Chinese stimulus news and supply declines push commodity prices higher

News emanating out of China of proposed new economic stimulus packages have helped lead to a resurgence in commodity prices over the past few days.

China’s official news agency, Xinhua, has reported that the country’s top leadership has convened a crucial meeting to set the economic policy agenda for the rest of the year, including clear macro policy steps to navigate new situations facing the country’s “tortuous recovery.”

In his latest ANZ “Commodity Wrap”, senior commodity strategist, Daniel Hynes, said the prospect of China releasing additional stimulus measures has continued to boost the recent run in commodity markets, while tightening energy supplies have added momentum to oil prices.

The analyst reported that copper and iron ore prices in particular have continued to rebound after China pledged support for its beleaguered property sector.

Push for increased Chinese domestic demand

Notably, it was reported that China’s Central Committee has urged active expansion of domestic demand, particularly in bolstering consumption.

In its wrap up of the latest Chinese party meeting, Xinhua said the attendees noted that the country’s economy is meeting with new difficulties and challenges, which mainly arise from insufficient domestic demand, difficulties in the operation of some enterprises, risks and hidden dangers in key areas.

Xinhua also reported that the meeting called for proactive fiscal policy and a prudent monetary policy to continue.

The world’s second-largest economy achieved 5.5% GDP growth in the first half (H1) of the year.

Mr Hynes said China’s potential moves to boost its housing sector has boosted confidence the commodity markets.

The housing sector accounts for around 40% of Chinese steel demand and drives demand for metals such as copper, aluminium and zinc.

The positive property news helped copper and iron ore to drive the metals sector higher. The positive metals news was boosted by data showing better than expected manufacturing activity in the US.

The promising improvement in Chinese sentiments also helped gold futures reach higher levels. However, the market is continuing to keep an eye on potential US interest rate hikes.

On a downward note, lithium prices in China fell, but reports say demand remains strong. Notably, leading Chinese battery maker CATL achieved record profits on the back of booming Chinese EV sales.

Petroleum price on the rise

China’s proposed support measures also helped provide a positive sentiment in the crude oil market, which was also backed by reports of tightening in supply.

West Texas Intermediate (WTI) crude prices hit a three-month high, topping its 200-day moving average with OPEC+ proposed production cuts starting to be felt.

News of Russian petroleum exports declining to a six-month low in July have also had an impact. An outage at Exxon’s Baton Rouge refinery in the US also highlighted concerns about tightening oil production, with suggestions the refinery may be affected for several weeks.

Ukraine tensions have an impact

Potential further risks to Russian gas supplies have also been felt in the European market, with prices rising sharply on the back of increasing tensions in the Ukraine.

Elsewhere, possible supply issues in Australia have also impacted North Asian LNG prices.

Increasing temperatures in a number of Asian countries is also forecast to potentially lead to increased power consumption and demand increases.