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In this report we mention the price movements of bullions and energy and major events occurred in international as well as domestic market of previous month. Furthermore it contains the expected trend and range of current month, demand supply pattern, trends of various ETF’s, Gold Silver ratio in bullion counter whereas in Energy counter we analyze the monthly trend and range for both crude oil and natural gas, demand supply equilibrium, inventories, spread of brent crude oil and sweet crude oil etc. We generate long terms calls on these commodities as and when, based upon opportunities.
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SPECIAL MONTHLY REPORT ON
Bullions & Energy(April 2014)
2
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April 2014
BULLIONS AND ENERGY PERFORMANCE ( - 31st March 2014) (% change) 28th February 2014
Source: Reuters and SMC Research
COMEX/NYMEX MCX
-5.16
-7.67
-3.96
-8.89
-2.97
-6.81
-1.15
-3.08
-10.00 -9.00 -8.00 -7.00 -6.00 -5.00 -4.00 -3.00 -2.00 -1.00 0.00
Gold
Silver
Crude oil
Natural Gas
3
BULLIONS
In the month of March bullion counter ended on
negative note as rise in greenback and fed statement
that interest rates may increase from next year
pressurized the prices lower. Fed Chair Janet Yellen
stated that interest rates could rise “around six
months” after asset purchases end. Policy makers
cut monthly bond buying by $10 billion at the
conclusion of their two day meeting, leaving
purchases at $55 billion. However some strength in
the domestic rupee pressurized the prices lower.
Overall gold traded in range of 28119-30737 in MCX
and $1285-1387 in COMEX. Dollar index faced key
support near 79.26 levels and rebounded higher in
the month of March. Silver traded in range of
$19.55-21.75 in COMEX and 42411-47877 in MCX.
Russia has increased its gold holdings by 7.247
tonnes to 1042 tonnes in February. Hong Kong's net
gold exports to China jumped 25% in February after
a small drop in the previous month. China imported
about 1158.16 tonnes from Hong Kong alone in 2013
which is more than double its 557.48 tonnes in 2012.
In the month of April 2014 bullion counter can move
sideways with weak bias. On domestic bourses the
movements of local currency Rupee will be key
factor to watch out which can move in range of 58.5-
61.5 in the month of April. Gold can trade in
range of Rs 27300-29800 in MCX and $1250-
1380 in COMEX. Silver can trade in range of
41500-45000 in MCX and $19-22.50 in
COMEX. The gold/silver ratio has moved up from
60 to 66.3 which showed that silver fell at faster pace
than gold recently. This ratio can hover in range of
63-69 in the month of April. Recovery in US
economy has also led to reduced safe haven demand
in bullion counter. The U.S. economy grew more
rapidly in the fourth quarter than previously
estimated, and applications for jobless benefits
unexpectedly fell last week. Meanwhile Fed Chair
Janet Yellen stated that interest rates could start
increasing six months after the Fed ends its asset
purchasing program. Geopolitical tensions in
Middle East and in any other part of the globe will
have positive impact on gold prices as it is
considered safe haven in times of geopolitical
uncertainty. Escalating tension in Ukraine and
concern that a slowdown in China is deepening BU
LL
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SApril 2014
increased demand for a protection of wealth will
increase the safe haven demand of gold.
India tightens checks to curb gold smuggling
India has started to make physical checks of gold stocks
held by wholesalers to ensure inventories match the
amount imported by banks and state-run traders. To
tackle a widening trade deficit, India - the world's
second biggest gold consumer behind China - has put in
place measures to dissuade gold buying, including a 10
percent import tax. Imports have fallen sharply, leading
to shortages and triggering smuggling. India imported
about 750 tonnes of gold in 2013, while up to another
200 tonnes was believed to have been smuggled into the
country, according to the World Gold Council.
WGC Demand summary
The third quarter of 2013 saw a 21% contraction in gold
demand from the third quarter of 2012, to 868.5 tonnes.
Outflows from ETF positions were in pace than the
previous quarter, were the main reason for the weaker
quarterly total. However, demand at the consumer level
was resilient; eastern markets remained the driving
force behind growth in demand for gold jewellery, bars
and coins. Central bank net purchases, which slowed in
line with our predictions, were again a solid pillar of
demand. The supply of gold was down by 3%, to 1,145.5
tonnes as a reduction in recycling activity more than
offset a modest increase in mine production.
