ETF Securities Commodity ETP Weekly: Are commodities at a turning point?

Pressure on commodities seems to be easing on the back of technical support and better fundamental prospects. Although China imports fell by 17.7% over the past year to September, demand for some…

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commodities remains resilient. Chinese oil imports so far this year rose 9% compared to the same period last year, while copper imports for September surged 18% compared to September 2014, suggesting that fears over China demand slowdown have been overblown. Despite a rising US Dollar (USD) robust Chinese economic activity should lend support to commodity prices this week. Sentiment towards the asset class is turning with investors increasing exposure to long commodity ETPs.

Gold at a four-month high. Gold rose 3.9% last week, marking the second consecutive week of positive returns and closing at a 4-month high at US$1,184.25/oz. on Thursday. Weaker economic indicators from US and Eurozone early in the week saw gold rally alongside a declining US Dollar. In addition, gold reached another technical support last Wednesday, crossing its 200 day moving average upward, often an indication that price increase is likely to continue in the near term. Inflows into long gold ETPs hit an eight-week high of US$42mn and marking five consecutive weeks of inflows. Gold has retraced some of the gains as US inflation surprised to the upside, in turn boosting the USD. Although rate hike expectations have been brought forward, market expectations indicate that the Federal Reserve is likely to begin the tightening
cycle early next year, lending additional support to the commodities complex.

Net inflows into oil ETPs on strong Chinese imports. Oil ETPs recorded net inflows of US$29mn mainly into ETF WTI Crude Oil (CRUD) and ETFS Daily Leveraged WTI Crude Oil (LOIL) on strong demand from China. September oil imports were slightly higher than September last year. However China total oil imports so far this year rose 8.8% above its level at the same period last year, suggesting that Chinese  demand for the commodity has been strong. Meanwhile larger-than-expected increase in US oil inventories last week weighed on the price of oil. WTI fell 6.2%, while Brent plunged 8.2% over the past week, partially offsetting the previous week’s gains. While the oil market remains amply supplied, strong demand from China combined with falling production in the US should eventually trim inventories and support oil prices
in the medium term.

Shift in copper sentiment. Investors appear to be becoming more bullish on copper. ETFS Copper (COPA) recorded net inflows of US$9.1mn (a 10-week high) while ETFS Daily Short Copper (SCOP) saw outflows of US$31.1mn, marking the most aggressive cut in short ETP positions since June 2014. The International Copper Study Group’s (ICSG’s) data revisions have helped fuelled positive sentiment for copper. The  metal has risen 2.5% since the release of ICSG updated figures on 6th of October and 7.3% since its six-year low hit in August. In addition, China copper imports in September 2015 grew 18% year-on-year, underpinning market expectations for tighter market conditions in 2015 and 2016.

Key events to watch this week. While China industrial production for October came below expectations this morning, better-than-expected GDP for Q3 and retail sales should help ease concern over a potential hard landing and lend support to commodity prices this week. Markit manufacturing PMI for October in Europe and the US should provide further colour on the current global demand for metals.


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