Copper gains amid a short squeeze
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Stubbornly high inflation in the US weighed on sentiment across the sector. This was offset by ongoing supply side issues across metals and energy.
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
Crude oil futures weakened amid a broader risk-off tone across markets. That was triggered by higher-than-expected US producer prices. The lack of progress on bringing down inflation continues to lower expectations of a rate cut in the near term. OPEC released its monthly oil market report and kept its previous target of growth in global demand of 2.2mb/d in 2024. It also reported a fall in oil production ahead of its June meeting when output cuts will be reviewed. However, Bloomberg survey showed that OPEC+ members exceeded their output quotas last month, pumping about 568kb/d above their agreed limit. Iraq and Russia flouted their targets by the largest amount. Earlier this week a Bloomberg survey showed 87% of respondents expect an extension when the OPEC groups meets on 1 June.
European gas prices held near EUR30/MWh as traders start restocking the fuel ahead of the next hearing season. While they are starting at a relatively high level, they are starting to come up against challenges. An outage at a massive Malaysian LNG export terminal has caused some LNG shipments to be delayed. In Australia, the Gorgon LNG plant has also been forced to delay some cargoes amid maintenance issues. There is also ongoing concern about disruptions from Norway’s gas fields, Europe’s single largest source of supply. North Asian LNG found some support on reports that Europe is also looking at potential sanctions on the use of EU ports for re-exporting Russian LNG.
Copper led the base metals sector higher as ongoing supply side issues continue to hover over the market. The market was provided another insight in the struggles in the mining industry, with Chile reporting its output fell 0.7% y/y in March. This follows the closure of mines late last year which is tightening up the availability of copper concentrate. Today’s move was also exacerbated by a short squeeze on the New York futures market. The most liquid contract surged more than 5% to push more than USD1000/t above the equivalent contract on the LME in London. Some traders appear to have been caught short on their trades and are being forced to buy back to cover their positions. The prospect of trade disruptions was also heightened after the Biden Administration announced new tariffs on Chinese imports, including EVs, critical minerals, steel and aluminium. The tripling of tariffs on aluminium comes as inventories on the LME surge as the market adjusts to the ban on Russian metal being traded on the exchange.
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Gold gained despite the spectre of stubbornly high inflation in the US. Gains in the precious metal continue to be underpinned by central bank buying and heightened geopolitical risks in the Middle East. Qatar PM Sheikh Mohammed bin Abdulrahman said that ceasefire talks between Israel and Hamas have reached an impasse following Israel’s ground offensive on the outskirts of Rafah. Physical demand in China has also been strong. Increased household savings; subdued returns on alternative investment assets such as equities, bonds and real estate; and uncertainty over yuan’s trajectory have all been factors in supporting demand.
Iron ore futures edged lower as the US tariffs on Chinese steel raised concern about export driven demand.?
Chart of the Day
Weak consumer confidence would weigh on US gasoline demand
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