Signs of improving demand boosts sentiment

Highlights

Metal markets gained amid signs of improving demand. Easing supply disruptions saw energy markets remain under pressure.

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

Gold climbed to a record high last week as investors increased their odds of an aggressive rate cut by the Fed. Swaps markets are now pricing in a 40% chance of a 50bp cut by the Fed at this week’s FOMC meeting. This comes on data which showed further weakness in the labour market. Gold benefited from a slightly stronger rise in the producer price index. In a sign of further gains, open interest in Comex gold futures has jumped sharply over the past two sessions.

A weaker USD helped spur renewed investor interest in the base metals sector. Copper gained nearly 3.5% last week amid signs of an improvement in demand. The Yangshan copper premium for imported cargo hit its highest level since January. Inventories at Shanghai Exchange warehouses have also fallen 14% this week. Copper fabricators are said to be ramping up operations with prices at current levels. Such drawdowns were also evident in the aluminium market, with stockpiles at their lowest levels since May due to strong demand from the renewable energy sector. Sentiment was also boosted by a Bloomberg report that suggested Beijing would announce a wave of new economic support measures to boost economic growth.

Iron ore ended the week higher on speculation the slump in demand is about to turn around. Some steel mills have started raising their utilisation rates in anticipation. However, the data suggested otherwise. Steel production was down 10.4% y/y to 77.9mt in August, according to National Bureau of Statistics data. Supply is rising, with Port Hedland exports hitting 47.825mt in August, up from 43.157mt in July.

Crude oil edged lower on Friday as operations in the Gulf of Mexico restarted as the impact of Hurricane Francine started to ease. Earlier in the week, around 670kb/d had been shut-in, according to the US Bureau of Safety and Environmental Enforcement. However, Shell announced on Friday that it was bringing all its production back online. The market received mixed messages from the major industry groups. OPEC’s monthly report showed the market would remain tight in 2025. However, the International Energy Agency warned that oil demand is slowing sharply, leading to a surplus next year.

Global gas prices rebounded late in the week amid signs of strong demand. An Egyptian tender showed that global competition for the fuel remains strong, with the state-owned Egyptian General Petroleum Corp pushing 20 cargoes for delivery in the fourth quarter. The move shows that Europe will have to compete fiercely for supplies both in the Middle East and Asia. Chinese importers secured several spot LNG cargoes for October and November, while other buyers from South Korea and Bangladesh were also active. Competition could become even harder if supply disruptions mount. Traders are watching the situation in Russia closely following threats to gas flows through Ukraine. European benchmark futures subsequently rallied. North Asian LNG prices were also stronger.?

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Chart of the Day

Further weakness in China's economy could see Beijing introduce more stimulus measures.

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5in5 with ANZ Podcast

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