Visit us at www.sharekhan.com November 17, 2011
European concerns weigh on commodities yet again
“China’s total gold demand in 2012 will continue to grow • Aluminum Surplus at 638,500 Tons in Nine Months, WBMS
at double-digit growth as all the bullish factors are likely Says
to remain in place. There should be not much problem for • Rusal Says Up to 15% of Global Aluminum Capacity May
China’s total demand to grow to 800 tons next year as long Be Shut
as the macro-backdrop remains the same.”
• Oil Rises Above $102 on Announced Reversal of Seaway
Albert Cheng, managing director for the far east region at Pipeline
the World Gold Council • Natural gas falls for the sixth straight day on ample
supply
“We have seen production curtailments in some sectors
Commodities complex closed mixed yesterday as the US
and we are generally seeing a more cautious approach in
industrial production data topped the forecast. Base metals
respect of inventory management by our customers.”
complex rose, bullions were lower, while crude oil surged
Marius Kloppers, Chief Executive Officer BHP over 3% on the announcement of reversal of Seaway
pipeline. Natural gas tumbled for the sixth day in a row
Commodities—European concerns weighing on the on supply glut.
markets yet again
• U.S. Banks Face Contagion Risk From European Debt: Commodities were shaky before the US markets opened.
Fitch BoE’s dire assessment of the UK economy kept the bulls in
check. UK unemployment rate rose to the highest level in
• Spanish Yields Rise to Euro-Era Record
last fifteen years.
• French July 2016 Note Yield Rises to 2.82% From 2.31%
on Oct. US industrial production data topping the forecast
• UniCredit Trading as Junk With $51 Billion of Bonds Due emboldened the bulls, which helped the base metals
complex move higher. Euro also recovered along with
• Greece Turns to Budget After Confidence Vote
equities on improving risk appetite. However, a late
• RBI to Buy Bonds for First Time in Ten Months to Boost announcement by Fitch that U.S. banks face a “serious
Cash risk” soured the sentiments. The rating agency stated that
• Spain Cuts GDP Forecast, Says too Early to Know Regions’ their creditworthiness would deteriorate if Europe’s debt
Deficit crisis deepens and spreads beyond the five most-troubled
• 'Systemic crisis' faces euro zone: EU's Barroso nations.
• Global Demand for U.S. Assets Rises as Investors Seek US equities closed 1.7% to 1.9% lower. Euro slipped along
Safety with the equities.
• U.K. unemployment hits 8.3%, highest since 1996
Today’s major events include auction by France and Spain.
• BOE sees slow growth, inflation below target
Auction results have been disappointing.
• US Industrial production data tops the forecast
• IMF Says Hong Kong At Risk Of Recession Spanish 10-year bonds declined, pushing the yield to the
highest level since the euro was created in 1999, as
• BOJ Cuts Economic View as Europe’s Crisis Becomes
borrowing costs rose at an auction of bonds due in 2022.
’Largest Risk’
“Spain’s launch of its new 10-year Obligation will perhaps
• China Gold Demand May Exceed 750 Tons This Year, WGC be the key hurdle given uncertainty surrounding the
Says
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looming general election,” Sercan Eraslan, a fixed-income The Reserve Bank of India will purchase a total of 100
strategist at WestLB AG in Dusseldorf, wrote in a note to billion rupees ($1.97 billion) of notes through an open-
clients before the auction. Any sign of weak demand at market operation on Nov. 24, the central bank said in an
the French sales “could also weigh significantly on e-mailed statement yesterday. The securities to be bought
sentiment,” Eraslan wrote. back will be announced “shortly”, the RBI said.
The 10-year Spanish yield climbed 30 basis points, or 0.3- The move comes after four of the last five debt sales this
percentage point, to 6.71 percent. London time. Spanish quarter failed to attract adequate investor demand, amid
borrowing costs jumped to 6.975 percent at today’s sale, shrinking confidence in the government’s ability to rein
up from 5.433 percent when it sold 10-year bonds on Oct. in record bond sales and persistent inflation. Wholesale
20. The auction attracted bids worth 1.54 times the price increases have held above 9 percent for 11 months
securities offered, down from a bid-to-cover ratio of 1.76 and the finance ministry increased its borrowing target
at the previous sale. Spain sold 3.56 billion euros of bonds for the year through March by 13 percent to a record 4.7
today, compared with a maximum target of 4 billion euros. trillion rupees on Sept. 29.
