All week, markets have been watching Greece, but for now, the waiting continues. Various Greek party heads have yet to come up with an agreement amongst themselves as to what exactly they will try to get through Parliament, postponing a decision that should have come out yesterday to today.

For its part, the Wall Street Journal reports that the European Central Bank agreed to make key concessions over its holdings of Greek government bonds in order to get things moving. The ECB will apparently agree to exchange Greek government bonds it purchased in the market last year at a price below face value, provided the talks move towards a successful outcome. Prior to this point, the ECB said it would not take a loss on its positions. The mechanics of the trade– likely transferring ECB bonds to the stabilization fund and/or the Greek government itself — remains up in the air, but the ECB concession could reduce Greece’s debt by as much as €11 billion, plugging most of the €15 short-term funding deficit the Greek authorities are currently grappling with.

We have outlined the rest of the European demands on wage and pension reform in previous commentary, and there has been anything new in this regard, but what could prove to be a sticking point, is a German proposal for Greece’s bailout loans to be paid first into an escrow account before being directed to the Greek budget. Greek political leaders are opposed to the move, considering it an encroachment of their budgetary process.

Despite the lack of news out of Greece today, metals seem to be on an upswing, likely anticipating an imminent agreement. The euro has soared, and is now trading at just under $1.33, lifting energy higher as well, although precious metals are flat as of this trading. European equities are also firmer and US stocks are called to open up, the Dow futures pointing to a 24 point gain. Copper is particularly strong on news that China’s central bank pledged yesterday to support the local housing market, underpinning a key demand source for the metal. Home prices in China fell for a fifth month in January, this according to data from a large real estate firm.

We expect the firmer tone we are seeing in metals to persist as we head into what could be an imminent Greek agreement, but we still are expecting a modest retracement shortly after the confirmation comes through, as most markets are somewhat overextended, having already rallied heading into the news.

In macro news, we had reports out of Germany that exports fell four times more than forecast in December, slumping 4.3% from November levels; this comes on top of a surprisingly weak German industrial output report for December that came out yesterday.

Out of the LME, Metal Bulletin reports that the introduction of a new user fee will be delayed until further consultation on the issue has taken place. “I think the rise is going to be postponed. That was my impression after the meeting,” a senior executive of one LME member told MB.
——————————————-
COPPER SUPPORT: $8000 RESISTANCE: $8679

We are at $8630 on copper, up $149, and are staging an impressive recovery over the past 24 hours. LME stocks continue to fall, as canceled warrants rise. Short-term, should we take out resistance at $8679 on a closing basis, we could set ourselves up for a test of the $9000 mark.

* Copper demand growth in China may drop by half this year, increasing only by 4-5%, this according to Wanxiang Resources research. Researcher Antaike, on the other hand, has projected China’s refined consumption to rise 6.4% to 7.85 million metric tons this year, compared with growth of 8.5% in 2011.

* Union workers at Teck Resource’s Quebrada Blanca mine in Chile have voted in favor of a new labor agreement, a company spokeswoman told AMM Tuesday.

* Reuters reports that French cable maker Nexans said it is confident of maintaining sales growth this year as the euro zone crisis has yet to dampen its activities
——————————————–
ALUMINUM SUPPORT: $2100 / RESISTANCE: $2300

Ali is now at $2283, up $28, and pushing towards resistance at $2300. LME stocks were up another 12,000 times overnight.

* Metal Bulletin’s European duty-paid aluminum premium was up some $20 per ton last week, and is now at around $190-210 per ton.
——————————-
ZINC SUPPORT: $2000 / RESISTANCE: $2270

Zinc is at $2147, up $47.
———————————–
LEAD SUPPORT: $2100 / RESISTANCE: $2340

Lead is at $2229, up $43
—————————————
NICKEL SUPPORT: $20,250 / RESISTANCE: $22,000

Nickel is at $21,950, up $150.
——————————————-
TIN SUPPORT: $20,500 / RESISTANCE: $24,900

Tin is at $25,600, up $100; tin has been very strong recently, as the sharp decline in LME inventories is corresponding with increasing concern about supply from Indonesia where the rainy season will likely have set back production for at least the next several weeks.
—————- ——————————————-
STEEL (3-Months)

LME 3-month billets are trading at $513 in very quiet trading.

* European domestic hot rolled coil prices are expected to continue moving higher for a third week in a row, trading sources tells Metal Bulletin. The latest deals are reported around €550-560 per ton delivered.

INTL FCStone, Inc. and its affiliates assume no liability for the use of this information contained and expresses no solicitation to buy or sell futures, options on futures contracts, or OTC products. Commodity trading involves risks and past financial results are not necessarily indicative of future performance. Any hypothetical examples given are exactly that and no representation is being made that any person will or is likely to achieve profits or losses based on those examples. Reference to and discussion of OTC products are made solely on behalf of INTL Hanley, LLC. Reproduction without authorization is forbidden. All rights reserved.

Of course, copper stocks on the LME are continuing to come down, with most of the decline occurring in US warehouses. Some of this decrease may be attributable to Asian smelters needing to fulfill contracts. We heard yesterday that Glencore may be taking metal off warrant to make up for lost units from the PASAR copper smelter and refinery in the Philippines, which was down in January after a fire last month. Pan Pacific’s 200,000-tonne per year Saganoseki smelter in Japan may also need to find metal after technical troubles at that facility.

Despite the large inventory builds in Shanghai reported overnight, we are not seeing much of a price impact today, as metals are mostly higher in very quiet trading once again. Energy prices are surprisingly restrained as well despite breaking news out yesterday that the US Defense Secretary apparently believes that the Israelis will attempt to take out Iranian nuclear cites sometime between April and June of this year. Offsetting this potentially bullish story somewhat, is the much less conjectural development having to do with the International Atomic Energy Agency wrapping up its visit to Iran yesterday, with its chief inspector reporting progress. There are plans for another meeting in late February and that likely was instrumental in pressuring energy prices yesterday.

Out of Europe, another week is wrapping up and there is still no agreement on Greece. Representatives of the so-called troika — the European Commission, the European Central Bank, and the International Monetary Fund — may travel to Athens this weekend to continue the talks. From what we are reading, a rescue plan may involve losses of more than 70% for bondholders in a voluntary debt exchange, while loans made to the country are likely to exceed the 130 billion Euros level now on offer. Creditors are also prepared to accept an average coupon of as low as 3.6% on new 30-year bonds in exchange. The Euro is taking all this in stride, now trading at $1.3170, and practically unchanged on the day.

We don’t expect markets to be doing much of anything until the next twenty minutes at which point key US nonfarm payrolls come out. The consensus expectation on the January payrolls is 155,000, with unemployment expected to remain unchanged at 8.5%. We suspect that should we get a stronger-than-expected nonfarm number, the dollar could weaken, sending metals prices higher. The thinking here is that if the US economy continues to show increased signs of strength, the markets will know full well that the Fed is not going to do anything on rates for some time, thus increasing the odds of inflation picking up down the road. Conversely, should the jobs number disappoint, fears about slowing expansion in the US will gain traction, rattling the equity markets, likely sending the dollar higher on a flight-to-safety bid, and triggering a mild sell-off in metals. We wait to see whether we are right on this assessment.
——————————————-
COPPER SUPPORT: $8000 RESISTANCE: $8679

We are at $8358 on copper, up $13, and about where we were at this time yesterday.

* Mitsubishi plans to almost double its copper output in 2012 after spending $5.39 billion to buy a minority stake inAnglo American’s Chilean unit.

* Bloomberg reports that six investment banks are set to make fees of as much as $140 million for advising Glencore on its proposed merger with Xstrata.

* Antofagasta expects to increase its copper production to 700,000 tons this year. The fourth-quarter increase will push full-year copper production to 640,500 tons, up 22.9% from 521,100 tons in 2010.
——————————————–
ALUMINUM SUPPORT: $2100 / RESISTANCE: $2300

Ali is now at $2201, up $6.
——————————-
ZINC SUPPORT: $2000 / RESISTANCE: $2270

Zinc is at $2110, up $16, exactly where we were at this time yesterday.

* Three major Chinese zinc and lead producers are forecasting annual losses when they close the books on 2011, an indication of the current struggles within the sector. China’s largest zinc smelter, Zhuzhou Smelter Group has predicted a net loss of about 590 million yuan compared with a net profit of 17.5 million yuan in the previous year. Meanwhile, the country’s second largest zinc producer, Huludao Zinc Industry, expects its net loss for the year to grow to 980 million yuan from 583 million yuan in 2010.
———————————–
LEAD SUPPORT: $2100 / RESISTANCE: $2340

Lead is at $2184, up $20.
—————————————
NICKEL SUPPORT: $20,250 / RESISTANCE: $22,000

Nickel is at $20,859, down $16.

