Commodity markets see China-induced positive trend last week

By Burhan Sansarlioglu

İSTANBUL (AA) – Commodity markets followed a positive trend thanks to the news that the Chinese government will announce new stimulus packages to revive the economy and the better-than-expected macroeconomic data released in the US.

Commodity markets soared last week after weeks of selling pressure, as the “soft landing” scenarios in the US strengthened and concerns over recession eased, impacting asset prices.

While the Purchasing Managers' Index (PMI) of the manufacturing industry in the US exceeded estimations by reaching a 15-month peak with 50.3 in January, the data pointed out that the manufacturing industry has re-entered the expansion zone.

This showed that economic activity in the country continues to remain strong, with gross domestic product (GDP) in the US increasing by an annualized 3.3% in the October-December 2023 period, above expectations.

- Commodity markets see positive trend, though price of gold faces downward trend

Concerns that dovish policies by central banks may be delayed continued to suppress the ounce price of gold, meanwhile silver prices went up as news that India raised tariffs on silver imports highlighted concerns over cost pressures.

In view of these changes, while the ounce of gold lost 0.5% last week, silver gained 1%, platinum 1.2%, and palladium 0.8%.

There is a copper deficit in the physical market, with China consuming a significant amount of copper in 2023, analysts say.

Despite China’s weakening construction market, the country demands copper for military and national security purposes.

Europe and India are also turning to copper to make an impact in areas such as the green economy, environmental, social, and corporate governance.

Aluminum prices went up on concerns that the European Union may impose new sanctions on aluminum from Russia.

Given these circumstances, copper rose 1.8%, lead 2.5%, aluminum 3%, nickel 1.6%, and zinc 2.3% last week.

- Energy group contributes to positive trend in commodity markets

Oil prices went up due to data showing rising oil demand in the US, the world's largest oil consumer, and signs of economic recovery in China.

Commercial crude oil stocks in the US decreased by about 9.2 million barrels in the previous week, according to the official stock data of the US Energy Information Administration (EIA).

The expectation was that stocks would decrease by 3 million barrels, therefore, the above-expected decline in stocks supported oil prices upwards, pointing to high demand in the US.

Analysts estimate that this circumstance may feed the risk appetite by reducing deflationary pressure in the US.

Concerns that the ongoing tension in the oil-rich Middle East will disrupt the global oil supply continue to increase, with Iran-backed Houthis saying that they hit a US warship in the Gulf of Aden and the Bab-el-Mandeb Strait, thereby causing two other commercial vessels to turn back.

The France-based government organization International Energy Agency (IEA) stated that global natural gas demand could see a strong increase of 2.5% in 2024, adding that geopolitical risks and concerns about the supply side could create volatility in prices again.

In light of these developments, Brent crude oil ended the week with a hike of 6.2%, and natural gas traded on the New York Mercantile Exchange with 7.9%.

- Agricultural group sees positive trend last week

Wheat gained value last week on geopolitical risks in the Middle East and the Red Sea and on expectations of higher demand in North America and Europe.

The news that soybean production in China reached 20.8 million tons in 2023 and the crop area expanded across 10.5 million hectares, along with the country’s plans to increase soybean cultivation, caused soybean to fall.

Coffee prices continue to be influenced by ongoing Houthi attacks in the Red Sea, which have slowed coffee shipments from Asia to Europe, and introduced supply constraints, especially in Vietnam.

Cocoa prices hit a new peak of $4,800 per ton last week as the supply outlook continued to deteriorate in the Ivory Coast and Ghana.

Considering this news, the price of wheat traded on the Chicago Mercantile Exchange soared 1.2%, corn 0.2%, rice 1.8%, whereas soybeans fell 0.3%.

As for the cotton traded on the Intercontinental Exchange, it increased by 2.2%, coffee 4.5%, sugar 2%, and cocoa 2.3%.

*Writing by Emir Yildirim