Invesco DB Commodity Index Tracking Fund

Learn the basics of commodities trading, including the most traded commodities worldwide, and what it takes to be a successful trader in this class.

In essence one of the things we have accomplished with these three products is to reduce the volatility inherent in all markets, and in particular very volatile markets like the real asset sectors.

In this article, we’ll look at copper miners’ unit production costs.

RAAX’s allocation process provides exposure to segments with better returns profiles while managing overall portfolio risk.

The shifting of the global policy stance from monetary stimulus to fiscal stimulus could benefit real assets.

Despite rising concerns about a trade war, the IMF maintained its growth forecasts for the global economy for 2018.

Solid economic growth, supply bottlenecks, and rising commodity prices have pushed up inflation in the United States.

But let’s think about maybe more actionable items in terms of growth, because it’s clear that at least there are now some signs on growth inflection, maybe not globally, but at least in some parts of the world.

In the first five months of 2018, China’s unwrought copper imports have risen 16.8%—compared to the same period in 2017.

While commodities generally follow the underlying supply-demand dynamics in the long term, according to some observers, copper prices also tend to reflect macro developments.

Rising inflation, higher backlog orders since 2004, and rising transportation costs are signaling that the US economy is overheating.

Now that we understand why the macro environment is supportive, why don’t you tell us a little bit about the investment process?

Falling commodity prices have led to a selling spree in copper miners like Freeport-McMoRan (FCX), BHP Billiton (BHP), and Rio Tinto (RIO).

There are expected, and possibly more aggressive, interest rate hikes over the next several years, and potential commodity supply constraints resulting from years of capital expenditure reductions in the metals and oil industries.

Economic/business cycles are never exactly the same, and the current cycle is no exception. But we are most likely entering the late stages of this expansion.

Commodities and interest rates both tend to rise late in the economic/business cycle. As a normal cycle develops, the economy expands and gains momentum.

The US Federal Reserve recently raised the benchmark lending rate by 25 basis points—the sixth hike since December 2015.

On March 8, 2018, US crude oil April 2018 futures declined 1.7% and closed at $60.12 per barrel.

On February 15, 2018, US crude oil’s April 2018 futures rose 1.1% and settled at $61.17 per barrel. On the same day, the US dollar fell 0.6%.

The S&P 500 Index plunged 4.6% during the first four trading days of February, while the Dow Jones Industrial Average and the NASDAQ Composite Index dipped 4.7% and 4.0%, respectively.

The repercussions of the equity market carnage are evident in commodity markets. Copper, which some analysts see as an indicator of the global economy’s health, has come off its 2018 highs.

Among the stocks under review in this series, Vale SA (VALE) has given the highest trailing-three-month return of 36.4%, while Rio Tinto (RIO) has generated the lowest return of 15.4%.

Every segment of the global financial markets began 2018 on a positive note. The global equity rally extended in the first week of the year.

Copper, like other metals, is widely recycled. Last year, we saw improved scrap flows as copper prices moved to higher price levels.

After its split, Alcoa (AA) became a pure-play aluminum producer (S32) (CENX). Like other aluminum producers, Alcoa’s fortunes are tied to metal prices.

Copper bulls had a nice run since July. Copper underperformed several industrial metals in 1H17. However, copper has been on an uptrend in 2H17.

Last week was broadly positive for industrial metals (DBC). Copper rose 3.6%, while aluminum prices rose 1.3% in the week ending November 24.

In this series, we’ll look at the key developments that impacted mining companies last week. We’ll also look at some of the company-specific developments that impacted mining stocks.

Freeport-McMoRan released its 3Q17 earnings on October 25, posting revenues of ~$4.3 billion in 3Q17, compared with ~$3.7 billion in 2Q17.

For 3Q17, Cleveland-Cliffs reported average realized prices came in at $90.50 per ton.

The final Russia Manufacturing PMI (Purchasing Managers’ Index) rose marginally in September 2017. It was 51.9 in September compared to 51.6 in August.

The Brazilian economy (EWZ) (BRZU) has faced a series of problems such as lower economic growth, higher inflation, political uncertainty, and higher unemployment.

According to the report provided by the World Bank in June 2017, global (ACWI) growth is expected to strengthen to 2.7% in 2017.

Aluminum prices have been strong in 2017 and have built on last year’s gains. The entire industrial metals space has come a long way since 1Q16.

BHP Billiton’s (BHP) copper production fell 16.0% in fiscal 2017 to 1.3 million tons.

