Commodities: China's weakness continues to hound European metals trade

Majority of industrial metal contracts were trading lower in Europe on Tuesday as concerns over Chinese demand continued to weigh on investors’ minds, while oil benchmarks stayed low with Brent lurking below $60 on oversupply concerns.

Past the midway point in trading on the London Metal Exchange, three-month delivery contracts of primary aluminium (down 0.5%), lead (down 0.1%), tin (down 0.2%) and zinc (0.9%) were all trading lower. While nickel (up 2.8%) and copper (up 1.1%) contracts were coping better, market analysts remain unconvinced about China's growth and its demand for metals.

A straw poll of seven analysts conducted by Sharecast saw all respondents opine that China was not displaying the signs of an economy growing at 7% based on its metal import volumes, despite Beijing’s insistence that it was.

Gold was only seen making a limp recovery from five-year lows following a massive sell-off of over 3m lots in Shanghai over the previous session. At 1507 BST, COMEX gold for August delivery was trading at $1,106.10 an ounce, down 0.06% or 70 cents, while spot gold was $11.09 or 1.01% at $1,107.59.

Spot platinum finally reversed six successive negative sessions posting an uptick, albeit from a sub-$1,000 an ounce level, trading at $989.10 up 1.12% or $11. Concurrently, COMEX silver for September delivery was up 0.73% or 11 cents at $14.87 an ounce.

Away from metals, oil was faring relatively better in European and US trading. The Brent front month contract for September delivery was up 1.01% or 57 cents at $57.22 per barrel, while the WTI was up 61 cents or 1.22% at $50.76 per barrel.

However, analysts at Barclays sounded more optimistic on the future direction of oil prices. Michael Cohen, senior analyst at the bank, noted: “Over the past two weeks, calendar year 2016 and 2017 prices for WTI and Brent have reached their lowest levels since those contracts began trading. From a fundamental perspective, we believe 2016 is undervalued.”

“At current prices, shale is supremely challenged and demand could pose an upside surprise. Furthermore, the market may be overly optimistic about an Iranian return. On Wednesday, Mexico held its inaugural Energy Reform auction. The block allocation rate missed expectations, but regulators will likely make adjustments, leading to improved participation,” he added.

Finally, the agricultural commodities market sent mixed signals for most of the European session. CBOT corn (up 0.30%) and wheat (up 0.09%) futures were trading higher, however ICE cocoa (down 0.18%), cotton (down 0.23%) and live cattle (down 0.40%) contracts were in negative territory.