iron ore

Equities 2022-04-19 06:00 6 minutes to read Summary:  Global growth to slow says the World Bank, Earnings estimates are weaker and markets brace for more rate hikes. So, Traders turn to commodities again. Oil continues its climb from last week, as global mobility picks up while supply remains cut off from Libya. Broad Asian markets are mixed, yet stocks shine in power generation and Ag. While down under in Australia, their share market inches toward its record all time high, beefed up iron ore, oil and fertilizer stocks. What’s happening in equites that you need to know? The major US indices brace for weakness:   The Nasdaq 100 (USNAS100.I), S&P 500 (US500.I) are on the back foot, trading under their 50-day moving averages. Q1 earnings expectations are the weakest since March 2020, plus results so far are showing profit erosion and rising input costs. Traders are digesting World Bank estimates of slower growth for the year, and bracing for more rate hike hints Thursday. Meanwhile, oil giants remain favored, Occidental (OXY) shares trade up 112% this year, Halliburton (HAL) trades up 82% YTD, Marathon Oil (MRO) up 63% YTD, with oil companies likely to see the strongest earnings growth this year. Read next: (UKOIL) Brent Crude Oil Spikes to Highest Price For April, (NGAS) Natural Gas Hitting Pre-2008 Prices, Cotton Planting Has Begun   Asian markets are mixed: The MSCI Asia Pacific, ex Japan Index (FMASM2) is lower. Singapore’s STI Index (ES3) up 0.7% led by power generation firm Sembcorp (S51), travel stocks such as Genting Singapore (G13) and Singapore Airlines (C6L) as well as agriculture stock Wilmar (F34) and banks UOB (U11) and DBS (D05). Japan’s Nikkei (NI225.I) was trading flat, supported mainly by gains in base metals but dragged by Fast Retailing (9983). MSCI Asia Pacific ex-Japan was lower after US stocks closed in the red overnight and gains in oil prices continued. HK equities retreat.  Hang Seng Index (HSI.I) retreated by 2.8% after coming back from the 4-day long holiday weekend.  Investors found the 25 basis point reserve requirement ratio cut by the People’s Bank of China last Friday disappointing as they had been expecting a more typical 50 bp reduction and a 10 bp cut in the policy Medium-term Lending Facility (MLF) rate as well.  Bilibili (09626) lost 11% on rumor that the company was laying off staff in its live streaming department.  E-commerce names declined on report that the Shanghai Administration for Market Regulation had asked e-commerce companies to a meeting and called on the latter to improve on practices on pricing and delivery of necessities to consumers during the lockdown.  Alibaba (09988) and Meituan (03690) fell 4% to 6%. China Merchant Bank (03968) fell 11% following the abrupt departure of the Chinese bank’s president. CSI300 (000300.I) declined modestly.  Coal miners and fertilizer producers gained. The Australian share market is nearing a record all time high. The (ASX200)is up 0.5% on Tuesday, up for the third day and is now just 0.3% away from hitting its record high. The RBA meeting minutes showed that quicker inflation and a pick up in wages growth will bring forward the timing of the RBA’s first rate hike, however that’s not spooking the ASX, as most sectors trade higher. Gold stocks are leading the market today, like Ramelius (RMU) up 5%, Perseus (PRU) up 4% as investors back the safe haven asset as it traditionally rallies when interest rates rise. While shares in fertizlier and explosive company Incitec Pivot (IPL) are up 4%, to their highest level since 2018 after announcing production will kick off again at its ammonia plant. Elsewhere, oil and coal shares are pushing up while, shares in Australia’s biggest iron ore companies, BHP, FMG and RIO trade higher as iron ore sets 2.5 months highs. Crude oil (OILUKJUN22 & OILUSMAY22) continues to move up, extending its uptrend from last week, WTI oil back at $108, Brent up $113.39 as Libya oilfield outage cut off half a million barrels a day, adding to lack of supply from the war in Ukraine. PLUS, global mobility is rising. For example, Moody's (rating agency) expects travel to be back to normality in 12-18 months. More imminently, China Eastern Airlines resumed flying Boeing 737-800 jets from last weekend following the deadly crash Grain prices surge again. Wheat prices (futures) up 3.6% to $11.28 a bushel, forming another uptrend on lack of supply fears, as colder weather (snow) is tipped to slow planting in Canada. Plus, Wheat planting in US is growing slower than last year. USDA’s springs wheat seedings crop progress report shows 8% of the expected area was planted, compared to 18% last year. Wheat is likely to head higher due to warmer summers, colder winters, meaning soil temps in Canada and US are not ideal, so slimmer supply is ahead, which is supporting wheat prices. Meanwhile Corn prices near a record high. And International Rice Research institute forecasts rice yields may drop 10% in the next season - that is 36mn tons. This will continue to get worse if the war continues.   For you: Forex Rates: British Pound (GBP) Strengthening? Weak (EUR) Euro? GBP, NZD And AUD Supported By Monetary Policy? Iron ore (SCOA) trading above $155 for first time in  2.5 months.  Iron ore likely to continue uptrend and also potentially spike if China cuts interest rate again. This is supporting stocks like BHP, RIO FMG. USDJPY pays no heed to Japanese authorities’ verbal intervention, and rightly so given the monetary policy divergence between the Fed and the BOJ widens the yield differential. USDJPY surged to fresh 20-year highs of 127.55 this morning and the next level to watch is 128 but many are calling for 130 in the days to come. After some warnings from BoJ’s Kuroda yesterday, Japanese Finance Minister Shunichi Suzuki expressed concerns about the sharp drop in the yen today. Bitcoin dropped to lowest level in a months, as risk appetite is dropping like a stone.  Bitcoin fell below key level of support, so watch positions and also in stocks like Block (SQ, SQ2), that make 75% of revenue from BTC What you need to consider World Bank downgrades global growth estimates. The World Bank cut its 2022 outlook to 3.2% from 4.1%, dragged down by Europe and Central Asia amid the Russian invasion of Ukraine. World Bank Chief Economist Carmen Reinhart said there is “exceptional uncertainty” in global markets and further downgrades cannot be ruled out. The Australian dollar is rising back up (AUDUSD) as iron ore and oil prices lift.  The AUDUSD not only pushed higher ahead of RBA Meeting Minutes, but also as the Iron Ore price hit its highest level in 2.5 months, while oil rose to its highest in 4 weeks (these are two of Australia’s largest exports). And finally, the AUD is also being supported higher as Australian tourism is picking up, with the First cruise ship docking in Sydney Harbour since covid ban two years ago. Brace for more hawkish Fed talk this week.  We had James Bullard on the wires yesterday, and he planted the seeds of a 75-basis points rate hike given that the Fed needs to get to neutral rate very soon. Base case for the May meeting is still a 50-basis points rate hike, and a final word on that should be watched from Fed Chair Powell on Thursday as he speaks at the IMF conference. Still, brace for more volatility in yields and further gains in the US dollar as Fed continues to raise the bar of its hawkishness. Trading ideas to consider Asian agriculture stocks are on watch. For reasons mentioned above, it could be worth watching grain stocks like Australia's GrainCorp (GNC), Elders (ELD), or ag chemical company Nufarm (NUF), or Incitec Pivot (IPL), or food processing company Wilmar (WIL) listed in Singapore, or Japan's Yamazaki Baking (2212) may be of interest. Singapore reopening theme in focus into the summer.  Singapore Airlines (C6L) has seen a big jump in passenger volumes this year. Air passenger traffic has reached 31% of pre-covid levels last week up from 18% a month ago. That bodes very well with our reopening theme, and stocks to watch will be Singapore Airlines, SATS (S58) and Genting Singapore (G13). Singapore Airlines and SATS are adapting big technology changes to avoid getting trapped in labour shortages, but also still hiring in a big way in anticipation of a rebound in summer travel. US Earnings to watch. Bank of America (BAC) surged on better-than-expected Q1 results but BNY Mellon (BK) slumped. Focus now on mid-tier financial services earnings like Fifth-third (FITB) and Citizens Financial (CFG). Also on watch will be J&J (JNJ), Netflix (NFLX), Lockheed Martin (LMT), IBM (IBM), Halliburton (HAL) and others. Key issues to consider will be inflation and Fed’s aggressive tightening, but also how supply chains and consumer demand recovery is shaping up. Key APAC economic releases this week: Tue, Apr 19: Japan industrial production Wed, Apr 20: Japan March trade, China 1-year and 5-year loan prime rates Thu, Apr 21: HK March unemployment rate Fri, Apr 22: HK March CPI, RBI meeting minutes   For a global look at markets – tune into our Podcast  

