The Commodities Feed: China macro concerns grow

The effects of weaker-than-expected Chinese macro data rippled through the commodities complex yesterday, including oil. ICE Brent settled more than 1.5% lower on the day with worries over what this weak data means for the Chinese economy and oil demand. In addition, much stronger-than-expected US retail sales likely led to some questions over whether the US Federal Reserve may still have a bit more to do when it comes to policy tightening.

API data released overnight was more constructive, with US crude oil inventories falling by 6.2MMbbls over the last week, quite a bit more than the roughly 2.5MMbbls draw the market was expecting. In addition, Cushing crude oil inventories fell by 1.03MMbbls, whilst for products, gasoline stocks declined by 761Mbbls and distillate inventories increased by 658Mbbls. The more widely followed EIA weekly report will be released later today.

Natural gas prices continue to trade in a volatile manner. TTF settled more than 12% higher yesterday with growing concerns over the risk to Australian LNG. There was no breakthrough in talks yesterday to avoid strike action and so clearly the risk of supply disruptions is growing. We should get more clarity on the situation towards the end of the week. However, the European market is in a very good position. European storage is basically 90% full now, hitting the European Commission’s goal about two and a half months before the target date. It is looking as though European storage will essentially be full before the start of the next heating season and so we would expect to see renewed downward pressure on prices, particularly once there is some clarity around Australia.

The metals complex came under pressure yesterday following the weak set of Chinese data (retail sales and industrial production), whilst Chinese new home price data released this morning will also do very little to help sentiment with prices in July falling 0.23% month-on-month, compared to a MoM decline of 0.06% in June.

On top of weak Chinese macro data, LME inventories for a number of metals continue to climb higher. LME copper stocks increased by 4,775 tonnes yesterday to a little over 90k tonnes. In fact, LME copper inventories have increased by almost 36k tonnes since mid-July. Higher inventories have weighed on the LME copper cash/3m spread with it trading in a contango of US$56/tonne, compared to a contango of just US$7/tonne back in mid-July. Zinc inventories in LME warehouses also saw big increases yesterday with inflows of 14,725 tonnes, which leaves inventories at 106,900 tonnes- the highest levels since April 2022.

Spot gold is managing to hold above US$1,900/oz, although it briefly broke below this level following stronger-than-expected US retail sales numbers. This data might start to raise some doubts over whether the Fed is really done with its tightening cycle. Any further data suggesting the Fed still has more work to do will likely put pressure on gold prices. And with the increase seen in real yields lately, it is difficult to see any meaningful upside to gold prices in the short term.