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Tighter China credit conditions will weigh on metals markets

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Sentiment in China’s metals markets was buoyant in July and August on easy credit conditions and expectations of further stimulus flowing to infrastructure. But September saw a distinct change of tone as cash flows tightened, demand waned and metals prices came under pressure, leaving the market hoping for better after China’s Golden Week holiday. Paul Bartholomew discusses what could happen in coming months.

Money’s too tight to mention

Beijing unsurprisingly opened the monetary sluice gates to support the economy as China emerged from the lockdown in late March. This had two notable effects on the steel and metals sector: It meant traders were not obliged to hurriedly destock inventories that had built up to a huge extent when there was no downstream consumption; and it induced a sense of “things can only get better” among market participants.

“The government will keep stimulating infrastructure”, was an oft-heard comment. China’s steel market was so strong that it became a net importer of steel for the first time in a decade over June-August. In fact, sentiment was as bullish as this correspondent can remember in 12 years of looking at this market.

But things changed markedly in early September, as the impact of tighter credit conditions started to bite. Suddenly, it appeared that steel prices had run up too high, and meant those towering steel inventories were no longer so manageable. We expect that China returned to its usual net exporter status in September.

Go deeper: China’s high-tech infrastructure push

Let’s build a home

Beijing’s mantra on property is that houses are for living in rather than assets for speculative investment. While there is something of King Canute – the Danish king who thought he could turn back the tide – to this attitude, financing conditions for property developers have been considerably tightened since July.

Housing starts rose 2.4% from a year earlier to 198.9 million sq m in August, according to the National Bureau of Statistics, but are unlikely to grow much beyond this level in coming months.

Rebar prices are feeling the brunt of this tightening, and sentiment started to evaporate in September. Rebar margins in the Beijing market were less than $7/metric ton in the last week of September, after averaging $48/mt in August, S&P Global Platts data shows.

Rebar stocks in key Chinese cities were 50%-80% higher than a year earlier in late September, and they would have climbed higher still over Oct. 1-8 when China was on holiday. As a result, rebar prices look set to remain under pressure over the balance of 2020.

Factory of faith

Manufacturing has been a more positive story – in part because global supply chains have started to be repaired, providing more export opportunities. Production and new orders both improved in September, according to manufacturing purchasing managers’ indices published by the NBS and Caixin.

China manufacturing PMI

But factory managers reported that steel prices had risen more quickly than their sales prices, noting they may struggle to pass on the higher costs to end customers. This would be a concern for hot-rolled coil prices and margins which rallied strongly from the second-half of July to early September. But they have also slumped. Domestic HRC margins fell to less than $10/mt at the end of September from $55/mt at the start of the month.

Steel mill margins

Dust in the wind

Along with falling finished steel prices, robust iron ore prices have contributed to the margin squeeze. They too weakened over H2 September. But this was because many mills had restocked ahead of the Golden Week holiday, while other buyers were understandably wary about purchasing in a tumbling steel market. Companies we spoke to for the Platts Iron Ore & Steel Outlook for Q4 mostly saw prices in the $100-$110/mt range, which would be back to the levels of July. Iron ore exports typically pick up from Australia and Brazil in Q4.

Steel iron ore survey Platts Q4 200

Platts expects China’s crude steel production to finish the year strongly and be up around 4%-5% overall in 2020. Therefore, iron ore prices could well retreat to the levels suggested in the Outlook. But given the Platts 62% Fe benchmark averaged $93/mt CFR China over January-July, this would still represent a very healthy price range for the major iron ore producers.

Steel raw materials

In contrast to iron ore where supply has tightened, there is a lot of alumina production capacity coming online in China that is likely to weigh on domestic prices. This was the view of the Platts China Alumina & Aluminum Outlook for Q4. Some 81% of respondents believed China’s alumina production would rise in the October-December quarter. Though aluminum smelting capacity is being turned on quickly, the nonferrous sector is subject to the same tighter macro conditions.

Down but not out

There are a few wild cards when considering metals markets over the rest of 2020. A La Nina weather event is forecast to hit northern Australia during the rainy season which typically starts in late December (but can come earlier). This could severely curtail coking coal and iron ore exports.

Some policy announcements – supportive of metals demand or otherwise – may come out of China’s plenary meeting in Beijing later this month when the 14h Five-Year Plan (2021-2026) will be discussed. And a certain election in North America could also have an effect on sentiment in China. These factors aside, the next few months are set to be softer in terms of metals demand and prices – but the market won’t fall off a cliff.



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Trading Theory—Adding To Winning Trades – Growing Your Money

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Trading Theory—Adding To Winning Trades

When Do You Add To Your Winning Trade? This has always been a very interesting question because it can create a situation of going from rags to riches to riches to rags in a very short amount of time.

Many times I see traders abuse pyramiding or adding to positions with utter lack of any type of money management system in place and letting it ride which usually ends up in a complete wipeout of capital and sometimes even worse.

Commodity prices can move very quickly with large gains or loses like we experienced in 2008 crash of stock and commodity prices, so you always have to use stops and not fall in love or marry a position.

