Industrial Metals Sell-Off With Potential For More Downside
MetalMiner | May 22, 2017 05:58AM ET
The ongoing turmoil over Donald Trump has increased investors’ worries over political stability in the U.S. In addition, investors worry that under these political turbulences, the Trump administration will struggle to implement pro-growth initiatives.
The dollar is one asset that was affected by the news, falling to a 6-month low. Investors have been selling dollars and buying euros as political risks rise in the U.S. and, following the French elections, fall in Europe.
Usually, a falling dollar would give a boost to industrial metal prices, but that wasn’t the case here. Precious metals like gold did benefit from a falling dollar, but it didn’t prevent base metals from declining. This is because investors are now focused on what looks like a slow down in China.
Investors were disappointed when China’s Caixin Manufacturing PMI came at 50.3 in April, the lowest reading since September 2016. In addition, as Beijing talks about curbing credit, investors have come to realize that lower funding for the construction of infrastructure projects will hurt demand for industrial metals.
Just about two weeks ago we noticed that commodity markets were getting in trouble . As time goes on, that weakness is spreading out into industrial metals. Some specific metals are holding their value better than others due to their specific supply narrative, but overall we would expect them to move in tandem, as they always do. Here are some charts suggesting that the bull cycle in industrial metals could be ending:
Nickel falls to a 10-month low. Source: MetalMiner analysis of fastmarkets.com data
Nickel has been the worst performer among industrial metals this year, down 10% in price since January. Its supply side of the equation turned more bearish as Indonesia relaxed its export ban and miners in the Philippines win disputes against environmentalists. Last week, he metal recently fell below Nickel was the first base metal signaling a sift of market sentiment.
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Zinc fall to a six-month low. Source: MetalMiner analysis of fastmarkets.com data
Last week, zinc prices fell to an intraday six-month low , despite another projected deficit this year. The metal ended the week on a stronger note. However, the fact that zinc has fallen in price despite strong fundamentals signals trouble in the industrial metal complex. We’ll watch closely if zinc prices manage to hold above $2,500/mt over the next few weeks.
Lead falls to a 4-month low. Source: fastmarkets.com
Zinc’s cousin, lead, hit a four-month low in May. This metal has been extremely volatile over the past six months, suggesting that bulls are not in control anymore.
Copper tests support levels. Source: MetalMiner analysis of fastmarkets.com data
Copper prices have been range-bound this year. As I .
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