Transcript Fundamental Analysis - Mercantile Exchange Nepal Limited

Fundamental Analysis
- Advance Level
RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED
Disclaimer
This presentation is being provided solely for
informational purposes. Mercantile Exchange Nepal
Limited does not warrant the accuracy or
completeness of any information provided in this
presentation and such information is provided without
any correctness or condition of any kind. Neither
Mercantile Exchange Nepal limited nor any other
person associated with the creation of this
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Precious Metal
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Gold
Silver
Platinum
Palladium
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Base Metal
• Copper
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Energy
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Crude oil
Brent crude
Natural gas
Heating oil
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Agro Commodities
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Wheat
Sugar
Corn
Soybean
Soybean oil
Cocoa
Coffee
Cotton
RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED
Gold
– Major Producers
• China, United States, South Africa, Australia & Peru
– Major Consumer
• India ,China
– Used for Jewelry followed by Investment, industrial,
electronic and dentistry.
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Gold…
• Data to watch
– State of US and Euro zone economy
– Factors that affect the US dollar
– Demand of jewelry in Indian and Chinese market
– Interest rate policy of major economies around the
globe
– IMF announcement regarding it’s gold holdings
– Seasonal factors
• During the festival season in India and China, price tend to
normally rise.
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Silver
• Major Producer
– US, Mexico, Canada, Peru, Russia and Australia
• Major Consumer
– US, China, Mexico
• More than two third of silver is the by product of lead,
copper and zinc.
• Data to watch
• US Dollar affect the price of silver
• Any major change in US economy is important for price of
silver
• Silver is highly correlated to the price of gold.
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Palladium
• Major Producer
– Russia
• Norilsk Nickel mine
• Gorkhran and
• Russian central bank
– South Africa
• Major Consumption
• Automotive, dental and electronic purpose
• Nearly half of the palladium production goes to production of
auto catalysts in automobile sector
• Palladium demand is correlated to the health of auto industry
RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED
Palladium..
• Data to watch
– It is necessary to follow mining news from the major
producers
– Any major change in the automobiles sector
– News regarding palladium stock with Russia and South Africa
– Russia is the only country which holds significant stock of
palladium. Russian government export policies have
significantly influenced world palladium supply and prices
volatility.
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Platinum
• Major Producer
– South Africa and Russia
• Major Consumer
– Japan, US, EU and China
• Platinum is integral part of the production for 20% of
all consumer goods.
• mainly used to make jewelry, manufacturing laboratory
equipment, electrical contacts, dentistry equipment
and other devices.
• Japan consumes 85% of the platinum jewelry that is
produced in the world.
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Platinum…
• Data to watch
– Over 90% of platinum production totally depends upon the
four major mines
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Rustenburg (South Africa),
Impala (South Africa),
Lonrho (South Africa) and
Norlisk (Siberia).
– Policies of South Africa and Russia
– Size of Russian stock for platinum
– Economic situation in the consuming countries like Japan,
U.S and E.U.
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Copper
• Copper
– Major Producer
• Chile, USA, Indonesia, Peru and China
– Major Consumer
• China, USA and Euro zone
– Copper is commercial metal which is used by housing,
automotive and electrical industries. So its demand is affected
by the general state of major copper consuming economy
– Copper prices tend to be strong in the early spring in the US
due to the purchase of copper by the housing and automobile
industries for their peak production levels during late spring
and summer.
– After the peak demand during late spring in the US, copper
demand declines during the summer, and prices soften during
the summer and fall.
– Chinese Industrial and Economic/Interest Rate data also tend
to have a strong impact on Copper prices.
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Crude Oil
• Crude oil
– Major Reserve
• Saudi Arabia, Iraq, Canada, Iran and Kuwait
– Largest Producer
• Saudi Arabia, Russia, US, Iran
– Major Consumer
• US, China, Japan, Euro zone
– OPEC countries control 40% supply of crude oil globally.
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Crude Oil…
• Data to Follow
– The American Petroleum Institute (API) report
– Energy Information Administration (EIA) report
– If any major disruption in supply occurs, there will be upward
pressure on prices.
– Geopolitical tension in major oil producing countries also
affects the price of crude oil.
– Weather condition also affects the price of crude oil. During
American winter, weather forecasts affect the price of crude
oil.
– Almost all oil deals worldwide are priced in US dollar and
dollar devaluation puts pressure for higher oil prices.
– Major announcements by OPEC and IEA (International
Energy Agency).
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Crude oil…
• OPEC (Organization of Petroleum Exporting
Countries)
– OPEC countries hold 81.33% of global oil reservoir.
– Global oil production is controlled by the OPEC decision.
– OPEC meeting, its agenda and outcome usually shake the oil
prices
– OPEC can affect the oil price by regulating the volume of
production.
– Disputes among the member nation also impact the oil price.
