A risk-on tone across markets saw commodities erase earlier losses to end the week higher. This was supported by rising expectations of stimulus measures in China which saw industrial commodities rebound strongly.
Base metals ended the week strongly as the combination of easing restrictions and further stimulus measures in China boosted sentiment. Earlier in the week, Chinese authorities cut a key interest rate for long term loans by a record amount. This was followed by a myriad of measures to support the economy hit hard by COVID-19. Shanghai will offer some tax breaks for companies and allow all manufacturers to resume operations from June. The financial hub will also accelerate property projects and supply new residential developments. In a move that will no doubt support base metals, quotas for car ownership will be increased by 40,000, a purchase tax for some cars will be reduced and subsides will be provided to electric car buyers. This saw copper and nickel prices rally late on Friday. Nickel is also suffering from a lack of liquidity that is resulting in extreme volatility. Open interest in futures have plunged by more than a third from February’s levels as the fallout from the historic short squeeze continues.
Gold held gains as cooler inflation data eased pressure on the Fed to aggressively hike rates. This was also supported by a weaker USD.
Iron ore prices gained on signs that Chinese banks will boost lending to support the property sector. Several lenders are said to be exploring moves to expand credit after the PBoC urged financial institutions to beef up support to the real economy. This comes after authorities relaxed property restrictions and announced plans for increased spending on infrastructure. Falling inventories also supported the iron ore market. Total stockpiles at Chinese ports fell 2.15% w/w to 134.3m tonnes on Friday, according to Steelhome data.
Crude oil prices posted their fifth weekly gain to close at their highest level since early March amid signs of strong demand. Gasoline futures settled above USD4/gallon in the US, as strong demand has pushed stockpiles below the five-year seasonal average. This comes ahead of the peak driving season, where inventories are normally drawn-down sharply. The futures market is signalling tightness, with Brent’s spot-1mth spread hitting USD3.50/bbl. Prices jumped late on Friday on reports that Iran’s paramilitary Revolutionary Guard said its navy had seized two Greek oil tankers in the Persian Gulf because of unspecified “violations”. This raises the spectre of further disruptions to oil flows through the Strait of Hormuz, which carries a third of the world’s trade. The market has been on edge as the EU tries to negotiate a sanction package which includes a ban on Russian oil. However, it failed to reach an agreement in discussions over the weekend, with Hungary still holding out on a better deal. Further meetings are planned on Monday and a deal is still possible.
European natural gas ended the week largely unchanged as concerns over disruptions to Russian gas eased. During the week Dutch front month futures fell to USD86.50/MWh, their lowest level since the start of the war in Ukraine. However, prices gained on Friday as Norway crimped production capacity. Gassco AS, the country’s gas network operator said works at the Troll and Skarv fields were extended, while Oseberg had an unplanned outage. European buyers are also finding a way to meet Moscow’s demands for rubles without breaching EU sanctions. North Asia LNG spot prices continue to rise as supplies for summer delivery tighten. This is expected to worsen, with Asian demand expected to grow strongly in H2 2022. Japan has a large nuclear maintenance program which will significantly boost demand for LNG. India is tackling its energy crunch with additional gas-powered electricity generation. Combined with the expected easing of restrictions in China, LNG demand will also be sharply higher.
Data source: Commodities Wrap