since then. Silver
was first used in biocides (antibacterial agents) in 2002 and, while a
small percentage of total Silver use, it has grown six-fold. New
applications will drive growth and offset slower growth from the
more traditional industrial uses such as electronics and
photography in 2013. Another new application that looks
promising and has potential to become a major user of the metal in
2013 is Silver zinc batteries. These rechargeable batteries are being
considered for the next generation of high performance batteries
for laptops and mobile electronic devices.
Silver demand in China, the world's second-largest user, may jumpas much as 10 percent in 2013 to a record as investors look to
preserve wealth. Consumption may climb to as much as 7
metric tonnes, after gaining 6 percent to 8 percent in 2012.
China's jewelry sales have jumped by 19.3 percent in the first e
months of 2012 from a year earlier. According to China Nonfer
Metals Industry Association Output in China, the third-bigproducer may reach a record 13,000 tonnes in 2012 from min
smelting, refining and recycling.
Silver investment demand is also key factor to affect its price
2013. Global Silver ETF holding from nearly 5000 tonnes in 2
has gone up to nearly 18000 tonnes in 2011 that is growth of m
than 250 per cent, but it remained flat in 2012.
On the supply front, mine output rose 1.4 percent in 2011, to a
record of 23,688 tonnes according to the World Silver Sur
Primary Silver mines provided 28 percent of mined metal
percent came from by-products of lead and zinc, 21 percent f
copper mines and 14 percent from Gold mines. In the year 2013
product output in India, Indonesia, Canada and Mexico
replenish the supply of Silver.
Silver has dual properties of precious and base metals so it wi
impacted by global macro scenario in 2013 as well.
Gold Silver ratio is expected to tumble lower towards 45 in 2
thus indicating that Silver can outpace Gold. Silver prices can
key support of $26 in COMEX and 51000 in MCX in 2013. Silver
face resistance at $36 and 66000 in COMEX and MCX. If it brea
66000 then it may try to touch the high of 72000 levels in 2013.
Silver Futures (MCX) Seasonal Index V/sMonthly Closing Price 2012
40000.00
45000.00
50000.00
55000.00
60000.00
65000.00
0.80
0.85
0.90
0.95
1.00
1.05
1.10
0.90
0.96 0.96
1.04
0.98
0.97
1.01
1.04
1.02
1.04
1.06 1.06
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Seasonal Index Monthly closing price 2012
25.00
30.00
35.00
40.00
45.00
50.00
55.00
60.00
1-Jan-11
1-Feb-11
1-Mar-11
1-Apr-11
1-May-11
1-Jun-11
1-Jul-11
1-Aug-11
1-Sep-11
1-Oct-11
1-Nov-11
1-Dec-11
1-Jan-12
1-Feb-12
1-Mar-12
1-Apr-12
1-May-12
1-Jun-12
1-Jul-12
1-Aug-12
1-Sep-12
1-Oct-12
Gold & Silver Ratio (COMEX)
COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
Source: Reuters & SMC Research Source: Reuters & SMC Re
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Commentary Outlook : EnergyAnnual Commentary & Outlook : Energy
Annual Commentary - Crude Oil
Crude oil which is also known as life blood of every economy,
showed wild swings as it traded in range of nearly $77-110 in
NYMEX and 4450-5600 in MCX in 2012. Crude oil prices managed
to remain flat during the first quarter but tumbled sharply lower in
second quarter due to rising greenback and Greece concerns.
During the second quarter, prices fell from nearly 28 % from $107
to below $77 in NYMEX and approx 20 percent from 5600 to below
4450 in MCX. In third and fourth quarter Crude prices managed to
recover but rather remained in volatile range as the uncertainty
over Euro zone crisis and slow down in emerging countries dented
the demand for Crude oil in these countries.
While tensions in the Middle East supported Crude prices,
particularly for the Brent contract but during the second half focusshifted more toward the demand outlook in the world's two biggest
economies namely U.S. and China. China imported 250 million
tonnes of Crude oil in 2011, constituting 13.4 percent of global
Crude oil trade volume.
Meanwhile in 2012, the spread between Brent and WTI Crude oil
widened and tested above 23. In the beginning of 2012, the spread
was hovering near 8 and it accelerated towards 19 in March and 23
in November 2012. This spread hiked as Middle East tension
affected Brent Crude oil prices while ample supplies at Cushing
pressurized the WTI prices lower.
West Texas Intermediate Crude prices climbed in 2012 on concern
that tension with Iran would lead to military conflict in the Middle
East, where more than half the world's oil reserves are located.
