Thoughts on the 2014 aluminum outlook viewed from the macro context. Edward Meir Senior Independent Commodity Consultant FCStone, LLC

Transcription

1 Thoughts on the 2014 aluminum outlook viewed from the macro context Edward Meir Senior Independent Commodity Consultant FCStone, LLC

2 Disclaimer Fare clic per modificare gli stili del testo dello schema research. He does not have a personal futures trading account. Secondo livello Terzo livello Quarto livello Quinto livello Edward Meir is an independent consultant to FCStone, LLC focusing on metals commentary and The trading of derivatives such as futures, options, and swaps may not be suitable for all investors. Derivative trading involves substantial risk of loss, and you should fully understand those risks prior to trading. Past financial results are not necessarily indicative of future performance. All references to futures and options trading are made solely on behalf of FCStone, LLC unless otherwise noted. London Metal Exchange products are offered by INTL FCStone Ltd, which is authorized and regulated by the Financial Services Authority and is a category 1 ring-dealing member of the LME. INTL FCStone Ltd offers LME products to US clients through is affiliate FCStone, LLC pursuant to a Part exemption with the CFTC. All references to swap execution and bi-lateral swaps are made solely on behalf of INTL Hanley, LLC. FCStone, LLC and INTL FCStone Ltd will clear swaps when applicable. Swaps are only available to eligible counterparties. FCStone, LLC and its affiliates not responsible for any redistribution of this material by third parties, or any trading decisions taken by persons not intended to view this material. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. All forecasting statements made within this material represent the opinions of the author, without exception. Factual information believed to be reliable was used to formulate these statements are mainly based on information obtained from various sources, including Bloomberg, Reuters, the Wall Street Journal, the Financial Times, CNBC, TV interviews with various economists, trade contacts and an assorted number of metal publications; FCStone, LLC nor Edward Meir guarantee the accuracy and completeness of the information being relied upon. These opinions are that of the author and do not necessarily reflect the viewpoints and trading strategies employed by FCStone, LLC or its affiliates. All forecasts of market conditions are inherently subjective and speculative, and actual results and subsequent forecasts may vary significantly from these forecasts. No assurance or guarantee is made that these forecasts will be achieved.

3 3-month aluminum price Fare clic per modificare gli stili del testo dello schema Secondo livello Terzo livello Quarto livello Quinto livello Source for Chart: E-Signal / Futuresource.com

4 Aluminum Premiums Fare clic per modificare gli stili del testo dello schema Secondo Singapore livello (red) Rotterdam (blue) Terzo livello Singapore Rotterdam Quarto livello $/ton Quinto 300 livello Jan/12 Jun/12 Oct/12 Mar/13 Aug/13 Jan/14 Source for data: Metal Bulletin

5 Fare US clic Midwest per modificare Premiums gli stili del testo dello schema Secondo livello Terzo livello US Midwest $/pound Quarto livello 0.18 Quinto livello Jan/12 Jun/12 Oct/12 Mar/13 Aug/13 Jan/14 Source for data: Metal Bulletin

6 Vs Fare clic per modificare gli stili del testo dello schema Secondo livello Terzo livello Quarto livello Quinto livello Brazil, Russia, India

7 IP trends 2013 vs Fare clic per modificare gli stili del testo dello schema Secondo livello Terzo livello Quarto livello Quinto livello Brazil, Russia, India

8 US Economic Outlook --Positives Fare clic per modificare gli stili del testo dello schema Secondo livello Terzo livello Quarto year. livello Quinto livello Economy growing each successive quarter this past Drivers are autos, housing, housing prices and energy; manufacturing strongest in two years. Consumer confidence at multi-year highs and equities at a record high. Unemployment at 6.7%, lowest since GDP this year 2.5%; Yellen hoping for 3%

9 US Negatives Fare clic per modificare gli stili del testo dello schema Secondo livello Terzo livello Quarto livello Quinto livello Growth remains sub-par; incomes still stagnant. Deficits falling, but due to the recovery, Fed payments and sequestration. Still high at $600 billion no structural fixes yet. Dysfunction in Washington; limited progress on budget, tax reform, debt ceiling debate Wealth effect from rising equities and home prices tepid. Employment stagnant. Will economy wobble if Fed balance sheet rolled in?

