Weekly Report: Metals & Energy ( July 16 July 20, 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 Gold prices slid on Friday to settle at their lowest level in nearly a year as the dollar posted solid gains for the week. For the week, prices were down around 1%, the fourth weekly loss in five last weeks. At MCX it posted loss of around 1.5%. The US dollar index ended the last week with gains of 0.71%. A stronger US currency makes gold and other dollar-denominated commodities more expensive for holders of other currencies. Demand for the dollar has been underpinned as recent economic data indicated that the Federal Reserve is likely to remain on track to raise interest rates twice more this year. It also boosted as rising trade tensions fueled safe haven demand for the dollar. The Trump administration said last week that it plans to impose 10% tariffs on an additional $200 billion of Chinese imports. Gold prices have failed to garner any support despite growing risk aversion, suggesting the yellow metal is losing its safe haven status. Copper clocked up a fifth weekly loss as trade tensions between the US and China rumbled on. It lost 1.5% at LME and 2% at MCX. While aluminium hit a 3 month low ahead of a summit between Donald Trump and Vladimir Putin. It lost 2.42% at LME and 3.13% at MCX. Trump and Putin are due to meet in Helsinki on Monday and aluminium investors are looking for any hint that U.S. sanctions on Rusal, the world s secondbiggest aluminium producer, will be eased or lifted. Zinc prices fell to their lowest in more than a year last week as expectations of rising supplies and a narrowing deficit sparked a sell-off. It lost 6.72% at MCX and 6.16% at LME. Lead also plunged to 10 months low, loosing 6.5% at MCX and 5.5% at LME. Unlike its peers nickel prices were underpinned by the news that the Philippines nickel ore exports could drop by up to 17 percent this year as weaker prices curb output in the world s second-biggest supplier. For the last week it closed tad lower at MCX and almost flat at LME. WTI crude lost 4.4% last week, marking its second straight weekly loss. At MCX it lost 3.76% while Brent suffered 2.9% loss for the last week. The resumption of Libyan exports allows the return of as much as 850,000 bpd of crude into international markets. Rising OPEC output also weighed on sentiment as the oil-cartel revealed last week its members had increased output last month, led by a rise in Saudi output to levels not seen since the output-cut agreement in 2016, easing concerns that the market would be short of oil. Natural gas futures settled sharply lower last week as investors continued to react to rising production and the possible break-up of the heat dome that has been covering most of the country since mid-june. At both NYMEX and MCX, it settled the week down 3.61%. The strong dollar looks likely to remain a significant headwind for gold this week, with bearish price action in the precious metal looking set to continue despite growing risk aversion. Traders will be looking ahead to Federal Reserve Chairman Jerome Powell s testimony on the economy and monetary policy to a Senate committee on Tuesday. Week Ahead Sell: Crude Oil Weekly Report: Metals & Energy ( July 16 July 20, 2018) Russia and other oil producers could raise output by 1 million barrels per day (bpd) or more if shortages hit the market, Russian Energy Minister Alexander Novak told reporters on Friday. Libya's state-run National Oil Corp. lifted restrictions on four Libyan oil ports and said production and exports would return to normal levels within a few hours. 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 slid on Friday to settle at their lowest level in nearly a year as the dollar posted solid gains for the week. Gold futures for August delivery settled down 0.39% at $1, on the Comex division of the New York Mercantile Exchange. For the week, prices were down 1%, the fourth weekly loss in five weeks. The U.S. dollar index, which measures the greenback s strength against a basket of six major currencies, ended the week with gains of 0.77%. A stronger U.S. currency makes gold and other dollar-denominated commodities more expensive for holders of other currencies. Demand for the dollar has been underpinned as recent economic data