Commodities Commodities: Daily

Focus: Nickel ‐ tightening up (spreads at least) 22 October 2013

Focus: Tom/next nickel traded out to $8 backwardation on LME Select this morning, Research Strategists compared to a valuation overnight of level. The spread continued to tighten and traded Walter de Wet, CFA* out to $12 backwardation on-line during the 1st ring session where it wasn't traded. The [email protected] tightness has meanwhile prompted short covering activity, with 3-month nickel prices +27-11-3787236 surging over 2% higher during the pre-market. Leon Westgate* [email protected] • There was an element of paralysis ahead of this afternoon’s delayed Nonfarm +44-20-31456822 Payrolls report, though the base metals managed to rally nevertheless, in spite of Melinda Moore* [email protected] a steady dollar and weaker Asian equity markets. Another round of buying interest +44-20-31456887 has emerged heading into the afternoon however.

• Today’s NFP data from the US is likely to have little impact on the market, given that the market would prefer to look at the October numbers instead, and the im- pact the government shutdown has had on the US labour market. However, mar- ket expectations seem to have shifted from December to April in terms of when the US Fed will start tapering asset purchases.

• The TSI Fe 62% China CFR price index fell $1.10/t to $133.30/t (MTD: $132.69/t). The Platts Fe 62% index fell $1/t to $133.75/t, while the TSI Fe 58% index re- mained flat, at $124.20/t. The Metal Bulletin Fe 62% index fell $1.01/t to $133.50/t, while its Fe 58% index fell 33 cents to $117.61/t.

Commodity price data (21 October 2013)

Base metals LME 3-month Change in Open HighClose Low Daily change Change (%) Cash Settle Cash - 3m cash settle Aluminium 1,846 1,850 1,864 1,841 5 0.24% 1,807.50 -1 -46.50 Copper 7,235 7,244 7,269 7,208 9 0.12% 7,225.50 -16 -19.00 Lead 2,179 2,190 2,192 2,173 11 0.50% 2,157.50 -1 -21.75 Nickel 14,193 14,365 14,500 14,183 172 1.21% 14,295.00 125 -55.50 Tin 22,700 22,800 22,995 22,700 100 0.44% 22,905.00 145 -43.00 Zinc 1,927 1,940 1,949 1,927 13 0.67% 1,907.00 -1 -34.75 Energy Open Close High Low day/day Change (%) ATM 1m vol ATM 6m vol ATM 1y vol ICE Brent 109.76 109.67 109.83 109.64 0.03 0.03% - - - NYMEX WTI 99.06 98.85 99.10 98.81 -0.37 -0.37% - - - ICE Gasoil 938.75 939.25 940.00 938.00 -2.25 -0.24% - - - API2 Q4'13 - 80.40 - - -0.30 - - - -

AM Fix PM Fix High bid Low offer Closing bid Change (d/d) EFP's 1,316.00 1,317.50 1,319.60 1,314.90 1,316.00 1.80 -0.5/-.1 Silver - 22.09 22.31 22.17 22.25 0.35 -1.0/+1.0 Platinum 1,439.00 1,438.00 1,447.00 1,430.00 1,438.00 697.00 +1.5/+3.5 Palladium 745.00 746.00 752.00 741.00 741.00 -696.00 +0.0/+1.0 Sources: Standard Research; LME; BBG

Please refer to the disclaimer at the end of this document *This document is not investment research, as it has not been prepared in accordance with the requirements designed to promote the independence of research. It therefore consti- tutes a “marketing communication” as defined by the UK FCA Handbook, and must not be considered a Research Report under US or any other regulatory regime. U.S. Disclosure: Group Limited does and seeks to do business with companies covered in its reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Commodities Daily — 22 October 2013

