Industrial metals gained amid expectations of support measures in China. Geopolitical risks continue to weigh on energy markets.
By Daniel Hynes
Market Commentary
Crude oil prices fell as geopolitical risks eased. After Israel and Iran-backed Hezbollah traded rocket fire, Iranian President, Masoud Pezeshkian, said his country is prepared to de-escalate tension as long as it sees the same level of commitment on the other side. The oil market has been concerned that rising tensions in the region were dragging the OPEC oil producer closer to engagement. However, the comments suggest Iran doesn’t want the conflict to escalate. Traders are also keeping an eye on the weather. The US Gulf Coast is at risk of a hurricane strike by the end of the week as a patch of turbulent weather in the Atlantic consolidates. Shell has already curtailed production at the Appomattox project and the Stones oil field in the Gulf. Nevertheless, the weak economic backdrop remains a concern. Officials in China are said to be preparing a plan to support the economy as growth continues to weaken. The PBoC lowered the 14-day reverse repurchase rate on Monday; with expectations of another cut to the reserve ratio requirement (RRR) rising.
Volatility in global gas markets remains high amid rising supply risks and uncertainty around demand. European gas futures gained as concerns that Israel’s air strikes against Hezbollah in southern Lebanon could impact gas fields in the region. Israel supplies gas to southern neighbours Egypt and Jordan. In Ukraine, disruptions to supplies remain real. Russia is said to be planning strikes on nuclear facilities, according to reports from Ukraine’s foreign minister. Russia is also working to drive Kyiv’s forces out of the Kursk region, where the Sudzha gas transit pot is located. These risks are being compounded by several unplanned outages in Norway, Europe’s largest supplier. Gains in Europe helped raise the North Asian LNG price. This was despite signs that some Asian firms are delaying buying as prices are seen to be falling. Thailand’s state-run energy company, PTT, didn’t award a tender seeking two LNG cargoes for delivery in October. This came as Malaysia LNG exports continue to improve, with the 30-day average up nearly 10% m/m.
Copper rose on expectations of further stimulus measures in China. Several of China’s top financial regulators are set to give a press conference on Tuesday. This comes following a report from Bloomberg last week that Beijing was looking at monetary and fiscal measures to help support economic activity and reach the goal of around 5% GDP growth in 2024. Even so, recent data suggest demand for copper is improving. Premiums on imported copper rose to their highest level since the start of 2024, while inventories on the Shanghai Futures Exchange have been falling. Data in the US continue to support the view that the economy will suffer a soft landing from the recent tight monetary policies. US manufacturing data showed that business activity moderated slightly but was still robust.
Any support measure in China may come too late to help steel and iron ore demand. Prices fell after data showed that local governments in China cut spending as income from land sales fell. Steelmakers are cutting back on production, with year-to-date output running more than 3% behind the pace seen in 2023.
Chart of the Day
India's cut to import duty by 9% to 6% is a game changer to mitigate negative impact of higher domestic prices. Strong consumer sentiment will likely spur restocking by retailers ahead of the festive and wedding season. We expect gold imports to top 400t in the remainder 2024.
Data source: Commodities Wrap