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Commodity Research Report 14 March 2017 Ways2Capital .pdf



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MCX WEEKLY NEWSLETTER
✍ BULLION
On the demand side, there are signs of revival as demand is showing signs of pick up in India as the
impact of demonetization fades. Imports also usually jump post the budget as the duty related
uncertainty goes away. A decline in prices will also help physical demand to tick up in India and China.
SPDR holdings meanwhile increased by ~43 tonnes in February but holdings are down by ~17 tonnes
this month. If gold prices sustain below, we could see more investment outflows in the coming days
which could weigh on prices.US economic data continues to be better and the latest jobs data provided
further confirmation. Non-farm payrolls increased by 235k last month and the unemployment rate ticked
down to 4.7%. Wage growth was lightly disappointing in m/m terms earnings increased by a healthy
2.8% y/y. The total of employed Americans surged by 447,000 to 152.5 million, the highest ever. Initial
jobless claims remain near a 43-year low. Claims have now remained below 300k for 102 straight
weeks, the longest stretch since 1970. Apart from better jobs data, another factor that will help the Fed
to raise rates is that inflation readings are ticking up. The consumer price index (CPI) increased 2.5%
y/y in January, the biggest year-on-year gain since March 2012. US PPI increased for a second straight
month, rising 1.6% y/y. Wholesale inventories increased 1.0% and wholesale stocks excluding autos
increased 0.9%. Inventory investment contributed one percentage point to the economy's 1.9%
annualized growth rate in Q4. Importantly, the data showed that sales at wholesalers jumped 2.6% in
December, the largest increase since March 2011. Data earlier showed that activity in the mid-Atlantic
region accelerated to a two-year high, amid jumps in new orders, employment and inventories. US retail
sales and producer prices in December came in mostly in line with forecasts. Retail sales rose in
December amid strong demand for automobiles and furniture. Business inventories increased 0.7%, the
biggest increase since June 2015. US economy however expanded at a slower annual rate of 1.9% in Q4
after a 3.5% advance in Q3. Much of the slowdown was due to the fact that soyabeans exports fell after
a strong jump in Q3. Excluding soybean, GDP increased at about a 2.7% rate in both the third and fourth
quarters suggesting that the underlying growth momentum remains strong. Growth accelerated from a
1.4% advance in Q2 and a 0.8% increase in the first three months of 2016. Consumer spending
increased at a 2.5% rate in the fourth quarter. The GDP forecast for real GDP growth in Q1 of 2017 is
2.4%. 4.4 4.5 4.6 4.7 4.8 4.9 5 5.1 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 Nov-15
Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
Jan-17 Feb-17 US Jobs Market Nonfarm Payrolls Source: Reuters Unemployment Rate (RHS) 35000
45000 55000 65000 75000 85000 95000 -50000 0 50000 100000 150000 200000 250000 300000 Oct14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Speculative Positioning Gold Net
longs Silver Net longs(RHS) Precious Metals Weekly Please refer to the disclaimer at the end of

Tuesday, 14.March.2017

the report. 3 Over the last few months, readings on manufacturing and services have also
rebounded. The ISM manufacturing PMI came in at 57.7 in February, up from 56 in January, the
highest in three years. The ISM Non-Manufacturing PMI came in at 57.6, boosted by business
activity and employment. While rate hikes have been much talked about and hence factored into
prices till a considerable degree, political uncertainty emanating from Europe could potentially be
price positive. Elections in Netherland are due this week and a win of a far-right candidate could
create considerable uncertainty in the region. Euro-skeptic candidate Geert Wilders has gathered
momentum among Dutch voters in this year's campaigning. The polls suggest that she may come
second but chances of a surprise are high considering the latest controversy between Turkey and
Netherlands. Turkey has suspended high-level diplomatic relations with the Netherlands after Dutch
authorities prevented its ministers from speaking at rallies of expatriate Turks. This will also help
prospects of the anti-Islam Geert Wilders and keep risk premium elevated in gold. If she wins, we
could see a risk off sentiment and a rebound in gold as it would create fears of similar results in the
French election. In France, markets are assigning a low probability to the victory of Marine Le Pen
but we have seen how markets have gone wrong with Brexit and Donald Trump. Le Pen, the far
right candidate has spoken about exiting the Euro zone and redenominating France’s national debt
in francs. This is a huge potential risk to global market stability and her victory could push safe
haven demand significantly higher and help gold and silver.

