1. Adamson Associates
•Restocking are increasingly challenging base metals
•Global macro risks are undermining demand side recoveries
•Gold and platinum gain, silver left behind
•Most metals are trading too high against their yearly targets
04Mar2014 | Commodities Weekly, Metals
2. Valuation sees zinc holding up a strong spot among base
metals; Gold and Silver continue to be quite undervalued;
forecasts see most metals will fall in 2014
Metals: Valuation Benchmark
10%
8%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-6%
-3%
-4%
-1%
-2%
-8%
-10%
-12%
-10%
-10%
Adamson
Gold
Silver
Platinum
Aluminium
Copper
Zinc
Lead
Iron Ore
%over/ Year-end Avg
undervaluation price forecast Current price
-6%
1177
1330
-10%
1628
2133
-3%
1382
1452
-10%
1674
1724
-4%
6484
7098
8%
187
211
-2%
206
212
-1%
120
136
3. A softer greenback supports trading; however, most metals
continue to perform according to fundamental realities;
world demand recovery consistently facing risks
Dollar Index: USD
82
81
81
80
80
79
Mar 03, 2014
Mar 02, 2014
Feb 28, 2014
Feb 27, 2014
Feb 26, 2014
Feb 25, 2014
Feb 24, 2014
Feb 23, 2014
Feb 21, 2014
Feb 20, 2014
Feb 19, 2014
Feb 18, 2014
Feb 17, 2014
Feb 16, 2014
Feb 14, 2014
Feb 13, 2014
Feb 12, 2014
Feb 11, 2014
Feb 10, 2014
Feb 09, 2014
Feb 07, 2014
Feb 06, 2014
Feb 05, 2014
Feb 04, 2014
Feb 03, 2014
Feb 02, 2014
Adamson
4. Transcript
Aluminium
•
Aluminium has been steadily gaining against a backdrop of continued destocking, more cuts in production in ExChina provide a case for optimism; The metal is in solid contango
•
Stocks continue to reduce with falling production; open interests pick up signally long positions for the depressed
metal
•
Current pricing puts aluminium in a severely undervalued position; we see the recoveries in pricing to fall back
somewhat during 2014
•
SHFE aluminium enjoyed some gains before falling again in February; stocks restarted to pile with more
production, the threat of overcapacity returns
•
Supply tightness provided support for aluminium pricing in January, this disappeared by late February with the
forward curve looking normal
Copper
•
Copper mostly fell in February with worsening data in China, emerging Asia and a cold winter in the US; there is
supply tightness which supports spot pricing in the near term
•
Stocks continued to fall, reflecting the continued recovery on the demand side, these fundamentals are however
overshadowed by global macro factors; shorts dominated
•
Undervaluation continues for Copper, however, at a manageable level; Copper is trading above its yearly target in
our view, with room to fall
•
Copper pricing plunged on the SHFE with macro performance; fundamentals are seeing restocking on the supply
side, a sign of weakening demand against supply
•
There is supply side tightness in the market, as evident in the near-dated contracts, which supports spot pricing;
Copper is restocking, a case for worry, and deflationary pressure
5. Cont.
Zinc
•
Zinc continues to ride on very healthy fundamentals, demand recovery; there is supply side tightness in the neardated contracts, further supporting spot pricing
•
Destocking continues for Zinc, reflecting improving fundamentals for the metal; open interests grew, mostly in long
positions
•
Zinc is somewhat overvalued at its current level, helped by dismal performances in other metals; Zinc pricing is a
long way above its yearly target, with room for fall
•
Zinc gained before returning to early February levels; there is restocking, meaning that demand recovery is
beginning to be challenged, production is getting ahead
•
There is no apparent supply side tightness to support spot pricing; restocking is beginning to challenge the
fundamental scenarios of Zinc
•
warehouses
Lead
•
Lead pricing followed Zinc performance, with relatively attractive fundamentals, the metal is holding its current
pricing against macro headwinds; in contango
•
Destocking has paused, with further developments to occur in the coming weeks; open interests gained, reflecting
a mixture of shorts and longs through the last two weeks
•
Lead is slightly undervalued; it is very close to the yearly forecast range, with some downward pressure down the
line
•
SHFE lead pricing mostly fell during February, with disappointing PMI numbers painting a gloomy picture for the
