Metals gain amid robust Chinese demand
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Signs of strong demand in China helped support commodity markets. Investors were also back buying as they viewed the recent selloff as overdone.
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 prices rallied as investors view the recent selloff as overdone. This was supported by news of additional sanctions on Iran’s shipping sector. The US Treasury sanctioned ten individuals, entities, and vessels that have engaged in the illicit transport of oil. Last week’s decision by OPEC to open the door to higher output was also reassessed by the market. This follows comments from the group that it retains the option to pause or reverse production changes if necessary. Saudi Arabian energy minister, Prince Abdulaziz bin Salman, reaffirmed its commitment to the stability of the oil market and its ability to react quickly to any changes.
Global gas prices edged higher as the outlook for demand improves. Hotter than normal temperatures across China, Japan and South Korea over the next two months are likely to boost demand as cooling requirements rise. Strong electricity demand has already boosted China’s consumption. Gas imports were surprisingly strong at 11.33mt in May, tracking volumes to hit a record high this year. Hotter-than-normal summer and drought in Yunnan province have lifted imports 17% year-to-date. European prices tracked higher despite easing supply concerns. Urgent repairs on a gas platform in Norway are underway and flows are expected to improve in the coming days. Nevertheless, this highlights the precarious state the market is in. Europe’s storage facilities are only designed to smooth out shifts in seasonal demand, not to withstand major disruptions to supply.
Copper led the base metals higher amid signs of strong demand. China’s commodity imports continued to defy concerns of weaker demand. Imports rose in key commodities despite elevated inventories. Exports continued to hold up well for aluminium and steel, though there have been concerns of increasing external trade conflicts over the past few months. Refined copper imports rose 15.7% y/y to above 500kt despite higher inventories.
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Aluminium prices remain well supported as the market faces a plethora of supply side issues, while demand is showing signs of improvement, This should support prices in the short term. Geopolitical risks have been elevated ever since Russia, a major aluminium producer, invaded the Ukraine in February 2022. Those risks increased in April 2024 when the US and UK imposed sanctions on some metals of Russian origin. And risks to supply have worsened since then. Alumina supply is increasingly impacted by energy issues. In particular, subdued hydro-power generation is constraining output. While the impact of some of the supply issues may be transient, the combination of rising production costs, ongoing geopolitical risks and strong demand create a strong underpinning for the foreseeable future.
Iron ore was subdued with Chinese markets closed for a holiday. However, signs of strong demand should support prices this week. Iron ore imports in May were above 100mt for the third consecutive month. This is despite weaker steel production and a counter-seasonal rise in iron ore inventories.
Gold pushed above USD2,300/oz as traders look ahead to the Federal Reserve’s meeting in coming days.?
Chart of the Day
Alumina supply disruptions are mounting this year