Industrial metals saw largest inflows last week says ETF Securities

Nitesh Shah, director, commodities at ETF Securities by WisdomTree, writes that, last week, industrial metal basket ETPs saw the largest inflows since February.

“Industrial metals gained a strong tail-wind last week, rising 2.9 per cent, as trade-wars escalate. Inflows of USD46.1 million in to industrial metal ETPs followed. Trade restrictions will likely disrupt supply chains and increase the scarcity of many metals. Protectionist pressures initiated by the US - including imposing tariffs on EU, Canadian and Mexican steel and aluminium imports and a raft of tariffs on Chinese imports have been met by announcements of retaliation.

“This tit-for-tat ratcheting of a trade war may escalate further. Most base metals are already in a supply deficit. Trade wars further complicates metal availability. In addition to trade wars, US sanctions placed on Oleg Deripaska, the largest shareholder of Rusal (the world’s largest aluminium producer), have led to tightness in aluminium.

“The world largest copper mine, Escondida, has resumed wage negotiation after postponing them last year. Last year the mine underwent a 43-day strike following the impasse in wage negotiations. Investors fear a déjà vu moment, as the unions have placed a very ambitious request forward. The closure of a large Indian smelter and US Dollar weakness have also contributed to copper rising to a 4 ½ -year high. Copper ETPs saw USD13.1 million of inflows last week, the highest since April 2018.”
Shah comments that energy sector ETP flows continued to bifurcate last week.

“Continuing a trend that started last week, long energy basket ETPs gained inflows of USD29.6 million, reaching the highest weekly inflows since December 2015. While long crude oil ETPs suffered further outflows of USD 19.9 million, extending outflows for the ninth week in a row. Oil prices endured a lot of volatility last week. A higher than expected build in crude and product in the US sent prices lower.

“Added to that were reports that the US has asked Organization of Petroleum Producing Countries (OPEC) to raise production by 1 million barrels per day. With OPEC meeting later this month to discuss policy, we expect oil prices to remain volatile as the market tries to guess the what the 14-member cartel will do next. Oil prices started to rise again toward the end of the week as Iran signalled that it will restart nuclear enrichment as soon as the current nuclear deal collapses. Such cavalier discussion could repel the EU who have thus far been seeking to circumvent the US’s extraterritorial sanctions in favour of keeping trade open with Iran.”

Turning to currencies, Shah writes that investors appear to bet on a stronger Euro vis-à-vis the US Dollar. Inflows into long Euro, short US Dollar ETPs rose to a four-week high of USD9.4 million, reversing all of the prior week’s outflows from the pair.
“The Euro has seen a lot of volatility over the past few weeks during the sage of the formation of a new Italian government comprising of parties from the political extremes. Today, however, a commitment from the new Italian Finance Minister to the Euro and a pledge to avoid financial instability has offered the currency some support.

“ETF investors feel the Italian equity shakeout is overdone. We saw the third consecutive week of inflows into Italian equities, with USD3.9 million last week. Although Italian equities have been falling over the past month, the conciliatory words from the Italian Finance minister have led to a 2 per cent rally in the Italian FTSE MIB today at the time of writing. ETF investors also sold USD3.7 million from broad European equity short ETPs last week, likely taking profits on a month of declining prices.”

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