France sold 3.332 billion euros of July 2016 notes at an IMF Says Hong Kong At Risk Of Recession - The International
average yield of 2.82 percent, up from 2.31 percent at a Monetary Fund warns Hong Kong may fall into recession
sale of the securities on Oct. 20. as a worse-than expected downturn in Europe could have
an outsized effect on the city.
Macro-economic scenario remains challenging as European
Commission President Jose Manuel Barroso on Wednesday Bank of England policy makers expect British economic
warned that the euro zone now faces a "systemic crisis". growth to slow more sharply than previously expected,
At the same time, IMF stated that Hong Kong is at a risk of while annual inflation is expected to fall back below the
recession. 2% target by 2013, according to the central bank's latest
quarterly inflation report released on Wednesday. "Despite
Asia Watch – Asia Currencies Drop on Europe Risk, Export the [central bank's] easier monetary stance, growth over
Slump the next few quarters is likely to be markedly weaker
Asian currencies fell to a four-week low as a warning by than in the August projection," BOE Governor Mervyn King
Fitch Ratings that Europe’s deepening debt crisis poses a said in prepared remarks delivered as he presented the
“serious risk” to U.S. lenders sapped demand for emerging- report at a news conference. The report's central fan-
market assets. chart projection points to growth of around 1% year-on-
year through the end of 2012, down from around 2% in
The Bloomberg-JP Morgan Asia Dollar Index touched the
the August report, noted Howard Archer, chief U.K.
lowest level since Oct. 21 as Spain’s bond yields jumped
economist at IHS Global Insight. Inflation is forecast to
to a record as the nation and France prepare to sell 12.2
fall sharply as temporary factors work their way out of
billion euros ($16.4 billion) of debt today. Indonesia’s
estimates, dragging annual inflation down from around
rupiah and Malaysia’s ringgit traded near the lowest in at
5% and toward the 2% target by the end of 2012
least a month after Singapore’s exports fell the most in
30 months and more than economists predicted. U.K. unemployment hits 8.3%, highest since 1996 - The
number of unemployed British workers rose 129,000 to
RBI to Buy Bonds for First Time in Ten Months to Boost
2.62 million in the three months ending in September,
Cash - India’s central bank will buy government bonds
pushing the unemployment rate up to 8.3% from 8.1% in
this month for the first time since January to boost cash
the three months ending in August, the U.K. Office for
in the banking system.
Europe Watch - BOE sees slow growth, inflation below target
Date Country - Region Data Period Survey Actual Prior Revised
11/16/11 Euro Zone CPI (MoM) Oct 0.3% 0.3% 0.8%
11/16/11 Euro Zone CPI (YoY) Oct 3% 3% 3%
11/17/11 Euro Zone Construction Output (MoM) Sep -1.3% 0.2% -0.4%
11/17/11 Euro Zone Construction Output (YoY) Sep 0.4% 2.5% 1.9%
For Private Circulation only Commodity Buzz 2 November 17, 2011
sharekhan commodities buzz
US Watch—U.S. New Home Starts Likely Slowed in October
Date Country - Region Data Period Survey Actual Prior Revised
11/16/11 US CPI(MoM) Oct 0% -0.1% 0.3%
11/16/11 US CPI Ex Food & Energy (YoY) Oct 0.1% 0.1% 0.1%
11/16/11 US CPI(YoY) Oct 3.7% 3.5% 3.9%
11/16/11 US CPI Ex Food & Energy (YoY) Oct 2.1% 2.1% 2%
11/16/11 US Net Long Term TIC Flows Sep $55.0B $68.6B $57.9B $58.0B
11/16/11 US Total Net TIC Flows Sep $57.4B $89.6B $89.3B
11/16/11 US Industrial Production Oct 0.4% 0.7% 0.2% -0.1%
11/16/11 US Capacity Utilization Oct 77.6% 77.8% 77.4% 77.3%
11/16/11 US NAHB Housing Market Index Nov 18 20 18 17
11/1711 US Housing Starts Oct 610K 658K
11/1711 US Housing Starts (MoM)% Oct -7.3% 15%
11/1711 US Building Permits Oct 603K 594K 589K
11/1711 US Building Permits (MoM)% Oct 2.4% -5%
11/1711 US Initial Jobless Claims Nov 12 395K 390K
11/17/11 US Continuing Claims Nov 5 3635K 3615K
11/17/11 US Philly Fed Mfg Index Nov 9 8.7
National Statistics reported Wednesday. The Builders probably began work on fewer homes in October,
unemployment rate is the highest since 1996, while the a sign housing will remain a laggard in the third year of
total number of unemployed is the highest since 1994, the U.S. recovery, economists said before a report today.