My answer to this question is add only once to the trade if that position has made you at least 1%-2% of your account balance while still having stop losses on all positions that equal 2% loss at a maximum risk.Remember your stop loses will be different on both positions because of the fact that you entered those trades at a different date and price.

 

 

 

If you are looking to contact Michael Seery (CTA—COMMODITY TRADING ADVISOR) at 1-630-408-3325 I will be more than happy to help you with your trading or visit www.seeryfutures.com

 

FREE TRIAL FOR THE LIMIT UP COMMODITY NEWSLETTER

Email: mseery@seeryfutures.com

If you’re looking to open a Trading Account click on this link www.admis.com

Disclaimer: This and other personal blog posts are not reviewed, monitored or endorsed by TalkMarkets. The content is solely the view of the author and TalkMarkets is not responsible for the content of this post in any way. Our curated content which is handpicked by our editorial team may be viewed here.



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Crude Oil Tumbles as OPEC Happy Talk Fails to Quell Demand Fears By Investing.com

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© Reuters.

By Geoffrey Smith 

Investing.com — Crude oil prices fell sharply on Monday in line with other risk assets as the rapid spread of the Covid-19 virus across Europe and the U.S. sparked fears of more demand destruction through restrictions on economic and social activity.

By 11:35 AM ET (1635 GMT), futures were down 3.1% at $38.61 a barrel, their lowest level in three weeks. The international benchmark blend was down 2.8% at $40.88 a barrel, having also hit a three-week low.

U.S. gasoline RBOB futures were down 2.5% at $1.0991 a gallon, testing their lowest in over a month. Data from GasBuddy showed that U.S. demand for gasoline fell by 0.5% last week.

Sentiment was summed up by Patrick Pouyanne, the chief executive of French oil and gas major Total, who told a conference that “globally speaking, the demand is still weak.

“I am afraid that with the second wave we are experiencing in many continents today again, it could be longer [for demand] to recover like everybody hoped,” Pouyanne was quoted by Argus Media as telling the CERA Week conference.

The pressure on the corporate sector was again in evidence, with Canada’s Cenovus and Husky Energy (OTC:) announcing plans to merge over the weekend in a bid to rationalize costs and squeeze more value out of reserves that require relatively high investment to be monetized.

However, as usual, there was no shortage of those willing to talk prices up. Saudi Arabia’s Oil Minister Prince Abdulaziz bin Salman was quoted as telling the same conference as Pouyanne that the essentially cyclical nature of the oil business was unchanged, and that low prices and low capital spending now would beget high prices in the future.

In the same vein, Indian Oil Corp. Chairman Shrikant Madhav Vaidya told S&P Global Platts in an interview that Indian product demand is now rebounding strongly after a wretched couple of months due to the virus. India has one of the world’s highest death tolls from Covid-19, after the U.S.

Likewise, OPEC Secretary General Mohammed Barkindo hinted CERA Week that the OPEC+ bloc of producers that a deferral of a scheduled increase in output at the end of the year is still possible, stressing that that the group will “adapt to the changing realities.”

“We are determined to assist the market to restore stability by ensuring that the stock drawdowns continue.”

There was little visible effect however from signs of yet another disruption to production in the Gulf of Mexico, where BHP, Chevron (NYSE:), Royal Dutch Shell (LON:) and BP (NYSE:) had all started to remove non-essential personnel from their platforms ahead of the likely arrival of Tropical Storm Zeta. The National Hurricane Center said it expected dangerous storm surges across the Yucatan peninsula in Mexico later Monday.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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OPEC chief says rising infections may delay oil recovery By Reuters

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© Reuters.

By Alex Lawler

LONDON (Reuters) – OPEC’s secretary general said on Monday an oil market recovery may take longer than hoped as coronavirus inflections rise around the world, and OPEC and its allies would “stay the course” in balancing the market.

The Organization of the Petroleum Exporting Countries and allies including Russia made a record oil output cut in April as the pandemic hit demand. They are scheduled to increase output in January as part of a gradual easing of supply curbs.

OPEC’s Mohammad Barkindo, asked at the virtual India Energy Forum by CERAWeek if the second wave of the virus required any changes to OPEC+ strategy, said hopes earlier this year of a demand rebound had been disappointed.

“We were hopeful the second half of 2020 would begin to see a recovery,” Barkindo said. “Unfortunately, both the economic growth and demand recovery remain anaemic at the moment due largely to the virus.”

“We remain cautiously optimistic that the recovery will continue. It may take longer, maybe at lower levels, but we are determined to stay the course,” Barkindo added.

Russian President Vladimir Putin, speaking last Thursday, did not rule out extending the oil cuts for longer if market conditions warranted.

Barkindo said producers did not expect a renewed oil-price collapse as seen in the second quarter, when oil hit historic lows with briefly trading in negative territory.

OPEC+ producers had met an average of 100% of their supply cut commitments and would continue to implement the curbs so that inventories fall further, Barkindo said.

“We are determined to assist the market to restore stability by ensuring that the stock drawdowns continue.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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