Bulletins
MARKET COMMENTARY
We were not surprised to see a relative degree of stability set in over the commodity markets over the course of July, especially considering the sell-off that set in over the last two weeks in June. The big movers in terms of individual commodities were the precious metals, with gold, silver and palladium being particularly strong. Energy markets also finished sharply higher, as did product prices, and combined with the strength seen in the precious group, the two account for the bulk of the increase in the CRB index this month.
Base metals trended mostly higher over the course of the month, but the ferrous group put on a more spirited run, with good gains seen in both iron ore prices as well as in the steel HRC contract.
In the currency markets, the dollar lost ground pretty much across the board, while the S&P 500 recovered almost of June’s losses to hit new highs. The 10-year bond market saw rates spike to a fresh high of 2.76% in early July, but the market has been slightly on the mend ever since.
Although Chinese copper demand imports turned higher in June following an equally strong performance in May, questions remain about whether this metal is going to end-users or if it is instead being used as
lendable collateral in what remains a tight credit market. Certainly, recent Chinese macro numbers do not lend support for stronger intake, as they have been running on the weaker side of late, making the financing argument all the more plausible. Some investors do not expect to see much of a change in prices over the course of August and expect the low end of the trading range at around $6600 to hold, while resistance will be at $7200.
Declining stock levels on both the LME and in Shanghai, coupled with talk of easy money/stimulus coming from the Fed should keep the low end of the range intact, particularly since such talk will weaken the dollar further. Moreover, the ICSG sees the copper market to be in a 266,000 ton surplus y-t-d through April and sees projected global demand falling 4% over this time.
London copper edged down on Wednesday as traders cautiously looked to key economic data from China later this week for indications on the outlook for demand from the world's top metals consumer. The world's No.2 economy has slowed in nine out of the past ten quarters, stoking worries about its demand for commodities and dragging down copper prices by 12 percent so far this year.
"We still have a bearish view given the Chinese growth slowdown. Markets are looking towards the data tomorrow. Copper has remained quite resilient to poor U.S. economic data, but if we see negative data out of China that could weigh on prices," said analyst Tim Radford of Sydney-based adviser Rivkin.
China's trade data is due on Thursday, with inflation, industrial output and retail sales on Friday. Exports, factory output and retail sales may have all edged up in July, according to a Reuters poll, showing initial signs of stabilisation in the Chinese economy as the government takes targeted steps to head off a sharper slowdown.
Three-month copper on the London Metal Exchange had slipped 0.24 percent to $6,988.25 a tonne by 0908 GMT, after finishing up 0.4 percent in the previous session. Copper has been stuck between $6,600 and $7,100 since mid-June, with little prospect of prices breaking out before seasonal pre-Christmas demand ramps up in the fourth quarter.
Market players are also keeping an eye on the U.S. Federal Reserve to see when the central bank will start winding down its stimulus, a key driver of investment in global commodities. The Fed will probably reduce its massive bond-buying programme later this year, and depending on the economic data could do so as early as next month, a top Fed official who is typically among the most dovish policymakers said on Tuesday. A delayed start to scaling back bond purchases would support metals as cheap capital will then be available to investors for longer and because it undermines the dollar. A weaker dollar makes commodities priced in the greenback cheaper for holders of other currencies.
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MARKET COMMENTARY
Copper collapsed over the course of June, dropping by as much as $900 a ton from peak to trough. Much of the decline was attributable to growing concerns about slowing Chinese growth and the surprisingly sharp tightening in local credit markets. In addition, there were worries about Fed policy, as investors did not get a clear sense from Ben Bernanke whether the central bank would start its stimulus program in September or merely watch things as they evolved. In either case, the dolar strengthened in the wake of the Fed announcement, pressuring commodities lower in the process. LME stocks have resumed their climb and are now at 10-year highs and although Shanghai holdings are decreasing, this does not seem to be indicative of stronger spot demand, but likely a reaction to the difficulty in finding scrap or just an exercise in securing metal for financing purposes. On the demand side, Chinese cathode imports ticked higher in May, but are still 15% lower from year ago levels, while May scrap imports are down as well on a month-overmonth basis. In supply news, the Grasberg mine is up and running, removing a moderately bullish prop, while Chilean production remains strong as well (up 3.7% y-o-y through May). However, premiums remain at record highs.
