Weekly Commodities Wrap

Metals Melt Under Cross Pressures

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Copper: Rising Geopolitical Tensions Sink Copper

Copper prices plunged to their lowest levels since January this week as risk markets were rocked by an escalation in global political tensions.  Reports that President Trump has sent an “armada” of navy warships towards the Korean peninsula in response to North Korea’s plans to conduct a sixth nuclear missile test have seen traders slashing risk and flooding into safe haven assets. Consequently, a committee such as copper have been hit hard and sent sharply lower.  Aiding the selloff is some impatience by markets regarding the timing of trump’s proposed infrastructure expenditure program which for now has been left out of the picture.

Commodity prices exploded higher last year on speculation linked to the anticipation of demand aligned to Trump’s proposed infrastructure program. However, as yet no plans or details have been announced and some are doubting the viability of such a program, leading to further pressure on commodities.

Copper prices remain subdued this week despite better trade data out of China which continues a string of recent positive data surprises. Chinese copper imports were seen rising 26.5% from a month ago, at 430,000 tonnes. For now, it seems that copper is caught between the supportive forces of positive news out of China and the negative forces of geopolitical tensions and concerns regarding Trump’s infrastructure spending program.

The lack of upside momentum in copper keeps the current block of consolidation intact with the price now rotating toward the lower range of the structure.  Local support comes in at the late December lows around 2.448 with upside objectives still the retest of the 2015high and bearish trend line from 2011 highs.

Iron Ore:  Iron Ore Plunges on Unstable Fundamentals

Iron ore prices fell victim to their largest one-day decline in over a year this week as risk aversion swept across the metals complex. The benchmark price has now suffered declines of over 16% in just five trading sessions making its way from recent highs of late $94s to around $28.  Unbalanced fundamentals within the iron market are exacerbating the sell-off as a combination of high steel prices, strong Chinese steel production and near record-high iron inventories have weighed heavily on demand, adding to the cascade. The velocity of the decline is seeing buyers step to the sidelines on expectations of cheaper future prices.

The daily chart highlights the severity of the selloff with several key levels of a support having all been blown out of the water. Price is likely to find resistance now on any pull back as further sellers step in to capitalize on the move.

Zinc: Outlook Uncertain For Previous Favourite

Zinc prices were no exception to the broader commodity story this week as sharp declines saw prices rattling back below the recent March low. Zinc prices had been a favourite so far this year, however, the expected shortage of the metal linked to closures of big ones might not materialise as other large producers have ramped up output.

Last year’s explosive rally was linked to the closures of big mines such as Century in Australia and Lisheen in Ireland which created a shortage of concentrate.  However, mines are gradually stepping up their operations with mines such as Antamina in Peru set to double its zinc output over 2017. Furthermore, China, which accounts for around 40% of global zinc demand, is also steadily increasing its output adding to the uncertain outlook for zinc.

Zinc prices are now firmly back beneath the 2010 high of 2733 and are heading toward deeper support at the 2014 and 2015 highs around 2402. A retest of the broken 2010 high is now likely to offer resistance as sellers step back in to take prices further lower.

Last week: Aluminium Longs At Record Highs

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