indicated that the Federal Reserve is likely to remain on track to raise interest rates twice more this year. The U.S. currency has also been boosted as rising trade tensions fueled safe haven demand for the dollar and acted as a drag on other currencies. The Trump administration said last week that it plans to impose 10% tariffs on an additional $200 billion in Chinese imports. Gold prices have failed to garner any support despite growing risk aversion, suggesting the yellow metal is losing its safe haven status. Metal traders will be looking ahead to Federal Reserve Chairman Jerome Powell s testimony on the economy and monetary policy to a Senate committee on Tuesday. Powell will likely face questions on a wide range of economic issues, including the potential effect of the Trump administration s trade policy on the economy. Investors will also get updates on the U.S. retail sales, housing data and industrial production this week. SILVER Spot silver prices ended the week down 1.44% at $15.77 a troy ounce, while at MCX prices closed at Rs.39046/kg with losses of 1.81%. Large precious metals speculators cut their bullish net positions in the Silver futures markets last week, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC). The non-commercial futures contracts of Silver futures, traded by large speculators and hedge funds, totaled a net position of 23,700 contracts in the data reported. This was a weekly fall of -1,000 contracts. U.S. President Donald Trump set the scene for his meeting with Russian President Vladimir Putin by blaming fraught relations with Moscow on investigations into alleged Russian interference in the 2016 election that put him in the White House. The week ahead features data on U.S. retail sales, industrial production and housing starts, while Federal Reserve Chairman Jerome Powell will testify before congressional panels on the economy and monetary policy at Capitol Hill. 3

4 Precious Metals BULLION TECHNICALS GOLD Bears got control of the precious metal where prices fell almost 1.50 percent last week. Prices faced resistance near 100 Day EMA and broke down below 200 Day EMA mark to settle the week. Going forward, weakness seems to continue in coming days as momentum is favouring downward direction. However, a pullback is expected towards upside near Rs /10gms levels as a counter rally, that can be used to initiate short positions. On technical parameters, prices have breached long term averages and MACD is showing momentum towards south. One can find immediate hurdle near Rs.30380/10gms mark whereas Rs.30550/10gms mark or $1270/10gms would be crucial resistance on the higher side. On the other hand, Rs.29950/10gms would be key support for the week. As a strategy, it is advised to sell gold near Rs /10gms mark for target price of Rs.30000/10gms with stop loss above Rs.30550/10gms. SILVER White metal lost its shine as the counter plunged about 1.8% to settle the week ahead at Rs.39046/kg. On daily charts, prices have started to form a Lower high lower low pattern indicating the downtrend. Break below the long term support Rs.39500/kg ($16.17 an ounce on Comex) adds further selling pressure to the counter. Traders are advised to follow the strategy of selling on rallies at higher levels. On the higher side, Rs.39275/kg ($16.00 an ounce on Comex) remains the key support turned resistance and is the best place to build fresh short positions for downside targets of Rs.38400/kg keeping stops above Rs.39600/kg. 4

5 Base Metals BASE METALS OVERVIEW FUNDAMENTALS Copper clocked up a fifth weekly loss as trade tensions between the US and China rumbled on. It lost 1.5% at LME and 2% at MCX. A trade war between Washington and Beijing has raised concerns over demand in top industrial metals consumer China. The Trump administration said it would slap 10 percent tariffs on another $200 billion worth of Chinese imports, raising fears the festering trade dispute between the world s two biggest economies could hit global growth. US Treasury Secretary Steven Mnuchin said on Thursday the United States and China could reopen talks on trade but only if Beijing is willing to make significant changes. Copper prices are being pressured by concern about rising supply after Indonesia on Thursday struck an agreement with Freeport-McMoRan