Commodity Wrap - Gold, copper, cocoa, gas (30.04.2024)

Gold:

• We learned the first quarter data for the gold market according to Metal Focus and the World Gold Council
• Demand in Q1 was lower than Q4 2023 and the previous year, at 1102 tons, primarily due to a strong outflow from gold ETFs.
• On the other hand, central banks bought 290 tons of gold in Q1, a record for the first quarter.
• Physical investment demand was moderately positive at 312 tons, a 3% year-over-year increase and stable from the previous quarter.
• Jewelry demand increased by 1% year-over-year to 535 tons, but declined from 585 tons in Q4 2023.
• Supply increased by 3% year-over-year to 1238 tons but decreased from Q4 2023's 1269.7 tons.
• Citi forecasts that retail investment demand and strong purchases by central banks, especially from the PBOC, will support gold prices in the medium term of 12-15 months. The spot price forecast for gold is $3000 per ounce.
• The Fed's decision is scheduled for May 1. It is expected to take a "hawkish" turn, justifying a change in market sentiment. Currently, around 1.5 rate cuts are priced in this year.
• As history shows, gold may now be entering a consolidation phase, but when market expectations turn dovish (most likely in late summer or autumn), a return to an uptrend may occur

The report shows a decline in demand, but strong investment demand and central bank purchases should be positive for gold in the medium term. Source: WGC

Analysing monetary cycles, gold could potentially consolidate in the near term. It is important to bear in mind that a possible hawkish pivot from the Fed could slightly exacerbate the current correction in gold. Source: xStation5

Copper:

• Copper prices continue to rise, motivated by the narrowing margins of Chinese processors, following last year's collapse in ore and concentrate supply.
• China's PMI data is positive, but copper price increases aren't justified by the yuan's position. This indicates demand for copper remains stable, while supply is limited.
• We see strong increases in copper inventories, reaching levels seen in 2020. It's notable that copper inventories often peak alongside price peaks.
• Goldman Sachs forecasts a refined copper market deficit of over 400,000 tons in 2024, leading to further price increases to $12,000 per ton within 12 months.

We have recently seen a strong rebound in copper on the exchanges (including in China). In the past, local peaks in stocks have also coincided with a peak in the price. If history were to repeat itself, copper is approaching a potential local peak. Source: Bloomberg Finance LP, XTB

The increases are not justified by the credit situation in China. At the moment, the main factor responsible for the price increase is the potential reduction in the supply of refined copper. On the other hand, an increase in copper prices may result in processors returning to positive margins and not being forced to reduce production. Source: Bloomberg Finance LP, XTB

It is worth noting that the rise in copper prices was not due to the 'strength' of the Chinese economy, which would be illustrated by a strong yuan. The yuan remains at levels close to what we saw in the summer and autumn of last year. Source: xStation5

Cocoa:

• Côte d'Ivoire authorities are mobilising reserve funds to support exporters who have suffered large losses on futures contracts. There was a risk of a large number of bankruptcies due to the difference between previous futures prices and current spot prices
• The lack of concern about bankruptcies means that supplies will continue to run
• The rains in West African countries make further production declines in the current medium season unlikely, which also reinforces recent price declines
• Deliveries to ports in Côte d'Ivoire remain around 30% lower than a year ago
• Cocoa stocks continue to fall, showing that the fundamental situation has not stabilised at all
• News of rains and support from exporters triggered a massive discount at the start of the week. Price falls more than 30% from historic highs
• The strong fall is linked to the low liquidity in the market - any news is capable of leading to a strong market movement.

Cocoa with a correction, but stocks continue to fall on exchanges, showing no improvement on the supply side. Source: Bloomberg Finance LP, XTB

Cocoa is finally scoring a strong correction. In theory, we had a signal from the 4-fold deviation from the 1-year average, but this signal was generated several days ago. Volatility on cocoa is huge, which is linked to very little liquidity in the market. Open Interest is falling to its lowest levels in many years, which means that any news can have a huge impact on price movements. Source: Bloomberg Finance LP, XTB

Cocoa opened with a gap down and lost heavily, testing the USD 8000 level and the abolition of the 50.0 upward wave formed since the beginning of this year. Net positions have fallen to the lowest level since February last year. The next important support is USD 7000 per tonne, while resistance is around USD 9500 per tonne. Source: xStation5

Gas:

• Gas prices rebound strongly at the start of this week, responding to very low prices that attract market participants.
• However, there is still a significant oversupply in the market.
• On the other hand, there are concerns that with current limited production, there may be difficulties replenishing inventories later in the summer.

Prices are starting to rebound, which is not only due to the term curve itself, but also to the nominally low level for this time of year. On the other hand, we still have extremely high oversupply. Source: Bloomberg Finance LP, XTB

As can be seen, stocks are definitely higher than the maximum of the last five years. The key question, however, is whether stocks will grow in line with seasonality or at a slower pace in the coming months? Source: Bloomberg Finance LP, XTB

Production falls below 100 bcfd, which may suggest that with increased demand in the summer, stocks will grow slowly and may warrant more price increases than the forward curve would suggest. Source: Bloomberg Finance LP, XTB