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1 : Daily Focus: Real demand less supportive of platinum 23 June 2011 Focus: Real demand less supportive of platinum Although not overtly bearish, recent demand data is increasingly less supportive of platinum. According to the latest Swiss Customs data, Switzerland has continued as a net importer of platinum, for the second consecutive month. May saw a net of 40,715 oz of platinum imported, a marked increase on the 23,421 oz imported in April. The base metals complex has come back under pressure this morning however, with a downbeat Bernanke, stronger dollar and very poor HSBC Chinese PMI in June and only marginally above the 50 level dividing line between expansion and contraction - all weighing on sentiment. We believe the rally in the crude market yesterday will lack momentum as oil products failed to follow. A weak product markets ultimately reflects a sluggish demand picture, particularly in middle distillates. Strategists Walter de Wet, CFA* Walter.DeWet@standardbank.com Leon Westgate* Leon.Westgate@standardbank.com James Zhang* Jinzhong.Zhang@standardbank.com Marc Ground, CFA* Marc.Ground@standardbank.com Following gold s rally towards $1,560, the metal has since retraced on confirmation that there will be no further QE by the Fed. Despite this message from the Fed, our long-term view on gold remains unchanged we believe gold will continue to push higher in Commodity price data (22 June 2011) Base metals LME 3-month Open Sources: Standard Bank; LME; BBG Please refer to the disclaimer at the end of this document. Close High Low Daily change Change (%) Cash Settle Change in cash settle Cash - 3m Aluminium 2,534 2,550 2,545 2, % 2, Copper 9,005 9,015 9,030 8, % 9, Lead 2,465 2,545 2,530 2, % 2, Nickel 21,900 22,175 22,300 21, % 21, Tin 25,150 25,400 25,303 25, % 25, Zinc 2,211 2,252 2,248 2, % 2, Open Close High Low day/day Change (%) ICE Brent % NYMEX WTI % ICE Gasoil % API2 Q3' % ICE EUA Dec % AM Fix PM Fix High bid Low offer Closing bid Change (d/d) EFP's Gold 1, , , , , /1.0 Silver /0.0 Platinum 1, , , , , /2.5 Palladium /1.0

2 Focus: Real demand less supportive of platinum Net platinum imports into Switzerland Although not overtly bearish, recent demand data is increasingly less supportive of platinum. According to the latest Swiss Customs data, Switzerland has continued as a net importer of platinum, for the second consecutive month. May saw a net of 40,715 oz of platinum imported, a marked increase on the 23,421 oz imported in April k oz Exports from Switzerland continue to be dominated by seemingly resilient Chinese demand. Net exports from Switzerland to China were 62,860 oz during May, comparing favourable with the 56,795 oz in exports seen moving to China in April. The numbers for the last three months have all been well above the 2010 average of 49,755 oz net exports to China, and the most consistently strong figures seen since mid Chinese customs data however paints a different picture, showing a definite slowing down in platinum demand over the past three months. May saw 156,388 oz in total imports to China, compared to 255,627 oz and 330,677 oz for April and March, respectively. For the first time this year, the monthly figure is lower than last year s average imports of 196,731 oz, and the worst figure since October The discrepancy between the Swiss and Chinese data remains, and is widening. The Chinese data indicates that imports from Switzerland were only 19,880 oz, compared to the 62 k oz the Swiss reported. As highlighted previously, this indicates that perhaps Chinese platinum demand is not weakening as much as suggested by the official figures Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Source: China Customs Apart from China there were no other significant net importers of platinum from Switzerland. Looking at the traditional regions of strong demand, all were net exporters, with Germany and the US exporting a net of 5,474 oz, and 8,460 oz, respectively. Japan again showed strong exports (27,308 oz in May), perhaps in response to a shift in global auto sector production shifts. Tactically our view was that platinum should be sold above $1,830. At the moment real demand is not strong enough to sustain a rally higher. Strategically from a cost-of-production perspective we still target $1,900 for platinum. We expect this level to be reached towards year-end. By Marc Ground Base metals The base metals rallied during Wednesday afternoon, ahead of Bernanke s post FOMC speech, with the strength exacerbated by short covering and the triggering of stops. The complex has come back under pressure this morning however, with a downbeat Bernanke, stronger dollar and very poor HSBC Chinese PMI in June and only marginally above the 50 level dividing line between expansion and contraction - all weighing on sentiment. A poor European PMI figure this morning has compounded the general feeling of gloom, coming in at 53.6 compared to last month s reading of In addition, local reports in Greece reporting that IMF and EU officials are expressing doubts about the viability of the country s measures, and comments last night from Jean-Claude Trichet that he saw flashing red signals regarding the risk to financial stability in the Eurozone, have also done little to soothe the markets. The Federal Reserve has meanwhile lowered its 2011 and 2012 GDP forecasts from its April estimates and now expects to see 2011 GDP at % (from %). Bernanke acknowledged the recovery is slower than anticipated, but didn't hint that any further monetary support would be forthcoming. After closing comfortably above $9,000 on Wednesday, and continuing to edge higher following the 5pm close, copper prices have rapidly fallen back below the $9,000 mark heading into Thursday afternoon, and are again looking to test $8,950. Mitsubishi Materials Corp. has meanwhile said it had settled annual TC/RCs with BHP Billiton, though there are, as yet, no details on the charges. Aluminium has been the hardest hit of the base metals this morning, with the metal tracking the dollar-euro rate virtually tick for tick. The rest of the complex has tended to look towards copper for direction however, with the likes of zinc and lead also managing to shrug off the impact of the euro ahead of US trade. By Leon Westgate 2