Iron ore has been one of the worst-performing commodities this year. Concerns over Chinese macroeconomic performance and continued Covid-19-related disruptions have been key to driving prices lower. Hopes of a China recovery in the second half of 2023 should provide support in the medium term. The short-term outlook is more bearish In this article Gloomy demand outlook Demand outside of China also struggling China steel output lags China iron ore imports slow down Australian supply to edge higher, Brazilian shipments suffer Iron ore prices to ease in the short term   Shutterstock   Gloomy demand outlook Iron ore prices have roughly halved from their year-to-date high of US$171/t seen back in March to as low as $81/t recently – almost its lowest since early 2020. Futures in Singapore have fallen for seven consecutive months, the worst run since the contract debuted in 2013. China’s attempts to crush outbreaks of Covid-19 have seen tough restrictions, which have not been supportive of the country’s property market, the main driver of iron ore demand. China alone accounts for about two-thirds of seaborne iron ore demand. The sentiment has deteriorated since China’s 20th Communist Party Congress with the property sector policy tone remaining downbeat and the government continuing to maintain the principle that “housing is for living in, not for speculation”. China’s property sector accounts for almost 40% of its steel consumption. That sector has been in a steep decline for more than a year amid continued tightening of housing measures across China since March when cities began to introduce a sales ban. China’s home sales declined again in October, reflecting the difficulties facing the property market, as the slowing economy and ongoing Covid-19 outbreaks dampened homebuying demand. In the 10 months from January through October, national home sales dropped 25.6% in terms of square meters and 28.2% in terms of value, according to data from the National Bureau of Statistics. Property investment dropped 8.8% over the period, worsening from an 8% decline in the first nine months. New construction starts by property developers in the country fell 37.8% between January and October, compared with the 38% decline between January and September, with developers reluctant to start new construction. The World Steel Association expects Chinese steel demand to fall 4% for the whole year, driving a projected 2.3% drop in global demand amid surging inflation and rising interest rates. In 2023, new infrastructure projects and a mild recovery in the real estate market could prevent further contraction of steel demand. Looking forward, the outlook for iron ore is going to largely depend on how China approaches any further Covid outbreaks as well as the scale of stimulus the Chinese government unveils. Most recently, China’s regulators announced a 16-point plan to rescue the country’s property sector. The measures include encouraging banks to lend to developers and loosening down payment requirements for homebuyers. China’s GDP is expected to fall to 3.3% this year, according to forecasts by our China economist, well below the government’s 5.5% target. At the same time, global demand for steel is weakening as central banks tighten monetary policy. In 2023, the International Monetary Fund predicts China’s GDP to grow by 4.4%. Meanwhile, Chinese government advisers said they will recommend modest economic growth targets for next year ranging from 4.5% to 5.5% Demand outside of China also struggling Steel demand across the rest of the world has been weakening as well, reflecting the impact of high energy prices as well as central bank's increasing interest rates. In the EU, steel demand is expected to contract by 3.5% in 2022, according to the World Steel Association. With immediate improvement in the gas supply situation not in sight, steel demand in the EU will continue to contract in 2023 with significant downside risk in case of harsh winter weather or further disruptions to energy supplies. On the supply side, in the January-September period of this year, crude steel production within the European Union fell by 8.2% compared with the same period a year ago, to 105.8 million tonnes, based on WSA data. Japan’s production was down by 6% at 67.8mt, while South Korea’s volume decreased by 4.4% to 50.5mt. India is the only bright spot in the global steel market with the country’s output reaching 93.3mt in the January to September period, a rise of 6.4% year-on-year. Total production is forecast to grow 6.1% in 2022 and 6.7% in 2023 in line with the Indian Government’s target to double national production capacity to 300 million tonnes by 2030-2031 on the back of strong urban consumption and infrastructure spending, which will also drive demand for capital goods and automobiles. India’s growth figure is the highest among top global steel consumers. Most recently, India has unexpectedly removed export duties on a number of steel products and iron ore, which were imposed back in May. This includes iron ore lumps and fines with less than 58% iron content and iron ore pellets. Meanwhile, iron ore lumps and fines with an iron content of more than 58% will still attract a 30% duty. This will mean iron ore producers will return to the export market but the extent of imports will depend on demand from its main importer, China. Iron ore prices traded under pressure following the announcement. China steel output lags Chinese steel output has also been under pressure for much of the year. The start of 2022 saw output cuts in some regions during the winter Olympics weigh on national output, whilst in more recent months Covid lockdowns have weighed further on both steel demand and supply. Negative steel margins have prompted mills to intensify output cuts ahead of the winter steel curbs, with around 20 shutting down blast furnaces and speeding up annual year-end maintenance, shutting off at least 100,000 tonnes of daily output. Steelmakers in China are usually ordered to decrease production during the winter months to cut back on pollution. China’s steel production is falling – in large part because of China’s property crisis. China’s total steel production from January to October came to 860.57 million tonnes, down 2.2% on the same period last year, and compared with a 3.4% year-on-year contraction in January-September, according to data from the National Bureau of Statistics. Meanwhile, China’s cap on annual steel output to limit carbon emissions paints a bleak picture for iron ore demand going forward. China monthly crude steel output (million tonnes) WSA, ING Research China iron ore imports slow down Amid lower steel output from China, iron ore imports have also been under pressure this year. The world’s top consumer brought in 94.98mt of iron ore in October, down from September’s 99.71mt, the General Administration of Customs said, while they fell 1.7% year-on-year to 917mt in the first 10 months of the year. At the same time, iron ore inventories at Chinese ports have been growing since mid-October, reaching 136mt in mid-November. China’s iron ore port inventory is a key indicator that reflects the supply and demand balance, as well as the safety net and imbalance between the iron ore supply and the steel mill demand. With the peak construction season coming to an end and with the expected demand recovery not meeting expectations, there is little upside for steel output and iron ore demand in the short to medium term. China monthly iron ore imports (million tonnes) NBS, ING Research Australian supply to edge higher, Brazilian shipments suffer The supply side has been mixed with Australian exports increasing this year due to a strong performance by majors, while supply from Brazil, the world’s second-largest exporter behind Australia, is slightly below last year’s levels with the country struggling to see iron ore shipments return to levels seen prior to the Brumadinho dam disaster in January 2019. In 2021, total Brazilian iron exports totalled 358mt, still down from the 371mt exported in 2018. Exports in 2022 have struggled as well with total shipments of iron ore from Brazil at around 154mt in the first half of 2022.   Vale’s year-to-date production fell to 227mt, which marks a 1.9% decline year on year. This is primarily due to the 6% drop in production reported in the first quarter of 2022 due to the heavy rainfall in Minas Gerais in January that halted the Southern and Southeastern Systems operations. Vale has recently cut its production guidance for 2022 to 310-320mt from 320-335mt, compared to the production of almost 316mt last year. Looking further ahead, Vale still aims to reach 400mtpa of annual capacity. Total Brazilian exports are forecast to reach 347mt in 2022, a fall of around 2.8% compared with 2021. Meanwhile, Australia is in the process of ramping up supply from a number of new projects, of which the largest is BHP’s 80mtpa South Flank mine which started operations in 2021. This follows the startup of Fortescue’s 30mtpa Eliwana mine which commenced operations in late 2020 and has ramped up output since. For this year, Rio’s 43mtpa Gudai Darri mine started operations in June, while Fortescue was meant to start operations at its 22mtpa Iron Bridge mine this year, but the start date of this has been pushed into 1Q23. These new projects, along with some expansion projects, could add to the downside pressure on prices. The majors have recently released third-quarter reports, with FMG reporting a 2mt YoY increase to 47.5mt, Rio Tinto adding 1mt YoY to 84mt, and BHP also contributing an additional 1.5mt YoY to 72mt. Australian iron ore export volumes were 0.9% higher year-on-year in the first half of 2022, with new greenfield supply starting to come online from major producers. Exports are forecast to increase by 3.1% in 2022-23 to reach 903mt and rise by 3.8% to 937mt in 2023-24, according to Australian trade data (Department of Industry, Science and Resources). Looking ahead, we should continue to see the ramping up of supply from new projects in Australia, along with Vale continuing to target an annual production capacity of 400mtpa. Iron ore prices to ease in the short term There is more downside ahead for iron ore as there are fears that China’s strict zero-Covid policy is here to stay in the near term, despite the recent easing of Covid restrictions and the government’s pledge to bolster vaccinations among senior citizens. We believe the Chinese government is likely to stick to its zero-Covid policy through winter. China continues to see record daily cases of Covid, which has resulted in some cities tightening mobility restrictions. Reports of Covid protests in China will also likely prove harmful to sentiment. We believe the short-term outlook remains bearish with sluggish demand from China suggesting that prices should trend lower. We expect prices to slide to $85/t in the first quarter of 2023 and hover around $90/t throughout the second and third quarters. Prices should be supported in 2H23 due to expectations of a recovery in China and easing Covid-19 restrictions, with prices moving above $95/t in 4Q. However, it appears that China will continue to cap crude steel output whilst also looking to replace older steel capacity with electric arc furnace capacity in order to help the country meet its decarbonisation goals. Growth in electric arc furnace (EAF) capacity at the expense of basic oxygen furnace (BOF) capacity will be a concern for the medium to long-term outlook for Chinese iron ore demand. It also suggests that we have already seen China’s iron ore imports peak in 2020. ING forecast ING research TagsIron ore Commodities Outlook 2023 Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Summary:  There is a lot to be said about stepping back and reflecting on what’s driving markets. The most selling over the last few sessions has been stocks and sectors that will likely come under pressure from rates staying higher for longer, combined with a slowdown in US GPD. As such a Tech names like Atlassian, to EV makers including Lucid are down 10% this week. While the most upside in stocks and sectors are in those that will likely benefit from increased consumption in China and increased commodity demand with the nation continuing to map out further easing of restrictions. Here is what you need to watch in markets, in this seven minute video           Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) head lower ahead of Fed decision next week The S&P500 continued to fall below its 200-day average, slipping 1.4% on Tuesday, taking the four-day loss to 3.4%, with the next level of support at perhaps 3900. The Nasdaq 100 fell 2%, taking its three-day fall to 4%. The most selling over the last few sessions has been stocks that will likely come under pressure from rates staying higher for longer, combined with a slowdown in consumption. Luxury EV maker- Lucid Group, team software company-Atlassian, and online dating company Match, have fallen over 10% this week. While stocks exposed to China, such as Baidu and JD.com have rallied over 3%. For more inspiration of other stocks doing well this month, likely to benefit from China easing restrictions; see Saxo’s China Consumer and Technology basket. What’s driving markets and shareholder returns right now? Fed hiking Vs China easing covid restrictions Firstly – what's pressuring stocks is the hotter than expected US service sector, showing the US economy is strong enough for the Fed to keep hiking interest rates to slow inflation. While major investment banks are saying 2023 will be a downbeat year. Goldman’s David Solomon says a US recession is possible, with smaller bonuses and job cuts expected. Morgan Stanley says it will reduce its global workforce by about 2,000, (2% of the total), while BofA’s chief Brian Moynihan says his bank slowed hiring and JPMorgan’s Jamie Dimon warned of a "mild to hard recession" in 2023, saying the economic clouds "could be a hurricane." So damp sentiment is causing bond yields to move higher again, the US 10-year yield hit 3.53%, while the US dollar is rising again - on track to make its biggest weekly gain in almost 12 weeks. Secondly, what’s driving upside in markets is the easing of restrictions in China, with the country preparing to ease further. This is benefiting forward looking Chinese consumption and commodities, as there is expectations demand will pick up. Refer to Saxo’s China Consumer and Technology basket and Saxo’s Australian Resource basket for stock inspiration. In commodities, iron ore heads back to its highest level since August as China prepares to ease Oil pulled fell 3.5% to $74.25 with hedge funds continuing to sell oil amid nervousness about the Fed’s interest rate decision next week, and its path ahead. Recessionary fears and a higher US dollar are also causing selling in oil. The next level of support is perhaps around $71.74. There is talk in Europe the market has shifted toward supply not being as tight. Engie said Europe may pull through this winter and next as it replaces dwindling Russian natural gas flows, with European refiners making more gasoline than the continent needs. Read our head of commodity strategy’s latest update. The precious metal, gold, rose 0.3% to $1769. While the big news of the day, is that Iron Ore (SCOA) price advanced as China is preparing to ease restrictions further, moving iron ore’s price up 0.7% to $108.95 (its highest level since August). Australia’s iron ore kings roar back to six-month highs; Australia’s economy grows, but less than expected The Australian benchmark index, the ASX200 (ASXSP200.1) lost 0.6% on Wednesday, taking its week to date loss to 1%. However, after the iron ore price advanced, iron ore players tested six-month highs; Fortescue Metals, Champion Iron, BHP and RIO shares are all higher. In other parts of the market, insurance companies continued to shine, as they traditionally do when interest rates are rising. QBE and IAG rose almost 2% today taking their YTD gains to over 14% each. In terms of economic news out today; Australian economic growth showed an improvement in in the third quarter of 2022, but the growth was weaker than expected. GDP grew from 3.6% YoY in the 2nd quarter to 5.9% YoY. But more growth was expected (6.3% YoY). The Aussie dollar rose slightly, gaining 0.2% to 67.02 US cents. Also remember services are the biggest drivers of GDP in Australia; and as GDP is expected to slowly grind higher over current quarter, watch travel stocks, such a Flight Centre, Corporate Travel Management, Webjet, Auckland International Airport and Qantas. Also keep an eye on stocks affiliated with dining out such as Endeavour Group, Treasury Wine, and Metcash which owns Celebrations, IGA Liquor and Bottle-O.       For a weekly look at what to watch in markets - tune into our Spotlight.For a global look at markets – tune into our Podcast.

