Commodities

Chinese growth concerns impact crude oil futures 

BL Mangaluru Bureau | | Updated on: May 02, 2022

The latest data out of China shows that factory activity has contracted due to Covid-related lockdowns

Growth concerns in China (one of the major consumers of crude oil in the world) has had an impact on crude oil, with crude oil futures trading lower in the global markets on Monday morning.

At the time of filing this report, June Brent oil futures were at $106.15, down by 0.92 per cent; and June crude oil futures on WTI were at $103.82, down by 0.83 per cent.

May crude oil futures were trading at ₹7,951 on the Multi Commodity Exchange (MCX) in the initial hour of Monday morning, against the previous close of ₹8,117, down by 2.05 per cent; and June futures were trading at ₹7,853, against the previous close of ₹8,007, down by 1.92 per cent.

The data released on Saturday showed that factory activity contracted in China due to Covid-related lockdowns. China’s general manufacturing PMI fell to a 26-month low of 46.0 in April from 48.1 in March. The market was forecasting it at 47.0.

Market reports noted that both output and new orders fell at the second steepest pace since the survey began in early 2004, while export orders shrank at the sharpest rate in nearly two years. China is the second largest economy in the world. Any growth concerns in that country will have an impact on crude oil prices also, as China is a major consumer of crude oil in the world.

Stating that crude oil prices are likely to remain volatile this week ahead of the US Federal Reserve policy meetings, Rahul Kalantri, VP (Commodities) of Mehta Equities Ltd, said: “Crude oil has support at $101.30-$99.50 and resistance at $105.90–107.40, In rupee terms crude oil has support at ₹7,860-7,740, and resistance at ₹8,185–8,320.”

Saish Sandeep Sawant Dessai, Research Associate (Base Metals) of Angel One Ltd, said crude prices are witnessing volatile moves as the market is moving on the back of supply and demand concerns over Russian oil and gas disruption and a worsening global economic outlook.

Crude oil concluded the week with gains of 6.2 per cent on mounting fears of a Chinese city lockdown, which would raise concerns about global energy consumption. Concerns about prolonged Covid lockdowns in Shanghai and a probable hike in US interest rates that would hurt global growth and demand, sent oil prices down to two-week lows.

He said prices rose further as geopolitical tensions simmered as Russia threatened to restrict gas supplies to Poland and Bulgaria, and anticipation of Chinese central bank monetary policy support, which would boost oil demand. The market is concerned about constrained global energy supply as a result of Russia’s invasion of Ukraine and the ensuing sanctions placed on the former by the US and its allies.

In his outlook for the day, he said oil prices are expected to remain elevated given the European countries joining hands in order for a Russian oil embargo, following the sanctions imposed on the country after it invaded Ukraine.

Base metals

May zinc futures were trading at ₹335.60 on MCX in the initial hour of Monday morning, against the previous close of ₹343.60, down by 2.33 per cent; and May aluminium futures were trading at ₹244.15 on MCX, against the previous close of ₹252.90, down by 3.46 per cent.

May copper futures were trading at ₹766 on MCX in the initial hour of Monday morning, against the previous close of ₹782.85, down by 2.15 per cent.

Dessai of Angel One Ltd said most of the industrial metals ended on a negative note, continuing the downward momentum from the previous week, however, copper remained unchanged.

As the Covid situation in China is likely to worsen and rounds of mass testing in various regions of the capital city Beijing have begun, the current weaker demand from the world’s largest metals consumer, China, is expected to deteriorate even further following the Covid-induced lockdown in Shanghai, which is set to be extended to the capital city of Beijing.

He said the price of base metals, particularly copper, witnessed traction as the Las Bambas copper mine in the world’s second largest producing country, Peru, considers evicting the communities that have camped on the property, resulting in a forced production halt.

The mine, which supplies 2 per cent of the world’s copper, has been closed since April 20, and the temporary stoppage will disrupt 20 per cent of the country’s overall output.

However, he said, base metals have recently been under pressure as demand from China is expected to slow down further as a result of the ongoing Covid lockdowns in Shanghai and Beijing, as well as a surging US dollar on the back of the US Fed’s next meeting, which is expected to hike rates by a half-percentage point.

In his outlook for the day, he said: “We expect copper to trade lower towards ₹767 levels, a break of which could prompt the price to move lower to ₹748 levels.”

NCDEX

On the National Commodities and Derivatives Exchange (NCDEX), May dhaniya futures were trading at ₹12,284 in the initial hour of Monday morning, against the previous close of ₹12,180, up by 0.85 per cent.

May guargum contracts were trading at ₹12,272 on NCDEX in the initial hour of Monday morning, against the previous close of ₹12,494, down by 1.78 per cent.

Published on May 02, 2022
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