Wednesday, March 16, 2016

Industrial Metals: Bull Market or Dead Cat Bounce?

After a disastrous year in 2015, industrial metals started off on the right foot in 2016. Indeed, every single base metal is up in price on the year-to-date.
But, is this price rally just another dead cat bounce or the start of new bull market? and, what factors do we need to watch for more clues?

Sharp Rallies Are Usual in Bear Markets

Industrial Metals: Bull Market or Dead Cat Bounce?
Since the commodity bear market started in the spring of 2011, we’ve had several price rallies in industrial metals (see the graph above), that made some people think that a new bull market was underway. It wasn’t. Sharp price rallies are not unusual in bear markets and, although base metals are showing strength, we need more evidence before confirming that this won’t be another bounce followed by further declines like we’ve seen before.

Crude Oil and Base Metals Move Simultaneously

The main driver causing metal prices to rally this quarter is the oil price recovery that’s been happening since February. Lower fuel prices have compounded the longest commodity slump in a generation as oil is also key input in the cost of producing industrial commodities.
Oil prices rally since February
Moreover, oil is an asset closely followed by commodity investors. Falling oil prices make investors move away from commodities and, of course, industrial metals. Finally, the latest recovery in oil prices has caused oil-exporting countries such as Russia and Canada to strengthen their currencies against the US dollar. Therefore, higher oil prices contributed to a weaker dollar these past few weeks as we’ll explain soon.

As we just reported in our latest MMI, Saudi Arabia and other powerful OPEC members are reportedly discussing how to boost oil prices to $50 per barrel. Despite reports of a Russia and Saudi Arabia-approved production freeze, however, other non-OPEC nations such as Iraq still have not committed to cutting their own oil production. New production from Iran has entered the market at a much lower pace than most expected, but there is also good reason to believe Iran will ramp up production gradually as it deals with the nuances of re-entering global oil trading.
Similarly to what we see in base metals, it’s not possible to know if this oil price rally is sustainable or not. What is true is that we’ve seen oil prices bouncing in previous years, only to then see them slump so we need more evidence to believe oil prices will continue to rise. What oil prices do from now will have a huge impacts on metal prices.

Did the US Dollar Bull Market Just End?

US dollar index moving sideways for over a year

Base metals as commodities move in opposite directions to the dollar. In Q4 of 2015, a rising US dollar contributed to the slump in base metals. However, some factors have made the dollar weaken this quarter, helping push metal prices up.
As explained above, a recovery in oil prices contributed to a weaker dollar this quarter. Also, the Euro is gaining against the dollar after the European Central Bank recently announced that it probably won’t lower interest rates more.
The dollar index (shows the performance of the dollar against a basket of currencies) has traded within main support and resistance levels (red lines in chart above) for over a year. The dollar might be topping, but it’s to early to say that. We would to see if the index breaks below support levels to call for the end of the dollar’s bull market. If that happened, we would be more inclined to call a sustainable rebound in metal prices.

China: No Signs of Rebound

Shanghai stock market composite index

Another big factor that affects the price performance of industrial metals is China. For a sustainable rally in industrial metals we’d like to see a recovery in China, but we haven’t seen that yet. That could change but, so far, it makes the rally in base metal prices a bit suspicious. Investors’ sentiment on China hasn’t become bullish yet, at least we see that reflected in the performance of China’s stock market, which is hovering near the lows recorded in January.
Chinese February imports hit a new 6 year low

Fundamentally we don’t see signs of a turnaround, either. Indeed, if anything fundamentals are signaling more choppiness ahead. Recently, China reported a large drop in exports since the beginning of the financial crisis, with February exports down 25% year over year, confirming weak global demand which will likely be a drag on China’s economic growth in 2016. Even more worrisome for commodities might be the slump in imports. China’s imports in February fell to the lowest levels in six years, confirming weak demand in China.

Is it Now a Good Time to Buy Forward?

