Commodities are poised to undergo another round of scrutiny driven by China's economic data, marking a second week of potential challenges. The forthcoming final reports on retail sales, employment, investment, and production, coupled with updates on the ailing property sector, are highly anticipated. The backdrop of last week's startling declines in exports, imports, and deflation has left economists and analysts on edge, particularly with the spotlight on the vulnerable property giant, Country Garden.
Within the realm of commodities, copper bore the brunt of investors' reactions last week. The Comex price suffered a more than 3% drop, touching three-month lows. Conversely, oil ended the week with gains for both Brent and West Texas Intermediate, transforming a break-even week into a modest positive.
Copper's vulnerability wasn't surprising, as it's closely intertwined with the health of the Chinese economy. Demand for copper, whether in metal or concentrate form, has been lacklustre this year. Although copper production seems to be on an upward trajectory based on the latest copper cathode production data, softened demand from China raises concerns about a potential tipping point.
Comex copper concluded at $3.71 per pound, marking its lowest point since May, while LME metal hovered around $8,420 per tonne. Nickel followed suit, trading at approximately $20,220 per tonne, while lead, zinc, and aluminium maintained relatively stable trading patterns. The monthly data releases from China play a pivotal role in influencing the trajectory of industrial metals, and substantial gains are unlikely unless a noteworthy upturn occurs.
For oil, both Brent and West Texas Intermediate ended the week with gains, turning a lukewarm week into a slightly positive outcome. Brent advanced 1.7% last week, approaching year-high levels at $86.73 per barrel, while West Texas Intermediate added 0.5% to $83.04 per barrel, also nearing annual peaks.
The International Energy Agency (IEA) and OPEC predict rising demand and prices for the remainder of the year, albeit with differing nuances. The IEA foresees a record 2.2 million barrels per day rise in global oil demand this year, while OPEC also anticipates growth, albeit at a slightly different rate. The IEA suggests that next year could bring a slowdown in demand growth, primarily due to the post-pandemic recovery nearing completion and the acceleration of the energy transition.
However, OPEC expects solid economic growth to drive global demand by 2.25 million barrels per day in 2024, while the IEA has revised its 2024 outlook downward due to expectations of weak economic growth in major economies.
The IEA's growth forecast for this year is partly attributed to robust demand from Chinese petrochemical firms. While both organisations expect China to remain a significant player, there are differences in the extent of its influence. The IEA projects that China will account for 70% of next year's demand rise, a sentiment that could change if China's economic fortunes wane.
Lastly, the number of active oil and gas rigs in the US continues to decline. The US witnessed 654 active rigs last week, down 5 from the previous week and a 14% drop from the 763 rigs in operation a year earlier. Although the oil rig count remained steady at 525, gas rigs fell by 5 to 123. The number of miscellaneous rigs remained unchanged at six.
Crude prices are rising amid supply constraints, with Ukraine's vow to retaliate against Russia's port blockades adding geopolitical tension to the mix. Recent drone attacks targeting a Russian oil tanker and naval vessel have underscored the vulnerability of key trade routes. This precarious situation has caught the attention of commodity analysts at ANZ Bank, emphasising the potential impact on the industry.
