Weakness in Copper Prices

COPPER

Noted weakness in copper prices this morning is a little surprising as Chinese economic data overnight (industrial production and retail sales) showed slightly positive readings. Granted the industrial production gain was slightly smaller than expected, but the February reading was nearly twice as strong as the January report. Furthermore, Chinese retail sales reportedly grew at 3.5% which was right on expectations and significantly improved from the prior month’s contraction of 1.8%. Apparently, the bull camp is not interested in upbeat commodity stories from China, as reports of a significant jump in Chinese commodity output in the first 2 months of this year has not been seen as a sign of recovery in the Chinese economy. It should be noted that the peak commodity output period in China begins later this month. The copper bears might be drawing confidence from a large 3,225-ton increase in LME copper warehouse stocks overnight.

GOLD / SILVER

While the dollar index rejected a new low for the move overnight, the breakdown to the lowest level since early February provides only a minimal amount of cushion for gold and silver prices which are under an early liquidation wave. While some analysts indicate the aggressive reversal action in gold and silver this week is the result of market sentiment decreasing the prospects of a 50-basis point hike by the US Fed, it is possible the reversal was the result of a reduction in prospects that inflation might show it is immune to higher rates. With the gold and silver trade facing another inflation reading in the form of Producer Prices today and the trade expecting a minimal downtick from the prior month, the bear camp looks to retain control. While Chinese economic data released overnight registered “positive forward movement,” many commodities market this morning are showing disappointment in the lack of even stronger recovery action. We discount overnight suggestions that gold and silver are under pressure because of rising treasury yields as yields this morning sit significantly below the levels posted at the beginning of this week. In retrospect, the prospect of shifting into an old-fashioned inflation driven rally were dashed yesterday by mundane US CPI readings and we suspect more of the same will be seen today following US PPI. The CFTC released another weekly positioning report yesterday reducing the number of delayed reports caused by hacking.

PALLADIUM / PLATINUM

With the platinum market showing positive correlation with the gold market earlier this week, the sharp decline early this morning confirms the link between the two markets remains in place. The tight track between platinum and palladium could moderate after this morning’s data as the gold market focus returns to the dollar track while the platinum trade might shift its focus toward views on the global economy and overall market sentiment. However, the PGM markets are likely to see an outsized impact from today’s Chinese industrial production and retail sales readings as auto sector demand remains key to the world supply and demand balance of platinum. In fact, recently the World Platinum Investment Council forecast a large annual deficit this year and that combined with a very gradual improvement in Chinese car demand could result in palladium seeing its supply and demand shortage expand significantly. While the palladium market has not displayed strength from signs of industrial demand improvement this year as platinum, the slightly less aggressive washout this morning confirms the markets are generally trading in sync.

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