Content summary
Last week, international precious metals closed higher across the board. The long-short factors affecting the trend of gold are intertwined. On the one hand, vaccination continues to advance and the market forms optimistic expectations for economic recovery, putting gold under pressure. On the other hand, last week's Treasury auction fared better than last week, easing some of the market's concerns, coupled with rising inflation expectations, giving gold a respite. In the long run, it is difficult for gold to perform strongly under the suppression of US bond yields, but in the short term, gold is oversold and found support at $1670. It is expected that a rapid decline is less likely in the short term and will still be dominated by range shocks. But be wary of the impact of the upward and steepening of US bond yields on gold prices if the SLR exemption expires at the end of this month if it is not extended.
Base metals were mixed last week. At the macro level, the global manufacturing industry is gradually returning to the pre-epidemic level, and Synchronize will drive the growth of China's manufacturing industry, which is a big exporter, in favor of the non-ferrous sector. Lun Copper last week operated in a range under the influence of rising yields on 10-year US Treasuries, the US stimulus bill and inflation expectations. On the supply side, the supply shortage pattern of copper mine is difficult to improve in the short term due to the continuous interference from the mine end; on the demand side, domestic demand is still in the seasonal off-season, but recent downstream orders have improved as a whole, led by the future "green" topic. Medium-and long-term demand expectations are particularly positive. With the gradual recovery of the global economy, copper will still be strong, the change is not likely to show a rapid unilateral rise, but will enter a phased adjustment, the rate of growth will slow down or even adjust again.
Oil prices rose first and then fell last week. On the supply side, the attack on an important Saudi oil port last week was not materially affected; at the same time, developments in Iranian oil have attracted market attention, but Iranian crude oil is not expected to return from official channels in the near future, disturbing the existing balance of the market. On the demand side, OPEC said in its monthly report that demand remained weak in the first half of the year and that the recovery would be concentrated in the second half of this year. As the driving season approaches, the outlook for gasoline demand may still be the focus of the market. If vaccination continues to advance rapidly, the backlog of gasoline demand in the United States and Europe is expected to be released during the peak driving season this summer. Looking ahead, the fundamentals of the crude oil market have not changed and are still in a state of mismatch between supply and demand caused by OPEC + existing conservative policies to increase production, and oil prices are expected to maintain a volatile upward trend.
01 precious metal market
Precious metals fell at the beginning of last week and then rebounded, then fell slightly after rising on Thursday, and closed higher throughout the week. Of this total, gold fell to $1676 at one point, then rebounded to $1739, and closed at $1727 that week. Silver moved in a similar direction, falling to $24.95 before rebounding to $26.46, closing at $25.92 that week. Palladium starts at $2342 and ends at $2376. Platinum was the brightest performer, rising 6.5 per cent from $1132 to $1206.
The long-short factors affecting the trend of gold are intertwined. On the one hand, vaccination continues to advance and the market forms optimistic expectations for economic recovery, putting gold under pressure. The speed of vaccination in the UK and the US has accelerated, with vaccination coverage of about 40 per cent in the UK and an average daily dose of 2.5 million doses per day in the US. OECD released a report that the global economic outlook has improved significantly. Global GDP growth is expected to be 5.5% in 2021, and global economic output will exceed pre-epidemic levels. Us economic data performed well last week, with February CPI up 1.7 per cent year-on-year and the PPI 2.8 per cent year-on-year. Michigan's consumer confidence index rose to 83 in March, and employment data also performed well. On the other hand, last week's Treasury auction fared better than last week, easing some of the market's concerns, coupled with rising inflation expectations, giving gold a respite. In addition, last week, US President Joe Biden signed a 1.9 trillion bailout bill to pay cheques of US $1400 per person, extend unemployment insurance, and allocate funds to local governments, but the impact of "boots landing" on the market is limited.
On the investment demand side, gold ETF SPDR continued to flow out 17 tons last week, and has outflowed about 130 tons of gold for nine consecutive weeks. CFTC speculative net long decreased 14475 hands, as short positions increased, long positions reduced, reflecting that investors are not optimistic about the future of gold.
In the long run, the important factor affecting gold's future performance is still the trend of US bond yields. The rapid rise in 10-year Treasury yields was mainly due to investor optimism about the US economic recovery. Factors such as faster vaccination in the US, a good recovery in consumer confidence and better performance relative to other major economies are expected to support Treasury yields to continue to rise. At the same time, the Fed has not shown concern about the rise in US bond yields, and has not taken measures to control the rise in US bond yields, leaving room for the market to imagine. Under this pressure, it is difficult for gold to have a strong performance in the long run. In the short term, gold is oversold and has found support at $1670, so it is estimated that it is less likely to decline quickly in the short term and will still be dominated by range shocks. However, as the exemption clause for the SLR index is about to expire this month, if the exemption clause is not extended, it may cause the upward and steep curve of US bond yields, and investors should be wary of the impact on gold prices.
