By Daniel Hynes
The prospect of further stimulus measures in China continued to support commodity markets. Tightening supplies in the energy sector were also supportive.
Copper and iron ore extended yesterday’s rally after China pledged support for its beleaguered property sector. President Xi Jinping and the 24-member Politburo promised to revive growth after the post-COVID recovery stalled. Markets were buoyed by the fact that statement left out the slogan of “housing is for living, not for speculation”, a sign that they are considering further easing restrictions on the property sector. The sector accounts for around 40% of Chinese steel demand and is important for metals such as copper, aluminium and zinc. However, it stopped short of unveiling any large-scale stimulus package that would provide a significant boost to demand. Even so, it appears to have sparked some renewed optimism as Beijing looks to encourage more risk taking and investment.
Lithium prices in China fell as European car makers look to boost local supply of batteries for the EV market. However, demand remains strong. Top Chinese battery maker CATL reported record profits powered by surging EV sales in China. While China’s PCA warned that overall car sales may drop 4.8% y/y in July, EV sale will continue to rise.
Crude oil was also well supported by the broad risk-on tone across commodities sparked by the Politburo statement. However, further signs of tightening supplies remain the key driver of the market. Russia’s seaborne crude exports from Baltic and Black Sea ports fell to 1,17mb/d in the week to 23 July. This is its lowest level in seven months, as Moscow implements the recently announced production cuts. The reduced availability of Urals crude has seen its discount to international benchmarks narrow. This is now leading Indian refiners to turn back to Middle East exporters. However, cuts by OPEC are also tightening the market.
North Asia LNG prices rose towards USD12/MMBtu as buyers eye winter supply. This comes as hot weather across Asia is already lifting demand and drive LNG inventories lower across the region. China’s relaxation of natural gas prices controls could also spur additional demand for LNG imports. Regulators recently gave the green light to increases in residential prices to better reflect the cost of purchasing fuel. This should lead to higher gross margins and stronger demand, according to China Gas Holdings. The prospect of stronger Asian demand helped push European gas prices higher. There is rising concerns that a colder than normal winter will suddenly boost demand just as LNG flows are being redirected to Asia.
Gold futures settled higher as the market waits for the FOMC policy announcement on rates. With the market expecting a hike of 25bp, the greater focus will be on the Fed’s messaging on the trajectory after this month. Investor demand was also supported by a weaker USD.
Data source: Commodities Wrap