Weekly Report: Metals & Energy ( Dec 24 Dec 28, 2018)

Transcription

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 ended lower on Friday at COMEX, pulling back from a nearly six-month high. The precious metal hit a high of $1, on Thursday, a level last seen on June 25. For the week, gold prices gained about 1.4% at COMEX and were down 1.14% due to strong rupee. Though prices have strengthened in recent months to trade more than 5% higher quarter to date at COMEX, they have still lost nearly 4% for the year so far. At MCX, gold prices are trading up around 7% for this year. Copper prices fell for the fourth consecutive week as concerns that weakening economic growth will curtail demand overshadowed a supply shortfall. LME copper dropped 2.65% and MCX copper slumped more than 5.5% last week. Zinc prices ended the week down 1.57%at LME, while at MCX prices closed with losses of 3.30%. Global zinc market is expected to wipe out its deficit in Global zinc mine production will increase by 6.5% in 2019, as strong prices in past have influenced zinc miners to bring the idled capacity back online. LME lead prices ended the week up 0.39%, while at MCX prices closed with losses of 1.75%. Aluminium ended the week down 0.89% at LME, while at MCX it closed with losses of 2.73%. During the Jan-Nov period of 2018, production has increased by 1.4% to mt. US has lifted sanctions on Rusal, the world s largest aluminum producer and strike has ended at Alcoa refinery. Nickel ended the week down 1.49% on LME, while at MCX it closed with losses of 4.05%. Some stainless steel mills in China are expected to undergo shut-down for maintenance, ahead of the coming Chinese New Year holiday, and this may help to lift the price up in the near future. WTI crude declined roughly 0.6% on Friday to settle at $45.59/barrel, by close of trade on the NYMEX. WTI earlier fell to $45.13, its lowest intraday price since mid-july For the week, the US benchmark lost about 11%, its steepest weekly drop since January Meanwhile, the global benchmark, Brent crude shed around 10.70%, to end at $53.82 a barrel. Brent reached a 15½-month low at $52.79 earlier in the session. MCX crude dropped 12.30% for the last week. Oil traders will continue to focus on global crude supplies and the outlook for energy demand in the week ahead, after prices suffered the worst weekly performance in nearly three years last week. Although a prolonged span of mild temperatures has pressured the market throughout the month along with rises production, last week s price action suggests investors may be responding to new forecasts calling for a potential cold snap around January 1. For the week, natural gas at NYMEX settled at $3.750, down 0.08%. At MCX, prices were down around 3.9%. Gold traders will continue to monitor political risks and watch developments in equity markets in the week ahead, after the failure by the U.S. Congress and President Donald Trump to agree to a spending bill by midnight Saturday resulted in a partial U.S. government shutdown. Meanwhile, reports that President Trump suggested firing Federal Reserve Chair Jerome Powell, a move that could roil already volatile financial markets, will also be in focus. Elsewhere, on the data front, the U.S. will see a relatively quiet week in terms of economic releases, with reports on consumer confidence and the housing sector expected to draw the most attention. Trading volumes are expected to remain light during the week due to the Christmas holiday as many traders have already closed books before the end of the year. Week Ahead Sell : Copper Weekly Report: Metals & Energy ( Dec 24 Dec 28, 2018) Copper prices fell for the fourth consecutive week as concerns that weakening economic growth will curtail demand overshadowed a supply shortfall. Headline stocks in LME-registered warehouses are near 10-year lows, suggesting that supplies are tight, but the proportion not yet earmarked for delivery has almost doubled since the end of October to 113,500 tonnes. 1

2 WEEKLY LEVELS Commodity S1 S2 R1 R2 GOLD (Feb) SILVER (Mar) COPPER (Feb) ZINC (Dec) NICKEL (Dec) ALUMINIUM (Dec) LEAD (Dec) CRUDE OIL (Jan) NATURAL GAS (Jan)

