Weekly Report: Metals & Energy ( Mar 26 Mar 30, 2018)

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1 Weekly Highlights Inside this issue: Highlights 1 Week Ahead 1 Weekly Levels 2 Bullion Fundamental 3 Bullion Technicals 4 Base Metals Overview Energy Fundamentals Energy Technicals 8 US Economic Calendar 9 Gold prices surged on Friday to settle at their best level in five weeks, as investors sought shelter in safe-haven assets amid the threat of a global trade war. For the week, prices of the precious metal at NYMEX gained roughly 2.5 per cent, the best weekly performance in over a month. On the other hand, prices surged around 2.3 per cent at the MCX. Market jitters intensified after President Donald Trump signed a memorandum that would implement tariffs on up to $60 billion in imports from China on Thursday. The tariffs largely focused on technology sector goods and were intended to penalize China, according to the Trump administration, for stealing intellectual property. In response, China on Friday proposed a list of 128 U.S. products as potential retaliation targets, according to a government statement. Worries of heightened geopolitical tensions stoked further demand for the precious metal. Central bankers, led by Jerome Powell in his first meeting as chairman, approved the widely expected quarter-point hike that puts the new benchmark funds rate at a target of 1.5 per cent to 1.75 per cent. It was the sixth rate hike since the policymaking Federal Open Market Committee began raising rates off near-zero in December Base metals also felt the heat of the US-China trade tariff issue and extended their decline towards multi month low. Copper for the last week dropped by around 3.5 per cent at LME and MCX. Nickel dropped the most among the base metals pack dropping around 4.5 per cent at MCX and LME both. All other base metals dropped in the range of 1-2 per cent for the last week Oil prices rallied sharply to end at an eight-week high on Friday, as the prospect of an extension to OPEC-led production cuts into next year helped futures notch their largest weekly advance since July. For the last week at MCX, prices jumped around 5.3 per cent, while WTI crude jumped nearly 5.7%. The US rig count, an early indicator of future output, is much higher than a year ago as energy companies have continued to boost spending since mid-2016 when crude prices began recovering from a two-year crash. Natural gas closed lower last week by 2.05 per cent at NYMEX and 3.5 per cent at MCX, as investors resumed liquidation in anticipation of improving US weather conditions into the end of the month and early April. In the week ahead, rhetoric rather than economics could be the main driver of sentiment, as investors watch further developments amid a brewing trade war between the U.S. and China. On the data front, the final reading of fourth-quarter US growth will be the highlight of the holiday-shortened week. Markets stateside will remain closed on Friday for Good Friday. A number of US Federal Reserve policymakers are due to make public appearances that may offer insight into the likelihood of higher interest rates in the months ahead. Week Ahead Sell: Crude Oil Weekly Report: Metals & Energy ( Mar 26 Mar 30, 2018) The possibility of a full-blown trade war is likely to weigh on the energy complex on fears that it could harm oil demand. Oil prices look to be pressured by a rise in the number of active U.S. oil rigs to a three-year high of 804, implying further rises in production. U.S. oil output has already jumped by a quarter since mid-2016 to 10.4 million barrels per day (bpd). 1

