Trends continued to play out this week, partially short squeeze induced, partly resurgent speculation with a significant loosening of financial conditions continues to feed the reversal in risk. The VIX fell another 3% Friday to the lowest since last January. One commodity not benefiting is natural gas futures, down another 7% or 10% depending on what month you are unfortunate to be long in. Notably the rest of the energy complex was down this week also. Copper had been a leader in the risk on movement for commodities and isa key for the bigger picture here. The Bloomberg commodity index fell 0.5% and is down 1.1% YTD)

January 29 – February 4, 2023

Commodities

Weekly Commodity Highlights

• Bloomberg Commodities Index slipped 0.5% (down 1.1% y-t-d).
• Spot Gold was about unchanged at $1,928 (up 5.7%).
• Silver fell 1.4% to $23.60 (down 1.5%).
• WTI crude dropped $1.93, or 2.4%, to $79.68 (down 1%).
• Gasoline declined 2.1% (up 5%),
• Natural Gas fell 2.0% to $3.11 (down 31%).
• Copper slipped 0.7% (up 11%). Wheat rallied 1.0% (down 5%),
• Corn increased 1.0% (up 1%).
• Bitcoin gained $450, or 1.9%, this week to $23,090 (up 39%).

Metals

Copper

Highlights

• On Friday March copper fell by 4 cents, or almost 1.1%, to $4.2225 a pound, for a weekly loss of 0.7%. Copper is correcting off seven-month highs with the prospect of improving Chinese demand.
• Shanghai Futures Exchange was closed for trading because of the Lunar New Year holidays.
• The risk is clearly the potential for some extremely negative Covid news from China after potential virus swarms at the lunar new year festivities.

Chinese Copper Stocks

• China’s visible copper inventories are currently trending sharply higher as they always do over the Lunar New Year holiday season. The Yangshan premium, a closely-watched indicator of China’s spot import appetite, has plunged to a nine-month low.
• 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.

• The precipitous slide in the US dollar adds additional optimism toward many commodities.
• 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.

Technical

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.

Precious Metals

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

Gold

Highlights

• Feb gold futures fell 60 cents, or less than 0.1%, to settle at $1,929.40 an ounce on Comex Friday, up nearly 0.1% for the week. Prices traded at a nine-month high earlier in the week, marked a sixth straight weekly gain the longest such streak of gains since August 2020.
• Chinese November net gold imports through Hong Kong declined by roughly 10% versus October and reached a 6-month low. 
• 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.
• Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and dent its appeal, and vice versa.

“China reported an increase in its gold reserves for a second straight month, topping up holdings again after its first reported purchase in more than three years. The People’s Bank of China raised its holdings by 30 tons in December… This follows November’s addition of 32 tons, and brings the nation’s holdings to a total of 2,010 tons. Central bank purchases of bullion hit a record in the third quarter of last year at almost 400 tons, with only a quarter going to publicly identified institutions…”

January 6 – Bloomberg (Sing Yee Ong)

“China’s central bank said… it had added 32 tonnes of gold worth around $1.8 billion to its reserves, the first time it has disclosed an increase since September 2019. The additions bring China’s reported holdings at the end of November to 1,980 tonnes, worth around $112 billion. 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 last month 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.”

December 7 – Reuters (Peter Hobson and Siyi Liu):

“Central banks bought a record 399 tonnes of gold worth around $20 billion in the third quarter of 2022, helping to lift global demand for the metal, the World Gold Council (WGC) said… Demand for gold was also strong from jewelers and buyers of gold bars and coins, the WGC said in its latest quarterly report, but exchange traded funds (ETFs) storing bullion for investors shrank… Buying by central banks in the third quarter far exceeded the previous quarterly record in data stretching back to 2000 and took their purchases for the year to September to 673 tonnes, more than the total purchases in any full year since 1967…”

November 1 – Reuters (Peter Hobson):

Technical

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.