the ONS said. The number of workers claiming jobless
benefits rose 5,300 in October, the ONS said. Economists Starts fell 7.3 percent to a 610,000 annual rate in October,
had forecast a rise of 22,500. according to the median estimate of 82 economists
surveyed by Bloomberg News. Manufacturing in the
'Systemic crisis' faces euro zone: EU's Barroso - European Philadelphia area expanded for a second month, other
Commission President Jose Manuel Barroso on Wednesday data may show.
warned that the euro zone now faces a "systemic crisis"
that will require deeper commitments by all member Builders like D.R. Horton Inc. and Beazer Homes USA Inc.
countries to overcome, news reports said. "We are indeed may be hesitant to begin projects as foreclosures push
now facing a systemic crisis that requires an even stronger down property values. Unemployment at 9 percent and
commitment from all and that may require additional and falling home prices have also kept buyers on the sidelines,
very important mesures," he told the European Parliament helping explain why the Federal Reserve and Obama
in Strasbourg, France, according to Reuters. Barroso administration are looking for ways to jumpstart housing.
repeated a call for deeper economic integration among U.S. Banks Face Contagion Risk From European Debt:
euro-zone members and said new measures aimed at Fitch - U.S. banks face a “serious risk” that their
increasing oversight of budgets produced by euro-zone creditworthiness will deteriorate if Europe’s debt crisis
countries would be implemented as early as next month, deepens and spreads beyond the five most-troubled
the report said. nations, Fitch Ratings said.
Greek Budget Deficit Could Exceed 9% This Year - “Unless the euro zone debt crisis is resolved in a timely
Greece's budget deficit could exceed 9% of GDP this year and orderly manner, the broad credit outlook for the U.S.
compared with an 8.9% to 9% estimate, as the country's banking industry could worsen,” the New York-based rating
economy is expected to sink deeper into recession, a senior company said yesterday in a statement. Even as U.S. banks
government official says. have “manageable” exposure to stressed European
Euro-Zone Inflation Stable In October - The euro zone's markets, “further contagion poses a serious risk,” Fitch
annual inflation rate is stable at 3.0% in October, said, without explaining what it meant by contagion.
unchanged from the previous month's three-year high due The “exposures” of U.S. lenders to major European banks
to increases in energy costs, official data shows. and the stressed nations of Greece, Ireland, Italy, Portugal
For Private Circulation only Commodities Buzz 3
3 November 17, 2011
sharekhan commodities buzz
and Spain, known as the GIIPS, are smaller than those to Metal Jan.- Sept. 2010 Jan.- Sept. 2011
some of the continent’s larger countries, Fitch said. (Balance in metric tons)
Aluminum 859,000 638,500
The six biggest U.S. banks—JPMorgan Chase & Co. (JPM),
Copper 18,200* 236,800
Bank of America Corp. (BAC), Citigroup Inc. (C), Wells
Lead 10,700 47,300
Fargo & Co. (WFC), Goldman Sachs Group Inc. and Morgan
Zinc 424,000* 581,000
Stanley (MS) -- had $50 billion in risk tied to the GIIPS on
Nickel 100* 8,000
Sept. 30, Fitch said. So-called cross-border outstandings
Tin n/a --
to France for all except Wells Fargo were $188 billion,
including $114 billion to French banks. Risk to Britain and
Downside in the metals like zinc, aluminum and nickel is
their bank was $225 billion and $51 billion, respectively.
likely to be limited unless European situation goes out of
Global Demand for U.S. Assets Rises as Investors Seek control. These base metals are trading around their
Safety - Global demand for U.S. stocks, bonds and other respective cost of production.
financial assets rose the most in 10 months in September
Copper carries the maximum risk should a sharp sell-off
as investors sought the safety of Treasury securities amid
occurs.
