President-elect Donald Trump’s policies will eventually have important implications for commodity markets, said Barclays in a research note.
“On the environment, he is a known climate-change denier and promises the country’s environmental agenda will be guided by ‘true specialists in conservation, not those with radical political agendas,’” the bank added.
“The U.S. energy sector is very likely to see a rolling back of environmental legislation affecting producers and consumers, but exactly how this plays out in markets and pricing, it is far too early to say. Likewise in metals, while an infrastructure surge could boost domestic metals demand, his plans to introduce import tariffs on many countries and the tit-for-tat that will go with it could lead to slower world GDP (gross-domestic-product) growth such that the net metals demand change from a global perspective is negative,” said analysts at Barclays.
Barclays later added, “Although we caution against reading too much into early commodity price moves following Trump’s election, there is perhaps one indicator that is meaningful: the fact that gold prices, although spiking higher initially, have now returned to their pre-election levels suggests that as with the Brexit vote, his victory seems unlikely to be the risk-off event that many had feared, at least in the short term.”
United States scrap gold prices declined on Friday, while gold futures prices at New York Mercantile Exchange settled down to mark their lowest finish since June.The major gold scrap commodities on the Scrap Register Price Index traded lower on Friday. The 9ct hallmarked gold scrap prices declined by 2.449% to $449.759 an ounce and 14ct hallmarked gold scrap prices traded lower to $701.624 an ounce. The 18ct hallmarked gold scrap and 22ct hallmarked gold scrap prices also down at $899.517 ounce and $1098.611 an ounce respectively.
According to Scrap Register Price Index, the 9ct non-hallmarked gold scrap prices fell to $425.416 an ounce and 14ct non-hallmarked gold scrap prices down to $663.649 an ounce on Friday. The 18ct non-hallmarked gold scrap and 22ct non-hallmarked gold scrap prices are also traded slightly lower at $850.832 an ounce and $1039.15 an ounce respectively.
The most active December gold contract on the COMEX division of the New York Mercantile Exchange down by $42.10 to $1,224.30 an ounce on Friday, the lowest close since early June.
Gold futures prices at New York Mercantile Exchange settled down on Friday as strength in the U.S. dollar and equities this week, and growing expectations for a Federal Reserve interest-rate increase next month, fueled the largest weekly decline in more than three years.
United States silver scrap prices fell on Friday, while silver futures prices at New York Mercantile Exchange failed to post gains this week, though its loss is smaller than that of gold’s.
The major silver scrap commodities on the Scrap Register Price Index traded higher on Friday. The hallmarked silver scrap prices up by 0.85% to $15.304 an ounce and non-hallmarked silver scrap prices declined to $13.585 an ounce.
The most active December silver contract on the COMEX division of the New York Mercantile Exchange dropped $1.355 to end at $17.382 an ounce on Friday, the lowest finish since early October. Silver logged about a 5.4% weekly loss.
Copper futures, meanwhile, saw a weekly climb of nearly 11%, which was the largest in over five years, as traders bet that policies expected to be pursued by Republican Donald Trump’s administration could feed demand for industrial metals.
Copper prices have climbed 25% in November after hovering at lows in the first ten months of this year.
Is fundamental really improving? Will fundamentals support copper to maintain its momentum in 2017?
The recent sharp gains in copper prices are due mainly to liquidity, risk aversion and boost from other commodity markets, not fundamentals, said a senior copper analyst from SMM at the 2016 SMM Summit. Copper prices will rise at first and then fall next year.Supply
Global Copper Ore Supply to Slow in 2017
China’s copper ore output grew slowly in 2016. As copper prices have consolidated at lows this year before recent gains, some Chinese copper mines delayed commissioning of expanded and suspended products. Domestic copper ore output will increase 4.4% in 2017 after these capacities delayed come online. SMM finds in a survey that some copper mines will restart production if copper prices maintain upward momentum.
Output at overseas mines, in contrast, grew much more rapidly this year. Output at global copper mines increased over the past two years. Global supply grew nearly 5% in 2016, but the increase will slow to 3% in 2017, SMM predicts based on an SMM survey.
