BofAML Warns "Start Looking For An S&P Top"

"It's time to start look for a top in the S&P500," are the cautious words that BofAML's Macneil Curry begins his latest note, adding that this corrections will pressure 10Y yields to new cycle lows.

Via BofAML,

Start looking for an S&P500 top.

Its time to start look for a top in the S&P500. Into 1952/56, worst case 1958/68 we look for a top and resumption of the larger downtrend towards 1887/1865 (14m channel and 200d avg).

10yr yields at risk of resuming their larger downtrend. 

This should put significant pressure on US 10yr Treasury yields to resume their larger bull trend for 2.33%/2.29% (retracement and 6m channel support).

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A break of 1928 in the S&P500 says the downtrend has resumed, while Treasury bulls need a close 2.4109%/2.406% to say that the correction is over.  

MCX-copper: Hovers at a key support level

As expected, the copper futures contract traded on the Multi Commodity Exchange (MCX) has dropped in the last week. However, the contract is still retaining its ₹424-439 a kg sideways range within which it has been trading since July. It is currently hovering near the lower end of this range. Whether the range support at ₹424 is going to hold or getting broken will decide the next leg of move for the contract.

A sharp reversal from ₹424 will mean that the ₹424-439 range would remain intact. It will also increase the probability of the contract moving higher to ₹439 – the upper end of the range in the coming days. In such a scenario upon a reversal, traders with a short-term perspective can initiate fresh long position at ₹425. Stop-loss can be kept at ₹419 for the target of ₹437.

On the other hand, a break below ₹424 will turn the short-term outlook bearish. It will result in the MCX-copper extending its decline to ₹420. This level of ₹420 is a key support level. An immediate break below this level might not be very easy. The overall outlook will turn bearish for the contract only on a strong fall below this level. There is no immediate danger for the medium-term bullish view as long as the contract trades above ₹420.

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High nickel prices trigger series of mine restarts

The huge rally in nickel prices has prompted many companies to restart operations at idled mines. Australia based Avebury Nickel Mines Ltd, Poseidon Nickel Ltd and Panoramic Resources Ltd have announced reopening of nickel deposits to cash in on the rally in nickel prices. More global producers are expected to follow suit.

Perth-based Avebury has announced plans to restart its nickel deposits in Tasmania after being shuttered for nearly six years. The company expects to make new investment of nearly $20 million to reopen the mine which is expected to produce nearly 12,000 tons of nickel concentrates per annum. The facility is expected to restart during early-2015.

Poseidon is reportedly mulling over plans to restart operations at a Western Australian nickel mine. Panoramic Resources too have announced plans to restart mining operations at its Copernicus deposits. According to Norilsk Nickel, the up trending Nickel prices may result in many global firms switch over to mine restarts.

Nickel prices have rallied 56% in 2014, following the ban imposed by Indonesian government on nickel exports from the country. According to analysts, the output from restarted mines would not be sufficient enough to prevent nickel from falling into global deficit. The consensus price forecasts by several agencies hint at nickel prices rallying further to $25,000 a metric ton from the current levels.

EU Aluminum Can industry shows stronger growth during 2013 as exports up

Over the past decade the total beverage can market in Europe further increased and is now well above 50 billion cans per year. The aluminium share rose steadily and today more than 70% of all beverage cans consumed in Europe are made of aluminium.

As per Beverage Can Makers Europe study, last year was a good year for aluminium cans, as some 60 billion were produced throughout Europe for growth of 3% compared to 2012. Nearly 20% of Europe's beer market relies on aluminium as a packaging material. This was only 14% at the start of the century.

"The strong growth in aluminium cans exports is believed to have been a main factor in the can production increase. This positive momentum is hailed as a clear sign that leading soft drinks producers and breweries have become aware of the advantages of aluminium cans. They are increasingly popular as they can be easily filled and may be recycled infinitely," said Carine Lemmens, Chairman of BCME Benelux.

"The continual improvement in recycling rates across Europe is further confirmation that consumers are responding well to industry programmes which promote a recycling culture such as Every Can Counts," said Welf Jung, marketing committee chairman of BCME.

Restricted supply to keep Aluminum prices elevated in Q3 2014

The Quarterly Analysis and Forecast report on Aluminum published by FastMarkets and Sucden Financial forecasts elevated prices and premiums during the third quarter of the current year primarily on account of restricted supply of the metal.

According to the report, the downward trend in Aluminum has ended in early-February this year when the prices touched the bottom of $1,671.25 per tonne. Since then, the prices have been moving in an upward trend. The trend is expected to sustain during Q3 2014. However, forward selling by marginal producers are likely to keep the prices capped in the range of $2,000 per tonne.

The effect of closure of existing facilities is likely to be offset by the new capacities in the Middle East region. Some local governments in China too are seen focused on restarting idled capacities. The production from China will remain surplus, but those from Western countries are likely to drop. The Indonesian export ban, if persists, may affect aluminum production as Chinese bauxite stockpiles are expected to get depleted by early-2015. However, the impact of this will be seen only in 2015, FastMarkets states.

The report also states that aluminum demand will remain robust during the quarter. The metal is expected to win more market share from copper and galvanized steel. It also rules out risk of aluminum shortage in the medium term. Also, the production is expected to remain price-elastic.

