Cocoa futures (CAN24) had an explosive 9.7% increase in the last week, and the most active contract is currently trading at 9,418. Chocolate factories reduced demand only by 2% in Europe in the first quarter relative to 2023, while a much bigger reduction was expected by the market to change the trend.
Meanwhile, in the U.S., chocolate processing grinds even increased production by 4%. Everybody tracking the cocoa demand side for a possible correction was puzzled by those figures released this week. The long-awaited correction looks very elusive in a market very inelastic to price increases.
As good news for the bears, The International Cocoa Organization estimates global demand from chocolate factories to fall by 5% this season.
The price action is well above the 10, 20 and 50-day exponential moving averages (EMAs), showing a solid historical bull run. Since January 2024, long traders entering on the 10 EMA have been rewarded without fail.
I also note the record-high implied volatility at 64%. This most likely will only reward those selling options at a high risk. Trading this market has become very difficult also amid a big reduction in liquidity by volume and the extreme high intraday volatility.
As a general guidance, a close below the 10 daily EMA could signal a pause to this unprecedented rally.
Positive Performers This Week in Europe
UK Natural Gas (NFK24) is up 3.93% this week, trading at 81.21 following the move of last week, and having broken to the upside the key level of 75.5.
The current price is well above the 10, 20, and 50 EMAs, but is showing consolidation around the 75.5 - 81 area.
This energy commodity is recovering from a severe drop from October 2023, when it was trading at 141. Conflicts in the Middle East are driving the entire energy sector higher across Europe. Gas from Norway directed to Europe has suffered from outages, but it is now slowly recovering. Meanwhile, in the UK, the Barrow North LNG terminal is under maintenance.
European gas storage has reached 62%, and is expected to cover demand for this summer. So, expect the Middle East situation to primarily determine the direction in the next weeks.
Tin Refined 3M Cash (Q2Y00) is up by 3.67%, trading at 33,979 amid reports of supply shortages in Asia and Africa, already detailed last week in this space.
This industrial metal has increased by 25% this year, and has fundamental support from increased demand from electronics as well as supply issues in Indonesia, Myanmar, and Congo.
Some reports from the LME point now to a short squeeze situation and a record participation of speculative positions with the open interest at its highest since 2015.
The spot price is trading higher than the 3M future, and LME inventories are down over 45% this year. All data indicates scarcity in this market in the short term, which should be supportive of the current trend.
Nickel 3M (Cash) (P8Y00) is up 1.76%, trading at 18,559 following an uptrend initiated on March 27. Price action is above the 10, 20, and 50 EMAs, with increased volume in the last sessions.
Remember, nickel was trading at around 25,000 just a year ago. It is recovering from a severe slump that started in January 2023, with technicals now pointing to a bull trend.
The ban on trading Russian-origin nickel by the U.S. and UK over the last weekend is certainly supporting prices, considering that 36% of the nickel stored on the LME warehouses comes from Russia. These fundamentals further support the bull case.
Negative Performers This Week in Europe
Robusta Coffee (RMN24) -3.17%
The last bar of the daily chart put a temporary stop to the huge uptrend that coffee has developed from November 2022. It is trading well above all the main moving averages, and with a high implied volatility of 40%, it seems to follow the path of cocoa in the last months.
Moreover, the daily volume of the last 10 sessions is above the average, which is in contrast to the low liquidity of cocoa contracts. Some reports point to an exit from the ballooning cocoa prices among hedge funds, and a switch to coffee.
However, coffee has a more diverse supply structure than cocoa, so any deficits will not be as acute as with coffee this season.
The dryness in Vietnam, fear of robusta shortages in other areas, and problems in Brazil arabica type coffee production support the rally for now. Keep an eye out for any sudden reversal if prices break to the downside the 10 EMA.
Zinc Special HG Cash (Q3Y00) is down by -0.85% and trading at 2,804, in a move that looks like a temporary pullback in a rising market. Actually, the daily pattern is similar to nickel in the last year.
On April 1, the main moving averages were crossing each other upwards, confirming the current uptrend. From here, the market could aim for the 3,500 level, last reached in January 2023.
Zinc had suffered from extreme short bets from hedge funds in the last year, as this industrial metal is primarily linked to the construction sector. China´s depressed real estate market has been driving this trend for most of last year.
However, the range of 2,200-2600 has proven a solid support-resistance area from July2023. The recent breakout at the start of April, alongside the generally bullish sentiment in aluminum, nickel, and tin should support zinc further.
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.