– Major Publication
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OPEC bulletin – Monthly publication
Monthly oil market report
World oil outlook
Annual statistical bulletin
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Brent Crude
• Production
– North Sea
• Consumption
– UK, Norway, Denmark, Netherland and Germany
• Used as the pricing benchmark for deliveries from
Europe or bound to Europe.
• The refineries for Brent crude are located in Northwest
Europe.
RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED
Brent Crude…
• Data to watch
• Brent accounts for less than 1% of global oil production
• However, it determines the price of more than 60% of
internationally traded crude oil
• Oil produced from Europe, Middle East and African countries
tend to be priced relative to Brent crude.
• There is generally negative correlation between Brent crude
and US dollar
• There is positive correlation between WTI and Brent.
However, the volatility differs.
RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED
Natural Gas
• Major Producer
– Middle East, Russia and Europe
• Major Consumer
– USA
• It is the main source of energy for daily needs and
activities and is the major component of worlds energy
supply.
• Data to watch
• Getting updates from the US Department of Energy, as U.S. is
the world’s largest consumer of natural gas
• Any negative/positive news in natural gas mines affects the
price of natural gas
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Heating Oil
• When crude oil is refined, then 25% of the oil becomes
heating oil.
• USA is the world largest heating oil consumer and also
produces 85 percent of its requirement.
• Heating oil is high on demand during the American
winter season.
• Heating oil prices generally follow crude oil prices.
• Data to follow
– EIA weekly report.
– Heating oil is mainly used during the winter. So it’s important
to keep eye on the weather during the month of December,
January and February.
– Major portion of the heating oil is consumed in the Northeast
part of US. So it’s important to focus on the weather of
Northeast of US.
RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED
Agro Commodities
• Wheat
– Major Producer
• China, India, US , Russia
– Major Consumer
• EU, China, India, Russia, US, Pakistan
– Data to watch
• News released by United States Department of Agriculture
(USDA).
• Weather conditions in China, U.S., India, Russia and other major
wheat producing countries
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Sugar
• Major Producer and Consumer
– Brazil, India, China and Thailand
• Around 79% percentage of sugar is made from sugar
cane.
• Any news coming out of the largest producing and
consuming countries have an effect on the price of the
sugar.
• Updates from U.S. Department of Agriculture
• Tracking the weather pattern in the major sugar
producing countries as weather affects the production
of sugar
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Corn
• Major producer
– USA, China, Brazil and Europe
• Major Consumer
– Japan
• USA is the largest exporter of corn accounting more
than half of global export.
• It’s important to follow the major corn activities in USA.
RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED
Soybean
• Major Producer
– Brazil, Argentina, China
• Major consumer
– USA
• Soybean is used for extracting soybean oil
• Getting updates of United States Department of
Agriculture
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Soybean Oil
• Major Producer
– USA, China, Argentina, Brazil
• Major Consumer
– India, China, Pakistan, Bangladesh, Iran, South Korea and
European Union
• Soybean oil is produced from soybean.
• Data to watch
• Soybean oil is mainly used by the food industry in a variety of
food products like bread, mayonnaise, non-dairy coffee
creamers, salad dressings, sandwich spreads, and snack
foods.
• Production quantity of soybean and demand of soybean oil in
soybean producing and consuming countries respectively.
RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED
Cocoa
• Major Producer
– Ivory Coast, Ghana, Indonesia, Nigeria and Brazil.
• Major Consumer
– USA and Netherland
• Europe, North America, Japan and Singapore are
main consumer of cocoa in global market
• Data to follow
– World largest producer of cocoa Ivory Coast and Ghana are
unstable countries. Political, Social and Labor issue regularly
threatens to decrease and disrupt the supply of cocoa.
– Black Pod disease is the main threat to cocoa. A major
outbreak of this disease can move the price of cocoa to higher
level.
RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED
Coffee
• Major Producer
– Brazil, Vietnam, Colombia, Indonesia and Mexico
• Major Consumer
– USA, Germany, Japan and Italy
• There are two main species of coffee beans grown
worldwide
– i.e. Arabica and Robusta.
• Brazil produced more than one third of the global
coffee supply
• i.e. almost three times more than 2nd largest coffee producing
country.
• So it’s quite important for investor to keep an eye on the Brazil
coffee industry.
• Even small incidents can hamper the world coffee production
and supply.
RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED
Cotton
• Major Producer
– China, India, US, Pakistan, Brazil
• Major Consumer
– China, Turkey, Vietnam, Mexico
• Climate of the major producing countries affect the
cotton production consequently affect the cotton price.
• Use of synthetic fiber is major competition for the
demand of cotton.
– Major producer shifting to synthetic fiber can have effect in the
demand of cotton.
• Cotton seed prices affect the market.
– Rise in the cotton seeds shifts farmer to other cash crop and
shortage of cotton.
RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED
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