Europe’s sovereign-debt crisis. Net buying of long-term
equities, notes and bonds totaled $68.6 billion, the highest We look for sideways trading with a downward bias in
since November 2010, compared with net buying of $58 short-term.
billion in August, the Treasury Department said in
Washington yesterday. Including short-term securities such Aluminium—Up 1.64%
as stock swaps, foreigners purchased a net $57.4 billion LME 3-month alunminium closed with a gain of $35 at
in September, compared with net buying of $89.3 billion $2157.
the previous month.
Aluminum output may drop in the first half of next year
China remained the biggest foreign holder of U.S. as producers increase idled plants to as much as 15 percent
Treasuries in September after its holdings rose by $11.3 of global capacity, said United Co. Rusal, the world’s
billion to $1.15 trillion. Hong Kong, counted separately largest supplier. China, Europe and the U.S. may shut down
from China, increased its holdings by $1.1 billion to $109 plants, Rusal First Deputy Chief Executive Officer Vladislav
billion. Japan, the second-largest holder, increased its Soloviev told reporters in Moscow. Unless prices rise from
holdings in September by $20.2 billion to $956.8 billion. current levels, 10 percent to 15 percent of capacity may
be shut, Soloviev said after Rusal reported earnings.
Market watch—Most Asia Stocks Fall as China Says Can’t
Ease, Fitch Warns on Contagion Aluminium is likely to do better than most of its peers on
account of rising production cost. Surging crude oil prices
Most Asian stocks fell as China’s pledge to keep inflation are supportive for the counter.
controls sent mainland developers lower and Fitch Ratings
said a further spread of Europe’s debt crisis poses a Support is at Rs 106.80/ Rs 106. Resistance is at Rs 108.30/
“serious risk” to U.S. banks. Rs 109.40.
The People’s Bank of China said prices haven’t stabilized Copper—Up 0.58%
enough to allow looser monetary policy. LME 3-month copper closed with a gain of $45 at $7730.
Base metals summary Support is at Rs 36/ Rs 381.50. Resistance is at Rs 392/ Rs
All the base metals are trading lower today as European 393.
concerns dominate the trading theme. The complex has
slipped further after the European auction results. Nickel – Up 3.36%
WBMS came out with its supply-demand statistics of the LME 3-month nickel closed with a gain of $590 at $18140.
base metals. Surplus for all the base metals except
The counter is trading in backwardation, hence we can
aluminium has widened over last year.
For Private Circulation only Commodity Buzz 4 November 17, 2011
sharekhan commodities buzz
expect the metal to do well once the macro concerns he said. China’s gold investment demand was 204 tons in
ease. Nickel for immediate delivery traded at $38 a metric the first three quarters, which already exceeded 187 tons
ton more than the three-month contract, the biggest so- seen in the whole of last year, he said.
called backwardation since August 2009.
Gold demand rose 6 percent in the third quarter from a
Support is at Rs 895/ Rs 885. Resistance is at Rs 929/ Rs year earlier as Europe’s debt crisis spurred investors to
931. accumulate the metal as a protection of wealth and push
prices to a record, the World Gold Council said. Global
Zinc—Up 2.77% demand gained to 1,053.9 metric tons worth a record
LME 3-month zinc closed with a gain of $53 at $1960. $57.7 billion, the London-based industry group said today
in a report. Investor purchases of exchange-traded funds
Refined zinc production rose to 1.114 million metric tons
and products, bars and coins outpaced a drop in jewelry
in September from 1.084 million in August, the
demand and increase in recycled supplies, the council
International Lead and Zinc Study Group said. Usage was
said.
1.112 million tons in September and 1.049 million tons in
August, it said in a report on its website yesterday. Gold has got a strong support at $1750 (Rs 28780).