3 Precious Metals BULLION FUNDAMENTALS GOLD Gold futures ended lower Friday, pulling back from a nearly six-month high. Gold for February delivery on the Comex division of the New York Mercantile Exchange fell $9.80, or roughly 0.8%, to settle at $1, The precious metal hit a high of $1, on Thursday, a level last seen on June 25. Though prices have strengthened in recent months to trade more than 5% higher quarter to date, they have still lost nearly 4% for the year so far. For the week, gold prices gained about 1.4% on COMEX, but were lower by 1.14% on MCX. Last week, the U.S. central bank lifted rates for the fourth time this year and kept most of its guidance for additional hikes over the next two years, dashing investor hopes for a more dovish policy outlook. Meanwhile, reports that President Trump suggested firing Federal Reserve Chair Jerome Powell, a move that could roil already volatile financial markets, will also be in focus for the next week. Concerns about a possible U.S. government shutdown and global growth weighed on the dollar and equity markets, boosting the appeal of assets viewed as safer, such as bullion. Gold is often sought in times of geopolitical tensions or market turbulence. Investors increased interest in gold is underpinned by an increase in net longs by speculators and a rise in holdings of SPDR Gold Trust, the world s largest goldbacked exchange-traded fund. Hedge funds and money managers raised their net long positions in Comex gold to a six-month high in the week to Dec. 18, while SPDR holdings rose to their highest since mid-august on Friday. Trading volumes are expected to remain light during the week due to the Christmas holiday as many traders already closed books before the end of the year. Elsewhere, on the data front, the U.S. will see a relatively quiet week in terms of economic releases, with reports on consumer confidence and the housing sector expected to draw the most attention. SILVER Spot Silver prices ended the week up 0.41% at $14.62 a troy ounce, while at MCX prices closed at Rs.37256/kg with losses of 2.10%. China and the US "made new progress" on the issues of trade balance and intellectual property during a phone call between officials from the two countries, China's commerce ministry said Sunday. "On December 21, China and the US conducted a phone conversation at a vice-ministerial level, exchanging views on issues such as trade balance and strengthening intellectual property protection, and made new progress," the Ministry of Commerce said in a short statement. China's legislature on Sunday also announced that it is looking at a new law governing foreign investment that would prevent the forced transfer of technology and give foreign firms the same privileges as Chinese companies. The US and EU officials have long complained of a lack of fair access for foreign companies in China, as well as rampant theft of intellectual property. The U.S. federal government entered the second day of its partial shutdown Sunday and it won't be until after Christmas holiday that Congress and President Donald Trump can try to agree to a resolution to their funding impasse. For the dollar, it's a quiet week ahead, with key stats limited to house price figures on Wednesday, December consumer confidence and new home sales numbers on Thursday and pending home sales figures, trade data and PMI numbers out of Chicago on Friday. Focus will be on the housing sector and consumer confidence numbers. Eyeing Friday's trade data, another widening in the trade deficit is likely to enrage U.S President Trump and lead to volatility in markets. 3

4 Precious Metals BULLION TECHNICALS GOLD Gold prices extended loss while tumbling 1.14 percent last week on MCX. It was the second consecutive week, where prices remained weak after approaching seven week highs. Heading forward, sentiments seem bearish in the counter in near term and prices are likely to find hurdle on the higher side in coming sessions. One can find immediate support near Rs.31250/10gms level, whereas Rs.31000/10gms would act as a major base for prices. On the other hand, Rs /10gms is the upside territory for prices on the higher side. As a weekly trade, traders can sell gold near Rs.31550/10gms level for target price of Rs.31250/10gms with stop loss at Rs.31700/10gms. SILVER The white metal is taking strong support around 50% Fibonacci level at Rs.37200/kg; drawn from the recent swings on daily charts at MCX. However, it s too early to call for an upside reversal as prices are still forming lower highs -lower lows on hourly charts. The recent support has turned the prior downtrend to a sideways trading range with clear resistance around Rs.37750/ kg levels ($14.85 an ounce on COMEX). Traders are advised to initiate long positions only on a convincing break of the mentioned resistance around Rs.37750/kg, for upside targets of Rs.38200/kg keeping stops below Rs.37450/ kg. In case prices are unable to sustain above the level, we may see a significant fall in the counter. 4

