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NCDEX

Base Metals – A Global Perspective

June 08, 2006

Major Non Ferrous Metals

 Copper
 Aluminum
 Zinc
 Nickel
 Lead
 Tin

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Major Exchanges  LME All  COMMEX Copper*  SHFE Copper*  KTE Tin LME is synonym for Non Ferrous Metals More than 90 % of physical trade is based on LME prices *Aluminium Contract not liquid 3 .

Key Drivers  Commodity fundamentals  Demand-Supply (growth) Gap  Inventory  China!  Economic factors  GDP Growth  IP Growth  OECD leading indicators  Purchasing Manager’s Index  Others  Funds  Currency 4 .

6% Consumption 1243 1264 1260 1342 1406 1496 6.0% 0.1% 3.0% Balance -302 -1126 -272 148 289 282 Aluminium Production 28040 30013 31947 33653 35100 37730 7.5% 3.1% 4.7% Consumption 9668 10334 10420 11095 11575 12369 3.0% 6.9% Consumption 6829 7067 7382 7668 7945 8228 2.4% 7.3% 7.5% 3.1% 4.5% 4.0% 8.9% Balance 153 -217 -287 -418 -133 63 Nickel Production 1203 1260 Source: Macquarie Research.4% 4.4% 5.7% 5.9% 3.9% Consumption 15608 17061 16942 17915 18692 19634 3.5% Consumption 27876 30246 31738 33758 35160 37603 9.Base metals supply/demand summary '000 tonnes % Change Y-o-Y 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008 Copper Production 15306 15936 16670 18064 18981 19916 -0.8% 5.5% 4.2% 8.8% 2.9% Balance 164 -233 209 -105 -60 127 Zinc Production 9821 10116 10133 10677 11442 12432 1.2% 1.3% -0.3% 4.3% 5.7% 4.6% 3.4% 5.8% 6. February 2006 1292 1341 1408 1529 2.8% 7.8% 3.4% Balance -40 -4 32 -1 2 33 Lead Production 6782 6833 7237 7631 8023 8337 2.2% 5.7% 5.0% 8.9% 3.6% Balance -47 -234 -144 -37 78 109 5 .5% 4.5% 4.7% -0.8% 9.9% 5.4% 6.8% 6.9% 0.6% 8.6% 4.3% 6.4% 5.2% 6.4% 4.3% 6.9% 6.0% 0.

Al.Nominal Terms 160 140 120 100 80 60 40 20 1960 1975 1980 1950 1955 1965 1970 1985 1990 1995 2000 2005 Source: IMF. Pb Fe and uranium. 6 . Sn.  The IMF metal price index: Cu. How big is this bull market? IM F M e tal Price Inde x . it is similar to the late 80s bull market. Macquarie Research  This is only the fourth major bull market for the metals in the past 40 years.  In terms of scale. Zn.nominal te rms IMF Metal Price Index . Ni.

market inventories stayed at critically tight levels despite slowing economic growth – this is what supported prices then…and now. Market inventories extremely low Base metal stocks and prices (nominal) exchange/producer stocks: weeks of 2800 17 15 2300 LMEX Price Index 13 1800 demand 11 9 1300 7 800 5 300 3 1973 1974 1975 1977 1982 1983 1984 1985 1986 1991 1992 1993 1994 1995 2000 2002 2003 2004 1976 1978 1979 1980 1981 1987 1988 1989 1990 1996 1997 1998 1999 2001 2005 2006 Nominal Prices Exchange/Producer Stocks (Cu/Al/Zn/Pb/Ni) Stocks Trend Source: Macquarie Research April 2006. 7 .  In the late 1980s.

1990. 8 . 2000.Bloc 6231 Other E. 1950. 1960. 1970.  Chinese demand growth has caused a massive acceleration in world metals demand growth.Bloc 6000 China China 16386 West West Total 4014 15000 Total 5000 4000 10000 3000 2430 5878 2269 '000t '000t 1795 1566 5921 2000 5191 5000 3759 1000 2535 0 0 -1000 -2000 -5000 1950. Demand growth has accelerated Copper Demand Growth by Decade Aluminium Demand Growth by Decade 7000 20000 Other E. 2000- 1960 1970 1980 1990 2000 2010 1960 1970 1980 1990 2000 2010 Source: Macquarie Research April 2006. 1990. 1980. 1980. 1960. 1970.

China eating up huge amounts of metal 9 .

Although the relationship between the OECD LI and metals prices is not as strong as previously (due to the influence of China on prices). World Industrial Production 10% 12% Leading Indicator (6-Month Rate of Western World IP (% Change Y-o-Y) 8% 10% 8% 6% 6% 4% 4% Change) 2% 2% 0% 0% -2% -2% -4% -4% -6% -6% -8% W. 86 Macquarie88 90 Research. Industrial growth bottomed out OECD Leading Indicator and W. this is still a positive sign for 10 1H06. Source: 84 LME. OECD leading indicator points to an acceleration in growth rates in late 2005 and early 2006. 92 94 96 98 00 02 04 06 Source: Macquarie Research April 2006.Forward 6 Months -8% -10% 80 82 OECD. . World IP Leading Indicator .

