By Daniel Hynes
Supply side issues helped offset concerns of weaker demand in commodity markets. A weaker USD also added support.
Aluminium gained amid concerns of supply side disruptions in China. A drought in Yunnan is impacting hydroelectric power generation, affecting aluminium smelters there. Precipitation levels in the second half of May were the lowest for the period since 1961. Even so, survey data from SMM showed the China’s output of aluminium rose in May. Exports were also stronger during the month. Copper was relatively unchanged amid ongoing concerns of economic headwinds. This is likely to keep downward pressure on base metals in the short term. However, we still see signs of robust demand. Driven by investment in infrastructure as the energy transition gathers steam, we see demand growth rates picking up strongly in the second half of the year. Any shift in sentiment across the broader macro environment could spark a rally across industrial commodities.
Lithium carbonate prices in China pushed above CNY300,000/t for the first time since March, following reports of support for the auto sector. Beijing said its starting promotions to boost vehicle sales in cities and electric vehicle sales in rural areas.
Iron ore futures extended recent gains as confidence build over a recovery in the property sector. China’s biggest state-owned banks have cut deposit rates in response to Beijing’s call to boost growth. This comes after Beijing introduced measures to support the property market, such as reducing the down payment on properties and further relaxing restrictions on residential purchases.
Crude oil fell amid fears that a possible US-Iran nuclear deal would pave the way for more supply hitting the market. Media outlets in the Middle East reported that Iran and the US have made progress in talks over the former’s nuclear program. Any agreement to restore the 2015 nuclear deal, could lead to the removal of that sanctions that have curtailed exports of Iranian oil onto the global market. Iran was producing around 3.8mb/d after the deal. After the Trump Administration voided it, output slumped to between 2-2.5mb/d. The reaction to the news highlights the strength of bearish sentiment across the market. The recent move by Saudi Arabia to cut output by a similar amount elicited a much smaller move higher.
European gas prices rose in early trade as production outages and hot weather boosted sentiment. Annual maintenance at Norway’s Ormen Lange field will last until early July, longer than normal. Separately, Norway’s LNG plant is shut until next week. In addition, French winter power prices surge by the most in three months after EdF reports additional and longer outages at its fleet of nuclear reactors. North Asian LNG futures were little change. However, Tokyo Gas warned of supply tightness this winter due to extreme weather and production disruptions.
Data source: Commodities Wrap