Commodities Special: Buying nickel over copper-Long-term report update

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RAJESH DESAI

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Apr 17, 2012, 12:23:12 AM4/17/12

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Commodities Special

[April 16, 2012]

Sharekhan
www.sharekhan.com

Summary of Contents

COMMODITIES SPECIAL

Buying nickel over copper-Long-term report update

On April 13, 2012 we booked profit in our nickel, copper spread call.

Recommendation - We went long on nickel and short on copper. We recommended buying 2 lots of nickel April at Rs900 ($17,210/ tonne) and selling one lot of copper June at Rs436.50 ($8,352/ tonne) on March 30, 2012.

We opened our position at a nickel/copper ratio of 2.07.

Closing the call - We closed the nickel buy position at Rs946.40 ($18,352) and copper sell position at Rs419.50 ($8018). The nickel/ copper ratio stood at 2.29 when we closed our call.

Profit - We closed both the positions in profit. Our copper sell position fetched us a profit of Rs17,000, while our nickel buy position gave a profit of Rs23,200. In total the said call brought us a profit of Rs40,200.

Rationale of the spread - We expected nickel to outperform copper in the current uncertain macro-economic scenario as copper at the time of generation of call was trading at a premium of around 35% over its marginal cost of production, while nickel was near its marginal cost of production. We expected the copper premium to shrink. We had a relatively bullish view on nickel due to Indonesian ban on nickel ore exports being brought forward. All these factors have been mentioned in detail in our report released on April 13,2012.

Click here to read report: Commodities Special

Regards, The Sharekhan Research Team	myac...@sharekhan.com
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