Iron ore has rallied above $120/t at the start of 2023, rising by almost 50% from the lows of just under $80/t in early November 2022, with China driving prices higher. We have increased our price forecast for 2023 reflecting continued China reopening optimism and likely further stimulus measures China remains key for iron ore direction Iron ore was one of the worst-performing commodities in 2022. Concerns over Chinese macroeconomic performance and Covid-19-related disruptions were key to driving prices lower. China alone accounts for about two-thirds of seaborne iron ore demand. The Chinese economy has slowed since the second quarter of 2022, mainly due to strict Covid measures that disrupted port and land logistics, retail sales and catering, and caused temporary shutdowns of factories in some key manufacturing locations. Even when restrictions were eased, a mixture of a weak domestic economy and high external inflation hit manufacturing in the fourth quarter of 2022. In addition, real estate developers have struggled to get enough cash to complete residential projects. The Chinese economy expanded by 3% last year, the second slowest pace since the 1970s, according to the latest official figures. This followed zero growth in the fourth quarter. With a stronger end to 2022 than expected, our China economist has revised its GDP growth outlook upward to 5% in 2023. That is not to ignore the fact that China still faces considerable headwinds, including external demand, with recessions likely in the US and Europe this year. In our November Commodities outlook, we said the direction for iron ore is going to largely depend on how China approached any further Covid outbreaks as well as the scale of stimulus the Chinese government unveils. Since the release of this report, most Covid measures have been removed and the virus was officially downgraded on 8 January, when international arrivals were no longer required to quarantine. China’s abrupt exit from its zero-Covid policy and improving reopening sentiment have supported iron ore prices so far in 2023. In recent weeks, Beijing has also stepped up policy support for its ailing property sector. In its most recent move, China is planning to allow some property firms to add leverage by easing borrowing caps and pushing back the grace period for meeting debt targets. The move would relax the strict “three red lines” policy that had contributed to a historic property downturn, hitting demand for industrial metals. China’s property sector accounts for almost 40% of its steel consumption. That sector has been in a steep decline for more than a year amid continued tightening of housing measures across China since March when cities began to introduce a sales ban. And although the government has stepped up its support for the property market, the effects have been slow to kick in. China’s home sales continued to slump in December. The 100 biggest real estate developers saw new home sales drop 30.8% from a year earlier to 677.5 billion yuan ($98.2bn) in December, according to preliminary data from China Real Estate Information Corp. That compared with a 25.5% decline in November. We believe more stimulus and infrastructure spending could be unveiled at the National People’s Congress in March, which is likely to boost demand for commodities further. Iron ore rallies above $120/t at the start of 2023 Source: SGX, ING Research China demand likely to recover in 2023 Qu Xiuli, vice chairwoman of the China Iron and Steel Association (CISA), said earlier this month that iron ore and steel demand in China is expected to pick up this year. She told an industry summit in Beijing that demand is expected to rise in 2023 thanks to the continuous optimisation of Covid-19 prevention and control measures and the effect of policies to steady the economy. China likely produced one billion tonnes of crude steel last year, down 2.3% from 2021, according to CISA. Meanwhile, inventories at major Chinese steel mills slumped to their lowest levels since January last year, CISA data showed. Stockpiles tumbled to 13.1 million tonnes in the final 10 days of December, about 18% down from the second 10 days of the month, according to a survey by CISA. Crude steel production at major mills fell by 2.4% to 1.92 million tonnes a day in the last 10 days of December from the previous period. 10-day inventory of key steel mills Source: CISA, ING Research Government scrutiny could cap further gains Sharp price movements in iron ore have drawn scrutiny and warnings from regulators. The National Development and Reform Commission said this month that it was highly concerned about recent price changes and would closely monitor the situation. The government body also warned against publishing false market information and pledged to maintain tight supervision of pricing. Previously, government interventions to calm the markets have included subduing trading and ordering steel capacity cuts. If we see similar measures used again, this could add some downside pressure to our view. Beijing pro-growth policy to support iron ore prices Looking forward, we expect iron ore prices to remain supported by Beijing’s pro-growth policy stance. We have increased our 2023 iron ore forecast on China’s reopening optimism. We are still cautious for the first quarter and we now expect prices to hover around $115/t in 1Q with a seasonal lull expected during the Chinese New Year holidays later this month, when steel production usually slows down. In the second quarter, we expect prices to rise to $120 and to $135/t throughout the third quarter, which is typically construction season in China, before edging down to $120/t in the fourth quarter. ING forecasts Source: ING Research Read this article on THINK TagsSteel Iron ore Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more  

Summary:  The commodity-heavy Australian market may have a good start to 2023, as the Chinese focus on growth signals demand for Aussie resources. With China striving for a growth renewal and aiming for 5 percent GDP growth as it reopens after three years, Chinese infrastructure spending will likely get a boost in 2023, as well as the coal-hungry power sector to drive it. Investors have begun increasing exposure to the coal and metal sectors, as they will likely benefit from China, the world’s biggest consumer of commodities, ramping up buying in the first half of 2023. Metal prices have already rallied 20-50 percent and the supply outlook remains constrained. Here we explore what to watch among Australian metal and coal companies. To avoid a power crunch, China has cranked up thermal coal production, aiming to produce a record (4.6 billion tons) this year, while it also started buying Australian coal for the first time in two years, a sign that domestic supplies are tight. Reopening the safety valve of imported coal supplies could cool what has been a hot market in late 2022, with a coal company like Whitehaven Coal seeing the most earnings growth and share price that rose over 300 percent in 2022. This also could mean investors may potentially be taking out excess capital and profits from energy markets, and moving them into metals markets, given the ingredients are there for a strong surge in metals as discussed in Ole’s commodity outlook. Metal prices mount; moving into bull markets, taking mining giants shares to record highs Iron ore, the major ingredient in steel-making, has seen its price gain over 50 percent in China from its October low. Copper, a critical industrial metal and essential in the green transformation and housing, has gained 28 percent in price from its July 2022 low, while aluminium, important for construction, automotive and electronics, has gained 23 percent from its September 2022 low. Many affiliated mining companies are rallying. With strong demand and under-investment in supply fundamentally supporting prices over the medium to longer term, stocks for key producers have already started to rally and boost the return for respective equity markets (like Australia’s ASX). These trends will likely continue in 1H2023. In the first weeks of 2023, shares in commodity juggernaut companies who produce such metals, including BHP, Rio Tinto and Fortescue Metals, hit record high neighbourhoods, in anticipation of higher earnings and cash flow growth on China’s reopening. Another ingredient supporting higher prices in 2023 is the weaker US dollar, which has broadly lost about 10 percent already, as the market expects the Fed to slow its pace of rate hikes and even begin reversing course by later this year. A weaker US dollar supports buying in commodities, as they’re traded in US dollar terms.  Australia’s share market, home to the largest mining companies; could see greater earnings growth than the US in 2023 Just weeks into 2023, the Australian share market (ASXSP200.I) trades a whisper away (~2 percent) from its highest level in history, supported by the strength of the mining sector, which makes up 25 percent of its market cap. Noting Steen and Peter’s focus in this outlook on contrasting tangible assets (Australian mining companies very much dealing in tangible goods) versus intangible ones (the US S&P 500 market cap largely comprised of intangible/tech companies), consensus estimates suggest aggregate ASX200 earnings will grow 32 percent this year, where consensus expects the S&P 500 to produce earnings growth of 21 percent, with 13 percent earnings growth for the tech-heavy Nasdaq 100.  Zeroing in on Australia’s mining sector: earnings growth anticipated over 70 percent. What sub-sectors and companies could benefit? The Australian mining sector’s earnings are expected to rise over 70 percent according to Bloomberg consensus. Although metal prices are volatile, also driving share price volatility, consensus sees the most upside earnings growth potential in lithium producers, followed by gold companies, copper companies, and then iron ore and other metals companies to follow. If you are seeking inspiration or a list of Australia’s largest resources companies, refer to Saxo’s Australian Resources theme basket. However, if you want to keep your focus on copper, iron ore and aluminium, below are Australia’s largest for your reference:  BHP – BHP is the biggest diversified mining company in the world by market size, with an AUD 249 billion valuation. It is future proofing its business, aiming to take over another copper giant, Oz Minerals, and also moving into potash (fertilisers), with plans to be the biggest fertiliser company in the world. BHP has historically generated some of strongest cashflows across the globe. Consensus expects a full-year dividend yield of 9.6 percent. For the last reporting period BHP made about 48.7 percent of its revenue from iron ore, 26.7 percent from copper and 24.6 percent from coal. Rio Tinto – Rio is the second biggest diversified miner in the world, with an AUD 178 billion valuation. Last reporting year, Rio made 58.1 percent of its revenue from iron ore, 21.5 percent from aluminium and 10.9 percent from copper, and the remainder from other metals. Rio is expected to pay a yield of about 7.9 percent for its next full-year dividend (consensus).  Fortescue Metals – Fortescue is the biggest pure-play iron ore company in Australia, with an AUD 68 billion valuation. Fortescue earns about 89 percent of its revenue from iron ore and the remainder from shipping. However, it wants to eventually become a major producer of hydrogen. It also has a $6.2 billion decarbonisation strategy to eliminate fossil fuels from its iron ore business, which includes replacing its diesel fleet with battery electric and green-hydrogen powered long-haul trucks. Fortescue is expected to pay out one of the highest dividend yields in Australia, with a 9.3 percent dividend yield (consensus).       Source: China reopening a boon to Australian assets? | Saxo Group (home.saxo)

