Nickel Boner Update, page-27

Bank Commentary

The rally in industrial metals continued, as constraints on supply and better economic data continue to paint a positive outlook. Aluminium was stronger after China's Hongqiao suggested there was a shortage of aluminium supply in China. This was despite futures prices easing as the nearby tightness eased. Nearby spreads moved back into contango, after a surge in inventories. Aluminium inventories (on-warrant) have risen by 115,575 tons over the past 10 days to 30 August. LME data also show that at least half of this is owned by one party. Nickel surged 2% higher as supply side constraints continue to weigh on the market.

Gold prices gyrated all day as a mixed bag of data hit investors. The weaker jobs number raised question marks about the Fed next move on rates. This saw traders reduce the odds of another rate rise to only 35%. However rising gasoline prices on the back of refinery disruption due to flooding in Texas has raised the spectre of rising inflation. This was supported by better manufacturing and consumer sentiment. However palladium was the big mover in the precious sector, as anticipation of a surge in car sales in Texas following the extensive damage from flooding.

Iron ore prices ended the week strongly as steel futures in China surged higher. A fire at Benxi Steel forced the closure of its blast furnace and raised concerns that there would be another wave of safety inspection in the industry. Steel mill closures in China have seen the market tighten in recent months, pushing prices higher. A fall in iron ore stockpiles also helped support prices. According to SteelHome, inventories of iron ore held at Chinese ports fell 0.1% last week to 133.4mt.

Coking coal prices remained above USD200/t on the back of robust demand from China. Domestic coal prices in China have been on the rise amid sluggish growth in supply, as well as a continued hunger for higher quality coking coal. There was also news of a settlement in Q3 contract prices for semi-soft coking coal. The apparent price of USD120/t (FOB) between a Japanese steel mill and an Australian producer is up from USD107/t in Q2.

Crude oil markets remained on edge as traders continue to evaluate the impact of flooding in Texas after Hurricane Harvey. Approximately 22% of US refining capacity and 13% of Gulf of Mexico oil output remains offline because of the subsequent damage. On Friday, the EIA approved the release of 4.5 million barrels from the Strategic Petroleum Reserve in response to Harvey. This was more than triple the amount announced earlier in the week. However, this was negated by reports that OPEC output has fallen. Iraqi Oil Minister Jabbar Al-Luaibi announced on Friday that it was producing only 4.32mb/d, below the 4.35 mb/d target agreed to last year. Libyan output is also expected to fall, after an armed faction choked off flows from its biggest oil field, Sharara.