Dispute between Iran and the West intensified recently during the
second half of 2012 as Tehran refused to permit the International
Atomic Energy Agency (IAEA) from visiting a nuclear site which is
suspected of being used to develop nuclear weapons. Iranian oil
exports fell significantly in 2012 due to western sanctions.
In 2012, tropical storm and hurricane season which began on June 1
and extended to Nov. 30 also impacted Crude oil refinery as
hurricane sandy did worst damage. Hurricane sandy made some
refinery to shut down their operation in US thus pressuring the
prices lower in October 2012. Storm Sandy tore through the eastern
coast of the United States and forced the shutdown of refineries
roads and airports.
Annual Outlook
Crude Oil Range: MCX: Rs 4400-58
NYMEX $75-105
Crude oil often known as black gold, can trade on volatile pat2013 as the key factors which will be impacting the inves
sentiment in Crude oil are the geopolitical tensi
macroeconomic data and euro zone concerns along with movem
of Greenback. Tensions over Iran will also be the guiding facto
the Crude oil prices.
Global recovery from slowdown will also be playing a vital ro
determining Crude oil prices in 2013. International Monetary F
(IMF) trimmed its global economic growth forecasts for 2012
2013. The IMF forecasts a shrinking of the euro zone economy o
percent in 2012 and a small positive growth of 0.2 percent this y
The IMF cut its forecast for China to 8.2 percent, for India
percent and for Brazil to 4 percent. According to the IMF w
economy will grow 3.3 percent in 2012 and 3.6 percent in 2013.
Euro zone and US debt problem will be at centre stage in 2013.
ECB's rate cut in 2012 and lagged effects of previous non-stand
measures are unlikely to offset negative economic tre
sufficiently to improve the near-term growth outlook. As
Europe, it is facing a whole array of problems pertaining to the
GDP worth of more than 16 trillion dollars.
Organization of the Petroleum Exporting Countries (OPEC) has
its forecast for growth in world demand in 2013 almost unchan
reducing it by 10,000 barrels per day (bpd) to 770,000 bpd.
forecasted oil demand growth has a notable downside
especially in the first half of the 2013. OPEC, which pumps m
than a third of the world's oil, reiterated a warning that fac
including economic weakness could shave 20 percent from 2
global demand growth assessment.
OPEC production fell by 67,000 bpd in October 2012 to 3
million bpd led by declines in output in Nigeria, Saudi Arabia
Iran. Meanwhile Energy Information Administration (EIA)
reduced its 2013 global demand growth estimated by 30,000 bp
890,000 bpd.
The spread between WTI and Brent can remain in range of 15-2
2013. If the Middle East situation worsens further this spread
also exceed 27 in 2013.
COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
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Commentary Outlook : EnergyAnnual Commentary & Outlook : Energy
Regarding oil prices at present times, it's not simply a supply and
demand equation. If it was, oil would be selling for $60 and not
nearly $90. There has not been a sustained disruption in oil's supply
anywhere in the world last year despite Iran tensions whereas
demand increased in China and other emerging countries. It was
seen that Middle East tension sustained for second half of 2012 and
that will continue to haunt Crude investors in year 2013.
Furthermore ongoing civil unrest in the Middle East (Syria, Egypt)
near major oil producing nations, has placed a geopolitical risk
premium on the price of oil, adding roughly $10-15 per barrel to
oil's price. Add the above to the possibility of supply disruptions in
Venezuela and Nigeria, and U.S. /E.U. sanctions imposed on oil
producer Iran over its nuclear program the underlying risk
premium can boost Crude prices going forward in 2013.
According to IEA new drilling techniques will continue to increaseU.S. oil production, and will play a role in increasing international
oil production, boosting global oil production by 9.3 million bpd to
102 million bpd by 2017. Meanwhile, global oil demand is expected
to rise to 95.7 million bpd by 2017
Moreover oil is not just an energy form; it's an alterna
investment, particularly for institutional investors (hedge fu
investment funds, and other high-net-worth investors) as the m
of portfolio allocation of these entities in Crude oil will also im
its prices in 2013.
Recovery in the China's economy is expected to have a signifi
impact on global demand as it consumed 480 million tonnes o
products in 2012 and can consume over 500 million tonnes in 2
Other energy forms have made inroads (Natural gas, nuc
renewable) on oil's dominance in the modern/postmodern era
barring a major energy or technological breakthrough oil
remain the dominant fuel. Crude oil prices in NYMEX has
support at $76 and 4500 in MCX while it has key resistance n
$100 in NYMEX and 5650 in MCX.
COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
Crude Futures (MCX) Seasonal Index V/sMonthly Closing Price 2012
0.87
0.94
0.98
1.04
1.05
1.07
1.05 1.05
1.01
0.97
1.00
0.98
4200.00
4400.00
4600.00
4800.00
5000.00
5200.00
5400.00
5600.00
0.80
0.85
0.90
0.95
1.00
1.05
1.10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Seasonal Index Monthly closing price 2012
Brent & Light Sweet Crude Oil Spread($)
5
10
15
20
25
30
1-Jan-11
1-Feb-11
1-M
ar-11
1-Apr-11
1-M
ay-11
1-
Jun-11
1
-Jul-11
1-Aug-11
1-
Sep-11
1-
Oct-11
1-N
ov-11
1-Dec-11
1-Jan-12
1-Feb-12
1-M
ar-12
1-Apr-12
1-M
ay-12
1-
Jun-12
1
-Jul-12
1-Aug-12
1-
Sep-12
1-
Oct-12
Source: Reuters & SMC Research Source: Reuters & SMC Re
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Commentary Outlook : EnergyAnnual Commentary & Outlook : Energy
Annual Commentary - Natural gas
Natural gas prices have registered life time low of nearly 100 in MCX
and below $2 in NYMEX in April 2012 as the excessive supply and
feeble demand kept the prices on back foot. But since May 2012
bulls stepped back with a vengeance and took its prices above $4 in
NYMEX and 216 in MCX in November 2012 ,which is just the double
the prices present in April 2012.
Natural gas prices which have shown steep rise after testing 10 year
low of below $2 in NYMEX rebounded sharply higher due to
production cuts by some producers and decline in rig count. Strong
coal to gas switching helped prices rebound to a 3-1/2-month high
of $2.76 in NYMEX and above 155 in MCX in second quarter of 2012.
Prices hit low of nearly $2 in NYMEX and 100 in MCX due to warm
weather last winter which resulted in Natural gas working
inventories to set new record seasonal highs. Natural gas supplies
reached currently more than 50 per cent above the five-year
average in April 2012 due to a boom in production in Pennsylvania,
Ohio, Texas and others states. Record low coal prices also resulted
in lower demand for Natural gas in the beginning of the year 2012. A
mountain of excess U.S. coal supplies squashed spring's recovery in
Natural gas prices that came as power plants snatched up the fuel as
it plumbed 10-year lows. According to Baker Hughes, the Natural
gas rig count was 613 as of April 27, 2012, down from a 2011 high of
936 in mid-October, making it the lowest rig count since 2002.
Lower prices resulted in production cuts during the second and
third quarter of 2012 as extremely low prices made it unprofitable
for producers to extract Natural gas. The mild winter and bountiful
supply from the new production technique of hydro fracturing, or
"fracking," shale formations has resulted in Natural gas supplies at
more than 50 per cent above the five-year average in April 2012.
That's due to a boom in production in Pennsylvania, Ohio, Texas and
others states.
Meanwhile hurricane sandy also increased the power demand in USdue to massive power outages in New Jersey, New York and
Pennsylvania in November 2012.But with decline in rig counts, a
slowdown in production and increasing demand from companies,
involved in electricity, utilities, chemicals, steel, aluminum and
fertilizers which used cheaper Natural gas prices as compared with
the coal prices. These factors continued to support the gas prices in
the second half of 2012.
Annual Outlook
Natural gas Range : MCX: Rs 160-2
NYMEX $3.3-4
After witnessing amazing recovery in 2012 as Natural gas prose more than 100 percent, the journey in 2013 bulls will
upper hand going forward as decline rig count and increasing u
will induce more Natural gas instead of other energy resource
as coal and nuclear energy.
Natural gas in particular has witnessed unconventional Natura
stemming from new hydraulic fracturing or fracking techno
which has become a comparatively cheap, abundant sourc
energy in the United States. Meanwhile new supply additions
also possible in Europe, Russia, and the Middle East in 2013.
Furthermore, rising oil prices have hurt consumers and busine
at the gas pump have looked to Natural gas as the alternative
With over 10 million trucks in the U.S. consuming 35 million ga
of diesel a year, a shift to Natural gas could be extremely c
efficient. With the gap between Natural gas and diesel prices w
than ever, trucks and cars powered by Natural gas are increasi
popular for company fleets.
IEA anticipates that the US, China and Japan's consumptio
Natural gas will grow at an annual average rate of 2%, 13.1%
1.1%, respectively, from 2011 to 2017. Global deman
anticipated to rise at an annual average rate of 2.7% over the s
period. Countries outside of the U.S have higher gas prices of ab
$10 Natural gas. And the reason for the enormous disparit
prices is due to the lack of a global trading market in Natural gas
the difficulty or near impossibility of shipping the commodity.
