Commodities: Base metals up, oil and gold continue to struggle

Major base metal futures saw an uptick on Wednesday, while oil and gold futures continued to struggle during Asian and European trading.

Most contracts on the London Metal Exchange extended marginal gains achieved over much of this week. Past the midway point of trading on the LME, three-month delivery contracts of primary aluminium (up 2.1%), copper (up 1.9%), lead (up 1.7%), nickel (up 2.1%) and zinc (up 0.5%) were all in positive territory.

However, tin futures went against the trend shedding 1.1% or $160 to $15052.50 per metric tonne. Analysts at Macquarie said the displacement of raw material consumption by scrap recovery is a common discussion in metals markets, particularly at times of slow demand growth, with secondary supply forming a significant part of the market.

“In general, over the long term scrap tends to be an inelastic source of metal unit supply, with recovery simply a function of life cycle of consumption in preceding years. The impact of this on copper or steel is a widely discussed topic – particularly for the latter where Chinese generation rates are likely to be rising by over 10% by 2020, and in a low demand environment this means Chinese pig iron production may already have peaked. For other metals, such as lead, secondary supply is already a significant part of the market,” they wrote in a note to clients.

Oil benchmarks continued to struggle as the US Energy Information Administration (EIA) revised its production reporting methodology in August, which resulted in downward revisions to US crude oil output for the January to May timeframe. Crude oil production for June averaged 9.3m barrels per day (bpd), 310,000 bpd lower than peak output of 9.61m bpd, recorded in April.

While US demand remained robust, growing by 700,000 bpd on an annualised basis over June, market sentiment remained bearish stateside and elsewhere. At 1618 BST, the Brent front month futures contract was down 1.25% or 62 cents at $48.90 per barrel, while the WTI was down 1.20% or 55 cents at $45.39 per barrel.

Elsewhere, precious metals returned to negative territory driven lower by gold as the Indian Government approved a plan encouraging households to deposit their gold to earn interest on a ‘gold bond’ aimed at stunting gold imports via the Middle East.

COMEX gold for December delivery was down 1.10% or $12.30 at $1,108.70 an ounce, while spot gold was down 1.19% or $13.31 at $1,108.24 an ounce, with traders expecting mixed trading patterns until the possibility of a September US interest rate rise by the Federal Reserve eases off completely.

Concurrently, COMEX silver was down 1.08% or 16 cents to $14.60 an ounce, while spot platinum was up 1.73% or $17.37 to $986.48 an ounce. Looking at the macro perspective, Michael Pearce, global economist at Capital Economics, expects growth in the major commodity exporting nations to remain sluggish in 2016-17.

“However, an end to recession in Russia and Brazil and somewhat stronger growth in the other major commodity exporters should contribute to a slight pick-up in global growth next year,” he added.

Finally, major agricultural commodities futures were largely in positive territory. ICE cocoa (up 1.68%), cotton (up 0.52%) and CME live cattle (up 0.14%) futures were all in positive territory. However, CBOT corn (broadly flat) and wheat (down 0.37%) dabbled with negativity in early US trading.