Commodities: Industrial metals gain with zinc, gold steady

Three-month zinc futures on London Metal Exchange surged 3.1% to $3’584 a ton, the highest level in more than a decade, after LME inventories slumped to the lowest levels since 2008.

Fall in inventories is due to a combination of lower investment in zinc mines over the last decade, several shutdowns in large mines and squeezed output due to environmental reforms in China.

Nickel gained 2.9% to $14’040 a ton, while LME copper rose 0.9% to $7’145 a ton. Bloomberg Industrial Metal Index gained 1.07% to 286.9953.

“The release of manufacturing data in China this week should set the tone for commodity markets” wrote ANZ analysts.

“Another strong PMI should snuff out any concerns over weakening demand leading into the Chinese New Year.”

However, gains in copper futures may be at risk, as copper inventories rose nine straight days last week. This was the longest streak in almost three years.

According to the latest CFTC data, hedge funds trimmed their net long positions in copper futures and options by 46% since early January, hinting at a deeper downside potential in copper prices.

UBS analysts said that “mine supply may grow 2.5% in 2018 on higher output from mines”. They estimate copper price at $3 a pound, the equivalent of $6’622 a ton, in 2018 and 2019.

The London Bullion Market Association is expected to release a survey on metal price estimates this week. In the energy space, net long positions in WTI and Brent crude increased by 2.9% and 2.4% last week, as hedge funds increased their bullish positions to a record high due to stronger demand, supply constraints from OPEC and Russia and a weaker US dollar.

West Texas Intermediate futures gained 0.35% to $66.37 a barrel. Brent crude rose 0.3% to $70.64. “A restart of the march higher looks likely, with the $66.58 high being tested in due course.

Below $65.00, the $62.56 and then $60.74 level comes into play” wrote Chris Beauchamp, chief market analyst at IG on Friday.

JPMorgan analysts said they “expect Brent to touch close to $78 per barrel towards end of Q1 2018 or early Q2 2018”, but added that the prices should fall later this year as markets become “flush with oil from (U.S.) shale and other unconventional oils.”

Gold was little changed in Asia. The precious metal traded within the tight range of $1’346 / 1’352. The Fed meeting and the appetite in US dollar will be decisive for gold prices in the coming days, after the price of an ounce topped at $1’366 on weaker US dollar last week.