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.

hindubusinessline

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.

hindubusinessline

Lead up on supply concerns

Increase in demand and widening deficit to support price rise

Lead prices on the LME have risen 9.5 per cent since March, led by a slowdown in mine production and a relatively higher demand. Lead is used largely in car batteries. About 80 per cent of the metal is used in the lead acid batteries used in vehicles.

According to data from Bloomberg, the number of lead-acid batteries in newly assembled passenger and light vehicles is projected to go up 4.8 per cent in 2014 to 86.82 million. The pick-up in the global automobile sector is a big plus for the lead market.

In the domestic market too, lead futures on MCX have been moving up. Traders who have a medium-term outlook can go long on the contract.

Demand outstrips supply

Demand for refined lead, which was up just 0.4 per cent in 2012, surged 7 per cent in 2013 to 11.22 million tonnes. This year, the International Lead and Zinc Study Group (ILZSG) forecasts demand to increase over 4 per cent to 11.73 million tonnes.

China, the world’s largest consumer of lead, is expected to show a large appetite for the metal. Though the country’s lead consumption in the first four months of this year (January-April) is down 10 per cent, ILZSG forecasts it to rise 7.4 per cent for the full year.

Supply, however, is going to be tight. The global output of lead from mines is expected to rise by just 5 per cent in 2014 after a 7.6 per cent increase in 2013, says the ILZSG, widening the deficit in the market.

From a 1,000-tonne shortage in 2013, deficit in lead in the first four months of this year has widened to 12,000 tonnes. The ILZSG estimates the shortage to widen to 50,000 tonnes in 2014. Increasing deficit will help lead prices crawl up.

India relies largely on imports to meet its domestic lead demand. Data from the Ministry of Commerce show that after two consecutive years of a fall in imports from 2010-11, lead imports surged 25 per cent in 2012-13 and 2 per cent in 2013-14.

A weak rupee could keep domestic lead prices higher this year with the metal’s futures price broadly tracking international prices.

Technical outlook

Medium-term view: The medium-term outlook for the MCX-lead (₹137 per kg) futures contract is bullish. The strong downtrend that was in place since August 2013 reversed last month.

Also, as this reversal has happened after forming a double bottom pattern between March and June this year, the chart looks very bullish now. The neckline support of this pattern is at ₹130.

The bullish outlook will remain intact as long as the contract trades above this level. Intermediate dips to this support level may attract fresh buying interest.

So traders with a medium-term perspective can go long on the contract at current levels. More long positions can be accumulated at ₹135 and ₹132 if an intermediate pullback is seen. Stop-loss can be kept at ₹127 for a target of ₹150.

The medium-term outlook will turn bearish only if the contract falls decisively below ₹120. The ensuing target on such a break will be ₹115.

Short-term view: MCX lead is in a strong uptrend in the short-term perspective as well.

The contract has consolidated in the form of a triangle in the last week of July and has witnessed a bullish breakout last week.

Immediate support for the contract is at ₹136. The 21-day moving average at ₹134 is a key short-term support for the contract. Above this level, a rally to ₹145 looks likely in the short term.

The outlook will turn negative only if the contract records a strong close below the 21-day moving average level.

The targets on such a break will be ₹130.

hindubusinessline

Looking For The Spark Of World War 3 ?

Any American influence left in Iraq should focus on rebuilding the credibility of national institutions.

– Editorial, The New York Times

Gosh, isn’t that what we spent eight years, 4,500 lives, and $1.7 trillion doing? And how did that work out?The Iraq war is just like the US financial system. The people in charge can’t imagine writing off their losses. Which, from the policy standpoint, leaves the USA pounding sand down so many rat holes that there may be no ground left to stand on anywhere. We’ll be lucky if our national life doesn’t soon resemble The Revenge of the Mole People.

The arc of this story points to at least one likely conclusion: the dreadful day that ISIS (shorthand for whatever they call themselves) overruns the US Green Zone in Baghdad. Won’t that be a nauseating spectacle? Perhaps just in time for the 2014 US elections. And what do you suppose the policy meeting will be like in the White House war room the day after?