Iron ore’s drop to a five-month low adds to concerns over the strength of China’s economic recovery. We believe iron ore price risks are skewed to the downside A remote-controlled shovel loader works underground at an iron mine in northeast China's Liaoning Province China's economic recovery falters Iron ore has been on a downtrend for almost two months. Its price on the Singapore Exchange fell to a year-to-date low of $94.20/t last week, down more than 20% from its year-to-date highs and is now hovering below the key $100/t level. Prices climbed above $130/t in February amid bets of a revival in steel demand in leading consumer China following the end of the strict Covid-19 lockdowns. Although China last month reported annual quarterly GDP growth of 4.5%, ahead of expectations - and much faster than the 2.9% for Q422 - there are concerns about whether the pace of growth can be sustained. China’s manufacturing activity slowed in April, with the Purchasing Managers’ Index falling from 51.9 in March to 49.2 in April, a warning signal to the Chinese economy. This followed three straight months of growth since the start of 2023. The growth in the construction sector, which accounts for about half of Chinese steel demand, has also been slower than anticipated. New property starts in March were down 29.1% compared with the same period the previous year. Meanwhile, consumer inflation in China dropped close to zero in April, and its weakest pace in two years, while producer prices fell further into deflation, adding to concerns over a weak demand recovery in the country.  Iron ore slides below $100/t Source: SGX, ING Research China steel consumption disappoints Steel consumption in China has disappointed during what is normally a peak construction season in the country. March and April are usually peak production months for the Chinese steel market. Recent data from the China Iron and Steel Association (CISA) show that steel inventories at major Chinese steel mills fell to 18.1mt in late April, down 2.3% compared to mid-April. Similarly, crude steel production at major mills decreased by 3.6% in the period to 2.21mt/d in late April. Amid disappointing demand, steel mills have been forced to reduce prices to offload volumes. China Baowu Steel, China’s top steel producer, lowered its factory-gate prices, along with at least two other mills, according to Mysteel. Meanwhile, steel mills in the Fengnan district of Tangshan City have been officially asked by the local authorities to curb crude steel output. This would be the first batch of steel mills in China to observe another administrative year-on-year reduction in crude steel output after repeated cuts in 2021 and 2022. Chinese authorities are reportedly considering an official target of lowering steel output by 2.5% in 2023. China’s steel production dropped 2% last year to 1.0bn tonnes, according to data from the World Steel Association, mainly due to government-mandated production cuts. It appears that China will continue to cap crude steel output whilst also looking to replace older steel capacity with electric arc furnace capacity in order to help the country meet its decarbonisation goals. Growth in electric arc furnace (EAF) capacity at the expense of basic oxygen furnace (BOF) capacity will be a concern for the medium to long-term outlook for Chinese iron ore demand. It also suggests that we have already seen China’s iron ore imports peak in 2020. China monthly crude steel output (million tonnes) Source: WSA, ING Research China iron ore imports slow down Amid lower steel consumption from China, iron ore imports have also been under pressure this year. Chinese purchases of iron ore slumped to a 10-month low in April, in a sign of waning demand. China imported 90.44 million tonnes of iron ore in April, down more than 100 million tonnes in March and the least since June 2022, customs data show. Iron ore inventories have also been falling. Total iron ore stockpiles across ports in China are down 11% year-on-year at 129.2m tonnes. China’s iron ore port inventory is a key indicator that reflects the supply and demand balance, as well as the safety net and imbalance between the iron ore supply and the steel mill demand. With the peak construction season coming to an end and with the expected demand recovery not meeting expectations, there is little upside for steel output and iron ore demand recovery in the short to medium term. China monthly iron ore imports (million tonnes) Source: NBS, ING Research China iron ore total ports inventory (10000 metric tonnes) Source: Steelhome, ING Research Supply from majors ramps up The supply side has been firm so far this year. Rio Tinto, the world’s biggest iron ore producer, reported a better-than-expected 15.4% jump in Q1 iron ore shipments from Western Australia, a record for the quarter, as production at its Gudai-Darri mine ramped up. Its Pilbara operations produced 79.3 million tonnes of iron ore in Q1 of 2023, 11% higher than the Q1 of 2022. Also, Vale SA reported a 5.8% year-on-year increase in Q1 iron ore production due to stronger performance at S11D. The company produced 66.77 million tonnes of iron ore during the first three months of 2023. Read next: Czech Republic: CPI inflation edges below CNB estimate, challenging possible hike| FXMAG.COM Meanwhile, BHP has maintained its iron ore production guidance at between 249 million to 260 million tonnes in the full year after reaching a record 191.7 million tonnes iron ore production year-to-date, with the March quarter contributing 59.8 million tonnes. Government scrutiny could cap prices Sharp price movements in iron ore have drawn scrutiny and warnings from regulators. The National Development and Reform Commission (NDRC) said last month that it would closely monitor iron ore market dynamics and take steps to limit price hikes. Since the start of the year, the NDRC and other authorities have been enhancing the collaborative supervision and regulation of the iron ore market and have cracked down on price gouging, excessive speculation, and illegal activities. Previously, government interventions to calm the markets have included subduing trading and ordering steel capacity cuts. If we see similar measures used again, this could add further downside pressure to our view. We believe the short-term outlook remains bearish for iron ore, with sluggish demand from China suggesting that prices should trend lower. We expect prices to average $100/t in Q4 and $106/t in 2023, and prices will remain volatile as the market will continue to be responsive to any policy change from the Chinese government. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The Commodities Feed: Copper spread tightens on inventory withdrawals Oil prices are trading under pressure this morning on demand side uncertainties as Saudi Arabia increased the official selling price for July deliveries for all regions. LME copper continues to see inventory withdrawals as demand in Asia picks up.   Energy – Saudi increases the official selling price for oil Saudi Arabia increased its official selling price for all regions for July, a day after the nation pledged an additional oil supply cut for the same month. Saudi Aramco will sell the Arab Light crude for buyers in Asia at a US$3/bbl premium for July deliveries, an increase of US¢45/bbl compared to June 2023.The premium for the US and European deliveries has increased by US¢90/bbl, while buyers in the Mediterranean region will see an increase of US¢60/bbl. The hike in premium comes as a surprise considering ongoing demand concerns and that Saudi Arabia has been pushing for supply cuts to bring the oil market into balance.   Metals – Declining copper on-warrant stocks tighten LME spread Recent LME data shows that total on-warrant stocks for copper dropped by 17,750 tonnes – the biggest daily decline since October 2021 – for a second consecutive session to 71,575 tonnes (the lowest level in almost a month) as of yesterday. The majority of the outflows were reported from South Korea’s Busan warehouses. Meanwhile, cancelled warrants for copper rose by 18,025 tonnes after declining for three consecutive sessions to 27,375 tonnes yesterday, signalling potential further outflows. The cash/3m for copper stood at a contango of just US$4/t as of yesterday – compared to YTD highs of a contango of US$66.26/t from 23 May – indicating supply tightness in the physical market.   In mine supply, Peru’s latest official numbers show that copper output in the country rose 30.5% year-on-year (+1.2% month-on-month) to 222kt in April. The majority of the annual production gains came from the higher output levels from mines like Southern Peru Copper, the Las Bambas and Cerro. Cumulatively, copper production grew 15.7% YoY to 837.5kt in the first four months of the year. Among other metals, zinc production in the nation increased 31.4% YoY to 130.6kt in April.   In ferrous metals, the most active contract of iron ore trading at the Singapore Exchange extended its upward rally for a fifth consecutive session and traded above US$108/t this morning on speculations of more supportive steps from China to accelerate its economic growth. The recent market reports suggest that the People’s Bank of China is likely to cut the reserve-requirement ratio for banks and might also lower interest rates in the second half of the year. Meanwhile, BBG also reported that the Chinese government is preparing a new batch of measures to push growth in the property market.     Agriculture – US crop planting maintains the pace The USDA’s latest crop progress report shows that US corn plantings continue to rise with 96% of plantings completed as on 4 June, compared to 93% of planting done at this point in the season last year and the 5-year average of 91%. Similarly, soybean plantings are also growing, with 91% planted as of 4 June – well above the 76% seen at the same stage last year and the 5-year average of 76%. Meanwhile, spring wheat plantings are 93% complete. This is above the 81% planted at the same stage last season and in line with the 5-year average. Meanwhile, the agency rated around 36% of the winter wheat crop in good-to-excellent condition, up from 34% a week ago and 30% seen last year.   The USDA’s weekly export inspection data for the week ending 1 June indicated a drop in demand for US grains over last week. The agency stated that US corn export inspections stood at 1,181kt, lower from 1,346.4kt in the previous week and 1,458.5kt reported a year ago. For wheat, export inspections stood at 291.6kt, down from 391.3kt from the previous week and 355.3kt reported a year ago. Similarly, soybean export inspections fell to 214.2kt, compared to 243.1kt from a week ago and 370kt from a year ago.   The director general of the Ivory Coast's cocoa regulator, Conseil Café Cacao, stated that the domestic cocoa crop is expected to improve in 2022-23 (compared to the previous year) despite intensifying concerns about a potential outbreak of the swollen shoot virus. Ivory Coast cocoa production is stabilizing despite a slow start, taking the season's harvest projections between 2mt-2.2mt. Last week, the International Cocoa Organization (ICCO) projected an increase of 4% in Ivory Coast's cocoa output this season, reaching 2.20mt.

