Commodities rally as more positive vaccine news boosts sentiment

More good news on the vaccine front help boost sentiment in commodity markets, with the ANZ China Commodity Index ending the session up 0.4%. The energy sector led the complex higher, with crude oil rising sharply. This offset losses in LNG. Industrial metals were also higher, driven by gains in aluminium and zinc. Iron ore extended gains, helping push the bulk commodity sector to its highest level in more than 14 months. Agriculture was relatively unchanged, with gains in palm oil and soybeans offset by falls in sugar and cotton. Precious metals struggled, with gold and silver ending in the red.

Vaccine news continues to drive sentiment in the crude oil market amid surging cases and ongoing lockdowns. Pfizer reported that its vaccine is 95% effective, clearing the path for it to submit approval for emergency use. The FDA will meet on 8-10 Dec to discuss the vaccines. An approval can’t come quickly enough for the oil market, with the outlook for demand darkening amid ever increasing restrictions. A survey by GasBuddy says that only 35% of Americans will be taking to the roads during the Thanksgiving holiday. This is down from 65% last year. This uncertain backdrop is a challenge OPEC faces when it meets later this month. While a technical panel recommended delaying planned increases in crude, Saudi Arabia Energy Minister Abdulaziz bin Salman said that the jury is still out on an extension past January. Crude oil prices also found support from a smaller than expected build in inventories in the US. The weekly EIA report showed that crude stockpiles increased by 769kbbl. The report showed that gasoline inventories also increase, while distillate stocks were down more than 5mbbl.

North Asian LNG prices extended losses as rising coronavirus in Asia raise concerns of weaker demand. Officials in Tokyo are expected to raise its COVID-19 alert to its highest level this week after a rebound in cases. Adding to these concerns, Kyushi Electric Power is planning to restart the Genkai #3 nuclear plant, reducing the need for LNG. This saw the January contract ended the session down 2% to USD6.430/mmbtu; while the February fell 1.5% to USD6.00/mmbtu.

Sentiment in the base metal sector remains positive amid strong demand from China and hopes that a coronavirus vaccine will increase demand elsewhere. Zinc prices found additional support from supply side issues. Vedanta Zinc suspended operations at its Gamsberg mine in South Africa after a geotechnical failure that has trapped 10 workers at the bottom of the open pit. This come amid an already tight market. Strong demand has seen zinc treatment charges slump from USD300/t to only USD95/t this year. Aluminium hit a two year high of UDS2,000/t as rising industrial output in China outweighs the outlook for increased supply. While other metals have seen output impacted by the global pandemic, aluminium production has continued to grow. Global output is up over 2% this year, driven by strong gains in China.

Iron ore futures climbed for the third straight day amid resilient demand from China. Data earlier this week showed steel output in October rose 12.7% y/y to 92.2mt. This has been driven robust growth in fixed asset investment, which is up 6.3% y/y in the ten months to October. There were also signs of that the rise in exports from Australia was easing. Exports for the week ending 13 November fell to 16mt, according to Global Ports data. This is down from the prior week and are at the lowest level since September.

Gold prices fell at the start of the session following the positive news on vaccines. However, prices reversed course as a weaker USD and widening lockdowns to curb the coronavirus bolstered safe haven demand. California and Illinois extended restrictions, while New York City temporarily closed its schools. Sentiment hasn’t been helped as negotiations on a stimulus package in the US remain stalled.