Copper:

We look ahead for the lower copper prices during the H2 of 2016 owing to the sluggish demand growth and persistent oversupply.

Global copper consumption should grow 2.5% yoy this year, up slightly from 2015.

The mine production growth is forecasted to accelerate to 3.7% this year from 2.4% last year, as we believe the growth from new mines will be bolstered by fewer supply disruptions so far this year.

The main risk to our bearish copper view would be the on-going risk of supply disruptions; including output cuts, scrap tightness and natural disasters, which could offset some demand weakness.

Technically, the trend of this metal prices are bearish, we see the stiff resistance at 2.131 levels and today’s upswing appears to be momentary or you can even deem them as a short covering rallies.

Aluminium:

Given the amount of idled capacity, scarcity of significant production cuts and the huge inventory overhang, we expect aluminum prices to remain depressed.

Despite the lack of official cash flow profitability of many smelters and the Chinese government’s intension to cut Chinese smelter capacity, we are skeptical that this will be sufficient to generate a much-needed supply deficit in the near term.

Falling production costs have given some breathing space to those smelters under pressure from weak market conditions, alleviating the need to shut down production. 

AUDUSD has the strong relationship with this commodity, but the global macro uncertainty has buoyed global FX implied volatility on this pair. This has historically been a negative factor for AUD and we expect it to remain so. While we do see further weakness in AUD through H2 16, it should be at a more gradual pace given the sizeable valuation mean-reversion that has already occurred. Hence, it is wise to hedge the downside risks of this pair those foreign traders who deal with this base metal.