Focus: Nickel - tightening up (spreads at least) LME Nickel stocks by region 280000 25.0% Tom/next nickel traded out to $8 backwardation on LME Select 240000 this morning, compared to a valuation overnight of level. The 20.0% spread continued to tighten and traded out to $12 backwardation 200000 on-line during the 1st ring session where it wasn't traded. The 15.0% 160000 tightness has meanwhile prompted short covering activity, with 3- 120000 month nickel prices surging over 2% higher during the pre- 10.0% market. 80000 5.0% In terms of why the tightness has emerged, we note from the 40000

latest LME Warrant Holdings data the presence of a dominant 0 0.0% holder of cash warrants in the 40-49% band and the dominant Jan‐08 Jan‐09 Jan‐10 Jan‐11 Jan‐12 Jan‐13 holder of tom warrants in the 30-39% band. From the LME Fu- US on‐wrnt US cnx‐wrnt tures Banding data, we also note the presence of a short position on‐wrnt Asia cnx‐wrnt Euro on‐wrnt Euro cnx‐wrnt holder for November in each of the 5-9%, 10-19% and 20-29% M‐East on‐wrnt M‐East cnx‐wrnt bandings. Inventory as % of OI

As noted in previous reports, structurally, nickel is not particularly Source: LME; Standard Bank well disposed to cope with bouts of additional borrowing interest Ultimately, as participants become more accustomed to at the moment. In percentage terms, LME stocks of nickel ac- the relative lack of length in the market, episodes of pro- count for around 17.6% of market open interest currently, not far nounced tightness should instead be replaced by small off aluminium at 18.5% and well above the likes of copper at only skirmishes. Large speculative shorts are still vulnerable 4.2%. What this means is that, owing to the associated short however should they look to roll positions forward, which physical hedge attached to the LME inventory, there are signifi- should help provide some background support to outright cantly more natural borrowers of the nearby spreads than is the prices. In that regard, it’s worth noting that since the re- case in some of the other LME metals. cord open interest seen during LME week, open interest If you add a speculative short position into the mix, at times the has declined around 5%, while prices have rallied by a liquidity or rather the natural length in the market simply isn’t similar amount, suggesting short covering has indeed be there to roll the short position without causing some tightness in the main theme over the past week or so, regardless of the nearby spreads. This appears to be the case at the moment, this morning’s tom/next hiccup. though it is debateable how protracted the tightness will be. By Leon Westgate

Base metals

There was an element of paralysis ahead of this afternoon’s delayed Nonfarm Payrolls report, though the base metals man- aged to rally nevertheless, in spite of a steady dollar and weaker Asian equity markets. Another round of buying interest has emerged heading into the afternoon however.

Given the timing of the Nonfarm data relative to the US Government shutdown, disappointing figures - 148K vs expectations of 180k - saw the dollar weaken and thoughts turn to a likely delay in Fed tapering. After the initial reaction however, the market is likely to wait till the October Nonfarm and unemployment data is released in early November for confirmation.

Copper has traded above $7,270 heading into Tuesday afternoon, with dull sideways trading overnight giving way to a decent rally heading into US trade. Turnover has been surprisingly rather muted however with participants holding back ahead of the Nonfarm data. In other news, Zambia has meanwhile suspended the 10% export tax imposed on ores and concentrates. The tax is suspended until September, and was effective from October 4th and applies to copper, lead, nickel, silver, uranium and zinc. A shortage of local smelting capacity has seen stocks of copper concentrate build up, resulting in several miners asking the government to waive the tax. It is likely that the spare concentrate will end up being processed in India or China.

Aluminium has been the busiest of the LME metals so far on Tuesday, with turnover on LME Select well ahead of copper heading into the afternoon. Prices have run out of steam on the approach of $1,880, though they still remain well-supported. Elsewhere, nickel and tin have both surged over 2% higher over the course of the morning, nickel boosted by the emergence of tightness in the nearby spreads and tin by short covering after prices traded back towards the bottom of its recent range and refused to budge any lower.

By Leon Westgate

2 Commodities Commodities Daily — 22 October 2013

Precious metals

Today’s NFP data from the US is likely to have little impact on the market, given that the market would prefer to look at the October numbers instead, and the impact the government shutdown has had on the US labour market. However, market ex- pectations seem to have shifted from December to April in terms of when the US Fed will start tapering asset purchases.

Physical demand has slowed over the past few days, which could drain some support for gold. That said, we would expect demand to improve should gold fall below $1,300.

