SMM News: content summary
In terms of international precious metals, last week, due to the expected further strengthening of economic recovery, the trend of international precious metals continued to divide, with gold and silver weak and platinum and palladium strong. Optimism about the economic outlook has made gold less attractive in asset allocation, with last week's second-biggest weekly decline in global gold ETF positions this year, prompting spot gold prices to fall under pressure. In the medium to long term, given that there is a high probability that governments will not tighten previous stimulus policies before the vaccine is widely available, and that the dollar remains weak, gold should not be overly pessimistic. Overall, there is a high probability that this week will continue the macro main line of vaccine optimism and economic recovery expectations, while gold will also be under pressure and may be data-driven short-term volatility.
The overall performance of base metals is strong, and the base metals market continued to rise last week, with Lun Copper above the $7500 mark. On the macro side, the vaccine good news continues to boost investors' optimistic expectations, while multiple signs indicate that the US presidential power is expected to achieve a smooth transfer, eliminating the uncertainty of the market, and the frequent positive macro aspects have contributed to the sustained rise in commodity prices. The recent strength of Lun Copper has led to strong bullish sentiment in the market, with COMEX Copper CFTC non-commercial net long positions rising for three consecutive weeks to their highest level since mid-2018. At present, copper inventories on domestic and foreign exchanges continue to decline, and it is expected that domestic supply and inventories will further decline, which will provide some support to copper prices in the short term, while we need to guard against the risk of short-term technical pullback.
On the energy side, crude oil continued to rise last week, achieving four consecutive days on the weekly line, amid optimistic expectations of vaccines, OPEC+ delays and a smooth transfer of power to the US president. This week's OPEC+ meeting will be held soon, although there is a high probability of delaying the increase of production by three months, the dissent among the members of the production reduction alliance has become more and more obvious, and it is doubtful whether the subsequent production cuts can be put in place. Recently, physical demand has maintained a moderate recovery, but refinery profits are still low. At the same time, the recent term structure has improved significantly, and what is more noteworthy is the sharp leveling of the forward curve for the whole of 2021 before the expiration of the Brent contract in January, reflecting the optimistic expectations of the market for the recovery of demand and destocking next year. It is expected that oil prices will continue to fluctuate widely in the range of 40-50 US dollars per barrel before the end of the year, and the trading position in the range depends on the development of winter epidemics in Europe and the United States.
01 precious metal market
Last week, affected by the expected further strengthening of economic recovery, the trend of international precious metals continued to divide, with gold and silver weak and platinum and palladium strong. London gold fell below the 1800 round mark late Friday, falling as low as 1774, down 4.45 per cent for the week and 6.63 per cent for silver, while platinum and palladium, which are more commodity-specific, rose with base metals. Platinum and palladium rose 1.83 per cent and 4.26 per cent respectively last week.
Market optimism about the economic outlook comes from two factors: first, the vaccine continues to ferment and is expected to be available next month, although the effectiveness of the AstraZeneca vaccine has not had a significant impact on market sentiment. Second, Biden is expected to successfully complete the presidential transfer of power, reducing the potential resistance to the fight against the epidemic in the United States and the economic recovery on the right track. Trump said last Thursday that he would relinquish power if the Electoral College voted for Biden as president on December 14. As a result, the attractiveness of gold in asset allocation declined, and capital outflows from gold ETF further accelerated, prompting spot gold prices to fall under pressure. Global gold ETF positions fell 39.6 tonnes, or 1.2 per cent, this week, the second-largest weekly decline so far this year, second only to the decline in fund-raising caused by the sale of various assets when dollar liquidity was extremely tight in mid-March. In addition, the vaccine has raised the expectation of economic recovery in Europe and the United States, that is, narrowing the gap between Europe and the United States and China in epidemic control, and the small devaluation of the RMB has affected the price difference between gold and foreign countries to a certain extent. Last week, the domestic and foreign price difference of gold widened from-3.4 yuan / g to-5 yuan / g.
