20171129-法国巴黎银行-Introducing_Metals_Factor_Model_Monthly_12页_368kb

COMMODITY QUANT STRATEGY SUMMARY: METALS FACTOR MODEL MONTHLY

Core Content

This document outlines the BNP Paribas Brasil S.A. Commodity Quant Strategy with a focus on the Metals Factor Model Monthly. It provides an analysis of key metals, including Copper, Zinc, Nickel, Aluminium, and Iron Ore, based on a factor model that incorporates both macroeconomic and financial data. The report also includes performance updates and a discussion on the financial channel and its impact on commodity prices.

Main Metals Analysis

Copper

• Fair Value (LME 3mo): USD 6,336/MT
• Current Market Level: USD 7,128/MT (7% above fair value)
• Error Bands: USD 5,708 – USD 6,964
• Conditional Projection (Q1 2018): USD 6,550/MT
• Model Position: Tactically short copper (entry point: 16-Oct-17)
• Key Insight: Despite a strong upward trend since 2016, the appreciation pace may have been too fast. The Chinese real estate sector remains a key driver, with a lagged positive impact on prices. The RMB depreciation has supported China's economic conditions, indirectly boosting demand for copper.

Zinc

• Fair Value (LME 3mo): USD 2,757/MT
• Current Market Level: USD 3,219/MT (~15% above fair value)
• Error Bands: USD 2,479 – USD 3,058
• Conditional Projection (Q1 2018): USD 2,757/MT
• Model Position: Tactically short zinc (entry point: 21-Nov-17)
• Key Insight: Zinc is overbought, and the model suggests a correction is likely. The recent price surge may not be sustainable.

Nickel

• Fair Value (LME 3mo): USD 11,587/MT
• Current Market Level: USD 11,587/MT (2% below fair value)
• Error Bands: USD 10,380 – USD 12,855
• Conditional Projection (Q1 2018): USD 11,868/MT
• Key Insight: Nickel is currently on fair value with a trend still pointing upwards. The model is short nickel, with a recent short position closed on 20-Oct-17.

Aluminium

• Fair Value (LME 3mo): USD 2,069/MT
• Current Market Level: USD 2,069/MT (1.63% below fair value)
• Error Bands: USD 1,868 – USD 2,070
• Conditional Projection (Q1 2018): Flat to current levels
• Key Insight: Aluminium is on fair value, with no defined trend in the near term. The model does not currently hold a position.

Iron Ore

• Fair Value (Qingdao, 62% Ferrous Content): USD 75.56/MT (~10% above current market levels)
• Error Bands: USD 57.82 – USD 93.30
• Conditional Projections (Q1 2018): USD 73.00/MT; Q2 2018: USD 71.00/MT
• Model Position: Recently closed long position (entry: 23-Oct-17, exit: 24-Nov-17)
• Key Insight: Iron ore is expected to rise in the short term due to China's economic conditions and the RMB's role in the financial transmission channel. However, the model took profits at the original target, indicating a potential overbought scenario.

Strategy Overview

• The model is currently short copper and zinc.
• It recently closed a long position on iron ore.
• The factor model is used to determine fair value and strategy signals, integrating macroeconomic and financial data.
• The model is dynamic and not static, using statistical analysis to assess market behavior and potential opportunities.

Financial Channel and US Dollar Impact

• The US dollar is a key factor in commodity pricing, influenced by real interest rates and monetary policy.
• A stronger US dollar typically has a negative impact on commodities.
• The model uses VAR (Vector Autoregression) to analyze the impulse-response of commodity prices to changes in US interest rates.
• A 30bp increase in the US IR curve slope is projected to result in a 16% medium-term drop in WTI crude oil prices, with an immediate 9.1% drop.
• A positive supply-demand shock is also expected to have a 8% medium-term impact on oil prices.

Performance Update

Key Insights and Takeaways

• Copper and Zinc are overbought, with the model tactically short.
• Iron Ore is expected to rise in the short term, but the model took profits at the original target.
• Nickel and Aluminium are on fair value, with no clear trend for aluminium in the near term.
• Gold is slightly above fair value, with a conditional projection of USD 1,200 in Q1 2018.
• The financial channel (US dollar and interest rates) is a critical factor in commodity pricing, especially for metals like copper and zinc.
• The RMB depreciation has supported China's economic conditions and indirectly boosted demand for industrial metals.
• The model uses VAR analysis to quantify the impact of macroeconomic shocks on commodity prices.

Legal and Compliance Notes

• This document is non-independent research and is a marketing communication under MiFID.
• It is intended for Professional Clients and Eligible Counterparties.
• The information is not investment advice and should not be relied upon as such.
• BNP Paribas may have a financial interest in the securities mentioned and may act as a market maker or advisor.
• The document may contain back-tested performance data, which is not indicative of future results and is subject to change.

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