Industrial Metals Mostly Higher amid Tightening Supplies

Market Highlights

ASIA -PACIFIC REGION

China’s manufacturing sector falters

Official data showed that manufacturing activity in China expanded slightly in March. The PMI attained 50.3, while analysts called for a small decline to 50.1 after the index hit 50.2 in February. At the same time, HCBS final manufacturing gauge showed contraction of the industry. Final HSBC PMI came at 48.0 versus predictions of 48.5, the same as in the previous month. A reading below 50 indicates contraction of the manufacturing sector.

EUROPE

European numbers outshine estimates

European numbers were mostly on the positive side last week. Jobless rate in the single currency union unexpectedly remained unchanged at 11.9% in February, whereas experts predicted the rate to inch up to 12%. Retail sales also positively surprised investors, posting a 0.4% gain in February compared to a forecast of a 0.3% decline and a climb of 1% in the preceding month. Meanwhile, the ECB kept its core interest rate on hold despite a five-year low inflation rate of 0.5% in March. Moreover, German factory orders surged 0.6% in February versus a forecast of a 0.5% climb.

NORTH AMERICA

U.S. manufacturing data mixed; jobless rate at 6.7%

The state of manufacturing activity of the world’s biggest economy sent mixed signals last week. On the one hand, ISM manufacturing PMI came at 53.7 in March, comparing well with February reading of 53.2 but failing to meet expectations of 54.2. On the other hand, factory orders surged 1.3% in February after slumping 1% in January and exceeding the forecast of a 1.3% rise. Meanwhile, U.S. companies added slightly less than expected jobs last month, 192K jobs versus an estimate of 199K. The jobless rate inched up to 6.7% from 6.6% as more American entered the labour force.

Precious Metals Jump on Solid Demand, South Africa Supply Concerns

Gold was in the down-trend during the first trading sessions of the week amid worries that the Fed will tighten its policy sooner than expected as U.S. economy is gaining momentum. However, early on Wednesday the yellow metal bounced off a seven-week low, being propped up by ideas that physical demand is on the rise. According to the ANZ Group, its gauge of physical demand from China, the world number one importer, showed that consumption increased last month. Meanwhile, Iraq’s central bank is set to buy the bullion from the market as it plans to process around 11 metric tonnes for a public sale.

Silver was trading flat until Wednesday when the grey metal performed a sharp rally to a several-week high, following solid gains of its more expensive counterpart. The precious metal also drew some strength from positive signals from the investment demand side. Silver holdings in the total known ETFs rose more than 2% during the last three months and added around 1.5% in a 12-month period.

Platinum did not lose its appeal after Anglo American Platinum, top producer, said that despite on-going strikes in South Africa, the company has circa 215,000 ounces of the metal at its warehouses that means the firm may supply its customers for a much longer period than previously expected. Supporting prices, another miner, Impala Platinum, seems to have started running out of inventories. The company said it may consider buying the metal from the open market to meet its contract obligations.

Palladium gained as long-term prospects for the precious metal remained bright, with car demand improving across the globe. Total vehicle sales in the U.S. soared to 16.4 million units in March, the highest level since at least 2007, surpassing expectations of a climb to 15.8 million units.

Industrial Metals Mostly Higher amid Tightening Supplies

Aluminum jumped on positive amid mixed manufacturing data news from China, the world’s top consumer. The lightweight metal gained inspiration from ideas that market may witness a deficit this year after massive output cuts by the world’s top producers. Since 2012, top producers have cut around 2.4 million tonnes of output and are sent to scale down production further amid weak prices. Alcoa, the third largest producer, reported it plans to trim production from two smelters in Brazil, while United Co. Russal, world’s biggest producer, said its output fell to an eight-year low in February.

Copper was rallying in the beginning of the week on escalated supply concerns after an earthquake in Chile, the top global producer. However, later in the week, the red metal lost ground as mines in Chile were unaffected by the earthquake and returned to normal operations. In the long-term, the red metal may seek support on a combination of strong demand and tightening supply that are weighing on the global surplus. Global supply is expected to exceed demand by 260,500 tonnes this year compared to 328,000 tonnes predicted earlier.

Nickel remained strong despite talks that possible sanctions on Russia, a large exporter, are not likely to worsen global supply situation as Russia is ready to sell the metal to China, meaning that ravenous appetite of the top consumer is likely to remain satisfied. Nickel climbed 4.25%, continuing to add to gains it recorded in the beginning of the year after Indonesia, the top exporter, imposed a ban on its metal ore exports.

Zinc ended in the positive area as solid demand continued to bolster the metal. The ILZSG said the market was in undersupply of 60,000 tonnes last year after posting a surplus of 236,000 tonnes in 2012.

Energy Futures Plunge as Supply Concerns Subside; Seasonal Factors

WTI and Brent oil closed lower last week amid easing worries that geopolitical tensions will affect supplies from Russia, the largest energy exporter in the world. Moreover, talks that the Fed will start to tighten its monetary policy sooner than expected added pressure on prices. At the same time, some support came from the OPEC data, showing that output from the 12-member organization dropped 117,000 barrels per day in March to about 30.293 million because of lower production volumes in Angola and Libya.