This morning, Swiss customs data for September was released. The data pointed to platinum demand which remains lacklus- tre, with Switzerland being a net importer of metal once again, although the net import number was small, at only 7,234ozs. This is the fourth consecutive month that metal flowed into Zurich faults on a net basis.

Consistent with yesterday’s Chinese data, Swiss data pointed to China and Hong Kong taking only a small amount of palla- dium during September (1,157ozs), but relatively large amounts of platinum (108,770ozs), underscoring once again how sensi- tive platinum demand is to price decreased (and increases). We would expect platinum and palladium to struggle, together with gold.

Gold support is at $1,305 and $1,283. Resistance is at $1,330 and $1,346. Silver support is at $21.20 and $21.01, resistance is at $22.10 and $22.20. Platinum support is at $1,415 and $1,400. Resistance is at $1,435 and $1,450. Palladium support is at $740 and resistance at $750. By Walter de Wet

Bulks

Sentiment is still negative in Chinese steel markets, with both macro and micro indicators showing “red”.

Chinese new home prices continued to rise across 69/70 cities measured, with Shenzhen and Guangzhou up 20% y/y; Shang- hai up 17% and Beijing up 16% y/y and only Wenzhou falling, while domestic loans to developers rose 50% y/y in September to purchase residential land parcels & develop sites. In Beijing, existing home sales rose 18% y/y. As we have argued for the past 2 years, 2012’s policies to restrict new Chinese housing developments, causing commodity demand to drop to just 3% y/y, has proved a poisoned chalice for property supply levels.

Shanghai Equities weakened on the back of the stronger housing data, given the policy risks the strong rises present for Bei- jing officials, dropping 0.83% to 2211 points. Shanghai 7-day interbank rates were at 3.45%, with a danger of rising.

China’s PBOC is beginning to message that the Authority could shift towards tightening in CPI accelerates, the first negative messaging since H1. This suggests reverse repos may begin to reduce in both volume and frequency, potentially lifting stock holding costs. With steel mills holding high levels of IO inventories (average 30 days), this holds down-side risks for IO prices.

Shanghai Rebar Futures Jan-14 active contract closed RMB 13/t @ RMB 3,557/t, while the May-14 contract closed off RMB 1/t @ RMB 3,643/t. Dazong HRC Dec-13 futures shifted off RMB23/t to RMB 3,490/t.

Among physical steels, Tangshan billet prices recovered RMB20/t to RMB 2090/t today. Rebar prices traded flat in both Shanghai and Beijing, in the range of RMB 3,400-3,460/t. HRC prices traded flat in Shanghai and Beijing, after Monday’s falls, ranging RMB 3450-3490/t. Hebei I&S will drop its November HRC list prices by RMB 150/t, taking its ex-works prices to RMB 3,600/t (incl. 17%).

Chinese pig iron output reached 59.04mt in September, up a very strong 11.2% y/y and compared to 59.9mt in August. On a days-adjusted basis, this is equivalent to 1.968mt/day, versus 1.933mt/day prior. February has proved the peak for Chinese pig iron this year, reaching 2.038mt/day. We expect pig iron production to drop in November/December by c. 2-3mt/month, reducing IO consumption by 3-5mt/month, just as the market begins to head into over-supply. Although some restocking mo- mentum will keep IO prices relatively strong, with mills already holding adequate stocks, our modelling does suggest prices need to weaken from their current $134-5/t levels.

World steel output in September rose to 132mt, annualising to 1.612bln tonnes, up 6.1% y/y, with China responsible for 6.5mt of the 7.6mt drive in annual growth rates. European output picked up in September m/m to 14.3mt from 12mt in August, while India is heading for an 80mt year, up from 77.6mt in 2012, a far cry from the many bullish forecasts as the country’s high inter- est rates and debt levels continue to curb growth momentum.

Dalian Commodity Exchange IO active May-14 contract prices fell RMB 21/t to RMB 948/t.

3 Commodities Commodities Daily — 22 October 2013

Among physical iron ore, a BHPB Newman Fe 62.7% fines tender went through at $135.19/t, while another MNP cargo traded on globalORE at a $2.40/t premium to Nov prices. Local Chinese platform CBMX was quiet again while Rizhao saw two trades: a south Brazil fines at RMB 845/t and a Fe 50% fines for RMB 345/t. Port stocks are trading at RMB 930-935/t North China for PB fines.