During the latter part of 2012 Natural gas horizontal and vertica
counts have been continuously falling as many rigs have stop
operating and this may lead to price hike. Increasing usag
Natural gas will support the prices in near term. Meanwhile Ch
gas output climbed 6.4 percent year-on-year to 87.8 billion c
meters between January and October 2012.
Reduced supply levels will have a significant impact on pr
Imports of Natural gas from Canada are expected to fall in 2
while exports to Mexico are projected to be higher as a result
loss of gas processing capability after an explosion at the Reyn
plant. Meanwhile, power plants are likely to switch from coal to
putting additional pressure on supply levels.
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Commentary Outlook : EnergyAnnual Commentary & Outlook : Energy
The huge increases in Natural gas's supply are subjected to fracking
technology deployed safely. In some areas, fracking has led to
environmental damage and it is not appropriate for all, potential
drilling areas to perform fracking and that will restrict supply.
Natural gas is also making in-roads in transportation, in the fleet
vehicle market or where vehicles return to the same site to re-fuel.
Furthermore Natural gas will continue to displace oil in factories,
home heating, and displace coal (and other fuels) in electric power
generation. Comparatively cheap, abundant Natural gas is
displacing oil in the United States for several energy uses,
decreasing oil demand.
Weather conditions also dictate the trend of Natural gas in 2013
and the temperatures present in winter and summer induce
heating demand in winter and cooling demand in summers.
Natural gas prices will face resistance near $4.7 in NYMEX and 260
in MCX. While key support is near 160 in MCX and $2.6 in NYMEX.
Natural Gas Futures (MCX) Seasonal Index V/sMonthly Closing Price 2012
0.99 0.99
0.92
0.95
1.05
1.10
1.02
0.91
1.00
1.051.03
0.99
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Seasonal Index Monthly closing price 2012
Natural Gas (Weekly) Rig Count & Average Spot Henry Hub Pr
Source: Baker H
COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
Source: Reuters & SMC Res
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
55.00
60.00
2-Jan-11
13-Feb-11
27-Mar-11
8-May-11
19-Jun-11
31-Jul-11
11-Sep-11
23-Oct-11
4-Dec-11
15-Jan-12
26-Feb-12
8-Apr-12
20-May-12
1-Jul-12
12-Aug-12
23-Sep-12
4-Nov-12
16-Dec-12
Crude Oil & Natural Gas Ratio (NYMEX)
Source: Reuters & SMC Research
23
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Commentary Outlook : Base MetalsAnnual Commentary & Outlook : Base Metals
Annual Commentary - Base Metals
Base metals prices managed to end the year 2012 in a positive
territory except Nickel which ended on flat note. In the year 2012,
the euro zone concerns and U.S debt concerns kept the investors on
cautious note while the stimulus measures from various banks lendunderlying support. However the weakness in the local currency
rupee also aided the bullish sentiments.
Base metals got boost in 2012 from the news of European Central
Bank commitment to buying sovereign bonds in the short term,
fiscal stimulus package implemented by the U.S. Federal Reserve
Bank, and major spending program unveiled by China. The People's
Bank of China, for its part, effected massive liquidity injections
worth US$57.92 billion. These measures had a strong impact on
investor expectations and played a key role in driving gains.
In the year 2012, lot of events taking place in the Euro zone, notably
political turmoil in Greece as well as the strong penalty imposed on
Spain by financial markets took centre stage which affected risk
sentiment.
Copper, the Leader of base metals pack, tested life time high of
above 460 in September when fed announced QE3. Overall Copper
prices traded in thin range of nearly 397-460 in 2012. Supply
tightness supported due to mining strikes supported the prices.
Copper market recorded a deficit of 267000 tonnes in January to
September 2012 which follows a surplus of 248000 tonnes in the
whole of 2011. Its prices registered positive gains in all three
quarters in 2012, except the second quarter.
Aluminum witnessed robust growth in second half of 2012 while
first half proved to be flat. Its prices managed to rise above 117 in
September while its prices took solid support near 100 in MCX.
Global Aluminium consumption during the first half grew around 3
percent as compared to 7 percent a year ago. Aluminium
consumption in the domestic market continues to outpace
production, making the country a net importer of the commodity.
Oversupply concerns made Nickel worst performing metal in 2012.
Nickel prices hovered in thin range as its prices took key support
near 850 and faced resistance near 1000 in MCX. Anglo American
Plc and Vale SA invested in new mines and expanded the existing
ones in order to get benefit from the better prices in 2007. As a
result there was huge surplus with the addition of new mines.
