18 Oct 2017
A number of policy decisions worldwide are driving changes in the outlook for some key commodities, including oil, gold and liquefied natural gas.
In LNG, China’s ongoing fight against pollution has been a key driver behind rising Asian LNG demand as the continent begins to shift away from fossil fuels.
"Ongoing investment in infrastructure should keep China’s [LNG] demand firm this year and beyond.”
The structural switch from coal to LNG is clearly reflected in strong Chinese import numbers as demand has been setting new seasonal highs.
As the chart below shows, LNG imports have increased by 120 per cent year on year in the first four months of 2018.
Chinese LNG imports could potentially touch 50 million tonnes this year, compared to 38.4 million tonnes in 2017. Ongoing investment in infrastructure should keep China’s demand firm this year and beyond.
$US weighs on gold
Gold prices have been closely tracking the strength of the US dollar this quarter, as the correlation between the pair has increased to 90 per cnt from the average peak of 80 per cent.
ANZ Research still believes the metal should regain its safe-haven appeal amid ongoing geopolitical uncertainty and building up of inflationary pressure.
The upcoming US Federal Reserve meeting remains important. With the market already pricing in an expected rate hike, commentary around the outlook for rates will be key to gold’s performance post the meeting.
The recent price correction in gold has failed to attract physical demand in Asian markets. The depreciation in the Indian rupee is offsetting the correction in international gold prices, keeping domestic prices higher.
Indian gold imports have dropped by 33 per cent year on year in the first four months of 2018. However, a good monsoon could bring some cheer for jewellers.
Chinese gold imports have been weaker too, though jewellery demand has improved of late. Demand still looks sluggish with narrowing spot premium.
Oil production losses in Venezuela, Angola and recent Iranian sanctions have tightened the market more than intended by OPEC.
Saudi Arabia and Russia are considering raising output by one million barrels per day. ANZ Research expects OPEC to increase production by 600 mb/d in the second half of 2018 as it looks to stabilise prices amid supply disruptions within the group. Such an increase could be absorbed by the market without altering the fundamentals.
Longer term, ANZ Research believes Saudi Arabia and Russia will maintain their cooperation to keep prices relatively high.
The market is also in better shape to absorb more crude oil. Inventories have been steadily declining over the past 18 months and demand is strong.
Even with these increases in output, the market is still in a supply deficit. This should provide support to prices.
OPEC’s proposed production increase sets the scene for investors to liquidate the record speculative positions they had built up over the past few months.
This could weigh on prices in the short term. That said, the upcoming OPEC meeting on June 22 will be worth watching, with investors unlikely to hold any aggressive positions ahead of the event.
Daniel Hynes is a senior commodities analyst & Soni Kumari is a commodities strategist at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
18 Oct 2017
27 Sep 2016