2 WEEKLY LEVELS Commodity S1 S2 R1 R2 GOLD SILVER COPPER ZINC NICKEL ALUMINIUM LEAD CRUDE OIL NATURAL GAS

3 Precious Metals BULLION FUNDAMENTALS GOLD Gold prices rallied on Friday to settle at their best level in five weeks, as investors sought shelter in safe-haven assets amid the threat of a global trade war. Gold futures finished at $1, a troy ounce on the Comex division of the New York Mercantile Exchange, marking a gain of $22.50, or 1.7%. It was the highest close since Feb. 20. For the week, prices of the precious metal gained roughly 2.9%, the best weekly performance in over a month. Worries of heightened geopolitical tensions stoked further demand for the precious metal. President Trump on Thursday named former ambassador John Bolton as his new national security adviser, succeeding Lt. Gen. H.R. McMaster. Bolton has previously advocated using military force against North Korea and Iran. Gold is traditionally seen as a safe place to park assets in times of economic and geopolitical uncertainty. The yellow metal also enjoyed a boost after the Federal Reserve gave guidance on the pace of interest rate rises that was less aggressive than some investors had expected. Gold is sensitive to moves in U.S. rates, which lift the opportunity cost of holding non-yielding assets such as bullion. A gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases. SILVER Silver prices ended the week up 2% at $16.53 a troy ounce, while at MCX prices closed at Rs.38874/kg with gains of 1.35% for the May series. Market jitters intensified after President Donald Trump signed a memorandum that would implement tariffs on up to $60 billion in imports from China on Thursday. The tariffs largely focus on technology sector goods and were intended to penalize China, according to the Trump administration, for stealing intellectual property. In response, China on Friday proposed a list of 128 U.S. products as potential retaliation targets, according to a government statement. Worries of heightened geopolitical tensions stoked further demand for the precious metal. Large metals speculators cut their net positions in the Silver Futures markets into a bearish level last week, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday. The non-commercial futures contracts of Silver futures, traded by large speculators and hedge funds, totaled a net position of -12,516 contracts in the data reported. This was a weekly lowering of -15,463 contracts from the previous week which had a total of 2,947 net contracts. In the week ahead, rhetoric rather than economics could be the main driver of sentiment, as investors watch further developments amid a brewing trade war between the U.S. and China. On the data front, the final reading of fourth-quarter U.S. growth will be the highlight of the holiday-shortened week. 3

4 Precious Metals BULLION TECHNICALS GOLD Mighty bulls guided the prices higher that led to 2.26 percent gains last week. Counter broke 2 month consolidation range on the higher side and marked new highs for the year at Rs.30950/10gms mark, that may keep prices elevated. However, a strong move may react to cool off a bit but it would be good opportunity to participate in the prevailing momentum. A positive MACD crossover on daily charts exhibits strength, while volumes are supportive for price action. Level wise, Rs.30650/10gms or $1339/oz would be the immediate support, whereas Rs.30450/10gms or $1330/oz has turned as a key support for the week. On the other hand, Rs.31150/10gms, or $1358/oz is the resistance level that one can look for on the upside. Having said that, we recommend buying gold on dips with mentioned levels. SILVER The white metal took support at the key Gann level of Rs.38100/kg and bounced back 1.35% up 516 points to close the week at Rs.38874/kg. On four hourly charts, trend remains positive as prices form series of higher highs and higher lows. However, prices are currently consolidating in a range forming an ascending triangle pattern with Rs.39000/kg ($16.70 an ounce on COMEX) acting as a neckline resistance. Convincing breakout above the neckline completes the triangle pattern and projects target of Rs.39500/kg close to $17 an ounce. Traders are advised to build long positions on convincing break and retest of neckline close to Rs /kg zone ($16.70 an ounce on COMEX) for upside targets of Rs.39500/kg and Rs.39750/kg keeping a stop loss of Rs.38600/kg. Breach of Rs.38600/kg level before or after breakout of neckline will lead to failure of pattern and will negate our long view. 4