Prices came under pressure as surplus started in the year 2011 and
slower growth weakened demand for stainless steel, which
accounts for 65 percent of Nickel consumption. According to INSG,
production of Nickel is forecasted to rise to 1.69 million tonnes in
2012, up 5.6% from 1.60 million tonnes in 2011. The Group
highlighted that the global refined Nickel markets was likely to be in
surplus of 50000 metric tonnes in 2012. With the export ba
Indonesia and 20% export duty that have started since May m
have tightened supply on the Nickel market in 2012. But Ch
importers of laterite ores used to make Nickel have switched to
Philippines as industry curbs reduced shipments from Indones
Battery metal Lead was more or less flat in the first half of the y
2012 but prices moved swiftly higher in the second half of the
from 102 to high of nearly 127 as the large queues in
warehouses coupled with decline in Lead production and b
demand from battery manufactures have supported the Lead pr
higher. According to ILSG China, Lead-acid battery production
exports have recovered strongly after the wide-ran
environmentally motivated cutbacks in the year 2011 and
metal usage grew by 4.8% in 2012. Better data from vehicle sal
China, which climbed 5.3 percent in October from a year ea
along with U.S, supported Lead prices in second half. Metal st
up in bank financing deals also gave boost to Lead prices. Finandeals are considered to be good for the metal as they tend to sup
the price of underlying asset without any thought on t
fundamentals.
Zinc metal also traded in a narrow range in the year 2012 a
prices moved nearly in range of 96-115. Zinc showed steady gro
in all the quarters with the last two quarter showed quick g
China also started to build its state reserve purchases of Zinc bu
pretty lower quantity as compared to 2011 during last the qua
of 2012. The fall in purchase percentage is due to very high st
already available in the markets that are unused due to lac
demand. Zinc stockpiles rose to record highs for fifth consecu
years. According to the International Lead and Zinc Study Gr
(ILZSG) Zinc markets were in surplus of 137000 tonnes in
period of Jan-Sep 2012. The total reported inventories increase
81000 tonnes during the first three quarters of 2012.
Macroeconomic uncertainties affected the base metals price
larger extent in the year 2012. Global PMI indicators along with
survey affected the sentiments. China PMI improved during
course of 2012 as the stimulus measures started taking e
Meanwhile U.S. manufacturing shrank from 51.7 points in Octo
to 49.5 points in November 2012 following two consecutive mo
of growth China's manufacturing PMI for November stood at
points. Driven mostly by new business and manufactu
increases, this 13-month high in China PMI suggests that
Chinese economy is gradually rebounding.
2012 proved to be the year with full of global economic turbule
with the euro zone one crises took centre stage for most part o
year followed by the US debt crises and slowdown in Ch
Combined efforts from the troika IMF, ECB and EU have also he
in euro zone recovery in 2012.
COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
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Commentary Outlook : Base MetalsAnnual Commentary & Outlook : Base Metals
Annual Outlook
Copper Range: MCX: Rs 370-520
LME: $7200-9000
Red metal Copper is expected to remain on volatile path as various
stimulus measures by central banks and global recovery prospects
can support the prices while euro zone and U.S debt concerns can
cap the upside.
Copper, which is also known as Dr Copper will be impacted by the
changes in global economic conditions in 2013. The three key risks
will be sharp rebound in sovereign risk in Europe, Greece and Spain,
US fiscal cliff issue and possible US sovereign downgrade.
Despite the international backdrop and the European crisis, China
is expected to continue growing at above 7.5% and the supply
demand tightness in Copper will continue.
Structurally, the Copper market has shown a deficit throughout
2012 notwithstanding the uncertainty affecting the global
economy. While financial market volatility may keep demand down
in the early part of 2013 the structural surge in demand is expected
to persist in the long term.
China and India currently have an urban population of 50 percent
and 30 percent, respectively. As such, both countries have launched
massive construction projects designed to bring urban population
levels closer to the 70 percent prevailing in more developed
nations. These plans bode well for long-term Copper price
prospects. In a sign that metals demand is weak, Chile's Codelco, the
world's top Copper producer, has offered its Japanese Copper
customers a 2013 term premium of $85 a tonne, down 9 percent
from its 2012 premium. The labour disputes in key Chile mines like
Escondida and Codelco will affect Copper output in 2013.
U.S and China, the two main engines of global growth, are now
showing signs of recovery but Europe will take more time to
recover. The world's major developed economy central banks are
committed to maintaining low interest rates and providing
extraordinary amounts of liquidity to the world's financial system.