Following a mixed few days, copper, previously under pressure, led a strong rally on Thursday as the market tapered its taper talk after the latest Bernanke speech and FOMC minutes. Some momentum has been lost as the focus has shifted to China, but LMEX is ending the week with a 3-4% gain. Inverse correlation with the USD has returned towards historical norms.
After open interest had leapt to its highest since 2008, copper led the Fed-driven rally on Thursday. Exchange stocks have fallen 39kt mtd, although cancelled warrants have eased to ‘only’ 53% of the LME total. Grasberg is restarting underground mining and Oyu Tolgoi has made its first shipment. Chinese unwrought imports rose 6% m/m and 10% y/y in June to 380kt, but since then SHFE’s premium over the LME has narrowed.
Copper fell on Monday as the dollar rose and after data from China showed a slowdown in the world's top consumer of the metal. China's economic growth slowed to 7.5 percent in the second quarter, from 7.7 percent in the first quarter, though the figures were in line with expectations, helping to limit copper's losses. Three-month copper on the London Metal Exchange was $6,920 a tonne in official rings from Friday's $6,954 close. Its gains of 2.4 percent last week represented the biggest weekly rise since early May.
Many commodities are especially sensitive to growth in China. The country accounts for about 40 percent of global consumption of copper, which is used extensively in construction and power cables. Commodities priced in dollars are also vulnerable to moves in the currency. Its strength on Monday made copper more expensive for holders of other currencies. However, currency markets were cautious ahead of U.S. Federal Reserve Chairman Ben Bernanke's congressional testimony on July 17-18, which will be closely watched for more clarity on the central bank's intentions.
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MARKET COMMENTARY
The market has largely come to terms with the slower growth outlook for China. As such, the base metal complex is now stabilising and range trading heading into the summer following several months of downwards trending prices. As some investors said at the time, consensus expectations were too high for China earlier this year and there was complacency about the fiscal and macro risks still clouding the European and US economies.
Concerns over Chinese deleveraging and liquidity have emerged in recent weeks and need to be monitored closely, while fading commitment to QE in the US and disruption in some of the emerging markets are also weighing on the complex and commodities in general. On balance however, with Chinese data offering fewer negative surprises, arguably most of the downside is now priced in. Whether another summer slump therefore emerges, again depends on exogenous factors, in particular Chinese liquidity.
There have been plenty of price-supportive factors in the copper market recently: Supply disruptions, scrap shortages, short positioning being unwound, improvements in Chinese demand, and declining spot availability as LME cancelled warrants rise and queues form. Prices remain volatile, though
some of these positives will lose their clout. Together with concerns over central banks’ commitment to QE, this should cap any attempts to rally. Provided the supply disruptions keep coming however, and continue to take the edge of the rising tide of new supply (Oyu Tolgoi is about to ship its first concentrates), we still see scope for tighter end to the year, which should be reflected in premiums and spreads in Q4, and potentially prices too. Higher prices over the past month has been in line with expectations, with prices averaging $7,642/tonne in the five months to May.
London copper rose more than 1 percent today after posting its steepest weekly decline in two months, as investors covered short positions ahead of a key Federal Reserve meeting that could provide greater clarity on U.S. monetary policy. Fed Chairman Ben Bernanke is expected to indicate the economy is still performing too poorly to justify slowing the pace of its $85-billion-a-month bond buying right away, at the end of the central bank's two-day meeting on Wednesday. But rising inflation figures could prompt the Fed to rein in stimulus sooner than expected, sapping the liquidity available to metals producers and commodities investors, said Jonathan Barratt, chief executive of Barratt's Bulletin, a Sydney-based commodity research firm.