10 Europe Fare clic per modificare gli stili del testo dello schema Secondo livello Terzo livello Quarto livello Quinto livello Bottoming out-- at least the recession is over. Eurozone manufacturing expanded at its fastest rate since mid Euro stronger; Draghi whatever it takes. Confidence readings at multi-year highs But no structural issues addressed; (i.e., tax reform, unwieldy political structure, labor rigidities, high unemployment, high debt levels and the impact of a higher Euro on exports).

11 China the elephant in the room Fare clic per modificare gli stili del testo dello schema Secondo Growth livello of 7.6% in 2013, the slowest in 14 years; 7-7.5% for Terzo next livello year. Moderating readings elsewhere... Quarto livello Expanding debt now a critical problem; total debt is close to Quinto livello 250% of GDP. What will reforms bring? Source: WSJ -- Competition will increase, as SOE s downsized? -- Excess capacity reduced, unemployment up? -- Upward pressure on the Yuan -- Lower trade duties -- Higher energy prices -- Environmental pressures -- Higher rates -- Increased political tensions with local authorities.

12 Regulations on shadow banks/loans what now? Fare clic per modificare gli stili del testo dello schema Secondo livello Terzo livello Quarto livello Quinto livello Three trillion in local debt up 70% in three years. About 43% of local government borrowings came from nonbank sources. Ninety percent of 42 million small companies don t have access to capital (Citic). Banks and nonbanks will have limits on how many nonstandard loans they can issue. Credit will be tighter (rationed) and the Peoples Bank will reinforce the message. Source: WSJ

13 Aluminum. Fare clic per modificare gli stili del testo dello schema Secondo Impact livello on aluminum output? Terzo livello Quarto livello Quinto livello Not much--plants moving west, using cheaper coal and are more efficient; Indonesian bauxite should flow; Chinese buyers have built up stocks, diversified. Still too much capacity on the market. Western cutbacks (about 2% in 2013) are being more than offset by Chinese increases (about 9.6% y-t-d through November, 15% y-y in November). Demand growth about 7%-8%. Part of the Chinese excess exported semi-fab products sales y-t-d through November 2.16 MLT. Source: MB

14 Over 2014 Fare clic per modificare gli stili del testo dello schema Secondo livello Terzo livello Quarto livello tightens, along with margin compression. Quinto livello Pressure should increase for less Chinese production, likely by the end of 2014 as credit Chinese government has called for three-tiered power pricing for smelters to discourage production. Local governments must not arbitrarily reduce power prices and stop subsidies. Nevertheless, we see 2014 surplus at 500,000 tons. About 8-9 mln tons of metal in stocks, about 17% of world production, the highest in the metals group. Source: MB

15 Price Outlook Fare clic per modificare gli stili del testo dello schema Secondo livello Terzo livello Quarto livello Quinto livello -- A low of $1650 during the first half of the year; setting the stage for more production cuts, even from China. -- $2100 a high later in the year or going into 2015 as production cuts materialize. -- Average around $1800. Premiums will be firm in 1 st /half 2014; sellers will offset against falling flat prices. Decrease in the 2 nd half LME warehouse rules will likely not end the financing trade or queues contangos still profitable. More metal will move off exchange.

16 Black Swans Fare clic per modificare gli stili del testo dello schema Secondo livello Terzo livello China credit crisis sharp slowdown. Quarto livello Quinto livello US economy buckles under Fed tightening. Unrest in the Mid-East. Iranian situation turns south. Euro crisis reemerges, as Draghi warns.

17 Fare clic per modificare gli stili del testo dello schema Secondo livello Terzo livello Quarto livello Quinto livello Thank You!