Commodities in the last trading week of the year saw a big bounce in Platinum and Palladium recovering from a when prices collapsed on Chinese economic data combined with the explosive COVID infection wave being a serious threat to Chinese auto consumption and as such a threat for auto catalyst inputs like palladium. We saw a mixed result in energy markets. Gasoline, WTI, Brent Oil and Heating oil all higher. Whilst Natural gas sold off hard again, down another 11% for the week, now down 33% for the month. The Bloomberg commodity index increased 0.2% (up 13.8% y-t-d).
January 2 – 8, 2023
Weekly Commodity Highlights
- Bloomberg Commodities Index added 0.2%, closing 2022 up 13.8%.
- Spot Gold jumped 1.4% to $1,824 (down 0.3%).
- Silver gained 0.9% to $23.95 (up 2.8%).
- WTI crude added 70 cents to $80.26 (up 7%).
- Gasoline jumped 3.2% (up 10%),
- Natural Gas dropped 11.9% to $4.48 (up 20%).
- Copper was little changed (down 15%).
- Wheat gained 2.1% (up 3%),
- Corn rose 1.8% (up 14%).
- Bitcoin fell $200, or 1.4%, this week to $16,600 (down 64%
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 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 with3.41 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.
- 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.
- Alcoa, the largest US aluminum producer, has warned investors that high energy and raw material costs and a fall in aluminum prices are putting pressure on margins.
- The car industry is the world’s largest aluminum consumer, with nearly 67 million vehicles per year, according to SkyQuest.
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. From there as the Chikou rebalanced it closed under the tenkan. We have support below at 2/8 sphere of influence under the tenkan confluence.
- Copper prices fell 0.5% to settle at $8,372 at 5:51 p.m. local time on the LME on Friday, capping the year with a 14% loss, the worst since 2018.
- Copper faces extremely negative Chinese developments with contractions in broad-based industrial measures compounded by the surging Covid crisis and could be compounded by the upcoming Chinese lunar new year holiday.
- Daily LME and weekly Shanghai copper warehouse stocks posting inflows. While the recent pattern of LME exchange stock flows shifted to daily inflows this week might be a function of thinned holiday activity, there have been more daily inflows to the London warehouse this week than in the past 6 weeks.
- The Chilean state copper production agency said their output to grow 7.5% next year. The Chilean national copper company also announced their 2022 copper production was set to contract by 5.8%. LME copper warehouse stocks declined by 1800 tons Thursday.
- Mine protests in Peru hamper production.
- Commodity trader Trafigura and Goldman Sachs 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 broke to the upside out of the pennant to test the 50wma after it rebounded sharply off the tenkan but has failed three times here in the past month. The flattening Weekly Kijun acted as a magnet to close right there. Copper had been a leader in the risk on movement for commodities.
- Spot Gold was unchanged at $1,797 (down 1.7%).
- Silver increased 1.4% to $23.47 (up 0.7%).
- February gold, the most actively traded contract, rose 20 cents, or less than 0.1%, to close at $1,826.20 an ounce, according to FactSet, down 0.1% for 2022.
- January gold the front-month contract, rose 20 cents to end at $1819.70 an ounce. Based on front-month contracts, gold rose 0.4% in 2022, according to Dow Jones Market Data.
- Gold rose this week as a softer U.S. dollar helped bolster precious metals prices
- 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’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):
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.
- March silver fell 21 cents to $24.04 an ounce, down 0.9%. Based on front-month contracts, silver rose 2.3% in 2022.
- Not surprisingly, the swift gains in silver resulted in a very aggressive corrective setback with investors above $24.00.
- Signs of low supply also 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 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.
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.
- Lumber futures have collapsed since high in early March giving back all of the 2021 and 2022 rally and some its lowest level since June 2020.
- Chicago lumber futures fell under the psychological $400 per thousand board feet mark, down more than 68% year-to-date and is off 79% from its record high reached in May 2021, as higher interest rates continued to depress real estate activity.
- 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 price keeps drifting lower despite expectations low inventories and diminished production have put a floor under prices.
- 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, have squeezed global supplies.
- Sawmill curtailments, with Interfor, Canfor, and West Fraser Timber announcing cutbacks, added to concerns about tight supplies.
- On-the-spot wood prices have plunged, too. Pricing service Random Lengths said Friday that its framing composite index, which tracks cash sales is down from $1,334 in March, just before the Federal Reserve raised interest rates for the first time since 2018.
- All 3 wheat classes closed out 2022 with solid gains.