economy
•
The metal is in a normal forward curve on the SHFE; stocks have changed little
6. Cont.
Gold
• Gold continued to pick up with a falling dollar and higher inflation, Asian demand continues to
be strong; near-term contracts are mostly flat, supporting spot pricing
• Gold saw declining inventory in February; while open interests reflected strong long positions on
the precious metal
• Undervaluation eases further in February; however, we see gold pricing getting too ahead of
itself, with room to fall in 2014
Silver
• Silver did not benefit from any buying momentum in Gold; pricing sustained at around 21.5; the
precious metal is in a solid contango
• Inventories continued to gain for Silver; while open interests fell steadily, reflecting long
liquidation
• Pricing is still quite undervalued for silver, however, it is doing much better in February; its
pricing is too high in our view, measuring against its yearly target in 2014
7. Cont.
Platinum
• Platinum spot continued to gain throughout February;
the precious metal is in solid contango
• Inventories gained in February; while open interests
also picked up quite significantly, reflecting long
positions
• Platinum is slightly undervalued; its current pricing is
not too far from its yearly target range, however, it is
still too high
Additional Data
• Steel pricing fell on the SHFE, with softer construction,
softer pricing and softer PMIs
9. Aluminium has been steadily gaining against a backdrop of
continued destocking, more cuts in production in Ex-China
provide a case for optimism; The metal is in solid contango
Aluminium: Futures Curve (USD/t)
Aluminium: Spot and 3M Price, USD/t
2,100
1,800
1765.5
2075
2063
2,050
2000
1,750
2,000
1995
1724
1,950
1923
1,700
1922
1,900
1,850
1,650
1,800
1,600
1,750
Spot
3M
1757
1765.5
1713
1724
1,700
1,550
1,650
1,600
1,500
Source: LME, Adamson
28/02/2014
28/01/2014
Source: LME, Adamson
10. Stocks continue to reduce with falling production; open
interests pick up signally long positions for the depressed
metal
Aluminium: Stock and Cancelled Warrants, T
Aluminium: Open Interest, Lots
5550000
2550000
800,000
774,645
780,000
5500000
2500000
760,000
749,306
2483300
740,000
5450000
729,806
2450000
720,000 711,942
5400000
2400000
5350000
700,000
680,000
2350000
5311300
5300000
660,000
640,000
2300000
5250000
620,000
5200000
2250000
Stocks
600,000
Cancelled Warrants
Source: LME, Adamson
Source: LME, Adamson
11. Current pricing puts aluminium in a severely undervalued
position; we see the recoveries in pricing to fall back
somewhat during 2014
Aluminium: Current Year Model Fundamental
Aluminium: Valuation benchmark
50
1,720
19
1,700
0
-5
1,680
-50
-58
-47
1,660
-78
-100
-82
1,640
-110 -108
-150
1709
1,620
-166
1674
1,600
-200
-198
-204 -201
1,580
-250
1606
-239
1,560
2014M02
2013M12
2013M11
2013M10
2013M09
2013M08
2013M07
2013M06
2013M05
2013M04
2013M03
2013M02
2013M01
-300
1,540
Conservative
Avg
Less Conservative
Adamson
Adamson
12. SHFE aluminium enjoyed some gains before falling again in
February; stocks restarted to pile with more production, the
threat of overcapacity returns
Aluminium: Spot and 3M Price, USD
SHFE Aluminium: Spot and 3M Price, RMB
1,800
14,000
1765.5
13,800
1,750
1724
13,600
1,700
13,400
13350
1,650
13,200
13105
13,000
Spot
1,600
3M
Spot
3M
1,550
12,800
12,600
1,500
Source: SHFE, Adamson
Source: LME, Adamson
13. Supply tightness provided support for aluminium pricing in
January, this disappeared by late February with the forward