3 Gold rallied ahead of Fed s FOMC statement yesterday but the Fed delivered no surprises. While we continue to believe there will be no QE3, we also don t discount the possibility completely. Following gold s rally towards $1,560, the metal has since retraced on confirmation that there will be no further QE by the Fed. Despite this message from the Fed, our long-term view on gold remains unchanged we believe gold will continue to push higher in Our core view on gold is driven not only by our observations in the physical market but also by continued growth in global liquidity, driven not so much by the Fed anymore, but increasingly by government borrowing. There was strong selling in gold above $1,550 in the physical market. While the general trend in the physical market has been buying on dips, there seems to be strong resistance to a move above $1,550. We believe this resistance will not last long, especially if gold tests above these levels a few times over the coming days. Gold support is at $1,540 and $1,532. Resistance is at $1,557 and $1,566. Silver is failing to gain traction with strong selling into rallies above $ We believe the selling will continue on rallies, not only on the back of weaker industrial demand, but also as a result of speculative selling. Silver support is at $35.90 and $ Resistance is at $36.80 and $ As pointed out in the today s focus, platinum continues to flow into Zurich. We believe this is on the back of tighter monetary policy in China and slower auto sales globally. Despite the decline in China s imports of palladium in May, Switzerland remains a net exporter of the metal for the 13th consecutive month. By Walter de Wet Oil recovered strongly yesterday following a reported crude inventory draw in the US yesterday. Front-month WTI gained $2.01/bbl, to settle at $95.41/bbl, while front-month Brent jumped by $3.26/bbl, to close at $114.21/bbl. WTI s structure weakened as Cushing inventories grew again last week, according to the DOE. Oil products failed to catch up with the rally in crude, which pushed refinery margin to weaken further. Weakness is particularly pronounced in middle distillates, with European gasoil cracks lost around 70c/bbl. In contrast, gasoline cracks strengthen slightly, after a reported gasoline stock draw in the US. The DOE reported US weekly oil inventory changes for crude/gasoline/distillates at -1.7/-0.5/+1.2MB respectively. Crude inventories at Cushing grew by 0.3MB, which saw the contango in WTI steepened again. Total US refinery utilisation rates jumped by 3.1% w/w, which pushed the total gross refinery inputs well above 15mbd, to 15.8mbd - the highest level since August last year. Crude imports have recovered strongly by 511kbd w/w. As noted yesterday, a narrowing WTI/Brent spread has made the US a more attractive destination for crude cargoes. Meanwhile, demand for gasoline and distillates remain sluggish with w/w changes of +74kbd nand -141kbd respectively on a four-week running average basis. The Fed keeps its policy rate at the record low 0.25%. The FOMC statement acknowledges that the US economy is growing at a slower pace and the job market is weaker than what was expected at their last meeting in April. There is no indication that the Fed will embark on any major monetary policy moves, such a new round of quantitative easing. We believe the rally in the crude market yesterday will lack momentum as oil products failed to follow. A weak product markets ultimately reflects a sluggish demand picture, particularly in middle distillates. We expect to see a more sustained recovery in oil prices when oil products take the lead in a rally. That said, geopolitical risks in the Middle East region remain heated, particularly in Syria and Bahrain, which poses a major upside risks to oil prices. By James Zhang 3