"If inflation numbers are a little higher than expectations, then the Fed might come out and say they will taper sooner. I think that would be taken negatively for copper," he said. So far, data shows underlying U.S. inflation pressures have remained well below the central bank's 2 percent target. U.S. CPI data for May is due on Tuesday.
Three-month copper on the London Metal Exchange was up 0.68 percent to $7,138 a tonne by 0918 GMT, after rising to as much as $7,176, as shorts rushed to cover positions, two traders said. Copper prices finished last week down nearly 2 percent, their steepest weekly decline since mid-April.
Fundamental demand remains steady and is likely to keep a floor under prices, Barratt said. "We’re at that point where the market is pretty happy to be here, and not to push too much lower. China's 7 percent growth still requires copper as does the housing market in the States," he said. Hedge funds and money managers turned vastly more negative on the copper market in the week to June 11, increasing their net short positions in copper futures and options for the first time in four weeks and by the most in more than six months.
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MARKET COMMENTARY
Commodity markets are recovering from two large downward moves since late March. The uptrend appears to be gaining support, with the DJ-UBS commodity return index registering higher lows since the week of 22 April. While China remains a worry given the potential for further disappointments in Q2 macro data, some experts believe this has generally been priced in and commodities will continue to recover from oversold positions. Net speculative positions in many key commodities are currently close to their two-year lows. They had previously expected a moderate dip in commodity prices in Q2 versus Q1, and the magnitude of the correction surprised them. However, their expectation of the general trend remains unchanged – commodities are likely to see a stronger H2 on the back of current oversold positions, improving global economic data, and improving appetite from key commodity consumers, especially China.
Gold led the market lower on 12 April and lost 13.7% within two trading days. It has rallied strongly from its recent lows, but investors believe they should remain cautious. The selling momentum has not reversed, and ETFs saw further outflows over the past week. On a one-month view, they recommend that investors and producers sell the rallies in gold, as physical demand is easing after an initial surge.
Copper prices trended lower throughout April, although price action was volatile as bulls and bears fought for control. Bears primarily focused on the weak macroeconomic picture and the continued improvement in supply from places like Chile. Chile’s production rose 8% y/y in March, and growth is running at 4.5% y/y on a 12-month rolling basis. LME stocks are also building and are up 5% m/m. A bullish factor is that China’s underlying demand continues at a decent pace. Fabricated copper output, a proxy for demand, rose 17% y/y in March.
Today copper fell as the dollar strengthened and on concern about lacklustre demand for the metal in top consumer China that was compounded by evidence the European and United States economies are still struggling. Copper is seen as an economic bellwether because it is used extensively in construction and power cables.
Three-month copper on the London Metal Exchange was down 0.6 percent at $7,151 a tonne, from a close of $7,198 on Wednesday. "The U.S. dollar is getting substantially stronger and the movement in copper seems to be tracking that quite highly. And we still see quite limited activity from China," analyst George Adcock at broker Marex Spectron said.
The dollar was near a six-week high against the euro and a 4-1/2 year peak against the yen on Thursday on prospects for more monetary easing in the euro zone and scaled back asset buying in the United States. The depth of the euro zone's downturn was shown in data on Thursday. Falling prices in Germany and France pulled consumer inflation to a three-week low in April, highlighting the risk of deflation, and imports fell 10 percent in March. In the United States, factory output dropped in April and manufacturing activity in New York state contracted this month, data showed on Wednesday.
China's demand for commodities has weakened, and the country's vice-premier Zhang Gaoli said in remarks published late on Wednesday that China must "strictly prohibit" further expansion of bloated industrial sectors. Overall, all commodities are under pressure. This was reflected in reports this week that showed global investment banks suffered another bruising decline in commodity trading in the first three months of this year.
A stronger dollar makes commodities priced in the greenback more expensive for holders of other currencies.
