Iron Ore: Supported by position squaring
Iron ore prices received a boost this week to reverse recent weakness. Traders have been covering short positions ahead of public holidays in China next week leading to a rally in the commodity. With exchanges due to be closed next week for the National Day holidays, we have seen traders squaring up positions ahead of the break. These moves were learnt further support as Oil rallied in response to news that OPEC has agreed on a production, marking the first deal to curb output since 2008.
These moves in Iron can also be attributed to disrupted mining activity this week as power outages in Southern Australia caused some mines to close. Iron ore prices have been under pressure recently as a growing number of analysts continue to forecast downward price moves over the remainder of the year and next year also due to supply-demand imbalances.
Chinese Manufacturing data on Friday failed to provide a catalyst for further bullish momentum with the indicator printing 50.1 as expected. With China accounting for around two-thirds of global Iron demand, industrial and manufacturing indicators are key drivers of movement in the metal. Recent restrictions on real estate development in China have weighed on Iron ore prices with Chinese futures prices declining, increasing bearish sentiment.
With a series of big production projects on the horizon analysts expect oversupply in the market to deepen, leading to further declines in price. Gina Rinehart’s Roy Hill mine is expected to increase production to 55 million tonnes per year beginning early 2017 whilst Rio Tinto’s planned Silvergrass mine received approval last month.
Platinum: Workers strikes continue
Platinum prices remain volatile as workers strikes continue to disrupt production. Reports this week noted a breakdown in wage negotiations between the national union of mineworkers, South Africa’s second-largest union, and the country’s main platinum producers: Anglo American Platinum and Impala Platinum.
Half of the workforce at Impala’s refining services walked out on Tuesday as negotiations over pay and benefits faltered. Impala has offered a 7.5% wage increase, which falls short of the union’s demands of 9.5%. The national union of miners has also demand a 14.5% wage increase for Anglo American who so far have offered 6.5%.
The strikes continue to degrade South Africa’s platinum output. The country remains the largest global producer of platinum but last around a million ounces of production as a consequence of a five-month strike in 2015.
Copper: Recovers Losses On Oil Moves
Copper prices recovered initial weakness driven by positive sentiment aligned to the moves in Oil prices on the back of the OPEC deal announcement but remain roughly flat on the week. Sluggish demand in domestic markets has led to the squaring of positions in copper futures, keeping prices subdued. Copper had been firmer over recent weeks due to better data out of China which signalled a pickup in demand. In line manufacturing data on Friday, however, was not enough to fuel further upside in the metal.
Zinc: Rally continues
Zinc prices have continued to rally this week as structurally weaker supply keeps the market bid. This continued rally comes amidst reports that China has discovered its largest Lead and Zinc mine which has around 19 million tonnes of lead and zinc in reserve. Whilst this increased supply is expected to weigh on prices in the future, for now, a shortage in mine production keeps the rally intact.
The shutdown of two major mines in 2015, in Australia and Ireland, caused a significant shift in the supply/demand landscape which fuelled a surge in prices. These moved were further by China who recently ordered the closure of all lead and zinc mines in areas of the Hunan province. Consequently, China is expected to have a 33 million tonne deficit of mined zinc in 2016 keeping prices supported.