Commodity Traders Weekly Outlook: Energy Complex Futures Base, Lumber Short Squeeze Implodes

Volatility continued unabashed in many assets and commodities, we saw a reversal this week in the short squeeze induced moves, with the surge in yields. It was interesting to see Lumber futures reversing notable early-2023 outperformance. Short squeeze dynamics and the unwind of hedges tend to have an exaggerated impact on illiquid instruments. The Goldman Sachs Short Index is a helpful guide for volatile futures, it sank 9.7%, reducing y-t-d gains to 15% as the equities short squeeze reversed sharply this week. We saw gains across the energy complex, even natural gas futures.

Copper was down 1.1%, it had been a leader in the risk on movement for commodities and is a key for the bigger picture here. The Bloomberg commodity index bounced 1.5% and is down 3.7% YTD)

Copper Rally Continued

February 12 -18, 2023


“High interest rates, volatile prices and the war in Ukraine have made it significantly more expensive to finance commodity trade, forcing the industry to hunt for an extra $300bn to $500bn in working capital to keep raw materials moving around the world. Changing trade patterns have made the global flow of raw materials less efficient and more costly to finance and are also likely to push up the price of commodities for consumers, according to… McKinsey. ‘Since the end of 2020, we have seen a doubling of the working capital requirements in the commodity trading sector,’ said Roland Rechtsteiner, McKinsey partner and lead author of the report. ‘We could see a similar increase by the end of next year, if [further] changes in trade flows materialise.’”

January 29 – Financial Times (Leslie Hook)

Weekly Commodity Highlights

  • Bloomberg Commodities Index rallied 1.5% (down 3.7% y-t-d).
  • Spot Gold was about unchanged at $1,866 (up 2.3%).
  • Silver declined 1.6% to $22.00 (down 8.1%).
  • WTI crude recovered $6.33, or 8.6%, to $79.72 (down 1%).
  • Gasoline surged 7.9% (up 2%),
  • Natural Gas rallied 4.3% to $2.51 (down 44%).
  • Copper fell 1.0% (up 5%). Wheat jumped 3.9% (down 1%),
  • Corn increased 0.4% (unchanged).
  • Bitcoin dropped $1,670, or 7.2%, this week to $21,670 (up 31%).

Weekend February 10, 2022




  • On Friday March copper fell Copper futures fell below $4.1 per pound, the lowest in over three weeks, as demand concerns and a firmer dollar more than offset supply disruptions.
  • On the supply side, the Las Bambas mine in Peru officially halted production on February 1. The copper mine accounts for 2% of the metal worldwide and has been operating at a reduced rate since December 7, after Congress removed and arrested President Castillo.
  • “A copper deficit is set to inundate global markets throughout 2023 — and one analyst predicts the shortfall could potentially extend throughout the rest of the decade. The world is currently facing a global copper shortage, fueled by increasingly challenging supply streams in South America and higher demand pressures. Copper is a leading pulse check for economic health due to its incorporation in various uses such as electrical equipment and industrial machinery. A copper squeeze could be an indicator that global inflationary pressures will worsen…” February 6 – CNBC (Lee Ying Shan)
  • “Widespread anti-government protests are disrupting copper output in Peru, the world’s second-biggest producer, triggering predictions of a further surge in prices for the metal which has already rocketed in recent months as China’s resource-hungry economy reopens. Demonstrators demanding early elections and the resignation of President Dina Boluarte have thrown up roadblocks across the country and attacked mines, causing production slowdowns and closures in the Latin American nation’s copper operations, which account for about 10% of global supply.” February 7 – Financial Times (Joe Parkin Daniels and Harry Dempsey)

