Commodities: Softer led by stronger USD, US rate hike expectations and rising inventories - ANZ

According to the analysts at ANZ, the softness in the commodity complex continued today as a combination of an imminent rate hike in the US, stronger USD and rising inventories has seen investors flee the sector.

Key Quotes

“Crude oil prices fell heavily after EIA data showed a strong build in inventories in the US. Supplies climbed 8.21 million barrels to 528.4 million barrels. This followed on from comments from Saudi Arabia’s Energy Minister, who said global crude oil stockpiles are draining slower than expected. US crude oil production was also higher, hitting 9.09mb/d. When combined with the huge speculative long positions in the market, it’s not surprising that prices sold off so strongly. However, there is increasing talk of extending the OPEC production cut agreement. Iraq and Oman have already voiced their support for an extension.”

“Base metals were broadly unchanged, except nickel which suffered a heavy selloff. Reports that Indonesian miner PT Aneka Tambang is preparing to apply for a permit to export low grade nickel ore shook the market. Expectations had been that exports would not resume for some time, after the government reversed the 4 year ban earlier this year. Copper was relatively unchanged as the push and pull between supply side disruptions and rising inventories increased. Data showing China’s February imports of copper products fell 19% y/y also weighed on the price.”

“Iron ore spot prices fell sharply as sentiment declined on the back of weaker steel prices in China. Rebar prices have fallen over 5% over the past week. This was despite China’s trade data showing strong growth in iron ore imports. Volumes for February increased 13.4% to 73.6mt, despite weather related supply constraints in Australia.”

“Gold prices tumbled as investors continued to increase its bet on a Fed rate hike next week. The better than expected ADP payroll number pushed market pricing of a rate hike to 100%. With prices dropping below the 50 day moving average, the weakness is likely to persist in the short term.”

“Agriculture markets were weaker, with losses centred on the grains market. Corn fell for a third straight day, as a stronger USD and increasing expectations of better Brazilian corn production weighed on the market.”