Commodity spotlight: Iron ore awaits Chinese stimulus, coal reclaims $400, gold rut

Wednesday was the 4th worst day for commodities in the last 16 years, according to the Invesco DB Commodity Index.

Though, the idea that commodities got absolutely “crushed” is only applicable from their absolute extreme peaks from a few months back, said Aequitas Investment Partners in a note on Friday.

Invesco CB Commodity Index (Source: TradingView)

Nevertheless, a 20-30% pullback for metals was rather surprising, with ANZ analysts saying that the “magnitude of a fall was not expected, given the already low levels of metal inventories and existing supply challenges caused by higher energy prices.”

“Supply side issues can’t be ignored … metal exchange inventories of aluminium, zinc and nickel are at multi-year lows, and markets are vulnerable to further tightness,” said ANZ analysts including Daniel Hynes. 

“We have lowered our short-term targets following the sell-off, but see upside risks for most metals,” the report said.

Back to the rundown.

Iron ore: Waiting on Chinese stimulus

Iron ore is trying to finish another poor week on a positive note, buoyed by China’s plans to release a massive US$224bn stimulus, mostly for infrastructure spending.

Futures in Singapore are currently trading at US$114.5 a tonne, while they gained 1.66% on China’s Dalian Commodity Exchange.

Singapore Iron Ore Futures (Source: TradingView)

While waiting for pending stimulus hopes, signs of weak demand continue to pull iron ore prices closer to double digits. 

Daily consumption of imported iron ore at Chinese steel mills decreased to an average 525,000 tonnes per day over June 20 to July 6, a fresh 3-month low. Chinese steel mills are trimming production amid weak margins, surging energy costs and high inventories.

Newcastle coal reclaims US$400

Coal prices continue to march higher amid strong demand from Europe, India and China. 

Power prices in Europe surged to all-time highs this week as Russia’s tightening on energy imports squeezes energy supplies.  

Chinese demand is also set to come back as the economy reopens and manufacturing activity picks up. 

Newcastle Coal Futures (Source: TradingView)

Gold rut

You’d expect recession fears and high inflation to act as rocket fuel for gold prices. It hasn’t.

Gold has plummeted to an 8-month low in recent days as investors get selective with which safe haven assets they want to hold, favouring the US dollar, which rallied strongly against most currencies.

Gold-backed ETFs have seen their holdings fall to around 4-month lows, according to ANZ.

Gold prices (Source: TradingView)