A big weeks for commodities

Company News

by Glenn Dyer

A big week for commodities—one of the biggest in months—with metals surging and oil ticking a touch higher for a smorgasbord of factors, from Gaza and Ukraine to Chinese property issues, along with expectations of interest rate cuts in the US, Europe, and Australia.

However, the US dollar eased on hopes of rate cuts (the Aussie jumped 1.33% to nearly 67 cents). Allied with geopolitical factors, metals went for a big run—and in the case of nickel and copper, eye-opening ones.

Gold and silver also galloped, more due to technical factors than the same ones driving other metals.

The surge in commodity prices was driven as much by speculators—especially in copper and nickel—as anything else, except for the dominating view of looming rate cuts now driving market momentum.

If oil gains speed and rises to the $US90 a barrel range, then rate cuts will be problematic because the jump in prices since the Gaza fighting started last October has been responsible for much of the stickiness of inflation in many economies in 2024, as the Reserve Bank here has warned.

Nickel prices, in fact, jumped to their highest levels (above $US20,000 a tonne on the LME, or London Metal Exchange) in nine months on Friday on unrest in nickel producer New Caledonia. Copper, which has enjoyed a big run-up due to a shortage of concentrates, especially for China’s world-leading processing sector, surged again as the country’s government unveiled yet another set of proposals to try to arrest the collapse of the property sector.

Copper prices are also being driven by a battle between short sellers and bulls, with a squeeze on as the shortage of concentrates available to smelters and refiners boosts prices (but not real demand). Copper surged to a 25-month peak in London after China announced fresh support for its ailing property sector. Comex futures hit all-time highs earlier in the week, fell, and then rose again to close above $US5.08 a pound. Comex cash metal hit an all-time high of $5.1775 per pound, or $US11,414 per tonne.

LME copper gained 0.7% to $US10,669 per tonne after hitting $US10,555, the strongest since April 2022. Three-month nickel on the London Metal Exchange shot up 5.6% to $US20,900 per tonne, after having touched $US21,150, the highest since August 2023. The trigger was last week’s rioting in French-ruled New Caledonia, which spurred a massive operation to regain control of the capital, Noumea, in a country that accounted for 6% of global mine nickel output last year.

"Supply from New Caledonia is significant enough to move the needle, but it’s nothing compared to Indonesia. Supply growth from Indonesia is pretty amazing and is just going to swamp the market in six to 12 months," Reuters reported. In fact, New Caledonia produces around 200,000 tonnes of the metal—all from lateritic ores—like Indonesia does with its Chinese joint ventures.

Copper prices were boosted Friday in Europe and the US after China announced more steps to stabilize the crisis-hit property sector, a major consumer of industrial metals. The announcement came after China released data on Friday, showing better-than-expected factory output, but retail sales unexpectedly slowed, and the property sector remained a drag on the economy, with investment falling nearly 10% over the year to April.

That saw Comex May copper jump sharply to $US5.08 a pound at the close Friday, heading back towards its record peak of $US5.1775 touched on Wednesday amid a short squeeze. Some of the steam was taken out of the US market when some shorts rolled them forward instead of closing them out at a loss, Reuters reported—that means if the tightness continues, the chances will build for a future price crash.

Interestingly, the boomlet didn’t show up in the prices of other metals such as aluminum, lead, zinc, and tin, which all ended with small rises or falls on Friday.

Gold and silver, though, charged higher. Comex futures actually traded through a $US50 range—from a low around $US2,377 an ounce to a high of $US2,427—around $US21 short of the all-time high a month or so ago. The front month ended at $US2,419.80 an ounce, up 1.44%. Comex front-month silver, though, surged more than 6% to close at $US31.77 an ounce after touching a year-plus high of $US31.85 an ounce. That jump left silver up nearly 12% for the week and more than 30% year to date, nearly double gold’s nearly 17% gain for 2024 so far.

Comex copper ended at $US5.08 a pound for a gain of more than 9% for the week and over 30% year to date.

Oil prices edged higher on Friday after easing for most of the week as speculation about rate cuts and the news of the Chinese property package spread. US West Texas Intermediate crude ended at $US80 a barrel, up 0.54% for the week, while Brent rose 1.67% to $US84 a barrel.

There’s still plenty of speculation about a reluctance among some members of OPEC to continue the current output cap deal with Russia. That’s why the market will be watching the June 1 OPEC+ Joint Ministerial Monitoring Committee meeting to see what happens to the present production cap. Iraq doesn’t want any more reductions, nor do other smaller producers. Anglo left OPEC earlier this year with similar concerns.

America’s Energy Information Administration last week reported a bigger-than-expected 2.5 million-barrel draw from commercial crude inventories excluding the strategic petroleum reserve. That was the second weekly fall in stocks, but the EIA says that US oil stocks are still—on average—7% higher than they were this time last year. US daily production is still a touch more than 13 million barrels a day, making America the world’s biggest producer.

Meanwhile, for the first time in three weeks, there was a rise in the number of oil rigs in the US—just one according to data compiled by energy services company Baker Hughes. The weekly count for oil rose to 497 from 496 the week before—still under 500, a figure threatened at the end of 2023. Gas and miscellaneous rigs were unchanged at 103 and four, respectively. A year earlier, the US had 575 oil, 141 gas, and four miscellaneous rigs in operation, the company's data showed. Overall, 604 rigs were operating in the US last week, down from 720 a year earlier.

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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