Commodities: Base metals, oil on recovery run after ‘Black Monday’

Oil benchmarks and base metals recovered on Tuesday, following massive declines noted over ‘Black Monday’, as Chinese equities continued to slide.

Chinese stocks fell 7.6% on Tuesday, after slumping 8.5% on Monday, when they wiped off their 2015 gains. However, the commodities market benefitted as the People's Bank of China moved to cut interest rates for the fifth time since November, in a bid to boost the country’s slowing economy.

The PBoC lowered its benchmark lending and deposit rates by 0.25 percentage points, adding the rate cuts will become effective on 26 August and are aimed at reducing corporate borrowing costs. China's central bank also reduced its reserve requirement ratio by 0.5 percentage points, starting from 6 September, adding the cuts are meant to ensure enough liquidity and stable credit growth.

At 1541 BST, the Brent front month futures contract was up 1.94% or 83 cents at $43.52 per barrel, while the WTI was up 2.64% or $1.01 at $39.25.

Base metal futures also staged a recovery in European trading. Past the midway of trading on the London Metal Exchange, three-month futures contracts of primary aluminium (up 2.4%), copper (up 3.0%), lead (1.4%), nickel (up 2.5%) and zinc (up 2.4%) were trading higher. However, tin went against the trend trading down a marginal 0.5%.

Kevin Norrish, analyst at Barclays, said, “The decline in commodities since early 2011 has gathered pace recently, though with positioning at bearish extremes and signs that a cyclical upturn may be starting, a price recovery is possible.

“However, given the structural negatives of a slowing China, oversupply and a strong dollar, it may not be too long before the long-term bearish trend reasserts itself.”

In calmer market climes, precious metals lost their safe haven gleam led lower by gold. COMEX gold for December delivery was down 1.51% or $17.40 at $1,136.20 an ounce, while spot gold was down 1.65% or $19.04 at $1,136.07.

Concurrently, COMEX silver was down 0.90% or 13 cents at $14.67 an ounce, while spot platinum was down 1.61% or $15.95 to $975.50.

Finally, the agricultural commodities market largely returned to positive territory with major futures contracts trading up. CBOT corn (up 0.26%), wheat (up 0.05%) and ICE cocoa (up 0.36%) contracts were up, but ICE cotton (down 0.33%) and CME live cattle (down 0.14%) were trading lower.