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MARKET COMMENTARY
For the third consecutive week, on the London Metal Exchange copper fell. It made a low of $7,331 only to recover in the last couple of sessions to close at $7,422. It was flat at the beginning of April after a slump in factory output in the U.S. was offset by a revival in manufacturing in China. The second-largest economy’s manufacturing Purchasing Managers Index rose to an 11-month high of 50.9. Despite a rise in China’s vast service sector PMI, which came in at 55.6, prices tumbled due to record high unemployment in Europe (12%) and stockpiles at the LME rose. The copper prices made the low of the last week as private employment figures in the U.S. came in below expectations, raising doubts about the ongoing global recovery, along with rising inventories. However, prices recovered later in the session when strikes at Chilean ports halted 9,000 tons of exports daily along with the closure of the Tuticorin smelter in the south Indian state of Tamil Nadu, the largest in India. On Friday, markets fell again as nonfarm payrolls data from the U.S. came in way below expectations, at just 88,000, against expectations of 196,000.
Global exchange stocks, comprising those registered on the LME, the COMEX and the Shanghai Futures Exchange, have surged by 290,000 tons since the start of the year. Visible inventory hit 832,500 tons at March-end, the highest since 2003. In theory, such an ample cushion should buffer the market from precisely the sort of unforeseen supply disruptions of the last few days.
This morning copper prices slipped as concerns about the outlook for demand and global oversupply weighed on sentiment although some optimism about China's economic revival helped cushion falls. Three-month copper on the London Metal Exchange traded at $7,550.50 a tonne, down 0.3 percent from Wednesday's close at $7,575.
Prices hit a two-week high of $7,645.25 this week, rebounding from 8-month lows at the start of April, but traders said they are selling into rallies. The metal used in power and construction is down by almost 5 percent this year.
"In general we attribute the weakness to institution investors fleeing commodity markets due to the weak performance in recent months and during the last year compared to equities," said Daniel Briesemann, analyst at Commerzbank. "Looking ahead, investors are focused on economic data including China’s GDP numbers, which will be a major driver for base metals prices."
Demand remains uncertain due partly to rising stockpiles and a slowdown in economic growth in China, which accounts for as much as 40 percent of global demand for refined copper.
China's annual economic growth is likely to have nudged higher in the first three months of 2013 over the last quarter of 2012, with fixed asset investment and factory output growth in double digits, a Reuters poll showed. Also greasing the wheels of industry in China, banks extended 1.06 trillion yuan ($171.2 billion) of new local currency loans in March, sharply up from the previous month, central bank data showed.
In the United States, commodities prices were hurt by uncertainty over the outlook for the Federal Reserve's stimulus programme, with the minutes of its meeting last month suggesting the central bank could be on course to end its extraordinary bond buying by year-end. Chinese imports of key commodities rebounded in March from the month before as hopes of a strengthening economy encouraged end-users to ramp up output and cautiously replenish stocks.
China's March copper arrivals rose 7.2 percent from a month earlier on hopes factories would resume output after the Lunar New Year break, but fell by a sharp 30 percent from a year ago, indicating the pick-up in demand was not as strong as expected. The world's top consumer has also exported some of its surplus. The latest data showed exports of refined copper jumped to 64,781 tonnes for the first two months of the year, up from 753 tonnes from the same period a year earlier.
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MARKET COMMENTARY
Base metals crumbled during February, with broad based selling palpable across the commodity complex. Several reasons can be attributed to this weakness. Primarily, markets seem not to be impressed with the fact that recovery in global economy remains erratic. Post Lunar New Year holiday period in China, the economic activity has not been encouraging. There have been doubts regarding any uptick in domestic demand in the short run. Retail sales in China during the week -long Lunar New Year festival rose at their slowest pace during the past four years. In addition, speculation is rife that local Chinese government entities may impose further restrictions on housing markets. It is widely reported that Chinese government is planning to move ahead
with plans to increase down payments and loan rates for buyers of second homes in cities where prices are rising too quickly. China’s government has also announced plans to impose a 20% income tax on property gains in an effort to curb speculation.