Macquarie Research. LME. Economic indicators looking strong! Purchasing Managers' Indices and OECD Purchasing Managers' Indices and Base Metal Lead Indicator 60 Prices 60% 60 10% 58 50% 58 8% 56 40% 56 6% 54 30% 54 4% 52 20% 52 50 2% 50 10% 48 48 0% 0% 46 46 -10% -2% 44 44 -20% -4% 42 42 -30% 40 -6% 40 -40% 1999 2000 2001 2003 2004 2004 2005 2005 1998 1998 1999 1999 2000 2000 2002 2002 2004 2004 2006 1998 1998 1999 2000 2001 2002 2002 2003 2006 2001 2001 2003 2003 2005 2005 Average EU/US/Japan PMI (lhs) Average EU/US/Japan PMI (lhs) OECD lead indicaor (rhs) LMEX. 11 . Purchasing managers’ indices and OECD leading indicator telling the same story – industrial growth in the Western world is accelerating again. Reuters. In terms of year on year changes. % change yoy (rhs) Source: OECD. there is still a relationship between these indicators and metals prices.6 Source: Macquarie Research April 2006.

12 . February 2006 120bn by end 2006. Non-fundamental drivers: Investment fund inflows Total Commodity Index Funds  Around $80bn 80 estimated to be 70 invested in commodity index 60 funds at end 2005 up 50 from around $55bn at end 2004 and less $USbn 40 than $30bn at end 30 2003.  Industrial metals 7– 20 20% of the total 10 (depending on the index). 0  Prediction of fund 1993 1996 1997 2000 2003 2004 1990 1991 1992 1994 1995 1998 1999 2001 2002 2005 growth to $110– Source: Industry estimates.

3% 80% Agriculture Zinc 1.4% Precious 29% metals 70% 5% Copper 60% 3.7% 90% Nickel 1. Commodity index funds weightings in each commodity Industrial Metals Average Commodity Sector Weightings Weightings of Index funds of Index funds 100% Lead 0. February 2006 0% 13 .7% Industrial 50% metals 12% 40% Energy 54% 30% Aluminum 20% 4.2% 10% Source: Macquarie Research.

share of cash-three month open interest on LME 40% 35% 2001 2002 2003 2004 2005 30% 25% % of total 20% 15% 10% 5% 0% copper Aluminium Zinc Nickel Lead Source: Macquarie Research estimates. February 2006  Ignores impact of OTC (over the counter business) which could be substantial…nevertheless fund influence is obvious. Impact of index funds – share of nearby LME open interest Index funds . 14 .

What does rising US rates mean for prices? 190 10 Metal Prices $US 9 170 US Fed Funds Rate 8 150 7 Prices: LMEX Level 130 6 Rate: % 110 5 4 90 3 70 2 50 1 30 0 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: Macquarie Research April 2006. Interest rates……. prices are not that high 15 .  Measured in constant 2005 dollars.

16 . Current Scenario  We are in the midst of a massive bull market in base metals (midst or around the peak???)  The main drivers have been:  An acceleration in demand growth – largely due to China  A delayed supply response  More recently huge inflow of investment fund money into base metals.

Scenario Change  What could end the bull market?  A substantial slowdown/downturn in demand growth – driven by weaker economic growth  A strong supply response – looking less likely and farther  A slowdown or reversal of fund flows – driven by a fundamental change? 17 .

Commodity Bubble? 18 .

Commodity Bubble? 19 .

Commodity Bubble? 20 .

Commodity Bubble? 21 .

Commodity Bubble? 22 .

Opportunity NCDEX  Localized Contract Specification.  Small lots  Reflection of Realistic Domestic Demand  Arbitrage Opportunities  Encourage value-chain participants for hedging 23 .  Trading locally in INR prices.

2% Tick size Rs.0. 100/.0. 100/.per KG Delivery Center Bhiwandi Bhiwandi Additional Delhi Delhi Delivery Center * Excl of Excise /CVD.Mumbai* Trading Unit 2000 Kg (2MT) 1000 Kg (1 MT) Quotation Rs Per Kg Rs Per Kg Delivery unit 2000 Kg +/. Specifications Aluminum Copper Basis Ex.Bhiwandi* Ex.2% 1000 Kg +/. Cess & Sales tax) 24 .per KG Rs.

100/.0.Bhiwandi* Ex. Specifications Nickel Zinc Basis Ex.2% 2000 Kg +/.0. Cess & Sales tax) 25 .per KG Rs.Bhiwandi* Trading Unit 250 Kg 2000 Kg (2MT) Quotation Rs Per Kg Rs Per Kg Delivery unit 250 Kg +/.2% Tick size Rs.per KG Delivery Center Bhiwandi Bhiwandi Additional Delhi Delhi Delivery Center * Excl of Excise /CVD. 100/.

Thank You 26 .

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