Australian Equities FMG WPL

China's top steelmaking city Tangshan has told steel mills and other industrial plants to make additional output cuts on top of those already ordered during the winter heating season. Steel mills and other industrial plants in China's top steelmaking city Tangshan are to make further output cuts in December, as part of emergency measures to fight smog. China's iron ore imports fell for a second month in November, December customs data showed.

The world's top steel producer brought in 86.25 million tonnes of iron ore during November, down 2.4 percent from 88.4 million tonnes in October and down 8.8 percent from 94.54 million tonnes a year earlier, data from Customs also showed. For the first 11 months of 2018, China's imports of the steelmaking ingredient reached 978.00 million tonnes, down slightly from 991.00 million tonnes in the same period the previous year.

Utilization rates at steel mills across China dropped 0.83 percentage points from the previous weeks to 65.88 percent data shows.

The city's mills have already complied with production restrictions ordered for the winter, with cuts averaging 30-35 percent, lower than 42 percent last year. Benchmark Shanghai rebar futures dropped 1.8 percent to USD $486.83 a tonne, but found some short term support as December began.

In summary China’s steel production is slowing along with the corresponding Iron Ore imports.

The key observation not shown in this summary analysis is that China is focusing on better quality iron ore imports as a way of reducing inherent steel making pollution.

The Weekly chart of Iron ore has again found support above the $62.50 level, trading of Iron ore during 2018 has ranged between this key support level and the highs at $78.0. Of concern is the Relative strength Indicator (14) now moving below the key 50 level.

The weekly chart of Fortescue shows the historical support level of $4.30 now a clear resistance level of $4.30 being retested in the past 2 weeks. With a potential bullish inverse head and shoulder pattern underway, a price breakout over the $4.30 level would be an important development in this basing price structure. With Relative strength rising over the key “50” level showing stronger positive price momentum a breakout higher could be expected. Stops should be set at $3.98.

Brent crude and West Texas Intermediate found support after producer group OPEC and some non-affiliated suppliers agreed to a supply cut from January 2019. Despite this, the outlook for next year remains cloudy on the back of a general economic slowdown. Prices have remained volatile after OPEC and some non-OPEC producers including heavyweight Russia announced they would cut oil supply by 1.2 million barrels per day, with an 800,000-bpd reduction planned by OPEC members and 400,000 bpd by countries not affiliated with the group.

Surging U.S. output in the booming American oil industry shows the US are not taking part in the announced cuts. Although it should be noted this week Baker Hughes RIG count fell by 3 to 847. Saudi Arabia, de facto leader of the Organization of the Petroleum Exporting Countries, has faced demands from Trump to help the global economy by refraining from paring supplies. The key conclusion amongst producers is that oil prices will be well supported around the $70 per barrel level for 2019, along with the cuts, crude oil demand forecast rose to1.5 million bpd previously from 1.3 million bpd for 2019.

The take away from this is supply is exceeding demand.

The Weekly West Texas Oil chart clearly shows support at the historical $50 level with 3 weeks of bearish flag consolidation. The corrective move lower from $76.0 highs has failed to find support at the key level of $58.90 with the following price fall to this current key $50.00 level. With the current Relative strength value below the key “50” level further consolidation would be expected, a breakdown from this key level would bring in the lower support level of $42.0

/Forex/Images/Insights/Gary Burton/FMG WPL 01

WPL set a recent low on the 10^th of December has closed the last price gap from April 2018. Prior to making the low the break of the down trend line was broken with a bullish higher close. Price movements have retraced and consolidated above the $31.00 level building the base on this daily chart.

WPL currently shows bullish Relative strength Divergence with price, this type of divergence is often the early precursor to major trend reversal.    STOP set at $30.40.