China Will have 1 Million Copper Refining Capacities Coming online in 2017
Growth rate of refined copper output will decrease slightly in 2017 due to fewer refined copper projects in 2016, SMM predicts based on a survey which covers 90% of Chinese copper smelters. But, growth rate will rebound in 2018 as capacities coming on stream in 2017 step up production.
SMM statistics show only three new copper smelters put capacity into production in 2016. About 1 million tonnes of refined copper capacity will be brought online in 2017, mainly in the latter half of the year, which will affect growth of refined copper output in 2018.
China’s refined copper supply will increase 4.9% in 2016, with output of 7.76 million tonnes, SMM said. Growth in refined copper supply will slow to 3.1% in 2017, and output is expected to be 8 million tonnes. In 2018, the growth will rebound to 3.8% and output will be about 8.30 million tonnes.
Release of Bonded Zone Inventories may Add to Supply Pressure
Sharp drop in copper inventories in China and overseas markets is attributable to recent copper price increases. While visible inventories fell, invisible inventories increased, SMM understands.
There are about 470,000 tonnes of copper inventories in Shanghai bonded zone at present, SMM learnt. These inventories include occupied inventories, such as those for financing purpose, and flowing inventories.
Occupied inventories in bonded zone converted to flowing inventories after the Qingdao port scandal in 2014, adding to supply. As China is tightening regulations on copper imports for financing and arbitrage purpose, the remaining 300,000 tonnes of occupied inventories will put pressure on China’s copper supply, but not any time soon.
On the demand front, copper consumption topped market expectations in 2016. Operating rates at copper processors are higher this year compared to 2015, with sales at some copper wire rod producers increasing in the first half of the year, according to SMM survey.
Copper Consumption by Industry
Copper consumption by the power industry was strong in 2016 because of rapid power grid investment and aggressive installation in the PV industry before June 30. SMM had found in a survey copper wire rod producers benefited from high power grid investment.
China’s fiscal expenditure in power grid investment is high this year. But with high government debt, investment in power grid will unlikely see rapid growth next year, but will stay high, SMM reckons.
Home inventories in China fell sharply this year, but stock depletion will stop next year. Home appliance industry also benefit from this in 2016. Any further contribution to copper consumption by the property market will be very small in the latter half of 2016.The air conditioner market weakened at first but then improved in 2016 due to tail effect of the property market. Air conditioner inventories decreased from 50 million sets early this year to 25 million sets. Copper consumption by the air conditioner industry will continue to rise in the first half of 2017, but fall in the latter half of the year, also because of tail effect in the real estate industry, SMM said.
China’s automobile output and sales were strong this year, helped by preferential purchase tax policy. After the policy is abolished by the year’s end, growth in the automobile industry will slide remarkably next year, SMM believes. Nonetheless, growth in new energy vehicles and urban railway system will offset declines in copper consumption.
Outlook for Copper Supply & Demand Balance in 2017
China’s copper consumption will increase 2.8% in 2016, but down to 2.6% in 2017, SMM foresees. Growth will bounce back to 3.2% in 2018.
China Copper Supply & Demand
China’s refined copper output will be 8 million tonnes in 2017, with imports of 3.55 million tonnes and 400,000 tonnes of exports. Copper consumption will be 11.88 million tonnes, up 2.55%.
Copper Price Outlook in 2017
LME copper prices will move between $4,600-6,470 per tonne in 2017, and SHFE copper will fluctuate in the 36,800-51,760 yuan per tonne range, SMM anticipates.
Closures at zinc mines in 2015 have shown result to zinc market in 2016, SMM said at the 2016 SMM Summit.Century and lisheen mine were shut down in 2015. Glencore cut capacity at its mines in 2015. After its announcement, LME zinc surged 10% on the same day.Hindustan Zinc slashed output by 830,000 tonnes in 2016. As such, global zinc concentrate shortfalls will reach 170,000 tonnes in 2017, SMM predicts at the Summit.
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