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Summary of the COMMODITIES STRATEGY Document (24 February 2015)

Core Content

This document is a commodities strategy report published by the Global Markets Research department of Natixis, dated 24 February 2015. It outlines the current market outlook for various commodities, including base metals, precious metals, oil and oil products, and provides quantitative analysis and strategic trade ideas. The report is authored by several research analysts and is intended for professional and qualified investors.

Main Viewpoints

Copper

• The report has been bearish on copper since 2013, citing a market moving into surplus.
• Copper prices have fallen significantly, but the authors believe this could signal the start of stronger fundamentals that may support a price recovery in 2015.
• Low prices have curbed mined output, especially in Q4 2014, and this effect is expected to be more pronounced in 2015H1.
• TC/RCs (Treasury Charge/Refinery Cash) are falling, which could slow growth in refined copper output, especially in China.
• Copper stockpiles are expected to stabilize as the Chinese Lunar New Year holiday ends and demand from end users increases.
• The authors suggest taking a more bullish position on copper, unwinding the Z5-Z6 time spread, and building a long position in front-month contracts.

Aluminium and Nickel

• The positive view on aluminium is becoming less certain, and the authors suggest unwinding the H5-Z5 time spread and reducing half of the current long position.
• Nickel is viewed as a tentative long due to potential supply constraints and demand growth.
• Zinc and Lead are still considered positive, with the authors suggesting long positions in zinc and a tentative long in lead.

Oil and Oil Products

• Brent and WTI are expected to see contango steepening, with Brent at $60.44 and WTI at $48.55.
• The report highlights forward price curves and spreads for various oil products, such as heating oil and gasoline, as part of the analysis.

Precious Metals

• Gold is expected to remain stable with a forecast of around $1,200 for 2015 and $1,180 for 2016.
• Silver and platinum show lower volatility and are expected to be long relative to gold or in ZAR (South African Rand).
• Palladium is flat with a forecast of $775 for 2015 and $740 for 2016.

Key Information

Forecast Prices (2015-2016)

Strategic Trade Ideas

• Buy Copper (ref H5): Expect higher prices by the end of 2015.
• Unwind Z5-Z6 time spread: Long Z6, short Z5.
• Build long position in front-month contracts.
• Unwind H5-Z5 time spread for Aluminium: Reduce half of the current long position.
• Tentative long Nickel (ref Z5): 50% position.
• Tentative long Lead (ref Z5): 50% position.
• Buy Brent vs WTI contango (K5-K6): Long position.

Carry Over from 2014

• Buy platinum in ZAR: Position closed at 13521.08, with a return of -3.6%.
• Buy platinum vs gold: Position closed at 0.971, with a return of -5.1%.
• Buy gold puts, sell platinum puts: Expired.
• Buy aluminium (ref Z5): Position closed at 1824.8, with a return of -3.5%.
• Buy zinc (ref Z5): Position closed at 2069.5, with a return of -5.9%.
• Position for Z5-Z6 copper contango: Closed at -15.0, with a return of 22.0%.
• Position for H5-Z5 aluminium backwardation: Closed at 42.5, with a return of -0.5%.
• Position for H5-Z5 zinc backwardation: Closed at 33.75, with a return of -11.0%.

Quantitative Analysis

• The NXS Durables Excess Return Index and Natixis Durables Excess Return Index show a one-month performance of -23.3% and -29.8% respectively.
• The Backwardation Excess Return Index and Momentum Excess Return Index also provide performance metrics.
• Correlations with other asset classes:
  • S&P 500: 0.25 for GSCI Industrial metals, -0.21 for GSCI Precious Metals.
  • Treasuries: -0.61 for GSCI Industrial metals, -0.51 for GSCI Precious Metals.
  • Credit IG: -0.34 for GSCI Industrial metals, 0.26 for GSCI Precious Metals.
  • Credit HY: -0.36 for GSCI Industrial metals, 0.24 for GSCI Precious Metals.

Disclaimer and Legal Notes

• The document is strictly confidential and intended only for professional and qualified investors.
• It does not constitute a financial analysis and is not subject to legal requirements for independent investment research.
• It is not a personalized investment recommendation and should not be used as a basis for investment decisions without further consultation.
• Natixis disclaims liability for any financial loss or decisions based on the information provided.
• The views expressed are those of the analysts and may differ from those of Natixis or other parties.
• The document is not approved, licensed, or registered with any regulatory body in the GCC or Lebanon.
• The report is only available to major U.S. institutional investors as defined under Rule 15a-6 of the U.S. securities Exchange Act of 1934.

Conclusion

The document provides a comprehensive commodities strategy for 2015, with a focus on copper, aluminium, zinc, and nickel as potential long positions, while gold and silver are analyzed for stability and volatility. The oil market is expected to show contango steepening, and precious metals are evaluated in terms of their price trends, volatility, and correlations with other asset classes. The strategic ideas include unwinding time spreads, rolling positions, and building longs in specific commodities. The disclaimer emphasizes that the report is not an investment recommendation, and no liability is accepted for any decisions based on the content.