Chinese Copper Stocks

  • The latest data pointed to a bigger-than-usual inventory build-up in China over the Lunar New Year holiday despite subdued imports, raising concerns about demand. Copper inventories in SHFE warehouses jumped by 61.8% since January 20 to 226,509 tonnes on February 3.
  • Inventory in Shanghai’s bonded warehouse zone has risen from 20,400 tonnes in November to 82,000 tonnes, according to Shanghai Metals Market. This time last year bonded inventory was over 200,000 tonnes and in 2021 it was higher still at 350,000 tonnes.
  • Copper stocks registered with the Shanghai Futures Exchange jumped by 70,700 tonnes to 140,000 tonnes in the first three weeks of January before the holiday period.
  • Even allowing for more rebuild in the next few weeks, the seasonal surge is muted relative to previous years. The post-holiday peak was 168,000 tonnes last year, 200,000 tonnes in 2021 and 380,000 tonnes in 2020.
via Reuters
  • Chinese government eased curbs on property and developer borrowing at the same time they have “vowed” to boost domestic prospecting of strategic minerals and energies. The Chinese government moved to relax extremely stringent “3 red lines” policy that was directed at the Chinese real estate sector.
  • Peruvian copper production rose 15.3% in November from year ago levels.
  • Chile, the world’s top copper producer, saw production fall 6.9% in November to 449,000 tonnes.
  • Fitch Solutions revised up its copper price forecast to $8,500 a tonne in 2023 from $8,400, as demand edges higher alongside a comparatively weaker supply outlook.
  • Commodity trader Trafigura and Goldman Sachs last year both warned that global copper stocks have fallen to record lows with current inventories enough to supply world consumption for just 4.9 days
  • Glencore estimates a supply shortfall of 50 million tonnes in 2023.
  • Analysts at Goldman Sachs Group Inc. predict copper will hit a record high of $11,000 a ton within 12 months, while BNP Paribas says prices will drop to $6,465 a ton by the middle of next year as the market swings into a huge surplus.


Copper followed through with its break to the upside out of the pennant through the 50wma after it rebounded sharply off the tenkan and failed three times there in the past month. The flattening Weekly Kijun acted as a magnet with the cloud twist. We closed right at the bottom of the previous bull flag from 2021. Copper had been a leader in the risk on movement for commodities.

Weekly Copper Outlook
Copper Supply Crunch

Precious Metals

  • Spot Gold rose 2.3% to $1,866 (up 3.8%).
  • Silver slipped 0.5% to $23.83 (up 6.5%).



  • Gold futures weakened past $1,860 an ounce on Friday and declined for the second straight week, as the USD rallied with yields.
  • Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and vice versa.
  • Gold lost just 0.1% this week.
  • Indian gold jewelry retailers are projected to see revenues jump by as much as 25% this fiscal year reportedly because of rising disposable incomes and pent-up demand from the Covid period.

“Demand for gold surged to its highest in more than a decade in 2022, fueled by ‘colossal’ central bank purchases that underscored the safe haven asset’s appeal during times of geopolitical upheaval. Annual gold demand increased 18% last year to 4,741 tonnes, the largest amount since 2011, driven by a 55-year high in central bank purchases, according to the World Gold Council… Central banks hoovered up gold at a historic rate in the second half of the year, a move many analysts attribute to a desire to diversify reserves away from the dollar after the US froze Russia’s reserves denominated in the currency… Retail investors also piled into the yellow metal in a bid to protect themselves from high inflation.”

January 30 – Financial Times (Harry Dempsey)


Gold Weekly

Gold futures successfully back tested the median after another rejection at the Tenkan (orange) moved towards the flat cloud and twist. Needs to get impulse off this ABC so double bottom gains more weight and it follows silver break higher. The yellow metal is consolidating after it accelerated after breaking the weekly triangle higher. Gold has bounced after support at its uptrend line since the August 2021 bottom and Kijun. To be bullish we need to stay above the triangle. Murrey Math resistance, watch Fibs & Chikou.

PBOC Buying Gold

  • PBOC in November added 32 tonnes of gold worth around $1.8 billion to its reserves, the first time it has disclosed an increase since September 2019.
  • PBOC in December added to its gold reserves for a second straight month, adding 30 tonnes of gold worth. Brings China’s holdings to a total of 2,010 tons.
  • China has the world’s sixth-largest official national gold reserves after countries including Russia, Germany and the United States, which is the biggest with 8,133.5 tonnes
  • The World Gold Council (WGC) said in October that central banks globally bought 399 tonnes of gold in the third quarter of 2022, by far the most ever in a single three-month period.
Gold in Perspective