The EIA report despite revealing an unexpected decline in the U.S. stockpiles in the week ended March 28 failed to boost prices. Crude oil inventories dropped 2.4 million barrels versus a forecast of a 1.8-million-barrel gain. However, the decline was smaller than a 5.8-million-barrel fall reported by the American Petroleum Institute a day earlier.

Natural gas followed a bearish trend, being under pressure created by seasonal factors. Spring and fall are the periods of the weakest demand for the commodity due to mild temperatures. The EIA report also pushed natural gas lower. Natural gas inventories shrank 74 billion cubic feet in the week ended March 28 compared to expectations of a 75-billion-cubic-feet decline.

Heating oil plummeted after the EIA data showed a surprise climb in the U.S. inventories in the week ended March 28. Distillate stocks, which include heating oil and diesel, added 600,000 barrels, while experts called for a decline of 900,000 barrels. In the preceding week, distillate supplies also posted an unexpected jump of 1.6 million barrels, whereas analysts predicted a one-million-barrel fall.

Agricultural Commodities Except for Wheat Jumped after USDA Report

Wheat prolonged its decline for the second week in a row as rain forecasts in the top producing regions in the U.S., Australia and southern Russia are likely to improve condition of the drought-stricken winter crops. Closely-watched USDA inventory report also was somehow bearish for the grain prices. The report indicated inventories as of March 1 were at 1.06 billion bushels, 14 million bushels higher than market consensus. At the same time, sowings estimate restricted the slide in wheat futures. Sowings were at 55.8 million acres, about 460,000 acres below forecast.

Corn jumped on positive signals from the USDA report. According to the USDA data, the U.S. inventories rose 30% on an annual basis as of March 1 to 7.01 billion bushels. The reading was about 90 million bushels below expectations. Also sending corn prices higher, the data showed corn sowings were at a four-year low of 91.7 million acres, down 3.7 million acres compared to the previous year’s figure. Ukraine risk-premium also was at a play as political turmoil in the country is preventing farmers from planting.

Soybeans soared to a more than a nine-month high as U.S. supplies plunged to the lowest mark in almost 10 years. The USDA said domestic stockpiles declined 992.3 million bushels as of March versus 998 million bushels a year earlier when drought reduced crops. However, this year the U.S. may see large crops as farmers plan to increase planting to a record of 81.49 million acres compared to 76.53 million acres last year.

Coffee added to previous gains on concerns over Brazilian crops that were reduced by dry weather. Current rains in Brazil, the world’s top exporter, failed to arrive timely and are not likely to help this season’s harvest. However, the moisture may boost next season’s harvest. At the same time, strong Colombia coffee harvest estimated at 11.4 million bags was the key drag for coffee prices.

EXPLANATIONS

Commodities

• Gold - COMEX active contracted (USD/t o.z.)

• Silver - COMEX active contract (USD/t o.z.)

• Platinum - New York Mercantile Exchange active contract (USD/t o.z.)

• Palladium - New York Mercantile Exchange active contract (USD/t o.z.)

• Aluminum-Active contract of primary aluminum of minimum 99.2% purity at the LME (USD/MT)

• Copper –Active contact of electrolytic copper at the LME (USD/MT)

• Zinc - Active contract of zinc od minimum 99.995% purity at the LME (USD/MT)

• Nickel– Active contract of nickel of 99.8% purity at the LME (USD/MT)

• Crude oil - light, sweet crude oil active contract on the New York Mercantile Exchange (USD/bbl.)

• Brent oil - Brent oil active contract on the ICE Futures Europe (USD/bbl.)

• Natural Gas - natural gas active contract on the New York Mercantile Exchange (USD/MMBtu)

• Heating oil - heating oil active contract on the New York Mercantile Exchange (USD/gal.)

• Wheat - wheat active contract on the Chicago Board of Trade (cents/bu)

• Corn - corn active contract on the Chicago Board of Trade (cents/bu)

• Coffee - benchmark Arabica coffee active contract on the NYB-ICE Futures Exchange

• Soybeans -active contract on the Chicago Board of Trade (cents/bu)

Indices

• S&P GSCI Precious Metals Total Return Index - commodity group subindex composed of gold and silver; the index reflects return on underlying commodity futures price movement

• S&P GSCI Industrial Metals Total Return Index - commodity group subindex composed of futures contracts on aluminium, copper, lead, nickel and zinc

• S&P GSCI Energy Total Return Index - commodity group subindex composed of futures contracts on crude oil, Brent oil, RBOB gas, heating oil, gas oil and natural gas

• S&P GSCI Agriculture Total Return Index - commodity group subindex composed of futures contracts on wheat, red wheat, corn, soybeans, cotton, sugar, coffee and cocoa

Indicators

Long-term price forecasts-aggregated price forecasts based on predictions of 20 international banks forecasts

USDA Wasde Total Estimated Inventories (Today)-current level of inventories of wheat in 1000 MT, corn in 1000 MT, soybeans in million bushels and green coffee in 1000 bags