The TSI Fe 62% China CFR price index fell $1.10/t to $133.30/t (MTD: $132.69/t). The Platts Fe 62% index fell $1/t to $133.75/t, while the TSI Fe 58% index remained flat at $124.20/t. The Metal Bulletin Fe 62% index fell $1.01/t to $133.50/t, while its Fe 58% index fell 33 cents to $117.61/t.

Mysteel’s Fe 62% index fell by 25 cents to $134.25/t, while its Fe 58% index fell by 25 cents to $122.75/t.

In IO supply news, BHPB has raised its IO production target for FY14 by 5mt, from 207mt to 212mt, following stronger ramp- up rates and the use of 4 mobile crushers. The miner shipped 53.56mt (10mt lump; 35mt fines) from WAIO in Q3:13, up 22.9% y/y, although below Q2 rates of 54mt. The miner has begun shipping from its 35mtpa Jimblebar project during October, 6 months ahead of schedule - full-ramp up is expected by mid-2015. The company continues to evaluate the expansion of Jimblebar to 55mtpa and debottlenecking, which would see total WAIO capacity lift to 260-270mtpa. BHPB’s share of Samarco’s pellets fell 5.2% y/y tp 2.7mt, with capacity to increase to 30mtpa by end-H114, once its new 8.3mtpa pellet plant is installed.

Sundance Resources is planning to raise $A40m via convertible notes from Noble Resources and an investor group, which will include Blackstone, DEShaw & Senrigan Capital for Mbalam-Nabeba working capital purposes crossing Cameroon/Congo.

Vale has been shipping more strongly over the past 2 weeks, particularly from Guaiba, lifting Brazilian exports back over 7.1mt/week, versus just 6mt 2 weeks ago. Glencore has signed with Solid Resources to explore the re-development of the former Cehegin IO mine in Spain, taking a 20% stake.

The Baltic Exchange Cape index shifted off 3.8% to $26,944/day, with C3 off 1.8% @ $25.41 /t and C5 off 1,2% @ $10.47 /t.

For Q4:13 thermal coal prices, API 2 is trading at $85.05 /t; API 4 is trading at $87.80/t; while Newcastle is trading at $86.70/t. Given slow restocking into across September due to the Drummond strike, demand remains in catch-up mode for API2. Coupled with the fact that Q1 may see various port bottlenecks in Colombia as new projects reach completion, the mar- ket has become increasingly nervous. RB1’s Q1 rally is a little more confusing to explain: although Chinese prices are slightly stronger, NEWC has failed to match any re-stocking momentum ahead of winter or poor weather threats. The market also did not react to immediate bushfire threats for NEWC supplies.

Cerrejon’s rail was fully restored last Friday after recent terrorist destruction, with YTD exports at 24.6mt and expectations for c.32-33mt in 2013, lifting towards 38mt next year. Newcastle exports rose 0.6% to 3.2mt for the week to 21-Oct. Vietnam’s Q3 exports fell due to bad weather and higher export taxes, off 37% from H1 to just 2.2mt.

China’s Zhengzhou Futures Jan-13 active contract price rose RMB 1.2/t to RMB 560,2/t. Platts and Fenwei are joining together to publish daily Chinese thermal coal assessments, including 5500NAR QHD FOB and Southern China CFR prices. China 5500NAR is trading at RMB 530-540/t, up RMB 5/t w/w.

Bushfires in NSW has thus far managed to avoid the Hunter Valley region’s coal miners, although a fire swept within 3kms of Glencore’s Mangoola thermal mine. BHPB has evacuated some miners from Illawarra-Kembla coking mines, as a pre- cautionary measure. Weather conditions are being monitored closely in case they deteriorate.

