By Daniel Hynes
A further recovery in risk appetite lifted commodities, but gains were limited amid concerns of weaker demand.
Copper inched higher amid a broader recovery in risk appetite. As fear for the banking sector fades, investors have begun dipping their toes back into commodities. However, the gains have been limited amid the uncertain economic backdrop. Inflation remains high, with central banks likely to keep tightening monetary policy. The speed of China’s economic recovery has also been disappointing. Nevertheless, there are growing expectations that the copper market will tighten as the headwinds ease. This could be exacerbated by the low level of inventories.
Iron ore futures were steady, following gains earlier in the week on optimism that China’s construction period will boost demand. Traders have shrugged off pollution-controlling curbs on steel output and lingering concerns around the property slump in recent weeks. With fixed asset investment showing signs of improvement, the mood has lifted.
The risk-on tone weighed on gold prices. Investor appetite was dented amid a stronger USD and gains across equity markets. However, the precious metal held up relatively well against the headwinds. Expectations of a pause in the Fed’s rate hike cycle underpin robust demand. Gold continues to see strong inflows in ETFs. Volumes in SPDR Gold Shares, the largest gold-backed ETF, have surged to their highest level since October.
Crude oil prices gained early in the session as risk appetite recovered. This was aided by further falls in US inventories. A US government report showed that commercial stockpiles fell 7,489kbbl last week. Gasoline inventories also fell as driving activity picks up. However, signs of weak industrial demand checked the rally. US demand for diesel, which is used as an industrial and heating fuel, continues to languish at seven-year lows for this time of the year. The market is closely watching events in Iraq. Firms have shutdown oil fields in Kurdistan as a dispute between the region’s government and Baghdad drags on. Around 400kb/d of oil is said to be impacted. China’s largest producer, PetroChina thinks domestic demand for gasoline and diesel will rise this year at the fastest pace since 2012.
European gas prices fluctuated as traders weighed up the impact of disruptions in France against weak demand. French electricity prices continue to rise as strikes in the country keep nuclear reactors offline. Operations at three LNG import terminals also remain curtailed. A fresh bout of cold weather has raised concerns over demand. Any extension of the heating season could add pressure to the market. There are also signs that low prices have induced high gas consumption in the industrial sector. North Asian LNG has failed to follow European markets higher in recent days. Concerns of subdued demand in China, and rising exports from the US have weighed on sentiment.
Data source: Commodities Wrap