Contango is when forward prices (3mo fwd) are higher than cash (spot) prices, i.e. the market is more confident of supply now than into the future. Backwardation is the reverse, when cash prices > fwd prices, i.e. markets are more worried about (prepared to pay more for) near term supply than future supply.
Last Friday, after Trump’s decision to tax / tariff all imports from China, markets appear to have capitulated in frustration, at trying to determine what direction the market(s) will move next. We have seen previously that when a base metal (Cu, Zn, Pb, Ni, Sn, Al) market cannot figure out the direction of the market, that the prices (cash & 3mo fwd) move to parity (cash = 3mo fwd). I cannot recall seeing all six base metals markets heading so close to parity as they have last Friday. Such convergence is very unusual.
For some further detail see this week’s commodity review Commodity Review – 02 August 2019 .
Comments of particular interest are noted with ‘*’.
*Copper Pakistan’s military to take a key role in development of Reko Diq.
*Cobalt Sector investors may not appreciate how quickly EVs are being adopted.
*Nickel Nickel Sulphate: demand growth to be driven by the auto and chemicals industries.
*Zinc & Lead Namibian Zn refinery suspends operations. Global Pb markets to be in ‘sizable’ deficit for 2019.
Tin Reduced Chinese consumption in 2018 was offset by consumption in the rest of the world.
Aluminium Venezuela: no power, no aluminium.
Gold USD gold price fell against others, so at least USD gold price increased.
Platinum & Palladium Pd price at record levels. Russia considered export bans for Pd.
*Oil Price gains limited by concerns of rising USA production. OPEC meeting this (16-17th) weekend.
Coal Australian HCC exports continue to be stable. Outlook on China ports still uncertain.
Iron Ore India’s iron ore imports up significantly in 9mo to Dec18. Exports also decreased markedly.
Shipping Capesize rates recovered.
*Japan LNG prices : prices may be about to bottom, though perhaps not just yet.
*USA & Australia – bond yields: curves approaching inversion.
*China Industrial and Energy Output: Strong growth in electricity, gas, batteries, glass.