Major Non Ferrous Metals

1
(No Transcript)
2
Major Non Ferrous Metals

• Copper
• Aluminum
• Zinc
• Nickel
• Lead
• Tin

3
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

4
Key Drivers

• Commodity fundamentals
• Demand-Supply (growth) Gap
• Inventory
• China!
• Economic factors
• GDP Growth
• IP Growth
• OECD leading indicators
• Purchasing Managers Index
• Others
• Funds
• Currency

5
Base metals supply/demand summary
Source Macquarie Research, February 2006
6
How big is this bull market?
Source IMF, Macquarie Research

• This is only the fourth major bull market for the
  metals in the past 40 years.
• In terms of scale, it is similar to the late 80s
  bull market.
• The IMF metal price index Cu, Al, Zn, Ni, Sn, Pb
  Fe and uranium.

7
Market inventories extremely low
Source Macquarie Research April 2006,

• In the late 1980s, market inventories stayed at
  critically tight levels despite slowing economic
  growth this is what supported prices thenand
  now.

8
Demand growth has accelerated
Source Macquarie Research April 2006,

• Chinese demand growth has caused a massive
  acceleration in world metals demand growth.

9
China eating up huge amounts of metal
10
Industrial growth bottomed out
Source OECD, LME, Macquarie Research,
Source Macquarie Research April 2006,
OECD leading indicator points to an acceleration
in growth rates in late 2005 and early
2006. Although the relationship between the OECD
LI and metals prices is not as strong as
previously (due to the influence of China on
prices), this is still a positive sign for 1H06.
11
Economic indicators looking strong!
Source OECD, Reuters, LME, Macquarie Research,6
Source Macquarie Research April 2006,
Purchasing managers indices and OECD leading
indicator telling the same story industrial
growth in the Western world is accelerating
again. In terms of year on year changes, there is
still a relationship between these indicators and
metals prices.
12
Non-fundamental driversInvestment fund inflows

• Around 80bn estimated to be invested in
  commodity index funds at end 2005 up from around
  55bn at end 2004 and less than 30bn at end
  2003.
• Industrial metals 720 of the total (depending
  on the index).
• Prediction of fund growth to 110120bn by end
  2006.

Source Industry estimates, February 2006
13
Commodity index funds weightings in each commodity
Industrial Metals Weightings of Index funds
Average Commodity Sector Weightings of Index funds
Lead 0.7
Nickel 1.3
Zinc 1.4
Copper 3.7
Aluminum 4.2
Source Macquarie Research, February 2006
14
Impact of index funds share of nearby LME open
interest
Source Macquarie Research estimates, February
2006

• Ignores impact of OTC (over the counter business)
  which could be substantialnevertheless fund
  influence is obvious.

15
Interest rates.
Source Macquarie Research April 2006,

• Measured in constant 2005 dollars, prices are not
  that high

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.

17
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?

18
Commodity Bubble?
19
Commodity Bubble?
20
Commodity Bubble?
21
Commodity Bubble?
22
Commodity Bubble?
23
Opportunity NCDEX

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

24
Specifications

• Excl of Excise /CVD, Cess Sales tax)

25
Specifications

• Excl of Excise /CVD, Cess Sales tax)

26
Thank You