Weekly Update (Week of 4/10/2023)
Weekly Update: April 10th, 2023
Trading Portfolio: (It is a link to Google Sheets)
General Major News/Economic Developments
- The USA is experiencing record spending on construction and manufacturing as some business elect to bring more things on shore.
- Japan will maintain monetary easing.
- March job reports show that hiring is slowly cooling down and stabilizing.
Metals
Developments/News
China is the world's largest steel producer, but it still imports a significant amount of steel from other countries. In 2021, China imported over 40 million tonnes of steel, primarily from Japan, South Korea, and Russia.
So what does China do with all this imported steel?
Firstly, it is important to note that China's demand for steel is constantly increasing due to the country's ongoing construction boom, infrastructure development, and growing manufacturing sector. Therefore, a significant portion of the imported steel is used to meet this increasing demand. In addition to meeting domestic demand, China also exports a considerable amount of steel. China has become a major player in the global steel market, and it is now the largest exporter of steel products. The imported steel is used in Chinese factories to produce finished goods, which are then exported around the world. China also uses imported steel to upgrade its own steel mills and manufacturing facilities. The country is constantly seeking to improve its production capabilities and efficiency, and importing steel from countries with advanced technology and manufacturing processes can help achieve this goal. Overall, imported steel is used to meet China's growing domestic demand, support its manufacturing sector, and contribute to its position as a major player in the global steel market.
Gold
Technically, gold needs to hold 2000 to continue the run to the upper trend line marked in blue. We did have turbulence around 2035-2050 and I expect that area to continue to give trouble unless we get a quick, clean, supply-eating break over it.
In macro news, Texas lawmakers have suggested a gold-backed stablecoin issued by the government. This bodes a modernized take on a return to the gold standard. China continues to build its stockpiles in gold, reaching 2068 tons stored by adding 18 tons last month. India's hiked customs duty tax reduced imports of gold by -30%. While this aids the country's trade deficit, it will also squeeze the price of gold in a very popular consuming country.
Silver
Copper
We are definitely tightening in this range for a large move in either direction. The best spot for a stop loss would be a daily close outside both the EMA and the most local rising trendline. Until then we continue to hold.
According to a recent private-sector survey, China's services activity in March has experienced the quickest pace in two and a half years, signaling a consumption-led post-COVID recovery. The survey showed that the sector has been boosted by robust new orders and job creation, indicating a return to normalcy for the Chinese economy. The quickening of China's services activity bodes well for the country's overall economic outlook, as the services sector accounts for more than half of China's economic output. With the COVID-19 pandemic disrupting global economies, China's success in revitalizing its services sector serves as a positive example for other countries to follow. The support for copper has largely come from stocks in LME-registered warehouses, which have dropped almost 15% over the past two weeks. This indicates that the demand for copper is rising, likely due to increased construction and infrastructure projects in China.
Agriculture
Developments/News
Coffee
We are sitting at a very attractive short spot for coffee futures here. We have broadened AND failed to hold over the previous highs. I am taking 1 contract short at 181.94 with a stop loss over the high of the day (185.88) and a target of 177.70.
Overall supplies and production for coffee (current numbers and projected) are up. This is boding a surplus. This is in line with the trade we made to take coffee short.
There are increased rains in Brazil as well boosting yield expectations (148% of the historical average rainfall levels for the week) and putting further pressure on the coffee short.
2022/23 global coffee consumption will increase +1.7% y/y to 178.53 mln bags
Cocoa
As I view the chart on a larger scale, I regret not taking a short position for a few contracts near the top and securing my entry by scaling out. However, I won't chase it here.
Lower supplies bode bullish, but otherwise not too much development from last week's report.
Wheat
We keep inching closer and closer. I think we will almost definitely get this fill. I plan to double my order to two contracts very, very soon.
Wheat futures closed higher after the Easter weekend, with HRW futures leading the way by gaining double digits. Meanwhile, CBT SRW settled up by 2 to 3 cents in the front months. The nearby HRW-SRW spread also reached an unprecedented $1.97 1/2 cents, a significant difference from March '22 when SRW saw a near $2 premium after the Ukrainian invasion. Additionally, spring wheat futures were 2 1/4 to 3 1/2 cents higher at the close.
According to the weekly Crop Progress report from NASS, 7% of the winter wheat crop had headed as of April 9, which is ahead of the 5-year average of 4%. The crop condition ratings, converted to a 276 on the Brugler500 scale, were down 3 points, mostly from Oklahoma. The conditions in OK were 17 points lower, scoring a 250 on the Brugler500. Meanwhile, in KS, the winter wheat ratings scored a 220, which was 10 points lower. The report also marked spring wheat planting at 1% complete, trailing the 4% average pace, with WA at 11% finished compared to 33% on average.
USDA announced that 335,444 MT of wheat was exported during the week that ended on April 6. This was up from 168k MT the previous week and 412k MT during the same week last year. White wheat shipments made up 110k MT of the total, leading the way, with Japan as the week's top destination. The accumulated wheat export was reported at 17.195 MMT as of April 6, trailing last year's pace by 2.5%.
Energy
Developments/News
Crude Oil (Brent)
Oil hasn't moved too much since the last few large bullish days. We are outside the trendline AND holding outside while also being over the EMA. This bodes bullish for the long term. I do not have a position open.
The ongoing halt of Iraqi crude exports from the Turkish port of Ceyhan is having a bullish impact on crude prices as global oil supplies tighten. The Turkish government has stated that it wants to negotiate a settlement of $1.5 billion that it has been ordered to pay before allowing Iraqi crude exports to resume through its pipeline. Since March 25, oil exports of 400,000 bpd from the Turkish port of Ceyhan have been halted after Iraq won an arbitration case from the International Chamber of Commerce. The ruling stated that Turkey had violated a 1973 pipeline transit agreement by allowing crude from the Kurdish region to be exported without the consent of the Iraqi government.
This halt in exports has had an immediate impact on the global oil market, tightening supplies and causing bullishness in crude prices. As negotiations continue and the dispute is resolved, it will be interesting to see how quickly Iraq can resume exports and what effect this will have on the market. It is likely that the halt in exports will continue to impact crude prices in the short term.
Crude Oil (WTI)
The supply zone seems to be holding for the time being. It is also in line with the upper end of the broadening formation.
The macro story remains the same as Brent's, see above for that information.
Footnotes
Sources include Thinkorswim, Tradingview, Barchart, Wall Street Journal, Financial Times, Investing.com, and Metals Daily.
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