LME Copper prices breached the significant support of US$8,000/ton, primarily weighed by persistent rise in warehouse stocks and slowing Chinese appetite for imports. LME stocks have surged by literally 60% during this year and cancelled warrants have also fallen substantially, which convey signs of easing supply as well as moderating demand. Meanwhile, China’s refined copper imports during February declined to 20 months low amid high domestic inventories. Relevantly, Codelco has reported that it will reduce refined copper shipments to China this year as the nation’s needs have shifted to concentrate imports. China is moving its import needs from refined metal to copper concentrate, as domestic production for the refined metal has surged. On mine supply, there are strong signs of expansion. In this respect, Chile produced 474,496 tons of copper in January,an impressive 8.6% increase from a year earlier. The country’s output for 2012 came in at 5.455mn tons, up by 3%.
Shanghai copper rose to a 1-1/2-week high in this morning, tracking gains made in the previous session in London and spurred by improving demand in China as it embraces a seasonal upturn in consumption of the metal. Investors are watching the annual gathering of China's parliament and any policy that would affect demand in the world's largest copper consumer, as Beijing struggles to shift away from a resource-intense growth model that has created problems including heavy pollution. But for the next month or so, the rising demand from copper fabricators which supply manufacturers of air conditioners, among others, will support copper prices, analysts said.
"The seasonal increase in copper consumption will materialise, unless we see major disruption from severe problems with economic growth," said Judy Zhu, an analyst at Standard Chartered in Shanghai, who expected copper to rise to $8,400 by the end of April on the demand. The most-traded June copper contract on the Shanghai Futures Exchange rose to 57,160 yuan ($9,200) a tonne, its highest since Feb. 28, before easing to close at 56,850 yuan. Benchmark three-month copper on the London Metal Exchange inched down 0.1 percent to $7,820 a tonne by 1301 GMT, close to $7,883 a tonne hit on Tuesday, its highest level since Feb. 28.
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MARKET COMMENTARY
Most major global commodities have begun 2013 with solid gains, led by strong performance in Base Metals and Energy. The drivers for this upswing were numerous but the main ones were better economic outlook, reduced political risk premiums and continued easy monetary policies. A weaker US dollar against most currencies (barring JPY) also in part perked up the commodities.
Base Metals are looking more positive now and with a spate of strong data in January there may well be room for prices to head higher. However, investors do not rule out supply pressure at higher levels and they expect resistance initially around the September highs for metals like copper, aluminum and nickel that have not surpassed them yet. The approaching Chinese New Year may turn out to be a dampener, unless Chinese consumers feel there is a risk of continuation of the firm trend, in which case there may be some pricing pressure this week ahead of next week’s holidays.
All Base Metals saw impressive gains but aluminum underperformed in January. US GDP dropped 0.1% annual rate, the worst performance since the second quarter of 2009. However, China (largest consumer of base metals) is on track for a GDP growth in the range of 7.5% to 8.5% a year. Surprisingly positive news for base metals was an increase in US Manufacturing PMI, which came in at 53.1. The final week of January saw commodities posting the longest run of weekly gains since 1996. Reports showed that in January, US hiring increased after accelerating more than estimated at the end 2012. China’s manufacturing output expanded, adding to evidence of a steady recovery. Statements by Fed Chairman Ben Bernanke during the FOMC meeting were supportive for base metals. Bernanke said that “to support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue Purchasing additional agency mortgage-backed securities at a pace of US$40 billion per month and longer-term Treasury securities at a pace of US$45 billion per month”. The euro area economy has shrunk for two successive quarters and economists foresee a further decline in GDP in the final three months of 2012. Inflation decreased in the euro zone but high level of unemployment is putting stress on demand.
Copper rose on Friday, for the first time in four days, on a softer dollar and after strong trade data from China signalled improved global growth prospects and recovery in demand from the world's top metals consumer.