curve looking normal
SHFE Aluminium: Futures Curve (USD/t)
SHFE Aluminium: Stock, T
400,000
14,000
350,000
13,800
300,000
283574
13,600
250,000
13,400
200,000
13,200
150,000
13,000
100,000
12,800
50,000
12,600
0
1
2
3
28-Feb-14
4
5
6
7
8
9
10
11
0
20-Jan-14
Source: SHFE, Adamson
Source: SHFE, Adamson
15. Copper mostly fell in February with worsening data in China,
emerging Asia and a cold winter in the US; there is supply
tightness which supports spot pricing in the near term
Copper: Futures Curve (USD/t)
Copper: Spot and 3M Price, USD
7,250
7,250
7,200
7215
7,200
7172
7,150
7,150
7,100
7098
7,100
7110
7097.5
7080
7,050
7045
7026
7,000
6970
7,050
6,950
6955
6935
7026
7,000
6,900
Spot
3M
6,850
6,950
6,800
6,750
6,900
28/01/2014
Source: LME, Adamson
28/02/2014
Source: LME, Adamson
16. Stocks continued to fall, reflecting the continued recovery
on the demand side, these fundamentals are however
overshadowed by global macro factors; shorts dominated
Copper: Stock and Cancelled Warrants, T
Copper: Open Interest, Lots
400000
300000
270,000
268,946
268,000
350000
250000
266,000
264,627
300000
276225
200000
250000
264,000
262,000
200000
150000
146625
260,000
258,687
258,000
150000
256,412
100000
256,000
100000
254,000
50000
50000
252,000
0
0
Stocks
250,000
Cancelled Warrants
Source: LME, Adamson
Source: LME, Adamson
17. Undervaluation continues for Copper, however, at a
manageable level; Copper is trading above its yearly target
in our view, with room to fall
Copper: Current Year Model Fundamental
Copper: Valuation benchmark
200
6,700
67
0
6,600
-94
6,500
-200
-173
-248
-271
6,400
-327 -316
-400
-372
-430
6621
6,300
-504
-600
6484
6,200
-747
-800
-731
6,1006221
-875
2014M02
2013M12
2013M11
2013M10
2013M09
2013M08
2013M07
2013M06
2013M05
2013M04
2013M03
2013M02
2013M01
-1,000
Adamson
6,000
Conservative
Avg
Less Conservative
Adamson
18. Copper pricing plunged on the SHFE with macro performance;
fundamentals are seeing restocking on the supply side, a sign
of weakening demand against supply
SHFE Copper: Spot and 3M Price, RMB
Copper: Spot and 3M Price, USD
52,500
7,250
52,000
7,200
51,500
7,150
51,000
50,500
7,100
7098
50,000
49,500
49250
7,050
7026
49280
49,000
Spot
3M
7,000
Spot
3M
48,500
6,950
48,000
47,500
6,900
Source: SHFE, Adamson
Source: LME, Adamson
19. There is supply side tightness in the market, as evident in the
near-dated contracts, which supports spot pricing; Copper is
restocking, a case for worry, and deflationary pressure
SHFE Copper: Futures Curve (USD/t)
SHFE Copper: Stock, T
250,000
52,500
52,000
200,000
51,500
51,000
50,500
150,000
50,000
49,500
100,000
49,000
48,500
50,000
48,000
47,500
0
1
2
3
28-Feb-14
4
5
6
7
8
9
10
11
0
20-Jan-14
Source: SHFE, Adamson
Source: SHFE, Adamson
21. Zinc continues to ride on very healthy fundamentals,
demand recovery; there is supply side tightness in the neardated contracts, further supporting spot pricing
Zinc: Futures Curve (USD/t)
Zinc: Spot and 3M Price, USD
2,120
2,150
2110
2110
2,100
2,100
2088
2075
2,080
2088
2083
2075
2083
2078
2067
2,060
2,050
2,040
2,000
2,020
2010
2,000
1,950
Spot
3M
1,900
1997.5
1,980
1,960
1,940
1,850
28/01/2014
28/02/2014
Source: LME, Adamson
Source: LME, Adamson
22. Destocking continues for Zinc, reflecting improving
fundamentals for the metal; open interests grew, mostly in
long positions
Zinc: Stock and Cancelled Warrants, T
Zinc: Open Interest, Lots
1000000
500000
900000
450000
298,000
800000
761725