5 Base Metals BASE METALS OVERVIEW FUNDAMENTALS Copper extended its declines last week as concerns over US-China trade relations continued to batter global stocks and threaten to blunt the demand for metal. For the week, prices corrected around 3.5 per cent at LME and MCX. US President Donald Trump had signed a memorandum on Friday that could impose tariffs on up to $60 billion of imports from China, although the measures have a 30-day consultation period before they take effect. Open interest in LME copper, a measure of activity in the global contract, fell to its lowest in more than two years last week. In Shanghai, however, open interest has jumped since mid-january to three-year highs, suggesting large short positions have been building in China. Beijing and 33 other northern Chinese cities have issued smog alerts for the next few days as industrial output ramps up again after the end of winter restrictions, China's environment ministry had said on Sunday. Supply concerns eased as Chile's state copper miner Codelco said it had reached an agreement with a union at its Ministro Hales mine in northern Chile, following early talks on a new collective labor contract. Nickel prices ended the week down 4.47% at $12987 a tonne on LME, while at MCX prices closed at Rs.843.5/kg with losses of 4.47% for the March series. China announced a $3 billion list of U.S. goods for possible retaliation in a tariff dispute with President Donald Trump. The Commerce Ministry said higher duties on steel pipe and other goods would offset Chinese losses due to Trump s tariff hike on steel and aluminum imports. The U.S. will grant the European Union and some other countries a temporary exemption from aluminium and steel tariffs, averting a trade war with key allies as the Trump administration tailors penalties to target China. Copper Technicals Copper prices are digging deep for the last six weeks but there is no stop where buyers may get attention. Last week too, counter was in red with 3.38 percent loses. Every pullback is getting hammered for a lower low and that trend is likely to follow in coming week though with an intermittent pullback. Though, prices are weak but a counter rally can be expected towards Rs.432/kg hurdle. Upside looks capped and one can find Rs.438/kg mark as next important resistance. On the downside, prices are expected to get support near Rs.422/kg odd levels. However, prices may see an extension of fall towards Rs.416/kg mark if supply keeps coming. As a trade, one can sell copper near Rs.432/kg mark for target price of Rs.422/kg levels with stop loss of Rs.439/kg mark. Nickel Technicals Nickel prices took a big hit last week, where prices lost more than 4.50 percent. The severe fall gripped prices, which remained under pressure. On daily time frame, MACD has turned negative that shows momentum buildup on the downside, while volumes remained above average. However, on technical charts, prices look to be in an oversold zone and can witness recovery towards Rs.860/kg level, that would be a pressure point for the week ahead. Looking in to the overall weakness on price chart, it is advised to wait for a pullback rally and then sell nickel on rise near Rs.860/kg mark, while keeping a stop in place at Rs.875/kg. 5

6 Base Metals BASE METALS OVERVIEW FUNDAMENTALS Zinc prices touched their lowest levels since December last week, sliding down 1.13% to $3,218 a tonne, while at MCX prices closed at Rs /kg with losses of 1.39%. Huge amounts of zinc ingots from Spain, both new and old stock, continue to enter the Chinese market after a significant inflow last year, which is leading to inventory build-up and depressed premiums. A sharp increase on total zinc stocks in LME-registered warehouses since the beginning of March has helped the spreads to ease. Total zinc LME stocks stood at 211,350MT as of Wednesday, up 60.4% from 131,775MT at the beginning of the month. Aluminium prices ended the week down 1.62% at $2053 a tonne, while at MCX prices closed at RS /kg with losses of 1.92% for March series. The US Midwest aluminium delivered spot premium has risen since the beginning of this year, with the increase picking up pace in recent weeks since US President Donald Trump announced that he would impose a 10% import tax on aluminium and aluminium imports. The premium was at cents per lb on Tuesday March 20, up from cents per lb at the beginning of the year. US businesses have appealed for the Trump administration to clear up uncertainty over its tariffs on steel and aluminium, after the White House announced a substantial rollback of plans unveiled by the president at the start of the month. The rules as implemented on Friday exempted EU members and six other countries from the new tariffs of 25 per cent on steel and 10 per cent on aluminium, until May 1st. Lead prices ended the week down 1.21% at $2351 a tonne, while at MCX prices closed at Rs /kg with losses of 1.74% for March series. The number of lead-acid battery recyclers in China is expected to triple by the end of this year due to the Chinese government s recycling friendly policies; the country approved 116 certified companies to recycle lead-acid batteries with a total recycling capacity of about 2.7 million tonnes. Zinc Technicals Zinc prices settled in to negative territory last week while extending loses for the fifth consecutive week. Though supply seems to get absorbed on lower levels close to Rs.207/kg every time prices test the same, but counter is still marking lower highs and not letting prices regain strength. For the next week, Rs.214/kg level would be the key resistance and a sustained move above the same can break the negative biasness in the counter and can pull prices higher towards Rs. 218/kg mark. As of now, counter is trading below the mentioned level, while holding the support of Rs.207/kg mark. Some recovery is on the cards but considering the price structure, it is advised to sell on rise as long as prices are trading below Rs.214/kg mark. Aluminium Technicals Metal pack experienced carnage in prices and aluminum was no an exception, that moved in tandem with 1.89 percent loses. Counter broke trend line support of Rs.136/kg which brought it closer to the key support of Rs / kg, witnessed in December However, this key support area is now likely to lead to bounce back in prices towards the near term support turned resistance area of Rs.136/kg all over again. Traders can take advantage of the rebound in prices by building long positions close to Rs.132/kg mark, keeping stops placed Rs /kg and look for targets of Rs.136/kg initially and Rs /kg thereafter. Lead Technicals Counter traded sideways for most part of the week hovering in a range between Rs.158/kg and Rs.151/kg with a bearish biasness. Prices are taking support close to key weekly levels of Rs.151/kg and consolidating around the same. They are currently trading close to the lower edge of the trading range near to demand zone of Rs /kg and are expected to bounce back to the upper end of the range, building biasness of week ahead as mildly positive. Though overall trend has turned weak, but eyeing a rebound traders are advised to build long positions close to Rs.152/kg for upside targets of Rs.158/ kg and Rs.162/kg, keeping stops below Rs.149/kg. Any convincing close below Rs.149/kg will negate our long view as the ball will turn back to bears court. 6

