Weekly Commodities Wrap

The Sell-Off In Iron Continues

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Copper: Price Reverses After Hitting Fresh 3 Year Highs

After a strong start to the week, printing further fresh 2017 highs, the red metal fell back over the latter part of the week as concerns around China fuelled profit taking. Driving the rally over the first half of the week was a report from the top global copper producer, Codelco, noting that its H1 production fell 5.3% against H1 production in 2017. The produced blamed falling grades for the decline.

However, despite the lower output the company still registered a $1 billion profit over the period thanks to the surge in copper prices. The chairman of Codelco, Oscar Landerretched, recently voiced his concerns over the rally in copper saying “I’m a little sceptical..in the short term…. It’s true that all of the fundamentals are good in the medium- and long-term…but I would be very cautious.”

However, the declines in copper were capped as the US Dollar suffered further downside this week linked to receding 2017 rate hike expectations. A weaker US Dollar makes dollar denominated assets cheaper and has helped buffer profit taking in the red metal.

The rally in copper this week saw price printing fresh three-year highs before reversing to end the week negative. For now, price remains between support at the broken 2015 high around 2.962 and resistance at the mid- 2014 high around 3.272 which is also the 50% retracement from the 2010 highs.

Iron ore: Sell Off Continues on Weak Steel Prices

Iron, which has put in an impressive rally over the last few months, tumbled to a three-week low this week as weakness in the Chinese steel market weighed on the price. As steel stockpiles in China have lifted, steel prices have come under pressure with inventories last week marking their largest gain since February. Reports also indicate that another round of environmental inspections by the Chinese Ministry of Environmental Protection focused on factories and construction sites might have added to the sell-off.

The sell-off in iron this week has seen price putting in a lower high under the recent $80 high-water mark. The next key technical test will be mid- August low which could signal the start of a deeper correction if broken. While above that level, the price is likely to continue range-bound, choppy action but with the focus remaining on further upside.

Platinum: Price Rallies On Despite Oversupply Warning

The rally in platinum prices continued this week as the metal received a boost in support linked to fresh US Dollar weakness. The rally continued despite warning earlier in the week, by the World Platinum Council, that the global platinum market is headed back into oversupply. The WPIC noted that the market moved into a surplus over the 2Q linked to a surge in refined supply and a decline in demand from automotive and industrial sectors which wiped out the 305,000-ounce deficit registered over the first quarter.

Despite the warning, the WPIC is still forecasting an overall deficit, albeit a small one, for the platinum market over 2017. This would be the sixth consecutive year that the platinum market will register a deficit. Supply is expected to contract over 2017 as current market rates have made some mining operations economically unviable.

The rally in platinum this week has seen price moving up to just under the bearish trend line from 2014 highs with the 2017 swing high sitting just above at 1046. For now, the price is in a clear range between this area and support around 893 which is expected to persist for now. Technical traders will be looking to fade this range while a break in either direction is likely to bring momentum players into the market.


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