A lack of any major policy shift in China weighed on sentiment

Highlights

Metals came under pressure as Beijing failed to announce any new stimulus measures following the Third Plenum. However, ongoing supply side issues in the energy sector kept prices elevated.

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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Ahead Today

• Central bank speakers: Williams, Bostic (Fed).
• Baker Hughes weekly rig count
• China weekly iron ore port stockpiles
• SHFE weekly commodities inventory
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Market Commentary

Copper led the base metals sector lower as China’s Third Plenum failed to provide any details on further stimulus measures. President Xi Jinping vowed to make high quality development the key driver of the world’s second largest economy. That left investors disappointed that there wasn’t a greater focus on tackling structural issues in the economy, such as the beleaguered property sector. Sentiment wasn’t helped by data that showed China’s unwrought copper and copper product exports hit a record for a second consecutive month, as weak domestic demand forces traders to rely on international markets.

Iron ore also fell after the Third Plenum communique failed to signal any major policy shift. This comes as a combination of weakening seasonal demand and a rise in supply from key exporters is softened the iron ore market. China’s economic data continue to weaken. GDP growth was only 4.7% in the second quarter, while home sales and property investment were also weaker. This comes as the steel industry enters its quieter summer period where demand tends to weaken. At the same time, iron ore producers are overcoming recent supply side issues to boost exports. Both Rio Tinto and BHP reported strong second quarter production results, having put behind them weather related disruptions earlier in the year. Brazil’s Vale, the world’s second largest producer, overcame operational issues, with June quarter production up 13.8% q/q. China continues to import large amounts of iron ore, contributing to the build-up of stocks. In combination with ample supply this should keep downward pressure on iron ore prices .

Crude oil was under pressure amid a broader risk-off tone across markets. Nevertheless, concerns over supply in the short term kept the losses minimal. In Canada, wildfires once again are threatening 400kb/d of oil production. Over the past 24 hours, 47 new fires have emerged in the oil sands rich area. Arid conditions are expected to exacerbate the situation in coming days. Several major Russian commodity exporters say that trade with China is becoming increasingly difficult. Direct payments made in CNY are being frozen or delayed. China has become Russia’s biggest customer for oil following US and European sanctions. This comes ahead of a meeting of OPEC’s monitoring committee, who will review the progress of the supply agreement between it and OPEC allies made earlier this year. Last month it announced it would restore roughly 2.2mb/d of halted output in the fourth quarter, but the ensuing selloff prompted it to stress it could change its mind should market conditions warrant it. Russia is also yet to outline its plan to reduce output to make up for overproducing under the current agreement. Bloomberg reported that Moscow’s additional curbs will most likely happen in summer and early autumn for technological reasons.

Global gas prices rose as supply risks mount. There are growing concerns about cancelled deliveries from the Freeport LNG export terminal. It cancelled another 10 shipments for loading through August as it struggles to overcome issues following Hurricane Beryl. This is leading buyers to seek replacement cargoes on the spot market.

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Chart of the Day

Steal demand in China is set to soften in coming months due to seasonal factors.

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5in5 with ANZ Podcast

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