By Daniel Hynes
Fears of an economic slowdown continues to cast a cloud across commodity markets. Metals suffered sharp declines last week amid the poor sentiment. Nevertheless, the ANZ China Commodity Index managed to end the week higher as supply shortages pushed energy higher.
Base metals fell sharply last week amid concerns over global growth. Copper suffered its fifth consecutive weekly loss as central banks plough ahead with aggressive tightening to tackle persistently high inflation. Sentiment was briefly lifted after reports that China was considering a massive USD224bn stimulus to boost growth. Most of this is expected to be spent on infrastructure as the country struggles to lift growth following recent COVID-19 lockdowns. We expect such measures to support metals demand through to the end of 2022. Coupled with ongoing supply side issues markets such as copper, aluminium and nickel are expected to remain tight. Friday’s session saw metals end the session lower amid a broad risk off tone across markets, sparked by the assassination of former Japanese Prime Minister Shinzo Abe.
Iron ore ended Friday’s session lower, locking in another weekly decline. Investors remained unconvinced that the massive stimulus package China is said to be preparing would boost demand for the steel making raw material. Chinese steel companies are still suffering from weak margins and high inventories, which has seen some suspend operations.
Crude oil ended the week lower as recessionary fears overshadowed a fundamentally tight physical market. Investors continue to reduce their bullish bets as restrictive monetary policy raises the risk of slower economic growth. Net long positions in WTI crude futures at now at their lowest level since March 2020, when demand collapsed amid the initial outbreak of COVID-19. This is despite ongoing signs of tightness. The US crude prompt time spread (spot - 1m future), an indication of supply and demand balances has surged to USD4/bbl, its highest level since March. Saudi Arabia also raised its selling prices of light crude to most regions for August amid strong demand. US exports also remain strong, with the four-week average sitting above 3mb/d. Further supply disruptions are also hanging over the market. G7 members are discussing further sanctions, which could include a plan to cap Russia’s oil revenue. This has sparked a rebuke from Russia, with President Putin warning it would be a catastrophe for global energy markets.
European gas eased lower on Friday as fears of further tightening of Russia supplies eased. Germany expects Canada to release a key part of Russia’s pipeline turbine that has curtailed flows to only 40% of capacity. Even so, Gazprom was said six other turbines which are utilised on the pipeline still require parts that are increasingly difficult to source in Russia. This kept the losses to a minimum, with Dutch front month futures ending the week up 18.5% to EUR175/MWh. North Asian LNG prices were steady amid the prospect of increased competition for LNG cargoes from Europe. This comes amid strong demand in Asia.
The prospect of further disruption to supplies pushed coal prices higher. Rail haulage companies in NSW’s Hunter Valley suspended coal export services and closed rail links between the mine and port. Futures based on Newcastle FOB spot price surged 5% to USD412/t. The Asian market is already suffering from supply disruptions amid the Russia-Ukraine conflict.
Gold steadied after US jobs data came in better than expected, raising hopes that the economy is holding up week as the Fed hikes interest rates. However, it remains near nine-month lows amid weak investor demand.
Data source: Commodities Wrap