China concerns weigh on sentiment
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Sentiment was battered when Chinese officials did not announce any new stimulus measures.
Prices and commentary accurate as of 07:00 Sydney/05:00 Singapore/17:00(-1d) New York/22:00(-1d) London.
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Market Commentary
Copper started the week on the back foot as a briefing by China’s Ministry of Finance on Saturday disappointed the market by stopping short of unveiling concrete plans for fiscal stimulus measures. The MoF suggested more details would be provided when Chinese legislators meet later this month. The extent of the headwinds for the economy were laid bare of the weekend with data showing that consumer prices rose less than forecast in September. At the factory gate, prices fell for the 24th straight month, underscoring the need for further policy support. Sentiment wasn’t’ helped in the copper market after Codelco reported strong production numbers. Output rose 10.1% y/y in August, reaching 125.3kt. This was driven by an improved performance at the Escondida mine, where output rose 15.5% y/y? to 105.300t. Alumina prices in Shanghai continued to rise following the suspension of operations at Emirates Global Aluminium’s bauxite mine in Guinea.
Iron ore was steady as strong Chinese steel exports mitigated ongoing weakness in the property sector. September exports hit their highest level since 2016, reaching 10.2mt. Year-to-date exports are up 21% y/y. Regions from southeast Asia to Latin America are complaining about a flood of Chinese steel imports, which could fuel trade tension in coming months.
Crude oil prices sank as sentiment fell on the lack of new stimulus from China. This was compounded by another downgrade of the oil demand outlook by OPEC, which trimmed its 2024 forecast by 100kb/d. This is the third straight monthly downgrade, suggesting its previously optimistic forecasts have further to retreat. It expects global oil consumption will rise by 1.9mb/d in 2024. The OPEC report also showed that Iraq belatedly made progress to implementing its share of output cuts due since the start of the year. Baghdad curtailed production by 155kb/d in September to 4.112mb/d, getting closer to its target of 4mb/d. However, it is still not making any progress in the extra cuts it promised to compensate for over production. Kazakhstan increased its production by 75kb/d to 1.545mb/d, flouting its pledge to perform better. Meanwhile traders remain on edge over tensions in the Middle East. On Monday, Israel said more missiles were fired from Lebanon a day after Hezbollah drone strike killed Israeli soldiers.
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European gas benchmark futures gained amid further supply curbs in Norway. The Oseberg field reduced output due to a compressor failure. The outage could last for another week. This comes as the market remains concerned about disruptions in the Middle East. North Asian LNG prices edged higher amid rising activity in the spot market by Thai importers.
Gold swung between small gains and losses as investors contemplate the outlook for rates. Haven demand has also remained strong, amid rising tensions in the Middle East. This is being aided by uncertainty around the US presidential election.?
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Chart of the Day
China's imports of thermal coal remain strong amid concerns over energy security.
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