WTI Breaks Above $70

Metals

With no strong catalyst, base metals traded in relatively tight ranges for most of yesterday’s session in London before settling higher ahead of the LME evening close. There has been focus on the Peruvian election results, which may add to the risk premium for long term copper mine supply if candidate Castillo wins. This would only add to the long term narrative that mine investments may fall short of the expected demand surge.

According to the latest production data from SMM, China copper cathode production fell 3.1% MoM in May to 850kt, chiefly due to maintenance work at a number of smelters. The group expects production to slip by another 2.2% in June. Refined zinc production also declined by 2% MoM to stand at 494.6kt last month, primarily due to low operating rates among smelters in Yunnan as a result of power issues. Despite this, YTD production still grew by 4.5% YoY to total 2.5mt. 

In the precious metals space, this week’s main risk events are in the macro market as investors await US consumer prices data to be released on Thursday. Given the recent nervousness about US inflation, a potential higher reading could impact US Treasury yields, which could ripple through to the rest of markets. Some investors seem to have taken profits ahead of the event, as spot gold slipped despite treasury yields falling on Tuesday.

Agriculture

US grain prices were supported yesterday, with the USDA’s latest crop progress report showing a worsening in the crop condition for both US corn and soybeans, as a result of hot and dry weather conditions. In addition, drought conditions in Brazil continue to be a concern for the Brazilian safrinha corn crop, with expectations that we will see further downgrades. The market should get a better idea on this later in the week, with the USDA releasing its monthly WASDE report on Thursday, whilst CONAB will also give an update on Brazilian crop estimates on the same day.

Finally, after a surge higher in China’s PPI in May, which increased by 9% YoY over the month, the Chinese government has said that it will control domestic corn, wheat and pork prices. This follows the government also recently attempting to cool the current strength in metals prices.

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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