* Vale’s Sudbury mines have been closed for safety inspections following a fatal accident on Sunday the company said; a date for reopening has not yet been given. “There is no impact on finished nickel production as the Clarabelle mill and the Copper Cliff smelter and nickel refinery continue to operate normally with sufficient feedstock for the near term,” the company said. The sites produced 40,000 tons of nickel and 74,000 tons of copper during the first nine months of 2011.
——————————————-
TIN SUPPORT: $20,500 / RESISTANCE: $24,900

Tin is at $24,050, down $100.

* European tin premiums increased slightly on Wednesday February 1 due to healthy demand, market sources said. The premium for 99.9% material, in Rotterdam warehouses, rose to $550-600 per ton, from $450-550 per ton, while 99.85% material stayed at $400-500. “There’s reasonable demand from plenty of places. People have a bit more confidence to place forward orders,” a trader told Metal Bulletin.
—————- ——————————————-
STEEL (3-Months)

LME 3-month billets are trading at $515, and unchanged on the day.

* Chinese steelmakers are pushing for higher hot rolled coil export prices for April shipment amid improved bookings for March and stable domestic prices, Metal Bulletin reports. Benxi Steel said today it has decided to set base HRC export price at $625 per ton fob for April, $10 per ton higher than for March delivery. Chinese commercial HRC prices were in the range $615-620 per ton fob March delivery.

INTL FCStone, Inc. and its affiliates assume no liability for the use of this information contained and expresses no solicitation to buy or sell futures, options on futures contracts, or OTC products. Commodity trading involves risks and past financial results are not necessarily indicative of future performance. Any hypothetical examples given are exactly that and no representation is being made that any person will or is likely to achieve profits or losses based on those examples. Reference to and discussion of OTC products are made solely on behalf of INTL Hanley, LLC. Reproduction without authorization is forbidden. All rights reserved.

ENERGY: WTI bounces after 6 downs days after WP reported that Panetta said he thinks Israel may attack Iran as soon as April. This follows a speech late yesterday by Israel Barak who said time was running out before nuclear facilities are placed under ground. Of course Iran’s Supreme Leader -Khamenei responded with usual rhetoric – saying Iran will respond to oil, military threats, attacking Iran over its nuclear program will harm US, Iran will back any nation or group confronting and fighting against Israel and Iran will not retreat from its nuclear stance under international pressures After making news lows, front to back WTI spreads see a little bounce as well overnight. Brent/WTI held it’s lows from yesterday, March spread has widen over $3 since Tuesday’s close. CNPC said China net Crude Imports will be up 5.9% this year, the slowest growth rate since 2006, on weaken demand. Soc Gen the latest to lower NG 2012 price forecast avg to 2.40 from 2.90. Bloomberg reporting China looking to raise refinery capacity by 25% by 2015

Other reports out of the US yesterday had the ADP reporting that 170,000 jobs were added in January, somewhat less than expected, but investors were nonetheless pleased that the previous month’s robust gain of 325,000 — which looked seasonally suspect at the time– was revised lower by only a modest amount. The US also reported that construction spending rose in December at its fastest pace in four months, helped by a jump in non-residential construction.

Right now, metals are lower and taking news of an $80 billion merger between Glencore and Xstarta in stride. This is the type of story that would normally have triggered a sharp rally in prices a few years ago, but the fact that it has hardly caused a ripple is noteworthy. One reason may be due to the fact that the two companies are already intertwined, so a merger is a logical outcome for both. In this regard, Glencore owns 34% of Xstrata and having gone public itself almost a year ago, the thinking must have been to bring both entities under one roof. Glencore called the move a “merger of equals” and by buying the part of Xstrata that it does not already own, the acquisition falls to $35 billion based on yesterday’s closing prices. Xstrata’s shares rose as much as 14% in London trading on the news, while Glencore was up 5.6%.

Other than that, things are fairly quiet; conditions are clam in the European credit markets, with Spain selling €4.56 billion of 3-5 year government bonds at lower yields earlier today. French yields also fell amid strong demand at the country’s first auction of long-term bonds since its triple-A credit rating was lost last month. Bloomberg reports that about €8 billion of long-term French bonds were sold against bids worth over €19 billion.

Out of Greece, the negotiations continue. It seems that talks to restructure more than $260 billion of Greek government bonds are stuck on a few key points, as highlighted by a Wall Street Journal piece that came out last night. In this regard, the Journal reports that the talks are “being held up in large part by big differences between two of Greece’s official creditors: the International Monetary Fund and Germany”, which if dropped, could result in things being “wrapped up in a matter of hours”. For its part, the IMF has argued that cutting the face value of Greece’s debt in private hands won’t be enough to reduce the government’s debt to the official target of 120% of GDP by 2020, meaning that Greece’s official creditors—the ECB and national governments—have to chip in more. On the other hand, the Germans oppose further “official sector involvement” (termed OSI, a fancy name for more loans), looking instead at deeper and verifiable cuts in the Greek budget before the agreement proceeds.

Another sticking point is how exactly the ECB is supposed to take losses on the €40 billion of Greek bonds it holds. So far, the central bank has resisted participating in any losses, arguing that doing so will make future purchases of other bonds more difficult, as governments are going to renege each time they run into difficulties. One alternative is for the ECB to sell its obligations at face value to the new stabilization fund and let the fund (i.e., European taxpayers) take the loss. While this smoke-and-mirrors shell game plays out, the markets wait.

We remain cautious on the base metals group over the short-term, and don’t have much to add to what we have been saying in previous commentary. Prices have had a good run higher and are in need of a modest correction given that much of the “better news” has been factored in. Secondly, while declining LME stocks are supportive, especially with regard to copper, the picture out of China could not be more different. Here we note that the arbitrage is now heavily against further imports, as stockpiles at local bonded warehouses have surged (up some 100,000 tons over the last month).

In addition, Bloomberg reports that premiums paid by importers are now at $90 over LME C&F Shanghai vs. $120 a month ago, a further sign of sluggish demand. Having said that, how does one explain the fact that copper imports into China soared to record 406,000 tons last month? This is a square peg that does not easily fit into the round hole; either much of this metal was brought in as an earlier arbitrage play, or it was imported to be used for collateral purposes in order to circumvent tighter lending regulations. Either way, not all of it is likely getting consumed. It will be interesting to see what the January import figures show later this month.

In other markets, the Euro is weaker right now, trading below $1.31, while energy prices are slightly lower. US equity markets are expected to open flat as investors wait for US weekly initial claims (expected at 375,000) and fourth quarter productivity readings (expected at .6%). On Friday, we get January nonfarm payroll numbers, likely the most important release of the week (expected at 170,000).
——————————————-
COPPER SUPPORT: $8000 RESISTANCE: $8679

We are at $8350 on copper, down $90, and about where we were at this time yesterday.
——————————————–
ALUMINUM SUPPORT: $2100 / RESISTANCE: $2300

Ali is now at $2237, down $27, and moving further away from $2300 resistance.

* J.P. Morgan is preparing to store aluminum in Rotterdam and recently cancelled of 500,000 tons of LME aluminum warrants in Vlissingen, traders and warehousing sources tell Reuters.

* Aluminum prices are likely to rise up to 10% from current levels to between $2,400 and $2,500 per ton by the end of the second quarter due to planned production cuts, a senior executive at Rusal said. ”

* Aluminum output from the Gulf Co-operation Council (GCC) nations will soon amount to 10-11% of global production levels, this according to Frost & Sullivan. “Considering the fact that Ma’aden, a sixth smelter in Saudi Arabia, is set to become operational by 2013 while Emal’s robust expansion is scheduled for completion by 2014, the GCC is poised to become a primary aluminum production powerhouse with the expectation that the region will contribute to more than 13% of the world’s aluminum production by 2013,” the company said.
——————————-
ZINC SUPPORT: $2000 / RESISTANCE: $2270

Zinc is at $2110, down $21.
———————————–
LEAD SUPPORT: $2100 / RESISTANCE: $2340

Lead is at $2212, down $22.
—————————————
NICKEL SUPPORT: $20,250 / RESISTANCE: $22,000

Nickel is at $20,925, down $50.

* Norilsk Nickel expects output of nickel to be between 235,000-240,000 thousand tons at its Russian divisions and 60,000-65,000 at its international operations, nearly even with last year’s production. Copper output is seen between 355,000-360,000 tons at the Russian sites, while the international operations are expected to mine 9,000-10,000 tons.
——————————————-
TIN SUPPORT: $20,500 / RESISTANCE: $24,900

Tin is at $23,955, down $160.
—————- ——————————————-
STEEL (3-Months)

LME 3-month billets are trading at $515, and slightly lower today.

* Metal Bulletin reports that billet import prices into the Gulf dropped slightly this week, trading at $645-$660 per ton CFR main Gulf port, down from $650-$660 the week before, trade sources said.

* Worldwide steel demand is growing at slower rate than expected, causing investors to revise their 2012 outlook for the industry. Global steel consumption is now set to rise by 4.5% in 2012, revised down from the 5.4% forecast in October by the World Steel Association, this according to analysts and traders surveyed by Bloomberg.