  • March silver rose back to above $22.4 per ounce after touching $22.03 on Tuesday, its lowest level since early December, as several Federal Reserve policymakers called for more interest rate hikes to combat high inflation. 
  • Bears focus on recession concerns pressured prices further, as investors worried about low demand for the metal as an industrial input for goods with high electricity conduction needs, which was reflected in its sharp underperformance to gold in January.
  • Projections of weak supply limited the fall, as COMEX inventories remained under pressure and LBMA stockpiles plunged amid outflows to India.
  • The sharp gains in gold and sharp declines in the dollar had been a major component of this month’s modest recovery in silver, from risk-on sentiment in the marketplace.
  • Not surprisingly, the swift gains in silver resulted in a very aggressive corrective setback with investors above $24.00.
  • Signs of low supply have supported prices, as New York’s COMEX inventories fell 70% in the last 18 months to just over 1 million tonnes. London Bullion Market Association stockpiles fell for the 10th straight month to a record-low 27.1 thousand tonnes in November.


Silver Weekly Outlook

Silver bounced off the bottom trend line and was energizes in the sphere of influence. Back over 50wma after spitting tenkan, now providing support after reversed. Closing under outer channel which is now resistance. Major support is 50wma and tenkan.

Industrial Metals

The London Metal Exchange at the end of 2022 showed the smallest available warehouse stockpiles in at least 25 years. Available inventories of aluminum fell 72% decline, zinc shrank by 90%.



  • Aluminum futures were trading under 2,500 USD/T, easing from a seven-month peak of 2,660 USD/T touched on January 25th, as fears of a global economic slowdown and rising output from China prompted investors to unwind some long positions.
  • China’s annual aluminum production in 2022 increased by 4.5% from a year earlier to a record high of 40.21 million tonnes thanks to newly launched capacity and softened power supply constraints. 
  • China has been taking significant steps to boost its economy and end the strict coronavirus-induced regime, lifting the outlook for metal demand and overshadowing global recession concerns.
  • On the supply side, last year’s output cuts at key European smelters, including Alcoa’s San Ciprian smelter and Hydro’s plant in Slovakia, lent further optimism to bulls.
  • Global inventories now stand at just 1.4 million tons, down 900,000 tons from a year ago and the lowest since 2002.
  • Aluminum hit an all-time high of around 4,100 USD/T in March 2022 in the aftermath of Russia’s invasion of Ukraine. Aluminum is down roughly 40% from that record high in March amid persistent fears of a demand-sapping global recession triggered by an aggressive tightening campaign from major central banks.
  • Alcoa reported Q4 earnings last week. a second consecutive quarterly loss as expected and missed on revenue. The company has been squeezed by higher energy and raw material costs and restructuring charges putting pressure on margins.
  • $AA projects 2023 total alumina shipments of 12.7-12.9 million metric tons and aluminum shipments between 2.5-2.6 million metric tons. $AA traded down 5.5% after the release.
  • In 2022 Aluminum and zinc on the LME had their worst year since 2018, with prices down 15% and 16%, respectively.
  • Tin was the worst performer, falling by more than a third and registered the biggest annual decline since at least 1990.
  • The world’s top aluminium producer, China’s primary aluminium production in November climbed 9.4% from a year earlier with 3.41 million tonnes as looser power restrictions allowed some regions to ramp up output and as new smelters started operation.
  • China is the biggest producer, accounting for 60% of production, followed by Russia and then Europe and the U.S.
  • On the supply side, LME has decided against banning Russian metal from trading and storing in its warehouses because many traders are still planning to buy the metal in 2023.
  • The car industry is the world’s largest aluminum consumer, with nearly 67 million vehicles per year, according to SkyQuest.

Technical (Alcoa)

We analyze Alcoa as a surrogate to Aluminum given its high beta relationship and more liquid aspect as an investment vehicle. $AA is back retesting the 50Wma and 50% confluence after earnings. From there the Chikou rebalanced it closed at the tenkan. We have support below at 2/8 sphere of influence under the tenkan confluence.


Agricultural Commodities

Orange Juice touched a record high on Wednesday as plunging US output adds to tight global supply outlook. The OJ_f (Mch) climbed 10 cents to its daily limit at $2.292/lb, driving the BCOM OJ index up 86% y/y. Florida will collect the smallest crop since 1936 via Ole S Hansen @Ole_S_Hansen



Lumber prices were a leading indicator of the supply-chain problems and inflation that followed pandemic lockdowns. They are a leading indicator for the strength of the home building industry.

The CME is attempting the replace the random length with the physical futures, but they have yet to achieve the critical mass necessary for success.