5 Base Metals BASE METALS OVERVIEW FUNDAMENTALS Copper prices fell for the fourth consecutive week as concerns that weakening economic growth will curtail demand overshadowed a supply shortfall. LME copper dropped 2.65% and MCX copper slumped more than 5.5% last week. Fears that growth in top consumer China is cooling and that a trade dispute with the United States could exacerbate the slowdown, have driven copper down 17% this year. A Xinhua news agency report saying China will ratchet up support for the economy in 2019 failed to lift prices. However, a supply deficit that will extend through 2019 means copper will not stay beneath $US6,000 for long. The global world refined copper market showed a 168,000 tonne deficit in September, the International Copper Study Group said this week, taking the shortfall for January- September to 595,000 tonnes. That compares with a 226,000 tonne deficit in the same period in Around 24 million tonnes of copper are consumed each year. Headline stocks in LME-registered warehouses are near 10-year lows, suggesting that supplies are tight, but the proportion not yet earmarked for delivery has almost doubled since the end of October to 113,500t. Inventories in the Shanghai Futures Exchange warehouses at 110,702 tonnes and are down from more than 300,000 tonnes in April. Nickel prices ended the week down 1.49% at $10,872 a tonne on LME, while at MCX prices closed at Rs /kg with losses of 4.05%. Some stainless steel mills in China are expected to undergo shut-down for maintenance ahead of the coming Chinese New Year holiday, and this may help to lift the stainless steel price up in the near future. The global nickel market deficit widened to 19,600 tonnes in October from the previous month's revised deficit of 9,000 tonnes, the International Nickel Study Group (INSG) said. As inventories have fallen, Shanghai stocks stand at just 14,517t, down from a 2016 peak of above 100,000t. On the other side, LME stocks have fallen by 41% since January, China's crude steel output dropped to its lowest in seven months in November, hit by shrinking profit margins at mills and winter restrictions on emissions. The world's second -largest economy has been losing momentum in recent quarters. China's automobile sales also fell about 14 percent year-on-year in November, the steepest such drop in nearly seven years. Copper Technicals A two week recovery fell flat last week where prices dropped by 5.51 percent. Bears hammered prices quite hard as they approached near supply zone on higher levels that placed the counter near 15-week lows. Momentum seems strong on the downside as prices have broken key support of Rs.425/kg mark. On technical check, MACD is showing bearish crossover and signaling a price correction in coming days. On the higher side, Rs.425/kg would be crucial resistance for prices whereas, prices look to fall down towards Rs.413/kg support and next at Rs.408/kg mark, if they sustain below the initial support. While pressure seems to build on the downside, one can look for short trades in copper near Rs.422/kg mark for target price of Rs.413/kg mark with stop loss at Rs.427/kg mark. Nickel Technicals It remained another unsuccessful attempt of nickel to surpass upside territory of Rs.800/kg mark. Prices turned south on back of supply pressure and closed 4.05 percent down for the week. A strong range has been formed in recent weeks which have made prices to swing with in Rs.795-Rs.750/kg zone. However, an immediate hurdle has been developed at Rs.775/kg level on hourly time frame for the counter, followed by Rs.795/kg crucial level. Going ahead, prices may roll back towards support levels as we have tested upside boundary last week. Traders can take advantage of given range and can use pullback near Rs.775/kg level to initiate short trade in the counter for target price of Rs.755/kg mark. As a caution, one must protect the trade with stop loss of Rs.785/kg mark. 5