* US Steel executives are cautiously optimistic about 2012 due to positive indicators in a range of markets, including the automobile sector, the company’s top executive said. The steelmaker is looking to “run everything we can as hard as we can” in the first quarter, he said, with all three blast furnaces in Slovakia up and running, as well as the majority in North America.

* Metal Bulletin reports that BHP Billiton has set-aside an additional $779 million to expand its Australian iron ore business through the construction of a new outer harbor port and shipping facilities on the Indian Ocean, the company said. The project will increase annual company shipments from Port Hedland in northwest Australia by 100 million tons. Mitsui-Itochu Iron and Mitsui Iron Ore Corp, have also invested in the project, bringing the total cost to $917 million.

INTL FCStone, Inc. and its affiliates assume no liability for the use of this information contained and expresses no solicitation to buy or sell futures, options on futures contracts, or OTC products. Commodity trading involves risks and past financial results are not necessarily indicative of future performance. Any hypothetical examples given are exactly that and no representation is being made that any person will or is likely to achieve profits or losses based on those examples. Reference to and discussion of OTC products are made solely on behalf of INTL Hanley, LLC. Reproduction without authorization is forbidden. All rights reserved.

In macro news out of the US, the Case-Shiller 20-city index for November showed yet another decline in the US’s largest cities (off some 1.3% on the month). January Chicago PMI also came in somewhat below estimates, but what really rattled the markets yesterday, was the sharp drop in consumer confidence– the latest reading for January came in at 61, well below the 67 expected.

Overnight, we got key numbers out of China; Chinese official purchasing managers’ index for January inched up to 50.5 in January from 50.3 in December, indicating a slight expansion in the factory sector and came in somewhat better than the HSBC’s final manufacturing PMI, which stood at 48.8 in January, its third successive contraction.

Other data was also released from several Asian countries overnight; it was reported that India’s manufacturing grew at its fastest pace in eight months, rising to 57.5 in January from 54.2 in December. Elsewhere, South Korea’s exports unexpectedly fell for the first time in more than two years in January, while inflation moderated to the slowest level in 12 months. Hong Kong’s economy grew by a less-than-estimated 3% in the fourth quarter from a year earlier, while in Australia, home prices plunged by the most on record in 2011, as demand for housing has quieted noticeably of late. Chinese home prices fell for a fifth month in a row in January as well, the longest losing streak since data started being collected.

In the euro area, Markit Economics reported that its purchasing managers’ index for January rose to 48.8 from 46.9 in the prior month. This is contributing to the firmer tone we are seeing in both European equities and the Euro right now, with the latter trading at $1.3160, up almost a full cent from yesterday. A UK manufacturing index jumped to an eight-month high in January as well, unexpectedly returning to growth mode.

Base metals are mostly higher right now, except for zinc, nickel and tin, while energy prices are sporting modest gains. US stocks are expected to open higher, as key manufauctung data is awaited out of the US later in the day.

With regard to the latest Greek developments, the government there promised to mount a last-ditch effort to prevent the collapse of a second rescue package, promising that talks would be completed by this week. Premier Papademos said he would push for a bigger debt write-down by investors and deeper budget cuts by his government, but EU leaders nevertheless left Brussels summit empty-handed earlier this week, as talks continue at lower levels.

In the meantime, German Chancellor Angela Merkel voiced frustration with the process, saying: “Greece’s debt sustainability is especially bad. You have to find a way through more action by the Greek government, more contributions by private creditors …in order to close this gap.” Merkel, however, is equally reluctant to boost the Greek loan package of 130 billion Euros, and would rather have investors absorb greater losses on Greek bonds, now roughly estimated at around 70%, and possibly moving higher. Creditors are also being told to accept an average coupon of as low as 3.6% on new 30-year bonds, down from 4.25%, but in return for that, Bloomberg reports that investors may receive warrants that will entitle them to greater rates of return if the Greek economy rebounds. As an additional inducement, the Greek debt would be governed under U.K. rather than Greek law, providing greater bondholder protection.

We remain cautious on the base metals group over the short-term, as prices have had a good run despite a global macro backdrop (outside of the US) that seems to be decelerating. In addition, it is possible that the confirmation of an imminent Greek deal would lead to something of a “buy-the-rumor, sell the news” type of retracement, as investors look ahead to the more intractable European problems that still need to be addressed.

Finally, we do not hear much about privately held commodity trading firm Louis Dreyfus in the press, but Bloomberg did an interesting piece on the company which we reproduce in this link.
————————————————————————————————————-
COPPER SUPPORT: $8000 RESISTANCE: $8679

We are at $8376 on copper, up $59, and recovering from the $8280 low we saw earlier. LME stocks were off by another 1,500 tons today. The Chinese data did not have much impact on the market, and the firmer tone likely is more attributable to the better manufacturing numbers out of Europe.

* Reuters reports that Antofagasta aims to increase production by more than 9% this year, thanks to the ramp up at Esperanza. Copper production in the fourth quarter rose more than 13% to 187,000 tons, making it the strongest three months of the year, and boosting overall 2011 output to 640,500 tons.

* Japan’s Saganoseki smelter will start operations on February 14, more than a month after a fire halted operations.

The production loss during the period was estimated at 30,000 metric tons, a spokesman told Bloomberg.

* Teck Resource’s Quebrada Blanca copper mine in Chile plan to strike today after unions rejected a final wage offer, a union leader told Bloomberg. In 2010, the site produced 86,200 tons of copper.
———————————–
ALUMINUM SUPPORT: $2100 / RESISTANCE: $2300

Ali is now at $2247, up $9, and as of yet, unable to crack $2300 on a closing basis.

* US and Canadian aluminum shipments rose 7.1% last year to 20 bln pounds, the Aluminum Association said.
——————————-
ZINC SUPPORT: $2000 / RESISTANCE: $2270

Zinc is at $2094, down $12, and seems to be inching back into the trading range.

* The six-day strike at Milpo’s El Porvenir zinc and lead unit in Peru has ended, with 25 workers being added to the payroll and made eligible for company benefits, a union leader said. El Porvenir produced 59,229 tons of zinc and 7,450 tons of lead between January and November of 2011.
———————————–
LEAD SUPPORT: $2100 / RESISTANCE: $2340

Lead is at $2234, up $21; the short-term upchannel seems to be broken, (red line in our attachment), and we could head slightly lower from here.

* Bloomberg reports that demand for lead has failed to pick up in Europe despite a recent burst of cold weather that would usually boost consumption. It is thought that consumers are tapping into stocks as opposed to replenishing inventories. Stocks of refined lead held by consumers were at 98,900 tons in November 2011, data from the International Lead and Zinc Study Group showed, roughly even with inventories held at the end of 2010.
—————————————
NICKEL SUPPORT: $20,250 / RESISTANCE: $22,000

Nickel is at $20,734, down $121.

* Finland’s Outokumpu Oyj is preparing to purchase ThyssenKrupp AG’s stainless steel business in a deal valued at $3.5 billion, industry sources tell Reuters. The deal will result in closures of two melting shops, and an additional 650 layoffs world-wide, as the Finnish stainless steel maker attempts to increase profitability. The plant shutdowns will remove 1.4 million tons of annual capacity, or 16% of output in Europe.
——————————————-
TIN SUPPORT: $20,500 / RESISTANCE: $24,900

Tin is at $24,200, down $145.
—————- ——————————————-
STEEL (3-Months)

LME 3-month billets are trading at $520, and holding steady.

* China’s iron ore market has been quiet this week, as most participants have yet to return to the market. Mainstream prices of 63.5% Fe Indian fines stood at $145-146 per ton CFR China in quiet trading.

* US domestic steel demand appears to be improving, largely on the back of growing activity in the oil and gas, automotive, heavy equipment and general manufacturing sectors, this according to Metals USA Holdings’ president and chief executive officer. “The typical seasonality of our business is back. We expect the first quarter to be better than the fourth quarter, and the second quarter will be incrementally more profitable than the first quarter,” he said.

INTL FCStone, Inc. and its affiliates assume no liability for the use of this information contained and expresses no solicitation to buy or sell futures, options on futures contracts, or OTC products. Commodity trading involves risks and past financial results are not necessarily indicative of future performance. Any hypothetical examples given are exactly that and no representation is being made that any person will or is likely to achieve profits or losses based on those examples. Reference to and discussion of OTC products are made solely on behalf of INTL Hanley, LLC. Reproduction without authorization is forbidden. All rights reserved.

With respect to today’s developments, Monday’s EU summit meeting is now over, with 25 out of 27 states agreeing to sign a pact calling for stricter budget discipline. Apparently, the European Court of Justice will be empowered to impose sanctions on fiscally deviant countries, with penalties either being a lump sum or taking the form of a penalty (up to a certain amount). Only Britain and the Czech Republic refused to sign the so-called fiscal compact. “To write into law a Germanic view of how one should run an economy and that essentially makes Keynesianism illegal is not something we would do” one British official sniffed.

