By Daniel Hynes
Commodity markets shrugged off weak economic data, instead focusing on ongoing supply side issues. Metals led the complex higher, while oil gave back some of the recent gains. A slightly weaker USD also boosted investor appetite.
Aluminium led the base metals sector higher amid signs of tightening supplies. Stockpiles at London Metal Exchange warehouses plunged to a 31 year low of 295,325t. This equates to approximately 1.5 days of consumption. This comes amid ongoing curbs on supply in Europe, where the energy-intensive smelting process has suffered rising costs. Norsk Hydro issued a fresh warning that rising energy costs could knock out another 1mt/y of capacity. CFO Pal Kildemo said more than a third of smelters globally are currently losing money, with the surge in power prices already curtailing 900kt/y of smelting capacity. Inventories of other metals such as nickel and zinc are also near record lows. A second consecutive quarter of economic contraction in the US was not enough to worry investors. Instead, the prospect of a slower pace of future rate hikes eased concerns of even weaker economic growth.
Iron ore gained amid optimism over potential support for China’s distressed property sector. The PBoC will issue about CNY200bn of low interest loans to state banks, according to the FT. Authorities are hoping that banks will leverage this up to five times to provide as much as CNY1tn of loans to help developers complete stalled property projects. This comes ahead of a meeting of the Politburo expected this week where China’s leaders will revisit its economic growth target. Fortescue Metals CEO Elizabeth Gaines said you should never underestimate China’s ability to achieve its growth targets, a statement mirroring the market’s expectations. Futures on the Singapore Exchange rallied more than 5% to end the session at USD117.75/t
European natural gas eased lower as Russian gas flow stabilised. Shipments through the Nord Stream pipeline remain at around 33mcm/d, equivalent to 20% of its total capacity. Deliveries via Ukraine, which initially looked like they might fall, were also steady. This provided some room for traders to re-assess the situation following a tumultuous few days. Russia said that it hopes a turbine currently stuck in Germany “will somehow get” to the Portovaya compressor station soon. However, the risk of further disruptions is still hanging over the market. Earlier this week, Gazprom said another turbine needed to be taken down for maintenance. Even so, Germany remains optimistic it will be able to continue filling its gas storage facilities. North Asian LNG followed European gas lower. Nevertheless, importers continue to look for shipments for delivery in the lead up to the peak winter heating season.
Crude oil edged lower amid signals of weak demand. High food and energy costs around the world continue to temper consumption. Road fuel sales in the UK are waning again, while gasoline demand remains below its five-year average for this time of the year. Jet fuel demand is also weak, with the number of commercial flights about 14% less than the pre-pandemic levels in 2019. Nevertheless, Shell CEO Ben van Beurden warned that there is more upside than downside when it comes to the oil price, with supply remaining tight.
Gold climbed after the US economy shrank for a second consecutive quarter. The subsequent lower USD and bond yields saw investor demand pick up. This also clouds the outlook for further aggressive rate hikes, which as weighed on investor demand for the precious metal in recent weeks.
Data source: Commodities Wrap