Commodity Sell-Off Continues: Fortescue Dismiss Oversupply Claim

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Copper: Lower Prices Despite Bullish Forecasts

A firmer US Dollar put pressure on Copper prices which fell steadily over the week. Better US data had fuelled an uptick in Fed rate hike expectations over the week leading to a stronger US Dollar which has weighed on the commodity space. Alongside this, we have also had a deterioration in risk appetite due to the confirmation by UK PM May that the UK will officially trigger Article 50 and begin the exit process from the EU by the end of March 2017 latest. However, the US employment reports on Friday painting a dismal picture with the headline reading printing just 156k vs. 174k expected and the Unemployment rate ticking up to 5% from 4.9%

Despite the pullback this week, there have been some bullish calls on Copper. Pan Pacific Copper, Japan’s primary copper producer, are calling for a 40% increase in price through 2020 due to a global market shortage. This forecast comes hot on the heels of a forecast issued by Citi last week which estimates that the copper market will end 2016 with an 110,000-tonne surplus though deficits will then hit and continue through the decade, pushing copper prices higher.

Codelco, the world’s largest copper producer, announced this week that it would suspend $2.25billion in investments in six projects aimed at increasing production levels at ageing copper mines due to low copper prices.  Codelco has laid off around half its staff after taking a $97million loss in the first half of the year.

copper

For now Copper remains firmly in the middle of a broader contracting triangle pattern which has framed price action this year.

Iron: Fortescue Dismiss Oversupply Claims

Iron ore prices continued to weaken this week driven by higher US rate hike expectations and risk off sentiment related to potential ECB tapering and the confirmation of Brexit which will be triggered by end Q1 2017.  Iron ore prices have been under pressure recently amidst growing concerns for oversupply in the market.

Fortescue Metals Group this week took to the wires to dismiss these claims noting that they view commodity prices as being at the start of a cyclical upturn.  The world’s fourth largest iron producer noted that they “think there is stability in demand in China, and most of the new large volume supply has already come on to the market.” Data released by Reuters backs up this Chinese demand as Chinese Iron imports were showing to have increased by 2.5% in September from the prior August level, indicating that China’s steel-making activity remains robust.

iron

Iron has now broken down beneath the bullish trend line which has underpinned price action this year. The next key technical support is the June low of 404.80s

Zinc: Goldman Sachs Forecast Further Bullishness

Zinc prices moved lower over the week despite some initial strength on Monday following the general commodity response to the higher US Dollar. Goldman Sachs this week issued a note saying that they remain confident in continued bullishness for Zinc over the next six months as the market is likely to end the year in a 360,000-tonne deficit due to crackdowns on Chinese mining. However, the bullish momentum is not expected to last longer than six months and an expected increase in Chinese supply.

Indian Mining company Vedanta announced this week that it is nearing completion of its $400million Zinc mine in South Africa and is also considering building a second refinery. The refinery would produce roughly 400,000 tonnes of zinc a year adding further supply to the Zinc market.

zinc

Zinc moved back below the September high this week creating a potential double top at the level.  The bullish channel remains intact for now though a deeper retracement lower looks likely.

Platinum: Parties Hopeful Of Resolution To Workers’ Strikers

Negotiations between mining unions and mining companies are reported to be making good progress fuelling hopes that the platinum sector can avoid the sort of protracted wage strike it saw in 2014.  Chris Griffith who is CEO of Anglo American Platinum reported to Bloomberg that those involved in the talks were not “too far from settling.”

platinum

Having broken beneath the bullish trend line support, Platinum prices are now challenging key support at the June lows.

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