BHPB exported 2.5mt of thermal coal from South , together with 4mt from NSW, while Cerrejon (33%) shipped 9.3mt in Q3, up from 9.04mt in Q2 and 4.54mt in Q1, following the resolution of 32-day strike action across Feb/March. Cerrejon is 79% complete on its 8mtpa expansion to c.40mtpa by end of December. At Newcastle, BHPB’s terminal capacity is on track to add 13mtpa of capacity in 2014, with coal already loading.

Coking coal spot prices are trading in the $144-149/t Qld FOB range, meeting some resistance. Mozambique’s Beira port has been closed due to bad weather.

BHPB produced 17.4mt of met coal during Q3:13, up from 14,56mt y/y. The miner expects to complete its 5.5mtpa Caval Ridge mine in Qld during H1:14, however Haypoint’s 11mtpa expansion will not be completed until 2015.

On the Dalian Exchange, Jan-14 coke price traded off RMB 13/t d/d to RMB 1,576/t, while HCC prices closed off RMB 13/t d/d to RMB 1,129/t.

By Melinda Moore

4 Commodities Commodities Daily — 22 October 2013

Base metals

Daily LME Stock Movement (mt) YTD Cancelled Cancelled One day change warrants warrants Contract Metal Today Yesterday In Out change (mt) (mt) (%) turnover Aluminium 5,407,525 5,415,675 . 8,150 -8,150 197,475 2,058,525 38.07 157,452 Copper 494,850 497,500 . 2,650 -2,650 174,800 255,750 51.68 110,360 Lead 232,825 232,825 0 -87,500 55,600 23.88 41,962 Nickel 230,760 230,040 1,164 444 720 90,852 65,106 28.21 66,842 Tin 13,010 12,935 100 25 75 185 2,385 18.33 8,204 Zinc 1,055,775 1,061,025 . 5,250 -5,250 -164,975 539,900 51.14 98,146 Shanghai 3-month forward prices COMEX active month future prices Metal Open Last 1d Chnge Open Close Change Change (%) Aluminium 14,345 14,375 30 Ali Nov'13 - - - - Copper 52,260 52,190 90 Cu Nov'13 330 329.80 -0.55 -0.17% Zinc 15,080 15,055 10

ZAR metal prices Aluminium Copper Lead Nickel Tin Zinc ZAR/USD fix Cash 17,795 71,135 21,241 140,734 225,500 18,774 9.8450 3-month 18,458 72,277 21,851 143,327 227,487 19,356 9.9775

Energy

Energy futures pricing Price Change Price Change Price Change Price Change Price Change 1 month 2 month 3 month 6 month 1 year Sing Gasoil ($/bbbl) 124.34 0.07 123.45 0.16 122.88 0.16 121.95 0.15 121.14 0.51 Gasoil 0.1% Rdam ($/mt) 939.25 -2.25 932.75 -1.75 928.25 -1.75 919.50 1.00 903.50 0.75 NWE CIF jet ($/mt) 1,001.09 0.73 1,000.75 1.33 996.88 0.83 995.46 3.89 975.26 0.81 Singapore Kero ($/bbl) 123.71 0.08 124.03 0.19 123.63 0.21 122.44 0.09 120.37 0.10 3.5% Rdam barges ($/mt) 584.61 0.20 583.91 -2.12 581.44 -2.40 582.65 -2.37 576.92 -1.86 1% Fuel Oil FOB ($/mt) 603.07 0.69 602.45 -1.31 605.39 -1.47 607.84 -2.05 Sing FO180 Cargo ($/mt) 617.18 1.44 612.72 -1.68 608.06 -2.40 606.24 -2.78 Thermal coal Q4 13 Q1 14 Q2 14 Cal 14 Cal 15 API2 (CIF ARA) 80.40 -0.30 78.60 -0.40 80.25 -0.55 81.50 -0.50 88.30 -0.45 API4 (FOB RBCT) 79.35 -0.20 81.50 -0.15 81.00 -0.10 81.50 -0.15 85.30 -0.35