China's exports jumped 25 percent in January from a year earlier, topping market forecasts for an increase of 17 percent, while imports surged 28.8 percent, also ahead of analysts' estimate of 23.3 percent. The sharp rise was partly due to the Lunar New Year effect, with the holiday falling in January last year, but the "numbers are still very strong and show the economic recovery is on
China, which accounts for around 40 percent of refined copper demand, imported 350,958 tonnes of copper in January, up almost 3 percent from December as importers brought forward shipments to avoid delays during next week's week-long holiday. "Obviously the China data has helped," Citi analyst David Wilson said. "The dollar today is soft, and the correlation of prices with exchange rates is very strong at the moment, and I think that's the bigger issue."
The dollar was down against a basket of currencies on Friday, and shed 1 percent versus the yen. A softer dollar makes metals less expensive for investors using alternative currencies. Three-month tin was at $24,850 in rings from $24,675 at Thursday's close, while zinc was $2,184 from $2,163. Three-month lead was $2,420 from $2,408, aluminium was $2,106 from a last bid of $2,098 and nickel was $18,280 from $18,180.
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MARKET COMMENTARY
The global economy has faced significant headwinds over the past year, including the European debt crisis slowing Chinese growth and concerns over the fiscal health of the United States. Unsuprisingly, had an adverse impact on the price performance of the industrial metal complex, at least if we look on an average annual basis, with all six LME metals registering declines.
Faring the best was copper, althoug even here average prices still fell almost %10 year-on-year. Next up were the “ugly sisters” of zinc (-11%) and lead (-14%), with the former suprisingly outperforming the latter, despite lead’s superior fundamentals. Meanwhile, the heavily over supplied markets of aluminium (-16%) and nickel (-23.2%) were ranked fourth and sixth, respectively. Finally, and somewhat suprisingly, despite its positive fundamental backdrop, tin prices came in towards the bottom of the rankings, falling 19% on an average annual basis.
Interestingly, if we look at price performance on an intra-year basis, the conclusions change appreciably, with five of the six base metals registering increases. The largest gains were seen in tin and lead, rising by 22% and 15%, respectively. In the former, supply issues in key producers China and Indonesia intensified as the year progressed, helping the buoy prices over the final quarter in particular.
Lagging somewhat behind was copper, despite the onging underperformance of global mine supply. The red metal gained just 4% by end-December 2012 from the level seen at the corresponding period of 2011. The upside for copper was arguably hampered by its enhanced macro credentials relative to some of its other smaller, less liquid, counterparts, as well as its outperformance over previous years. Although a broader improvement in the global economy is forecast for next year, some analysts expect that a shift to over supply will serve the limit the upside potential of the red metal’s price.
This month we look at some of the key factors that will shape the base metal markets in 2013. On the macro front, analysts expect to see some relative stability emerge in the Eurozone as the muddle through continues. Instead, the key questions this year will relate to China’s growth trajectory, and the extent to which the fiscal cliff and debt ceiling issues have harmed the prospects of a US recovery. Answers will start to emerge over the next few months, as it will take time for policy uncertainty to be resolved and for the Chinese market to get going given the Lunar New Year holiday in mid-February.
Price-wise therefore, it might be a somewhat unconvincing start to 2013. However, slowly the focus is expected to shift back to the underlying market fundamentals. While there is scope for the post-New Year demand pick-up in China to disappoint again, the fundamentals overall are not as bad as they could have been given the fiscal/political/macro dramas of the past year and investors should expect a gradual improvement during the course of the year.