4 Base metals Daily LME Stock Movement (mt) Metal Today Yesterday In Out One day change YTD change (mt) Cancelled warrants (mt) Cancelled warrants (%) Contract turnover Aluminium 4,566,675 4,579, ,950-12, , , ,276 Copper 474, ,825 2, ,700 96,975 37, ,770 Lead 321, , ,325 35, ,652 Nickel 109, , ,704 6, ,732 Tin 22,000 21, , ,270 Zinc 867, , ,075 38, ,663 Shanghai 3-month forward prices COMEX active month future prices Metal Open Last 1d Change Open Close Change Change (%) Aluminium 16,920 17,005-5 Ali Sep' Copper 67,100 67, Cu Sep' % Zinc 17,250 17, ZAR metal prices Aluminium Copper Lead Nickel Tin Zinc ZAR/USD fix Cash 16,974 60,959 16, , ,877 14, month 17,487 61,820 17, , ,181 15, futures pricing Price Change Price Change Price Change Price Change Price Change 1 month 2 month 3 month 6 month 1 year Sing Gasoil ($/bbbl) Gasoil 0.1% Rdam ($/mt) NWE CIF jet ($/mt) 1, , , , , Singapore Kero ($/bbl) % Rdam barges ($/mt) % Fuel Oil FOB ($/mt) Sing FO180 Cargo ($/mt) Thermal coal Q3-11 Q4-11 Q1-12 Cal 12 Cal 13 API2 (CIF ARA) API4 (FOB RBCT) Forwards (%) 1 month 2 months 3 months 6 months 12 months Gold Silver USD Libor Technical Indicators 30-day RSI 10-day MA 20-day MA 100-day MA 200-day MA Support Resistance Gold , , , , , , Silver Platinum , , , , , , Palladium Active Month Future COMEX GLD COMEX SLV NYMEX PAL NYMEX PLAT DGCX GLD TOCOM GLD CBOT GLD Aug'11 Jul'11 Jul'11 Jul'11 Aug 11 Apr'12 Aug'11 Settlement 1, , , , , Open Interest 515, ,238 20,244 35,659 3, ,157 2,093 Change in Open Interest -1,416-2, Sources: Standard Bank; LME; Bloomberg 4

5 Forecasts Base metals Base metals LME cash prices (US$/mt) Q1:11 Q2:11 Q3:11 Q4:11 Avg Avg Aluminium 2, Copper 9, Lead 2, Nickel 26, Tin 29, Zinc 2, front-month prices Q1:11 Q2:11 Q3:11 Q4:11 Avg Avg WTI ($/bbl) Brent ($/bbl) ICE Gasoil ($/mt) Nymex RBOB Gasoline (c/gal) API2 Coal Cif ARA ($/mt) API4 Coal Fob Richards Bay ($/mt) spot prices (US$/oz) Q1:11 Q2:11 Q3:11 Q4:11 Avg Avg Gold 1,388 1,440 1,500 1,435 1,430 1,450 Silver Platinum 1,793 1,800 1,750 1,950 1,850 2,000 Palladium Rhodium 2,400 2,300 2,400 2,700 2,500 3,000 Source: Standard Bank 5

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