Weekly Commodities Wrap

Metals Fall Back On Stronger Dollar

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Copper:  Initial Surge On Trump Election Suffers Correction

Following an impressive rally over the last couple of weeks, Copper prices sustained a correction lower this week as a rampant US Dollar weighed on the commodity complex. Prices initially responded positively to news of Trump’s election as markets speculated on an increase in commodity demand aligned to Trump’s proposals for a huge increase in infrastructure expenditure to begin next year estimated at around $500bln. Better data out of China and signals of improved demand have also leant support to the red metal.

However, the surge in prices has now lost some momentum as analysts consider that even if Trump does deliver on his infrastructure spending proposals, it probably won’t have a material effect on the global supply and demand balance for base metals.

Some major Copper producers this week noted that they’re forecasting heavy oversupply in the Copper markets for at least two years which comes in stark contrast to the sentiment expressed at an industry conference in Shanghai shortly after copper prices recorded their biggest weekly gain since 2011.

China’s largest copper producer Jiangxi Copper Co noted that “In 2017, it will still be a relatively oversupplied market. In 2018 it will not be better than 2017”. Concern has been expressed by some in the industry regarding “over speculation” in the market and what has been described as “irrational”.

Goldman Sachs noted this week that they judge the current moves as “too much too soon”. However, the bank also noted that “on the back of higher Chinese demand growth assumptions for 2016 and lower scrap production, our forecast for smaller surpluses and lower cost deflation sees us raising our forecasts significantly.”

copper

Copper prices have retraced from their initial break of the bearish trend line from highs though have yet to retest the broken trend line which bulls will be expecting to provide support for renewed upside.

Iron Ore: Rio Tinto Mine Closure Stems The Decline

Following a sharp decline Iron Ore prices managed to stabilise this week on an unexpected report from Rio Tinto, the world’s second-largest iron ore producer, that they are shutting down one of its biggest mines in Australia.  Reuters reported this week that BHP Billiton and Fortescue Metals Group, among the top four producers in the world, have no plans to follow Rio and that their operations would not be affected by the holiday period.

Iron ore prices have been under considerable upside pressure this year due to increased physical demand from China as well as a surge in speculation in response to Trump’s election as US President.

iron

The pull back in Iron is bringing the price back down to test the previous 2016 high which bulls will be looking to use as support for further upside.

Zinc:  Supply Shortages Keeps Bull Trend Intact

Zinc prices have seen a significant rally this year due to supply shortages. The Zinc concentrate deficit is expected to be around 170,000 tonnes next year. SMM forecast that Zinc prices will stay strong into early next year before declining during Q2/Q3 next year.

Zinc consumption was noted to have been better than expected over 2016 with the average opening rate at galvanizers having risen in 2016 from 205 levels.

zinc

The broadening bullish channel that has framed price action this year has yet to see the resistance trend line challenged again. Main support comes in below market at the prior 2015/2016 high of 2046

Aluminium:  Stronger Dollar Weighs

Aluminium prices tracked the broader commodity moved this week falling lower on profit taking as market recalibrates after the initial surge higher in response to Trump’s election.  The stronger US Dollar is now overriding speculative optimism and comments from Fed’ Yellen about the dangers of waiting too long to raise rates have added further downward pressure to commodity prices.

aluminium

Aluminium prices continue to travel lower within the broad bullish channel that has framed price action.

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