MCX-nickel (₹1,159): BUY

It has been a good year so far for Nickel. Indonesia banning the exports of unprocessed nickel ore and bauxite in January this year has helped the metal price to surge. The price on the London Metal Exchange is up 34 per cent so far this year.

The domestic nickel futures contract traded on the Multi Commodity Exchange (MCX) that moves in tandem with the global price is also up 34 per cent over the same period. This uptrend remains intact. So, traders with a short- and medium-term perspective can consider taking long position in this contract.

Short-term view: The MCX-nickel futures contract is consolidating sideways between ₹1,110 and ₹1,175 a kg over the last few weeks. A breakout on either side of this range will decide the next leg of move for the contract.

Within the range, the contract is now moving higher from the lower end of this range in the last two weeks. This leaves open the possibility of a rise towards ₹1,175, the upper end of this range in the coming days. Since the preceding trend is up, the bias is bullish.

The contract can witness a strong break and rise above ₹1,175 in the coming days. Such a break can take the contract higher to ₹1,220 in the short-term. Traders with a short-term perspective can initiate fresh long position now. Stop-loss can be kept at ₹1,005 for the target of ₹1,210.

The short-term outlook will turn bearish only if the contract records a decisive break below ₹1,110. But such a break looks less probable because the ₹1,110 level is a strong support. Both the 21-week and the 100-day moving average levels are poised at this level. So declines below ₹1,110 might not be very easy at the moment. However, if the contract falls below ₹1,110 then it can fall to ₹1,080 in the short-term.

Medium-term view: The medium-term outlook for the MCX-nickel futures contract is bullish. The sharp fall in the contract from the high of ₹1,280 recorded in May has reversed in June from the low of ₹1,047.3. Technically, this reversal has happened from just below the 50 per cent Fibonacci retracement support level of ₹1,050. This keeps the overall uptrend that began in January intact. Resistance for the contract is at ₹1,225. A strong break above this level will open the doors for a rally to ₹1,300 over the medium-term. So traders with a medium-term perspective can hold the long position with a slightly wider stop-loss at ₹1,090 for the target of ₹1,280.

The psychological level of ₹1,100 will be a key support for the contract now. A strong break below this level will negate the chances of an immediate rise to ₹1,300 and can drag the contract lower to ₹1,050 instead.

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Rally in zinc set to stall

Chinese smelters increase production to take advantage of bull run

With a gain of over 20 per cent in the last 12 months, zinc is one of the top five gainers among ferrous and non-ferrous metals in the commodities market. But it is unlikely that zinc will make much headway over the next few months.

One of the reasons for the rally to stall will be rising supply especially with China increasing the output to benefit from the high prices that are prevailing now. A sign of things to come could possible be last week’s fall in zinc prices by four per cent.

Price forecast

On Monday, zinc fell below $2,300 a tonne to $2,295 for delivery in November. From the weekend closing, the drop was $34.

BNP Paribas sees zinc averaging $2,205 in the October quarter and $2,270 in the last quarter. Currently, cash zinc prices are ruling at $2,332 and they are expected to drop to levels of $2,090 this year, according to analysts. Next year, prices could rise to $2,244.

Last week, price fell mainly because London Metal Exchange inventories increased by over five per cent to 6.91 lakh tonnes. It was biggest rise in a week after April. Inventories have also increased in China.

Speculation

Ironically, zinc zoomed because stocks are down by 2.41 lakh tonnes a year. So, what has changed now that the zinc’s progress could be halted?

According to Hermes Fund Managers Ltd, stocks in Chinese warehouses are rising. Reuters quoted Joseph Murphy, analyst with Herms Fund, as saying that the metals market is seeing drawdown in LME stocks but at the same time warehouse stocks are on the rise.

Zinc smelters will get better returns for producing more, which could result in the metal prices being dented.

Hermes said refined zinc demand will exceed supply by 2.5 lakh tonnes this year and 2 lakh tonnes next year, according to BNP.

Traders on LME say that speculation in zinc is ending by shifting to other metals such as aluminium, nickel and lead.

Funds have cut their bearish bets to 39,368, according to LME commitment of traders data, down from over 40,000 in the last week on July.

Copper fallout

Murphy said that ample supplies of zinc concentrate and higher charges for treating apart from surging domestic prices should encourage smelters in China to boost zinc output.

Zinc is also gaining because a probe by Chinese officials revealed that copper is being used as a financial tool. This has moved speculators and hedge funds to zinc on the Shanghai Futures Exchange.

The increasing interest in zinc is supported by Chinese data showing rise in imports to 68,476 tonnes in June, a six-month high. In comparison, copper imports have been dropping since April.

The problem with copper and aluminium is that Chinese authorities suspect that stocks of these metals have been offered as collateral manifold by a multi-national firm owned by a Singaporean.

But now with stocks tending to rise, some traders have taken their foot off the accelerator, while others have begun to cash in their position.

Some commodity brokerages have told their clients to hold back investments of zinc since it had run up too fast.

A drop in prices of zinc, used mainly for steel galvanising, means India could tend to gain as domestic rates are based on 15-day LME average.

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