Copper, Iron Ore, and Zinc: Oil Keeps Metals Supported

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Copper: Upside Continues As Oil Surges

Copper prices continued to track higher this week extending gains seen in response to the election of Donald Trump.  The President’s proposed increase in infrastructure expenditure has fuelled a surge in commodity demand as investors anticipate increased demand as the President sending programme commences next year.

The red metal has seen steady demand this year aligned to increased infrastructure spending in China and higher construction activity.  Oil prices have also leant the Red metal support this week as prices rallied on optimism surrounding the upcoming OPEC deal next week.  The rally in Oil has spilled over into the broader commodity space leading Copper back up toward recent post-election highs.

Over recent weeks some analysts have expressed concern regarding the velocity of the rally in copper prices which many forecasters now deem are vulnerable to a correction. However, despite these concerns prices continue to travel higher. In a speech made to the Asia-Pac Econ Co-operation in Peru at the weekend Chinese President XI- Jinping said that his Government would support a free trade agreement increasing the prospect of more imports by China, further supporting Copper prices.

The outlook for Copper is mixed, however, despite the demand aligned to Trump’s proposed infrastructure spending the US Dollar is forecast to strengthen into the new year as markets increasingly expect the Fed to raise rates in December.  CME rate hike expectations as given by CME group show that a December rate rise is almost a certainty. The release of the FOMC November minutes showed that some members were in favour of raising rates in December simply to maintain the Fed’s credibility.  Fed Chair Yellen warned recently against waiting too long to raise rates.

copper

Having broken above the bearish trend line resistance from 2012 highs, Copper prices have since retested the broken trend line and have now turned higher again. The next key resistance for Copper will be a test of 2015 high and the long-term bearish trend line from 2011 highs.

Iron Ore: Goldman Revise Forecasts Upward

Tracking the moves in the broader commodity complex, Iron Ore prices turned higher again this week.  Despite a muted start to he week, prices exploded higher on Tuesday with many traders unable to explain the move.  One of the reasons cited for the move is a research note released by Goldman Sachs which saw the bank upgrading their forecast for the metal over the next year.

Goldman noted that a surprise uptick in demand linked to Chinese credit stimulus earlier in the year as well as higher steel demand and inventory restocking. Alongside these factors the bank also noted a lower than expected production rate for the metal over 2016 which added further support. The bank concluded the note by upgrading their end 2017 forecast to US$55/t from US$36/t previously.

iron

Iron Ore prices continue to track higher within the bullish trend that has framed price action this year. Whilst still below the post-election high prices are now turning higher again.

Zinc: Supply Shortages Keep Price Supported

Zinc prices continue to track higher this week pushing to new five-year highs. Lack of supply in China has been a major driver of the rally this year which has now been amplified by news of Trump’s proposed infrastructure spending which has driven a broad commodity rally alongside higher Oil prices this week.

A number of major closures in China last year, totalling around 26 lead and zinc mines, are still creating supply-demand imbalances in the market leading to continued demand.

zinc

Zinc prices have now sustained the breakout above prior 2014 and 2016 highs and are on their way to test the bullish trend line resistance running from 2013 and 2014 highs.

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