The Commodities Feed: China's imports recover China’s crude oil and natural gas imports recovered strongly in May, which could help improve market sentiment. For copper, China’s concentrate imports jumped to a fresh high, while unwrought copper imports remain soft.   Energy – China's crude oil imports recover China’s crude oil imports recovered to 51.44mt or around 12.16MMbbls/d (up 17% month-on-month and 12% year-on-year) in May 2023, as some of the refineries increased their utilisation rate after concluding maintenance. Demand slowdown from China has been a major concern for the crude oil market recently, and a recovery in oil imports is likely to provide some comfort to the oil market. Higher refinery utilisation has also increased refined product supplies in the Chinese market, with China reverting to being a net exporter of refined products last month. Among other energy products, natural gas imports into China increased 17.3% YoY to 10.6mt in May as lower gas prices in the Asian market supported demand for storage.   In its latest short-term energy outlook report, the Energy Information Administration (EIA) revised higher domestic oil production estimates, as the decision by OPEC+ to extend output cuts could push oil prices higher and bring more investments into exploration.   The administration revised higher the production estimates to 12.61MMbbls/d for 2023 compared to earlier estimates of 12.53MMbbls/d and output of 11.88MMbbls/d in 2022. For 2024, production estimates are revised higher to 12.77MMbbls/d compared to earlier estimates of 12.69MMbbls/d. On the other hand, US demand for crude oil is revised down from 20.47MMbbls/d to 20.42MMbbls/d on slow demand for distillates – although this is still higher than the 20.28MMbbls/d of consumption in 2022.   Meanwhile, the American Petroleum Institute (API) reported that the US crude oil inventories decreased by 1.71MMbbls over the last week, in contrast to market expectations for the addition of around 350Mbbls. Cushing crude oil stocks are reported to have increased by 1.53MMbbls. On the products side, API reported that gasoline and distillates inventories rose by 2.42MMbbls and 4.5MMbbls respectively over the week ending 2 June. The more widely followed EIA report will be released later today.     Metals – Chinese copper concentrate imports at record highs China released its preliminary trade data for metals this morning, which shows total monthly imports for unwrought copper fell 4.6% YoY to 444kt in May, largely on account of higher domestic production of the refined metal. Cumulatively, unwrought copper imports fell 11% YoY to 2.14mt in the first five months of the year.   Meanwhile, imports of copper concentrate rose 16.7% YoY to a fresh record of 2.56mt last month, with year-to-date imports up 8.8% YoY to 11.31mt from January to May this year. In ferrous metals, iron ore monthly imports rose 3.9% YoY (+6.3% MoM) to 96.17mt last month, while cumulative imports are up 7.7% YoY to 480.7mt from January to May.   On the exports side, China’s unwrought aluminium and aluminium products shipments fell 29.7% YoY to 475.4kt last month while year-to-date exports declined 20.2% YoY to 2.32mt in the first five months of the year. Exports of steel products jumped 41% YoY to 36.4mt from January to May this year.   Meanwhile, data from the Mines and Geosciences Bureau shows that nickel output in the Philippines rose 5.4% YoY to 3.9dmt in 1Q23 despite only a few mines being in production. The bureau reported that only 13 out of the nation’s 33 operating mines reported output for the above-mentioned period, as some were impacted by unfavourable weather conditions while few were undergoing scheduled maintenance.   However, the bureau remains optimistic about the outlook for the mining industry over the long term, following the expected recovery of the global economy and strong demand for nickel ore.     Agriculture – Chinese soybean imports surge The latest trade numbers from Chinese Customs show that soybean imports in China rose 24.3% YoY (+65.6% MoM) to a record high of 12.02mt in May. The imports surged sharply as the delayed cargoes (due to last month's strict inspections) were finally unloaded at ports. Cumulatively, soybean imports rose 11.2% YoY to 42.3mt over the first five months of the year.   Weekly data from the European Commission show that soft wheat shipments from the EU reached 28.9mt for the season as of 4 June, up 11.4% compared to 25.9mt from the same period last year. Morocco, Algeria, and Nigeria were the top destinations for these shipments. Meanwhile, the EU’s corn imports stood at 24.6mt, compared to 15.3mt reported a year ago.

Australia posts strong trade surplus US ADP employment surprises with massive gain US unemployment claims and ISM Services PMI will be released later on Thursday Thursday has been a busy day for AUD/USD. The Australian dollar rose after a strong Australian trade balance report but has reversed directions following a sparking US ADP employment release. In the North American session, AUD/USD is trading at 0.6639, down 0.20%.   Australia’s trade surplus widens Australia continues to post monthly trade surpluses, supported by exports of iron ore and natural gas to Asian Pacific countries. China’s recovery has been uneven but there has still been an increased demand for iron ore and coal from Australia. The June trade surplus was A$11.8 billion, above the consensus of A$10.9 billion. The Australian dollar gained ground on the strong trade surplus, only to give up all these gains after the US ADP employment report posted a massive gain of 497,000 in June, up from 267,000 in May and well above the consensus of 228,000. The ADP report is not considered a reliable indicator for Friday’s nonfarm payrolls release, but investors still keep an eye on it and the huge gain has boosted the US dollar against the major currencies. US nonfarm payrolls are expected to move in the opposite direction of the ADP report, with a consensus of 225,000 in June, down sharply from 339,000 in May. Later on Thursday, the US releases unemployment claims and the ISM Services PMI. Unemployment claims dropped sharply to 239,000 in the previous release and are expected to rise to 245,000. The ISM Services PMI has shown weak expansion in recent months, with readings slightly above the 50.0 level, which separates expansion from contraction. The June consensus stands at 51.0, slightly higher than the May reading of 50.3 points. . AUD/USD Technical AUD/USD continues to test resistance at 0.6659. This is followed by resistance at 0.6722 0.6597 and 0.6534 are providing support

Metals – Edging up on dollar weakness Spot gold rose to its highest level in almost four weeks, while industrial metals edged higher yesterday as easing inflation in the US pushed the dollar index to its lowest level since April 2022. Rising market speculation that the Federal Reserve's interest rate hikes may soon be nearing an end further lifted overall optimism across risk assets. China released its preliminary trade data for metals yesterday, which shows total monthly imports for unwrought copper falling 16.4% YoY to 449.6kt in June amid weak demand from the property market. Higher domestic production of the metal also impacted demand for imported copper. Cumulative unwrought copper imports fell 12% YoY to 2.6mt in the first half of the year. In contrast, imports of copper concentrate rose 3.2% YoY to 2.13mt last month, while year-to-date imports rose 7.9% YoY to 13.4mt. In ferrous metals, iron ore monthly imports rose 7.4% YoY to 95.5mt, while cumulative imports are also up 7.7% YoY to a total of 576mt in the first half of the year. On the exports side, China’s unwrought aluminium and aluminium products shipments fell 19% YoY to 492.6kt last month, while year-to-date exports declined 20% YoY to 2.81mt in the first half of 2023. Exports of steel products jumped 31% YoY to 43.6mt over the first half of the year. Recent data from China Iron and Steel Association (CISA) shows that steel inventories at major Chinese steel mills fell to 15.9mt in early July, down 7.6% compared to late June. Meanwhile, crude steel production at major mills fell marginally by 0.3% to 2.24mt/d in early July.

