Overview: Commodity performance continues to be mixed as investors weigh concerns over the sustainability of Chinese growth against a broadening of the US economic recovery and possible reduction in Fed bond buying. The three major central bank meetings this …
ETF Securities Research
week will be closely watched for indications of possible policy changes. Some cyclical commodities such as crude oil and copper have been pressured by investor fears over the moderation of Chinese indicators, though positive rhetoric from Chinese officials recently, indicates they remain committed to growth. Strong ETP inflows into some of the less followed industrial metals, such as zinc, highlight potential attractive opportunities for investors as tighter conditions have buoyed prices.
ETFS Zinc (ZINC) receives record inflows, totalling US$14mn, on expectations of mine capacity closures. The Zinc price has fallen by over 10% since the beginning of the year on weak global demand. Although the zinc market is expected to be in a surplus in 2013, the recent drop in the silver price could trigger production cuts. Silver is the biggest by-product of zinc production and a persistently weak silver price may further reduce the output of zinc. At the same time, persistent oversupply concerns drove US$16mn of outflows from ETFS Nickel (NICK) last week.
ETFS Daily Short Silver (SSIL) registers the largest inflows since March 2012, totalling US$8mn. Silver was the second best performing commodity last week on the back of dwindling fears of an early exit of the Fed from its QE programme and a weaker US Dollar. With the US economy continuing to show signs of improvement, investors appear to be hedging against potential downside price risk. Oil ETPs see US$14mn of outflows on strong US production. Outflows were mostly concentrated in WTI crude ETPs, as investors focussed on US oil production hitting its highest level in over 20 years. According to the EIA, US oil inventory at Cushing dropped by more than 2 million barrels last week and they now stand below year-ago levels. Total US stocks were down 2.8 million barrels compared to the previous week.
Long wheat ETPs record US$3.4mn of inflows as recent price weakness attracts bargain hunters. Wheat price reached a 13-month low last week as market remains well supplied. However, a potential cold snap on the Brazilian wheat crop could help to lift prices in the next few weeks.
Profit taking drives another week of outflows from platinum and palladium ETPs. Over the past month, Platinum Group Metals (PGMs) have been the best performers across metals markets. Expectations of labour disruptions in South Africa, platinum’s first and palladium’s second biggest producer, have kept prices supported. News that Amplats, platinum’s largest producer, returned to profit in HY1 2013 also helped support PGM prices last week.
Key events to watch this week. A number of manufacturing PMIs will be released this week and provide investors a gauge for the strength of the global recovery. US Q2 GDP and non-farm payrolls will also be watched closely for signs of a strengthening of the US economy. Investors will also be monitoring the monetary policy announcements by the Fed, ECB and the BOE for clarity regarding any expansion of stimulus activities.