The two main commodities to watch in the short term

Commodities, and base metals in particular, closed last week on a strong note, ignoring the weaker-than-expected Chinese PMI. A weaker US dollar provided support, as did the dovish comments from the Fed’s Jackson Hole meeting.

In a virtual speech at the Fed’s annual symposium in Jackson Hole in Kansas City, Federal Reserve Chairman Jerome Powell said the central bank could start cutting monthly bond purchases this year, but won’t will be in no rush to start raising interest rates afterwards.

According to the Fed, the US economy has now passed the “substantial further progress” test towards the Fed’s inflation target, which would be a prerequisite for reducing bond purchases. At the same time, the labor market has also made “clear progress”.

According to Standard Chartered strategists, market concerns about impending tapering appear to have eased as traders are now comfortable with the idea that tapering could begin this year. Stanchart lowered his 10-year yield forecast at year-end to 1.5% from a previous target of 1.75% previously.

The bank still believes the Fed will announce a reduction schedule in November and this with concerns about downside growth risks stemming from the easing of the Delta variant. Meanwhile, real returns remain deeply negative, with gold’s three-month sliding correlation with real returns stabilizing just below 50% while the three-month sliding correlation with the USD has subsided. stabilized around 70%.

That said, there is no doubt that the lockdowns in China have had negative effects on the markets.

China’s official PMI manufacturing index fell to 50.1 in August from 50.4 in July, an 18-month low. Production activity remained fairly strong, but demand weakened sharply. As a result, trade growth may have slowed further due to weaker demand, port congestion and lower commodity prices.

The Chinese strategic reserve sold quite strongly, with Bureau stocks (SRB) totaling 150,000 tonnes (kt) as of September 1, consisting of 70 kt of aluminum, 50 kt of zinc and 30 kt of copper.

Fortunately, modest sales failed to dampen the bullish momentum in the commodities market.

Better yet: China has lifted its blockages. China has started to show signs of a strong recovery after reopening its economy.

Here’s how the major base metals markets are performing and how Stanchart expects them to perform in the near future.

# 1. Aluminum

Aluminum prices recently hit 13-year highs on the London Metal Exchange (LME) and the Shanghai Futures Exchange (SHFE) just a few days ago. Despite the sharp price increases, Stanchart sees aluminum prices at an upward bias, with the long tally of supply disruptions in China (see Focus) and growing concerns about the trajectory of future growth. supply in the context of more stringent reviews of energy and emissions targets.

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Along with power shortages in China and political restrictions, the latest disruption to rock the aluminum market this week was the coup in Guinea, the world’s second-largest bauxite producer and largest exporter. China is the main export destination for Guinean bauxite, accounting for 55% of Chinese bauxite imports for the

On a regional basis, physical premiums remain high due to firm demand and rising freight costs, with the US Midwest premium hovering around 36 cents / pound through August.

and until early September, thanks to the strike at the Kitimat foundry. European premiums stand at an even more impressive level of 375 / t, the highest since February 2015. However, LME aluminum stocks remain quite low at 1.33 million tonnes (Mt).

Meanwhile, SHFE aluminum stocks are at their lowest since January 1, giving way to another aluminum rally.

# 2. The copper

China customs preliminary trade data shows August showed further weakness in

China’s copper imports.

Imports of raw copper and products fell for a fifth consecutive month and, at 394 kt, marked the lowest monthly import figure since June 2019. They also fell by 7% m / m and 41% a / a. Imports for the period January-August 2021 totaled 3.61 Mt.

Copper prices fell, penalized by the mitigation of supply risk in Chile following recent wage negotiations in mines and slowing import demand from China. Two key unions at Andina’s 185,000 tonne per year (ktpa) mine ended the strike that began in mid-August, concluding a new wage deal last week. Over the weekend, an agreement was also reached at the 127 ktpa Cesarones mine in Chile, ending a strike that had started in early August. Meanwhile, an early agreement was reached at the 443 kt El Teniente mine in Chile on September 1 following the rejection of the previous proposal by miners in mid-August.

Meanwhile, the latest production data shows Peru’s copper production in July totaled 190.3 kt, down 4.3% y / y but up 4.2% m / m. The decrease was due to

maintenance at the Antamina mine and lower grades at Antapaccay. The latest CFTC data for the week ended Aug. 31 shows a sharp reversal in speculative sentiment towards Comex copper, with the fund’s net duration increasing after four straight weeks of liquidation. Net currency managed in Comex copper futures rose 18.7,000 lots, the highest since August 10, a major rally after falling to its lowest since June 2020 the previous week.

The spread between copper liquidity and the three months entered into contango last week after being out of step for the second half of August. LME stocks are currently at mid-August levels at 37.7 kt. In contrast, the decline in SHFE copper stocks continues; inventories posted a net decrease of 13.1 kt during the week ended September 3, and at 69.3 kt are the lowest since early February.

The mitigation of supply risk in Chile and the slowdown in import demand in China weighed on copper prices, leading to a sharp reversal of the speculative positioning on Comex copper futures contracts.

The gap between cash and three months has recently shifted to contango; LME and SHFE stocks were down, with SHFE stocks at their lowest since January 1 while physical premiums in Europe hit their highest since February 2015. Meanwhile, Chinese imports of raw copper and commodities are the highest. lower since June 2019.

Standard Chartered provided the commodity outlook as follows:

By Alex Kimani for Oil Octobers

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