Copper gains as signs of stronger demand emerge
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Technical buying lifted oil prices, aided by renewed supply risks. Signs of a rebound in demand in China helped push metals higher.
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
Crude oil rebounded as traders viewed the recent selloff as overdone. WTI and Brent bounced off key lower band trading levels, triggering some buying from algorithmic funds. The technical factors were bolstered by some bullish fundamentals. Oil producers in the Gulf of Mexico began shuttering operations in preparation of Tropical Storm Francine. At least 125kb/d of oil capacity is at risk of being disrupted, based on data from the National Hurricane Centre. Nevertheless, signs of weakness in the US and China have spurred a bearish tone across investors, with money managers now the least bullish on crude in more than 13 years. Traders are also looking ahead to key market insights from OPEC, the Energy Information Administration and the International Energy Agency this week. Discussion among delegates at the APPEC oil conference struck a bearish tone. Major traders Trafigura and Gunvor echoed concerns over Chinese demand and plentiful supply.
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European gas futures gained as the regions first cold snap arrived just as supply risks are starting to build. Overnight temperatures in the UK and Germany fell below seasonal norms, raising the prospect of a colder than normal winter. Cooler weather could bolster fuel consumption in northwest Europe. Meanwhile, pipeline gas flows from Europe’s top supplier Norway remain curbed due to seasonal maintenance, with some work extended over the weekend. The risk to supply disruptions extended the LNG market, with North Asian LNG prices finding some support. The strengthening storm approaching the Gulf of Mexico could impact LNG export terminals in the region. The Inpex-operated Ichthys LNG plant also further reduced its capacity as plant repairs continue. It doesn’t expect them to be completed until November, resulting in Train 1’s capacity dropping to 50-70%. Chinese imports could also be weaker in coming months as storage facilities fill. Recent releases from major storage hubs indicate increased volumes have been injected into subterranean caverns that supply its cities. The Huabei site, which serves Beijing, has stored 2bcm and is now 83%.
Copper led the base metals sector higher on tentative signs of stabilisation in Chinese demand. Copper inventories at Shanghai Exchange warehouses have diminished in recent weeks, indicating physical demand may have stabilised. There has also been a rise in the premiums that consumers pay to secure spot cargoes of the metal. This may have been triggered by a sudden surge in electric vehicle sales. New-energy vehicles sales jumped 43.2% y/y to 1.03m units in August, according to China’s Passenger Car Association. The gains across the rest of the sector were more muted, as the ongoing weakness in China’s property sector continues to cast a pall over the industrial metals markets. Those concerns continue to weigh on sentiment in the iron ore market, with prices dipping below USD90/t for the first time since 2022.
Chart of the Day
In a positive sign for copper demand in China, Shanghai Exchange warehouse inventories are falling while premiums are on the rise
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