Commodity Wrap - Oil, Gold, Copper, Coffee

Oil

• Airlines suspend flights to China amid coronavirus outbreak

• New virus is spreading faster than a similar SARS virus in the previous decade. Number of confirmed cases already surpassed the number of confirmed SARS cases.

• OPEC expects significant decline in global oil demand and plans to call an extraordinary meeting next month

• It is expected that the current output cut agreement will be extended until mid-2020

• Oil inventories increase in-line with seasonal patterns

Oil inventories increase in-line with seasonal patterns. Source: Bloomberg, XTB Research

Oil prices declined and reached the key support zone ranging from $50-52. OPEC may decide to act given that demand is expected to be lacklustre, at least in the first half of the year. Source: xStation5

Gold

• Gold trade sideways near multi-year highs. Trading range limited by $1540 and $1600

• Price behaves similarly to July 2019

• Key supports can be found near upward trendline ($1535) and near the 61.8% Fibo level ($1515)

• Options market does not hint at a risk of abrupt price jumps

• World Gold Council signalled that demand dropped 1% in 2019, what can be ascribed to a significant plunge in consumer demand

• China and India were responsible for 80% of Q4 drop in jewellery demand

• Gold supply increased 2% in 2019. 11% jump in recycling was the main factor behind increase

Options market does not hint at a risk of abrupt price jumps. It could be a good omen for equity markets. Source: Bloomberg

Gold trades in a sideways move at elevated level. Key support can be found at $1540 handle. Source: xStation5

Copper

• Copper price plunges as markets fear slowdown in China

• China accounts for 51% of copper demand and around 50% of other base metals demand

• Coronavirus epidemic may be bigger than SARS epidemic. It may trigger significant demand problems in China

• US yields show that copper is overreacting to the ongoing situation in comparison to gold

China accounts for 50% of demand for most industrial metals. Such a situation does not bode well for prices. Source: Bloomberg

In case the virus is contained quickly, scale of sell-off on copper market can be seen as an overkill. Source: Bloomberg

US yields show that declines in the copper market amid rising gold prices were overblown. It may point to potentially quick recovery once the virus is contained. Source: Bloomberg, XTB Research

Coffee

• Coffee price pulled back towards 100 cents per pound and remains under pressure

• Similar situation from 2016 saw declines being halted at 78.6% retracement

• Coffee braces for the biggest monthly decline in 11 years

• Market begins to price in the next season. Brazilian output may jump to a record high while Colombia plans to ramp up production

• F.O. Licht report shows that Brazilian crops for 2020/2021 season look promising. Recent rainfalls caused drought concerns to abate

• Demand concerns amid coronavirus outbreak. Starbucks shut half of its stores in China

• Coffee stockpiles have been on the rise for two weeks already - the longest streak since September 2018

Coffee stockpiles rise significantly at the beginning of 2020. Source: Bloomberg

Coffee price approaches key 100 cents handle. Downward move may be halted by a recovery of BRL. Source: xStation5