- Mch-23 Chicago made a new high for the month, however stopped just below $8 with today high at $7.99. Mch-23 closed at $7.92 up $.16 for the week. The Mch-23 KC rally stopped just short of its weekly high of $8.94 ¾. Mch-23 KC closed at $8.88 up $.13 ¼ for the week. Mch-23 MGEX reversed yesterday’s selloff closing at $9.38 ¾ up $.07 for the week.
- Export sales at 18 mil. bu. were at the upper end of expectations of 10 – 18 mil. YTD commitments at 548 mil. bu. are down 6% from YA, vs. the USDA forecast of down 3%.
- BAGE reports Argentine wheat harvest advanced 13% to 91% complete. They maintained their production forecast of 12.4 mt, very near the USDA forecast of 12.5 mt.
- Rosstat issued a Russia wheat production forecast of 102.65 mt, well above the USDA forecast of 91 mt. Earlier in the week SovEcon raised their Russian wheat production to 101.2 mt. Today they raised their Russian export forecast to 44.1 mt, just above the USDA forecast of 43.0 mt.
- The harvest for top exporter Russia was the highest on record in the current marketing year, extending competition into North America.
- Wheat shipments from Ukraine continued after Russia agreed to extend the UN-brokered deal that guarantees a trade corridor for vessels carrying Ukrainian grain in the Black Sea for another four months, significantly reducing shortage concerns.
Wheat closed 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.
- Weekend forecasts added rain for Argentina in the areas of Cordoba and northern Bueno Aires. Accumulations of 1.00” – 1.50” are expected by Monday before a hot/dry pattern sets up for the following week to 10 days.
- In the short term the moisture will be welcome however still appears to fall far short of easing Argentine and Southern Brazil drought concerns. Conditions in north and central Brazil remain very favorable.
- Mch-23 corn prices surged to new 8 week highs this AM before pulling back and trading both sides of unchanged. Mch-23 closed at $6.78 ½ down $.01 however up $.12 ¼ for the week.
- Corn exports at 31 mil. bu. were in line with expectations of 25 – 35 mil. YTD commitments at 843 mil. bu. are down 47% from YA, vs. the USDA forecast of down 16%.
- The BAGE reports Argentine corn plantings advanced 11% to 63% complete, however below the 71% from YA and the 5-year average of 78%. 15% of the crop is G/E, unchanged from the previous week, however 28% is poor/VP up from 26% last week.
- USDA est Ukraine corn exports near 20 mmt vs 17.5. Ukraine has left 9 mmt of corn still in fields.
- Brazil is expected to produce a record 126 million tonnes in the current marketing year, 9% higher than the previous period, according to the USDA’s Global Agricultural Information Network report.
- Strong supply is also expected from Ukraine as Russia agreed to extend the UN-brokered deal guaranteeing a safe trade corridor for vessels shipping grain out of the Ukrainian Black Sea ports. Besides permitting exports, the resumption of trade enables Ukraine to free up important storage space in silos as the harvest for the 2022/23 marketing year continues.
Corn earlier flowed lower with last week’s price action failing at the Kijun and the 7/8 near the base of the weekly cloud to under the 50wma. Corn came back to retest those levels to hold just under them. 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 prices surged to new 6-month highs Friday morning with nearby contracts up over $.20 at their peak. Prices pulled back with old crop futures settling $.05 – $.10 higher, while new crop contracts closed up $.01 – $.02. Mch-23 soybeans closed at $15.24, up $.39 ½ for the week.
- Mch-23 soybean meal surged to new contract highs Friday AM closing at $471.00 up $19.70 for the week.
- Mch-23 soybean oil plunged 230 points closing at 64.07 down 58 points for the week.
- There were no deliveries against Jan-23 soybeans or soybean meal. Soybean oil deliveries totaled 779 contracts put out by JP Morgan.
- Soybean sales last week reached 26 mil. bu., slightly below expectations of 30 – 40 mil. YTD commitments at 1.584 bil. bu. are up 4% from YA, vs. the USDA forecast of down 5%.
- USDA announced the sale of 186k tons (7 mil. bu.) of soybeans to an unknown buyer.
- Soybean meal sales at 264k tons were in line with expectations. YTD commitments are up less than 1% from YA, in line with the USDA forecast.
- Soybean oil sales were 5k tons. Commitments are down 92% from YA, vs. the USDA forecast of down 38%.
- The BAGE reports that soybean plantings have reached 72%, up from 61% LW however down from the 5-year average of 86%. G/E ratings slipped to 10% from 12% LW. Poor/VP rose 3% to 28%. They went on to state that if rains do not arrive soon soybean acreage could fall 3%, or 500k hectares, from the current estimate of 16.7 mil. HA.
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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