Iron ore rises as further supply side issues emerge

Easing concerns about the economic impact of the COVID-19 saw commodity markets push higher. The ANZ China Commodity Index ended the session up 1.0%, with a broad-based rebound across the sectors. Bulk led the gains, with iron ore rising strongly. Good gains were achieved across the industrial metals, including copper and nickel. The energy sector was higher, with Brent crude pushing higher. Agriculture was up on the day. The only sector to end lower was precious metals, as gold struggled amid the risk-on tone across markets.

The crude oil price gained as hopes of another supply cut by OPEC rose. The OPEC+ joint technical committee recommended the group cut production by 600kb/d. Initially there was some caution, with Russia in particularly reluctant to push ahead with any such proposal. However, comments from Russia’s Energy Minister suggest the door remains ajar. Alexander Novak said Moscow is studying the output cut plan and called the situation extremely unstable. Novak is set to meet Russia’s oil companies on Wednesday. In the meantime, concern over weak demand in China is forcing many producers to look for alternatives. Companies such as Vitol, Shell and Litasco have been preparing to hire supertankers to store crude that would be otherwise destined for China.

Asian LNG prices extended losses as China continues to turn away cargo as the efforts to contain COVID-19 impacts demand. Ship broker, Affinity, said at least 12 LNG vessels have potentially diverted away from China since the outbreak intensified. In the futures market, LNG Japan Korea Marker futures for March rose USD0.01 to USD3.525/mmbtu. April futures were also stronger, gaining rose USD0.065 to USD2.89/mmbtu.

Iron ore prices gained after supply-side issues in Brazil emerged. Heavy rain in the iron ore regions forced Vale to cuts its first quarter guidance on output by 5mt. This comes as Chinese authorities promote the resumption of business operations and output. President Xi wants to increase support for enterprises that have been effected, according to Xinhua News Agency. Xi also wants work to resume on existing projects, while looking at new ones to boost economic activity. This helped boost sentiment in the market, with iron ore futures in China rising sharply.

Copper rebounded in Tuesday’s session as evidence of business restarting production in China raised hopes of limited economic damage to China. European plane-maker, Airbus, has been authorised in China to restart production in Tianjin. This follows calls from regions less hit by the disease to accelerate a resumption of industrial output. However, the impact of the outbreak in China is spreading through the copper market. Chinese copper smelter treatment charges rose to their highest level in eight months, as smelters cut runs. Codelco, the world’s largest copper producer said none of its clients has declared force majeure on copper purchase contracts.

A slow resumption in coal producing regions in China continues to push up domestic prices in China. Thermal coal futures for May rise 0.5% to CNY570/t on the Zhengzhou Exchange. Despite weaker domestic output raising hopes of more imported coal being consumed, seaborne prices were weaker. The Australian Newcastle January futures fell 2.1% to USD68.75/t.

A risk-on tone in markets pushed equity markets higher, weighing on appetite for the precious metals sector. This is despite investor remaining concerned about the economic impact of COVID-19. Gold prices took a sharp dive lower after comments from Fed Chair Powell. While he said disruptions in China may spill over to the rest of the global economy, he said there is no reason the expansion in the US can’t continue.