Aluminum prices have gained more than 22% so far in 2017. This trend was preceded by a 13.6% rise in 2016.

Copper prices have shown strength over the last few trading sessions, which has helped the upwards price action of miners including Freeport-McMoRan (FCX), Glencore (GLNCY), and Southern Copper (SCCO).

As we noted previously, aluminum prices have been strong this year. Strength has been driven by positive supply and demand dynamics.

As we saw in the previous two parts of this series, Vale’s (VALE) iron ore and coal production increased sequentially in 2Q17.

On August 8, China released its trade data for July. The country’s exports in dollar terms rose 7.2% compared to July 2016 while imports rose 11%.

Freeport-McMoRan (FCX) generated free cash flows of $675.0 million in 2Q17, which took its 1H17 free cash flows to $1.1 billion.

As we discussed in the previous part of this series, realized prices along with volumes drive a company’s revenues.

Copper’s 2017 demand-supply dynamics As noted previously, copper prices have shown strength recently, piggybacking the weak US dollar. However, we should remember that in the medium-to-long term, demand-supply dynamics are a key driver of copper prices (TECK) (GLNCY). In this article, we’ll see how copper’s demand-supply balance looks in 2017. Demand China’s car sales regained momentum […]

Brazil’s (EWZ) trade balance since the beginning of 2017 indicates continuous expansion, with exports rising more than imports.

Brazil’s economy has found itself immersed in political scandals and corruption that have been affecting growth for the past few years.

The annual consumer inflation in Colombia is on a declining trend over the last year as of June. Consumer prices rose at a slower pace of ~4.0%.

The Malaysian economy reported improved growth in 1Q17, largely supported by the rise in exports.

The Malaysian economy gave us an impressive growth story in 1Q17, with its increased investments in infrastructure and private sector expansion.

After a disappointing 1Q17 GDP figure in Colombia, economic activity was expected to gradually gain strength in 2017.

Colombia, an important Latin American (ILF) economy, is currently facing sluggish growth due to a decline in commodity prices (DBC) and political instability.

Annual consumer inflation in Colombia (GXG) has dropped for 12 consecutive months as of June 2017.

The Indonesian (EIDO) economy rose 5.0% on a year-over-year basis in 1Q17. Indonesia’s performance in 1Q17 was mainly due to higher exports.

As we noted previously, Alcoa is now a pure-play aluminum producer. The company is an integrated aluminum producer with bauxite mining, alumina refining, and aluminum smelting operations.

Brazil’s exports stood at $19.7 billion in May 2017, a 12.6% increase year-over-year, boosted by sales of semi-manufactured products and basic products.

The Brazilian real dropped ~2% in May 2017 amid the country’s ongoing political instability.

Qatar was expected to grow at a faster pace in 2017. However, economic sanctions by its neighbors are expected to impact its economic activity in 2017.

While most metals tend to follow underlying demand-supply dynamics, according to some, copper prices also tend to reflect macro developments.

Alcoa (AA) is trading well below its 2017 highs. Commodity market sentiments have been dented over the last few months.

Steel prices are a function of demand and supply in the long term. The construction, automobile, and energy sectors are among the largest steel consumers.

Analysts have been expecting a downturn in iron ore. Analysts upgraded their short-to-medium-term forecasts, but they’re still not positive about long-term fundamentals.

Aluminum prices are the key driver of aluminum producers’ earnings.

Recently, some market participants have been concerned that the 30-month high iron ore prices in February 2017 were enough for some of the idled capacity in China to come back online.

Copper closed at $5,741 per metric ton on March 23. Copper has risen 4.0% in 2017. In 2016, copper prices rose 17.4% and ended a five-year price drought.

According to the median compiled by Bloomberg on February 13, 2017, iron ore prices could drop in every quarter in 2017 to an average of $55 per ton in 4Q17.

With higher steel production and subdued demand, one would expect a tsunami of Chinese steel exports, but this wasn’t the case last month. So what did China want with so much steel?

Steelmaking is raw material intensive in nature, and raw material pricing tends to impact steel prices. In this article, we’ll discuss how steel scrap prices are playing out in the United States.

The service sector is the main contributor to Brazil’s GDP and job creation, but it’s currently suffering from structural weakness and poor international performance.

Iron ore prices were very strong in 2016 and have remained so year-to-date. Prices increased by more than 80% in 2016.

Copper closed at $2.73 per pound on February 22, 2017. So far, copper has risen 9.6% in 2017.

