By Daniel Hynes
The grim economic outlook in China continued to weigh on sentiment in commodity markets. Base metals led the complex lower, while gains in oil were offset by falls in coal in the energy sector.
Base metals fell across the board amid signals of weak economic growth in China. Premier Li Keqiang told officials that the country is faring worse in some respects to 2020. He urged them to help reduce joblessness and keep growth “in a reasonable range” this quarter to help mitigate the impact of its COVID-zero policy. This has seen the market’s consensus forecast for China’s GDP fall to 4.5%, well below the official target of 5.5%. Sentiment wasn’t helped by US durable goods rising only 0.4% in April. Copper fell after Freeport Indonesia said it aims to increase daily copper ore production to 178kt per day this year, up from 145kt/d in 2021.
Iron ore was steady as investors continue to look ahead to stimulus measures supporting demand for the steel making raw material. China’s central bank urged lenders to boost loans in a bid to spur demand. State media also lauded China’s focus on economic growth in high profile articles.
Unlike yesterday, gold struggled to find a bid amid the weak economic backdrop. Gold was under pressure from the opening of the session as the USD gained, but pared some of those losses after Federal Reserve minutes showed little appetite for more aggressive rate hikes. Fed officials agreed the bank needed to tighten in half-point steps over the next couple of meetings.
Crude oil prices edged higher as inventories continue to draw down. US stockpiles fell by 1,019kbbl last week, according to Energy Information Administration data. The fall was even greater than Cushing, the pricing point for WTI futures. At the same time, exports soared, and throughput at Gulf Coast refiners hit their highest level since January 2020. This helped slow down the drawdown in fuel inventories, providing some relief for tight markets. The EIA report also showed sales from the strategic reserve remain strong, with the stockpile falling 5,971kbbls last week. This takes the SPR to its lowest level since September 1987. The market remains on edge about the pending European sanctions on Russian oil. However, Russia oil producers are finding it increasingly difficult to sell barrels in the continent. Cargoes from Baltic ports are now taking much longer voyages to refineries in Asia. Deliveries to the Netherlands and France have all but halted.
European natural gas gained after Norwegian pipeline exports fell to their lowest level in a month. Flows declined on Wednesday amid fresh maintenance at the giant Troll field, while available capacity at the country’s Karsto processing plant and the Skarb field is also curtailed because of works. This comes as Europeans step up efforts to wean themselves off Russian energy. New agreements to receive alternative supplies continue to be reached, including RWE AG agreeing to buy LNG from Sempra Infrastructure.
North Asia LNG futures extended recent gains as tight supplies were exacerbated by hot weather in Asia. Executives at major natural gas companies warned that the global market is facing an extended period of volatility as the industry grapples with a worsening shortage.
European carbon was steady despite the rally in natural gas prices. EUAs consolidated their gains from Tuesday. However, they failed to re-take a key technical level amid thin trading, ending the session up 0.2% to EUR81.40/t. Traders remain on edge following the announcement earlier this week that the EU proposed to sell 250m EUA to help fund its shift away from Russian fossil fuels.
Data source: Commodities Wrap