London copper held steady on Wednesday, slightly above two-week lows hit in the previous session, propped up by a pick-up in U.S. consumer spending which bolstered risk appetite and prospects of further economic growth in top metals buyer China. U.S. retail sales gained solidly in December as Americans shrugged off the threat of higher taxes and bought automobiles and a range of other goods, suggesting momentum in consumer spending as the year ended. But an ensuing pick up in risk appetite early in Asian hours tempered as investors awaited more clues on global growth, with U.S. industrial production figures out later and China's gross domestic product data due on Friday. "It looks as though there has been some stronger data from China and we’re flagging upside risk to our forecasts. It might be that people are just holding out for confirmation," said Alexandra Knight, an economist with National Australia Bank in Melbourne. "We might see prices a bit elevated in Q1 this year. But for now it sounds reasonable that things remain quiet until after February when the U.S. will resolve the debt ceiling and after the Lunar New Year," she added.
Three-month copper on the London Metal Exchange was trading at $8,000.75 a tonne by 0704 GMT, little changed from the previous day when it hit two-week lows for a second session running at $7,940 a tonne. Upward momentum has fizzled out since copper rose to about $8,250 a tonne, its highest in more than two months, early this year, with buyers from China reluctant to chase prices until after the Lunar New Year holiday in early February, traders said.
China's annual economic growth may have quickened to 7.8 percent in the fourth quarter a Reuters poll showed, snapping seven straight quarters of weaker expansion, but the recovery is likely to be tepid and the economy may need continued policy support. From the United States, two dovish Federal Reserve officials pushed back against some of their more hawkish peers on Tuesday, arguing that the U.S. central bank's accommodative policies are appropriate and may even need to be eased further. "We expect copper to be amongst the better performers in the base metals space in 2013," said ANZ in a research note. "Our expectations for a recovery in China and improving sentiment in the U.S. will underpin stronger demand and push prices to $9,000/t by year end."
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Commodities ended higher over the course of November, with the 19-commodity Reuters-Jefferies CRB index finishing up 1%. The modest rebound was largely due to a pick-up in oil and copper, with energy rising for the first month since August on escalating Mid-East tensions, while copper rallied on better macro numbers coming out of the US and China. Many of the ags remained weak; wheat suffered its largest two-month decline in a year, while soybeans and corn both fell for a third and fourth straight month, respectively. The precious metals group finished higher over the course of the month, although a round of heavy selling hit the complex hard this week. The dollar finished down against the Euro, but gained ground against a plummeting yen. US equity markets ended the month almost flat after an eight-day loss following the presidential elections finally ran its course. US bond prices continued to gain ground over the course of November, as did a host of European sovereigns.
Copper prices worked lower over the first half of November, testing key support at $7500 before bouncing off it to finish the month at its highs. We now are trading above the $8000 mark for the first time in six weeks, as two variables are prompting the push higher. The first is cautious optimism that a fiscal cliff agreement in the US would be reached, while more importantly, we are getting better macro numbers from both China and the US. In China's case, there has been a modest uptick in manufacturing and other economic readings, prompting some to conclude that the Chinese economy has bottomed out. In addition, there are expectations that the new government will make major policy announcements on both interest rates and future stimulus projects imminently. In addition, most analysts now believe that the copper market will be in surplus next year, reversing years of deficits. Despite the mixed signals, most of investors suspect the market will move higher over the next several weeks and would not rule out a test of $8300 on the upside, while on the downside, good support at $7670 should hold.
London copper steadied in this morning after five days of gains fuelled by hopes that U.S. lawmakers would forge a last minute deal to avert a budget crisis, building on optimism over accelerating growth in top consumer China. Easing uncertainty over the U.S. fiscal cliff -- $600 billion in tax hikes and spending cuts which threaten to push the U.S. economy back into recession -- had helped improve sentiment towards metals. "The fiscal cliff is still the big one, if people feel that progress is going made then we should move higher," said Singapore-based analyst Ivan Szpakowski at Credit Suisse.
Three-month copper on the London Metal Exchange edged down 0.25 percent to $8,055 a tonne by 0335 GMT, reversing gains from the previous session when it hit its highest since Oct.19. Copper prices have increased for the past five sessions, adding to a rise off two-and-a-half month lows reached on Nov 9. Prices are up 6 percent so far this year.