6 Base Metals BASE METALS OVERVIEW FUNDAMENTALS Zinc prices ended the week down 1.57% to $2,497 a tonne, while at MCX prices closed at Rs /kg with losses of 3.30%. Global zinc market is expected to wipe out its deficit in Global zinc mine production will increase by 6.5% in 2019, as strong prices in past have influenced zinc miners to bring the idled capacity back online. Glencore, the largest zinc producer is expected to restart its idled capacity and Vedanta is expected to commission its production at its Grasberg mine in South Africa. Aluminium prices ended the week down 0.89% at $ a tonne, while at MCX prices closed at Rs /kg with losses of 2.73%. During the January-November period of 2018, production has increased by 1.4% to million tonnes. US has lifted sanctions on Rusal, the world s largest aluminum producer and strike has ended at Alcoa s Australian alumina refinery. On the contrary, China s biggest aluminum producers are discussing production cutbacks of 800,000 tonnes and LME aluminum inventories stands at just 1.2 million tonnes. Lead prices ended the week up 0.39% at $ a tonne, while at MCX prices closed at Rs /kg with losses of 1.75%. Global lead market is expected to turn into surplus of 50,000 tonnes from deficit of 120,000 tonnes in The mine supply is expected to increase by 4.1% in 2019 as some mine supply is likely to come on-stream from Coeur Mining s Silvertip mine in Canada and Vedanta s Gamsberg. China contributes around 40% to the world s lead demand but tight environment inspection has put production limitation. Zinc Technicals Zinc prices fell headlong and lost 3.30 percent last week. Prices continued to decline with lower lows and lower highs pattern on daily chart which shows negative bias in the counter. Level wise, Rs.174/kg can be seen as a key support for prices while a miss at this level could bring pressure for next support level of Rs.171/kg. On the other hand, Rs.181/kg would act as a key hurdle for prices, followed by next supply zone of Rs.184/kg. For next week, traders can sell zinc near Rs.180/kg mark for target price of Rs.175/kg mark, while considering Rs /kg as stop loss for the trade. Aluminium Technicals Aluminium prices dipped 2.73 percent last week while slipping towards 9 month lows. Some sharp reaction was seen on higher levels last week that sent prices below recent swing lows. Moving ahead, trend seems bearish in near term as counter is comfortably trading below 20 day EMA and is gathering momentum on downside. One can expect prices to test Rs.132/kg initially and can extend further towards Rs /kg key base. On the higher side, prices are facing resistance near Rs.137/kg mark whereas next hurdle comes at Rs.139/kg level. Though, prices may bounce a bit near resistance level initially but looking in to overall structure, one can take counter rally as an opportunity to sell the counter. Hence it is recommended to sell aluminium near Rs.136/kg level for target price of Rs.132/kg level with stop loss at Rs.138/kg mark. Lead Technicals Lead prices are forming strong base around the key weekly support zone of Rs /kg, as prices have been consolidating for more than a month in the vicinity of the zone. Prices have rebounded sharply towards the close of last week, indicating bargain buying seen in the metal counter. On hourly charts, prices have formed double bottom pattern at Rs /kg and broken the neck line (its last hurdle) of Rs /kg in today s session. Keeping in mind the support mark, traders are advised to build long positions on small dips around Rs /kg for upside targets of Rs /kg, keeping stops below Rs /kg. 6