Will anyone argue that the USA just take a break from further operations in the entire Middle East / North Africa region? My recommendation would be to stand back, do nothing, and see what happens — since everything we’ve done so far just leaves things and lives shattered. Let’s even say that ISIS ends up consolidating power in Iraq, Syria, and some other places. The whole region will get a very colorful demonstration of what it is like to live under an 11th century style psychopathic despotism, and then the people left after the orgy of beheading and crucifixion can decide if they like it. The experience might be clarifying.

In any case, what we’re witnessing in the Middle East — apparently unbeknownst to the newspapers and the cable news orgs — is what happens in extreme population overshoot: chaos, murder, economic collapse. The human population in this desolate corner of the world has expanded on the artificial nutriment of oil profits, which have allowed governments to keep feeding their people, and maintaining an artificial middle class to work in meaningless bureaucratic offices where, at best, they do nothing and, at worst, hassle their fellow citizens for bribes and payoffs.

There is not a nation on earth that is preparing intelligently for the end of oil — and by that I mean 1) the end of cheap, affordable oil, and 2) the permanent destabilization of existing oil supply lines. Both of these conditions should be visible now in the evolving geopolitical dynamic, but nobody is paying attention, for instance, in the hubbub over Ukraine. That feckless, unfortunate, and tragic would-be nation, prompted by EU and US puppeteers, just replied to the latest trade sanction salvo from Russia by declaring it would block the delivery of Russian gas to Europe through pipelines on its territory. I hope everybody west of Dnepropetrovsk is getting ready to burn the furniture come November. But that just shows how completely irrational the situation has become… and I stray from my point.

Which is that in the worst case that ISIS succeeds in establishing a sprawling caliphate, they will never be able to govern it successfully, only preside over an awesome episode of bloodletting and social collapse. This is especially true in what is now called Saudi Arabia, with its sclerotic ruling elite clinging to power. If and when the ISIS maniacs come rolling in on a cavalcade of You-Tube beheading videos, what are the chances that the technicians running the oil infrastructure there will stick around on the job? And could ISIS run all that machinery themselves? I wouldn’t count on it. And I wouldn’t count on global oil supply lines continuing to function in the way the world requires them to. If you’re looking for the near-future spark of World War Three, start there.

By the way, the US is no less idiotic than Ukraine. We’ve sold ourselves the story that shale oil will insulate us from all the woes and conflicts breaking out elsewhere in the world over the dissolving oil economy paradigm. The shale oil story is false. By my reckoning we have about a year left of the drive-to-Walmart-economy before the public broadly gets what trouble we’re in. The amazing thing is that the public might get to that realization even before its political leadership does. That dynamic leads straight to the previously unthinkable (not for 150 years, anyway) breakup of the United States.

What A Wonderful Thing To Understand. Metal-Forex-Trader 700th Post, Thanks To Everyone, Keep on Reading.

This is what implied to our trade too, holding a position which is in loss, give us the same stress and worries, if we are not following stop losses. It's an individual capacity how long he can hold.

Remember to put the glass down as soon as possible.

The CDC's Worst Nightmare (Or What Nigeria Has To Look Forward To)

With more than 1600 people in Guinea, Liberia, and Sierra Leone having contracted Ebola since March, CDC Director Frieden's "deeply concerned about Lagos, Nigeria" worst nightmare looks set to come true as the pace of cases (and deaths) in the nation begins to accelerate. As the following chart shows, Nigeria - now in a state of national emergency - has this to look forward to (though on a scale significantly higher since population density is dramatically higher).

This is already the worst outbreak in history...

And it's getting worse...

Source: NY Times

Hedge Funds Snub Natural Gas Rally as Supply Gains Loom

Hedge funds are betting that the rally in U.S. natural-gas prices won’t last.

Money managers cut the combined net-long position across four benchmark contracts by 21 percent in the week ended Aug. 5, after 15 weeks of above-average stockpile increases. Bullish wagers retreated to an 18-month low even as futures traded in New York gained 2.3 percent in the report week, U.S. Commodity Futures Trading Commission data show.

Goldman Sachs Group Inc. cut its price forecast last week as shale-gas production in the eastern U.S. surged to an all-time high. Power demand in June and July fell to five-year seasonal lows amid unusually cool weather from Texas to Boston, Edison Electric Institute data show. Gas futures have dropped 12 percent since the start of summer.

