x

Commodities

Copper has recovered strongly

04-Apr-2018

With the UK week significantly shortened by the long Easter weekend, US equities traded down sharply on Monday amid continuing trade war concerns, and as tech stocks were under pressure amidst fears of rising political, regulatory and market challenges that could hinder the US tech industry’s growth.

The S&P 500 dropped 2.2% and now stands more than 10% off its January high (i.e. a technical market correction). The selloff came after China confirmed on Sunday that it would press ahead with tariffs on 128 US imports totalling around $3bn, with the front page of the People’s Daily justifying them in order to "balance the losses" caused by the US steel and aluminium tariffs.

In the main, industrial metals appear to have found support following declines throughout March. The outlier is aluminium, which broke below 2,000 $/MT on Tuesday, reaching a low of 1,977 $/MT, prices last seen last summer. Prices fell through the 200-day moving average a fortnight ago and have tracked lower since, the weakness assisted by a stronger dollar. Prices briefly tested 2,000 $/MT in December but this proved to be a firm support on that occasion. If this level is decisively broken, the 38.2% Fibonnaci retracement line (from the 2015 low to the end of 2017 high), at 1,963 $/MT is the next conceivable support. Given the scale of the sell off since early January, aluminium has been oversold relative to the complex, thought it is notable that the 50-day average is about to pass down through the 100-day average, which would be interpreted as another negative signal.

Copper has recovered strongly from a run towards 6,500 $/MT last week, aided by strong Chinese Manufacturing PMI data. At 6,800 $/MT, prices remain above the 200-day moving average, the break of which last week has proved yet to be decisive. Zinc equally has recovered strongly from lows below 3,200 $/MT last week. The rally has been capped so far at the 100-day moving average just above 3,300 $/MT. Nickel has recovered strongly back above 13,000 $/MT. With inventories having been fairly flat throughout 2017, 2018 so far has seen stocks beginning to reduce, accelerated by maintenance outages announced by Vale, the world’s largest nickel producer, and from a cyclone that knocked out the Ambatovy nickel plant in Madagascar in January.

Download Full Report