Copper Prices: Better China Data Supports, Stronger USD Weighs

Copper prices were initially stronger on the week benefiting from better Chinese data. The China Manufacturing PMI for February came in at 51.6 vs. 51.2 expected while the Caixin PMI was also stronger at 51.7 vs. 50.8 expected. Data from China has been increasingly positive over recent weeks and is fuelling a boom in demand for Copper as investors speculate that the positive momentum in the economy will translate into increased construction and manufacturing activity.

Further support came from Donald Trump’s speech before Congress where he promised to ask the house for a $1trln infrastructure investment.  The metals complex soared last year in response to Trump’s election and his proposed increase in infrastructure expenditure which is now set to be significantly bigger than the initially stated $550bln figure.

Despite the stronger start to the week, Copper prices retraced lower on Thursday as an uptick in Fed rate hike expectations fuelled a rally in the US Dollar. Fed’s Brainard reiterated the message contained in the January FMC minutes saying that rates can rise “soon.” Market pricing of a March rate hike has now jumped from around 34% at the start of the week to over 70% heading into the weekend.

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Copper prices continue to consolidate just below the prior 2016 high. For now, the focus remains on the upside, and the next key objective for bulls will be a test of the bearish trend line from 2011 highs alongside the 2015 high at 2.963.

Iron Ore: Quiet Markets Despite Rising Coal

Iron markets have been particularly quiet this week with little movement marking a distinct contrast from the wild swings seen over the last year as market volatility has increased. Even rising coking coal prices haven’t had much impact on the iron prices. One question which is growing in discussion is whether or not the rally in iron prices will see a reopening of Chinese mines which had closed down when the sector began to deteriorate years ago. A renewal could help Chinese steel mills shrink their raw material import costs which would boost margins as steel prices rise.

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After surging above the prior $84 level resistance, prices have now settled beneath the $94 mark which is the key resistance level for now.

Zinc: Stronger US Dollar Weighs on Zinc

Zinc prices strengthened initially on the week owing to better data out of China which stoked speculation that construction activity will begin to increase. However, a stronger US Dollar into the end of the week put pressure on prices which fell back.

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After retesting the 2016 high, Zinc prices fell back lower but are currently still above the key pivot at the 2010 high of 2735. 9. While this level holds, the focus remains on the upside, a breach of that level opens up the way for a deeper retest.

Aluminium: Chinese Production Cuts Fuel Rally

Aluminium prices exploded higher this week, benefiting from China’s latest plans to tackle air pollution by reducing aluminium capacity.  The Chinese government has circulated an order calling for caps on production. This latest effort comes after the government made similar efforts to reduce coal output last year, which sent coal prices soaring. Aluminium is already up 15%, beating both nickel and copper. The production cuts should wipe about 30% of Chinese supply over the winter season. Chinese production has been rising around 2% a month over the last six months according to Deutsche Bank.

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The rally in Aluminum prices has seen prices test the early 2015 low which is key resistance. A break here suggests room for a deeper correction higher while a retracement lower from here targets support at the 2.865 level which was the prior October 2016 high.