Commodities: Energy, metal prices softer on Trump's address, China PMI

Base metals edged lower on Tuesday, although the US President Donald Trump called for $1.5trn infrastructure spending in his first State of Union address.

“There was really nothing new” said Ric Spooner, chief market analyst at CMC Markets in Asia Pacific, in reaction to Trump's speech. “It’s pretty neutral for now, and a matter of waiting to see concrete details”.

Three-month LME zinc fell 1.52% to $3’496 a ton, as three-month LME copper eased 0.49% to $7’050 a ton on Tuesday.

Softer US dollar helped base metals paring a part of yesterday’s losses in Asia. The Bloomberg Industrial Metal index recovered 0.49% to 282.5279.

However, weak data from China dented appetite. Chinese manufacturing PMI missed estimates in January. The manufacturing PMI fell from 51.6 to 51.3 in early 2018, as corporate debt and pollution weighed on activity.

Energy prices fell for the third consecutive day on worries that the US crude inventories may have risen for the first time in eleven weeks. The American Petroleum Institute data showed that the US crude inventories rose by 3.23 million barrels last week.

The more official EIA data is due on Wednesday. The analyst consensus is for a rise of 900,000 barrels in inventories last week, versus the 1.1m barrel fall a week earlier. West Texas Intermediate futures retreated 0.85% to $63.67 a barrel. Brent crude lost 0.84% to $68.33 a barrel.

According to Mario Camara, head of MENA at Saxobank, oil prices are overpriced at the current levels.

“Once the price of oil goes above $58 a barrel, immediately the shale oil starts coming out of the ground” and the increased output jeopardizes the price recovery. “That’s exactly what we are seeing in the US right now” he said in an interview on Bloomberg TV.

Gold recovered 0.33% to $1’343 on broad-based US dollar depreciation. Investors are cautious before the Federal Reserve policy announcement on Wednesday and the US jobs data on Friday.

“[Janet] Yellen may deliver a hawkish surprise setting the stage for a possible policy pivot while trumpeting in the Powell era” commented Stephen Innes, APAC trading heat at Oanda. “Gold bears may take advantage of this move”.

In the medium term, Saxobank’s Camara remains “very bullish on commodities” as it is “one asset class that has not been bubbling”. “Precious metals have way to go in 2018” he said.

By Ipek Ozkardeskaya