Concern is that consumption of Copper cathode is likely to grow
more slowly in China in 2013, cooling further after the pace of
growth looks set to drop by at least a third this year. Demand for
industrial metals such as Copper has weakened in 2012 as China's
economic growth slows, largely due to a decline in manufacturing
activity in its main export market Europe. China's Copper smelting
capacity is expected to rise by about 420,000 tonnes to around 5.6
million tonnes in 2012 compared with about 5.18 million tonn
2011 and the capacity can grow at similar pace in 2013. Howe
increasing housing inflation in China could prompt the Chi
government to refrain from relaxing curbs on the property ma
which in turn would be bearish for Copper.Copper demand also comes from the building and construc
sectors, and the utilities sector (power generation
transmission). The slowdown in the global economy as pred
by IMF in 2013 will also affect the demand. The reduction in cr
rating of key euro zone countries will also affect Copper prices.
On positive side, recovery in US housing sector may continu
assist the prices higher. US housing starts jumped to an 872
annual rate in October 2012 the most since July 2008, boos
demand prospects for the metal used in pipes and wi
Meanwhile flat forward curves of Copper also points towards
fact that the market fundamentals are tight at present but fu
looks uncertain in 2013.
The International Monetary Fund cut global growth forecast
2013 to 3.6 percent even after central banks from the US to Ja
continue to pledge more action to bolster economies. But
predictions of China's growth at 8.2 percent next year will be m
than double the global pace. Meanwhile it is expected
slowdown in the demand from the west will be compensated by
growth from the emerging countries like China.
Each metal's forward curve is a snapshot of future expectat
anchored on the current price. Copper that exhibit tightnes
supply, both at present and expected in the future, display alm
flat forward curves in middle of 2012 but during last part
forward curve has become steeper indicating supply coming ba
markets.
According to the Copper Study Group, Copper supply will out
demand by 458,000 metric tonne in 2013, the first glut in four y
and the biggest in more than a decade. For any upside movem
from the current levels, Copper prices want to see quantita
easing translate into demand for Copper.
Copper has maintained a narrow trading range for many mo
and it will be interesting to note that when it will break the
resistance of 470 in MCX and $8500 in LME. The key support wi
395 in MCX and $7200 in LME.
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Copper Futures Seasonal Index V/sMonthly Closing Price 2012
0.91
0.97
1.00 1.010.99
1.01
1.05
1.07
1.01
0.98
0.99
1.02
0.80
0.85
0.90
0.95
1.00
1.05
1.10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Seasonal Index Monthly closing price 2012
Annual Outlook
Nickel Range: MCX: Rs 800-1250
LME: $15200-22000
Nickel can prove to be the dark horse in 2013 as it underperformed
other base metals in 2012. Nickel prices can get support from the
tightness in its ore supply and some production cut in mines. But
feeble demand for stainless steel sector can limit the upside in
Nickel.
INSG predicted that Nickel oversupply can increase up to 70000
metric tonnes in 2013. The production of refined Nickel is further
expected to increase to 1.78 million tonnes in 2013. The growth
contributors in these two years will be ramp up of operation of
Xstrata Koniambo in Caledonia and Barro Alto Mine of Anglo
America. Demand for refined Nickel is expected to increase to 1.71
million tonnes in 2013 as compared to 1.64 million tonnes in 2012.
More than 800,000 tonnes of planned or existing production
capacity is under threat of disruption in the next 12 to 18 months.
Mining operations will continue to give further direction to theprices as the Xstrata announced that it has suspended operations at
its Cosmos Nickel mine in Western Australia in 2012.
Last year in May 2012 ban on Indonesia ore exports have affected
the ore supply as Indonesia's Nickel ore exports increased in
October 2012 due to buying by China. But slowly ore miners
resumed production after meeting tough government rules that
battered shipments in 2012 from the world's top exporter of
metal. Nickel market will be affected by the ore export ban in 2
also but to smaller extent as China has resorted to Philippine
ores instead of Indonesia's. Indonesia imposed curbs and a ta
exports as miners will no longer be able to export unprocessed
beyond a 2014 deadline.
China pig iron production is also one of the greatest threats to
recovery in Nickel prices, which is a substitute made from lo
grade ores. Given the likely surge in Nickel-pig-iron production
the next three to six months it will hamper the recovery in Ni
prices. NPI output may be curtailed by curbs to Nickel-ore exp
from Indonesia, where the government is trying to spur
development of the domestic refining industry. But China may
to importing more refined Nickel than relying to the same exten
NPI in 2013. The use of Nickel for non-stainless applications
increased the most rapidly, by 8 percent in 2012. Chinese Nicke
Iron (NPI) has held relatively steady in spite of an Indonesian ba
exports in 2012 and increased export duties on Nickel ore.
