Copper:  Codelco Chairman Warns Against Rally

Copper prices rallied for their fourth consecutive week this week, trading back up to levels not seen since mid-2014 and have risen nearly 50% against its price at this same time last year. Reuters reported that weekly stocks of copper in warehouses registered by the Shanghai Futures Exchange had risen over 8% in the last week while on-warrant inventories (those not scheduled for removal) had halved over the past six weeks. In contrast to this, stocks at warehouses registered by Comex have now tripled since November last year and are at levels not seen since 2004 – this has partially been driven by a surge in hedge fund speculation.

The chairman of Chilean copper producer Codelco, which is the biggest global producer of copper, voiced his doubts over the likelihood of further upside in the metal saying “I’m a little skeptical.. 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.”

Prior to this recent rally, investment banks and industry analysts had forecast Copper levels well below the current price and the 13% rally we have seen over the last month is likely to see a sharp revision to these forecasts despite bearish forecasts.

Recent strength in China data has also been adding support for the metal with robust housing data and solid manufacturing growth fuelling speculation of further demand for the popular industrial metal which has risen despite a small rebound in the Dollar this week.

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This week’s copper rally has seen price moving up to levels not seen since September 2014. With price having broken above the bearish trend line from 20111 highs as well as the 2015 swing high, the next key resistance level will be the late 2013 high around 3.262 which is also the 50% retracement from 2011 highs. This is likely to see some profit squaring and selling interest on the first test at least. To the downside, the first key support should be a retest of the broken 2015 swing high around 2.949.

Iron Ore: Weakness in Chinese Steel Weighs on Prices

Iron ore prices fell back slightly this week due to a decline in Chinese steel prices which weighed on the raw material. This week’s decline comes on the back of a four-month rally in steel and a three-month rally in iron. The sharp and extended rally has likely seen sentiment become somewhat overstretched and so some retracement is expected as more speculative players cash in on recent position, but demand should firm up again as prices cool down a little. Steel demand in China is currently being supported by a resurgence in the country’s property sector as shown by firm housing data this week.

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The recovery rally in Iron made it as high as $80 recently, testing key resistance at a layer or broken prior lows, before stalling and reversing lower. For now, however, unless the mid-August $73 low gives way, the focus remains on the further upside with dip buyers likely to join the party sooner rather than later.

Palladium: Auto Demand & Geopolitical Tensions Fuelling Rally

Palladium prices tracked Gold this week to rise to fresh multi-year highs in response to weakened US rate hike expectations in the wake of the Fed’s latest meeting and Yellen’s non-event speech at Jackson Hole. Palladium prices are up over 45% year on year over H1 2017 largely attributed to the soaring demand seen in the Auto sector. The vast majority of palladium in production is used in catalytic converters in automobile exhausts, and an increase in global SUV sales, as well as a shift back from diesel to gasoline engines, have fueled rising demand for the metal.

However, increased geopolitical risk has also put upward pressure on the metal as Palladium tends to track the movement of gold which, as a safe-haven, typically rises during the period of global unease. Rising tensions between the US and North Korea have of course been a significant focal point this year, and as tensions there look set to remain and potentially worsen, the likelihood of further palladium upside is strong.

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Palladium has now broken above the recent 2014 high around 911.29 which is likely to provide support if retested and has moved into levels not seen since the early 2000s. Upside momentum appears intact and focuses remains on higher prices from now unless price can sustain a breach back below 2014 high.