Oil, copper, coal, iron ore and other commodities took another pasting last week as the latest Chinese commodity import data failed to convince and left traders wondering about the real strength of demand in the world’s second biggest economy and globally.
Copper prices fell 4%, oil by more than 1%, iron ore by upwards of 7% and thermal and coking coal by 3% or more.
But US gas prices rose surprisingly and in China, previously weak lithium prices continued their recent turnaround.
But in a portent of what’s to come later this year and into 2024, America’s oil and natural gas rig count dipped to its lowest in nearly a year, as gas rig numbers slumped by the most in any week for the last seven years.
US oil services group, Baker Hughes Co said in its weekly report on Friday that the fall in gas rig numbers was the largest since February, 2016, news that saw US natural gas futures jump over 5% on hopes the slide would see the current surplus reduced later this year.
US gas prices ended up 4.5% on Friday and 6.5% for the week but are still down 39% year to date and the price rise only took them back to levels in late April.
US and Brent crude prices were weaker on Friday and for yet another week – Brent closed down 1.5% for the week at $US74.17 and US West Texas Intermediate style crude futures lost 1.8% to end at $US70.10.
That left WTI down more than 15% in the past month and Brent off more than 14%. That OPEC+ group cut in its production cap has not had a lasting impact on prices.
The number of US oil rigs fell by two to 586 by Friday, their lowest since June 2022, while gas rigs plunged by 16 to 141, their lowest April last year.
The oil and gas rig count fell by 17 to 731 last week, the lowest since June 2022 – the weekly drop was the biggest since June 2020.
Baker Hughes said that leaves the total rig count up by just 17, or 2%, over this time last year. At the end of 2022, the rig count was 193 rigs above the end of 2021.
The drop in gas prices has already seen a number of exploration and production companies, including Chesapeake Energy Corp, Southwestern Energy Co and Comstock Resources, announce plans to cut production by cutting gas rigs use – especially in the Haynesville shale fields in Arkansas, Louisiana and Texas.
But despite the slide in rig counts, US crude production is still on track to rise from 11.9 million barrels per day (bpd) in 2022 to a new record high of 12.5 million bpd in 2023 and 12.7 million bpd in 2024, according to projections from the U.S. Energy Information Administration (EIA).
The last record output was hit in 2019 at 12.3 million bpd.
US gas production, meanwhile, was on track to rise from a record 98.13 billion cubic feet per day (bcfd) in 2022 to 101.09 bcfd in 2023 and 101.24 bcfd in 2024, according to EIA’s forecasts.
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Led by iron ore, metal prices weakened noticeably after the Chinese trade – especially commodity imports – were surprisingly weak in Tuesday’s report.
SGX iron ore ended just under $US100 a tonne on Friday night – down from the week’s peak of just over $US105 a tonne on Tuesday, just before the trade data was released the same day.
Government data on Thursday showed new Chinese bank loans fell far more sharply than expected in April, adding to the downbeat indicators spurring concerns that the economy’s recovery is losing steam and putting pressure on policymakers to roll out additional supportive measures.
Reuters reported that many Chinese steel mills have reportedly lowered their prices amid disappointment over steel demand during the country’s peak spring construction season.
“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,” said ING commodities strategist Ewa Manthey.
London Metal Exchange (LME) copper fell to around $US8,260 a tonne on Friday, its lowest level of the year while in New York, Comex copper closed down 4% for the week at $US3.7255 a pound.
The trade data from Beijing is not very exciting, as it does not really highlight a jump in Chinese industrial production, which has dampened the spirits of traders, who are passing on the industrial metals segment.
Buying interest in gold and silver also faded, which is back near $US2,000 per ounce. Comex front month gold ended at $US2014.50 an ounce on Friday in New York. Front month Comex silver lost more than 6% over the week to end Friday at $US23.992 an ounce.
Chicago wheat traded around $US6.35.15 a bushel, up just over 1% for the day, down 3.5% for the week and over 46% for the past year. Wheat is now trading around levels last seen in mid-2020.
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The rebound in lithium prices in the Chinese market accelerated last week with another string of double-digit gains, even though sales data for new energy vehicles for April softened.
The price rebound has been slow to have an impact here, especially last week when the lithium sector was dominated by the $A15.7 billion proposed merger between Allkem and Livent of the US.
That deal saw the share prices of other lithium players enjoy a quick rise late in the week. Pilbara Minerals shares added more than 4% last week and shares in the small Core Lithium jumped more than 17% and Sayona Mining shares were up more than 7%.
Chinese industry websites reported that the average price of battery grade lithium carbonate in China was RMB 247,500 ($US35,680) a tonne late last week today, up RMB 17,500 a tonne, or 7.61% mid-week.
Lower grade industrial grade lithium carbonate averaged RMB 235,000 per tonne ($US33,880) today, up RMB 27,500 per tonne, or 13.25% from yesterday.
It was the 10th consecutive day of increase in battery grade lithium carbonate prices and the 13th consecutive day of increase in industrial grade lithium carbonate prices, and they are both the largest single-day gains of this year, data on the MySteel website showed.
Hydroxide prices topped at around RMB 230,000 late last week (US33,150 a tonne) for high quality battery grade material), up from 210,000 the previous week, according to the Fastmarkets website.
As of April 21, lithium carbonate prices have not seen a single day of gains in China this year, falling about 65% since the start of this year.
That means the price of battery grade lithium carbonate is up 37.5% from a low of RMB 180,000 (around $US26,000) a tonne, while industrial grade lithium carbonate has risen 75%.
Similar price rises have been reported for lithium hydroxide (the lithium type derived from spodumene. Carbonate comes from brine processed in countries like Chile and Argentina.
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And it is finally put up or shut up this Thursday night at 11.59pm for Newmont and its massive all-paper $32 billion offer for Newcrest.
That’s when the new and final deadline for the US giant to finalise an offer after the original deadline last Thursday night was extended by a week.
That news saw Newcrest shares fall 2.22% on Friday to end at $28.25 in the wake of the announcement to take the loss for the week to 5.2% as global gold prices were easier as well.
Newmont will now have until 18 May to finalise a binding offer or lose its exclusivity. That is unless the period is extended further which looked unlikely on Friday after Newcrest told the market that Newmont had substantially completed its due diligence.
Newcrest investors have been offered 0.4 Newmont shares for each stock held. That offer was declared best and final by the Newmont.
That represents an implied value of $32.87 per Newcrest share and an enterprise value of $32 billion for the mining giant. Newcrest had a $25.26 billion market value
at Friday’s close.
Newmont shares fell 5.5% last week to close at $US45.94 on Friday. That gave Newcrest shares a value of $A27.67, well under Friday’s close of $A28.25.
Newcrest is also allowed to pay shareholders a special dividend of up to $US1.10 a share, fully franked (to use its surplus franking credits which will useless to Newmont if it succeeds with its offer).
If the acquisition goes ahead at the 0.4% ratio, Newcrest shareholders will walk own 31.1% of the enlarged Newmont.
