Weekly Commodities Wrap

Zinc Surges To Fresh 3 Month Highs

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Copper: Weaker US Dollar & Mining Strikes Keep Red Metal Supported

The red metal climbed higher over the week boosted by weakness in the US Dollar but also by other fundamental factors. Adding further support for the industrial metal was the reported halt in the recent build-up of Copper inventories that has been hanging over price since late June. The final factor was the approval this week of a workers’ strike at a mine in Chile.

The strike is taking place at the Zaldivar mine owned by mining group Antofagasta and was approved on Monday after talks between workers and the company broke down. The voting has not been officially completed though union officials say that the vote count so far makes a strike certain. Ahead of the workers leaving the site, there will be a period of government mediation which is set to take up to five days. Another of Antofagasta’s sites at Centinela is currently in the government mediation period. The two mines combined produced a total of 340,000 tonnes of copper in 2016, so a combined outage wold have a significant effect on the market.

The copper mining environment in Chile is contributing to the likelihood of further strikes with recent pro-worker labour laws encouraging the workers and subdued Copper prices meaning that contract offers are not as appealing as previously.

Copper continues to frustrate directional traders as the year-to-date range persists. Main support is situated at the December 2016 low around 2.450 with deeper support sitting on top of the mid-2016 highs around 2.274. To the topside, the key barrier will be a retest of the 2015 high around 2.955 which coincides with the bearish trend line running from 2011 highs.

Iron: Rally Continues On Strong Chinese Steel Market

Iron price exploded higher once again this week to breach recent highs as continued strength in Chinese steel markets sees price remain supported. Alongside strength in steel markets, there has also been a decline in inventories with Chinese rebar inventories at 3.74 million, sitting just above the recent six-month low. The first half decline was driven reduced construction activity over Spring. Overall, the rebound in Iron has been fuelled by restocking demand alongside high steel margins and a shortage of medium and high-grade iron. With the US Dollar also trailing lower it looks like conditions are right for the recovery to continue.

The rally this week has seen price break back above the recent $65 high. The next key resistance will be a test of the deeper swing high around $69, last seen in early May. Price is currently in a pivotal area, and if the rally is to sustain then we will need to see a clear break here otherwise a rotation lower becomes more likely.

Zinc: Fresh 3 Month Highs on Falling Inventories

Zinc prices surged again this week printing fresh three-month highs as traders reacted to reports of falling inventories in exchange warehouses as well as supply shortages and expectations of increased demand in China, the largest consumer of zinc. Inventories of zinc in LME reported warehouses are now down more than 35% on the year with tightening in the market exacerbated by cancelled warrants which have now hit the 75% mark.

The market is also concerned about declining supply levels at a time when there is an increased expectation of stronger demand from China with Chinese manufacturing data printing 3-month highs in June as new orders and production both rose.

Following the selloff over the first half of the year, zinc found support on approach to the 2014/2015 highs before sharply reversing higher. Price has since broken back above the key pivotal level of 2731, which was the 2010 high, and now has a clear path to retest the recent 2016/2017 highs around 2977. Any retest of the 2731 level should now find support with a renewed focus on the upside.

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