Commodity Wrap: Potential LME ban on Russian supplies pushes metal prices higher

Welcome back to another weekly Commodity Wrap.

Weekly Commodity Summary

Commodity markets tried to bounce towards the end of the week after growth fears dragged the Bloomberg Commodity Index to a fresh 7-month low on Thursday.

Source: TradingView

Commodity performance

Source: TradingView

Table: Market Index

Iron ore

Iron ore is struggling for upside despite more positive data coming out of China.

"Transaction volumes of construction steel in China's physical market improved significantly this week, thanks to the active replenishment of end-users ahead of the country's coming National Day holiday," according to Mysteel Global.

China's steel PMI rose to 46.6 in September from 46.1 in August. The 50 point market separates contraction from expansion. The new orders sub component was up 2.2 points, with all other segments relatively flat.

Aluminium

Aluminium prices rallied on Thursday, up 4.6% after reports that the London Metal Exchange was discussing a potential ban on new supplies from Russia. Back in February, JP Morgan estimated that Russia's exports as a share of global production for nickel, aluminium and copper was 5.3%, 4.2% and 3.3% respectively.

Earlier this week,

Copper

Copper prices also rallied following the possible LME ban on Russian metals.

Gold

On Monday, gold was coming dangerously close to US$1,600. However, a weaker US dollar and bond yields helped kick start a four day winning streak, up 2.6% to the US$1,660 level.

"Fed messaging has been consistently shrugging off recession risks which implies they will remain aggressive with rate increase in November and December. ​ The risks are still to the downside, but right now it seems gold has major support ahead of the $1600 level," said Oanda senior market analyst, Ed Moya.

Oil

Oil has joined the broader equity markets in a volatile, downward rollercoaster. Brent crude oil is looking to finish the week 2% higher at US$88.4 a barrel but still down around -15% in the past month.

Oil prices jumped on Thursday after a modest inventory draw of 200,000 barrels for the week to 23 September compared to an 1.1m barrel rise in the previous week.

Also weighing on oil was the record amount of oil being drained from the US Strategic Petroleum Reserve (SPR). The SPR was intended to ease the effects of unexpected supply disruptions, but Biden is raiding it as a means of cooling gasoline prices for Americans. According to the Department of Energy, SPR levels are at their lowest levels since 1984.