Critical minerals gain as China EV sales improve
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Markets found some support after the Fed left the prospect of rate cuts on the table. Easing geopolitical risks and burgeoning stockpiles weighed on energy markets.
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
Gold rebounded after less hawkish than expected comments from the Fed. Policy makers decided to leave rates unchanged, citing the lack of progress on inflation. However, they kept the language referring to a future reduction in rates. Fed Chair Jerome Powell also said that it is unlikely the next policy rate move will be a hike. This helped ease concerns that the Fed was moving away from an easing bias. Lower US Treasury yields and a weaker USD also helped support investor demand. Palladium fell below platinum for the first time since February amid concerns over the demand outlook. Palladium is the most exposed to the weak outlook for gasoline powered cars amid a surge in EV sales. Moreover, platinum is suffering supply side issues which is tightening that market appreciably.
The base metals sector was under pressure leading into the FOMC meeting amid concerns that a rate cut was becoming a distant prospect. Earlier this week copper breached USD10,000/t for the first time in two years as better than expected manufacturing activity in April in China boosted the outlook for demand. These gains have eroded as hopes of an imminent rate cut fade. Nevertheless, copper is still up over 10% over the past month reflecting improving demand and further tightness in supplies. Daniel Hynes discusses these issues in today’s edition of 5in5 with ANZ podcast. Nystar’s decision to restart an idled smelter in the Netherlands continued to weigh on zinc prices.
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Lithium prices locked in a second consecutive month of gains amid an improving EV market in China. BYD and a host of other Chinese EV makers posted higher sales and deliveries in April, raising hopes of stronger demand. This comes as they responded to overcapacity in the industry with rounds of price reductions. This could be aided further by government support. Beijing announced it will offer consumers replacing cars with electric or hybrid vehicles up to the equivalent of nearly USD1400.
Crude oil extended recent losses amid signs of weaker demand. The US Energy Information Administration’s weekly report showed US crude stockpiles increased 7.27mbbls last week, the biggest jump since early February. This comes as US inflation remained high amid rising fuel and energy costs for consumers. This added to headwinds that also include easing tensions in the Middle East. The prospect of supply disruptions had pushed Brent crude oil above USD90/bbl in April. However, the geopolitical risk premium appears to have been substantially reduced. A Bloomberg report suggests the US and Saudi Arabia are nearing a historic pact that would offer the kingdom security guarantees and lay out a possible pathway to diplomatic ties with Israel. This could lead to the reshaping of Middle East.
Global gas prices followed oil market lower as traders eye improvement in supply. Gas flows to the Freeport LNG facility continue to improve following recent maintenance work. US LNG exports hit record highs in the first four months of the year. Volumes reached 30.55mt in Jan-Apr 2024, compared with 29.46mt in the same period last year. North Asia LNG prices held up better than European markets amid signs of stronger summer demand.
Chart of the Day
Improvement in China EV sales likely as government provides further support
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