However, gold should not be overly pessimistic. First, it is widely expected that large-scale vaccine delivery and epidemic control will take place around mid-2021, before which there is a high probability that governments will not tighten previous stimulus policies, which will support gold. Minutes of the Fed's November FOMC meeting released on Thursday showed that Fed officials agreed that asset purchases supported the economy and pointed out that if appropriate, FOMC could provide more easing by speeding up purchases or shifting purchases to longer-term Treasuries, which the market interpreted as the Fed's strengthening of QE. At the same time, Biden plans to nominate former Federal Reserve Chairman Yellen, who had a loose policy style when she was at the helm of the Federal Reserve, to be Treasury Secretary. Second, the huge debt burden of the United States will be a drag on the dollar, and a weak dollar will also benefit the international gold price. At present, the size of the Fed's balance sheet is nearly double that before the epidemic, and as other countries' economies gradually recover, the demand for the dollar will weaken, the dollar will face depreciation pressure, and the cost of holding and buying gold will fall, which will be good for gold.
From the perspective of technical indicators, London gold has been trapped in the range of 1sigma and 2sigma under the Bollinger belt for five consecutive trading days, and the opening of the Bollinger belt has been opened, reflecting the heavy selling pressure of gold in the short term. In addition, the relative strength index of London gold RSI has reached the critical point of the oversold range, and technical repairs will not be ruled out in the future, which is expected to attract new buyers when gold prices reach around 1700.
Overall, this week will most likely continue the vaccine positive and economic recovery expectations of the macro main line, gold will also be under pressure. In addition, gold prices may be driven by short-term fluctuations due to the release of a number of important US economic data this week, including non-farm payrolls, ADP payrolls, manufacturing PMI, durable goods orders and so on.
02 basic metal market
The base metals market continued to rise last week, with Len copper rising 3.1 per cent to $7500 a tonne, its highest level since 2013, Lenny up 1.88 per cent to $16455, Len lead up 4.19 per cent, Len aluminum up 0.28 per cent and Lunzn zinc up 0.05 per cent.
On the macro front, the vaccine good news continues to push up investor optimism, and market risk sentiment is high, including stocks, commodities and other markets. In addition, on the one hand, since last week, there have been multiple signs that the US presidential power is expected to achieve a smooth transfer, which has also eliminated the uncertainty in the market. After Biden takes office, he is expected to promote measures such as scientific epidemic prevention and increase fiscal stimulus; on the other hand, according to the minutes of the ECB interest rate meeting released, the ECB has called for more relaxed fiscal stimulus, which is good for the base metal market. In terms of data, the overseas multinational manufacturing PMI data exceeded market expectations, with the US Markit manufacturing PMI exceeding market expectations by 3.3 points to 56.7. Profits of domestic industrial enterprises above scale increased by 28% in October compared with the same period last year, reaching a new high so far this year, and the economic recovery continued to improve. The macro aspect is frequently positive, boosting commodity prices to continue to rise.
[copper]
Copper prices recently broke through the 7000 mark, the rate of rise accelerated significantly, on the one hand, driven by macro good news, on the other hand, Lun Copper broke through $7000, the market bullish sentiment is strong, COMEX Copper CFTC non-commercial positions net long rose for three consecutive weeks to reach the peak since mid-2018 (figure 3).
On the supply and demand side, domestic copper concentrate imports fell 21% in October from the previous month, down 12% from the same period last year, and the total volume in the first 10 months was flat compared with the same period last year. In particular, imports from Chile fell sharply, mainly due to the high import volume in September (figure 4), the domestic supply is relatively abundant, the demand for continued procurement is not exuberant, after the listing of copper in the bonded area, the price gap with LME is also constantly narrowing, taking into account freight and landing water and other factors, the international copper price was slightly cheaper than LME copper, showing a situation of weak inside and strong outside. However, it is worth noting that Yangshan copper has rebounded recently from its low level (figure 5), and the recent accelerated decline in inventories on domestic exchanges is once again approaching the low level since 2015, indicating that the demand in the domestic copper market is gradually heating up and inventories continue to digest. Imports of overseas ores and refined copper have fallen sharply since September, and domestic supply and inventories are expected to decline further, taking into account the shipping schedule. Due to the mismatch between supply and demand, the rising water to the shore is expected to continue to rise. LME copper inventories have also continued to decline recently, falling by more than 17% since mid-October, from a high of $21 last week to about $15. Far-end rising water is expected to continue to converge as inventories continue to tighten.
