Weekly Commodities Wrap

Copper Suffers Worst Sell-off in 19 Months On China Growth Concerns

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Copper: Red Metal Suffers Worst Decline in 19 months

Following a recovery last week, Copper prices plunged once again this week to mark three weeks of decline over the last four. The catalyst behind the decline was a mixture of weak China data, rising copper inventories, and a hawkish FOMC.

The latest manufacturing data out of China this week provoked growth concerns as the Caixin Manufacturing PMI printed 50.3, the lowest level since summer last year, down from 51.2 prior and well below expectations of 51.3. China is the largest global consumer of copper and manufacturing weakness there is bad news for copper demand.

Adding further concern to the outlook for the red metal is the continued build in copper inventories. On-warrant inventories available for delivery, as tracked by the London Metals Exchange, increased by 38,950 tonnes to 160,200 tonnes, the highest level since mid-April.

The May FOMC fuelled a spike in rate-hike expectations for June as the Fed noted that business fixed investment has firmed, job gains have been solid and fundamentals for consumption growth are also solid. The Fed were also keen to emphasize that they expected the slowdown in Q1 growth to be transitory and for the economy to expand at a moderate pace.

Copper continues to grind around in the block of consolidation formed from the post-election high. Immediate support is found at the December 2016 low around 2.452 with deeper support below at the mid-2016 highs around 1.261. To the topside, the key levels remain the 2015 high around 2.938 and the bearish trend line from 2011 highs.

Iron ore:  How Long Can Iron Stem The Heavy Tide?

Following a roughly 30% decline from its high print in early March, iron ore prices having finally stabilised and stemmed the cascade this week. The fall was driven by concern about weak fundamentals linked to lower steel demand and rising iron ore inventories at Chinese ports. The decline was then exacerbated by speculative activity as late longs rapidly unwound their positions leading to a deeper drop. Despite price having found a footing around the $68 mark, there are still concerns about the outlook especially given the weakness in recent Chinese manufacturing data.

The decline in iron ore over the last two months has been particularly steep and the rebound, for now, is shallow, pointing to the likelihood of further downside to come. Price is now sitting just below a raft of broken support around the $70-$72 area which should provide resistance if retested while a sustained upside breach of this area should alleviate some of the short-term bearish bias.

Zinc: 2016 Favourite Yet To Find its Feet in 2017

Zinc prices tracked lower this week as concerns for growth in China and a broadly hawkish FOMC put pressure on the metal. Zinc prices rallied over 60% last year and in their commodities markets outlook, released last week, the world bank forecast zinc prices to rise a further 32% this year. However, for now, it seems that demand is lacking in the metal as concerns build around external factors.

The key level in Zinc remains the 2730 2010 high. The level was breached twice following Trump’s election, but the price has since come back beneath. While price holds below, we can expect further downside. Immediate support is found at the December 2016 low around 2517, where price bounced two weeks ago. Below there, deeper support comes in at the 2014 and 2015 highs around 2398.

Platinum: Hawkish Fed Sees Precious Metals Crash

The precious metal came under significant selling pressure this week, tracking the moves seen in Gold, as the May FOMC raised investors’ expectations of a rate hike at the June meeting. The FOMC noted a broadly positive outlook which buoyed USD bulls hopes of a coming hike and consequently saw platinum pushed lower.

The sell-off in platinum this week has seen price breaking below the rising trend line from last year’s lows and is now approaching key structural support at the December 2016 low around 888. A break of this level will put a price on course to retest the 2016 low.

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