Commodities Roundup: Oil struggles; steel stocks surge; gold shines amid market falls and coronavirus fears

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For the buyers and category managers out there, especially those of you deep in the weeds of buying and managing commodities, here’s a quick rundown of news and thoughts from particular commodity markets.

MetalMiner, a sister site of ours, scours the landscape for what matters. This week:

Oil price weakens

The oil price has come down amid depressed demand, MetalMiner’s Stuart Burns noted this week.

“Oil producers and the OPEC+ group, in particular, are feeling the impact of the coronavirus (COVID-19), much like the metals sector,” Burns wrote.

“OPEC has been struggling to keep the market in balance for the last few years. Back in December, its meeting in Vienna led to an agreement to cut production by an additional 500,000 barrels per day, bringing the total production cut to 1.7 million barrels per day in an effort to support prices.

“Initially, the move worked, as prices rose through December.”

Despite OPEC discussions of further output cuts, they might not end up supporting prices at all.

“With some producers, like Nigeria, dropping prices to shift cargoes previously intended for China to alternative, typically European, markets, Brent crude prices have little to support them, and the consensus is for further weakness,” Burns continued.

“The oil market is expecting Russia and Saudi Arabia will announce an additional 600,000 b/d reduction in output next week when they meet. But with actual production undershooting previous limits, it is widely expected any announced reductions will have little actual impact on oversupply.”

Global steel production rises in January

According to the World Steel Association, global steel production in January jumped 2.1% year over year.

Global steel production reached 154.4 million tons, with U.S. production jumping 2.5% to 7.7 million tons in January.

China, meanwhile, saw January output jump 7.2% to 84.3 million tons.

Chinese steel stocks remain elevated

Sticking with steel, Burns also surveyed the Chinese steel sector amid depressed demand following from the coronavirus outbreak.

“As if the social cost of the coronavirus COVID-19 were not bad enough, some sectors of China’s industrial economy are suffering growing pain despite a supposed return to work last week,” Burns wrote.

“The property sector, which accounts for about 40% of China’s steel consumption, is stagnant, a Reuters report states, while other steel-consuming industries are likely to be operating far below full capacity.

“Nonetheless, steel mills have continued to produce product through January and February, such that mill and trader inventories are overflowing.”

He added that demand is not expected to rise fast enough to soak up the buildup in stocks. Making matters worse for mills, raw material prices have been rising as finished steel prices have fallen, putting the squeeze on margins.

“Producers have been hoping for the promised bounce back, but it has become apparent that it isn’t going to happen in the short term,” he added. “April is cited as the beginning of a return to some degree of normality, providing there isn’t a resurgence of COVID-19 infection rates (now that travel restrictions have been lifted).

“Meanwhile, the temptation to cut prices to shift inventory will build, potentially setting producers and traders up for significant losses.”

Honda, Hyundai post strong February U.S. sales

In the automotive market, Honda reported U.S. sales jumped 4.2% in February, while Hyundai’s sales surged 16%.

According to J.D. Power and LMC Automotive, February new-vehicle retail sales in the U.S. were forecast to rise 0.2%.

U.S. construction spending rises

Meanwhile, according to monthly U.S. Census Bureau data, U.S. construction spending in January reached a seasonally adjusted annual rate of $1,369.2 billion, marking a 1.8% increase from December and a 6.8% increase compared with January 2019.

U.S. housing starts in January fell 3.6% compared with the previous month but jumped 21.4% compared with January 2019 starts.

Gold rush

Burns also weighed in on the gold market amid the coronavirus outbreak, as the gold price recently hit a 10-year high on fears of the coronavirus outbreak’s economic impact.

“The flight to safe havens took a temporary battering last Friday, as sharp falls on stock markets prompted day trader margin calls and investors liquidated precious metal holdings to meet the costs,” he noted.

In the short term, however, fans of gold remain optimistic about the precious metal.

“Chartists will say gold remains on a bull run,” he continued. “Gold tailed off in Q4 on the back of a perceived easing in trade fears, but such comfort has paled in the harsh glare of COVID-19’s impact.

“Falling interest rates and negative bond yields are not helping stock market sentiment, but they are music to the ears of gold bulls, who see the rising cost of food products and shortages caused by supply chain disruption adding to a toxic mix of challenges that does not bode well for markets in the first half of the year.”

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