Commodity spotlight: volatile iron ore and nickel, oil bounces and uranium stocks surge

Choppy week for iron ore

The near-term outlook for iron ore was looking increasingly bearish after China reported its biggest outbreak of covid since the early days of the pandemic. 

Shenzhen, a southern tech hub of 17m people and industrial provinces around Beijing were locked down earlier this week, impacting the short-term growth outlook for China, and of course, the nation’s appetite for iron ore. 

Iron ore futures prices (Source: TradingView)

Iron ore prices spiked towards the end of the week when China announced an ambitious annual GDP growth target of 5.5%, well above consensus expectations of 4.5%. 

Premier Li Keqiang hinted at more support to drive growth including monetary policy, tax reductions and employment support. 

The initiatives were light on details, so investors should keep an eye out for what kind of stimulus measures will be brought to the table.

Nickel mayhem continues

Nickel resumed trading on the London Metal Exchange (LME) on Wednesday after a week-long suspension following an unprecedented short squeeze.

A 5% trading range was applied to provide price stability - prices immediately hit limit down as trading resumed.

The trading range was widened to 8% on Thursday - and prices quickly hit limits of US$41,495 a tonne. 

The same happened on Friday with a trading range of 12%.

“We suspect that there will be more limit-down sessions, until the market finds an equilibrium level," said ED&F Man Capital Markets analyst Edward Meir, reported Reuters.

Local nickel stocks have been relatively unphased by both nickel's rise to US$100,000 a tonne and this week's crash.

Oil supply at risk

Oil prices bounced off the US$97 level as Ukraine-Russia peace talks were making mixed progress. 

According to the Financial Times, a 15-point plan to end the war has been drawn up. President Vladimir Putin has raised some outlandish demands including acceptance by Ukraine that it will be neutral and will not join NATO, a disarmament process for Ukraine and the protection of the Russian language in Ukraine. 

The International Energy Agency (IEA) has also observed that three million barrels pre day of Russian oil exports are at risk as sanctions block the nation’s exports. 

“The implications of a potential loss of Russian oil exports to global markets cannot be understated,” the IEA report said. 

“That’s far more than the lost demand growth as a result of high prices which further tightens the market,” said Oanda senior market analyst, Craig Erlam. 

Uranium 

Local uranium stocks rallied across the board on Friday after the US Energy Department pledged to accelerate aid for the domestic nuclear industry, according to Bloomberg.  

“We need to build out capacity for a Western alternative for the Russian component of the uranium market, including conversion and enrichment capacity,” said Energy Department officials. 

The US is the world’s largest producer of nuclear power, with 94 reactors powering approximately 20% of the nation’s electricity needs. 

“It could potentially be incentivised to restart our conversion capability rapidly, as long as there’s a signal from the federal government and from the industry,” said senior advisor, Kathryn Huff.