After bouncing off multi lows below $2 to gain 18.53% last week benchmark HH natural gas gave it all back falling 19.04% on the week, spitting those five-week highs.  Volatility soared in all markets with the collapse of US regional Banks, the VIX up 22% for the week, even that off it’s highs. Orange Juice futures bounced back 6.85% after falling 12.56% the week prior after just hitting record high prices.

Copper fell 1.48%, 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 dropped 3.5% and is down 7.3% YTD.

Week Ending March 10, 2023

Commodities

“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 dropped 3.5% (down 7.3% y-t-d).
• Spot Gold increased 0.6% to $1,868 (up 2.4%).
• Silver fell 3.4% to $20.54 (down 14.3%).
• WTI crude lost $3.00 to $76.68 (down 5%).
• Gasoline fell 3.8% (up 8%),
• Natural Gas sank 19.2% to $2.43 (down 46%).
• Copper declined 0.9% (up 6%).
• Wheat dropped 4.2% (down 14%),
• Corn lost 3.5% (down 9%).
• Bitcoin sank $1,920, or 8.6%, this week to $20,415 (up 23.2%).

Metals

Copper

Highlights

• Copper futures is hanging above $4.0 per pound in choppy nondirectional trade this week despite favorable regularly scheduled Chinese economic data.
• Pressure from fear of a financial crisis which could trip up the global economy.
• Signs of rising supply inside China have undermined the bull camp for several weeks ahead of weekly Shanghai copper stocks data which showed a 5-digit decline in weekly Shanghai copper stocks at the end of last week.
• The copper trade is concerned the US will implement fresh sanctions against China and tensions between the US and China could drift toward trade war status.
• Economic optimism is flowing from this weekend’s Chinese People’s national Congress, and predictions of a large global copper market deficit from Goldman should help diffuse selling in copper fora few days at least. Goldman analysts have predicted a world copper deficit of 287,000 tonnes this year and have justified that forecast with evidence of lost production already in motion in South America.
• Demand favors the bull camp and supply factors favor the bear camp.
• “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)

• 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 increased 0.6% to $1,868 (up 2.4%).
• Silver fell 3.4% to $20.54 (down 14.3%).

Gold

Highlights

• A lower low for the dollar and the lowest trade since February 16th combined with flight to quality surrounding the California and New York Bank failures.
• Goldman Sachs over the weekend predicted the Fed will not hike rates later this month because of the current stress in the financial sector
• With the silver market showing significantly less upside action than gold from the May contract low on Friday, the silver bull camp is likely narrower in scope than in the gold trade.
• Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and vice versa.
• 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)

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

• Silver extended a positive foundation with prices in the higher portion of this week’s trading range.
• With the silver market showing significantly less upside action than gold from the May contract low on Friday, the silver bull camp is likely narrower in scope than in the gold trade.
• Not surprisingly, the swift gains in silver resulted in a very aggressive corrective setback with investors above $24.00.
• Signs of low supply had 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%.

“After a substantial stretch when battery makers were desperate for mineral supplies, the shoe is suddenly on the other foot. In the past few months, previously red hot cobalt and lithium prices have cooled dramatically. The chill is coming from both sides: supply and demand. Supply bottlenecks are easing while China’s demand for electric vehicles, and global demand for many consumer electronics, have ebbed as well. Cobalt has fallen out of favor the most: prices in February were down 61% from January last year… Lithium carbonate prices rose rapidly for most of last year, but the metal has seen a sharp correction of 21% since November. China’s EV subsidy cut in December is a big factor…”

February 28 – Wall Street Journal (Megha Mandavia)

Aluminum

Highlights

• Aluminum futures were trading under 2,400 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 of 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 retested the 50Wma and 50% confluence after earnings. From there the Chikou rebalanced it closed under 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

• Chicago lumber futures moved sharply lower after spitting the weekly Kijun. For now, they are trying to bottom below the $400 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 high in early February. 
• Selling came with news US Housing Starts Fell to a 31 Month Low in January While Building Permits Rise
• Fundamentals in the lumber complex had supported tight supplies and prospects of a rebound in-home construction and demand recovery.
• The benchmark remains down roughly 70% since its May 2021 peak of around $1,700, when supply chain issues compounded strong demand.
• Positive news came from the NAHB Housing Market Index Rising for a Second Month After Twelve Consecutive Monthly Falls
• 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
• 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

