Mixed economic data raised concerns over commodity demand, weighing on prices. Investor appetite was also weakened amid a stronger USD.
By Daniel Hynes
Market Commentary
Copper failed to hold onto mid-week gains as ongoing concerns over demand in China. Tightness in the copper concentrate market helped push the red metal to a week high of USD9900/t. Dramatically lower processing and refining fees for H2 2024 are on the cards as Chinese smelters compete for increasingly scarce sources of ore. However, concerns that demand will still struggle to keep up weighed on sentiment. Chinese copper fabricator Zhejiang Hailiang Co warned that its customers are becoming more frugal amid the downturn in the property sector. Economic data was also mixed. S&P Global’s composite PMI fell to 50.8 in June, missing expectations. That typifies a broader economic backdrop tinged with uncertainty. While the ECB has commenced its easing cycle, Fed officials are maintaining a cautious approach amid persistently high inflation. Last week officials signalled that they only expect to reduce borrowing costs once this year, compared with three reductions in March. This could weigh on commodity markets, as they generally perform well when the Fed starts cutting rates.
A synchronised global easing cycle could be further delayed following better than expected US manufacturing and services data. The S&P Global flash June services PMI rose to 55.1, its highest level since April 2022. This prompted gold investors to rethink the timing of the Federal Reserve’s rate cut path. Such data raises the risk of the Fed maintain its hawkish stance. Palladium surged as much as 11% on Friday, largely driven by short covering. In the week ending 11 June, net shorts by investors stood at its highest level on record.
Crude oil ended the week almost 3% higher despite a sell-off on Friday sparked by a stronger USD. Signs of strong demand helped boost sentiment last week. EIA’s weekly oil inventory report showed that US commercial inventories fell 2.55mbbls last week. More importantly gasoline demand rose for the seventh straight week, while jet fuel is back to 2019 levels. Geopolitical risks were also in focus. Four refineries in Russia were targeted by a drone attack on Friday. In the past several weeks. Ukrainian drone attacks have damaged at least two other refineries. Oil prices remain underpinned by OPEC’s flexible supply policy. Despite earmarking the phasing out of voluntary cuts, Saudi Arabia reiterated it retains the option of pausing or reverse production changes.
Global gas prices extended losses as risk to supply eased. European gas benchmark futures fell almost 4% as Norwegian flows hit a two year high for this time of the year, despite ongoing summer maintenance. Russian gas pipeline flows are also expected to remain strong after Gazprom booked over 40bcm of gas to transit through Ukraine last week. Such flows were under question following successful damages claim against the Russian gas giant. North Asian LNG prices were also under pressure, after the Wheatstone LNG plant in Australia was showing signs that it’s near a restart following a recent outage. The European Union’s new package of sanctions over Russia’s invasion of Ukraine failed to include a ban on LNG imports. Nevertheless, demand in Asia remains strong amid hotter than normal temperatures.
Data source: Commodities Wrap