Well, that depends on what type of buyer you are. If you are a bottom picker then you are probably tempted to buy large quantities at these low prices. However, picking bottoms is easier said than done and it’s hardly ever a good strategy.
Source:MetalMiner

25 comments:

  1. Know how to avoid loss and get profit consistently in the Stock market. Keep updated with Epic Research.

    ReplyDelete
  2. Great and valuable post, thanks for the information provided in the post. For successful trading you can get perfect and accurate Free Stock Tips , free share market tips, commodity tips, equity tips by our market experts.

    ReplyDelete
  3. The Forex trading sign can be a advice intended for entering any buy and sell using a currency exchange pair, generally in a distinct value in addition to occasion.

    binary options brokers

    ReplyDelete
  4. In base metals counter Nickel may open in green along with zinc while rest of the metals can trade with sideways bias.
    financial advisory company

    ReplyDelete
  5. Base metal includes Gold metal, Silver, crude, copper and other commodities like jeera, gaurseed, Haldi, Soyabean etc which hold major market and can brings proper benefit with benefits.

    Base metal includes Gold metal, Silver, crude, copper and other commodities like jeera, gaurseed, Haldi, Soyabean etc which hold major market and can brings proper benefit with benefits.
    Which closes 29486 take a high of 29900 and low at 29400 that means there is lots of variation in metal of gold and silver exihibit at 36990 per kg took a high at 37063 and low 36882 for more online Commodity trading you can visit.

    ReplyDelete
  6. SELL GOLD BELOW 30290 1st TGT 30240 2nd TGT 30190 SL 30250
    commodity Tips
    connect directly on whatsapp 9669568408

    ReplyDelete
  7. I always make profit through this blog ,,,
    Stock tips

    ReplyDelete
  8. your page is very useful for me thanks for this information. if anyone who is interested in the stock market trading then please visit our website and takes 2 days free trial "click on this link"
    stock market tips

    ReplyDelete
  9. I have read your blog, It is very useful ,Thank you very much.
    Commodity HNI Tips
    Commodity Gold Tips

    ReplyDelete
  10. your article is so convincing that I never stop myself to say something about it. You’re doing a great job, Keep it up. This article is very useful for all the traders who want to learn about the stock market. anyone who wants a free trial in the stock market tips and MCX tips

    ReplyDelete
  11. Theequicom blog is one of the finest resource for latest and important Indian stock market updates. It also provides you daily market gainers and losers.

    Theequicom Financial Services Reviews
    jobs in The Equicom

    ReplyDelete
  12. This blog always gives wonderful trading tips and suggestion for future profit and trade. I always get latest information and market predictions...
    Abr Venture Financial Services

    ReplyDelete
  13. your page is very useful for me thanks for this information. if anyone who is interested in the stock market trading then please visit our website MRSSteel

    ReplyDelete


  14. Your Blog is really helpful for every traders.Keep It Up. Get Free Commodity Tips Trial & Make Profit on Daily basis.
    Nifty & Sensex
    CapitalStars
    CapitalStars Pricing

    ReplyDelete
  15. MI (Market Information) Research is a SEBI Registered certified Share Market Advisory Company providing information based tips for Stock Markets. Our services include Stock Tips, Commodity Tips, Equity Tips, MCX & NCDEX Tips.
    MI Research
    MI Research reviews
    MI Research job


    ReplyDelete
  16. Hey, I just visited your blog and it looks like you had done quite good work,thanks for sharing this impotent Tips About MCX Tips

    ReplyDelete
  17. Nice Article. Thank you for sharing the informative article with us.
    This post is helpful to many people. stockinvestor.in is a stock related website which provides all stocks related information like new stocks and shares available in the stock market.
    kotak mahindra asset management
    kpit technologies


    ReplyDelete
  18. Mashreq Bank is providing the Term deposit rates for the online bank account, This provides the best user experience.

    ReplyDelete
  19. I have read your articles many times and I am always inspired by your tips and knowledge. Thank you for sharing.
    Stock cash

    ReplyDelete
  20. Nice Article. Thank you for sharing the informative article with us.
    invest in stocks
    stock
    dividends

    ReplyDelete
  21. Thank you, for getting something new and saluting the irrationality of this story, hopefully it will be useful, so that this life is more useful and useful for others.

    Benefits of technical support call center

    ReplyDelete