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The market continued to be driven by sentiment, expectation on future growth as well as some specific events rather than solid change in fundamentals. However, rises last week were milder than that in previous weeks.

Crude oil price ended the week with mild gain despite continual buildup in inventory as equity markets also edged higher. In the US, Dow Jones Industrial Average gained 0.8% to 8083.4 and S&P 500 Index added 1.7% to settle at 825.16. In Europe, UK's FTSE 100 Index dropped while DAX and CAC 40 Indices ended the week modestly higher. Reuters/Jefferies CRB Index closed 0.7% higher at 227.88.

Crude Oil: Crude oil price traded with great volatility last week. Started the week above 50, the benchmark contract plunged to as low as 47.25 after the US Energy Department showed that crude oil built for the 3rd consecutive week. However, buyers soon gained ground and pushed price above 50 again as supported by rallies in stock markets. The gauge rose slightly by 0.25% to settle at 52.51 for the week.

As expected, IEA revised downward its global oil demand estimate in 2009 last week. The new forecast was that oil demand will drop 2.4M bpd yoy (-2.8% yoy) to 8.34M bpd with major contraction coming from OECD countries. The estimate was 1.2% lower than what was projected a month ago. Moreover, the agency also believed a recovery will not come until 2010.

Concerning OPEC's production cut, IEA estimated the 11-nation cartel (excluding Iraq) produced 25.5M bpd of crude last month, compared with the limit of 24.845M bpd. This translated into compliance level of 83% with Saudi Arabia's compliance was the highest at 108% while Iraq and Angola the lowest at 44% and 45% correspondingly.

While oil price was boosted by expectation of better future demand growth and more constructive market sentiment, a sustainable rally or a break above $55/bbl will only be seen when there's turnaround in inventory cycle. However, we worry this may not be realized in the second quarter which is a typically weak season. While the US and China are 2 of the world's largest oil consumer, focus has been paid on the latter because it's perceived as the first country to recover from global economic slowdown.

In the US, crude inventory gained 1.65 mmb to 361 mmb for the week ended Apr3. Although the pace of the build has slowed down, inventory remained at high level. One positive phenomenon we found was in pickup in gasoline demand which contracted 1.4% yoy in January, better than 3% yoy in 4Q08. However, improvement in gasoline consumption will not turnaround crude price as a whole because distillate demand, which is highly dependent on economic growth, remained bleak.

On the other hand, demand outlook in China has show signs of recovery recently. China, the world's second largest oil consumer, has been increasing oil stockpile. In March, net crude oil import surged to 3.73M bpd, the highest level in 8 months as the nation would like to expand its strategic reserve at low oil price. Apart from filling stocks, China has been extending controls on energy business. News said that China may sign a $10B agreement with Kazakhstan for a stake in the nation's oil company.

In March, China's manufacturing PMI rose to 52.4, the first time in 6 months for the reading to be above 50, from 49 in February as boosted by the Government's RMB 4 trillion stimulus plan. Oil demand normally lags PMI by 2 months and we may see the first growth in oil consumption in China in May since last July.

Natural Gas: Natural gas ended the week with 5% decline as the US inventory report showed that stockpile built by 20 bcf, 438 bcf above the same period in 2008 and 310 bcf above the 5-year average, to 1674 bcf for the week ended Apr 3.

Low gas price has caused contraction in oil drilling. According to Baker Hughes, gas rig counts dropped to 790 units, the lowest since April 11, 2003. The gas rig count has plummeted 51% since the peak of 1606 in September. During this period, NYMEX natural gas price has also dropped by 51%.

Precious Metals: Gold price for June delivery sank to 2.5-month low at 865 Monday before recovering to close at 883.3, -1.6% on weekly basis. Bullion holdings in SPDR stayed unchanged at 1127.68 metric tons for 4 consecutive days. However, we believe downside for gold price should be limited as pullback in price should be able to spur physical demand from India.

In tandem with the yellow metal, silver price also slid 3.2% to 12.33 as surge of stocks and bullishness in market sentiment increased investors' risk appetite and reduced demand for safe-haven assets.

PGM metals outshone gold and silver prices last week as driven by potential ETF listing in SEC and improved car sales in China. Platinum price for July delivery soared to 6-month high at 1220 before closing at 1195.3 (+2.5% wow) while palladium added 2.7% to settle at 231.1.

Auto car sales in March first indicated that deterioration in demand had stabilized. Except for weakness in the US, sales in Europe dropped by a better-than-expected 7% while that in China, India and Brazil gained 10%, 7% and 21% respectively. Better auto market spurred speculation that demand for PGM group metal will increase.

A unit of ETF Securities Ltd. has registered with the US SEC to offer platinum ETF backed by bullion, thus attracting fund to the white metal.

Base Metals: Copper for three-month delivery on the LME closed at 4559 Friday, the highest since Oct 29 with the theme still massive import to China. In March, copper import in China jumped 14% to a record to 427 451 metric tons as the SRB would like to increase strategic reserve at low copper price. Concerning other metals, imports of aluminum and products were also more than doubled during the month.

As we mentioned in previous articles, after China has finished stockpiling, copper price should face a sharp correction as real demand remains sluggish. Although cutback in smelters will cause decline in copper supply, contraction in demand will likely be faster. Research showed that implied consumption of copper in China grew 30% from Dec 08 -Feb09 on yearly basis. However, most of the demand was actually attributed to SRB inventory building. If SRB completed restocking in 1H09, surplus of over 500 000 metric tons will be seen again in the market.