Outside of that, the European summit was officially supposed to focus on a strategy to revive growth and create jobs, and so in this regard, the EU approved 82 billion Euros of unspent funds from the 2007-2013 budgets in an attempt to boost both. However, this is a pittance given the size of the Euro zone economy and unlikely to achieve much. More importantly, no where did we read about any tax or labor market reform being proposed.

Leaders also endorsed a treaty creating a permanent European Stability Mechanism, although a proposal to boost the size of the fund is still being debated. Greece’s unfinished negotiations hung heavy over the talks. The timeline now is for these talks to wrap up sometime this week, although this is what we were hearing last week as well. We wonder how much more patient the markets will be if no accord comes our way this week either.

In the European credit markets, we are seeing a slightly more constructive tone right now, with the German 10-year bund yield rising slightly and breaking a four-day decline. In addition, the cost of insuring against a European sovereign default fell for the first time in three days, down three basis points to 333.

All of today’s developments –or the lack of any new ones — have helped strengthen the Euro, where we now are trading at $1.3170. Metals are higher as a result, as are precious metals and oil, with Brent tacking on an additional $1.40 to trade at just over $112 a barrel. US stocks are expected to open higher as earnings reports continue to stream out. Of the 172 companies in the S&P 500 that have reported results since January 9th, about two thirds have beaten estimates, this according to data compiled by Bloomberg.

Out of the fund world, year-to-date inflows into exchange traded funds are now at $29 billion, this according to a Deustche Bank research note. In commodity ETPs, precious metals saw the highest inflows, adding $1 billion. On the other hand, leveraged products experienced the biggest outflows, losing $0.5 billion.

In terms of our outlook, we wonder whether metals are starting to overreach somewhat at this stage given that they have had a good run for most of the month, having already discounted the improving tone in the European debt markets and the robust Chinese trade figures from last month. It remains to be seen where we go from here, especially now that Chinese players are back. In our view, they will be unlikely to pick up metal at such elevated levels.

In US macro news, the Federal Reserve reported yesterday that demand for business loans increased in the fourth quarter. Of the 56 banks surveyed by the Fed, 17 reported stronger loan demand by companies with $50 million in sales or more, while only six reported weaker interest. On the negative side, we had reports that US consumer spending stalled in December, with purchases unchanged on the month after rising 0.1% in the month prior. We get the Case-Shiller 20-city index for November later today, (at -2.0) as well as January Chicago PMI (expected at 62), and January consumer confidence (expected at 67).

Out of China, there are two developments worth noting: An appeals panel of the World Trade Organization ruled that China must dismantle its system of export taxes and quotas for nine widely used industrial materials. The tribunal said that China distorted trade flows through the dozens of export policies it maintains for bauxite, zinc, yellow phosphorus and six other industrial minerals. The legal setback could set a precedent for the West to challenge China’s export restrictions on other natural resources, including rare earths.

Later today, a coalition of labor unions, Democratic politicians, and trade groups will also plan to file a series of trade cases against China, accusing Beijing of unfairly subsidizing Chinese auto parts makers and illegally restricting the exports of crucial raw materials. The group says a 900% increase in auto part imports from China over the last decade is to blame for job losses in Michigan, Ohio and Pennsylvania — three key swing states in the upcoming presidential elections.
————————————————————————————————————-
COPPER SUPPORT: $8000 RESISTANCE: $8679

We are at $8478 on copper, up $49, and recovering nicely from the $8378 low we saw earlier. The uptrend is still intact, although there are early signs of some “topping out” setting in. LME stocks saw another 2,300 ton decline, bringing total holdings to their lowest level since September 2009. Cancelled warrants stand at an average level of 15% of total LME inventories, versus a 5-year average of just below 5%, in indication that further withdrawals are in the making. Resistance is at Friday’s intraday high of $8679, with support at $7900. Keep an eye out tomorrow for China’s official purchasing managers’ index for January. Last month, the PMI rose to 50.3 in December, barely above expansion.

* Anglo American increased copper volumes in Q4 to 170,000 tons from 154,400 tons in the same period last year and 139,900 in the third quarter, due largely to the start of production at the Los Bronces facility, which lessened the impact of lower output from Collahuasi. Total nickel production grew to 9,900 tons from 6,500 tons in the previous quarter.
———————————–
ALUMINUM SUPPORT: $2100 / RESISTANCE: $2300

Ali is now at $2298, up $19. There is some chart resistance at the $2300 level, but more significant resistance at $2400.

* European duty-paid aluminum premiums have grown to between $180 and $190 per ton from $170-$190, as various shutdowns continue to affect the market, this according to Metal Bulletin. “

* Teck Resource’s Quebrada Blanca copper mine in Chile is on the verge of experiencing a strike, with 95% of the workforce ready to abandon their posts after contract negotiations failed to reach an outcome, a union leader told Reuters. In 2010, the site produced 86,200 tons of copper.
——————————-
ZINC SUPPORT: $2000 / RESISTANCE: $2270

Zinc is at $2136, up $11. We seem to be inching back into a trading range after having broken out earlier.
———————————–
LEAD SUPPORT: $2100 / RESISTANCE: $2340

Lead is at $2277, up $13.
—————————————
NICKEL SUPPORT: $20,250 / RESISTANCE: $22,000

Nickel is at $21,201, down $104, and the only metal that is down so far today. Prices are still trading above the short-term downchannel highlighted in yesterday’s chart.

* Domestic melting-grade nickel premiums have fallen to between 20 and 30 cents per pound due to weak interest in the spot market, trade sources tell AMM. The plating-grade market, however, is seeing steady pricing in the $.60-$.95/pound range.
——————————————-
TIN SUPPORT: $20,500 / RESISTANCE: $24,900
Tin is at $24,150, up $175.
—————- ——————————————-
STEEL (3-Months)

LME 3-month billets are trading at $520, and seeing a bit of a bounce today.

* Japan’s second-largest steelmaker, JFE Holdings, expects to see its first annual loss for the year ending March 31, with losses estimated at 40 billion yen ($522 million) due mainly to reduced demand and the strength of the yen.

INTL FCStone, Inc. and its affiliates assume no liability for the use of this information contained and expresses no solicitation to buy or sell futures, options on futures contracts, or OTC products. Commodity trading involves risks and past financial results are not necessarily indicative of future performance. Any hypothetical examples given are exactly that and no representation is being made that any person will or is likely to achieve profits or losses based on those examples. Reference to and discussion of OTC products are made solely on behalf of INTL Hanley, LLC. Reproduction without authorization is forbidden. All rights reserved.

There were glimpses of good news in the data; disposable income rose for the first time since early 2011, as consumers got some relief from more modest price increases, while homebuilding also picked up, with construction of residential real estate up at an 11% annual rate, its best performance since the second quarter of 2010.

Not surprisingly, the White House used the numbers to renew its call for an extension of the payroll tax, and over the weekend, Republican leaders said that some sort of compromise would be possible. We will have to see if any of this happens given that Congress will not have much incentive to do anything in an election year– not that it has done much in any other year.
In other news late on Friday, Fitch announced that it has cut the credit ratings of Italy, Spain, and three other countries. Italy was cut two levels to A- from A+ while Spain was lowered by two notches. Ratings on Belgium, Slovenia, and Cyprus were also reduced, but Ireland’s was kept where it was. Fitch said that while sovereign-bond yields have fallen recently, the countries downgraded were all lacking “financing flexibility” in the face of the debt crisis.

In the meantime, there is not much new to report with respect to Greece; negotiations continued on Friday and into the weekend, and there is talk that some sort of agreement will be reached this week. Until there is a deal between Greece and private bondholders, the EU cannot move forward with a second, 130 billion euro rescue program.

One proposal that will surely create some fireworks if it ever sees the light of day, has to do with the German idea for Greece to surrender control of its budget to the EU. Not surprisingly, Greek officials dismissed the idea out of hand; if there is anything that will get practically all the Greeks on the streets, this will likely be it.

Elsewhere out of Europe, Chancellor Angela Merkel tried to again downplay reports that Germany was agreeing to increase the size of the euro zone’s bailout funds. Austrian chancellor Werner Faymann said in a weekend interview that he believed the 500-billion euro ESM firewall needs to be raised, echoing similar appeals made by IMF head Christine Lagarde and Italian premier Mario Monti. We think that despite the German denials, the fund size will have to go up, since it will be critical to reassure investors that a bigger “checkbook” will be at hand to stabilize the markets.

News of the Greek impasse and sloppy trading in the European debt markets is pressuring various complexes today; the Euro is off a full cent, now at $1.3110, and we are seeing sizable retreats in base metals, precious metals, and US stocks. Italian bonds have declined in Monday trading, while France auctions as much as 8.3 billion Euros of bills later today. In the meantime, Portugal’s 10-year bond yield climbed to a Euro-era record 16.09%, while the cost of credit-default swaps for the country’s paper rose to a record high. EU leaders are meeting today to continue their discussions on Greece, sign off on a permanent rescue fund, agree on a balanced budget rule, and draw up proposals for creating jobs.