✍ BASE METAL
MCX Zinc prices cracked last week, trading close to the lowest in the month. Resistances for the
futures are placed at 183.65, 185.65 and 188, while supports on the downside are at 179.25 and
176.5. .Copper was among a slew of commodities that posted their biggest weekly decline in months
last week after recent rallies showed signs of petering out, pressured by a glut and tepid demand from
top consumer China. BHP Billiton last week planned to present workers with an improved offer. What
is more, under Chilean employment law, after 30 days of strike, BHP Billiton can bypass the union and
legally make individual offers to workers in a bid to encourage them to resume production. If BHP
Billiton succeeds in persuading more than half of the workforce to return to work, the union would
have to admit defeat and the strike would end. The current strike at Escondida mine is the third-longest
so far in recent Chilean mining history. Production at Grasberg mine in Indonesia will be resumed to
supply a local smelter with copper concentrate. According to the mine’s operator, production is to run
at 40% capacity. New trouble is brewing in Peru, at the Cerro Verde mine. Over half of workers will be
going out on strike for an indefinite period. The mine was expanded significantly at the end of 2015
and is the country’s largest copper mine Speculators cut their bullish position by 13,511 lots to 57,149
lots in copper, bringing it to the lowest level since November. Copper stocks in LME-registered
warehouses are up 125,500 tons, or 63%, higher than at the start of March and at their highest since

December. The coordinated nature of this inflow suggests the bear-bull battle that raged sporadically
across the London market last year has started again. Treatment and refining charges for tradertosmelter deals for shipments to China are reported to have fallen to roughly $70 a ton, at a 4 year low.
TC-RC’s are an important indicator of market tightness. A steep drop in China’s aggregate financing,
seen as a proxy for credit available to store metals, spooked traders that Beijing may be clamping down
on the type of credit used by the metals industry. U.S. employers hired workers at a robust pace of
235,000 in February, beating expectations, which could give the Federal Reserve the green light to
raise interest rates this week despite slowing economic growth. Nickel also cracked last week, with an
8% weekly drop, widest since May 2015, on concerns that mine supply from Philippines may pick up
just as Indonesia resumes exports. Supply-side uncertainties in Indonesia and the Philippines continue
to dominate nickel price sentiment – the latest development is of more Indonesian companies receiving
approval to resume nickel-ore exports, following the release last week of further details from
government. LME stocks total 384,978 tons, up 3.5% in the year to date amid busy two-way flows.
There is little sign of tightness in the market. Indonesian state miner PT Aneka Tambang Tbk will
apply next week for a permit to export 6 million tons of nickel ore for year. Nickel prices are set to
remain volatile as the market continues to react to supply-side developments. But the recent softening
of fundamentals implied by the INSG, coupled with the large overhang of visible stocks, suggests
prices will remain low from a historical perspective without greater supply-side discipline. 0 0.5 1 1.5
Escondita Grasberg Morenci Buenavista Del Cobre Collahuasi El Teniente Copper King Disruptions
are impacting production at world's two largest copper mines Source: International Production
Capacity Copper Study Group Please refer to the disclaimer at the end of the report. 3 Philippines’
mining industry expressed its confidence that Commission on Appointments will reject Gina Lopez as
Environment secretary, emphasizing that she was unable to persuade the members of the committee.
Nickel prices fell 10% as bears believe there will be rejection. The Philippines is top nickel ore
exporter and Lopez’s approval would probably sustain worries over supply disruptions that could lift
global prices this year. On other hand, rejection would give miners a key win in battle against
environmentalists, adding pressure to nickel prices.

✍ ENERGY
WTI prices fell below the psychological $50 mark for the first time since December as the optimism
built up post the OPEC deal started to fade. OPEC producers have implemented nearly 98% of the
agreed cuts as per latest data. Estimates show that supply from the 11 OPEC members with production
targets fell to 29.88 million bpd last month. Production by all OPEC members, including cut-exempted
Nigeria and Libya, fell to 32.14 million bpd. Saudi Arabia, which raised oil production to a record this
year took a bigger burden of the cut and has reduced output by more than 700,000 bpd to 9.74 million
bpd. Iraq’s compliance still hasn’t come fully but more output cuts are likely in the coming weeks.
Non-OPEC compliance has been a concern with some estimates suggesting only ~60% compliance so

far. The OPEC and IEA monthly reports due this week will give better understanding about Tuesday,
March 14, 2017 Energy Weekly 2 Please refer to the disclaimer at the end of the report. 100 120 140
160 180 200 220 240 260 280 200 275 350 425 500 575 US inventories Crude stocks gasoline RHS
distillate RHS the level of compliance. We believe that unless all producers come fully on board to
implement their quotas, oil prices could remain under pressure as other factors are outweighing the
supply cuts. A bigger worry is the fact that Russia also hasn’t cut output as per the agreed terms with
February production unchanged from January at 11.1 mbpd. Brazil’s oil exports also have been
climbing with February exports at a record 1.63 mbpd. Brazil is not a part of the non-OPEC group that
agreed to production cuts. Meanwhile, given that Libya and Nigeria are exempt, a rebound in their
production will increase OPEC output even if other members stick to their quotas. Nigerian output was
higher at 1.8 million bpd as per latest data, up 0.2 mbpd from 1.6 million bpd in January. Libya’s oil
output is also edging higher and is close to 0.70 million bpd. While the production cut is surely
medium term price positive, the biggest headwind to prices is the re-emergence of shale producers. US
oil rig count has been increasing since June and is now at its highest since October 2015. Weekly data
from EIA shows that US oil production is above 9.0 million bpd and latest EIA forecasts show that oil
production could average 9.2 million bpd this year. US shale oil output hit a low of around 8.46 million
bpd in July 2016. EIA forecasts show that US shale oil production is expected to rise again in April by
109,000 bpd to 4.96 million bpd suggesting that shale is surely making a comeback at this level of oil
prices. On the inventory side, US oil stocks have increased for nine straight weeks, touching a record
528 million barrels, a record high. Crude oil inventory increase since the start of this year has been ~50
million barrels. Gasoline and Distillate stocks are also near the upper end of the five-year range. In
Europe, stocks at the Amsterdam-RotterdamAntwerp (ARA) are down 9.4% y/y to 46.54 million
barrels. It remains to be seen if reduced OPEC supply leads to significant inventory drawdown in the
coming months. In the natural gas market, prices rebounded sharply as weather supported in the recent
days.