In terms of prices, it is expected that the easing of domestic oversupply will provide some support to copper prices in the short term. In the medium to long term, the economic recovery driven by loose global macro policies is still the main driving force behind the sustained rise in copper prices. But from a short-term technical point of view, Lun Copper's recent rise has not only broken through the previous upward channel, but also approached the overbought range of the daily line, so we need to guard against the risk of pullback.
03 energy market
Last week, crude oil continued to rise, realizing the weekly line of four Lianyang. Crude oil rose for the fourth week in a row amid optimistic expectations of vaccines, OPEC+ delays and a smooth transfer of power to the US president. The first contract for Brent and WTI crude rose 7.16 per cent and 7.33 per cent to $48.18 and $45.53 respectively from the previous week, while Brent rose nearly 28 per cent for the whole month in November.
The OPEC+ meeting will be held soon, and it is more likely to postpone the increase of production by three months. A high-profile OPEC+ meeting will be held from Monday to Tuesday to discuss production cuts in 2021. Due to the recent strong oil price performance, OPEC+ will also postpone its plan to increase production to three months from the previous three to six months. Even so, some member states still complain about this. Previously, Iraq, the United Arab Emirates and other countries have frequently expressed dissatisfaction with the production reduction plan and OPEC. At the joint ministerial communication meeting before the formal meeting of the OPEC+ on Sunday, although most of the member states agreed to delay increasing production by three months, the United Arab Emirates and Kazakhstan opposed it. Iraq and Nigeria were also destabilizing factors. Although the OPEC+ meeting is expected to finally reach the result of delaying the increase of production by three months, the dissent among the members of the production reduction alliance has become increasingly obvious, and it is doubtful whether the implementation of subsequent production cuts can be put in place. As the benefit of the previous delay in increasing production has been exhausted by the market, oil prices are expected to maintain a moderate correction before and after the meeting.
New recruits to the vaccine camp have boosted demand to restore expectations. Last week, the Oxford / AstraZeneca vaccine announced phase III interim clinical results, which were more effective than expected compared to its very general phase I and II results. Although its third-phase data have been questioned by many industry insiders, and pharmaceutical companies have announced that they will conduct another global trial, the doubts mainly focus on the excessively high efficiency of specific experimental groups, which is conservatively estimated to be more than 60 per cent, exceeding the 50 per cent standard set by the WHO, and the British government instructed regulators on the 26th to continue the vaccine approval process. Even if the vaccine is not as effective as the mRNA vaccine of Pfizer and Modena, it still provides more ammunition for the fight against the epidemic, and some countries, such as the United Kingdom, have also proposed vaccination strategies for different populations, and the recovery of demand in major economies may also be accelerated.
There is a real need to maintain a steady recovery, and refinery profits are still low. Recently, physical demand has maintained a moderate recovery, China, India and other countries are more enthusiastic about taking goods, while the recovery of demand in Europe and the United States is still relatively slow. In terms of data, recently, the operating rate of refineries and the output of oil products in the United States have increased steadily, and the comprehensive inventory of crude oil and oil products has also remained stable, showing signs of improving demand. However, recently, refinery profits in Europe and Asia outside China are still low, even squeezed by the recent rise in crude oil prices, and news of temporary or permanent closure of overseas refineries still comes out from time to time.
The term structure has been significantly improved. Last week, the January Brent futures contract reappeared near the expiration of Backwardation, considering that the near-end of Dated Brent has already recovered and the spot end of Backwardation, is still relatively tight in the near future, which is not surprising. More noteworthy is the sharp leveling of the forward curve for the whole of 2021, reflecting the market's optimistic expectations of demand recovery and destocking next year.
Crude oil prices are expected to remain volatile. Although oil prices have risen sharply recently, optimistic expectations of a recovery in demand in 2021 can still support oil prices of about $45 a barrel, although oil prices are not expected to break through the $50 / barrel mark until there are further substantial gains at the beginning of next year. Until the end of the year, the market is expected to maintain a wide range of volatility in the range of 40-50 US dollars per barrel, depending on the development of winter epidemics in Europe and the United States.