7 Energy ENERGY FUNDAMENTALS CRUDE OIL Oil prices rallied sharply to end at an eight-week high on Friday, as the prospect of an extension to OPEC-led production cuts into the next year helped futures notch their largest weekly advance since July. For the last week at MCX, prices jumped around 5.3 per cent, while WTI crude jumped nearly 5.7%. Oil's impressive gains defied a slump in global stock markets, which sank in response to worries about a brewing trade war between the US and China. Sentiment improved after Saudi Energy Minister Khalid al-falih said OPEC members would need to continue coordinating with Russia and other non-opec oilproducing countries on supply curbs in 2019 to reduce global oil inventories. OPEC, along with some non-opec members led by Russia, have been restraining production by 1.8 million barrels per day (bpd) to curb the market of excess supply. The arrangement, which was adopted last winter, expires at the end of However, booming US shale oil production could potentially derail OPEC's effort to end a supply glut. The number of oil drilling rigs rose by four to 804 last week, Baker Hughes energy services firm said in its closely followed report on Friday. The US rig count, an early indicator of future output, is much higher than a year ago as energy companies have continued to boost spending since mid-2016 when crude prices began recovering from a two-year crash. US oil production, driven by shale extraction, rose to an all-time high of million barrels per day (bpd) last week, staying above Saudi Arabia's output levels and within reach of Russia, the world's biggest crude producer. In the week ahead, market participants will eye fresh weekly information on US stockpiles of crude and refined products on Wednesday to gauge the strength of demand in the world s largest oil consumer and how fast output levels will continue to rise. NATURAL GAS Natural gas closed lower last week by 2.05 per cent at NYMEX and 3.5 per cent at MCX, as investors resumed liquidation in anticipation of improving US weather conditions into the end of the month and early April. Last week, the US Energy Information Administration reported that weekly domestic supplies of natural gas dropped by 86 billion cubic feet for the week-ended March 16. The consensus estimate was for a draw of about 91 Bcf. The five-year average for the week is a withdrawal of 53 billion cubic feet, and last year's storage decrease for the week totaled 150 billion cubic feet. Natural gas inventories fell by 93 billion cubic feet in the week ending March 9. Total U.S. stockpiles fell week over week to 31.6% below last year's level and are now 18.5% below the five-year average. The EIA reported that U.S. working stocks of natural gas totaled about trillion cubic feet at the end of last week, around 329 billion cubic feet below the fiveyear average of trillion cubic feet and 667 billion cubic feet below last year's total for the same period. Working gas in storage totaled trillion cubic feet for the same period a year ago. 7