In December 2016, steel prices in China hit 3,557 Chinese yuan per ton—the highest level in two and a half years.

According to Bloomberg’s median, iron ore prices will drop every quarter in 2017 to an average of $55 per ton in 4Q17.

According to Bloomberg, Rio Tinto CFO Chris Lynch has suggested that iron ore prices will not collapse, as many expect.

Cliffs Natural Resources’ average realized prices were 0.5% lower YoY in 4Q16 at $73.8 per ton.

Among the most dominant factors driving the recent iron ore price rally are higher steel production and the rise in steel prices in China.

U.S. Steel produces steel in blast furnaces and uses coking coal, steel scrap, and iron ore as a raw material.

Technical indicators In this article, we’ll discuss the technical indicators for Cliffs Natural Resources (CLF) and its peers. Traders and investors look at technical indicators when making market entry or exit decisions. Moving averages and the RSI (relative strength index) score are among the most widely used technical parameters. Generally, an RSI score below 30 […]

Iron ore’s stellar run in 2016 In the previous part of this series, we discussed how BHP Billiton (BHP) produced record iron ore volumes in the half-year ended December 2016. This production has come at an opportune time for the company. During 4Q16, iron ore prices surged ahead. While the momentum built during the whole […]

Among the most dominant factors driving the recent iron ore price rally are higher steel production and the rise in steel prices in China (FXI).

Iron ore prices remained stubbornly high in 2016 despite most analysts’ expecting the contrary. In this article, we’ll see how analysts view iron ore’s prospects in 2017.

The price of iron ore rose 81% in 2016. Toward the end of the year, Donald Trump’s US presidential win led to a rally in commodity prices.

Since China is the world’s largest steel producer and exporter, it’s important for investors to keep track of Chinese steel prices.

Some analysts have upgraded their iron ore price forecasts due to the recent strength in prices.

According to Marc Lasry, heavy oil-weighted (USO) (UCO) (UWTI) stocks could be a better bet in the overall energy sector.

Integrated producers such as Alcoa stand to gain from rising alumina prices. Alcoa also sells bauxite and alumina along with primary aluminum.

Alcoa made a 52-week low on January 20, 2016, and joined the ranks of other mining companies to hit fresh 52-week lows such as BHP Billiton, Rio Tinto, and Vale.

Copper has been on a downtrend after hitting $10,000 per metric ton at the beginning of 2011. LME copper prices have fallen in every year since 2011.

Unlike aluminum, the copper industry uses a lot of diesel in the production process. Diesel prices are market-linked in most places.

The energy sector remained the largest gainer in 2016. The Energy Select Sector SPDR ETF (XLE) had risen nearly 24.8% in 2016 as of December 29, 2016.

According to consensus estimates compiled by Thomson Reuters, Freeport-McMoRan (FCX) has a mean one-year price target of $13.14.

Steel companies’ earnings are sensitive to changes in steel prices (DBC). We saw a significant recovery in US steel prices over the last few weeks.

Trump’s proposed infrastructure investments have boosted commodity prices. Markets seem to have repriced copper for the expected increase in demand.

On November 1, Alcoa split into two new entities—Alcoa and Arconic. The split completed the process that the company initiated in September 2015.

According to Richard Bernstein, global economic conditions are improving.

Earlier in this series, we analyzed iron ore miners’ ratings and estimates. In this article, we’ll discuss these miners’ technical indicators.

Higher Rates Not Always Negative for Gold A Fed rate hike in December appears almost fully priced in already. The common argument is that higher rates are negative for gold given that it is a non-yielding asset. Yet, following the first rate hike of the current tightening cycle in December 2015, gold has advanced more […]

For commodities (DBC), including iron ore, 2015 was nothing short of a nightmare. Rio Tinto, BHP Billiton, Vale, and Cliffs Natural Resources fell to multiyear lows.

Copper producers’ earnings including Freeport-McMoRan (FCX), Teck Resources (TCK), and Rio Tinto (RIO) (TRQ) are sensitive to copper prices.

As the shock over Donald Trump winning the US presidential election slowly subsides, the market’s attention has shifted to some other upcoming events.

With a Donald Trump win in the US presidential election, steelmakers can expect imports to fall. This should help them with much-needed price increases.

China’s steel prices Among the most dominant factors driving the recent iron ore price rally are higher steel production and the rise in steel prices in China (FXI). Although these factors have helped iron ore prices YTD (year-to-date), the question remains as to whether steel prices can remain buoyant for the remainder of 2016. The answer […]