session3 sunder
TRANSCRIPT
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NCDEXNCDEX
Base Metals A Global PerspectiveBase Metals A Global Perspective
June 08, 2006
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Major Non Ferrous MetalsMajor Non Ferrous Metals
Copper
Aluminum
Zinc
Nickel
Lead
Tin
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Major ExchangesMajor Exchanges
LME AllCOMMEX Copper *SHFE Copper *KTE Tin
LME is synonym for Non Ferrous Metals
More than 90 % of physical trade is basedon LME prices
*Aluminium Contract not liquid
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Key DriversKey DriversCommodity fundamentals
Demand-Supply (growth) GapInventoryChina!
Economic factorsGDP GrowthIP GrowthOECD leading indicatorsPurchasing Managers Index
OthersFundsCurrency
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Base metals supply/demand summary
Source: Macquarie Research, February 2006
'000 tonnes % Change Y-o-Y2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008
Copper Production 15306 15936 16670 18064 18981 19916 -0.4% 4.1% 4.6% 8.4% 5.1% 4.9%Consumption 15608 17061 16942 17915 18692 19634 3.8% 9.3% -0.7% 5.7% 4.3% 5.0%Balance -302 -1126 -272 148 289 282
AluminiumProduction 28040 30013 31947 33653 35100 37730 7.8% 7.0% 6.4% 5.3% 4.3% 7.5%Consumption 27876 30246 31738 33758 35160 37603 9.0% 8.5% 4.9% 6.4% 4.2% 6.9%
Balance 164 -233 209 -105 -60 127
ZincProduction 9821 10116 10133 10677 11442 12432 1.9% 3.0% 0.2% 5.4% 7.2% 8.7%Consumption 9668 10334 10420 11095 11575 12369 3.3% 6.9% 0.8% 6.5% 4.3% 6.9%Balance 153 -217 -287 -418 -133 63
NickelProduction 1203 1260 1292 1341 1408 1529 2.6% 4.8% 2.5% 3.8% 5.0% 8.6%
Consumption 1243 1264 1260 1342 1406 1496 6.2% 1.7% -0.4% 6.5% 4.8% 6.4%Balance -40 -4 32 -1 2 33
LeadProduction 6782 6833 7237 7631 8023 8337 2.0% 0.7% 5.9% 5.4% 5.1% 3.9%Consumption 6829 7067 7382 7668 7945 8228 2.8% 3.5% 4.5% 3.9% 3.6% 3.6%Balance -47 -234 -144 -37 78 109
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How big is this bull market?How big is this bull market?
This is only the fourth major bull market for the metals in thepast 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.
IMF Metal Price Index - Nominal Terms
20
40
60
80
100
120
140
160
1 9 5 0
1 9 5 5
1 9 6 0
1 9 6 5
1 9 7 0
1 9 7 5
1 9 8 0
1 9 8 5
1 9 9 0
1 9 9 5
2 0 0 0
2 0 0 5
I M F M e t a l P r i c e
I n d e x - n o m
i
Source: IMF, Macquarie Research
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Market inventories extremely lowMarket inventories extremely low
In the late 1980s, market inventories stayed at critically tightlevels despite slowing economic growth this is what supportedprices thenand now.
Base metal stocks and prices (nominal)
300
800
1300
1800
2300
2800
1 9 7 3
1 9 7 4
1 9 7 5
1 9 7 6
1 9 7 7
1 9 7 8
1 9 7 9
1 9 8 0
1 9 8 1
1 9 8 2
1 9 8 3
1 9 8 4
1 9 8 5
1 9 8 6
1 9 8 7
1 9 8 8
1 9 8 9
1 9 9 0
1 9 9 1
1 9 9 2
1 9 9 3
1 9 9 4
1 9 9 5
1 9 9 6
1 9 9 7
1 9 9 8
1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
L M E X P r i c e
I n d
3
5
7
9
11
13
15
17
e x c h a n g e
/ p r o
d u c e r s t o c
k s : w e e
d e m a n
d
Nominal Prices Exchange/Producer Stocks (Cu/Al/Zn/Pb/Ni) Stocks Trend
Source: Macquarie Research April 2006,
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Industrial growth bottomedout
OECD leading indicator points to an acceleration in growth rates in late 2005 andearly 2006.
Although the relationship between the OECD LI and metals prices is not as strong aspreviously (due to the influence of China on prices), this is still a positive sign for1H06.
Source: OECD, LME, Macquarie Research,
OECD Leading Indicator and W. World Industrial Production
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
80 82 84 86 88 90 92 94 96 98 00 02 04 06
W e s
t e r n
W o r
l d I P ( % C h a n g e
Y
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
L e a d
i n g
I n d i c a t o r
( 6 - M o n
t h R a
C h a n g e )
W. World IP Leading Indicator - Forward 6 Months
Source: Macquarie Research April 2006,
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Non-fundamental drivers:Non-fundamental drivers:Investment fund inflowsInvestment fund inflows
Around $80bnestimated to beinvested incommodity indexfunds at end 2005 upfrom around $55bn atend 2004 and lessthan $30bn at end2003.Industrial metals 720% of the total(depending on theindex).Prediction of fundgrowth to $110120bn by end 2006.
Total Commodity Index Funds
0
10
20
30
40
50
60
70
80
1 9 9 0
1 9 9 1
1 9 9 2
1 9 9 3
1 9 9 4
1 9 9 5
1 9 9 6
1 9 9 7
1 9 9 8
1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
$ U S b
Source: Industry estimates, February 2006
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Commodity index funds weightings ineach commodity
Energy54%
Agriculture29%
Industrialmetals12%
Preciousmetals
5%
Industrial MetalsWeightings
of Index funds
0%
10%
20%
30%
40%
50%
60%
70%80%
90%
100%
Aluminum4.2%
Copper 3.7%
Zinc 1.4%
Nickel 1.3%
Lead 0.7%
Average Commodity Sector Weightings of Index funds
Source: Macquarie Research, February 2006
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Commodity Bubble?Commodity Bubble?
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Commodity Bubble?Commodity Bubble?
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Commodity Bubble?Commodity Bubble?
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Commodity Bubble?Commodity Bubble?
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Opportunity NCDEXOpportunity NCDEX
Localized Contract Specification, Trading locally in INR prices.
Small lots
Reflection of Realistic Domestic Demand
Arbitrage Opportunities
Encourage value-chain participants for
hedging
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SpecificationsSpecifications
Delhi
Bhiwandi
Rs.0. 100/- per KG
250 Kg +/- 2%
Rs Per Kg
250 Kg
Ex- Bhiwandi*
Nickel Zinc
BhiwandiDelivery Center
Rs Per KgQuotation
2000 Kg (2MT) Trading Unit
DelhiAdditionalDelivery Center
Rs.0. 100/- per KG Tick size
2000 Kg +/- 2%Delivery unit
Ex- Bhiwandi*Basis
* Excl of Excise /CVD, Cess & Sales tax)
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Thank You Thank You