Easing trade tension helped push commodity markets higher. This was aided by the lingering pact of strong economic data from China.
By Daniel Hynes
Market Commentary
Copper led the base metals higher amid easing trade tensions. A Wall Street Journal report said Trump will refrain from implementing aggressive tariffs immediately. The report saw the USD tumble, easing headwinds for the broader commodity complex. It also offered a moment of relief to commodity markets which have been concerned about the economic impact of such tariffs. This comes following data on Friday that showed industrial production and manufacturing activity in China had been buoyed by recent stimulus measures. Export driven demand, which would be impacted by US tariffs, was also behind the economic rebound. Supply side news was also supportive. Chile’s state-owned copper producer, Codelco, lifted production from its 25-year low, but that came at the expense of maintenance, raising the prospect of ongoing difficulties in maintaining current levels.
The weaker USD also supported investor demand in the precious metals sector. Gold ended the session up as the potential for economic disruption from a trade war boosted haven demand. The surge in demand for physical gold is also resulting in a spike in lease rates in London, which reflects the returns that holders of bullion in London’s vaults can get by lending their metal out to other buyers on a short-term basis.
Iron ore prices dipped as supply side issues eased. Port Hedland, Australia’s largest bulk-export terminal, reopened early on Monday after a severe tropical cyclone moved away from the region, enabling shipments to resume. The steel making raw material has had a positive start to the year, but those gains may be limited due to concerns the country is producing too much steel.
Crude oil fell as Trump promised to boost US crude production. He reiterated his goal to encourage more output by cutting red tape and allowing drilling on previously banned federal lands. This will come via emergency powers following the deceleration of an energy emergency. This underlines Trump’s determination to reorient federal government policy behind oil and gas production, a sharp pivot from outgoing President Biden’s efforts to curb fossil fuels. Trumps inauguration also raises questions about US foreign policy, in particular the impact of sanctions on Russia and Iran on the oil market. Scott Bessent, his nominee for Treasury Secretary said last week that he would support dialling up measures targeting Russia’s oil industry. The president’s pick for national security advisor has previously vowed maximum pressure on Iran.
Global gas prices extended last week’s gains as strong demand pushed inventories lower. In Europe, storage levels fell to 61%, compared with the five-year seasonal average of 68%. There were also reports that Asian buyers may seek to purchase more US LNG to appease the incoming president. Policy makers from South Korea, Taiwan and Vietnam are said to be considering such measures. This would be supported by the Trump administrations proposed lifting of a moratorium on new export licences for LNG.
Chart of the Day
US President Donald Trump may struggle to achieve his goal is boosting US oil output. Scott Bessent, his US Secretary Treasury nominee, has targeted an additional 3mb/d as part of his economic rescue package. However, despite high prices, US shale producer appear reluctant to increase drilling activity. The rise in US output has come amid efficiency gains, which will be much harder to maintain this year.
Data source: Commodities Wrap