KBC Market Research Desk
KBC Bank
Crude
The oil price was under a relatively strong pressure yesterday and after breaching a support at 97.5 USD/bbl, the price of the front-month contract on Brent (ICE) fell by about 1.5%.
Although better than expected HSBC China’s PMI (preliminary estimate for September) provide some support for oil today in early trading, news about resumption of oil production at Libya’s El Sharara oil field (which suffered no damage during fights between the army and rebels) should limit a room for stronger gains.
Base Metals
Copper rebounds from a three-month low today as HSBC China’s manufacturing PMI instead of expected deterioration surprised slightly to the upside. Part of the market clearly feared that the headline index could drop below the 50 mark. However, the PMI rose slightly from 50.2 to 50.5.
Still, copper is seen well below 6800 USD/t after it breached below a minor support at 6820 USD/t and as a China’s official said yesterday that the government would not overreact to disappointing data. While referring to incoming data on housing market, Finance Minister Jiwei said that “China will not dramatically alter its economic policy because of any one economic indicator”.
Our outlook towards the year-end remains rather cautious. The persisting high production of copper mines, the gradual elimination of the stocks of copper concentrates of the previous months, and a slower improvement of Chinese demand for the metal should drive the price of copper downwards late this year and next year. Other factors with the same impact include the likely continuation of the appreciation of the US dollar and lower financial demand for copper in China. The main risks to this scenario include, in particular, a slower launch of production at foundries, the final rate of economic growth, notably in China (a somewhat negative risk) and the condition of China’s banking sector (a negative risk). The positive risks to the price primarily include unexpected production disruptions, which may also be caused by administrative measures (Indonesia).
Chart of the day:
Prospects of a tighter market balance in case of aluminium and easier conditions in copper market have stood behind diverging prices in 2014.
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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