Starting our review of last week's European commodities performance with White Sugar #5 (SWQ24), +7.20%, Unica (Brazil Sugar Group) reported last Friday that Brazil´s production in its main regions was 22% higher than the previous year. Although that caused a temporary price drop, it did not change the long-term bullish trend. Dry weather conditions in the region are still keeping the market worried.
Indian regulators imposed sugar export restrictions since last October triggered by concerns regarding a new crop disease and below-normal monsoon rain. It is expected that the government will keep such restrictions, which is supportive of prices.
The sugar forward curve is pointing downward well into 2025, revealing optimism about supply for the rest of the year, which might limit the current rally.
The August contract has broken the 10-, 20-, and 50-unit EMAs in the last 3 sessions, marking consecutive higher highs and higher lows.
The last volume at 10,444 from daily contracts is slightly above average, and open interest is robust, with the last reading at 33,869.
The 14-day RSI at 68 is approaching an "overbought" area, and historically levels close to the 70 mark have produced pullbacks.
European Commodity Winners
Zinc Special Hg Cash (Q3Y00), +3.29%
There is reduced demand in China, which is the world´s top zinc importer. Imports are down 24% this year, with comments that Chinese smelters are giving preference to local suppliers.
The International Zinc Association is dedicated to promoting zinc as an alternative for long-lasting batteries. Rechargeable zinc batteries have many advantages against lithium: they are nonflammable, zinc is widely available and also recyclable. This is attracting many zinc battery start-ups in the current global drive to achieve clean energy.
In India, the Multi Commodity Exchange zinc spot is in high demand, revealing a surge in demand from industries.
LME zinc stocks have improved in 2024, with the last reading on June 27 at 239,600 t. This marks a recovery from the historical lows of around 18,000 (January 2023). However, it remains well below historical values from 2010.
The last reported LME net investments fund positions are bullish, with 25,325 net contracts. The 3,000 resistance is a mark that's hard to break as described in the term curve: it goes upward until June 2025 (topping at 2,985) and then moves downwards sharply back to 2,800.
Zinc is in a bullish trend with prices above the 10-, 20-, and 50-week moving averages, so watch out for a break above 3,000, as this will attract more buying pressure.
Rapeseed (XRX24), +3%
The EU Commission recently revised downward the 2024 forecast for the rapeseed harvest in 2024. The estimate currently stands at 19.4 million tonnes, which is 406,000 less than the previous year.
Above-average frost and hail are currently a concern in this market, with only France (EU top producer) reporting a significant production increase. (3,3 million tonnes, + 166,000 y/y).
The daily rapeseed chart action shows current prices just breaking upwards from the 10, 20, and 50 EMAs. The daily RSI at 57 still is neutral and a volume above 7,000 contracts a day gives support so far to the trend.
European Commodity Losers
Cocoa #7 (CAU24) -13%
Cocoa has broken the 10-, 20-, and 50-unit EMAs daily candles and currently is testing the 20 EMA for weekly candles. The mood is bearish and it remains to be seen if the weekly 20 EMA will be an effective support.
Around 5,500 there is a strong support which has been tested 3 times in the last 8 weeks. The sharp decline last week was attributed to liquidation of long positions from both speculators and commercial dealers.
However, the tight supply has not changed and the market is waiting for the Q2 consumer report to be released in early July.
Aluminium Alloy 3M Cash (P2Y00) -8.1%
The contract lacks liquidity but the last marked quote at 2,100 marks a significant increase from last month at 1,850.
Aluminum output in China grew by 7.2% annually to a record-high 3.65 million tons in May by increased activity from smelters. Recently, Trafigura directed 400,000 tonnes from India into LME stocks.
Like copper and other metals, the main theme right now is the weak demand coming from China as the construction activity there is in decline. LME stocks currently at 1,032,875 t remain at a historically low level, in large part due to the sanctions on Russian origin aluminium and other metals. The positive net fund position at 94,536 is the highest since June 2022 and remains supportive of prices.
The supply and demand for 2024 is more balanced now given the delivery of Malaysian and Indian warehouses. U.S. monetary policy, with current elevated rates, is also a negative factor for metals as a group.
Given the above fundamentals, it is hard to see in the short term any upside potential in prices.
On the date of publication, Cesar Marconetti did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.