Green steel transition could trigger changes in the supply chain As companies begin to drive change, they are likely to change the business models in the steel industry too. Currently, most steel plants take care of the entire steelmaking process. Iron ore is turned into iron and steel at almost every production site. The first step of turning iron ore into iron is by far the most energy and carbon-intensive step, accounting for around 80% of emissions in coal-based steelmaking. In future, this process may be relocated from regions with high energy and hydrogen costs towards those with lower costs. Australia, the Middle East and the US, for example, are likely to have a competitive advantage in the production of hydrogen. Production of iron may be concentrated in these regions and then shipped to higher-cost regions such as Europe as Hot Briquetted Iron (HBI). Alternatively, it may be relocated within Europe to regions with low electricity prices from green sources such as the northern parts of Norway and Sweden, which have ample space available and a large supply of hydropower that can act as a baseload for green steel production. In that respect, it isn't surprising that the most advanced plans for a green steel mill are in the city of Boden in Sweden. HBI is a compact form of Direct Reduced Iron (directly turning iron ore into iron with hydrogen instead of coal). The briquettes are made to be shipped over long distances and in such a way that they can be melted and turned into steel easily. This second step can be done in electric arc furnaces, which electrifies and greens the process of steelmaking further – provided that the furnace is powered with low-carbon power sources such as solar panels, wind turbines, hydropower plants or nuclear power plants. While steelmaking is for the most part an integrated business, the supply chain might evolve towards more global production hubs of pure forms of iron and local sites that specialise in the last step of turning iron into different qualities of steel.   Slow progress but more opportunities ahead The steel sector is widely regarded as a conservative sector that is characterised by large incumbents that rely on coal-based technology. Entry barriers are high and hence change has been slow. Technology now provides important opportunities for greening the industry, either by applying CCS to the current coal-based technology or by redesigning the process of turning iron ore into iron with hydrogen instead of coal. That may sound radical, but is in fact a form of evolution rather than revolution. The technology of direct reduced iron is already applied in gas-based steelmaking. Green and blue hydrogen can take over once they are abundantly available. Electrification could further green both routes by replacing basic oxygen furnaces with electric ones.

Metals – Risk-off sentiment weighs on the complex The overall risk-off sentiment across the financial markets weighed on the industrial metals yesterday. Rising US treasury yields along with a stronger dollar further soured the sentiments in the complex. LME copper extended the declines for a third straight session yesterday, while nickel led the decline amongst the base metals. Recent data from the Chilean copper commission Cochilco show that Codelco’s total copper production stood at 120.3kt in June, the highest since the start of the year. However, cumulative output fell by 12.7% year-on-year to 642kt over the first half of the year, primarily due to delays in structural projects. Codelco also trimmed its annual production guidance to the lowest in 25 years. However, BHP’s Escondida copper mine reported gains of 8.7% YoY (32.8% month-on-month) to 111.4kt (the biggest monthly output in at least 3.5 years) last month, while year-to-date production rose by 5.5% YoY to 558.8kt in the first half of the year. Meanwhile, officials from the China Iron and Steel Association (CISA) are proposing the cancellation of night-time trading of futures for metals, which includes iron ore and steel futures. The recommendation came primarily to ease the volatility and to facilitate stable prices and trading for major metals.

The Commodities Feed: Disappointing China trade data weighs on sentiment Trade data from China was broadly on the soft side for July, reflecting a demandslowdown for commodities. China’s crude oil, copper and iron ore imports softened as economic and industrial activity slowed. Imports of soybeans remain firm on much higher 'crushing' demand.   Energy: China's crude oil imports slow ICE Brent slipped from highs yesterday and has been trading weak in the morning session today as the focus shifts back to demand-side scenarios. The latest trade data from China shows that crude oil imports in the country fell 19% MoM to 43.7mt (10.3MMbbls/d) in July on lower domestic demand amid higher inventories. That said, oil imports are still 17% higher compared to last year’s low base when the nation was struggling with the Covid outbreaks and extensive lockdowns. China’s crude imports have increased by 12.5% YoY to 326mt for the first seven months of the year. For refined products, fuel exports from the country increased 56% YoY to 5.3mt in July 2023, as China tries to compensate for weaker domestic consumption, particularly industrial demand for diesel. YTD exports of refined products have increased 46% YoY to 36.6mt over the first seven months of the year. Concerns over supply constraints on Russian refined products might continue to support demand for Chinese fuel products in the near term.

The Commodities Feed: Disappointing China trade data weighs on sentiment Trade data from China was broadly on the soft side for July, reflecting a demandslowdown for commodities. China’s crude oil, copper and iron ore imports softened as economic and industrial activity slowed. Imports of soybeans remain firm on much higher 'crushing' demand.   Energy: China's crude oil imports slow ICE Brent slipped from highs yesterday and has been trading weak in the morning session today as the focus shifts back to demand-side scenarios. The latest trade data from China shows that crude oil imports in the country fell 19% MoM to 43.7mt (10.3MMbbls/d) in July on lower domestic demand amid higher inventories. That said, oil imports are still 17% higher compared to last year’s low base when the nation was struggling with the Covid outbreaks and extensive lockdowns. China’s crude imports have increased by 12.5% YoY to 326mt for the first seven months of the year. For refined products, fuel exports from the country increased 56% YoY to 5.3mt in July 2023, as China tries to compensate for weaker domestic consumption, particularly industrial demand for diesel. YTD exports of refined products have increased 46% YoY to 36.6mt over the first seven months of the year. Concerns over supply constraints on Russian refined products might continue to support demand for Chinese fuel products in the near term.

Metals: China's gold reserves increase further China continued to increase its gold reserves for the ninth straight month in July, according to official data. The People’s Bank of China raised its gold reserves by about 23t to a total of 2,137t last month. China added around 188t of gold in its gold-buying spree that started in November. Given the uncertain geopolitical environment, it is likely that central banks will continue to add to their gold holdings in the coming months. China released its preliminary trade data for metals this morning, which shows total monthly imports for unwrought copper fell 2.7% YoY to 451kt in July, indicating persistent weak demand from the property and construction sector. Cumulatively, unwrought copper imports fell 10.7% YoY to 3mt over the first seven months of the year. In contrast, imports of copper concentrate rose 3.9% YoY to 1.98mt last month, while year-to-date imports rose 7.4% YoY to 15.4mt during Jan 23-Jul 23. In ferrous metals, iron ore monthly imports rose 2.4% YoY to 93.5mt. However, that's down from the 95.5mt (-2% MoM) imported in June. Cumulatively imports gained 6.8% YoY to 670mt over the first seven months of the year. On the exports side, China’s unwrought aluminium and aluminium products shipments fell 25% YoY to 490kt last month, while Year-to-Date exports declined 20.8% YoY to 3.3mt over the first seven months of the year. Exports of steel products jumped 27.9% YoY to 50.9mt during Jan 23- Jul 23.

Industrial Metals Monthly: Dim global economic growth clouds metals outlook Our new monthly report looks at the performance of iron ore, copper, aluminium and other industrial metals, and their outlook for the rest of the year.   Industrial metals struggle in the first half of the year as China demand disappoints   China's economic activity loses more steam in July Prices for industrial metals remained mostly volatile in the first half of the year amid an uneven economic recovery in China.  Beijing has set a cautious growth target of 5% this year, the lowest in decades. In the second quarter, the economy added 6.3% compared with the same period last year, when Shanghai and other big cities were in strict lockdown, but growth was just 0.8% in quarter-on-quarter terms. Last month’s data releases offered new evidence that China’s overall economic momentum was weak at the start of the second half of the year, but have also raised hopes of more government stimulus measures as the top metal-consuming country slides into deflation. China’s consumer and producer prices both declined in July from a year ago as demand has continued to weaken. The consumer price index dropped by 0.3% last month from a year earlier, while producer prices, which are heavily driven by the cost of commodities and raw materials, fell for a tenth consecutive month, contracting by 4.4% in July from a year earlier. This marks the first time since November 2020 that both consumer and producer prices registered contractions. Meanwhile, the manufacturing and property sectors, which are crucial for industrial metals demand, are struggling to turn around. Manufacturing activity in China contracted again in July, proving that the economy’s recovery remains under pressure. China’s official manufacturing PMI climbed to 49.3 in July, from 49.0 in June. The sector has been in contraction since April. The Caixin manufacturing PMI fell back into contraction, dropping to 49.2 in July, from 50.5 in June, reflecting flagging demand for Chinese exports. Similarly, China’s property sector continues to struggle. In June, home sales dropped by 18% from a year earlier, while residential construction fell by 10%. Overall, China’s post-reopening recovery has disappointed so far this year. Chinese government continues to promise more support, including for the beleaguered property sector, but measures have lacked detail so far. At last month's Political Bureau of the Communist Party of China's Central Committee meeting, the announcement of continued stimulus for China's economy lifted metals prices toward the end of July. However, the optimism quickly subsided as the scale of the stimulus promised was somewhat disappointing and details are yet to emerge of specific policy steps that would benefit industrial metals. We believe metals will stay under pressure in the second half of the year as the sluggish recovery in China will likely continue to weigh on demand, with most industrial metals remaining dependent on economic stimulus from the world’s biggest consumer of metals. However, if China introduces stimulus measures, in particular for the property sector, this will boost metals demand and support higher prices. We believe that any improvements in metals prices will depend on the eventual implementation of China’s stimulus measures and actual demand improvement.   China's recovery is showing fatigue   Weak trade data highlight struggling recovery Plunging trade in July fuelled more concerns about China's growth prospects. Exports fell by 14.5% in dollar terms last month from a year earlier, the worst decline since the start of the Covid-19 pandemic in February 2020. Imports contracted by 12.4%, reflecting weak domestic demand, leaving a trade surplus of $80.6bn for the month. Flagging industrial activity also capped China’s metals imports. Iron ore imports fell by 2.1% in July to 93.5 million tonnes, a three-month low, as steel output declined over the month.   Copper ore imports slide to nine-month low   Imports of unwrought copper and products fell by 3% on a daily basis in July to 451,000 tonnes. They are now down 11% year-to-date. Meanwhile, copper ore imports slid to a nine-month low. The premium paid for refined metal at the port of Yangshan, which acts as a measure of import demand, has been on a downtrend too. It recently stood at $31.50/t, down from its record highs of $152.50/t in October last year.   Weak external demand remains a challenge for China's recovery   Global economic outlook remains dim World manufacturing PMIs also continued to struggle in July, mostly staying below the expansion level. This ongoing weakness, especially in the US and Europe, continues to be a drag on demand for industrial metals. Although China dictates most of the industrial metals prices, weak external demand also caps gains. In the US, while economic data releases in July indicated that the consumer price index dipped to its lowest in June since March 2021, the US Federal Reserve proceeded with a 25 basis-point interest rate increase at its July meeting. And at the start of August, Fed policymaker Michelle Bowman said more rises may be needed in the inflation battle after a mixed jobs report, further dampening demand for industrial metals.   Manufacturing PMIs stagnate globally    

Metals: LME zinc on-warrant stocks rise The latest LME data shows that total on-warrant stocks for zinc continued to see large inflows, rising by 37,425 tonnes (biggest daily addition since January 2021) yesterday to 130,950 tonnes. The majority of these inflows occurred in Singapore warehouses. Total readily available stocks for zinc have witnessed net inflows of 54,550 tonnes in the last two days alone, whilst net inflows for the month total 66,425 tonnes. The stock build has seen the cash/3m spread coming under some pressure, falling from a backwardation of US$36.50/t last week to a contango of US$4.25/t yesterday. Iron ore remains under pressure in ferrous metals as steel mills in China extend production cuts, while the struggling Chinese property market has further dampened the raw material demand outlook. Mysteel reports that steel plants in Jiangsu province in China have started to reduce steel production by between 20%-30% for the latter half of the year. Steel mills in other provinces, including Shandong, have also started trimming their output levels as a result of production controls. Falling home prices in July further highlight the deepening property crisis in China.