02 basic metal market
Last week, non-ferrous metals stocks were mixed, with Lunxi, Lunchu and Lunzhuang up 5.00 per cent, 1.73 per cent and 1.48 per cent respectively, while Lenny, lead and aluminum fell 2.26 per cent, 1.70 per cent and 0.57 per cent respectively, while the London metal futures index (LMEX INDEX) rose 1.2 per cent.
Since March last year, affected by macro-market optimism, loose water release by global central banks, and unbalanced development of supply and demand under the epidemic, the non-ferrous sector as a whole has been operating strongly, especially the "Dr. Copper", known as the economic barometer. Overseas market prices have risen nearly 65% from the beginning of March last year. Recently, the great logic of plate operation has not changed in nature. In the monetary easing environment, the fundamentals, especially the medium-and long-term demand expectations continue to improve, supporting the operation of high prices.
Macroscopically, the whole is still in the state of recovery after the epidemic, and the dollar index is running at a low level. The 1.9 trillion stimulus bill in the United States successfully passed Congress, the first major legislative project of the Biden administration, followed by an economic recovery plan, including large-scale infrastructure. The core probability of the new package is the largest infrastructure plan in the United States since the New deal of Foslow. In a report released last month, Morgan Stanley estimated that the infrastructure plan would cost about $3,000bn, including $398 billion in concrete bridges, $796 billion in concrete roads and $300 billion in steel bridges. another $1.6 trillion is spent on repairing asphalt pavements. If the bill is passed, the building materials industry may usher in a rising market. In terms of data, the US CPI performance was lower than expected, market inflation expectations weakened, domestic social finance data increased more than expected in February, M2 growth increased to 10.1%, there was no liquidity inflection point, and market risk appetite increased. Since the beginning of the year, monthly economic data from Europe and the United States have shown strong growth in the manufacturing sector, especially during the period when the epidemic is still serious. The global manufacturing industry is gradually returning to the pre-epidemic level, and the Synchronize will drive the growth of China's manufacturing industry, which is a big exporter, in favor of the non-ferrous sector.
With regard to the epidemic, according to Worldometer data, as of 06:30 on March 14 in Beijing, there were a total of 120 million confirmed cases and 2.65 million deaths in the world, 450000 new confirmed cases in a single day worldwide, and more than 55000 new cases in the United States in a single day. In the early stage, with the development and accelerated promotion of vaccines in various countries, the number of new cases of novel coronavirus infection around the world gradually decreased, but the recent epidemic situation in Europe seems to have been repeated. According to the report of World Health Organization (WHO) Europe Division (WHO-Europe), the confirmed cases of novel coronavirus in Eastern, Central and Western Europe are increasing rapidly, or caused by mutated viruses. At present, a variety of virus variants have been found around the world, and the mutated virus is easier to spread and the vaccine is more difficult to control, which may cast a shadow over the recovering global economy and drag down demand recovery.
[copper]
Lun Copper strengthened last week, operating in a range driven by rising US 10-year Treasury yields, the US stimulus bill and inflation expectations, closing at $9132.50 a tonne on Friday. In the context of continued loose global liquidity, the non-ferrous plate represented by copper still has the momentum to continue to rise.
On the supply side, due to the continued interference from the mine end, the shortage of copper supply is difficult to improve in the short term, and spot processing fees for imported copper concentrates continue to fall, falling to around $32 / ton last week, the lowest level in more than a decade. According to (Codelco), a Chilean mining company, production rose 2 per cent year-on-year last year despite the outbreak, and Peru's energy and mining minister said last Tuesday that its copper production would increase this year to 2.5 million tonnes. According to news, Antapaccay, Peru's sixth-largest copper mine, was forced to shut down due to a community blockade, while Chile's LosPelambres copper mine voted through a strike. It is generally believed that the above events will not have a significant impact on the supply of copper concentrate in a short period of time, but we should continue to pay attention to its development.
On the demand side, the recent high copper prices have, to a certain extent, suppressed the demand of the domestic downstream spot market. SMM data show that the inventory of electrolytic copper in domestic refineries has exceeded 90, 000 tons, which is the peak since 2010. Domestic demand is still in the seasonal off-season, recent downstream orders have improved as a whole: orders for copper rods and tubes have rebounded steadily, orders for enamelled wire have rebounded significantly, and downstream enterprises have basically returned to normal production. In terms of terminal consumption, automobile production and sales increased significantly in February compared with the same period last year, especially the sales of new energy vehicles increased by 584.7% in February compared with the same period last year.
In terms of exchange data, LME increased by 14400 tons over last week, SHFE increased by 8800 tons, and COMEX decreased by 200 tons. Coupled with the increase of 6600 tons in the bonded area, global inventories of the four places continued to increase compared with last week. Inventories on the world's three largest exchanges have continued to rise since mid-February, rising by more than 50 per cent, suggesting that downstream demand is not as strong as expected. At the same time, COMEX copper speculative net long position continued to pullback, the near end of the LME forward curve tended to level off, the spot rally fell to $14.50 / ton from $21.50 / ton last week, and the spot tension eased somewhat.