400000
296,000
700000
350000
294,000
300,000
298,423
296,121
292,563
600000
300000
292,000
500000
250000
290,000
400000
200000
195100
288,000
300000
150000
286,000
200000
100000
284,000
100000
50000
282,000
0
280,000
0
Stocks
287,378
Cancelled Warrants
Source: LME, Adamson
Source: LME, Adamson
23. Zinc is somewhat overvalued at its current level, helped by
dismal performances in other metals; Zinc pricing is a long
way above its yearly target, with room for fall
Zinc: Current Year Model Fundamental
Zinc: Valuation benchmark
20
194
15.9
192
15
10.6
10
190
7.3
188
5
186
0
-1.3
-5
184
-0.1
-2.3
-2.8
-4.0
191
182
-5.7
-7.0
-10
187
180
178
-13.5 -13.2
-15
180
-17.8
2014M02
2013M12
2013M11
2013M10
2013M09
2013M08
2013M07
2013M06
2013M05
2013M04
2013M03
2013M02
2013M01
-20
176
174
Conservative
Avg
Less Conservative
Adamson
Adamson
24. Zinc gained before returning to early February levels; there is
restocking, meaning that demand recovery is beginning to be
challenged, production is getting ahead
SHFE Zinc: Spot and 3M Price, RMB
Zinc: Spot and 3M Price, USD
15,400
2,150
15,300
2110
2,100
2075
15,200
2,050
15135
15,100
2,000
15,000
14995
1,950
14,900
Spot
3M
Spot
3M
1,900
14,800
14,700
1,850
Source: SHFE, Adamson
Source: LME, Adamson
25. There is no apparent supply side tightness to support spot
pricing; restocking is beginning to challenge the fundamental
scenarios of Zinc
SHFE Zinc: Futures Curve (USD/t)
SHFE Zinc: Stock, T
15,500
270,000
15,400
265838
260,000
15,300
250,000
15,200
240,000
15,100
230,000
15,000
220,000
14,900
210,000
14,800
200,000
14,700
0
1
2
3
28-Feb-14
4
5
6
7
8
9
10
11
20-Jan-14
Source: SHFE, Adamson
Source: SHFE, Adamson
27. Lead pricing followed Zinc performance, with relatively
attractive fundamentals, the metal is holding its current
pricing against macro headwinds; in contango
Lead: Futures Curve (USD/t)
Lead: Spot and 3M Price, USD
2,220
2,200
2,180
2,200
2188
2,160
2,180
2,140
2137
2,120
2115.5
2200
2190
2175
2170
2,160
2,140
2,100
2137
2127
2,120
2,080
2,060
2197
2115.5
2,100
Spot
3M
2,080
2,040
2,060
2,020
28/01/2014
28/02/2014
Source: LME, Adamson
Source: LME, Adamson
28. Destocking has paused, with further developments to occur
in the coming weeks; open interests gained, reflecting a
mixture of shorts and longs through the last two weeks
Lead: Stock and Cancelled Warrants, T
Lead: Open Interest, Lots
50000
126,000
45000
220000
124,000
125,167
215000
40000
35000
33375
210000
122,000
121,129
120,000
30000
118,000
205000
25000
116,000
114,742
202225
20000
114,350
114,000
200000
15000
10000
112,000
195000
5000
0
190000
Stocks
110,000
108,000
Cancelled Warrants
Source: LME, Adamson
Source: LME, Adamson
29. Lead is slightly undervalued; it is very close to the yearly
forecast range, with some downward pressure down the
line
Lead: Current Year Model Fundamental
Lead: Valuation benchmark
212
30
25
24.4
210
19.6
20
208
15
206
10
6.8
204
5
1.8
202
0
210
-2.1
-5
200
-3.6
-4.0
-10
-9.5
-15
198
196
199
-14.5
-20
194
-18.5
2014M02
2013M12
2013M11
2013M10
2013M09
2013M08
2013M07
2013M06
2013M05
2013M04
2013M03
2013M02
2013M01
-25
-7.0
-8.1
206
-4.2
Adamson
192
Conservative
Avg
Less Conservative
Adamson
30. SHFE lead pricing mostly fell during February, with
disappointing PMI numbers painting a gloomy picture for the
economy
SHFE Lead: Spot and 3M Price, RMB
Lead: Spot and 3M Price, USD
14,300
2,200
14,200
2,180
2,160
14,100
2,140
2137
14,000
13945
2,120
2115.5
13,900
2,100
13,800
13800
2,080