Precious metals

Forwards (%) 1 month 2 months 3 months 6 months 12 months Gold -0.04833 -0.03333 -0.01500 0.02667 0.12800 Silver 0.62000 0.61600 0.61800 0.61200 0.56800 USD Libor 0.17000 0.21000 0.23860 0.35840 0.61310 Technical Indicators 30-day RSI 10-day MA 20-day MA 100-day MA 200-day MA Support Resistance Gold 47.88 1,296.97 1,308.39 1,326.58 1,434.17 1,312.97 1,315.72 Silver 50.46 21.71 21.75 21.41 24.32 22.01 22.22 Platinum 49.48 1,404.07 1,402.17 1,438.56 1,502.59 1,428.93 1,436.55 Palladium 56.44 723.92 719.65 719.99 727.38 746.50 751.25 Active Month Future COMEX GLD COMEX SLV NYMEX PAL NYMEX PLAT DGCX GLD TOCOM GLD CBOT GLD

Settlement 1,313.20 22.0750 748.35 1,438.60 1,313.20 4,159.00 1,315.90 Open Interest 381,726 114,173 37,310 59,322 1,037 99,768 311 Change in Open Interest -2,485 -327 517 170 116 -274 0 Sources: Standard Bank; LME; Bloomberg

5 Commodities Commodities Daily — 22 October 2013

Bulks Percentage change Latest Price Steel—Physical 1-day 1-week 1-month 3-month 6-month 1-year Turkish Scrap 80:20 (Iskinderun CFR) $/t 365.73 - - 4.10% 1.59% -3.98% -1.66% China Tangshan Steel Billet $/t 489.00 - -0.81% -1.61% -3.17% -5.96% -4.49% China HRC export (Shanghai FOB) $/t 525.00 - - -4.55% 2.94% -6.75% -1.69% North Europe HRC domestic (ex-works) $/t 437.50 - - -4.89% 1.74% -7.41% -4.89% HRC domestic (Midwest FOB) $/t 658.00 - 1.70% 2.17% 2.17% 11.15% 13.45% Steel—Futures LME Billet Cash $/t 215.00 - -2.27% 13.76% 77.69% 41.22% -37.68% LME Billet Futures (1-mth) $/t 220.00 - -2.65% 10.55% 71.21% 38.80% -36.23% LME Steel Billet Stocks—change -520.00 ------Shanghai Rebar Futures (Active contract) $/t 539.39 -0.57% -2.35% -5.98% -6.05% -5.24% -10.70% Shanghai Rebar Futures O/W Stocks—change 0 ------SHFE Rebar - Open Interest 498 ------SHFE Rebar - Total Volume 40 ------China Steel Inventory (million tonnes) 14.31 - -2.26% -1.52% -6.77% -29.27% 9.72% Iron ore China Iron Ore Fines (62% Fe; CFR Tianjin) $/t 134.40 - 0.60% 1.51% 2.21% -2.61% 14.38% China Iron Ore Fines (58% Fe; CFR Tianjin) $/t 124.20 - 1.06% 1.31% 3.33% -3.87% 16.95% SGX AsiaClear IO Swaps 62% Fe $/t (1-mth) 132.31 - -0.33% -1.49% 4.59% -3.95% 17.35% SGX AsiaClear IO Swaps 62% Fe—Open interest 41,433 ------China Iron Ore Inventory (million tonnes) 71.39 - 1.12% 2.26% 1.20% 5.43% -18.67% Coking coal Premium Hard Coking Coal (Qld FOB) $/t 149.75 - - -0.86% 8.12% -3.39% -0.17% Capesize freight Tubarao Brazil-Beilun China (C3) ------Pilbara Australia-Qingdao China (C5) ------Saldanha -Beilun China 21.55 - -2.71% -6.71% 53.93% 69.02% 24.93% Tubarao Brazil to Rotterdam Europe ------Saldanha South Africa-Rotterdam Europe ------Financials pricing RMB Currency 6.0940 -0.00% -0.14% -0.44% -0.77% -1.42% -2.57% China 7-day repo 3.6600 - -5.2% -16.8% -3.7% 16.2% 37.6% Shanghai Equities Composite 2,214.5115 -0.66% -0.85% -0.29% 10.46% -1.23% 3.83%

Sources: Standard Bank; LME; Bloomberg

6 Commodities Commodities Daily — 22 October 2013

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7 Commodities Commodities Daily — 22 October 2013

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8 Commodities