In other news, rating downgrades extended into the corporate world on Friday, with brokerage firms Jefferies and Cantor Fitzgerald both seeing their outlooks lowered to “negative” by Standard & Poor’s on concerns that Europe’s debt crisis will weigh on their trading and investment banking businesses. “Although Jefferies’ direct exposure to Europe is modest, in our view, and Cantor’s even more so, the risk of contagion from the region’s debt crisis could lead to a prolonged period of reduced trading and underwriting activities…” S&P said.

Out of the Middle East, the oil markets are keenly watching developments in Iran, which said on Sunday that it was optimistic about U.N. experts visiting the country this week in an attempt to investigate suspected military nuclear sites. As a gesture towards the talks, the Iranians have postponed debate on preemptively cutting off oil flows to the European Union in order to deny the EU a six-month window to give its most reliant members time to find new alternative suppliers. European refiners, such as Italy’s Eni, would be among the first to be cut off, as they have contracts under which they take payment for past oilfield projects in crude.

In US macro news, it will be a fairly busy week; December personal income and spending comes out later today (expected at .4% and .2% respectively), while on Tuesday, we get the Case-Shiller 20-city index for November, (at -2.0) and January Chicago PMI (expected at 62). January consumer confidence comes out on Tuesday (expected at 67), while Wednesday brings us the ADP report for January (expected at 175,000), the January ISM index (expected at 54.7), and December construction spending (expected at .4%). Thursday brings us weekly initial claims (expected at 375,000) and fourth quarter productivity readings (expected at .6%). Finally, on Friday, we get January nonfarm payroll numbers, likely the most important release of the week (expected at 170,000).

Finally, we repeat the Reuters consensus prices forecasts in our main report, as some of our readers did not pick it up on Friday. (please click on COMMENTARY LINK at the top of this email to access the report).
————————————————————————————————————-
COPPER SUPPORT: $8000 RESISTANCE: $8679

We are at $8416 on copper, down $108. For the time being, resistance is at Friday’s intraday high of $8679. Support is at $7900, with more major support at $7600, which lies along the short-term upchannel. (See our attachment).

* The CFTC reports that money managers raised their net long position in gold, silver, and copper futures in the week ending Jan. 24. Speculators boosted their net long exposure in copper by 2,546 lots to 7,321 lots, the highest level since the second week of August 2011.
———————————–
ALUMINUM SUPPORT: $2100 / RESISTANCE: $2300

Ali is now at $2235, down $29. The long-term charts suggest we have much more room to go on the upside, namely to $2400 before next resistance shows up, (red line), but the fundamentals argue otherwise. In this regard, we are simply not seeing enough production being taken off the market to swing things back to a more balanced supply/demand position going into this year. (See our attachment).
——————————-
ZINC SUPPORT: $2000 / RESISTANCE: $2270

Zinc is at $2112, down $37. Charts suggest that next resistance is at $2300, (red line), but it seems that we have a lot of work to do before we can get there. In the meantime, charts suggest that prices are likely to give back their “breakout gains” and fade back into the trading range (marked by the blue lines in our attachment).
———————————–
LEAD SUPPORT: $2100 / RESISTANCE: $2340

Lead is at $2260, down $35; the charts look solid, but there is resistance around $2340, and much higher, at $2450, which lies along the top end of the down channel. (See our attachment).
—————————————
NICKEL SUPPORT: $18,500 / RESISTANCE: $22,000

Nickel is at $21,350, down $350. The complex has broken out of its short-term downchannel, and charts suggest that we still have more room to go on the upside, assuming the current decline does not accelerate. (See our attachment).
——————————————-
TIN SUPPORT: $21,000 / RESISTANCE: $22,640

Tin is at $24,130, down $270, but still looks solid on the charts. (See our attachment).
—————- ——————————————-
STEEL (3-Months)

LME 3-month billets are trading at $510, and moving lower.

* China’s daily crude steel output rose 3.94% in the first 10 days of January to 1.691 million tons, according to data issued by the China Iron and Steel Association on Sunday. Daily runs over the period were at their highest level since late October.

* Kloeckner and Co. expects Europe’s steel demand to drop by at least 5%, this according to the company’s CEO.

INTL FCStone, Inc. and its affiliates assume no liability for the use of this information contained and expresses no solicitation to buy or sell futures, options on futures contracts, or OTC products. Commodity trading involves risks and past financial results are not necessarily indicative of future performance. Any hypothetical examples given are exactly that and no representation is being made that any person will or is likely to achieve profits or losses based on those examples. Reference to and discussion of OTC products are made solely on behalf of INTL Hanley, LLC. Reproduction without authorization is forbidden. All rights reserved.

Soybeans
Soybean futures are trading lower. Brazil will begin to see rains move out in the north in time for maturing beans with precipitation above normal in the south where rain is needed. The effects of this year’s drought did impact Brazil causing Parana and Rio Grande do Sul to lower their 2011/12 crop estimate. The majority of the Brazilian harvest is still a month away. Southern Argentina is expected to get above normal rains during the same period with Buenos Aires and Cordoba the recipients. Satellite vegetation maps still show some distressed crop areas. Cash basis levels are firm in the eastern Midwest and steady in the west. Mar 12 Soybeans are at $12.16 3/4, down 6 cents, May 12 Soybeans are at $12.26 1/4, down 5 3/4 cents, Jul 12 Soybeans are at $12.36, down 5 3/4 cents, Nov 12 Soybeans are at $12.20 1/4, down 1 1/2 cents, Mar 12 Soybean Meal is at $321.20, down $2.40, Mar 12 Soybean Oil is at $51.71, down $0.23

Wheat
Wheat futures are lower in quiet trade so far today. The dollar is under pressure again this morning. Private exporters reported to the USDA export sales of 133,200 MT of wheat for unknown for 2011/12 marketing year. Egypt’s GASC expects to buy an additional 500,000 MT of wheat between now and the end of June having purchased over 4 MMT since July 1st. Egypt apparently rejected the Kazakh wheat it bought in November because of unapproved seed mixed in with the wheat. Russian wheat was substituted. Iraq Grain Board is tendering for 50,000 MT of optional origin wheat with the U.S. excluded in this tender. Jordan is tendering for 100,000 MT and Ethiopia is tendering for 35,000 MT. Mar 12 CBOT Wheat is at $6.50, down 3 1/2 cents, Mar 12 KCBT Wheat is at $7.04, down 5 cents, Mar 12 MGEX Wheat is at $8.28 1/2, up 1 1/4 cents May 12 MGEX Wheat is at $8.14, up 1 cent

Cattle
Live Cattle futures have traded on both sides of steady ahead of today’s USDA report. The bi-annual Cattle Inventory report will be out at 2:00 central time. The average trade guess for all cattle and calves is 98.5%. The estimates for the annual calf crop are 99.1%. The trade expects beef cows will be 97.5% of a year ago and beef replacement heifers will be 97.9% of a year ago. Overall cattle numbers have been declining and the US herd is expected to be smallest in 60 years. Wholesale beef prices were lower as of 9:30. Choice was down $0.45 and Select was down $0.66. Feb 12 Cattle are at $124.600, up $0.050, Apr 12 Cattle are at $128.175, up $0.125, Jun 12 Cattle are at $127.000, up $0.500, Mar 12 Feeder Cattle are at $154.350, up $0.725

Hogs
Lean Hogs are trading higher, once again above resistance levels. The Lean Hog Index was up 48 cents at 86.76 and within a few cents of the Feb contract on the close. They need to converge by expiration in February. Cash hogs are higher in the west and steady to lower in the east. Thursday’s estimated slaughter is 422,000 head. Saturday’s estimated slaughter is 55 to 60 thousand head. The Carcass cutout was lower yesterday with trade mostly moderate. Feb 12 Hogs are at $86.350, up $0.400, Apr 12 Hogs are at $87.000, up $0.200 May 12 Hogs are at $95.250, down $0.150

Cotton
Cotton futures are trading higher holding technical support. The Cotlook A index was up 0.70 cents/pound at 102.95. Certificated Stocks were up from the previous day at 46,867 bales with 19,814 bales awaiting review. The dollar is lower and crude oil is slightly higher. Mar 12 Cotton is at 95.95, up 36 points, May 12 Cotton is at 96.4, up 36 points Dec 12 Cotton is at 94.69, up 44 points

Create your own investment watch lists, design your own portfolio using multiple sorting tools, watch lists, CTA interviews, access our research library and much, much more.