Gold investment demand
Q3 of 2013 was another mixed quarter for the
investment sector, as the two key elements of gold
continued to diverge: demand for bars and coins
increased by 6% while ETFs saw a third consecutive
quarter of net outflows. The net result was a 56% decline
in Q3 of 2013 investment demand. Inclusive of OTC
investment and stock flows (which represents the less
visible elements of institutional investment, as-yet
unquantifiable stock changes and any statistical
residual), total investment demand is broadly flat, down
just 1% year-on-year.
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World official gold holdings (March 2014)
Source: WGC
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China Overtakes India In Gold Consumption-
WGC:
According to world Gold Council “China became the
largest gold market in the world for the first time in
2013”.Demand for gold in China set a remarkable
new record of 1,066 tonnes, a rise of 32% year on
year. Gold consumption in China grew to 1,176.40
tonnes last year, with jewellery demand climbing
43% to 716.50 tonnes and bullion demand soaring
57% to 375.73 tonnes. China's gold output in 2013
rose 6.2 % from the previous year to a record high
428.163 tonnes, making the country the world's
biggest producer for a seventh straight year. China's
foreign exchange reserves, the world's largest, rose
to $3.82 trillion at the end of 2013.
Gold and emerging markets
Over the past decade, emerging markets have
benefited from strong growth and cheap funding.
Investors have increased their exposure and, given
the positive long-term view of these economies,
there is a strong rationale for investors to have EM in
their portfolios. However, given recent market
volatility and concerns about the sustainability of
EM growth, it is more pressing than ever for
investors to understand how to hedge exposure to
the asset class and, even if they don't have direct
holdings, how to reduce the effects of a spillover in
their portfolios. While EM crises may have been
regionally contained in the past, the increasing
weight of these markets in global GDP and
international trade could increase the risk of
contagion in any future crisis. In that context, there
is a strong argument for using gold to enhance EM
hedging strategies.
Ukraine tensions and Gold
Recently escalating military tension between
Ukraine and Russia bolstered demand for assets
such as gold which is perceived to be relatively safe
haven. Tensions between West and Russia since the
end of the Cold War increases demand for the metal
as a haven. As a result of the escalation of this
conflict and the damages it's going to do to the
European economy, people are going to continue to
rotate out of the stock market into the gold market.
The uncertainty surrounding Ukraine could push
gold prices higher in the next few weeks although
diplomatic and political solutions are going to be sought
a lot will also depend on investor positioning.
China economy and Gold
While there is wide consensus that developed markets
are in recovery mode, there is less certainty about the
state of the Chinese economy. Following more than a
decade of strong growth, some market participants fear
the economy could continue to lose steam and that easy
credit may have formed asset bubbles that could burst at
any time. However, there is also an alternative view in
the market: concerned with growth suitability, the
Chinese government will continue a pro-market shift to
economic policies, including financial reform and
improving the budget management and tax systems, in
the hope of structurally improving long term growth.
Further, a recovery in developed markets could
strengthen exports and reignite growth in various
economic sectors.
WGC Gold demand scenario
The gold market became polarised in 2013 as 21%
growth in demand from consumers and value-seeking
investors contrasted with large-scale outflows from
ETFs. The net result was a 15% decline in full-year gold
demand in a year where jewellery, bar and coin demand
reached an all-time high. Chinese consumers set a new
annual record, while India was resilient in the face of
import restrictions. The sharp fall in the gold price in
the second quarter elicited a strong and swift response
from consumers in Asia and the Middle East, an effect
that extended out to western markets in the final
quarter of the year.
Gold supply
Gold supplied to the market during the third quarter of
2013 totalled 1,145.5t, 3% below the same period in
2012. The year-on-year contraction is largely explained
by lower levels of recycling, outweighing modest growth
in mine supply. Year-to-date the supply of gold is 4%
lower than the same period of 2012 at 3,196t. The
primary driver is a contraction in the supply of gold
from recycling almost to pre-crisis levels.
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Gold Silver Ratio
Source: Reuters
Analysis: Steady rise in the gold silver ratio from nearly 60.5 to above 66 recently indicates that silver fell at
faster pace than gold .This ratio can move in range of 63-69 in the month of April.
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SApril 2014
Gold supply
The annual supply of recycled gold declined for the
sixth consecutive year to the lowest level since 2008.
Annual gold mine production grew by 154.4t (5%) in
2013, the bulk of which came through in the second
half of the year. The fourth quarter saw a clear
continuation of the trend that was in place
throughout much of the year: new mines either
coming on stream or building up to full capacity and
growth in production of existing operations.