✍ MCX DAILY LEVELS
DAILY

EXPIRY DATE

R4

R3

R2

R1

PP

S1

S2

S3

S4

ALUMINIUM

31 MAR 2017

127

126

125

124

123

122

121

120

119

COPPER

28 APR 2017

396

393

390

387

385

382

379

376

373

CRUDE OIL

20 MAR 2017

3290

3270

3250

3230

3210

3190

3170

3150

3130

GOLD

05 APR 2017

31580

31480

31380 28280 31180 31080

30980

30880

30780

LEAD

31 MAR 2017

154

153

152

151

150

149

148

147

146

NATURAL GAS

28 MAR 2017

209

207

205

203

201

199

197

195

193

NICKEL

31 MAR 2017

690

685

680

675

670

665

660

655

650

SILVER

05 MAY 2017

41000

40800

39600

39400

ZINC

31 MAR 2017

185

184

183

182

181

40600 40400 40200 40000 39800
180 179

178

177

✍ MCX WEEKLY LEVELS
WEEKLY

EXPIRY

R4

R3

R2

R1

PP

S1

S2

S3

S4

ALUMINIUM

31 MAR 2017

130

128

126

124

122

120

118

116

114

COPPER

28 APR 2017

402

397

392

387

382

377

372

367

362

CRUDE OIL

20 MAR 2017

3320

3290

3260

3230

3200

3170

3140

3110

3080

GOLD

05 APR 2017

28900 28750

28500

28280

28150

27950

27750

27550

27200

LEAD

31 MAR 2017

157

155

153

151

149

147

145

143

141

NATURAL GAS

28 MAR 2017

213

210

2017

203

200

197

194

191

188

NICKEL

31 MAR 2017

705

695

685

675

665

655

645

635

625

SILVER

05 MAY 2017

40700

40400

40100

39800

39500

39200

38900

ZINC

31 MAR 2017

184

182

180

178

176

174

172

41300 41000
188

186

✍ FOREX DAILY LEVELS
DAILY

EXPIRY DATE

USDINR

29 MAR 2017

EURINR

R4

R3

R2

R1

PP

S1

S2

S3

S4

66.65 66.55

66.45

66.35

66.25

66.15

66

65.90

65.80

29 MAR 2017

71.25 71.05

70.90

70.75

70.60

70.45

70.30

70.15

70

GBPINR

29 MAR 2017

81.70 81.50

81.30

81.10

80.90

80.70

80.50

80.30

80.10

JPYINR

29 MAR 2017

58.30 58.15

58

57.85

57.70

57.55

57.40

57.25

57.10

✍ FOREX WEEKLY LEVELS
DAILY

EXPIRY DATE

R4

S1

S2

S3

S4

USDINR

29 MAR 2017

66.97 66.77 66.57

66.37 66.17

66

65.80

65.60

65.40

EURINR

29 MAR 2017

71.50 71.25

70.75 70.50 70.25

70

69.75

69.50

GBPINR

29 MAR 2017

81.70 81.40

81.10 80.80 80.50

80.20

79.90

79.60

JPYINR

29 MAR 2017

58.70 58.40 58.10

57.85 57.60 57.30

57

56.70

56.40

82

R3

R2

71

R1

PP

TECHNICAL PERSPECTIVE
Gold prices have tested the immediate support of 50% retracement mark in the previous week and
settled just above it along with a Doji candle stick formation on the daily chart. Going ahead, prices
are likely hold the support of 50% retracement level for this week and could lead to recovery in the
coming session till 29650 then 29860 levels. However a convincing close below 29300 will extend
fall till the next key support of 61.8% retracement level of 27960. Momentum indicators, MACD is
still on a positive note, while the RSI indicator sharply declined from 0.49 – 0.44.

MCX Copper corrected last week amidst all the strike concerns globally and rising LME inventory.
We expect prices to take resistance at 389 and 394.7 above which prices may turn positive for the
short term. Strong supports on the downside are placed at 378 and 372.5.

MCX Zinc prices cracked last week, trading close to the lowest in the month. Resistances for the futures
are placed at 183.65, 185.65 and 188, while supports on the downside are at 179.25 and 176.5


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