Signs of strong demand in China boosts sentiment
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
The prospect of easing monetary policy sparked a risk-on tone across markets. A weaker USD boosted investor appetite for the sector.
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
The base metals sector pushed higher as a weak US jobs reports raised the prospect of rate cuts. The higher-than-expected jobless claims in the US saw the USD fall, boosting investor appetite. This helped reverse earlier losses in Asian trading as the market pondered the outlook for demand. Higher prices are raising concerns over demand destruction. However, the fundamental data remain positive. China’s strong industrial activity resulted in rising imports for all commodities in April. We think the composition of economic growth is favouring commodity demand, particularly the acceleration in manufacturing and the energy transition. Refined copper imports rose 8% y/y but retreated from March due to unfavourable import arbitrage. Concentrate imports increased, despite lower treatment charges.
Gold advanced after the jobless claims report pointed to more signs of a cooling labour market. The precious metal subsequently rose by as much as 0.9% as US Treasury yields fell and the USD weakened. The gain in prices comes despite ongoing outflows from gold-backed ETFs. Global volumes have fallen to their lowest level since 2019, according to Bloomberg data.
领英推荐
Iron ore futures fell despite strong demand from China. Imports in April rose 12.6% y/y to 101.82mt. This was supported by improving steel margins and the prospect of a demand recovery during China’s construction season. In a sign of stronger external demand, steel exports continued to be above 9mt ahead of talks around increasing tariffs. Beijing also continued its soft approach to supporting the industry. The city of Hangzhou removed eight-year-old restrictions on residential property purchases. This was followed by a similar move in Xi’an.
Crude oil prices edged higher amid the risk on tone across markets. Technical factors were also supportive. The 100-day moving average helped stem the flow of selling in WTI crude. The nine-day relative strength index was also showing the recent selloff was overdone. Sentiment remained buoyed by this week’s US inventory report. EIA data showed stockpiles of crude oil fell 1,362kbbl last week. This was against expectations of another build in inventories. Oil was also supported by ongoing tensions in the Middle East. US President Joe Biden said he would halt additional shipments of weapons to Israel if the country launched a ground invasion of Rafah. However, Prime Minister Benjamin Netanyahu declared that Israel will “stand alone”, as negotiations for a hostage deal and ceasefire falter. Fundamental data was also supportive. China’s crude oil imports rose 5.5% y/y on strong gains in road and air traffic. Restocking ahead of the northern summer driving season and increased export quota for oil products should keep demand resilient from refiners.
North Asian LNG prices gained amid signs of robust demand. China’s gas imports rose 14.7% y/y to 10.3mt. Record high temperatures in north and south China bolstered demand for gas. Drought in Yunnan has lowered water levels, affecting hydro power generation. This helped offset concerns of weaker demand earlier in the week after China’s biggest LNG importers were offering to sell spot cargoes for delivery over the summer.?
Chart of the Day
China's imports of iron ore remain strong