Commodity Wrap - Copper, Soybean, Oil, Gold

In this week’s commodity wrap we present you 4 markets that look interesting or/and have posted some major price moves: Copper, Soybean, Oil and Gold.

Copper:

• Copper and iron ore imports in China dropped 3% YoY marking the first decline this year

• China forecasts shrinking demand for copper and iron ore in 2019

• Trade agreement between China and the US will be crucial for copper price

• Copper, nickel as well as other base metals’ stockpiles at lowest levels in at least dozen or so years

• COT sends mixed signals - commodity oversold by large and small speculators, overselling by small speculators hinted at commodity being generally overbought

In theory we are observing relative overvaluation of gold in comparison with copper. Copper stockpiles were falling throughout 2018. Source: InfoMine.com

COT data sends mixed signals. The commodity could be overpriced but stockpiles and potential improvement in China-US relations heralds price recovery. Source: cotbase.com

Copper price trades in consolidation ranging between 23.6% and 38.2% of the last downward impulse. Hard bottom can be found in the 5800-6000 USD area. Source: xStation5

Soybean:

• Chinese soybean imports in November at lowest levels in 6 years

• Soybean prices rise in anticipation of improvement in China-US trade relations

• Trump announced China will increase US soybean purchases immediately

• However, exports and inspection data paints a different picture

• Rally on US soybean could be limited, Brazilian soybean price drops

Inspections of soybeans ready for export decline with each consecutive week. Moreover, they are much smaller than year ago. Rebound in inspections prerequisite of rebound in exports. Source: USDA

Further rally on SOYBEAN may be halted at 950 cents per bushel handle. The price is approaching the range of similar price action pattern that was spotted in the second half of 2016. Source: xStation5

Oil:

• OPEC+ agreed on 1.2 mbd oil production cut

• Cuts may be implemented gradually with October being used as reference month

• Russia will deliver a 50-60k bpd output cut in January

• Major US shale companies announce further expansion, EIA forecasts a 11% shale production increase in 2019

• US oil inventories enter a period of seasonal declines

Oil stockpiles in the US began to fall but are still much higher in comparison to 5-year average. Source: Bloomberg, XTB Research

Oil price may continue to consolidate before moderate upward trend is eventually resumed. Source: xStation5

Gold:

• Spare for ETFs, the demand for gold in the third quarter of the year was healthy

• Increased demand from ETFs typically surfaces in the fourth quarter

• Further deterioration in Fed rate hike expectations may continue to support gold prices

• If price action pattern from early-2018 is repeated the price could move as high as to 1290 USD per ounce in early-2019

Demand from ETFs starts to rebound after lacklustre second and third quarter. Potential signal for gold prices. Source: Bloomberg

In case global stock markets continue to underperform gold may benefit from increased inflows to safe haven markets. Source: xStation5