Metals – Iron ore rallies ahead of China building season Iron ore witnessed a fifth straight session of gains yesterday with prices reaching intra-day highs of US$113.9/t (highest in almost a month) on better demand prospects from the Chinese steel industry. Rising speculation that steel mills in China will ramp up production ahead of the seasonal pick-up in construction activity (September-October) is supporting the market. Falling iron ore port inventories in China, which are currently hovering at their lowest levels since the end of August 2020, might also encourage domestic mills to start restocking. Recent data from the China Iron and Steel Association (CISA) shows that steel inventories at major Chinese steel mills rose to 16.6mt in mid-August, up 3.6% compared to early August. Crude steel production at major mills rose 2.9% from early August to 2.22mt/d in mid-August.

Metals – China's gold reserve increase further China increased its gold reserves for a tenth straight month in August. The latest official data shows that the People’s Bank of China raised its gold reserves by about 29t to a total of 2,165t last month. China has bought around 217t of gold since last November. Preliminary trade data from China yesterday shows that total monthly imports for unwrought copper fell 5% YoY to 473.3kt in August, as demand remains weak while domestic production ramps up. This leaves unwrought copper imports at 3.51mt over the first eight months of the year, down 10% YoY. In contrast, imports of copper concentrate rose 18.8% YoY to a record 2.7mt last month as strong domestic output lifted raw material demand. This leaves year-to-date imports at 18.1mt, up 9% YoY. In ferrous metals, iron ore imports rose 10.6% YoY to 106.4mt in August - the highest level this year. Cumulative imports grew 7.4% YoY to 775.6mt over the first eight months of the year. On the export side, China’s unwrought aluminium and aluminium product shipments fell 9.3% YoY to 490kt last month, whilst year-to-date exports declined 19.4% YoY to 3.8mt. Steel product exports remain strong, reflecting weaker domestic demand. Cumulative steel product exports are up 28.4% YoY to total 58.8mt so far this year.

  Industrial Metals Monthly: China's stimulus in focus Our monthly report looks at the performance of iron ore, copper, aluminium and other industrial metals, as well as their outlook for the rest of the year. In this month's edition, we take a closer look at the recent impact of new stimulus measures introduced in China.   Metals markets assess China policy   China ramping up economic support A mixed picture of China's economy has been painted by the latest releases of official PMI data. While the manufacturing index increased slightly to 49.7 – its third consecutive rise since the lows of 48.8 seen in May – it's still falling short of the 50-level mark associated with expansion.  The non-manufacturing series, which had reflected the bulk of the post-reopening recovery, fell further in August. At 51.0, the index was a little lower than the forecast figures of 51.2 but at least remains slightly above contraction territory.   Meanwhile, the Chinese government has moved forward with a series of stimulus measures designed to turn around the flagging economy and its ailing property sector, which accounts for more than a quarter of China’s economic activity. Included in these measures was the decision to cut down payments and lower rates on existing mortgages. The nationwide minimum down payment will be set at 20% for first-time buyers and 30% for second home buyers. Mortgage rate cuts will be negotiated between banks and customers, and both policies will go into effect on 25 September. The introduction of these measures came after China’s home sales slumped in August. Sales by the country’s largest developers fell 34% from the previous year, according to China Real Estate Information Corp. It was the deepest drop seen in over a year. Further stimulus packages could also be introduced, which could boost the need for industrial metals. So far, Beijing has remained reluctant to back major stimulus that might be necessary to put a floor under falling home sales. News of a surge in home sales in two of China’s biggest cities has offered an early sign that government efforts to cushion a record housing slowdown are helping. Existing home sales for Beijing and Shanghai doubled over the last weekend (2-4 September) from the previous one. Reports of property developer Country Garden avoiding default with last-minute interest payments also restored some additional confidence in China’s property sector.   The metals markets will now be watching how sustainable this pickup in interest is and how long it will last. China’s recovery is still uncertain, and metals are likely to see some continued volatility for a while – at least in the near term. For the remainder of this year, the key factor for the direction of metals prices will be whether China will be able to stabilise its property market. Until the market sees signs of a sustainable recovery and economic growth in China, we will struggle to see a long-term move higher for industrial metals.   Fed pause bets bolster sentiment Sentiment in metals markets also received a boost after last week’s US jobs report that showed a steadily cooling labour market, offering the Federal Reserve room to pause rate hikes this month. Nonfarm payrolls increased 187,000 in August, while hourly earnings rose slightly less than the median economist forecast. The central bank hiked rates by 25 basis points at its July meeting following the recent strength seen in economic data. At the Jackson Hole conference last month, Fed Chair Jerome Powell announced plans to keep policy restrictive until confidence that inflation is steadily moving down toward its target has been fully restored. Over the next few weeks, we'll be keeping a close eye on US data releases which could shed more light on what the Fed may do next.   Higher-for-longer interest rates will ultimately lead to a drop in metals prices September appears set for a pause given recent encouraging signals on inflation and labour costs, but robust activity data means the door remains open for a further potential increase. Markets see a 50% chance of a final hike, while our US economist believes that rates have most likely peaked. US interest rates remaining higher for longer would lead to a stronger US dollar and weakening investor confidence, which in turn would translate to lower metals prices.     US rate cuts to start by the spring   Iron ore rises on China property aid Iron ore prices held above the $100/t mark in August despite China’s worsening property crisis, which in typical years makes up about 40% of demand.   Iron ore has managed to stay above $100/t for most of 2023    

Iron ore prices surged more than 15% over the past three weeks as China has continued its efforts to boost the steel-intensive property sector. Steel mills are also expected to ramp up as the building season begins again this month. However, the uncertainty around mandatory curbs will weigh on the outlook. After China’s steel output climbed to a record of more than one billion tonnes in 2020, the government responded by ordering production cuts in each of the next two years to cut back on emissions and match supply with demand. The intensity and the timeline of production cuts this year are still unknown, but any steel output cut would add to bearish risks for the iron ore market.   CISA daily average crude steel output at member companies   Meanwhile, China’s iron ore stockpiles are hovering around the lowest level since August 2020 as mills have been cautious about restocking amid property woes. From July to August, total iron ore inventories in China across major ports fell 16% to less than 120 million metric tonnes. However, the arrival of the construction season might encourage domestic mills to start restocking. China's iron ore imports in August were at their strongest in almost three years at 106.415 metric tonnes. Low inventories should also support iron ore’s price at elevated levels.   China iron ore total ports inventory   The supply side has been largely stable, with total iron ore production from the top four miners (Vale, Rio Tinto, BHP and Fortescue) ticking up to 539 million metric tonnes in the first half of the year – 4% higher than a year earlier. We believe that with the supply side largely stable, it will be demand in China that will continue to be the main driver for iron prices moving forward. We believe prices will remain volatile as the market continues to respond to any policy change from Beijing. We expect prices to average $105/t in the third quarter, with seasonal demand supporting. We're expecting $100/t in the fourth quarter and we see the 2023 average at $108/t. Risks will remain to the downside heading into year-end amid China steel output cuts, an uncertain outlook for the property sector and healthy supply.   Copper struggles for direction Against the backdrop of an uncertain path of US rate hikes and China’s lacklustre economic recovery, copper has been struggling for direction lately. Beijing’s latest measures to support the housing market helped copper make a recovery from a low in mid-August, but it has failed to hold above the $8,500/t mark.   After two weeks of rising prices, copper is falling again as the market assesses the effects of China’s measures to support its property market and how they might translate into demand for industrial metals.   LME copper warehouse stocks have been rising   Copper’s inventory levels in LME warehouses have been growing, up more than 40% in August after doubling in July. This shows clear signals of weakening demand. They do, however, remain at historical lows. We believe low inventories fuel the possibility for spot prices to rise rapidly if consumption picks up sooner than expected.   China's imported copper demand is showing signs of improvement   The Chinese market has just entered a peak demand season, which should be supportive for copper prices in the near term. China copper ore and concentrate imports are up 9% year-to-date to 18.104m tonnes, while imports in August climbed to all-time highs at 2.697m tonnes ahead of a seasonal pick-up in demand.  Signs of improvement are also emerging for China’s imported copper demand. The Yangshan copper cathode premium – which usually serves as an indicator of China’s import needs – has steadily been moving up over August to stand at $58/mt compared to a year-to-date low of $19.50/mt in March. Still, it remains even below the post-pandemic average of around $65/mt. A boost for China's property sector will be crucial in supporting demand going forward. We remain wary about the short-term outlook for copper, and China remains a key source of caution. We believe commodity-intensive stimulus is needed to support short to medium-term demand growth. In the longer term, we believe copper’s supportive decarbonisation trend should support prices. We maintain our price forecast at $8,400/t in the third quarter and $8,500/t in the fourth quarter, taking the 2023 average to $8,582/t.   Nickel underperforms Nickel has been the worst-performing metal on the LME so far this year, with year-to-date prices down more than 30%. One of the key drivers of the price decline has been the disappointing recovery in Chinese demand, with nickel prices dropping to a one-year low in August. We believe this underperformance is likely to continue amid a weak macro picture and sustained market surplus, with supply from Indonesia continuing to surge to meet the growing demand from the battery sector. In the past, market surpluses have been due to Class 1 nickel – but in 2023, the surplus will be on account of Class 2 nickel.   LME nickel stocks are critically low The LME’s Class 1 nickel stocks are critically low. However, we believe that LME’s new initiative – which has reduced waiting times for approving new brands that can be delivered against its contract – could potentially increase inventories.   China's refined Class 1 nickel output has been increasing in 2023       China’s refined Class 1 output has seen a solid increase in 2023 in response to historically elevated LME prices, and we believe Chinese producers will continue to submit fast-track LME nickel brand applications. This will allow them to deliver their Class 1 material to LME warehouses. The LME has already approved nickel produced by Quzhou Huayou Cobalt New Material Co, a subsidiary of China's Zhejiang Huayou Cobalt Co, as a listed brand in July. GEM Co. Ltd., a subsidiary of Jingmen Gem Co. Ltd. also applied last month to become an LME-deliverable brand. China’s refined Class 1 nickel output jumped 34.5% year-on-year to 129,400 metric tonnes in the first seven months of the year. This was faster than the 33.9% year-on-year increase in the country’s total output of battery-grade nickel sulphate over the same period, according to data from Shanghai Metals Market. Shanghai Metals Market estimates that 145,300 t/y of new refined class 1 nickel production capacity will be added in China this year. We forecast nickel prices to remain under pressure in the short term as a surplus in the global market builds and a slowing global economy mutes stainless steel demand. We see prices averaging $21,000/t in the third quarter and $20,000/t in the fourth quarter. However, the downside will be limited due to tightness in the LME deliverable market. Prices should, however, remain at elevated levels compared to average prices seen before the historic LME nickel short squeeze in March last year due to nickel’s role in the global energy transition. The metal’s appeal to investors as a key green metal will support higher prices in the longer term. We believe that demand for use in electric vehicle batteries remains a key factor for the longer-term narrative for nickel.    ING forecasts      