Silver

Highlights

• March silver fell by 40 cents, or 1.7%, to $23.622 per ounce, ending 1.3% lower for the week.
• March palladium fell by $64.10, or nearly 3.9%, to $1,599.70 per ounce, down 7.2% for the week
• Platinum for April declined by $6.20, or 0.6%, to $1,016.80 an ounce, 3% lower for the week.
• 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.

Technical

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

Highlights

• Alcoa reported Q4 earnings this 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.

• LME aluminium futures rose 1% io $2,613 a tonne Friday trading. prices are the highest since June 2022, up more than 9% since the beginning of 2023 on prospects of more robust demand and fears of supply shortages.
• LME tin advanced 1.8% to $29,315 Friday while zinc eased 0.9% to $3,425, nickel dropped 1.9% to $28,800 and lead was little changed at $2,143.
• Aluminum is down roughly 40% from a record high of approximately $4,000 in March amid persistent fears of a demand-sapping global recession triggered by an aggressive tightening campaign from major central banks.
• Several output cuts at key European smelters last year due to a surge in electricity prices, including Alcoa’s San Ciprian smelter and Hydro’s plant in Slovakia.
• 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.
• 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

Lumber

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,

Highlights

• Lumber futures soared as much as 13% Friday as the housing market shows signs of life for the first time in over a year after a series of positive reports.
• Lumber futures jumped to $524 per thousand board feet, its highest level since mid-October. The essential building commodity is up 21% since encouraging housing market data was released earlier this week and is up 37% year-to-date.
• 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.

Grains

Wheat

Highlights

• Wheat CBOT futures modest cuts Friday, while other contracts were able to move around 0.5% higher following some technical buying. March Chicago SRW futures eased 3.5 cents lower to $7.49, March Kansas City HRW futures added 4.25 cents to $8.69, and March MGEX spring wheat futures firmed 4.25 cents to $9.2225.
• Ukrainian consultancy UkrAgroConsult reports that the country’s 2022 wheat harvest is now complete, with a total production of 742.2 million bushels. Average yields came in at 60.2 bushels per acre.
• 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.
• Preliminary volume estimates were for 66,100 CBOT contracts, spilling moderately below Thursday’s final count of 79,992.

Technical

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.

Corn

Highlights

• March futures Friday rose 1 cent $6.8350, while May futures held steady at $6.80.
• Corn basis bids were steady to weak after trending 2 to 5 cents lower at three Midwestern locations on Friday.
• 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 2022/23 corn and soybean plantings are nearly complete. Corn progress reached 94%, while soybean plantings are nearly 99% complete, according to a recent report from the Buenos Aires grains exchange.
• 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.
• Preliminary volume estimates were for 304,223 contracts, which was moderately higher than Thursday’s final count of 261,153.

Technical

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.

Soybeans

Highlights

• Argentina rain forecasts led to moderate losses on Friday. March futures faded 11.25 cents lower to $15.1225, with May futures down 7.5 cents to $15.0725.
• Soybean basis bids were mostly steady across the central U.S. on Friday but did move 5 cents higher at an Indiana processor and 3 cents lower at an Iowa river terminal today.
• 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.
• Preliminary volume estimates were for 179,231 contracts, shifting moderately below Thursday’s final count of 211,848

Technical

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.

Energy

For complete Oil and Natural Gas Coverage please visit our dedicated publications ‘Around the Barrel’ and ‘Into the Vortex.’ – Weekly Analysis and Outlook for Energy Traders and Investors

BDI Freight Index

For a Complete Macro and Micro Market Overview Visit TC Traders Market Weekly:

Five Factors in a Constructive Strategy for Investing in Commodities

Investing in commodities is something that needs to be done within a constructive strategy to understands risks and opportunity. There are many factors to consider individually depending on one’s access, location and financial position. Five factors to consider are monitoring the market, monitoring supply and demand dynamics, diversification, long-term focus and dollar cost averaging.

Focus on yourself and what YOU CAN INFLUENCE, set your trading plan and goals in be set for 2023.

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