13,700
Spot
3M
2,060
13,600
Spot
3M
2,040
13,500
2,020
Source: SHFE, Adamson
Source: LME, Adamson
31. The metal is in a normal forward curve on the SHFE; stocks
have changed little
SHFE Lead: Futures Curve (USD/t)
SHFE Lead: Stock, T
14,600
120,000
14,400
100,000
86188
14,200
80,000
14,000
60,000
13,800
40,000
13,600
20,000
13,400
0
0
1
2
3
28-Feb-14
4
5
6
7
8
9
10
11
20-Jan-14
Source: SHFE, Adamson
Source: SHFE, Adamson
37. Silver did not benefit from any buying momentum in Gold;
pricing sustained at around 21.5; the precious metal is in a
solid contango
Silver: Futures Curve (USD/oz)
Silver: Spot Price, USD
23.00
22.5
22.0
21.5
21.508
22.50
21.0
22.00
20.5
20.0
19.5
21.50
19.0
18.5
Spot
21.00
18.0
17.5
20.50
Dec-18
Sep-18
Jun-18
Mar-18
Dec-17
Sep-17
Mar-17
Jun-17
Dec-16
Sep-16
Jun-16
Mar-16
Dec-15
Sep-15
Mar-15
Jun-15
Dec-14
Sep-14
Jun-14
Mar-14
Source: CME, Adamson
Source: LME, Adamson
38. Inventories continued to gain for Silver; while open interests
fell steadily, reflecting long liquidation
Silver: Open interest, futures positions
Silver: Inventories, Troy ounce
184,000,000
155,000
181,755,486
182,000,000
149,163
150,000
179,408,695
180,000,000
178,000,000
177,109,451
176,502,272
139,468
140,000
176,000,000
174,000,000
147,035
144,244
145,000
178,499,380
147,988
136,158
135,000
132,475
173,215,363
131,294
130,000
172,000,000
170,000,000
125,000
168,000,000
120,000
Source: CME, Adamson
Source: CME, Adamson
39. Pricing is still quite undervalued for silver, however, it is
doing much better in February; its pricing is too high in our
view, measuring against its yearly target in 2014
Silver: Valuation Benchmark
Silver: Current Year Model Fundamental
0
1,700
-17
-100
-157
-127
-200
1,650
-215
-300
-457
-500
1,600
-385
-438
-392
-400
1673
-548
-600
-598
1,550
1628
-700
-698
-725
-800
1,500
1539
-900
-912
-1000
2014M02
2013M12
2013M11
2013M10
2013M09
2013M08
2013M07
2013M06
2013M05
2013M04
2013M03
2013M02
2013M01
1,450
Conservative
Avg
Less Conservative
Adamson
Adamson
41. Platinum spot continued to gain throughout February; the
precious metal is in solid contango
Platinum: Futures Curve (USD/t)
Platinum: Spot Price, USD
1,452
1,460
1452
1,451
1,440
1,450
1,420
1,449
1,400
1,448
1,447
1,380
1,446
1,360
Spot
1,340
1,445
1,444
1,320
1,443
Apr-15
Mar-15
Feb-15
Jan-15
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Source: CME, Adamson
Source: LME, Adamson
42. Inventories gained in February; while open interests also
picked up quite significantly, reflecting long positions
Platinum: Inventories, Troy ounce
Platinum: Open interest, futures positions
252,000
251,000
64,000
250,821
63,300
250,568
250,518
63,376
63,000
250,216
250,000
249,568
62,037
62,000
61,388
249,000
60,358
247,000
246,000
60,923
61,000
248,000
60,000
245,469
59,000
59,561
58,636
245,000
58,000
244,000
57,000
243,000
242,000
56,000
Source: CME, Adamson
Source: CME, Adamson
43. Platinum is slightly undervalued; its current pricing is not
too far from its yearly target range, however, it is still too
high
Platinum: Current Year Model Fundamental
Platinum: Valuation benchmark
100
1,420
72
61
1,400
50
35
1,380
0
-9
-50
1,360
-42
-49
1,340
1413
-68
-80
-100
1,320
-131
-150
1,300
-133
1323
-152
-163
1,280
-181
2014M02
2013M12
2013M11
2013M10
2013M09
2013M08
2013M07
2013M06
2013M05
2013M04
2013M03
2013M02
2013M01
-200
1382
1,260
Conservative
Avg
Less Conservative
Adamson
Adamson
48. DISCLAIMER
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