TOP 5 CTA Programs November 2011
Program November 2011

Global Ag ** QEP ONLY** + 11.89%

White River Group, Diversified Option + 7.80%

Clarity Capital; Management + 7.53%
Clarke, Jupiter + 5.92%
Pere Trading Program LLC + 5.80%

Top 5 CTA Programs Year-to-Date (Jan – Nov) 2011
Program Year-to-Date
Schindler, Dairy Advantage + 95.58%
Pere Trading Group LLC + 58.40%
AFB FortyEighters II Gold + 53.47%
Emil Van Essen Spread Trading Program High Min **QEP ONLY** + 30.36%
GT Capital, Dynamic + 24.64%

Disclaimer: There is a substantial risk of loss in trading commodity futures options and off-exchange foreign currency products. Past performance is not indicative of future results.

Meet the CTA

In this issue we talk to Justin Vandergrift of Chadwick Investment Group, a registered CTA
To see the performance sheet for the Chadwick Investment Group trading program please log on to our managed investments database at http://cta.pfgbest.com or register at http://www.pfgbest.com/services/managed/futures/

Name of Program:
Chadwick Investment Group, Inc

Principal:
Justin Vandergrift

NFA ID # : 329254

Who are the principals with trading authority?
Justin Vandergrift

Can you provide details on the principal and/or managers’ education, career and trading background?
Chadwick was registered as an Introducing Broker until January 2012. The program we trade was a program originally developed for brokerage clients. One customer in particular insisted that we begin a managed account program. After some discussion we decided to start a CTA and trade the method. From there the business evolved and nearly 100% of our clients were trading one of our programs.

Justin Vandergrift, the principal of the company, started researching markets while in college. He graduated from the University of North Carolina at Charlotte in 1996 with a Bachelor of Arts in History and Political Science. Shortly after college he started Chadwick Investment Group as an Introducing Broker. He was also one of a handful of traders featured in Michael Covel’s book, The Little Book of Trading published in August 2011.

Which firm collates your performance numbers?
Futures Accounting and Compliance

What is the minimum investment for your programs?
$250,000

Do you accept notional funding?
Yes at $175,000

What is your management and incentive fee structure?
2% Management Fee
20% Incentive Fee on high water mark

What is your program’s capacity?
$250,000,000

When did you start trading this program?
June 2007

What type of accounts do you manage?
Individual, IRA and corporate.

Can you give a brief description of your program?
The program is the result of years of testing global futures markets using a medium to longterm strategy. It is built on a trend following model that follows over 40 global futures markets. There are equal opportunities on the long and short side of markets. We are not a long only program.

Do you have a systematic or discretionary approach to the market?
100% systematic.

What is the average holding period for each trade?

6-8 weeks for winners, 2-4 weeks for losers
Do you trade options within your program? If yes, please describe the types of options traded and how options risk is monitored.

No – but if we did it would be long options only
Are there any liquidity constraints in the markets you trade?
No – most of our markets are the major markets, so we don’t see liquidity being a concern in the short run.

In what types of market environments does your trading program do well and /or struggle?

Since the model is trend following based, we prefer markets that are moving. Periods of flat markets are difficult.
What is the standard range of margin to equity usage for the program?
15 – 20%.

How do you manage risk/reward and what metrics are employed?
We risk less than 1% of original trade equity on new trades.

What are the optimal market conditions for your strategy?
Reviewing our record shows that we performed well in periods of uncertainty. Looking at October 2008, May 2009 and August 2011 shows three periods where equities performed poorly and we excelled.

What are your investment goals?
Our investment philosophy is focused to realize long-term capital appreciation through compound growth.

What makes your program unique and different from other managers in your sector?
It is our desire is to make the most money possible for our clients. There has been a trend in recent years for trend followers to scale down their volatility to attract bigger assets. We haven’t done that and do not have intentions of doing so. We embrace volatility and try to use it to our advantage. We definitely don’t run from it.

What is the one piece of advice that you would give to a new start-up CTA?
My first job in the futures business was with Futures Truth, an independent ranking service for system vendors run by John Hill. He used to say (in regards to his own program) that you should defend your track record. That is powerful advice. I think he meant to be pro-active in your trading results – know everything you can about all aspects of your trading – just not the system itself. There are a lot of variables involved in producing returns, know them all. For instance liquidity constraints of markets could mean more slippage for you as you grow. These little things add up over the course of a year and could mean digits off your return.

Thank You Justin.

Managed Futures in the News

Managed Futures hold ground in November

Following a 1.50% drop in October, managed futures gained 0.11% in November according to the Barclay CTA Index compiled by BarclayHedge. Year-to-date, the Index remains down 3.09%.
“In spite of a gut-wrenching reversal from risk-off to risk-on in the last three days of the month, CTAs were mostly in the black at month-end,” says Sol Waksman, founder and president of BarclayHedge.

Six of Barclay’s eight CTA indices were profitable in November. The Currency Traders Index gained 1.09%, Discretionary Traders were up 0.28%, Financial & Metal Traders gained 0.23%, and Systematic Traders added 0.09%.

“For much of November the US Dollar gained ground against most other currencies based on its perceived ‘safe-haven’ status,” says Waksman.

On the losing side in November, Diversified Traders were down 0.29%, and Agricultural Traders slipped 0.07%.

“Commodity markets traded lower as measured by a nearly two percent decline in the Reuters/CRB Index,” says Waksman. “Prices for gold and crude oil bucked the trend and rose during the month.”
The Diversified Traders Index is down 5.36% year-to-date. 2011 will be only the third losing year for Diversified Traders versus 22 years of gains since BarclayHedge began tracking their performance in 1987.

The largest CTAs, as measured by the Barclay BTOP50Index, gained 0.06% in November. The BTOP50 is now down 4.02% in 2011.

Extract from Hedge Week 19th Dec 2011

Managed Futures and Commodities: Overview and Outlook For 2012

By Carlton Chin
As 2011 draws to a close, many investors are looking back on the year and checking their investments. This year is definitely a year to forget. The S&P 500 is flat for the year, although many active equity portfolio managers are down for the year due to the relatively large swings in the stock market this year.

Most investment strategies are down for the year, led by Emerging Markets and Distressed Securities strategies. In addition, the Global Macro and Managed Futures categories of hedge fund strategies are down slightly during 2011. A few of this year’s standouts include Bonds, Fixed Income Arbitrage and Merger Arbitrage – which are all up in 2011. In this article, we focus on the Managed Futures industry.

Managed Futures Performance
The performance of the Managed Futures industry and CTAs (Commodity Trading Advisors) is generally uncorrelated to the stock market and other hedge fund strategies. The year 2011 has seen most CTAs flat-to-slightly down, along with most other investment strategies and asset classes.

Here is a sampling of several Managed Futures industry benchmarks through the end of November:
Barclays CTA Index -3.1%
Barclays BTOP 50 Index -4.0%
NewEdge CTA Index -4.7%
NewEdge Trend Sub Index -8.4%
Investable Managed Futures Index 0.0%

Although CTAs would have loved to achieve positive returns this year – to further its diversification arguments– the managed futures industry has already proven its diversification mettle in 2008, when CTAs produced double-digit returns during the start of the financial meltdown. In particular, the Barclays CTA Index was up 14.1% and the Investable Managed Futures Index was up 25.5% in 2008, when the S&P 500 was down -37.0%.

Managed Futures and S&P 500 Annual Performance

Notes: Annual returns for S&P 500 and Investable Managed Futures Index. 2011 Returns are year-to-date as of November 30, 2011.

Performance of Other Asset Classes
As a comparison, here are several other asset classes and hedge fund benchmarks, also through the end of November:
S&P 500 1.1%
Intermediate Govt Bonds 8.0%
Barclays Global Macro Index -3.6%
RICI (Rogers International Commodity Index) -6.6%
Liquid Commodities Index -5.2%

Growing Interest in Managed Futures
Managed Futures and commodities have been some of the fastest-growing sectors within the hedge fund industry because of their diversification benefits. Although performance has been flat-to-down for the CTAs this year, an increasing number of investors are recognizing that these asset classes offer solid diversification benefits due to profit opportunities in a wider set of investment vehicles.

For instance, Managed Futures can be carved into several major market sectors, including financials (such as currencies, interest rates and stock indices) and commodities (which include metals, energy, softs, meats, and grains). The ability to buy and sell these markets during various stages of the economic cycle can help diversify a traditional portfolio of stocks and bonds.

Managed Futures Characteristics
Professional futures traders have shown that positive returns can be earned in the futures markets. Interestingly, many of the approaches used by professional traders are not very easy for small investors to follow. For instance, some futures traders might say, “Buy high, sell higher,” rather than “Buy low, sell high.”

Here are some other notes on managed futures, diversification and its typical return profile:
Most futures strategies attempt to capture “fat-tails.”

As a result, these strategies have small losses, but large gains.

The return distribution for futures programs sometimes requires patience while waiting for large trends to be captured.

Futures strategies typically capture “black swans” and outliers.

Similar to a strategy of being “long options,” while hopefully minimizing costly option premiums.

Managed futures returns are generally uncorrelated to stocks.

