Commodities: Broadly higher as “risk-on” returned - ANZ

The research team at ANZ explains that the commodities were broadly higher in the previous session as “risk-on” returned amid more positivity towards Trump’s tax reform plan and infrastructure spending program.

Key Quotes

Crude oil prices were largely unchanged, as investors remained concerned about demand and inventories in the US. The impact of rising gasoline inventories and higher US crude oil output from yesterday’s EIA report continued to linger in the market, with investors concerned it hinted at weaker demand in the US. Prices bounced mid-way through the day after reports surfaces that OPEC and other major producers had agreed to an initial deal to extend production cuts beyond June. While the group haven’t reached a consensus on how long they must extend the cuts, Saudi Arabia’s Energy Minister Khalid Al-Falih said they haven’t reached their goal of getting inventories down to their five-year average.”

Base metals rebounded strongly for the second day as opportunistic buying continued. Zinc lead the gains higher as supply side issues reemerged. Vedanta reported supply outages at its 500ktpy Jharsuguda smelter in India. Data released by China’s NBS showed its domestic zinc production fell to 504kt in March, the lowest level in a year as smelters conducted maintenance during the recent ore shortage. Copper was also stronger after reports of strike action at Grasberg emerged. Rio Tinto also reported lower guidance for copper production next year due to disruption at its mines.”

Iron ore continued to recover from last week’s sell-off amid more positively sentiment. Steel and iron ore futures pushed higher in China as traders viewed the recent falls as going too far. However, the market remains cautious with data still showing strong growth in output. Vale reported better than expected output in the first quarter. Iron ore production hit 86.2m tonnes, up from 77.5m tonnes a year ago. This was also above analyst’s estimates of 84.7m tonnes.”

Coking coal edged lower as traders contained to monitor the post-Cyclone recovery of the rail system in Queensland. BHP Billiton reported that shipping through Hay Point Coal Terminal and Dalrymple Bay Coal Terminal remains constrained, however railings are expected to resume at a reduced rate from late next week.”

Gold struggled to hold this week’s gains as the USD strengthened and concerns over global risk eased. However, selling was relatively muted, which suggests a period of consolidation is now upon us.”