CLYDE RUSSELL: Chinese stimulus boosts copper, oil, but not iron

Launceston — Commodities had a mixed reaction to the latest stimulus measures aimed at boosting the Chinese economy’s stuttering post-pandemic recovery.

On the plus side of the register, crude oil and copper posted gains after China’s central bank cut its benchmark loan prime rates (LPR) for the first time in 10 months on June 20.

Sentiment was helped by Vice-Premier He Lifeng’s assertion that China’s economy’s recovery has begun to improve. In a meeting with Lim Boon Heng, the chair of Singapore’s Temasek, He said that China’s manufacturing industry is growing steadily and the services industry is picking up relatively quickly, China’s state news service Xinhua reported on Wednesday.

The iron ore market remained unimpressed, however, as investors took the view that the 10-basis point reduction in the five-year LPR was too small to make much difference to a property sector hobbled by worries over the financial difficulties faced by some developers.

Iron ore futures traded in Singapore ended at $112.63 per metric tonne on Wednesday, dropping for a second day to be down 1.4% from the two-month high of $114.20 reached on June 19.

Iron ore has been moving higher in recent weeks after hitting a five-month low of $102.33 a metric tonne in early May as the market took the view that Beijing could stimulate property construction, infrastructure and manufacturing, boosting demand for steel.

But the run of soft property and manufacturing data, coupled with disappointment over the small size of the interest rate cut appears to be weighing on sentiment.

Still, iron ore imports have remained fairly steady in recent months. Commodity analysts Kpler estimated that arrivals in June would be in the order of 98.73-million metric tonnes, which would be slightly higher than the official customs figure for May of 96.17-million tonnes.

OIL GAINS

In contrast to iron ore’s lacklustre response to China’s latest stimulus measures, crude oil and copper performed better.

Brent crude futures gained more than $1 a barrel on Wednesday to end at $77.12, the strongest close in nearly a month.

While part of the gain was related to weakening in the US dollar amid signs that  the US Federal Reserve may be nearing the end of its monetary tightening cycle, crude was bolstered by signs of stronger demand.

Middle East physical crude prices rose for a fourth session on Wednesday as Asian refiners moved to buy cargoes, to be delivered in about two months.

Asia’s crude oil imports are expected to remain robust in June. The top-importing region is expected to import 27.64-million barrels per day (bpd) in June, up from May’s 26.47-million bpd, according to data compiled by Refinitiv Oil Research.

China, the world’s top oil buyer, is expected to see a small fall in June’s arrivals, with Refinitiv estimating imports of 11.7-million bpd, down from May’s 12.16-million bpd, which was the third-highest on record.

The small drop in China’s imports was offset by India, which is expected to land 5.15-million bpd in June, up from 4.85-million bpd in May. South Korea is also expected to lift its imports.

Copper prices also rose amid signs of a tighter physical market in China, with Shanghai futures gaining 0.6% on Wednesday to end at a two-month high of 68,930 yuan ($9,582) a metric tonne.

Refined copper inventories held at bonded warehouses fell to 66,400 tonnes in the week to June 21, the lowest since January and less than a quarter of the 271,500 tonnes stored in the same week a year ago.

Whether the tightness in China’s copper market will lead to higher imports soon remains uncertain as high global prices discouraged traders from placing orders.

Reuters