“If you are a money manager and you see above-average storage injections week after week and a decline in price, selling is rational,” Tim Evans, an energy analyst at Citi Futures in New York, said by phone Aug. 8. “There’s no massive heat wave consistently across the U.S. that is going to spike air-conditioning demand, and we continue to see production numbers that show robust growth.”

Natural gas advanced 8.9 cents to $3.897 per million British thermal units on the New York Mercantile Exchange in the period covered by the CFTC report. The contract for September delivery closed at $3.962 on Aug. 8.

Stockpile Gains

Gas inventories rose by 1.567 trillion cubic feet since late March to 2.389 trillion on Aug. 1, the fastest pace of storage injections for the period in U.S. Energy Information Administration data going back to 1994. A deficit to the five-year average narrowed to 20 percent from a record 55 percent.

Power generation in the lower 48 states averaged 83,230 gigawatt-hours from June through July, the least for these months since 2009, Edison Electric data show.

“Extreme heat that would normally cause a lot of A/C demand has not materialized at all,” Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston, said by phone Aug. 7.

Goldman Sachs

Goldman Sachs reduced its outlook for the fourth quarter to $4 from $4.25, Brian Singer, a New York-based analyst with the bank, wrote in an Aug. 8 note.

Below-normal temperatures in eastern states through Aug. 17 will be followed by above-average readings along the East Coast, said MDA Weather Services in Gaithersburg, Maryland.

The EIA says record production will help boost U.S. supplies to 3.431 trillion cubic feet by the end of October as new wells come online at shale deposits such as the Marcellus in the Northeast, where daily output topped 15 billion cubic feet for the first time last month.

In other markets, net-long positions in benchmark West Texas Intermediate crude fell by 40,360 contracts, or 15 percent, to 236,381 futures and options. Longs fell 7.3 percent, while shorts surged 56 percent. WTI dropped 3.6 percent to $97.38 a barrel in the report week.

WTI futures climbed as much as $1.11 on Aug. 8 as U.S. warplanes attacked Islamic State militants in Iraq, before settling 31 cents higher at $97.65. Prices were down 6 cents to $97.59 at 6:51 p.m. yesterday in New York.

U.S. Airstrikes

Coming to the aid of Kurdish forces near Erbil, the regional capital, the U.S. used fighter jets and armed drones yesterday to destroy several armed trucks and a mortar position held by militants, the U.S. Central Command in Tampa, Florida, said in a statement. Iraq’s parliament adjourned for a week without breaking a deadlock over who should become the next prime minister.

Prices reached a nine-month high in June after the militants captured the Iraqi city of Mosul, before dropping when the rebel advance stalled, sparing the country’s south, home to more than three-quarters of its oil output.

“There’s been an upsurge in geopolitical tension but no interruption of supply so investors see no reason to jump into the market,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said in an Aug. 8 interview.

Bullish bets on gasoline dropped 1,591 contracts, or 5.2 percent, to 29,164, the lowest since February. Gasoline futures dropped 5.4 percent to $2.7155 a gallon on the New York Mercantile Exchange in the period covered by the CFTC report, the lowest settlement since Feb. 6.

Pump Prices

Regular gasoline at the pump, averaged nationwide, rose to $3.478 a gallon Aug. 9, according to Heathrow, Florida-based AAA, the largest U.S. motoring group. Prices had slipped to $3.475 Aug. 6, the lowest level since March.

Net-short positions in ultra low sulfur diesel more than doubled to 18,602 contracts, the most since June 2013. The fuel dropped 2.1 percent to $2.8469 a gallon in the report week.

Net-long positions on four U.S. natural gas contracts declined by 40,542 futures equivalents to 152,007, the lowest level since Nov. 26. Bullish wagers have dropped in 14 of the past 15 weeks.

The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.

Long positions fell 7.5 percent to 433,643, the least since Jan. 15, 2013.

“Money managers have been cutting their exposure to natural gas since February and this is just following through on that decision,” Evans said. “Prices are still below $4 and it’s not clear that the recovery we saw this week is going to be sustained.”

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net