Resistance is at Rs 29160.
Support is at Rs 97.15/ Rs 97. Resistance is at Rs 98.60.
Silver—Down 2.30%
Lead—Up 1.19%
Spot silver closed with a loss of $0.79 at $33.74.
LME 3-month lead closed with a gain of $24 at $2030.
Silver looks vulnerable on macro concerns.
Refined lead production jumped to 880,500 metric tons
in September from 856,000 tons in August, according to a Support is at Rs 56200. Resistance is at Rs 57300/ Rs 58300.
report by the International Lead and Zinc Study Group on
its website yesterday. Usage was 869,400 tons in Energy complex summary
September and 845,100 tons in August, it said. The complex closed mixed as crude oil surged over 3% on
Seaway pipeline reversal news, while natural gas fell for
Support is at Rs 100.80/ Rs 100.25. Resistance is at Rs the sixth straight day.
102.90/ Rs 103.70.
Crude oil looks quite overvalued at current levels. It is
Precious metals summary clear that the traders are trying to reduce the spread
The complex closed lower in a volatile trading session. between WTI and Brent crude oils. The spread has come
The sell-off accelerated after MCX closing as Fitch came down to $10 from the record high spread of $28. Crude
out with its warning on the US banks. oil bulls assume that reversal of pipeline would reduce
the glut in Cushing, the US delivery point. They think that
That the complex closed lower despite a sharp rally in
actual crude oil price is $111 as reflected by the Brent
crude oil speaks of weakness in the precious metals. Gold
crude oil. However, with Europe approaching recession
doesn’t appear to be behaving like a safe haven asset
and the global economy on weak footing, even Brent crude
presently, or one can say that the US Dollar appears to be
oil needs to correct lower.
the first choice for safe haven.
We suggest selling crude oil into rallies.
The complex is likely to trade sideways to lower.
Natural gas is likely to trade sideways.
Gold –Down 0.95%
Spot gold closed with a loss of $16.95 at $1763.35. Crude oil—Up 3.24%
WTI crude oil closed with a gain of $3.22 at $102.59.
China’s bullion demand may exceed 750 metric tons this
year, as the country overtook India in the third quarter as Oil in New York climbed above $100 a barrel to a five-
the world’s largest gold jewelry market, the World Gold month high as Enbridge Inc. said it would reverse the
Council said. The amount includes more than 250 tons of direction of the Seaway pipeline, opening an outlet for
investment demand and 500 tons of jewelry demand, crude from the central U.S. and Canada. ConocoPhillips
Albert Cheng, managing director for the Far East region announced it would sell its share of the pipeline that runs
at the Council, said today in an interview. China’s jewelry between Cushing, Oklahoma, and the Gulf Coast. Reversing
demand in the third quarter was 131 tons of consumption, the direction of the link may alleviate a bottleneck at the
For Private Circulation only Commodities Buzz 5
5 November 17, 2011
sharekhan commodities buzz
Cushing storage hub that had lowered the price of West year, according to the median of 13 estimates compiled
Texas Intermediate, the grade traded in New York, versus by Bloomberg.
other oils.
December $3.25 puts, bets that prices will fall, were the
Support is at Rs 5140. Resistance is at Rs 5370. most active options in electronic trading. The puts were
1 cent higher at 3.2 cents per million Btu at 3:02 p.m. on
Natural gas—Down 1.76% a volume of 796 lots.
Natural gas closed with a gain of $0.06 at $3.344.
The inventory estimates ranged from increases of 19 billion
Natural gas futures slid for a sixth day in New York on to 35 billion cubic feet. The Energy Department’s next
speculation that government data will show stockpiles rose weekly supply report is scheduled for release today
to an all-time high last week. Analysts predicted
inventories would climb to a record in the week ended Heating demand in the U.S. may be 15 percent below
Nov. 11. Stockpiles gained 27 billion cubic feet to total normal from Nov. 22 through Nov. 26, according to Weather
3.858 trillion, surpassing the mark of 3.84 trillion set last Derivatives in Belton, Missouri.
Support is at Rs 164. Resistance is at Rs 173/ Rs 177.
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