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Weekly Commodities Wrap: Metals Rise On Better China Data And USD Weakness


Copper prices received a firm boost this week with the red metal extending gains across the week. The latest China manufacturing data for October surprised to the upside printing 51.2 against a prior 50.4 in September. The reading marked the highest level for two years and gave a strong signal that operating conditions in the country are improving. With China responsible for around half of the global copper demand, the data provided clear support for the metal, despite concerns that demand in the country would be weakened following the announcement of restrictions to be placed on home sales in an effort to curb rising house prices.

This data comes on the back of other recent improvements in Chinese data which have added support for copper over recent weeks. Adding further support for the metal has been the deterioration in the US Dollar in recent weeks. Growing support for outside Republican candidate Donald Trump has heightened uncertainty ahead of the US elections next week prompting a sell-off in the US Dollar. The combination of better Chinese data and a weaker US Dollar has fostered an environment of strength for the red metal which ends the week at highs.

The rally in copper is taking price back up to test the trend line resistance of the larger contracting triangle pattern that has framed price action this year having now broken above the September high.

Iron Ore: 15% Rally Over October

Iron Ore prices continued to rally this week finding support on the broader themes underpinning the commodity space currently: a weaker US Dollar and better data out of China. Since Chinese markets returned following the Golden Week holidays at the start of October, Prices have rallied a further 15% taking the total year to date gain to around 47%.

This latest surge in Iron prices comes on the back of the announcement of a strong profit result by a key Chinese steel producer. The Chinese State-owned Wuhan Iron & Steel recorded a net profit 370.28million Yuan profit for the January-September against an earlier recorded net loss of 1 billion Yuan. The rally in Iron prices is now into its fourth consecutive week.

Despite the continued rally in Iron price the outlook is unclear. Rising supply, indicated by surging imports and rising port inventory, in conjunction with weak steel margins and seasonally lower steel production, are expected to weigh on Iron prices in the medium term.

Iron ore prices have remained at highs following the large rally last week which took price to new 5 month highs. Traders will now look for a retest of broken summer highs to provide technical support for a continued rally.
Aluminium: Chinese Demand Keeps Price Supported

Aluminium prices fell back slightly this week after breaking out to new 7 months highs. Aluminium prices have seen strong upward pressure recently from firm Chinese demand deriving from infrastructure and construction. Prices are deriving further support from positive developments in the Chinese automobile industry with sales having risen 27% in September YoY. This marks the seventh consecutive month of rising auto sales

The 2.775 mark is clearly a pivotal level for Aluminium prices having capped advances over the prior 7 months. With price having now pierced above that level to trade a new 2016 high, a sustained breach is needed to confirm bullishness and open the way for further upside.

Zinc: Supply Shortage Concerns Fuel Upside

Zinc surged higher this week taking its cue from a weaker US Dollar and stronger Chinese data. The metal printed fresh 5 year highs after surging above the 2415 level on Monday. Growing expectations for a supply shortage continue to fuel upside in the metal which has enjoyed a soaring rally this year trading over 50% YTD. This latest wave of buying comes on the back of an announcement by Glencore that it has closed its Black Star mine in Australia.

With prices having retested the breakout zone in Zinc, traders are now looking for a fresh break of highs to signal continued upside in the metal.
James Harte

Source: https://www.orbex.com/blog/2016/11/weekly-commodities-metals-rise-better-china-usd/
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