Copper: Rally Reverses As Dollar Rebounds
The red metal drifted lower this week linked mainly to a recovery in the US Dollar, which made a small recovery after suffering weeks of declines, though also due to supply environment issues. Adding extra pressure to the red metal this week was the reported surge in warehouse inventories in China. LME reported inventories have exploded by 47% from June 28th to 213,000 tonnes.
Despite this bearish element, the sell-off was stemmed as traders reacted to reports that Chilean miner Antofagasta was potentially facing a strike. Workers and supervisors at two of the group’s mines are continuing with contract talks currently which are at the source of the strike threat. The potential outage from such a strike would be around 160,00 tonnes which is the combined annual production of the two sites. Traders will be keeping a close eye on developments with this issue which will remain a key driver of price action until the dispute is resolved.
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 ore: The Recovery Stalls But Upside Remains in Focus
After staging a $10 recovery, Iron ore prices slipped lower over the week, weighed on mainly by the stronger US Dollar. The recovery in Iron over the last few weeks has been driven mainly by a surge in Chinese mills ramping up their purchases to replenish their inventories. The recent rally has been the metal’s biggest advance since October of last year and has come despite investment banks such as Goldman Sachs warning of further weakness in the commodity.
With sentiment towards China improving and Chinese steel mills increasing their inventories, it looks like the rally has further to go. However, Goldman Sachs highlights the likelihood of increased production, growing stockpiles and weaker prices in their bearish forecast. The bank forecast Iron prices to average just $47 next year – around $20 lower than the current price.
The rally in Iron took price back up to test the last swing high around $64 where the price has currently stalled. The next key resistance will be a test of the May high around $68. To the downside, the year to date low is the key focal point. Until that low is breached, the focus remains on the upside for now as the recovery looks to be gathering pace. The key test now will be whether price can put in a higher low and sustain the bullish phase.
Zinc: Fundamentals Keep Market Supported
Zinc prices have managed to recover initial losses on the week to put in a positive week despite the firmer Dollar. The better outlook for Chinese steel has fuelled a shift in sentiment among traders. Zinc had previously been the strongest performing metal over 2016 rallying over 40% on the year though has since suffered a correction lower.
Better sentiment towards the growth outlook in China has provided a base for the metal which has been trading higher over recent weeks. The underlying fundamentals for the Zinc market remain positive. Macquarie are forecasting a 650,00 tonne deficit this year and are projecting a $3000 tonne pricing by the fourth quarter.
Price has now broken out above the bearish trend line from year to date highs but has stalled just shy of the March high around 2878. A retest of the broken bearish trendline should provide support for a renewed run at the 2016 highs around 2962 which is the key objective for bulls.