Growing Industrial Demand of Silver
Silver conducts heat and electricity better than any
other metal on Earth. It is also anti-bacterial. These
amazing properties make silver indispensable in a
vast array of modern industrial and technological
applications. This industrial demand has been
shifting dramatically since the turn of the century, as
defunct applications for silver like photographic
film have been replaced by new technologies like
photovoltaic power. The evolution of silver's
industrial applications continues unabated, with
new uses being developed every year. In spite of a
recent dip in demand for industrial silver due to
global economic volatility, the fundamentals of the
industries consuming silver look promising.
Biotechnology
Recent advances in biotechnology have brought a
renewed focus on silver's centuries old history as an
important medical weapon. The Silver Institute
observed that the medical use of silver has helped
reduce the growing threat of antibiotic-resistant germs
spreading through a hospital. Today, the need to
combat antibiotic-resistant superbugs and to suppress
hospital-acquired infections has increased the
importance and number of uses of silver-infused
products.
In the month of April 2014 bullion counter will
remain sideways with weak bias. Ukraine
tensions and movement of greenback may
support the prices to some extent. Moreover
condition of global economy and movement of
local currency rupee coupled with Physical,
ETF demand will also influence its prices.
Range
Gold MCX Rs 27300-29800 per 10 gms
COMEX $1250-1380 per troy ounce
Gold Hedge NCDEX Rs 24000-26500 per 10 gms
Silver MCX Rs 41500-45000 per kg
COMEX $19-22.50 per ounce
Silver Hedge NCDEX Rs 3500-4500 per 100 gms
ENERGYENERGYCRUDE OIL & NATURAL GASCRUDE OIL & NATURAL GAS
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ENERGY COMPLEX
Crude Oil
In the month of March crude oil prices was subdued
on rising greenback and increasing stockpiles. On
domestic bourses stronger local currency rupee has
kept the prices under pressure. Meanwhile Ukraine
and Russia tensions supported the prices. Last
month U.S. announced sanctions on Russia after it
seized control of Crimea from Ukraine. Prices traded
in range of nearly $97.28- 105.21 in NYMEX and
5975-6547 in MCX. According to the Energy
Information Administration “Total U.S. crude
inventories expanded by 6.62 million barrels to
382.5 million” The Organization of Petroleum
Exporting Countries will curtail exports by 620,000
barrels a day, or 2.5 percent, to 23.78 million a day in
the four week to April 12 in response to lower
seasonal demand from refiners in Asia, according to
tanker-tracker Oil Movements.
Crude oil futures can move on mixed path
with some short covering can be seen in the
April 2014
month of April .Fall in stockpiles and rising demand
in US supported the prices while rising greenback can
curtail the upside. Economic data from US and Europe
will give direction to the crude oil prices. Middle East
tensions may result in reduced supplies which may also
give support to the crude oil prices. Crude oil can
move in range of 5900-6350 in the month of
April. The situation in Ukraine and Russia will be
closely watched by the crude oil investors. The U.S.
Senate and House passed separate bills imposing
additional sanctions on Russian officials for the nation's
annexation of Crimea from Ukraine. The House
measure would codify sanctions already announced by
Obama. It would encourage imposing more penalties on
Russians with “significant influence over the formation
and implementation of Russian foreign policy”
involving Crimea. Meanwhile any U.S. and Russia
diplomatic solution to the Ukraine situation can keep
the upside capped.
Brent WTI Spread
Source: Reuters
Analysis: Brent WTI spread has narrowed recently to below 7 after testing high of nearly 15 in beginning of this
year .This spread can hover in range of 5-9 in near term. The spread has narrowed down as Enterprise Products
Partners (EPD) said it would more than double the capacity of its Seaway pipeline in mid-2014. The Seaway
pipeline currently brings crude oil from the inland U.S. oil hub of Cushing, Oklahoma, to the Gulf Coast. The
increased transportation capacity from inland U.S. crude production regions to demand centers (such as
refineries on the Gulf Coast) is bullish for WTI crude oil prices. The expanded pipeline is reported to be able to
move more than 850,000 barrels per day of crude oil.
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April 2014
Some key points from EIA estimates
Global Crude Oil and Liquid Fuels
Consumption
EIA estimates that global consumption grew by 1.2
million bbl/d in 2013, averaging 90.4 million bbl/d
for the year. EIA expects global consumption to
grow 1.2 million bbl/d in 2014 and 1.4 million bbl/d
in 2015. Projected global oil-consumption-weighted
real GDP, which increased by an estimated 2.3% in
2013, grows by 3.1% and 3.5% in 2014 and 2015,
respectively.
Non-OECD countries as a group are expected to
account for all of the consumption growth in 2014
and nearly all of the growth in 2015. China is the
leading contributor to projected global
consumption growth, with consumption increasing
by 400,000 bbl/d in 2014 and 430,000 bbl/d in
2015. However, China's economic and oil
consumption growth rates have moderated
compared with rates before 2012, when annual GDP
growth exceeded 9% and oil consumption growth
averaged 700,000 bbl/d from 2009 through 2012.