Inc and Rio Tinto to buy a controlling stake in the world s second-biggest copper mine, Grasberg. BHP handed in a proposal for a new labour contract to the union at its Escondida mine in Chile, the world s biggest copper mine. Copper prices had gained earlier in the year on worries about possible strikes affecting major copper operations. Nickel prices ended the week up 0.05% at $13,967 a tonne on LME, while at MCX prices closed at Rs /kg with losses of 0.49%. President Rodrigo Duterte of the Philippines announced a possible halt to mining in the country due to environmental damage. In June, 23 out of 27 mines passed an environmental review, easing the uncertainty of supply. However, nickel supply uncertainty still remains as a result of environmental measures. Prices of steel-linked metals nickel came under pressure on lower demand expectations after China s top steelmaking city, Tangshan, ordered steel mills to shut sintering plants for five days on Friday due to forecasts of heavy smog over the weekend. Copper Technicals Copper prices were digging the ground while marking 52 week lows. Last week, prices fell more than 2 percent, extending the carnage in prices. Moving ahead, price chart is following lower lows structure that shows inherent weakness in near term. Also prices are trading below short term moving averages, indicating momentum at its place. Level wise, Rs.414/kg & Rs.405/kg would be support area to look for whereas Rs.426/kg mark can be seen as major resistance for the week. For the coming week, one can sell copper on rise near Rs.425/kg mark for target price of Rs.415/kg mark while considering Rs.429/kg as stop loss level. Nickel Technicals Nickel prices were relatively quiet, while losing nearly half a percent for the week. One can see it as a pause period as they have stepped down from recent highs. Moving forward, selling pressure may resume in the metal as prices were not able to break above 50 Day EMA resistance and drifted lower. In the coming week, prices may find upside hurdle near Rs.960/kg mark, whereas Rs.920/kg & Rs.900/kg levels can be seen as downside projections. As per technical set up, a 20 & 50 Day EMA negative crossover is taking shape and is indicative of bearishness in trend. For next week, traders can sell nickel near Rs.960/kg mark for target price of Rs.920/kg mark with stop loss of Rs.975/kg mark. 5

6 Base Metals BASE METALS OVERVIEW FUNDAMENTALS Zinc prices ended the week down 6.07% to $2,581 a tonne, while at MCX prices closed at Rs /kg with losses of 6.63%. Zinc stocks at Shanghai-bonded warehouses stood at 156, ,000 tonnes at the end of June, down from 207, ,000 tonnes a month earlier, with participants actively looking to bring the metal into China to sell at a profit. U.S. President Donald Trump has rattled the world trade order this year by seeking to renegotiate the terms of some of the United States trading relationships, in particular with China. He has imposed tariffs on some imports including steel, raising fears of a global trade war. Aluminium prices ended the week down 2.29% at $2039 a tonne, while at MCX prices closed at Rs /kg with losses of 3.02%. Aluminium hit a three-month low ahead of a summit between U.S. President Donald Trump and Russian President Vladimir Putin. Trump and Putin are due to meet in Helsinki on Monday and aluminium investors are looking for any hint that U.S. sanctions on Rusal, the world s second-biggest aluminium producer, will be eased or lifted. China s aluminium exports exceeded half a million tonnes for the second time ever in June, while steel exports hit an 11-month high, defying U.S tariffs. China s aluminium producers are responding to tighter supply conditions by boosting output, data showed. China s June output rose by 0.8 percent to 2.83 million tonnes, which on daily basis was the highest since June Lead prices ended the week down 5.79% at $2212 a tonne, while at MCX prices closed at Rs /kg with losses of 6.49%. While China wants cleaner air and has aggressive targets for the adoption of EVs, paying subsidies is an expensive way for the government to achieve its objectives. Although battery costs have declined in recent years, they are still significantly higher than the cost of a vehicle powered by an internal combustion engines (ICE). Zinc Technicals Bears looked not in a hurry to lose the grip that made bulls helpless last week. Metal was the worst performer with 6.72 percent loss while extending the fall for the fifth consecutive week. Moving ahead, most of the technical indicators are having downward bias where nature of the fall looks steep. Prices are trading below 10 day EMA and taking resistance of the same on every bounce. One can expect prices to witness some more pain in next week. On the lower side, prices may find Rs.170/kg level as an immediate support whereas breaking below the same can lead prices towards Rs.164/kg mark as next available support. On the contrary, Rs.177/kg & Rs.183/kg levels are the upside hurdles for the counter. Having said that, we advise to sell zinc near Rs.177/kg mark for target price of Rs.170/kg mark with stop loss at Rs.180/kg level. Aluminium Technicals Counter was in line with metal complex to witness price fall while settling the week with 3.13 percent loss. Prices moved lower after getting a pause near Rs.144/kg level that can be seen as a key resistance for the week. However, on technical check, prices are seen taking some support at Rs.138/kg mark that can lead to rebound in prices towards resistance level of Rs.144/kg level. As a trading strategy, one can look for levels close to Rs /kg to initiate longs in aluminum for targets close to Rs.144/kg mark with stop loss below Rs.137/kg mark. However, one must keep positions light considering the fact that it s only a bounce back in a bear market and prices will gain face supply pressure at Rs /kg zone. Lead Technicals Counter remained week after prices broke the key daily support of Rs.160/kg on daily charts on Wednesday and plunged 6.53% for the week to settle at Rs.151/kg. Sharp decline was witnessed on charts indicating panic sell among the bulls. Prices are extremely oversold with RSI hovering around 11 and taking support on weekly level of Rs.150/kg indicating a dead cat bounce. Biasness of Week ahead remains bullish. As a strategy, traders can build long positions close to Rs.148/kg for upside targets of Rs.153/ kg keeping stops below Rs.146/kg. Breach below Rs.146/kg will negate our long view. 6

7 Energy ENERGY FUNDAMENTALS CRUDE OIL US WTI crude, settled at $71.01 a barrel on the New York Mercantile Exchange by close of trade on Friday. The contract sank to as low as $69.23 a barrel Thursday, a level not seen since June 25. It lost 4.4% for the week, marking its second straight weekly loss. At MCX, it lost 3.76% while Brent suffered 2.9% for the last week. The resumption of Libyan exports allows the return of as much as 850,000 bpd of crude into international markets. Rising OPEC output also weighed on sentiment as the oil-cartel revealed last week its members had increased output last month, led by a rise in Saudi output to levels not seen since the output-cut agreement in 2016, easing concerns that the market would be short of oil. The world's top oil exporter and OPEC's biggest producer pledged last month it would raise output to make up for lost supplies out of Libya, Venezuela and Iran. The IEA warned that the world was short of spare supply capacity and hence any new disruption could further elevate oil prices. It also added that the demand for crude oil will be softer than previously expected in the second half of the year. Oil prices traded near three-and-a-half-year highs in late June and early July due to Libyan supply disruptions and fears the US would press all buyers of Iranian oil to cut imports to zero starting from November, when the US re-imposes sanctions against Tehran. However, prices have since weakened as OPEC member Libya reopened its ports in the east and US Secretary of State Mike Pompeo said Washington would consider granting waivers to some of Iran's crude buyers. Global supply prospects will remain at the forefront of the oil market in the coming week, after prices posted sharp losses last week amid reduced bets on a global crude shortage. US EIA reported a substantial 12.6 million-barrel decline in crude inventories over the past week, which surpassed expectations. At million barrels, U.S. crude oil inventories are about 4% below the five-year average for this time of year. The US rig count remained steady at 863 last week. The