EUROPEAN COMMODITIES UPDATE: Firmer Dollar, softer risk, and disappointing Chinese trade data exert downward pressure on industrial commodities

Analysis details (10:09)

• WTI and Brent futures are on the backfoot as a function of a firmer Dollar, broader risk aversion, and headwinds from downbeat Chinese trade data. To recap the latter, China's trade surplus widened to USD 80.6bln in July (exp. 70.6bln, prev. 70.6bln), with imports dropping to a rate of -12.4% Y/Y (exp. -5.0%, prev. -6.8%), reflecting weaker domestic demand, while exports fell by the largest margin since the pandemic's start, falling further to -14.5% Y/Y (exp. -12.5%, prev. -12.4%); the decline was due to lower prices rather than lower quantities. CapEco says exports could decline more before stabilising toward the end of the year, while imports might improve due to increased infrastructure spending and recovering international travel. From a crude perspective, crude oil imports from China fell 19% M/M in July, with inventories high and domestic demand softer. That being said, the data still marks a 17% increase Y/Y for crude imports, albeit that’s largely on base effects as China was implementing its zero-COVID policy. In terms of forecasts, UBS retains a positive outlook for oil prices and forecasts Brent at USD 90/bbl by end-2023 and noted oil demand set to breach 103mln BPD in August for the first time, due to China, India and the Middle East. The bank sees a market deficit of circa. 2mln BPD in July and August, vs around 0.7mln BPD in June and suggests September could see a deficit of over 1.5mln BPD. Ahead, price action is likely to be dictated by the broader sentiment, whilst the weekly Private Inventory report will be released after the US market close. Crude futures reside near session lows at the time of writing with WTI Sep around USD 81/bbl (vs high 82.54/bbl) and Brent Oct around USD 84.40/bbl (vs high 85.79/bbl).


• Over to metals, again it’s a Dollar and risk story. Spot gold is subdued by the Buck and trades under its 50 DMA (USD 1,944.27/oz) around the USD 1,932/oz mark in a relatively tight USD 1,938-30/oz intraday range, with downside somewhat cushioned by broader risk aversion. Base metals are softer across the board and have seen another leg lower since the European cash open – largely a function of the aforementioned disappointing Chinese trade data. 3M LME copper relinquished the USD 8,500/t level (high of USD 8,517/t) and trades around USD 8,350/t at the time of writing. Elsewhere, mining giant Glencore reported results today, and within the release, the firm suggested “Moderating inflation and supportive government policy in China across key end-user sectors, are bringing a more positive macroeconomic backdrop in H2 2023. Glencore added that low metal inventories, higher production costs, geopolitical uncertainty and energy transition demand are all supportive of above-average real-term prices through the cycle and into the longer term.

08 Aug 2023 - 10:11- MetalsEU Research- Source: Newsquawk