EIA expects lower OECD consumption in 2014, led
by projected consumption declines in both Japan
and Europe. EIA expects Japan's oil consumption
to fall by an annual average of 150,000 bbl/d in 2014
and 2015, as the country continues to increase
natural gas consumption in the electricity sector and
returns some nuclear power plants to service. EIA
projects that OECD Europe's consumption, which
fell by 60,000 bbl/d in 2013, will decline by another
60,000 bbl/d in 2014 and then remain mostly flat in
2015. U.S. liquids consumption, which increased by
400,000 bbl/d in 2013, is expected to remain flat in
2014 and then increase by 100,000 bbl/d in 2015.
Non‐OPEC Supply
EIA estimates that non-OPEC liquids production
grew by 1.3 million bbl/d in 2013, averaging 54.0
million bbl/d for the year. EIA expects non-OPEC
liquids production to grow by 1.8 million bbl/d in
2014 and 1.5 million bbl/d in 2015. EIA forecasts
production from the United States and Canada to
grow by a combined annual average of 1.3 million
bbl/d in 2014 and 1.2 million bbl/d in 2015. Brazil's
production is expected to increase by an annual
average of 0.15 million bbl/d over the next two years,
attributable to new deepwater fields. EIA estimates
that Asia and Oceania's production will rise by an
annual average of 0.18 million bbl/d over the
forecast period, led by China.
OPEC Supply
EIA estimates that OPEC crude oil production averaged
30.0 million bbl/d in 2013, a decline of 0.9 million bbl/d
from the previous year, primarily reflecting increased
outages in Libya, Nigeria, and Iraq, and strong non-
OPEC supply growth. EIA expects OPEC crude oil
production to fall by 0.5 million bbl/d and 0.3 million
bbl/d in 2014 and 2015, respectively, as some OPEC
countries, led by Saudi Arabia, reduce production to
accommodate the non-OPEC supply growth in 2014. In
recent months, EIA revised upward historic data for
OPEC non crude liquids supply. Projected OPEC
noncrude oil liquids production, which averaged an
estimated 6.3 million bbl/d in 2013, increases to an
average of 6.5 million bbl/d in 2015.
Unplanned crude oil supply disruptions among OPEC
producers averaged more than 2.3 million bbl/d in
February 2014, almost 0.1 million bbl/d higher than the
previous month. Libya continues to experience swings
in its production, contributing to changes in the OPEC
disruption estimate.
U.S. Liquid Fuels Consumption
Total U.S. liquid fuels consumption rose by an
estimated 400,000 bbl/d (2.1%) in 2013. Consumption
of hydrocarbon gas liquids registered the largest gain,
increasing by 150,000 bbl/d (6.4%). Motor gasoline
consumption grew by 90,000 bbl/d (1.1%), the largest
increase since 2006. Stronger-than-expected growth in
highway travel during the second half of 2013
contributed to that increase. Distillate fuel
consumption increased by 90,000 bbl/d (2.5%),
reflecting colder weather and domestic economic
growth.
U.S. Liquid Fuels Supply
Harsh winter conditions over the past few months
negatively affected well completion activity in the
northern U.S. plays. As more evidence of this seasonal
slowdown has appeared in the data, EIA has revised
downward initial estimates for December 2013 and
January 2014 U.S. crude oil production. Because the
weather effects are temporary, much of the production
slowdown is expected to be made up by accelerated
completion activity over the next few months.
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April 2014
EIA expects strong crude oil production growth,
primarily concentrated in the Bakken, Eagle Ford,
and Permian regions, continuing through 2015.
Forecast production increases from an estimated 7.5
million bbl/d in 2013 to 8.4 million bbl/d in 2014
and 9.2 million bbl/d in 2015. The highest historical
annual average U.S. production level was 9.6 million
bbl/d in 1970.
Range
Crude Oil
MCX Rs 5900-6350 per barrel
NYMEX $96-105 per barrel
Crude oil may remain on mixed path with some
short covering can be seen amid Ukraine
tensions. Global macroeconomic numbers
along with weekly inventory data in US will
also affect the overall sentiments.