Overall, the Biden government stimulus policy has landed, and there will be a correction in short-term market sentiment. Lun Copper was basically in horizontal finishing last week, and the medium-and long-term demand driven by the "green" topic is likely to be revised later. Personally, I believe that the expected change in demand for industrial metals caused by ESG is unprecedented, and no one knows how copper consumption will grow in the next few years, including a series of questions such as when to determine a clear demand growth and how much. The cycle of mine investment to output often takes about a decade, supply is difficult to adjust quickly in the short term, and it is estimated that higher prices are needed to respond. Judging from the current fundamentals alone, it is not enough to support the rapid rise in copper prices above $9500 / ton since early February. Current market prices may have already price in future demand expectations, and a phased correction in the early stage is to be expected. In the current macro context, with the gradual recovery of the global economy, the probability of copper will still be strong, the change is not likely to show a rapid unilateral rise, but will enter a phased adjustment, the rate of growth will slow down or even adjust again.
03 energy market
Important Saudi oil ports were attacked, but not materially affected. Houthi fighters in Yemen sent drones and missiles to the heart of the Saudi oil industry on March 7, including a port in Rastanula in Saudi Aramco. The port is the largest oil export port in Saudi Arabia, as well as an important oil infrastructure in the Middle East and the world, with an export capacity of 6.5 million barrels per day, with a current export volume of about 5 million barrels per day. Although there was no material impact, it is not difficult to see from the reaction of oil prices that the market is more sensitive to unplanned supply disruptions. In the current OPEC production restriction environment, once there is an unplanned supply interruption, it is uncertain whether OPEC will increase production to fill the market gap in order to avoid the risk of excessive tightening in the crude oil market.
OPEC said demand remained weak in the first half of the year and the recovery would be concentrated in the second half of this year. OPEC said in its monthly report that oil demand will increase by 5.89 million b / d in 2021, or 6.5 per cent, slightly higher than last month's forecast. Among them, the forecast for global oil demand for the fourth quarter has been raised by 970000 b / d, and the forecast for the organization's crude oil demand for this period has been raised by 400000 b / d. However, OPEC lowered its demand forecast for the first half of the year, saying that economic growth in the first quarter would still be significantly affected by the continuing blockade measures, which are likely to extend into the second quarter. As a result, the oil-intensive tourism and transport sectors will continue to be affected to varying degrees, dragging down the recovery of demand.
Gasoline demand is expected to break out in the summer, driving up oil prices. Data show that motor vehicle mileage on US highways increased by 10 per cent month-on-month last week, while traffic on the road in the UK is also increasing. Gasoline prices are rising nationwide as supply falls short of demand, a trend that is likely to continue or intensify in the coming weeks and months. As the driving season approaches, the outlook for gasoline demand is likely to remain the focus of the market. If vaccination continues to advance rapidly, the backlog of demand for gasoline in the United States and Europe is expected to be released during the peak driving season this summer. Strong demand for terminal oil products is also bound to drive up oil prices.
Developments in Iranian oil have attracted market attention. It has been reported that Iranian crude oil is exported in large quantities through some unconventional channels, with Iranian oil exports exceeding 600000 barrels per day in January for the first time since May 2019 and nearly 850000 barrels per day in February. An Indian government official also said Iranian supplies are expected to return to the market within three to four months. In addition, US Secretary of State Abraham Lincoln had been friendly to Iran, saying that the United States would formally return to the agreement if Iran fully complied with the Joint Comprehensive Action Plan ((JCPOA),). The market fears that once sanctions are lifted, Iran's nearly 1.7 million barrels a day will soon return to the market, derailing OPEC's previous efforts. But last week, U.S. and Israeli regional officials said Israel had targeted at least 12 ships bound for Syria carrying Iranian oil because of fears that oil profits were financing extremism in the Middle East. From this, it is not difficult to see that the complete lifting of the ban on Iran will not be as smooth as expected, nor can it be solved in a short time, and Iranian crude oil will not return from official channels in the short term, disturbing the existing balance of the market.
On the data side, last week's EIA data showed that US crude oil stocks increased by 13.79 million barrels, gasoline stocks decreased by 11.86 million barrels, and refined oil stocks decreased by 5.5 million barrels. Overall, full-caliber stocks fell by 3.57 million barrels. The data were roughly the same as the previous week and in line with market expectations, so when the data were released, the reaction in the crude oil market was muted. In addition, US refinery operating rates have rebounded from 56 per cent to 69 per cent, while US crude oil production has fully recovered and is 100000 barrels per day more than before the cold wave in February. Under such circumstances, crude oil inventory data in the United States this week are still likely to increase, gasoline and diesel stocks will still be reduced, but the extent will certainly be weakened.
On the whole, the fundamentals of the crude oil market have not changed, and it is still in a state of mismatch between supply and demand caused by OPEC + existing conservative policies to increase production, as long as Saudi Arabia and other member states strictly implement the existing production reduction plans, then oil prices do not seem to have the conditions for a sharp fall in the short term and are expected to maintain a volatile upward trend. What is worth paying attention to this week is the high-level strategic dialogue between China and the United States held on March 18-19. If Sino-US relations can be eased somewhat, then this will be a big boon for the market.
