Commodities corner: renewed focus

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by Glenn Dyer

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The main impact of the Australian election result will be to underline the continuing importance of green minerals and other products to future growth as climate change policies and spending move to centre stage.

Before that, however, there’s a lot of angst to get over – weak share markets, worries about recessions and weak demand for key commodities such as oil, rising prices – thermal coal for example – and fears about political stability in Europe, the US (midterm elections later in the year) and the French parliamentary elections next month.

China’s surprise rate cut on Friday afternoon won’t help longer than a day or so because it has focused attention back on why the cut happened – the tanking economy, Covid lockdowns and sliding property sector that looks headed for huge losses.

Oil prices settled slightly higher on Friday as a planned European Union ban on Russian oil and easing of COVID-19 lockdowns in China helped counter concerns that slowing economic growth will cut demand.

Brent futures for July delivery rose 51 cents, or 0.5%, to $US112.55 a barrel. US West Texas Intermediate (WTI) crude for June rose $US1.02, or 0.9%, to settle at $US113.23 on its final day as the front-month.

WTI saw its fourth straight week of gains with a rise of 0.4%, while Brent gained about 1% this week after falling about 1% last week.

The more actively-traded WTI July contract was up about 0.4% to $US110.28 a barrel.

In China, Shanghai did not signal any change to its planned end of a prolonged city-wide lockdown on June 1 even though the first new COVID-19 cases were found outside the quarantined areas in five days. Restrictions were tightened again in some parts of the city.

The EU is hoping to clinch a deal on a proposed ban of Russian crude imports which includes carve-outs for member states most dependent on Russian oil, such as Hungary.

“Odds of an EU embargo being declared sooner rather than later increased in the wake of Germany’s success in cutting Russian oil imports by more than half in a very short period,” consultancy BCA research said in a note on Friday quoted by Reuters.

In the United States, energy firms added oil and natural gas rigs for a ninth week in a row last week, according to services group Baker Hughes.

The number of oil rigs operating in the US rose by 13 last week, taking the total to 576 by Friday, compared to 356 oil rigs in operation a week ago.

Gas rigs were up one rigs to 150, and miscellaneous rigs remained at two.

A year ago in 2021, there were 99 gas rigs and no miscellaneous rigs in operation. Overall, there were 455 rigs operating a year ago.

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Meanwhile Comex gold edged up on Friday, heading for its first positive week in five thanks to a weekly dip in the US dollar.

A slide in US Treasury bond yields on Friday (the 10-year security dipped 6 points to 2.79%) supported the metal, which saw gold futures settle up 0.1% at $US1,842.10.

Over the week, Comex gold rebounded from a 3-1/2-month low of $US1,786.60 on Monday for a gain of more than 1.9%.

US Treasury yields fell for a third day in a row as investors grew concerned about growing signs of an economic slowdown thanks to those surprisingly weak quarterly reports from leading retailers.

The dollar index rose 0.4% on Friday, but still had its worst week since early February, dipping nearly 1.5%.

Comex silver fell 0.1% to $US21.69 an ounce, but was up about 2.9% for the week.

Platinum fell 1.4% to $US948.77 an ounce, while palladium eased 2.4% to $US1,958.81.

Comex copper rose 2.4% to $US4.28 a pound.

Meanwhile 62% Fe iron ore (delivered to north China) ended at $US134.10, up 5.6% or $US7.13 a tonne.

Newcastle thermal coal rose again on Friday, finishing at $US412 a tonne, up $US8 a tonne on the day.

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And in something of a surprise, Indonesia said on Friday it will end a temporary ban on palm oil exports on Monday.

Indonesia, the world’s largest palm oil producer, last month imposed export restrictions on some palm oil products in an effort to cool soaring cooking-oil prices, a move that worsened the global shortage of edible oils.

The Indonesian government on Thursday said it will end the ban due to an improvement in bulk prices, although analysts noted that end-user prices remain relatively high and said that a significant factor may have been the ban’s unpopularity among the country’s powerful palm oil exporters and regional governments.

“An increasing realization that the exports ban was starting to hurt palm oil producers without benefiting the end-consumers all that much had prompted the reversal,” OCBC economist Wellian Wiranto said in a note, quoted by Reuters.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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