By Daniel Hynes
Markets remained range bound as the post-FOMC rally petered out on a stronger USD. Doubts on the strength of China’s reopening weighed on sentiment.
Copper was up early in the session as part of the risk-on rally after the market perceived Chair Powell’s comments following the FOMC meeting as dovish. Tighter monetary policy has been a major headwind for metals over the past 12 months, but they came under pressure near the close amid doubts over China’s pace of recovery from recent COVID-19 restrictions.
Nickel bucked the trend to finish higher as the market looks to strong demand from the electric vehicle (EV) battery sector. This tightness in battery nickel doesn’t represent the broader market fundamentals. High prices have induced a supply response, with the market now facing a surge in new projects, meaning it is likely to push into surplus this year. If EV sales growth disappoints, we could see downward pressure on nickel prices this year.
Newcastle coal prices eased lower, extending a selloff that saw the fuel fall more than 35% this year. Sentiment has weakened amid the easing of the energy crisis in Europe, but the market remains tight amid supply side issues. Coal exports through Newcastle are said to be down 34% y/y in January, according to an AFR report. Ship loading has been impacted by bad weather, with waterlogged mines adding to the issues.
Crude oil was relatively unchanged as the market awaits evidence of stronger demand from China. Road traffic levels in China registered a sharp increase as the Lunar New Year holidays came to an end. A congestion index comprising the 15 largest cities has increased by more than 200% versus a week earlier. Despite this rapid increase in mobility, Chinese traders have been relatively absent from markets. No real drop in Russian supply is also tempering sentiment. Russian oil output was stable at 10.9mb/d in the first 30 days of January, according to energy ministry data. In fact, seaborne crude flows rose slightly during the month. Bloomberg data did show that OPEC managed to trim oil supplies by 60kb/d to 29.12mb/d. Saudi and Libyan reductions were partly offset by gains by other members. Volatility in the European gas market remains high. Gains earlier this week were wiped out as traders weighed ample stockpiles against rising demand. Supply could get a boost, with the Freeport LNG terminal receiving further approvals to restart activities. Before it was shut due to an explosion last year, it was a key supplier to the continent. Falling temperatures across Europe are expected to boost demand in coming days, increasing withdrawals from storage facilities that are currently at 73% capacity. North Asian LNG also fell amid lacklustre demand from China. Despite a recovery in economic activity, ample stockpiles could see China’s purchases from the spot LNG market remain subdued in the short term.
Data source: Commodities Wrap