ETP Weekly: Industrial metal ETPS gain from ore export ban and strong manufacturing data

Industrial metal prices rose across the board last week as Indonesia’s ban of mineral ore exports came into effect, which could see the supply of several metals tighten this year. Stronger-than-expected economic dataalso lifted investor sentiment toward cyclical assets….

ETF Securities Research

Today’s better-than-expected Chinese Q4 GDP release reinforces that trend. Although Indonesia’s mineral ore ban has been watered down to allow large copper ore exporters (which produce together produce 97% of Indonesia’s copper) to continue to export copper concentrates, the ban will continue to affect the exports of ores used for nickel and bauxite (aluminum) production. Precious metals prices rose across the board despite the stronger US dollar. Improved European car sales helped lift the price platinum group metals last week as the market braced itself for yet another miner strike in South Africa.
ETFS Nickel (NICK) and ETFS Tin (TINM) saw the second largest inflows on record as Indonesia’s mineral ore ban came into effect. Inflows into NICK amounted to US$18.7mn last week, the highest since May 2010, while inflows into TINM reached US$6.6mn, the highest since August 2012. Although the mineral ore export ban has been watered down from its original proposal, exports of ores for use in nickel and tin are affected. Indonesia is the largest exporter of ore to make nickel pig iron (NPI), a cheape r alternative to refined Nickel. NPI currently accounts for around 20% of global production and is primarily made in China. Chinese stockpiling of the ore prior to the ban has left the country with ample supplies for the near term and plans by Chinese producers to refine the ore in Indonesia before exporting will ease the supply shock. Nickel and tin prices rose 10.2% and 4.0% respectively last week as hopes of the ban being abolished were dashed.
Investors position for more spread tightening between Brent and WTI oil . Outflows from ETFS Brent (OILB) amounted to US$20.3mn, the highest since September 2013.
Meanwhile long WTI ETPs saw US$10.7mn inflows. WTI rose 2.5% last week as US crude stockpiles dropped to the lowest level in nearly two years. Meanwhile Brent’s premium to WTI fell to $13.13 from $14.73 the prior week, as Libyan production has begun to normalise, despite lingering uncertainty over consistent supply.
ETFS Daily Leveraged Natural Gas (LNGA) saw US$7.0mn of outflows on profit taking.
Reversing the inflows for the prior two weeks, LNGA saw outflows as EIA data confirmed that that natural gas storage withdrawal had beat the prior record set in December.  Althoughthe withdrawal of 287 billion cubic feet fell short of the 300bcf drawdown expected by the market, the numbers highlight that demand surged on the back of frigid winter conditions.
Investors booked profits after the Henry Hub natural gas price rose 9.4% last week.
Outflows from long gold ETPs slowed to US$9.0mn last week from an average of US$85mn per week in the prior 9 weeks. The gold price rose 1.3% in response to the weak non-farm payrolls data which was released at the tail-end of the previous week. The reaction highlights that gold may serve as a hedge against the risk that optimistic consensus US growth forecasts may be missed. Silver, which is trading with a high correlation to gold, rose by 2.4%. There was US$13.0mn of profit taking from long silver ETPs as well.
Key events to watch this week. A number of manufacturing PMI releases from Europe, US and China will provide investors a guide to the strength of the global economic recovery.
The Bank of Japan’s monetary policy meeting will be closely observed for cues for further expansionary policy. Meanwhile the BOE minutes could reveal the latest thoughts from monetary policy makers in the UK, where the unemployment rate is falling fairly close the level which the central bank said would be consistent with rate rises in its forward guidance.




Although gold often gains during extreme events, the start of the first US Federal shutdown in seventeen years last week failed to lift the gold price. Investors appear to be looking through the storm and are focused on assets that will either benefit from the continuation of the global growth recovery or are generally uncorrelated with debt risk.  Cotton and sugar gained 2.3% and 1.8% last week, bouncing from lows hit in September, but without strong news driving the trend. Platinum and palladium fell 3.6% and 2.5% respectively. That comes despite a 17% rise in Japanese auto sales (to a 14-month high) and a 12.1% rise in UK car sales (to a five-year high). US car sales also remained brisk, despite the timing of Labor Day distorting the monthly statistics. Autocatalyts are the primary source of demand for the platinum group metals (PGMs). The strike that started two weeks ago was still on-going last week at Amplats, constraining the supply of PGMs.

    MA Weekly 07.10.13 1


US equities remain under pressure as the negotiations over raising the US debt ceiling continue. The S&P 500 fell for the second consecutive week as Republicans and Democrats continued to fight over the budget and debt ceiling. European equities have also been sensitive to the political turmoil in the US. The Euro Stoxx 50® Investable Volatility Index, which provides exposure to the forward implied volatility of the Euro Stoxx 50® Index, surged 5% last week, followed by the FTSE® MIB Super Short Strategy Index and the ShortDAX® x2 Index, up 3.5% and 1.4% respectively. Global equities are likely to remain volatile and under pressure as we get closer to the estimated 17 October hard deadline for lifting the debt ceilding.

MA Weekly 07.10.13 2


Safe haven currencies benefit as US fiscal negotiations drag on. The Japanese Yen (JPY) was the best performing G10 currency last week as investors sold risky assets and paid back JPY loans on growing concern about the lack of progress on US fiscal and debt negotiations.  For similar reasons the Swiss Franc (CHF) and even the Euro (EUR) also rallied against the US dollar last week. The British Pound (GBP) held up, continuing the trend of the past three months. However, towards the end of the week the currency showed some weakness, indicating the rally may be peaking. In our view, the GBP is one of the more overvalued G10 currencies and – despite recent rhetoric – has one of the more dovish central banks. We therefore believe the currency is particularly vulnerable to a sharp drop once growth data stop surprising to the upside.

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