By Daniel Hynes
Rising COVID-19 cases in China weighed on sentiment across commodity markets. This was offset in industrial commodity sectors by further falls in inventories. A weaker USD also helped support investor appetite.
Crude oil fell as rising cases of COVID-19 weighed on sentiment. Xinjian reported its fourth highest number of new cases nationally on Monday. Inner Mongolia, which was sealed off in early October, saw cases jump to almost 1800. New infections in the province of Henan almost doubled. This comes following rumours that Beijing was looking to options to ease restrictions. However, that was quashed earlier this week after officials at China’s National Health Commission said the country will unswervingly adhere to current virus controls. Despite the fall, crude oil traded in a tight range amid concerns of supply shortages. OPEC has begun reducing output in line with their agreement to reduce quotas by 2mb/d at its last meeting. Traders are also positioning ahead of the 5 Dec deadline for European sanctions of Russian oil.
European natural gas rebounded from recent losses amid doubt over the EU’s plans to impose a temporary price cap on imports. Dutch front month futures were up as much as 10% after the European Commission signalled that other measures to limit price swings may be more effective than a cap. The political wrangling also threatens to delay a deal on an emergency package to reign in soaring energy prices. The bloc’s energy ministers are scheduled to meet on 24 November, increasingly deep into the heating season. There are also growing concerns that the Freeport LNG export plant may not restart as planned later this month. The plant was a key supplier of gas to Europe before being forced to close in June. Freeport’s issues also pushed prices higher in the North Asia LNG market. The benchmark Japan-Korea Marker gained more than 2.5% to USD27.88/MMBtu. However, forecast warmer-than-average weather across Asia tempered the supply side concerns.
European carbon prices gave up Monday’s modest gains as volatility began to dry up in anticipation of political discussions at COP-27. This was despite higher energy prices in Europe.
Copper led the base metals sector higher on dwindling inventories amid positive signs for demand. Aluminium inventories in London Metal Exchange warehouses fell the most since August. Most of the drawdown occurred in Asia. High energy prices have been forcing many smelters in Europe to reduce output. Supply side issues are hanging over the copper market. Protest’s at MMG’s giant Las Bambas mine in Peru has seen the company progressively halt operations. Peruvian students have also blocked the railroad used by Southern Copper transport minerals in the southern city of Ilo. Demand for metals in China continues to be supported by the EV market. Retail sales of new energy vehicles jumped by 75% y/y in October to 556,000 units, according to PCA data. Total passenger vehicle sales rose 7.2% y/y. PCA expects even bigger numbers in coming months.
Iron ore futures were steady for a second consecutive session as investors pause to reflect on China’s real estate sector and the ongoing battle with COVID-19 outbreaks. China expanded a key financing program to support about CNY250bn in debt sales by private firms, including real estate developers. It added that the effort could be further expanded if necessary.
A weaker USD helped push gold to a one month high. The dollar’s recent slide has helped invigorate investor buying, after recent strength amid rising US interest rates. The precious metal is also holding above the 50 day moving average, adding to the positive sentiment.
Data source: Commodities Wrap