7 Energy ENERGY FUNDAMENTALS CRUDE OIL WTI crude declined roughly 0.6%, on Friday to settle at $45.59/barrel by close of trade on the NYMEX. WTI earlier fell to $45.13, its lowest intraday price since mid- July For the week, the US benchmark lost about 11%, its steepest weekly drop since January Meanwhile, the global benchmark, Brent crude shed around 10.70%, to end at $53.82 a barrel. Brent reached a 15½-month low at $52.79 earlier in the session. MCX dropped 12.30% for the last week. Crude oil has lost over a third of its value since October in what has become one of the biggest declines since a price collapse in 2014, with surging supply and the specter of faltering demand scaring off investors. With just about one week to the end of 2018, WTI remains down about 25% this year, while Brent is down about 20% on the year. MCX is down around 16% till Friday for this year, while losses are limited at MCX due to our weak domestic currency. The US EIA reported last week that domestic crude supplies declined by a less-than-expected 0.5 million barrels. Offering a hint on the U.S. production activity, Baker Hughes on Friday reported that U.S. energy firms added oil rigs for the first time in the past three weeks. Drillers added 10 oil rigs in the week to Dec. 21, bringing the total count to 883. The increase exacerbated concerns tied to growing global crude production and a slowdown in energy demand. Saudi-led OPEC and its non-member allies led by Russia agreed in early December to collectively cut production by a total of 1.2 million barrels a day during the first six months of 2019, in an effort to stave off a global glut in supplies. Oil traders will continue to fret over global crude supplies and the outlook for energy demand in the week ahead, after prices suffered the worst weekly performance in nearly three years last week. Trading volumes are expected to remain light during the week, due to the Christmas holiday as many traders have already closed books before the end of the year. NATURAL GAS Although a prolonged span of mild temperatures has pressured the market throughout the month along with rise in production, last week s price action suggests investors may be responding to new forecasts calling for a potential cold snap around January 1. For the week, natural gas at NYMEX settled at $3.750, down 0.08%. At MCX, prices were down around 3.9%. The EIA on Thursday reported a 141 Bcf withdrawal from the U.S. natural gas stocks for the week-ending December 14. That compares to a year-ago withdrawal of 166 Bcf and a five-year average pull of 144 Bcf. Estimates ahead of the EIA report pointed to a withdrawal in the low to mid-130 Bcf range. Reuters looked for a range of 94 Bcf to 153 Bcf with a median of 133 Bcf. Natural gas prices were volatile last week. Not the one-sided volatility we ve seen in November and most of December, but the choppy, two-sided variety. This price action was fueled by forecasts that point towards a potential shift to colder temperatures, during the first week of the new year. NatGasWeather said on Thursday, the European weather model was indicating a potential colder trend for the first few days of the new year. Prices eased off modestly after the latest overnight European model backed off the amount of cold December 28-30, although it still shows decent cool shots arriving December 31-January 2. Due to thin holiday trading conditions and the developing forecast for a short-term cold snap after the first of the new year, we could see a short-covering rally pushing prices to the upside this week. Strong buyers will only come in to play on the long-side if the calls for colder temperatures increase beyond January 3. It seems traders are pricing in the cold snap from December 30 to January 2. If the cold is forecast beyond January 7, then prices could run to the upside. 7

8 Energy ENERGY TECHNICALS CRUDE OIL The energy counter remained under bearish territory and plunged more than 12% for the week to settle at Rs.3236/bbl on MCX. Trend remains bearish on both daily and weekly charts, as prices trade well below their 20 DEMA. After the steep fall, prices are trading in an oversold region with RSI hovering below 20 on daily charts. This may trigger a pullback in the near term, but the trend remains weak and it is advisable to adopt sell on rise strategy. On the higher side, Rs /mmbtu remains the key resistance around which fresh shorts can be initiated. As a strategy, traders are advised to build short positions on pullback around Rs /bbl for downside targets of Rs.3050/bbl and then Rs.2980/bbl, keeping stops above Rs.3400/bbl. NATURAL GAS Losses made early last week could not sustain as prices recouped sharply from their weekly lows, still losing 4% for the week to settle at Rs /mmbtu. After the sharp fall seen in the previous week, prices are taking support around the weekly demand zone of Rs /mmbtu in the January contract. On hourly charts, prices have formed triple bottom pattern at the support. Pattern suggests a near term reversal ahead, building biasness of the week ahead as bullish. In an expiry driven week, traders are advised to accumulate long positions in the counter near Rs.250/mmbtu in the January contract, for upside targets of Rs.275/mmbtu, keeping stops below Rs.240/ mmbtu. 8

9 Date Time Name For Consensus Previous Importance 24-Dec - No Major Data from US Dec - Holiday- Christmas Dec - No Major Data from US Dec 19:00 Initial Jobless Claims W/o 22nd December 219K 214K Very High 27-Dec 20:30 CB Consumer Confidence December Very High 27-Dec 20:30 New Home Sales November 562K 544K Very High 28-Dec 19:00 Goods Trade Balance November $-75.50B $ Very High 28-Dec 19:00 Wholesale Inventories December 0.9% 0.8% High 28-Dec 20:15 Chicago PMI December Very High 28-Dec 20:30 Pending Home Sales November 0.5% -2.6% Very High 28-Dec 21:00 Natural Gas Storage W/o 21 st December Bcf Very High 28-Dec 21:30 Crude Oil Inventories W/o 21 st December Mb Very High 28-Dec 23:30 US Baker Hughes Oil Rig Count W/o 21 st December Very High US Economic Calendar Dec 24 Dec 28, 2018 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: metals.research@religare.com Disclaimer: 9