Copper: Hedge Funds Hold Record Longs

Copper prices are fast approaching the local 2016 highs after surging higher this week, fuelled by US Dollar weakness. The growing threat of protectionism stemming from trade policies being enacted by President Trump is weighing sharply on the Dollar as investor fears grow. Markets are concerned that trade restrictions will escalate into full blow trading conflicts with key partners which could damage US growth and hurt the economy.

The US dollar was dealt a further blow this week as the Fed kept rates unchanged at their February FOMC meeting, delivering a fairly muted statement which did little to encourage bulls. Although the Fed pointed to improved business conditions and consumer sentiment they noted, as they did in December, that they are still awaiting further details about Trump’s proposed fiscal expenditure before making any rate moves. Trump has promised to slash corporate taxes and pump $550 billion into infrastructure. Until such time that further details are delivered on these plans, the Fed is likely to remain in wait and see mode, fuelling a further unwind of USD longs, which should support commodity price across the board.

The latest CFTC positioning data shows that hedge funds are holding record long positions in the red metal, at a fresh high of 9,100 lots which equates to around $6 billion worth of copper. Disruption fears linked to Indonesia have increased bullish speculation in the commodity, which looks set to continue where 2016 left off.  On Wednesday it was reported that workers at the Escondida copper mine voted against the mine’s pay offer, opening the route for strikes in the coming days. This production disruption is set to further boost copper prices.

Copper prices are sitting right against the 2016 highs, looking poised for a break. The key level above market will be a test of the bearish trend line from 2011 highs against the 2015 high and mid-2014 lows.

Iron Ore: Chinese Imports Highest Since 2015

Tracking the broader commodity moves linked to a weaker US Dollar, Iron ore prices surged higher this week also.  Adding further support for the metal is the fact that iron imports to China have already started strongly this year. Reuters reported that a total of 86.6 million tonnes of iron was discharged at Chinese ports over January.  This figure is also expected to rise as port and ship tracking data indicate that a further 13.2 million tonnes was due to be delivered by Jan 31. This would put January delivery at around 90 million tonnes, marking the highest level since December 2015.

Iron prices continued to track higher this week as the break out from the large inverse head & shoulders continues to map out.

Zinc: Glencore To Keep Capacity Locked

Zinc prices continued higher this week boosted by strong global growth data and a weak US  Dollar. On Thursday Glencore maintained its target of roughly higher output for Zinc over 2017 after reporting falls, which led to lower production last year. Glencore’s Zinc production was down 24% in 2016 which led to a 60% rally in the metal last year. The company noted that Zinc capacity will stay locked until market conditions improve to the point where extra supply won’t dampen prices.

Zinc prices held the key 2731 support over recent weeks and exploded higher this week. Price is now approaching the 2016 high which will be the next key resistance for the metal.

Aluminium:  China To Tackle Excess Capacity

Aluminium prices saw a small rebound higher this week. The rally over 2016 is showing signs of continuing this year and from a fundamental perspective, there could be a shift in market dynamics coming which would further support the metal.  China is looking to cut aluminium capacity in a similar way to how they tackled excess coal and steel capacity in 2016. China produces around half of the world’s aluminium and a capacity cut would lead to significant upward price pressure.

Aluminium prices are continuing to move higher in the broad bullish channel that formed over 2016. The next key resistance level will be a test of the mid 2015 lows around 3.082.