Commodity spotlight: Iron ore on thin ice, uranium extends gains, oil looking for a floor

Iron ore at risk

Iron ore prices finished the week slightly lower, towards US$150 a tonne as lockdowns across major Chinese cities like Shanghai and the steelmaking city of Tangshan has led to concerns about the nation's growth outlook.

Iron ore futures (Source: TradingView)

Earlier this week, China’s services sector nosedived to 42 in March from 50.2 in February, a reading below 50 indicates contraction. Likewise, March factory activity fell at its sharpest rate since the beginning of the pandemic, with a PMI reading of 48.1. 

Iron ore prices have managed to keep it together on the hopes that the Chinese government will step in with generous stimulus to buoy the economy, more specifically, infrastructure and property sectors.

On Wednesday, China's Central Bank said that it will "establish a financial stability protection fund to beef up its ability to cope with major financial risks."

While stimulus is expected, no details have emerged just yet.

“With an increasingly large number of cities under lockdown and amid the downward spiral in the property sector, the impact of incoming monetary easing might be quite limited,” said Nomura analysts, according to Reuters.

Yellow cake turns green

Several uranium stocks have topped the ASX leaderboards on Friday as uranium spot prices extended gains to 11-year highs of US$63.5/lb. 

You can read more about Friday's price action and the outlook for uranium here.

US lawmakers are pushing a bill to ban Russian uranium imports. Approxiamtely 16% of US uranium consumption comes from Russia and an additional 30% is imported from Russia's partner nations Kazakhstan and Uzbekistan.

This could be a near-term catalyst that could drive further upside for uranium prices.

Oil's supply tight narrative remains unchanged

Oil prices is hovering around US$100 a barrel as China's covid lockdown is taking a massive hit on sentiment and possibly demand.

WTI Crude Oil price (Source: TradingView)

The general view across analysts and brokers is that market conditions remain tight, especially if Russia-Ukraine remain in a standstill for peace talks.

"It doesn’t look like the EU will be sanctioning Russian oil anytime soon and that suggests oil will need a couple of new catalysts to make a run back towards the recent highs," said Oanda senior market analyst, Ed Moya.

"The oil market remains tight so this weakness might only last a little while longer.  The respective March lows could hold for both Brent crude and WTI crude." Similarly, the Australian Government's commodity forecaster, the Office of the Chief Economist expects prices to remain elevated in 2022 and 2023 as consumption continues to rise against a backdrop of low global inventories and volatile supply.

Its base case scenario is for quarterly average prices to peak around the June and September quarters, averaging US$115 a barrel, before beginning a gradual decline.