The existing legacy contract is freight on board (FOB) originating in Prince George, BC. It’s a reflection of the mill price of western spruce pine fir lumber, which legacy 110,000 board feet futures contract is derived from. The new mini lumber is FOB Chicago, so the premium of $105 represents the additional from delivering to the mill in Chicago. That’s the reason the premium in the mini. Secondly, the new contract has the ability for producers to deliver western SPF, eastern SPF, domestic and Canadian Doug Fir, and U.S. Hem Fir. Depending on the species and delivering mill, the FOB is anywhere from $80 to $105 premium to the legacy contract delivered to Chicago. Lastly, the new contract is sunset out of existence with the official and permanent expiration on May 15, 2023.

Greg Kuta, the President of Westline Capital Strategies,


  • Chicago lumber futures moved sharply lower below the $450 per thousand feet mark as persistent fears of a demand-sapping global recession prompted some profit-taking after a massive rally drove prices to an over three-month peak in early February.
  • Fundamentals in the lumber complex continued to be supported by tight supplies and prospects of a rebound in-home construction and demand recovery.
  • Lumber futures had been rallying as the housing market shows signs of life for the first time in over a year after a series of positive reports.
  • Still, the benchmark remains down roughly 70% since its May 2021 peak of around $1,700, when supply chain issues compounded strong demand.
  • U.S. Pending Home Sales Rise 2.5% in December as Real Estate Market Stabilizes
  • US New Home Sales Rose 2.5% in December as Lower Mortgage Rates Spur Some Buying
  • Mortgage Refinance Rates Jump 15% with Mortgage Interest Rates at Four Month Low
  • Worth noting that before 2018, the price never eclipsed $493.50.
  • In January 2023, nearby March random-length lumber futures were sitting at the $417.70 level, with the new physical futures at $525.00.
  • In March 2020, random-length lumber futures fell to $251.50 per 1,000 board feet as the global pandemic gripped markets across all asset classes. When commodities exploded higher over the following months lumber rose to $1,711.20 as supply chain and other issues created a shortage. In an almost perfect bullish storm for the lumber market, historically low interest rates caused a housing boom, increasing the demand for lumber when supplies were low. 
  • The Federal Reserve’s aggressive tightening cycle has briefly pushed 30-year mortgage rates to levels not seen since 2001, leading to slower home construction and souring sentiment among homebuilders.
  • The war in Ukraine and the tightening sanctions against Russia and its ally Belarus, which account for more than 10% of the global export of lumber, had squeezed global supplies.
Lumber Futures




  • CBOT wheat futures attempted a rebound and approached $7.7 per bushel in February, up from a near one-and-a-half-year low of $7.2 in late January.
  • In its February WASDE report, the US Department of Agriculture projected increased supplies, consumption, trade, and stocks for 2022/23, with higher production by Russia and Australia and higher feed and residual use by Canada, EU, and Russia more than offsetting lower food, seed, and industrial use by Bangladesh.
  • FAO estimated 2022 wheat production at a record 794 million tonnes, prompted by larger output from Russia and Australia. Wheat production in Australia is seen to have reached a historic 37 million tonnes in 2022-23, while Russia also reported record harvests and stocks.
  • In Ukraine, farmers have completed the 2022 wheat harvest, according to the agriculture ministry.
  • Blackouts and direct destruction of equipment in Ukraine due to attacks from Russia caused economy minister Kudyn to decrease grain harvest expectations.
  • Despite recent precipitation in Argentinian farms, rainfall was deemed insufficient to erase previous drought concerns.
  • Australia forecasted its crop to reach historical 42 million tonnes in the same period. USDA-FAS is now estimating that Australia will post a record-breaking wheat production of 1.360 billion bushels during the 2022/23 season. Estimates were based on ideal conditions in western and southern Australia partially offset by excessive rains in New South Wales.
  • South Korea purchased approximately 2.5 million bushels of animal feed wheat, likely sourced from Australia, in a private deal that recently closed. The grain is for arrival by the end of June.



