Metals gain amid expectations of rate cuts
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Expectations of easing monetary policy helped boost sentiment across metals. However, oil inventory gains raised concerns of weaker demand.
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
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Market Commentary
Iron ore futures extended recent losses as the world’s biggest steel producer, China Baowu Steel Group, warned China’s steel industry is facing a worse downturn than 2008 and 2015. It expects the downturn will likely be longer and more difficult to endure than expected. Those previous downturns were ultimately resolved by massive stimulus measures, which are not expected this time around. Beijing has instead focused on stabilising the industry and helping reduce the huge inventory of property. Steel prices have subsequently fallen more than 15% this year.
The base metals sector ended the session higher as the prospect of rate cuts rose. Signs of resilience in the US labour market eased concerns about a global recession that have been hanging over the industrial commodities markets. Sentiment was further boosted after US inflation cooled for the fourth consecutive month. Expectations are now high for a rate cut by the Fed. Traders are also watching strike negotiations at a copper mine in Chile, which produces about 5% of the world’s mined copper. This helped take the focus off subdued demand in China. Key economic data due out today should reveal whether economic growth has improved in July.
Crude oil erased this week’s gains after US inventories unexpectedly rose. The Energy Information Administration’s weekly inventory report showed stockpiles of crude oil rose 1.36mbbl last week, snapping a six-week streak of declines. This was against the API’s estimate of a 5.2mbbl decline. Even so, gasoline and distillate inventories fell 2,894kbbl and 1,673kbbl respectively. The drawdown in gasoline stockpiles helped push implied demand back above 9mb/d. Traders are on edge, as geopolitical tensions remain high.
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European gas futures declined for a third consecutive day as healthy inventories offset supply fears. Europe is heading towards the heating season with ample inventories. Storage facilities are currently 88.24% full, well above normal seasonal levels. At the same time, industrial demand remains lacklustre and temperatures in northwest Europe have not been as hot as in the south, curbing cooling demand. However, geopolitical risks continue to hang over the market. Ukraine said it has made inroads into Russian territory. With a key gas transit point nearby, risks of disruption to gas that still supplies a sizeable part of Europe’s needs remains high. North Asian LNG prices rose to a two-month high as summer heat maintains high demand. Power demand from air conditioning in South Korea and neighbouring importers has been strong, resulting in increased activity from buyers from the region. Brazil has emerged as an aggressive buyer of LNG. Dry weather is impacting its hydropower generation, forcing the country to utilise more gas-fired power.?
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Chart of the Day
US crude oil inventories fell for the first time in six weeks. However, they remain on a strong downward trajectory.
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