8 Energy ENERGY TECHNICALS CRUDE OIL Oil remained a strong pick amongst the investors in the past two weeks as the counter gained more than 5% or 216 points to settle the week at Rs.4266/bbl on MCX. Price traded with robust bullish momentum as evident from the bullish wide ranged candle formed on the weekly charts. However, the counter has reached its key resistance area with prices trading close to the key weekly supply zone of Rs /bbl and around $66/bbl at NYMEX. This will act as a hurdle for the rally as bulls take profits and fresh sellers enter. This will trigger a short term sell off to next support of Rs.4150/bbl. Traders can initiate short positions close to the key resistance of Rs.4280/bbl ($66.10/bbl on NYMEX) for downside target of Rs.4150/ bbl keeping stop loss above Rs.4330/bbl. Any close above Rs.4330/bbl level will negate our short view and prices will resume their original uptrend. NATURAL GAS Bears are back in the counter to push down natural gas prices further. Prices witnessed immense selling pressure as they broke the key support of Rs.173/ mmbtu and plunged about 3.48% to settle the week at Rs.169/mmbtu on MCX. On daily and weekly charts, prices are trading well below 20 and 50 period moving average, building biasness ahead as bearish. 50 DMA acted as a stiff resistance and was a trigger for the recent decline in the previous week. For the April contract, key resistance to watch shall be Rs /mmbtu. Any pullback towards Rs /mmbtu can be used to build fresh short positions in the direction of main trend for down side targets of Rs.169/mmbtu keeping stops above Rs /mmbtu. The level of Rs.169/mmbtu will act as strong support for the gas prices. Convincing break of Rs.169/mmbtu level may push gas prices lower to Rs.163/mmbtu mark. 8

9 Date Time Name For Consensus Previous Importance 26-Mar 18:00 Chicago Fed National Activity Feb High 26-Mar 20:00 Dallas Fed Manufacturing Business Index Mar High 27-Mar 18:30 S&P/CS HPI Composite Jan % 6.3% High 27-Mar 19:30 CB Consumer Confidence Mar Very High US Economic Calendar 28-Mar 18:00 GDP Q % 2.5% Very High 28-Mar 18:00 Goods Trade Balance Feb. 18 $-74.10B $-75.26B Very High 28-Mar 18:00 Wholesale inventories Feb % 0.8% Very High Mar 26 Mar 30, Mar 19:30 Pending Home Sales Feb % -4.7% Very High 28-Mar 20:00 EIA Weekly Crude Oil Stocks Change w/o Mar Mb Mb Very High 29-Mar 18:00 Initial Jobless Claims w/o Mar K 229K Very High 29-Mar 18:00 Personal Income Feb % 0.4% High 29-Mar 18:00 Personal Spending Feb % 0.2% Very High 29-Mar 19:15 Chicago PMI Mar Very High 29-Mar 19:30 Michigan Consumer Expectations Mar High 29-Mar 19:30 Michigan Consumer Sentiment Mar High 29-Mar 20:00 EIA Weekly Natural Gas Stocks Change w/o Mar BCF -86 Bcf Very High 29-Mar 22:30 Baker Hughes Oil Rig Count w/o Mar Very High Sugandha Sachdeva Gaurav Sharma Rahul Sharma In-charge-Metals, Energy & Currency Sr. Analyst, Metals, Energy & Currency Analyst, Metals & Energy Vipul Srivastava Amandeep Singh Gaurav Sharma Analyst, Metals & Energy Analyst, Metals & Energy Analyst, Metals & Energy Research Team Source: Reuters, Investing.com, briefing.com ID: Disclaimer: 9