Wheat lurched lower this week after last week’s close under the breakup level in August and 0/8 giving back up the whole October rally. Resistance is now the tenkan and the 50 and 61.8% Fibs. It had been drawn higher by the flat weekly cloud and supported by 0/8 which held. The contract keeps failing to stabilize after it continued its sharp impulsive collapse. This came about after a failure at retesting the 8/8 move and high after it spat 8/8, and the minimum target. It had completed a measured 4/8 correction off highs then broke key support at 38% then 50% and 50wma confluence in the freefall.



  • March Chicago corn futures were near $6.8 per bushel, close to the highest since November 2022, amid supply chain disruptions, rising production costs, and elevated global demand.
  • The US Department of Agriculture estimated total corn production in 2022 at 13.730 billion bushels, down 1.4% from the latest November estimate and 9% from the 2021 estimate of 15.074 billion bushels.
  • The ongoing war in Ukraine, which accounts for 15% of global corn exports, alongside late planting in the US and dry weather in South American countries, continued to weigh on production.
  • Demand from top consumers US and China, especially in industries such as the animal feed sector, has seen further pick-up. China is set to boost corn purchases following its economy reopening after prolonged COVID-19 lockdowns.
  • Ukrainian consultancy UkrAgroConsult reports that the country’s 2022 corn production has reached 992.1 million bushels, with harvest at 90% completion. Average yields were 98.9 bushels per acre.
  • Argentina’s corn production potential slashed by 11% to 1.752 billion bushels from lack of rainfall in Argentina, the world’s largest exporter of soybean oil and meal and the third-largest exporter of corn, has slowed the planting of its current corn and soybean crops and nearly halved its wheat output.
  • Brazilian consultancy Safras & Mercado trimmed its estimates for the country’s first corn crop to 933.8 million bushels, citing drought in the production state of Rio Grande Do Sul. However, Safras & Mercado is also anticipating a record-breaking second corn crop, with an estimated production of 3.454 billion bushels.


Corn Futures Outlook

Corn failed to hold last week’s price action failing towards the Kijun after a 7/8 fail to close under the weekly cloud and under the 50wma. Earlier in the year Corn had topped out at the highest since 2012 in Chicago at +1/8 and corrected with impulse back to break the Tenkan which it swiftly did a spit of a spit after bouncing off 720, which also the price successfully retested the high from April 2021. From here we saw Tenkan fail again. Which is back where we are.



  • Soybean futures rose to around the $15.2 per bushel mark on the back of strong demand expectations, recovering from a two-week low of $14.78 hit on January 25th and moving closer to a seven-month peak of $15.5.
  • Brazilian soybeans began trading at a discount to the CBOT on Friday for the first time after 20 months of premiums. The reason for the change from a premium to a discount for the March maturity was the advance of sales by farmers and lower-than-expected Chinese demand this week
  • Brazil’s soybean crop expectations of a record production at more than 152mn metric tonnes (t) appear to be coming to fruition. Market participants say that the return of rains in Rio Grande do Sul, the only state facing a drought and low productivity, is ruling out the chance of further cuts in estimates and putting downward pressure on premiums.
  • Strong demand expectations continued to provide some support, with China set to boost purchases in the coming months as the economy of the world’s largest soybean importer reopened after three years of pandemic isolation.
  • Data from the US Department of Agriculture confirmed private sales of 130,000 tonnes of soybeans for delivery to unknown destinations in the 2022/23 marketing year. At the same time, the weekly export inspection data showed 1.806 million tonnes of soybeans were inspected for export in the last week, below 2.190 million tonnes in the week before.
  • India’s sunflower oil imports are expected to reach record levels in January, with an estimated 473,000 metric tons as top exporters Russia and Ukraine are both drawing down their large stockpiles. “[Recent discounts] made it lucrative for Indian buyers,” according to Rajesh Patel with GGN Research.


Soybeans Weekly Outlook

Soybeans after it rejected new lows at the bottom of trendline finally got the legs to break above the 50wma. The 50 wma and the tenkan are both under the Kijun providing heavy resistance. We sit near the January breakup. The weekly cloud and Murray mingle around the $14.9/bushel benchmark.

Recall beans broke down from the bull pennant framed by +4/8 and +1/8 with the Kijun unable to sustain support right at the breakout. Support at the 50wma gave way to under the futures pivot at $15/bushel benchmarks and at the close of the week was a magnet to the recovery bounce. Pressure came from futures spitting the Weekly +4/8 over $17.50/bushel three times. The market needs to rebalance that energy.


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