Professional futures and commodities traders – as well as the existence of managed futures indices – have shown that long-term positive returns can be earned from the futures markets. We note, of course, the regular disclaimers:

AN INVESTMENT IN FUTURES CAN RESULT IN LOSSES.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE.

Previous Periods of Underperformance
Although 2011 has been a lackluster year for CTAs and managed futures, it is notable that this comes after a solid year in 2010, when the Barclays CTA Index was up +7.1% and the Investable Managed Futures Index, up +11.2%. In addition, this follows 2008, which showed many investors the value of Managed Futures as a solid alternative asset – and a hedge fund category that potentially offers the most diversification.

As with any asset class, there will be periods of underperformance and outperformance. For instance, in 2005-2006, the managed futures industry offered positive, but relatively low returns. The Investable Managed Futures Index earned +4.8% in 2005 and +5.8% in 2006, before turning in +10.9% in 2007 and then making a name for managed futures with a solid positive year in 2008.

By the nature of successful futures trading strategies (such as “being long options” or “dynamic option replication”), there will be periods of lackluster performance. However, the “black swans” and “tail events” eventually come along – and help Managed Futures programs earn positive returns and shine in the area of diversification. Another example is 2000-2003: during this period, the S&P 500 had three consecutive negative years totaling about -40% while managed futures (Barclays CTA Index) earned about +20%.

Outlook
The managed futures industry has been hit hard by the MF Global bankruptcy. We expect – and hope – that this will be resolved in a timely manner that is good for all industry participants. In the meantime, what is the outlook for the industry and the key futures markets moving forward?

Managed futures and CTAs are among the fastest-growing sectors within the hedge fund industry. We expect this trend to continue.

We also expect the typical cycle of investing to continue within the managed futures industry. That is, the pendulum will swing back and forth from “flattish performance to positive returns.”

On a fundamental scale: with the global economy hanging in the balance, several markets have been in a consolidation pattern. However, these periods of consolidation are often the precursor to larger movements.

For instance, after years of weakness, the U.S. dollar has been showing signs of strength.

As the appetite for risk picks up, high-yielding currencies will regain interest as well.

Both gold and energy had sharp declines over the past several months due to economic uncertainty. Recently, however, both markets have been regaining strength – and may be able to lead CTAs to gains in the coming months.

January 2012 crude oil hit a contract high of $114 per barrel in April, before falling to $76 in October. Since October, crude oil has trended upwards once again and is trading in the $101 range.

February 2012 gold continued a long-term trend upwards and hit an all-time high of $1900 per ounce in September, before a steep reversal took gold down to $1550 in just three weeks. Gold is currently trading in the $1725 range.

Interest rates are a major sector within the Managed Futures arena – and will play a major role when the global economies eventually turn around.

The future is uncertain, but we have seen managed futures strategies “manage the turns” through several market cycles in the past – and expect this pattern to continue. CTAs and Managed Futures traders will be poised to capture the returns that the futures and commodities markets offer – while managing downside risk. Here’s to a happy and healthy 2012!

Extract from Seeking Alpha.com Dec 9th 2011

Look to the Future

There is a growing demand for managed future strategies due their appealing risk and return properties.

By James Willard

Managed futures strategies have attracted significant attention from some of the world’s largest institutional investors in recent years, growing to $300bn (£192bn) assets under management. Demand is now building from all investor types to access, through Ucits vehicles, the attractive risk and return characteristics that this strategy can deliver.

Financial and commodities markets can at times exhibit crowd behavior and as a result trends form, be they up or down, and can persist through time as participants either join a rising market or withdraw from a falling market, despite the old adage to buy low and sell high. Academics and practitioners alike have observed the power of price momentum in asset prices both at security and asset class level. Trends formed by crowding behaviors of various market participants are often unpredictable and can occur over multiple time frames. Managed futures managers try to identify these trends and use futures to efficiently gain exposure to the appropriate asset classes and individual markets that are trending upwards while reducing exposure to, or indeed shorting, those that are declining. Profits can be made in both rising and falling markets so long as the trends persist.

The strategy has evolved over the years as increasing computer power enables practitioners to systematically look for trends over many markets to diversify the sources of potential return. In fact it is not uncommon for managers to trade stock market indices, currencies, bonds, interest rates and commodities across more than 100 individual deep and liquid markets, resulting in highly diversified liquid portfolios.

Investors are increasingly recognizing the attractive long-term risk and return characteristics offered by the strategy, both in the context of the traditional portfolio but also as a diversifier in a portfolio of other alternative investment strategies. Managed futures, as measured by the CISDM CTA Equal Weighted Index, has significantly outperformed both global equities and global bonds in the past 10 years, delivering a return of 127.122 percent and outperforming equities as measured by the MSCI World Index by 88.9 percent and bonds as measured by Barclays Capital Global Aggregate Index by 31.2 percent during the period. Perhaps more interestingly, the strategy has exhibited very low long-term correlations to traditional asset classes, with just 0.37 correlation with global government bonds and closer to zero for global equities in the same 10 years. Managed futures strategies also tend to be negatively correlated to equities during trending bear markets – providing a positive return from being short equity markets in line with the prevailing market trend while being positively correlated during trending bull markets.

This is not to say that managed futures are a panacea for every market environment. The strategy tends to perform best when there are numerous and well-established trends across markets whether upwards or downwards, but precisely because managed futures strategies were designed to follow trends, they will perform poorly during times when a number of established market trends change direction simultaneously. At turning points, be that a sell-off following a bullish trend or a reversal of a bearish trend, the strategy can exhibit meaningful drawdowns, although in the past 10 years the biggest drawdown has been 8.8 percent while global equity has fallen by 53.7 percent from peak to trough. The strategy also struggles to deliver meaningfully positive performance during periods where markets trade in a sideways range, much as we have seen in much of 2011. However once portfolios are adjusted to reflect the newly-established market trends performance typically starts to recover.

Despite the systematic approach of most managers, returns do vary considerably between them, and key differences exist between them in terms of the purity of approach, investment in research resources to develop the strategies, capacity constraints, stability of volatility objectives and also transparency.

Not surprisingly such a strategy has great potential appeal for retail as well as institutional investors. While managed futures strategies have been available in offshore form for decades, collective vehicles now exist in both the US and Australian retail markets, and most recently we have seen several Ucits launches in Europe. These vehicles provide daily priced and daily dealing access to this highly liquid strategy in an onshore highly-regulated form. In my view, the Ucits structure has built-in disciplines in terms of regulatory oversight, stringent requirements for managing market, credit, diversification and liquidity risks, which if managed appropriately can be an efficient way to access the strategy.

Questions have arisen to the suitability of Ucits vehicle for the strategy in several areas:

Commodities by the back door? While commodities comprise only a modest proportion of the risk exposures and the returns of most managed futures strategies, they are a very useful source of return and diversification. While Ucits prevents direct exposure to commodities or futures, to avoid the risk that funds ever hold the physical asset, this is mitigated when accessed through an index structure as futures and swaps on indices are cash settled.
Different swap structures? To efficiently gain exposure to the index the funds often enter in to a derivative contract called a total return swap in the underlying index. There are two types of total return swaps, unfunded or funded. A funded total return swap sees the swap value being close to the entire value of the fund, while with an unfunded swap the only exposure relates to the incremental profit and loss movements on the swap rather than total value. In the case of an unfunded swap the fund holds cash for almost its entire value alongside the swap.
Credit and counterparty risks? The total return swaps structure, while efficiently delivering access to the strategy also exposes the fund not only to the risks of the strategy but also to credit risk of the total return swap provider. In order to manage any residual credit risks collateral is held by the fund, Ucits rules provide clear guidance on how much counterparty risk the funds can be exposed to with a maximum of 10 percent to any one counterparty, net of any collateralization. Spread and issuer concentration rules ensure cash heavy portfolios are well diversified. The quality of cash and collateral management varies so investors should be comfortable with the credit risks of the swap provider and the quality of collateral provided by the swap provider to the fund.
Costs: The total return swap can be construed as adding costs as the swap provider needs to be paid, but this is typically less than 50 basis points for either unfunded or funded swaps.
Leverage and volatility. Strategies employing derivatives such as futures are often described as leveraged as they require only minimal cash outlay to obtain the desired exposure. However, as with all Ucits funds, there are clear guidelines that ensure the funds manage volatility appropriately and that value at risk does not exceed 20 percent and hence leverage managed appropriately to achieve this. Most managed futures strategies either target, or have achieved, lower volatility levels than 17 percent a year which is similar to equities in the long term.
A wide variety of investors could benefit from exposure to managed futures strategies alongside their existing traditional and alternative holdings due to the low long-term correlations. So long as investors understand the modest additional costs and risks from the total return swap structure, then Ucits funds can provide an efficient, liquid and highly-regulated way to gain an exposure to managed futures strategies that otherwise could not be accessed.

James Millard is chief investment officer of Skandia Investment Group
Extract from FTAdvisor.com Dec 15th 2011.

