Commodities came back to earth last week with widespread selling and re-alignment of portfolios, even though the news from Ukraine hadn’t changed – despite fairy tales about a truce.
If anything, the fighting has intensified and Russian tactics have become more offensive. Yet those in the markets again preferred to ignore the realities of what is happening.
On top of this commodity markets are fretting with the inability of Xi Jinping’s Chinese government to control the latest Covid outbreak with its ‘zero’ elimination approach.
The continuing infections are starting to set off fears about the health of Chinese demand for a wide range of key commodities as we approach the end of the first quarter of 2022.
Mainland China reported its first COVID deaths in over a year on Saturday, said a post on the National Health Commission’s website.
Reuters reported that the two deaths happened in China’s northeastern region of Jilin (which is the main hotspot) bordering North Korea and Russia, where case numbers make up over two thirds of total domestic infections.
China reported two deaths for last year with the last one logged on January 25, 2021. It reported 2,228 new confirmed coronavirus cases on March 18, compared with 2,416 a day earlier. As of Sunday official media had yet to note the two deaths.
Russian didn’t default on those two interest payments totalling $US117 million and the payments were made and by today, will have been received by all bond holders, according to weekend media reports.
News of the payments helped gold, oil, coal and iron ore to ease. Grains were also weaker but a growing drought across much of the US Midwest and Southwest is starting to impact futures prices.
Commodity traders, though, were still gripped by the nickel debacle on the London Metal Exchange (LME) which continued to frustrate with no settlement of the situation or clear pricing leads for the key renewable metal from the 145-year-old London based exchange.
While the LME again widened its nickel trading band on Friday to 12%, for a third session in a row it hit limit down, sliding that full 12% as the Exchange faced more technical problems.
Nickel fell to $US36,915 a tonne when it opened and traded with low volumes, still above levels in Shanghai around $US34,500 a tonne where trading has been normal.
The LME trading band has been increased from 5% when dealing resumed on Wednesday to Friday’s 12% without any sign of market stabilisation.
For the third day running, the LME said there would be no official settlement price for nickel, which is usually set in open-outcry floor trading around midday. The exchange has said it will not publish settlement prices when nickel falls to its lower limit.
The frustration is worrying traders and nickel producers because the CME (operators of Comex in New York) are talking about introducing a nickel contract to go with the widely used copper, gold and silver contracts.
Oil was clearer – up on Friday but still down for the week.
US West Texas Intermediate crude rose 1.7% to settle at $US104.70 a barrel after an unexpected decline (just 3 rigs, mind you) in oil-services company Baker Hughes’s weekly tally of active oil rigs in the US. Oil dipped after settlement to end just over $US103 a barrel.
Brent crude futures settled up 1.2% at $US107.93 a barrel, a day after surging nearly 9% in the biggest daily percentage gain since mid-2020. Brent edged back over $US108 a barrel in late dealings.
Both were down around 3.5% for last week.
Comex gold futures fell 0.33% to $US1,928.20 an ounce to be down 3.5% for the week. Comex copper rose 2.6% over the week to end at $US4.7325 as some traders worried about dealings on the LME after the nickel debacle.
US Treasury bond yields long-term edged down early as lack of a resolution of the Russia-Ukraine conflict weighed, while short-term yields increased, further flattening the curve.
The 10-year yield was down to 2.1548% from 2.167% and the 30-year yield was at 2.4225% from 2.461% on Thursday.
The Fed’s rate rise and prospects of more to come took much of the urgency out of bond trading by worried investors.
And the Aussie dollar closed over 74 US cents and the highest it has been for 2022 so far.
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One interesting development was the silence of major commodity producer South Africa on sanctions and the Russian invasion at Putin’s instigation. Russian communist support for the South African liberation movement was notable in the long struggle and still retains deep roots.
For Australian companies in South Africa – most notably Rio Tinto and South32 and foreigners like Anglo American and Glencore, this lack of support for Ukraine from the South African government could become a sanctions-related headache in the next few weeks.
South Africa abstained on the big UN vote earlier this month and has refused to condemn Russia and Putin for the invasion and the deaths they have caused.
Much of the rest of Africa strongly and openly support Russia and Putin.
