Supply side issues push base metals higher
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Cooling inflation helped boost sentiment across the sector. This was aided by renewed supply side issues.
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 ended the week higher amid a broader risk-on tone across markets. Signs that inflation may be finally cooling boosted sentiment. This was aided by a second consecutive week of drawdowns in US crude oil and gasoline inventories. Demand in China has also been boosted by restocking. Data from Kpler and Vortexa suggest the nation has added more than 30mbbl to inventories over the past month. The market also got a reminder that geopolitical risks have not evaporated. Rosneft’s large Taupse refinery on the Black Sea was attacked by Ukrainian drones. It has a nameplate capacity of 240kb/d but had only just resumed operations after an attack in January. The risk of supply disruptions will be on the agenda when OPEC meets in two weeks. We expect the group to extend the 2.2mb/d voluntary cuts until the end of the year. However, tightness in the second half of the year could prompt the OPEC+ alliance to consider some increase in output.
North Asian LNG prices rallied last week as hot weather boosted demand. The prospect of high temperatures has forced consumers to secure more LNG, as cooling demand rises. Prices received additional support from fears of supply disruptions. Chevron was forced to reschedule the delivery of some LNG cargoes to Asia due to an outage at its Gorgon export facility in Australia. The Ukrainian drone attack on Friday raised concerns that Russia could retaliate with an attack on Ukraine’s gas infrastructure. European gas prices found some support as gas-fired power generation remained more profitable for utilities than coal-fired power. However, the prospect of supply disruptions also played a part. Norwegian gas production could be disrupted as it undergoes the heaviest works of its maintenance season, next week.
Nickel led the base metals sector higher last week on supply disruptions in New Caledonia. Mining operations in the world’s third largest nickel producer were suspended after pro-independence protests led France’s president, Emmanuel Macron, to impose a state of emergency in the South Pacific territory. Copper extended recent gains to near the all-time high set in 2022. The metal has been well supported by supply tightness in 2024. The prospect of easing monetary policies has also boosted sentiment. And a short squeeze on the New York based Comex exchange supercharged the rally. Officials tried to temper the moves by raising margins by 11%, but persistent buying from traders covering their positions pushed prices higher on Friday.
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Iron ore rose on renewed optimism over Beijing’s efforts to tackle the property crisis. Following reports that authorities are considering a proposal to get local governments to buy unsold homes from distressed developers, Beijing announced on Friday it is removing the floor on mortgage rates.
Signs of cooling inflation helped push gold above USD2,400/oz. Silver rallied past USD30/oz to a decade high amid surging investor interest. Slower mine production growth and strong industrial demand suggest supply is lagging demand, which will keep the market in a structural deficit.? ??
Chart of the Day
China copper warehouse stocks have hit seasonal highs but have started to fall in recent weeks
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