Most of the 2012 Nickel prices were entangled between weak gl
steel sector and growing substitution to Chinese Nickel pig iron
movement of cancelled warrants and stock position in LME
impact the prices in 2013. Fundamentally, the supply side weig
on demand as Nickel market can remain in surplus in 2013.
surplus of Nickel in first three quarters of 2012 stood at 89
COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
27
Source: Reuters & SMC ResSource: Reuters
Chinese Copper Imports
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Commentary Outlook : Base MetalsAnnual Commentary & Outlook : Base Metals
metric tonnes.
But the stainless steel alloy (consumes nearly 65% of the metals) is
also expected to continue the seasonal growth with higher
European demand and the same may also support Nickel prices
higher.
Nickel has steady upward sloping forward curve, which suggests
that the metal is characterized by chronic oversupply.
The monetary stance of China in 2013 and stimulus will also have
impact on the prices. Last year Chinese central bank injected a
record high of 395 billion Yuan (62.7 billion US dollars) into the
financial system.
It is anticipated that demand in China may slow as the country is
moving from a re-stocking to a de-stocking phase in 2013. Nickel
could suffer from a forecasted 44,000 mt surplus as delayed
projects start to ramp-up production in 2013. However scope for
accelerated consumption of NPI in China, and the stockpiles
accumulated in 2012 can keep the prices under stress.
Meanwhile the scale of supply disruptions and disappointments
may spring an upside surprise in Nickel prices in 2013. If the euro
crisis recedes and the U.S avoids falling off its own fiscal cliff then
the sentiment can be positive for Nickel in 2013.
China imports remain high with consumption surging which can lift
Nickel prices in 2013. Significant primary capacity build u
expected in next couple years, but output is somewhat restra
due to cutbacks and delays in mines.
Nickel prices have key resistance of 1000 in MCX and $2200
LME while 850 is the key support in MCX and $15800 in LME.
Nickel Future Seasonal Index V/sMonthly Closing Price 2012
1.03
1.07
1.04
1.07
0.980.99
1.00
1.03
0.98
0.93
0.89
0.97
1
1
1
0.80
0.85
0.90
0.95
1.00
1.05
1.10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Seasonal Index Monthly closing price 2012
Annual Outlook
Zinc Range: MCX: Rs 95-130
LME: $1800-2400
Zinc, which proved to be quite volatile in the year gone by will
continue to remain choppy in 2013. Zinc is used mainly as an anti-
corrosive to galvanize steel for the construction and auto sectors
and the growth in steel sector will impact prices in 2013.
The International Lead & Zinc Study Group expects that Zinc supply
may continue to exceed demand in the world refined Zinc metal
market both in 2012 and 2013. A surplus of 153,000 mt is
forecasted in 2012 with a more significant excess of 293,000 mt
anticipated in 2013. It is anticipated that there will be a small
decline in world demand for refined Zinc metal of 0.3% to 12.71
million mt in 2012 followed by a 3.8% increase to 13.19 millio
in 2013. Global Zinc mine output is forecasted to increase by 5%
2012 to 13.60 million mt and a further 2.7% in 2013 to 1
million mt. In 2013, a further forecast increase in mine outp
China by 2.7% is expected to be supplemented by additi
production in a number of other countries including Austr
Burkina Faso, Kazakhstan, Mexico, Portugal and the US.
Silver-Zinc vehicle SLI batteries, which have 45 percent more po
and a 30-percent longer life, are also commercially available
competitively priced. So demand for SLI batteries can pent up
demand in 2013. China is also trying to cut the production leve
Zinc in order to curtail steady growth in unused Zinc. Sim
production declines are noted in world markets but the pac
decline is on a lower side.
COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
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Source: Reuters & SMC Res
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LME inventories are in Zinc at all time highs thanks to rising
financing deals that are acting as a last resort for producers and
stakeholders. Due to the problems ranging from debt to steady
supplies LME inventories are expected to swell further and
therefore putting additional pressure on the prices. Zinc will also beclosely watched as financing deals are considered good for the
metal as they tend to support the price of underlying asset without
any thought on their fundamentals. It is also notable that financing
deals happen only in case of oversupply of particular metal. Spot
premiums prevailing in LME will also impact Zinc prices in 2013.
Nearly fifty percent of Zinc is used for galvanizing to protect steel
from corrosion. So the galvanizing demand along with die casting
demand will affect its prices in 2013. More than two thirds of metal
demand comes in the form of steel galvanization. If steel supply and
demand takes a further hit, it would be detrimental for the basic
fundamentals of Zinc. Constructive and continuous improvement in
demand from steel sector is going to influence the prices.
China has in recent times shifted from exporter to importer of Zinc
with consumption surging & production flattening. Imports of Zinc
have increased in the China due to its usage in Steel industries for
galvanizing. China's Zinc ore and concentrate imports rose by 5.9%
month on month in October 2012. The country imported 203,022
tonnes of Zinc concentrate in Oct 2012 up 4.6% from the same
month in 2011.