• CBOT wheat futures were higher with old crop finishing up $.04 – $.08, new crop was steady to $.01 higher.  For the week spot corn was down about $.10. 
• Still no confirmation of recent corn sales to China, however rumors still persist. 
• Negotiations to resume the Black Sea Grain Initiative have still not been scheduled. 
• Key production areas in Argentina will remain hot/dry for the next week to 10 days.  Longer range forecasts suggest better prospects for rain the 2^nd half of March, likely to little to late to have meaning impact on corn and soybean production. 
• Normal to below normal moisture thru the middle of next week in central and northern Brazil will benefit soybean harvest and corn plantings.  The BAGE also lowered corn conditions with only 6% of the crop rated G/E, down from 9% LW.  Poor/VP rose 5% to 56%.  Brazil’s Ag Minister said an additional 90 firms have been approved to export corn to China this year, bringing the total number to 446. 
• The average est. for US corn endings stocks in next Wednesday’s USDA WASDE report is 1.299 bil. bu. up 68 mil. from Feb-23.  The range of est. is 1.137 – 1.360 bil. 
• No change is expected for Brazil’s crop, holding steady at a record 125 mmt. 
• World stocks expected to slip roughly 1.5 mmt to 293.7 mmt. 
• 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.
• 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.

Technical

Wheat resistance is now the tenkan and the 50 and 61.8% Fibs. It had been drawn higher by the flat weekly cloud which unraveled the shorts which when done we sailed back through 0/8 like butter. 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

• Corn prices were higher with the old crop finishing up $.04 – $.08, new crop steady to $.01 higher. For the week spot corn was down about $.10.
• China is set to boost corn purchases following its economy reopening after prolonged COVID-19 lockdowns. There is still no confirmation of recent corn sales to China, however rumors still persist.
• Demand from top consumers US and China, especially in industries such as the animal feed sector, has seen further pick-up.
• Negotiations to resume the Black Sea Grain Initiative have still not been scheduled.
• Key production areas in Argentina will remain hot/dry for the next week to 10 days. Longer range forecasts suggest better prospects for rain the 2nd half of March, likely too little too late to have meaning impact on corn and soybean production.
• Normal to below normal moisture thru the middle of next week in central and northern Brazil will benefit soybean harvest and corn plantings.
• The BAGE also lowered corn conditions with only 6% of the crop rated G/E, down from 9% LW. Poor/VP rose 5% to 56%. Brazil’s Ag Minister said an additional 90 firms have been approved to export corn to China this year, bringing the total number to 446.
• The average est. for US corn endings stocks in next Wednesday’s USDA WASDE report is 1.299 bil. bu. up 68 mil. from Feb-23. The range of est. is 1.137 – 1.360 bil.
• No change is expected for Brazil’s crop, holding steady at a record 125 mmt.
• World stocks expected to slip roughly 1.5 mmt to 293.7 mmt. Texas was the only state that reported corn plantings this week and had them at 5%.

Technical

Corn failed to hold last week’s price action failing under the Kijun after the 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

• Soybeans complex mixed with soybeans and meal higher, while soybean oil was lower. For the week the entire complex was very little changed.
• Spot board crush margins for May-23 improved to $2.50, their best level in 2 months.
• The BAGE didn’t lower their current est. for Argentine soybean production from 33.5 mmt, they did indicate lower estimates were going to be likely. They reported another decline in crop ratings with G/E down 1% to 2%, while poor/very poor increased 7% to 67%.
• Safras & Mercado lowered their Brazilian soybean forecast 1 mmt to 152.4 mmt.
• The average est. for US soybean endings stocks in next Wednesday’s USDA WASDE report is 219 mil. bu. down 6 mil. from Feb-23. The range of est. is 200 – 250 mil.
• The average est. for Argentina soy crop is 36.1 mmt down from 41 mmt in Feb-23. No change is expected for the Brazilian crop, holding steady at a record 153 mmt.
• World stocks expected to slip 2 mmt to 100 mmt.

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 above the Kijun providing heavy support in the cloud. We sit above 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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