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April 2014
15
Natural Gas
from 24.9 Bcf/d in 2012 to 22.3 Bcf/d in 2013 and Natural gas prices also witnessed selling pressure in 22.0 Bcf/d in 2014. In 2015, total natural gas the month of March on warmer weather conditions consumption falls by 0.3 Bcf/d as a decline in and declining demand. Overall it traded in range of residential and commercial consumption more $4.24-4.73 in NYMEX and 260.30-291 in MCX. than offsets consumption growth in the industrial
Natural gas prices have been under heavy selling and electric power sectors. EIA expects natural gas pressure in recent sessions amid concerns that the consumption in the power sector to increase to 22.6 arrival of spring will bring warmer temperatures Bcf/d in 2015 with the retirement of some coal throughout the U.S. and cut into demand for plants. heating. Natural gas can move in range of 250-290
in the month of April. Movement of stockpiles and
weather conditions will give further direction to U.S. Natural Gas Production and Trade
natural gas prices. Investors are betting seasonably
mild weather typical of this time of year will curb EIA expects natural gas marketed production will
demand for both heating and air conditioning grow at an average rate of 2.5% in 2014 and 1.1% in
across much of the U.S. 2015. Rapid natural gas production growth in the
Marcellus formation is causing natural gas forward Spring see the weakest demand for natural gas in
prices in the Northeast to fall even with or below the U.S, as the absence of extreme temperatures
Henry Hub prices outside of peak-demand winter curbs demand for heating and air conditioning. The
months. Consequently, some drilling activity may heating season from November through March is
move away from the Marcellus back to Gulf Coast the peak demand period for U.S. gas consumption.
plays such as the Haynesville and Barnett, where Approximately 52% of U.S. households use natural
prices are closer to the Henry Hub spot price. gas for heating, according to the Energy
Department. Liquefied natural gas (LNG) imports have declined
over the past several years because higher prices in
Europe and Asia are more attractive to sellers than
the relatively low prices in the United States. Ukraine tensions and natural gas Several companies are planning to build
Natural gas can get support from the tensions in liquefaction capacity to export LNG from the Ukraine as Russia, which provided 30 percent of United States. Cheniere Energy's Sabine Pass Europe's natural gas last year, sends half of its facility is planned to be the first to liquefy natural supplies via Ukraine. So far, Russian gas shipments gas produced in the Lower 48 states for export. The to Ukraine and the rest of Europe haven't been facility has a total liquefaction capacity of 3 Bcf/d disrupted during the crisis. and is scheduled to come online in stages beginning
in late 2015.
Natural gas prices will depend upon EIA Natural gas estimatesweather conditions and power generation
U.S. Natural Gas Consumption demand coupled with its consumption
pattern and inventory position in the EIA expects total natural gas consumption will
month of April 2014. average 71.3 Bcf per day (Bcf/d) in 2014, a drop of
0.1 Bcf/d from 2013. The projected year-over-year
increases in natural gas prices contribute to declines
in natural gas used for electric power generation
EN
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April 2014
Range
Natural gas
NYMEX $4.20- $4.70 per mmBtu
MCX Rs250-290 per mmBtu
16
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April 2014
SMC Global Securities Limited is proposing, subject to receipt of requisite approvals, market conditions and other considerations, a further public issue of its equity shares and has filed a Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI). The DRHP is available on the website of the SEBI at www.sebi.gov.in and the website of the Book Running Lead Managers i.e. Tata Securities Limited at www.tatacapital.com and IL&FS Capital Advisors Limited at www.ilfscapital.com. Investors should note that investment in equity shares involves a high degree of risk. For details please refer to the DRHP and particularly the section titled Risk Factors in the Draft Red Herring Prospectus.
Disclaimer:
This report is for the personal information of the authorized recipient and doesn't construe to be any investment, legal or taxation advice to you. It is only for private circulation and use .The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. No action is solicited on the basis of the contents of the report. The report should not be reproduced or redistributed to any other person(s)in any form without prior written permission of the SMC.
The contents of this material are general and are neither comprehensive nor inclusive. Neither SMC nor any of its affiliates, associates, representatives, directors or employees shall be responsible for any loss or damage that may arise to any person due to any action taken on the basis of this report. It does not constitute personal recommendations or take into account the particular investment objectives, financial situations or needs of an individual client or a corporate/s or any entity/s. All investments involve risk and past performance doesn't guarantee future results. The value of, and income from investments may vary because of the changes in the macro and micro factors given at a certain period of time. The person should use his/her own judgment while taking investment decisions.
Please note that we and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance if this material;(a) from time to time, may have long or short positions in, and buy or sell the commodities thereof, mentioned here in or (b) be engaged in any other transaction involving such commodities and earn brokerage or other compensation or act as a market maker in the commodities discussed herein (c) may have any other potential conflict of interest with respect to any recommendation and related information and opinions. All disputes shall be subject to the exclusive jurisdiction of Delhi High court.
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April 2014