Republicans in Congress and President Barack Obama consumed much of Wednesday talking up their positions on the fiscal cliff, with Obama saying a deal could be reached in a week if his opponents would compromise on taxes. "Everyone knows that the fiscal cliff issue will be resolved... top that with a weaker USD and technicals looking good. Copper has all the chances to keep on going," said a trader in New York. Metals prices have also firmed on signs demand is improving in top consumer China, despite record stockpiles.
"The consensus on China has improved. Strong China PMI has been supportive. We have some more figures on Sunday that could have an impact on Monday," Szpakowski added. China's industrial production and inflation figures will be announced on Sunday. Annual growth in China's factory output, investment and retail sales may have gained pace in November thanks to recent pro-growth policies, a Reuters poll showed, reducing the chances for further policy support as inflation picks up. Also supporting metals, the euro held its ground in early Asian trade after slipping from a seven-week high against the dollar in the previous session, as investors awaited a European Central Bank policy meeting. Euro zone GDP data will be released later in the session and the U.S. jobs report for November will be released on Friday.
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Commodities ended the month of October sharply lower, with the drop in the Reuters-Jefferies commodities index being the largest in five months. Energy was hit particularly hard, as were precious and base metals. Ags held up well, although sugar, cocoa, and coffee sold off. The stock market had a poor performance in October, benefiting bonds, while the dollar appreciated against major currencies. The few upside standouts this past month included freight, iron ore, and wheat. Alarmingly for the bulls, November is starting off where October left off, with most markets, particularly equities, continuing to struggle in the aftermath of President’s Obama’s reelection.
Copper prices did nothing but move lower over the course of October and into the first week of November, as the complex continued to roll back its arguably artificially-induced gains that set in on over the course of August and September. Moreover, an expected fourth quarter demand pickup out of China has remained elusive, likely on account of the uncertainty surrounding the policies of the new leaders. On the inventory side, things are somewhat bearish for the metal; LME stockpiles, which were falling sharply for much of the first two weeks of October, have increased by some 32,000 tons since then, while Shanghai holdings are now at six-month highs. Material in Chinese bonded warehouses is now estimated to be around 800,000-900,000 tons, of which roughly 200,000 tons is on-exchange. Down the road, the forecast is for more supply – the International Wrought Copper Council says the copper market is expected to swing into a 281,000 ton surplus in 2013 from a deficit this year.
Copper hit its lowest in more than two months today as a stronger dollar, a looming U.S. fiscal crisis and renewed euro zone worries sapped investor risk appetite and darkened demand prospects. Since the U.S. elections on Tuesday investors have become worried that Washington could struggle to find a compromise to cut the budget deficit before nearly $600 billion worth of spending cuts and tax increases kick in early 2013.
The dollar index was up meanwhile, making headway versus the euro amid uncertainty over aid for Greece and Spain and after European Central Bank president, Mario Draghi, sounded a downbeat note on the economy. A strong dollar makes dollar-priced metals costly for European and other non-U.S. investors. On the positive side, Chinese data showed industrial output and retail sales for October slightly exceeded expectations, while annual October consumer inflation eased to its slowest pace in nearly three years, giving policymakers scope to further looser monetary policy if needed.
Three-month copper on the London Metal Exchange fell 1.23 percent to $7,536 a tonne in official midday rings, having earlier touched $7,506 a tonne, its lowest since late August, and putting it on track for a fifth consecutive week of falls. "A lot of people expected a weaker dollar post-QE III and that hasn't been the case recently, so base metals have done down. (Also) over recent weeks we've seen people become less confident that Chinese government are going to announce lots of new (stimulus) measures," said BNP Paribas ananlsyt Stephen Briggs.
In physical copper markets, Chinese traders are seeing modest improvement in sales, with spot prices rising around 350 yuan to 55,950-56,150 yuan. They said this has helped push physical premiums for copper imports up by around $2 to around $50 a tonne over the past two days, although this does not reflect higher bonded warehouse drawdowns
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