Advisors Roam Far Afield in Search of Alternative Investments

As AI gains in popularity, advisors consider many sources
Alternative investments are grabbing financial advisors’ interest as a means to achieve portfolio goals. Where they are looking for AI may be surprising, because the biggest firms are not necessarily getting all the attention.

A report from Cogent Research finds that advisors seeking out AI are looking at multi-strategy and managed futures as offering the most potential in the next year. It also says advisors will show less interest in long/short interest or market-neutral strategies in the year to come.

The report, 2011 Alternative Investment Trends, says asset managers hoping to attract advisors will have to use specific segment and channel strategies to get their attention. Providers of managed futures, for example, would be more likely to see even greater demand among sellers who are the heaviest users of alternatives, having more than 15% of AUM in AI, as well as national wire house advisors; among this group, more than 4 out of 10 already use AI and are expected to make even more use of this strategy.

Alternatives are gaining in popularity among advisors, says the report, reflecting industry trends. But rather than relying on a few more mainstream suppliers for their options, as they do with more conventional asset classes, advisors instead are venturing farther afield in search of AI. The report cites traditional mutual fund, ETF, hedge fund managers, and other AI specialists as go-to sources for advisors.

Antonio (Tony) Ferreira, Cogent Research managing director and co-author of the report, said in a statement, “While we expected to see a range of providers, we were surprised to uncover that nearly 300 unique firms and managers were being considered by AI users.” Sources can include major brands like PIMCO, BlackRock and Natixis, but smaller and emerging providers are also considered important providers.

Ferreira said of the trend, “These results demonstrate that advisors are performing extensive due diligence in their quest to find the best alternative investment solution in every AI strategy.”
While large companies will definitely get attention, smaller players should not be counted out, not just for multi-strategy and managed future flows, but also for other AI categories, he said.

Extract from Advisor One .com – Marlene Satter Dec 12 2011

To contact PFGBEST’s Managed Futures Department please call or e-mail:

There is a substantial risk of loss in trading commodity futures, options and off-exchange foreign currency products. Past performance is not indicative of future results.

There is not much new that we can add to what we have been saying in recent commentary; with the dollar under pressure, we are seeing “risk on” trades seep into a number of commodity complexes and base metals should be a prime beneficiary in this regard. In addition, Wednesday’s Fed statement should provide additional “staying power” for a stronger Euro, something we expect to see last well into next week. Of course, longer-term uncertainties in Europe still hover overhead, but for the time being, investors seem to be discounting some sort of a resolution for Greece, while the continent as a whole is expected to muddle through. We are not sure that such complacency is warranted, but if things do take a turn for the worse, it likely will be sometime down the road, likely by the start of the second quarter.

In the meantime, Greece and private creditors report progress in talks on restructuring the country’s debt, with the negotiations continuing. The EU, IMF, and ECB continue to press Greece to pass a supplementary budget with more cuts and also want to see legislation on pension and labor reform. In the meantime, there is a March deadline looming at which point the country could conceivably default if it does not receive its next bailout.

In terms of US macro news, we had quite a bit of data out on Thursday. Durable goods orders rose by a higher than expected 3% last month, boosted by a surge in aircraft orders. Ex-aircraft, orders climbed by a steeper-than-expected 2.9% after declining for the previous two months. In a separate report, the Conference Board said its December index of future economic activity rose by .4% to a five-month high. Initial claims for unemployment benefits also rose last week by 21,000 to 377,000, although the four-week moving average continued its recent decline. On the negative side, new US single-family home sales unexpectedly fell in December for the first time in four months.

We just got US GDP growth readings out for Q4, and this came in at +2.8% vs. the +3% expected. There has not been much reaction on th markets this far, although base metals have come off from their earlier highs and are now slightly lower.

Finally, Reuters compiled its long-term price forecasts from at least 30 different analysts for both 2012 and 2013; we present the consensus forecasts in our attachment.

In other markets, energy prices are flat right now, the precious metals group is down marginally, while US stocks are called to open slightly lower. The Euro is firm, now trading at $1.3120 on news of a successful Italian auction; Italian yields fell to 1.97% after the country sold 8 billion worth of six-month t-bills, the lowest level since May and down from 3.251% achieved at the previous sale.

Out of the fund world, Barclays Capital said investor interest in commodities was poor in December, with $7.7 billion of net withdrawals. The bank expects commodity inflows to recover this year from a dismal 2011 in which only $15 billion was invested in commodities, down from $67 billion in 2010.
————————
COPPER SUPPORT: $8000 RESISTANCE: $8500

We are at $8567 on copper, down $22. We see little in terms of resistance until $8900, at which point, we think the complex will look exceedingly rich to us. LME stocks were off another 2450 tons today.

* Kazakh copper producer Kazakhmys produced 300,500 tonnes of copper cathode in 2011, down 1.8% from the previous year but in line with its full-year production target, the company said yesterday. “For the fourth consecutive year we have met all our major production targets. We anticipate maintaining similar levels of copper output in 2012 … reflecting continued strong demand for copper,” Kazakhmys’s CEO told Reuters. Zinc-in-concentrate output declined by 16.6% year-on-year in 2011 to 139,600 tonnes as volumes slumped in the fourth quarter. The company attributed the drop to a “general decline in grade across most of the zinc-producing mines”.
———————————–
ALUMINUM SUPPORT: $2100 / RESISTANCE: $2300

Ali is now at $2265, down $12, and basically where we were at this time yesterday.

* Western world unwrought aluminums stocks grew to 1.503 million tons in December compared with a revised 1.457 million in November, data from the International Aluminum Institute figures showed yesterday. Meanwhile, total aluminum smelter stocks excluding finished end-products rose to 2.409 million tons at the end of December 2011, versus a revised 2.403 million in November 2011 and down from 2.519 million tons in December 2010.

* Waiting periods for delivery of aluminum out of LME-listed warehouses are increasing as the ‘warehouse war’ continues, with Pacorini now topping the list of queue holders, with a 10-month waiting time reported at its warehouse in Vlissingen, this according to an assessment by FastMarkets. Goldman’s Metro has a seven-month queue in Detroit, while Johor in Malaysia has a maximum queue of four months. In New Orleans, a two-month queue was reported for delivery of copper.

* Russia’s RUSAL said it would cut output by 6% in the next 18 months, this according to comments made by its chief executive on Bloomberg Television. The company said last week that it had no plans to follow rival Alcoa in cutting production, but apparently changed its mind.
——————————-
ZINC SUPPORT: $2000 / RESISTANCE: $2270

Zinc is at $2175, down $30.

* Workers at Peruvian miner Milpo’s El Porvenir unit are holding a strike for an undisclosed period of time, however, zinc and lead production remains steady because some workers have remained at their posts. The site produced 59,229 tons of zinc and 7,450 tons of lead between January and November of 2011.
———————————–
LEAD SUPPORT: $2100 / RESISTANCE: $2340

Lead is at $2310, down $14.
—————————————
NICKEL SUPPORT: $18,500 / RESISTANCE: $22,000

Nickel is at $21,610, up $10.
——————————————-
TIN SUPPORT: $21,000 / RESISTANCE: $22,640

Tin is at $24,300, up $295 and has had a good run this week given growing concern about Indonesian supply and dwindling LME inventories.

* Tin producers in Bangka expect tin production to fall over the next two to three months as a result of heavy rain. “It’s been raining every day here in Bangka. It’s been very difficult for the small-scale miners here to mine tin because of the monsoon season,” Johan Murod, director at Bangka Belitung Timah Sejahtera told Metal Bulletin.
—————- ——————————————-
STEEL (3-Months)

LME 3-month billets are trading at $520.

* The LME has reinstated 274 steel billet warrants previously held by MF Global for the account of steel trading house Stemcor. The warrants were suspended by the exchange in November because the LME said that MF Global was no longer prepared to comply with its rules on lending guidance. “The lifting of the suspension will bring some liquidity back to the LME billet contract and should help the market to return to a more normalized position,” the head of Stemcor Risk Management told Reuters.

* Nucor fared better than Wall Street estimates with respect to its earnings, with a reported increase in profits of 25% in the fourth-quarter of 2011, compared with the fourth quarter of the previous year. Nucor shipped 5,683,000 tons of steel in Q4, an increase of 7% over the same quarter in 2010, while the average sales price per ton increased 18%. “End markets such as automotive, heavy equipment, energy, and general manufacturing have continued to experience improvements in demand, benefitting special bar quality, sheet and plate products,” the company said.

INTL FCStone, Inc. and its affiliates assume no liability for the use of this information contained and expresses no solicitation to buy or sell futures, options on futures contracts, or OTC products. Commodity trading involves risks and past financial results are not necessarily indicative of future performance. Any hypothetical examples given are exactly that and no representation is being made that any person will or is likely to achieve profits or losses based on those examples. Reference to and discussion of OTC products are made solely on behalf of INTL Hanley, LLC. Reproduction without authorization is forbidden. All rights reserved.