Rapeseed (XRX24), -6.93%, had a very bullish run to start this month, reaching a top of 515 on July 5, fueled by dryness in Eastern Europe and downward revisions by the European Commission on EU rapeseed yield (mainly from France). Ukraine was also reporting worse-than-expected growing conditions, and the USDA lowered its 2024/25 oil seeds production forecast to 686 tonnes (by -1M tonnes) due to lower expected production and exports in Australia.
All of that changed last week, as the vegetable oil complex lost momentum and reversed the trend amid a rise in Malaysian palm oil stockpiles to 4-month highs. The U.S. soybean crop has also been rated good or excellent, which is a change from previous bad news in the Midwest.
Canada is also reporting good canola production this year, and Brazil anticipates record soybean production. Clearly, the fall in prices has been justified by fundamentals; the question now is whether it has been oversold, considering that the IGC estimated that for the 2024/2025 marketing year, global rapeseed consumption will outstrip supply.
The contract notched a deep fall in the last 5 sessions, breaking through the 10-, 20-, and 50-unit exponential moving averages (EMAs) to confirm the extreme bearish sentiment. At 12,000 contracts per day, volume remains above average, and we note the record 68,994 contracts in open interest - all of which points to high activity in this product.
In contrast, the Relative Strength Index (RSI) - currently at 38.9 - is fast approaching the critical 37 level. As you can see on the chart, RSI readings around 37 have signaled, with significant reliability, "oversold" conditions. Speculators and bargain hunters will be adding long positions here.
European Commodity Winners Last Week
Aluminium Alloy 3M Cash (P2Y00), +14.88%
LME stocks at 970,725 t (15/07) have improved since the 2024 low of May 482,600 t. However, inventories remain significantly below the historical average. LME net fund investments net position at 90,548 contracts are stable since April, with no significant outflows.
The metal has been on an uptrend from a 1,500 low (Aug. 21, 2023) and has broken the key 2,250 resistance level. However, this LME contract has almost no liquidity, so it can be used only as a reference.
Overseas, the Multi Commodity Exchange (MCX) in India shows declines based on weak demand from local industries. Moreover, the Shanghai Metals Market (the main competitor to LME) shows a bearish price trend of its domestic A00 aluminium ingot due to weak demand in many sectors. The resumption of full aluminium production in Yunnan is also containing significant price increases in the next weeks.
Cocoa #7 (CAU24), +5.55%
The fundamentals continue to show a tight supply, as the Ivory Coast reported lower production with shipping down -29% from last year. Moreover, Ghana is considering delaying the delivery of cocoa beans, as it is again reporting bad crop conditions.
On the demand side, elasticity remains tight, as grinding activity and purchases from chocolate producers did not drop in proportion to the rally.
Cocoa in the last 3 sessions has consolidated above the 10-, 20-, and 50-day EMAs, showing a clear upward move from the 5,818 low on June 28. The market refuses to break down below the 5,900 level, and with the RSI reading at a "neutral" 48.9 level, there is room for another run.
If prices keep above the aforementioned EMAs in the next few sessions, a new bullish case will be established. However, we note that this market has lost liquidity, with daily volume at around 2,800 contracts now below average.
European Commodity Losers Last Week
UK Natural Gas (NFQ24), -4.06%
The contract is hitting the lowest level in two months, as there is enough supply from Norway, plus the replacing effect of alternatives such as wind and solar power.
In the U.S., the Freeport LNG plant operations are getting back to normal after a break due to Hurricane Beryl.
As anticipated in previous articles, upside potential for now is limited, as storage levels in the UK and Europe are high for this time of the year. Daily candles are below the 10-, 20-, and 50-unit EMAs, marking a clear bearish sentiment.
Watch out for the 68.80-69 level, as this has been a key support and turning point in the past.
Nickel 3M Cash (P8Y00), -2.80%
Last year, the metal crashed 45% - but that is not affecting the supply from Indonesia, which is keeping prices in a downtrend. According to a Macquarie report, Chinese investment in Indonesia´s mining sector will increase its production to 2.2 million tons this year, which is a massive increase from the 600,000 tons produced in 2020.
The nickel contract's daily RSI at 35.8 is approaching the 30 oversold level that has been very reliable statistically for long entries. With around 500 contracts a day at LME, liquidity is low, but stable.
Prices are below the 10-, 20-, and 50-day EMAs, showing that nickel is in a sharp downtrend since it made a top above the key 20,000 level back in May.
The 16,000 support will be hard to break if prices make another move there, and it will offer a unique opportunity for long traders if fundamentals do not get worse.
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.
