Etikett: copper price

Gold inflows continue to buoyant

Gold inflows continue to buoyant ETF SecuritiesGold inflows continue to buoyant

ETF Securities – Gold inflows continue to buoyant

Highlights

  • Agricultural basket ETPs receive the largest inflows on the platform, totalling US$46.4mn.
  • Crude oil ETPs experienced the 23rd consecutive week of outflows.
  • Copper price lags the industrial metal sector but receives biggest inflows.

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Agricultural basket ETPs receive the largest inflows on the platform, totalling US$46.4mn. With the exception of cotton, all agricultural commodities have posted price declines over the past year. According to the USDA January World Agricultural Supply and Demand (WASDE) report, updates show most agricultural commodities to be in a surplus. Although net positioning in the futures market for most agricultural commodities has improved over the past month, the majority have been net short over the same period, if not longer. The bearish sentiment on those agricultural commodities is in contrast to the ETP space but could continue because of ample supply expected in those markets.

Gold was the only precious metal that received inflows. The continued weakness in the US dollar amid a government shutdown in the US has helped the gold price attain a 4 ½-month high. So far, the parties in the US Congress have agreed to an initial deferment until 8 February, leaving them with enough funds to operate for the next 2 weeks. However, this raises further uncertainty and is likely to support further upside for gold prices. Furthermore, rumours that China may curb its purchases of US Treasuries has lent a hand in gold’s upside. The fact that US treasury yields continue to rise and the trade weighted dollar index has fallen to a 3-year low suggest that market participants have not yet discounted the rumours.

Crude oil ETPs experienced the 23rd consecutive week of outflows, totalling US$79.8mn last week. Oil prices have received a tail-wind from falling crude oil inventories in the US, increased geopolitical tensions (in particular in Iran) and strong compliance by OPEC countries with their deal to curb production. However, looking beyond the headlines we see that gasoline inventories have risen (indicating that inventories have simply shifted from crude to product). Geopolitical issues tend to wax and wane and so we doubt that the geopolitical premium will be persistent. US production of oil is likely to rise to an all-time high in 2018, another factor that presents a downside risk for crude.

Copper price lags the industrial metal sector but receives biggest inflows. Copper ETPs received US$24.5mn last week, with investors buoyant on the industrial metals sector after the IMF has upgraded its growth forecast for China in 2018 and 2019. Copper prices have been a relative laggard of the sector. Although Chinese growth was raised 0.1% to 6.6% in 2018 and 2019 by the IMF, copper stocks in the country rose, contributing to a global inventory rise of 0.6% in 2017, according to the International Copper Study Group.

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This communication has been issued and approved for the purpose of section 21 of the Financial Services and Markets Act 2000 by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the “FCA”).
The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value.

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This communication may contain independent market commentary prepared by ETFS UK based on publicly available information

This communication may contain independent market commentary prepared by ETFS UK based on publicly available information. Although ETFS UK endeavours to ensure the accuracy of the content in this communication, ETFS UK does not warrant or guarantee its accuracy or correctness. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data. Where ETFS UK has expressed its own opinions related to product or market activity, these views may change. Neither ETFS UK, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents.

ETFS UK is required by the FCA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit.

 

Copper outlook 2017: eighth year of supply deficit

ETF Securities Commodity Research: Copper outlook 2017: eighth year of supply deficit

Copper outlook 2017: eighth year of supply deficit

Summary

  • Investor optimism for copper has been buoyed by miner outages representing close to 12% of global capacity.
  • Copper is likely to enter another year of deficit, but stocks are still elevated and will cap price gains. While capex cuts have been aggressive, it will take time for supply to fall. Projects in pipeline are unlikely to be cancelled.
  • Demand, however, is likely to remain strong as global growth and infrastructure spending increase. Over the longer term, a shift toward electric vehicles will provide an additional source of demand.

Investors optimistic

Copper has rallied 40% since January 2016, erasing all losses since May 2015. Investors have become increasingly optimistic about the metal’s prospects with speculative positioning in copper futures recently hitting an all-time high, more than 2.5 times its historic average. While the price of the metal remains 40% below the peak reached in 2011, many question whether the rally can continue.

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Mine outages

Driving much of the upswing in prices in recent weeks has been several mine outages. Workers at the world’s largest copper mine, Escondida in Chile, have been on strike for three weeks and negotiations between unions, the mine operator (BHP Billiton) and government mediators have yet to be scheduled.

The world second largest copper mine, Grasberg, operated by Freeport-McMoRan Inc, has also faced outages. The Indonesian government has not renewed Freeport’s copper ore export licence that expired in February 2017. The Grasberg mine is also facing difficulty selling domestically, with PT Smelting (its sole domestic offtaker of copper concentrate) expected to be on strike until March.

The Las Bambas mine in Peru has had its roads blocked by protestors who want the government to invest more in local infrastructure rather than just mine infrastructure.

The three mines account for close to 12% of global mine capacity. Outages in 2016 were usually low, accounting for less than 1% of expected supply, but that could rise substantially in 2017 if the issues at Escondida, Grasberg and Las Bambas are not resolved soon.

Copper supply deficit

Based on refined production growing 1.7% and refined usage only growing 1%, the International Copper Study Group (ICSG) believes that the deficit will turn into a surplus this year. However, we believe that demand growth will be more robust. A 2% increase in refined copper use would see the market remain in a deficit. Global manufacturing PMIs are at a 34- month high and could rise to a 6-year high this year. Given the growth in manufacturing and infrastructure spending, we believe that demand is likely to surpass ICSG’s conservative forecast.