Tesla surged 10.2% post a major investment bank's upgrade, while Meta gained 3.3% on its powerful AI system news. Oracle, however, tumbled 9% in after-hours trading due to sluggish cloud sales growth. Strong loan and financing data spurred an intraday Hang Seng Index recovery after a morning dip, alongside gains in iron ore and copper. The weaker US dollar boosted G10 currencies, particularly AUD and JPY. The Yuan strengthened against the dollar, influenced by positive credit data and government support. Additionally, the EU Commission lowered the euro zone growth forecast.       US Equities: Tesla surged 10.2% after a major US investment bank upgrading the stock, assigning an additional USD500 billon to the valuation for a supercomputer that Tesla is developing. Meta gained 3.3% on news that the company is developing a powerful AI system (WSJ). The Nasdaq 100 added 1.2% to 15,461 while the S&P 500 climbed 0.7% to 4,487. Fixed income: The 3-year auction tailed by 1bp (i.e. awarded yield 1bp higher than the level at the auction deadline) and kept traders cautious ahead upcoming hefty supply in 10 and 30-year auctions and corporate issuance and CPI data on Wednesday. The 2-year ended unchanged while the 10-year closed at 4.29%, 2bps cheaper from Friday. China/HK Equities: The Hang Seng Index pared much of the sharp loss in the morning and recovered to end the day 0.6% lower at 18,096. The initial nearly 2% decline was driven by an earnings miss by Sun Hung Kai Properties and departure of the head of the cloud division and former CEO Daniel Zhang from Alibaba. The stronger-than-expected bounce in China’s loans and aggregate social financing data, released during the lunch break, triggered a sharp recovery. Southbound flows however registered a large net sale of HKD10.3 billion by mainland investors. In A-shares, the CSI300 added 0.7%. FX: The retreat of the US dollar brought strong gains across the G10 board, led by AUD and JPY. AUDUSD broke above 0.64 to highs of 0.6449 before settling around 0.6430, while Japanese yen saw strong gains on the back of weekend Ueda comments that brought forward expectations of policy normalization. USDJPY dropped to lows of 145.91, coinciding with fresh recent peaks in JGB yields, before a rebound back to 146.50+ levels as US CPI is awaited. Yuan also strengthened with USDCNH taking a look below 7.30 from highs of 7.36 amid verbal warnings from authorities, better-than-expected credit data as well as the continued appreciation bias in PBoC’s daily fixings.   Commodities: Crude oil held onto its gains near the recent highs with Brent still close to $90/barrel despite a small sell-off in Monday’s session. However, Monday’s price action came despite a weaker USD. With focus still on supply tightness concerns, today’s OPEC and EIA monthly reports will be on watch. Strong performance in metals led by iron ore up 3.5% and copper up close to 2.5% with China credit data boosting sentiment and a strong move in the yuan as well. Gold finding is hard to clear $1930 hurdle and the move in yields remains key with hefty corporate supply and US CPI ahead. Macro: China’s new Yuan loans in August surged more than expected to RMB 1,360 billion. This increase is attributed to greater regulatory encouragement for banks to lend and favorable seasonal factors. This, together with the front-loading of local government bond issuance, brought aggregate social financing to RMB 3,120 billion in August, up from July's RMB 528.5 billion. US NY Fed inflation expectations rose higher for one-year to 3.6% from 3.5%, while the long-term five-year also rose 0.1ppt to 3.0% from 2.9%. However, the three-year expectations dipped to 3.8% from 3.9%. Macro events: US NFIB small business survey (Aug), US 10-year T-note auction ($35 billion), UK payrolls (Aug), Germany ZEW survey (Sep) Company Events: Apple's iPhone 15 launch In the news: China’s PBoC asks banks to get approval for dollar purchases over USD50 million (Reuters) EU Commission cuts euro zone growth forecast as Germany in recession (Reuters) Representatives from eight core member institutions of the China National Forex Market Self-regulatory Mechanism met on Monday to discuss about maintaining the stability of the renminbi (Xinhua). Strong demand pushes Arm to close IPO order book early (FT) Qualcomm strikes new Apple deal on 5G chips (FT) US and Vietnam unveil billions in semiconductor and AI deals (FT)    

Metals – Iron ore supply risks Iron ore prices saw some further strength yesterday with the market rallying by a little more than 1.7%, taking it above $121/t. On the demand side, there appears to be a bit more optimism around China. But there are also growing supply risks, namely, potential strike action in Australia. Train drivers at BHP operations in Western Australia voted in favour of taking protected industrial action. The current agreement covers about 500 train drivers carrying iron ore from BHP’s Pilbara mines around Newman to Port Hedland. Hence, any strike action could lead to supply disruptions.

China’s trade surplus shrinks in October A continuation of weak exports could weigh on the contribution of trade to GDP growth in the fourth quarter, though there could be a more positive story emerging about domestic demand buried in the import data. At this stage, it is too difficult to draw firm conclusions and more data is needed.   Trade figures raise more questions than they answer China's October trade surplus shrank to CNY405.47bn from CNY558.74bn in September. The cause was a combination of weaker exports (-3.1% year-on-year in Chinese yuan terms, down from -6.2% in September) and stronger imports (+6.4%, swinging up from -0.8% in September).  Ordinarily, the weaker export figure would not bode too well for the contribution to GDP from net exports, and it certainly indicates that overseas demand for China's exports remains weak.  Conversely, the import figure suggests that domestic demand may not be as weak as indicated by, for example, the recent run of PMI numbers. Though this raises the question, which data do you put more weight on?    China commodity imports (YoY YTD %)   Data distortions make interpretation difficult It is tempting to try to dissect these trade figures to try to figure out what is actually going on. But even using year-on-year cumulative figures runs the risk of distortions caused by lockdowns at the end of last year in China, and our best advice at this stage is to reserve judgment on what is happening and wait to see what next month's data bring before conjuring up some fanciful explanation for what happened this month. Even looking at the figures in terms of volume levels runs risks as these numbers are also highly seasonal.  For those who are prepared to stomach these problems, the chart below of imports of crude materials suggests that in fact, this month, nothing particularly exciting took place.   In year-on-year year-to-date terms, the chart shows that imports of iron and copper ores and concentrates, together with crude oil and natural gas are all growing, though not trending particularly strongly.  Earlier inventory building for crude may account for some of the current strength in oil, and the same is also probably true for natural gas as we head into the colder winter months.   Imports of copper and iron ore and concentrates have held fairly steady in these terms at about 8.5% YoY YTD in recent months, which is probably a bit more than the state of manufacturing or construction would indicate, so there may be a more positive story brewing here. However, we think it is too soon to draw any firm conclusions in the face of such conflicting numbers, and this month's figures aren't really out of the ordinary compared to recent months either.  Not shown here are imports of refined petroleum, which are running at a 95% rate of growth, though mainly due to increases in export quotas for similar products, and coal imports are also running strongly, though the rate of increase looks to be slowing.    No change to our GDP forecasts for now Until we get a better idea of what is happening here, we are not going to be revising our GDP figures for the year, which we recently revised higher to 5.4% for full year 2023. Whether there are the beginnings of a trade-off building between a weaker external environment and a firming domestic economy is an appealing hypothesis, but one that does not have enough support for now to run as a central forecast. Further data is needed.