Commodity flows: FOMC day

Energy – macro influences
The oil market sold off yesterday, awaiting the outcome of the FOMC meeting later in the day. A rebound in the USD would have only added further pressure. ICE Brent was down 1.5% on the day and below US$91/bbl. A 75 basis point hike from the Fed is likely already priced into the markets. It would likely take a more aggressive bullish or hawkish outlook to see more weakness in oil prices.

Overnight, the API released its weekly inventory numbers, which were relatively bearish due to stock building across the board. U.S. crude oil inventories are reported to have increased by 1.04 million barrels, while Cushing’s crude oil inventories rose by 510 million barrels. Refined products saw stronger builds, with gasoline and distillate fuel inventories increasing by 3.23 million barrels and 1.54 million barrels, respectively. The most widely watched EIA report will be released later today, and the market expects US crude oil inventories to have risen by around 2.2 million barrels. Gasoline and distillate stocks should see small drawdowns. API-like numbers could put immediate downward pressure on refined product cracks.

Two U.S. senators are proposing legislation to the Biden administration that would impose secondary sanctions on those who facilitate Russian oil trade outside the G-7’s proposed price cap for Russian oil. The senators want to implement the G-7 price cap by March 2023, which would then be reduced by a third a year until the equilibrium price of Russian oil is reached. In addition, the two senators also propose that countries that increase their share of Russian purchases from pre-war levels be penalized. The Biden administration has been reluctant to go the secondary sanctions route because it is unlikely to help relations with major buyers China and India.

Metals – Chinese zinc production drops in August
Zinc prices climbed on the LME after data from China showed lower production numbers; latest data from the National Bureau of Statistics (NBS) showed Chinese zinc production fell 5.2% year-on-year to 528 kt in August. Zinc stocks held by the LME also fell the most since February 2019. Most outflows were reported from warehouses in Port Klang in Malaysia.

In other metals, refined copper production rose 3.9% year-on-year to 917kt, while lead production rose 6.2% year-on-year to 638kt last month, according to the latest. NBS data.

Latest figures from the International Aluminum Association showed global daily primary aluminum production of 189.9kt in August, up from 189.6kt a month earlier. Total monthly production of the metal rose 3.5% year-on-year to 5.9 million tonnes last month. Production was unchanged on a monthly basis due to largely flat output from major producers last month. Cumulatively, production increased slightly by 0.7% to a total of 45.4 million tonnes in the first eight months of the year. Similarly, Chinese production rose 6.4 percent year-on-year to 3.5 million tons, while it was flat on a monthly basis last month due to ongoing power problems. Since the start of the year, production has increased by a further 1.8% year-on-year to reach 26.7 million tonnes between January 22 and August 22. Chinese production could be even more constrained in September due to continued power rationing in Yunnan Province. Meanwhile, aluminum production in Western and Central Europe fell 10.4% year-on-year to 250kt in August. It was down 11.3% year-on-year in the first eight months of the year as domestic smelting activities continued to be affected by high power prices. Aluminum production in Asia (excluding China) rose 1.3% month-on-month last month, while year-to-date production also rose 2.2% year-on-year.

Bloomberg reports that Russian aluminum producer Rusal is looking to deliver some of its metal directly to LME warehouses in Asia as the producer finds it increasingly difficult to find buyers. In recent weeks we have seen signs of buyers excluding Russian aluminum from their 2023 tenders. It is suggested that Rusal may initially deliver a small amount of aluminum to LME warehouses. The increase in flows could cause some problems, firstly a large increase in LME stocks could put pressure on prices, while there could also be an increasing amount of aluminum in LME warehouses, which buyers do not are unwilling to touch. This could potentially lead to a price disconnect.

In precious metals, gold is trading near a two-year low as the dollar continues to strengthen ahead of the Fed’s decision to raise interest rates further. Physical purchases from China appear solid. Total non-monetary gold imports hit their highest level since June 2018 last month, according to data from China Customs.

Agriculture – Imports from China
Data from China Customs shows Brazil’s soybean imports fell 31% year-on-year in August, while US soybean shipments reached 287.9kt last month, from 17.6kt a year earlier. China’s maize imports from the United States amounted to 1.78 million tonnes in August, compared to 2.93 million tonnes for the same period last year. Maize arrivals from Ukraine amounted to only 209 t, against 301.4 kt last year.

Weekly data from the European Commission shows that soft wheat shipments from the EU reached 8.06 million tonnes as of September 18, broadly in line with the 8.07 million tonnes shipped at this point last season. Algeria, Morocco and Egypt were the main destinations for these shipments.
Source: ING