Prospects of stimulus measures in China pushed metals markets higher
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Trading was muted with US markets closed. Metals gained amid the prospect of additional stimulus measure in China.
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
Copper rebounded as investors weighed up the prospect for additional stimulus measures in China. The Governor of the Peoples Bank of China said it is studying how to implement government bond trading with the finance ministry as officials try to bolster growth in the world’s second-largest economy. The proceeds from additional sovereign bond issuances could be used to boost infrastructure investment and address risks stemming from the property sector. This comes amid signs of a tentative rebound in demand, with Chinese copper fabricators reporting an increase in orders in recent weeks. Spot copper prices on the Comex in NY have also pushed back above later-date futures, in a sign of tightness. Supply-side issues were also supportive. Operational setbacks and long delays with development projects have seen eight monthly declines in production at the world’s biggest copper producer. Earlier this week news emerged that production at Anglo American’s Los Bronces copper mine in Chile will fall around 30% due to plant maintenance.
Iron ore gained amid the prospects of a recovery in Chinese steel demand. Beijing unveiled a broad real estate rescue package last month. Three big cities, Shanghai, Shenzhen and Guangzhou have rolled out major easing measures for homebuyers. Crude steel production recorded a 2.7% y/y gain in May, although it remains down 1.4% y/y in Jan-May. Reports of steel output curbs have also supported steel and iron ore prices.
Gold was steady with US economic data released earlier in the week providing mixed signals on when the US Federal Reserve may cut rates. The weak retail sales figure for May pointed to greater financial strain among consumers. Prior to markets closing for the Juneteenth public holiday, multiple central bank officials emphasised the need for more evidence of cooling inflation before lowering rates. Fed Governor Adriana Kugler said it would likely be appropriate to cut rates sometime later this year if conditions unfolded as anticipated.
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Crude oil gave back gains following data which signalled weak demand. Demand in China also weighed on sentiment. Diesel output for May fell 6.4% y/y to 17.349mt, while gasoline output rose only 2.9% y/y to 13.824mt.
European gas prices rallied after France’s Senate committee recommended the nation stop importing Russian LNG. France has become Europe’s biggest importer of its LNG so far this year. While the Senate’s recommendation is non-binding, it shows the sensitivity of Europe’s gas supply. The European Union has also been trying to garner support for such a move but with little success. This comes amid concerns of increasing competition with Asia. Stronger demand in the North Asian LNG market is expected following forecasts of higher-than-normal temperatures next month.
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