Weekly Commodities Wrap

Six day Rally in Iron, Strongest Move Since December 2015

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Copper: The Red Metal Continues To Consolidate Amid Lack of Directional Drivers

Copper prices consolidated for a second consecutive week amid a lack of directional drivers during quiet summer markets.  The red metal was slightly firmer over the week due to a weaker US Dollar. Lower oil prices have raised doubt around US inflation, which has been declining over the last three consecutive months and bringing into question the likely pace of further rate hikes across the year.

Copper has been firmer over the last few weeks as traders react to reports of tightening supply. The copper market has registered a 5000-tonne deficit in March, following a 102,000 tonne surplus in February, marking a significant tightening in supply.

Demand in China, which is the largest consumer of copper, continues to fluctuate though the three-month forecast for the market has softened according to traders though demand from end-users remains firm.

The technical picture for copper remains the same. Price has stagnated over the year-to-date after the rally lost momentum following Trump’s election.  To the topside, key resistance is found at the 2015 swing high along with the bearish trend line from the 2011 highs. To the downside, support is found at the December 2016 low at 2.450 with deeper support below at the mid-2016 highs.

Iron Ore: Price Stages Strongest Rally Since December 2015

Following months of heavy, persistent declines which saw price cratering by over 40%, the price has managed to stage a recovery with a six-day rally; its strongest rally since December 2015. The moves came despite yet further weakness in Chinese steel prices, which have been a strong contributor to the price decline.

Price bounced just shy of a test of the key $50 psychological level. The rally has taken price back up to challenge the broken $56 support which is now a key resistance level and important price pivot for determining the direction in the short term.

Palladium: The Rally Continues As Demand Remains Strong Despite Weak Forecasts

Despite analyst forecasts of lower prices linked to an increase in electric car sales, Palladium continues to surge higher. The metal, which is used in the exhausts of gasoline-fuelled vehicles, to curb dangerous fumes, has increased by nearly a third this year.

Consequently, speculative bets on the metal have risen by nearly 300%. The moves have now pushed palladium up to nearly parity with platinum, its sister metal. Typically, the prices of the two metals are fairly well correlated due to their use in catalytic converters, but while palladium has increased by 28% year-to-date, platinum is up just 2%.

The divergence between the two metals this year has been linked to several factors such as speculative action and several years of persistent production deficits which have seen stockpiles reduced and therefore weakened available supply levels.

The outlook for the metal is still very much linked to sales of gasoline-fuelled vehicles. Demand in China and US, the two biggest markets, has slower and could, therefore, limit further price gains.

The continued rally in palladium has now seen price break above the key 824 level resistance, which was the 2011 high and a key price pivot for the metal. If price retests the level, traders will be looking for it to hold as support and provide the next leg up en-route to test the 2014 high around the 912 level.  Rising trend line support should also provide some defence on any retracement lower.


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