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Chinese Copper Supply Driving Prices


While the copper market was not finding significant support from disrupted copper shipments from Peru over the last several week, the countries Mines Minister indicated roads for transfer are now open. Apparently, protesters were reportedly “fatigued” which could suggest the conflict is not settled but is merely paused. On the other hand, nationalists have continued to protest over Chinese owned copper mining operations with that production flow now at risk of interruption. Furthermore, news that the Freeport Grasberg facility it was coming back online combined with reports of supply moving out of Peru should discourage some buyers in the face of the current slump in prices. In the end, the level of copper supply inside China remains the primary driving force for copper prices with changes in Shanghai inventories deemed as a proxy of Chinese demand. While the LME continues to take action to prevent Russian copper and other base metals flowing through their exchange mechanisms, preventing Russian copper from flowing to the world market should be significantly more difficult than preventing Russian gold moving onto the world market. With the rise yesterday in LME copper warehouse stocks, the trade saw the first 3 session inflow streak since October with stocks reaching the highest level since February 2nd.

copper pipe pile


With slightly damaging early action on the charts today the gold bear camp should have a measure of confidence, especially with the first of 2 days of Fed Chairman testimony to the US Congress looming in the coming hours. Overnight the Royal Bank of Australia raised interest rates to the highest level in over 10 years but indicated there were signs inflation was moderating. Obviously, the Fed Chairman will need to continue to anchor inflationary expectations with very hawkish dialogue, but various Congressional members are likely to challenge the Fed leader given a growing list of US corporate layoffs. In a positive longer-term development, China has apparently raised its gold reserves for four consecutive months but the increase in holdings was relatively small at 25 tons considering the size of the Bank of China. While the gold trade has not paid significant attention to classic supply developments lately, Fresnillo PLC indicated their full-year gold production declined by 15.3% in fiscal year 2022 verses fiscal year 2021. With gold yesterday reaching $54 above last week’s lows into the high yesterday and then reversing aggressively, the trade clearly fears hawkish Fed testimony. However, concern of sharply ballooning US Treasury rates has likely passed in the near term as buyers move back into the long side of US Treasuries following Fed confirmation that the inflation battle will require higher rates for inflation to be brought under control. With the markets reportedly overreacting to the Fed Chairman’s lack of hawkish stance in the last Congressional testimony, we suspect the US Fed Chairman today will make sure to telegraph a very hawkish tone and that could temporarily send April gold back below $1,825.


While the platinum market forged an inside day range yesterday to leave the charts neutral, the trade appeared to construct a double top around $983.70 with that level a potential early pivot point through Fed testimony. It should be noted that all other major precious metal ETF instruments besides platinum showed significant outflows yesterday. Fundamentals should produce headwinds today and a temporary retest of levels below $950 is likely in the aftermath of US Federal Reserve Chairman testimony to Congress over the coming 2 days. In other words, the battle against inflation is far from complete and the fear of an even higher than expected US terminal rate should lift the Dollar and pressure physical commodities like the PGM’s in the coming 36 hours. While platinum prices are significantly off last year’s lows ($178) they are also near $400 an ounce below the highs forged in early 2021 and therefore prices could be considered cheap. On the other hand, the palladium market lows this year were the cheapest since April 2019 and yet auto catalyst manufacturers continue to rotate usage to cheaper platinum. However, the palladium market is in a much stronger technical position than platinum, with the market net spec and fund short positioning registering the most excessive negative sentiment readings since the first days of the pandemic.


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