Mine capacity has built up globally and refined production
increased. The pace of production will also impact Zinc price
2013. There has been rise in new capacity addition in Neves ,Co
Ozernoye, Almagrera mines in Europe and Rampura-Agu
Shaimerden, Duddar, Khandiza mines in Asia along with Q
Amizour, Perkoa in Africa. The pace of buying by the China S
reserves will influence Zinc prices in 2013. State reserve purch
of Zinc were lower quantity in 2012 as compared to 2011. The f
purchase percentage is due to very high stocks already availab
the markets that are unused due to lack of demand. Zinc has ste
upward sloping forward curve which suggest that the met
characterized by chronic oversupply.
Demand from some sectors like construction, transport, consu
goods and electrical appliances and general engineering will
guide Zinc prices in 2013. Meanwhile in 2013 , the euro zone
problems along with pace of recovery in US and China is like
affect the price movement of Zinc.
Zinc will face key support of 95 in MCX and $1800 at LME while
resistance will be 116 in MCX and $2200 in LME.
COMMODIT Y OUTLOOK 2 COMMODITY OUTLOOK 20
29
Zinc Futures Seasonal Index V/sMonthly Closing Price 2012
0.98
1.03
1.011.00
0.97
0.95
1.011.01 1.01
0.98
1.01
1.06
90.00
95.00
100.00
105.00
110.00
115.00
0.88
0.90
0.92
0.94
0.96
0.98
1.00
1.02
1.04
1.06
1.08
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Seasonal Index Monthly closing price 2012
MCX Lead Zinc Spread (Monthly)
-4.00
1.00
6.00
11.00
16.00
21.00
1-J
an-1
1
1-F
eb
-11
1-M
ar-
11
1-A
pr-
11
1-M
ay-1
1
1-J
un-1
1
1-J
ul-11
1-A
ug-1
1
1-S
ep-1
1
1-O
ct-11
1-N
ov-1
1
1-D
ec-1
1
1-J
an-1
2
1-F
eb
-12
1-M
ar-
12
1-A
pr-
12
1-M
ay-1
2
1-J
un-1
2
1-J
ul-12
1-A
ug-1
2
1-S
ep-1
2
1-O
ct-12
Source: Reuters & SMC Research Source: Reuters & SMC Res
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Annual outlook
Lead Range: MCX: Rs 100-150
LME: $1800-2650
Battery metal Lead has been favored by the bulls in the year gone byand will continue to shine in 2013 as well on the back of increased
demand from battery manufacturers.
In 2013, outlook for the Lead market remains positive, with good
demand growth expected from the industrial battery sector and for
Sealed Lead Acid batteries (SLA), which are used to power e-bikes.
Lead is majorly used in car batteries, mobiles and e bikes. Its
corrosion resistant quality makes it suitable to store sulfuric acid.
Due to its malleability and anti corrosion characteristics it is also
used in building construction. The regime to follow carbon
emission norms has also hit Lead production. Replacement battery
demand is growing in India along with that the power shortages has
increased options for alternative energy. Steady growth inautomobile battery demand in Asia Pacific, especially India and
China are expected to keep the Lead prices well supported in 2013.
Pace of auto sales in 2013 will also influence the Lead prices.
Meanwhile vehicle sales in China in the first eight months of the
2012 were up by 3.3 percent. The steady increase in automotive
demand in regions other than Europe, more so importantly in
developing markets such as Asia Pacific and Latin America and
subsequent rise in automotive production, will give support to the
Lead acid batteries market. Global market for Automotive Lead Acid
Batteries is projected to reach US$43.9 billion by 2018, primarily
driven by increase in automotive production, particularly in
developing markets such as China and India and growing
integration of start stop technology in new age automobiles.
Meanwhile stringent pollution norms in key producing countries
will influence its demand in 2013. Heightened concerns about
global warming, urban pollution, rising fuel prices and government
legislations to curb emissions are the key factors driving the
adoption of hybrid electric vehicles (HEVs) and electric vehicles
(EVs). With electric car manufacturers focusing on incorporating
innovative battery technologies in their cars as Lead acid batteries
can improve efficiency, lengthen the discharge cycle, and enhance
the storage capacity of batteries are poised to benefit, which will
support the Lead prices.
The pick-up in mine output and the probable restart of the 115,000-
tonne-per-year La Oroya smelter in Peru and the 80,000-tonne-per-
year Portovesme smelter in Italy in 2013 will lead to more primary
refined production. While China seems to be able