Commodities: Buoyant sentiment – ANZ

Sentiment in commodity markets remained relatively buoyant amid more positive economic data and further supply side disruptions notes analyst at ANZ.

Key Quotes

“Crude oil prices continued their recovery after data showed a smaller than expected rise in inventories. EIA said US inventories rose only 867 thousand barrels to 534 million barrels. A Bloomberg survey suggested the market was expecting a decline of 2 million barrels. However, the market got excited about the 3.75 million barrel drawdown in US gasoline supplies. The big falls in gasoline inventories, coming near the end of the refinery maintenance season, suggest crude oil inventories are on the cusp of declining. Production issues also deepened, with Libyan oil output falling to about 500kb/d due to the shutdown of pipelines from its biggest field.”

“Base metals were higher across the board as the rebound from last week’s sell off continued. Aluminium was one of the best performers after another strong drawdown of inventories held on the London Metal Exchange. Stocks fell by 0.6% to 1.91 million tonnes, the lowest since December 2008. The apparent tightness is also showing up in premiums, which have continued to climb in Japan. Copper was also higher, despite Escondida workers heading back to work after the longest strike in its history. Chile’s copper agency, Cochilco said growth in global demand of 2-3% and significant supply side disruptions would push the market into a 250kt deficit in 2017.”

“Iron ore prices both in the physical and futures markets rose amid probes into steel capacity closures in China. Hebei, the largest steel producing province in China pledged to cut capacity further as it suggested some companies hadn’t halted production or cut emission as required. Comments out of an industry conference also helped boost sentiment. BHP Billiton and Rio Tinto both suggested the there was more growth in China’s steel production.”

“Gold held its gains from the past few days despite stronger equity markets and a slightly stronger USD. Safe haven buying was evident as the UK formally notified the EU of its intentions to leave the group. Investors were also comforted by comments from Fed Vice Chairman Stanley Fisher that the median estimate of two more rate hikes this year “seems about right”.”

“Agriculture markets were mixed, with grains slightly higher while softs remained under pressure. Sugar fell to a 10 month low amid projections for a shift in the global balance from a deficit to a surplus due to a stronger Brazilian harvest and weaker Indian imports.”