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Ahead of the 19th National Congress of the Communist Party of China to be held in Autumn 2017, Chinese authorities will seek political stability. That will mean that economic stimulus will remain in play, which will favour continued spending on infrastructure and strong demand from the manufacturing sector. China accounts for more than 50% of global copper demand.

Deep cuts to copper mining capex

Capex growth in the copper mining industry has been negative for four consecutive years. Capex in Q4 2016 hit lowest levels since Q3 2007. The capex cuts will have a delayed impact in biting into the supply and therefore maybe not be fully felt in 2017. The ICSG assumes that mine output in 2017 will remain the same as 2016 (after 4% growth in 2016). However, the outages mentioned above could drive a reduction.

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Project cancellations unlikely

The projects that are in the pipeline from prior year’s investment are unlikely to be cancelled. The cash costs for new mines is low, at around US$1.41/lb and significantly below US$2.70/lb where copper is currently trading.

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Copper stocks remain elevated

Despite the seven years of copper market deficit, stocks of copper remain elevated. Most of these are producer stocks. We believe that the elevated stocks will cap price gains, but will be a clear incentive for refiners not to increase production substantially despite the increase in copper price over the past year.

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Long term demand evolution

Given the historic negative relationship between income levels and intensity of copper use, some fear that as China becomes richer, its copper intensity will decline as it becomes less focused on exporting manufactured goods and building infrastructure and more focused on consumption. As we expressed in Exploring rising global infrastructure needs, we believe China’s infrastructure demands are still likely to rise over the next 15 years.

China’s shift away from manufacturing and towards consumption is not necessarily negative for copper. For example, the copper intensity of cars will rise with the growth of electric vehicles. Regular cars contain approximately 20kgs of copper. Electric vehicles consume about 80kgs of copper. While electric vehicles account for less than 1% of global sales today, consensus estimates that it will rise to 4% by 2025, proving an additional source of demand. Auto sales in China are likely to continue to grow in line with its rising affluence and sales of electric vehicles maybe further be encouraged by tightening emission standards.

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European equity rout and weak USD benefits gold

European equity rout and weak USD benefits gold

Commodity ETP Weekly –  European equity rout and weak USD benefits gold

Highlights   

  • Gold ETPs recorded US$552.1mn inflows last week, the largest weekly inflows ever.
  • Oil ETPs continue to record inflows as the commodity gave back all its recent gain.
  • Copper prices at an attractive level for bargain hunters.

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  • Gold ETPs recorded the largest daily and weekly inflows on record, as the European equity market sell-off, led by the banking sector, triggered a 7.3% price rally for gold.
  • Oil ETPs recorded inflows for the ninth consecutive week, as investors remain confident that oil prices will recover in the near term.
  • The copper price fell again below the US$4,500/ton mark last week resulting in bargain hunting by investors, increasing exposure to long copper ETPs.

Gold ETPs recorded US$552.1mn inflows last week, the largest weekly inflows ever. While European banks recovered slightly last Friday, the market sell-off during most of last week weighed on investors’ confidence towards the stability of the European financial system. As a result, the market pressure is rising for the European Central Bank to add more stimulus at its next meeting. Meanwhile the Federal Reserve chair Yellen’s testimony last week left investors on the sideline as her tone gave no fresh clues to whether the FOMC will continue to raise rates in March. Concern over the situation overseas and its potential impact on the US economy has reduced the probability of a rate hike in the US in 2016 to under 30%. The USD consequently fell nearly 1% over the past week, lending further support to gold. The safe haven asset played its role very well, surging to US$1,241/oz. last week. As a result, US$552mn flowed into gold ETPs, of which US$345mn occurred in one day.

Oil ETPs continue to record inflows as the commodity gave back all its recent gain. Last week saw net inflows of US$50mn into long oil ETPs while short oil ETPs saw US$8.5mn of inflows. US oil inventories are reported down 755,000 barrels for the first since early January. While better-than-expected, the decline in US oil inventories failed to support prices. Last week saw the price of Brent and WTI falling 13% and 17% respectively, as both monthly reports from the International Energy Agency and the Energy Information Administration reaffirmed the state of oversupply of the global oil market. According to both, there have been little fundamental changes to justify a solid price recovery with oil prices forecast to remain low this year. While there is no evidence of discussion among the OPEC cartel at the moment, the number of countries calling for talks is increasing and a rumour on a potential meeting could suffice to trigger a price rally in the short term.

Copper prices at an attractive level for bargain hunters. With Chinese markets being closed for the entire week last week for the New Year of the monkey celebrations, recent price momentum faded. Soft investor sentiment due to European banks rout weighed on copper price, down below the US$4,500/ton mark again, reviving some interest from bargain hunters. Long copper ETPs saw US$12.3mn inflows last week while short copper ETPs saw net outflows of US$1.4mn, indicating that sentiment towards the metal may be recovering as positive momentum towards metals and mining builds.

Key events to watch this week. Mario Draghi speech later today should provide further clues on whether the central bank will step in if the situation with European banks deteriorates. Investors will also be following January consumer price index for UK and the US while studying the latest FOMC minute to be released on Wednesday

For more information contact

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com

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