rate of growth has slowed over the past month or so with a decline in crude prices from late May through late June. NATURAL GAS Natural gas futures settled sharply lower last week as investors continued to react to rising production and the possible break-up of the heat dome that had been covering most of the country since mid-june. At NYMEX and MCX, it settled the week down 3.61%. Although the lingering hot temperatures were not enough to overtake the increased production, the easing of temperatures could drive prices even further lower over the nearterm. Fundamentally, the Energy Information Administration s (EIA) weekly natural gas storage report showed a miss to the low side of most estimates. According to the EIA, producers injected 51 Bcf into lower 48 gas stocks for the week-ended July 6, lower than the 59 Bcf injected last year and well-below the five-year average 77 Bcf build. Going into the report, major surveys showed traders were looking for a build of about 56 Bcf. Reuters was looking for a build of 56 Bcf, with a range of 47 Bcf to 67 Bcf. The EIA report also showed that total working gas in underground storage stood at 2,203 Bcf as of July 6, versus 2,928 Bcf a year ago and five-year average inventories of 2,722 Bcf. The year-on-year deficit widened from minus 717 Bcf to minus 725 Bcf, while the year-on-five-year deficit increased from minus 493 Bcf to minus 519 Bcf, EIA data show. 7

8 Energy ENERGY TECHNICALS CRUDE OIL After a stupendous rally to three and a half year highs, oil prices finally took a pause on back of profit booking, as prices failed to breach the crucial hurdle of $75/bbl for WTI crude. On weekly charts, recent decline marks the beginning of a corrective wave, as fresh sellers have stepped in which can take prices lower upto next weekly support of Rs.4580/bbl. Trend on four hourly charts has turned negative as prices form lower high and lower low pattern. Though after a hefty decline of around 3.76% in the prior week, there will some bounce back but trend seems skewed on the downside in the near term. As a strategy, traders are advised to build short positions on pullback close to Rs.4835/bbl for downside targets of Rs /bbl, keeping stops above Rs.4920/bbl. NATURAL GAS An enthusiastic week for the bears as the prices plunged about 3.61% for the week, marking the start of a new downtrend on daily charts. Double top pattern on daily charts at key resistance of Rs.205/mmbtu led to supply pressure building in the energy counter. The decline accelerated as prices broke and sustained below the short term support of Rs.195/mmbtu. Biasness of week ahead remains bearish. Traders are advised to wait for a sustained pullback to build short positions close to resistance Rs.192/mmbtu for downside targets of Rs.183/mmbtu, keeping stops above Rs / mmbtu. On the upside, Rs /mmbtu shall remain the key resistance above which bulls will take control and trend will turn to the upside. 8

9 Date Time Name For Consensus Previous Importance 16-Jul 18:00 Core Retail Sales June 0.4% 0.9% Very High 16-Jul 18:00 Retail Sales June 0.4% 0.8% Very High 16-Jul 18:00 NY Empire Estate Manufacturing Index July High 16-Jul 19:30 Business Inventories May 0.4% 0.3% High 17-Jul 18:45 Industrial production June 0.5% -0.1% Very High 17-Jul 19:30 Fed Chair Testifies Very High 18-Jul 18:00 Building Permits June 1.333M 1.301M Very High 18-Jul 18:00 Housing Starts June 1.320M 1.350M Very High 18-Jul 19:30 Fed Chair Testifies Very High 18-Jul 20:00 EIA Weekly Crude Oil Stocks Change w/o 13 th July Mb Mb Very High 19-Jul 18:00 Initial Jobless Claims w/o 14 th July 220K 214K Very High 19-Jul 18:00 Philly Fed Manufacturing Index July Very High 19-Jul 20:00 EIA Weekly Natural Gas Stocks Change w/o 13 th July 55 Bcf 51 Bcf Very High 20-Jul Tentative OPEC Meeting Very High 20-Jul 22:30 Baker Hughes Oil Rig Count w/o 13 th July Very High US Economic Calendar July 16 July 20, 2018 Sugandha Sachdeva In-charge-Metals, Energy & Currency Gaurav Sharma Sr. Analyst, Metals, Energy & Currency Rahul Sharma Analyst, Metals & Energy Source: Reuters, Investing.com, briefing.com Vipul Srivastava Analyst, Metals & Energy Amandeep Singh Analyst, Metals & Energy Gaurav Sharma Analyst, Metals & Energy ID: metals.research@religare.com Disclaimer: Research Team 9