Commodities: Slightly weaker on rising inventories - ANZ

Analysts at ANZ note that commodities were slightly weaker in the previous session as rising inventories in various markets raised concerns over weaker demand which countered the generally positive signals that emanated from China’s National People’s Congress.

Key Quotes

“Crude oil prices were largely unchanged as another rise in US drilling activity countered the concerns about Libyan supply. Baker Hughes data showed drillers added another seven rigs in the US last week, bring the total to 609. However the risks to further supply disruptions keep rising. Libya’s two largest ports have now been shut due to fresh clashes, cutting output by over 50kb/d according to reports in Bloomberg. In Gabon, a majority of oil workers agreed to go ahead with a general strike.”

“Base metals weaker as investors took a glass-half-empty approach to China’s new economic targets for 2017. Copper led the metals lower, as the market had to digest a huge inflow of metal into LME warehouses. Almost 39,000 tonnes were loaded into Asian warehouses, which raised concerns about demand in the region. Reports that Freeport has been able to continue mining despite protests at its Cerro Verde copper mine in Peru also eased concerns over further supply disruptions. Nickel bucked the trend and pushed higher as the impact of the potential nickel export ban in the Philippines still lingered in the market.”

“Iron ore spot prices were weaker as traders started to doubt the sustainability of profit margins in the Chinese steel sector. Steel prices in Chinese futures markets fell, despite authorities announcing they would cut steel capacity in 2017 by at least 150mt. Another rise in the port inventory also weighed on prices. SteelHome data showed stockpiles increased 0.5% to 130.1mt last week.”

“Gold fell through key support levels as the stronger USD weighed on investor appetite. Gold holdings in ETFs have suffered since the spectre of a rate hike in March has jumped significantly in recent days. Bloomberg data shows holdings fell 0.5% on Friday to 58.75 million ounces.”

“Agriculture markets were mixed, with softs weaker while some gains were achieved in grains. Cotton rose after increased demand forced China to sell 30,200 tonnes from its reserve.  Wheat was also stronger as US weather concerns rose.”