Commodities Daily - April 12, 2021

> Oil little changed ahead of a busy week. Today, oil investors will primarily eye the EIA's drilling productivity report, with monthly OPEC and IEA reports to be released later this week and the Iranian nuclear deal talks set to continue. We expect Brent to remain range-bound at $62.8-63.8/bbl today, though a break below $62.8/bbl would likely pave the way to $61.2/bbl, while a break above $63.8/bbl could lead to the $64.7-65.5/bbl corridor.> Gold declines amid robust US data. Gold is trading at $1,735/oz as we write. Investors are eyeing eurozone retail sales for February. We expect bullion to test support at $1,720/oz today; a break above resistance at $1,745/oz is unlikely, in our view.> Metal prices on LME fall after data showing uptick in US, Chinese PPI. Three-month futures for aluminum fell 0.8% to $2,264/tonne, while copper dropped 0.9% to $8,927/tonne, nickel retreated 1.2% to $16,628/tonne and zinc eased 0.9% $2,830/tonne. The decline in prices began after the publication of unexpectedly high March PPI readings from the US (4.2% y-o-y) and China (4.4% y-o-y). Typically, data showing an increase in price growth points to future policy tightening by central banks. China's Tsingshan, the world's largest nickel producer, has announced that it will build a 30 ktpa high-matte nickel plant in Indonesia. This would bring its annual capacity to 130 ktpa of semi-finished products (in terms of nickel weight), which will cover about a third of the expected increase in global demand for nickel for battery production over 2021-25.OIL LITTLE CHANGED AHEAD OF A BUSY WEEKOn Friday, Brent traded in a tight $62.6-63.5/bbl range and eventually settled at $62.95/bbl, down $0.25/bbl on the day. One negative factor in play was a stronger dollar, driven by a higher than expected rise in US March producer prices, which stoked inflation concerns. Tomorrow will see the publication of US CPI for March. Higher inflation readings could send Treasury yields higher again, negatively impacting oil. Investors also remain concerned about rising global coronavirus cases in parts of the world, which is slowing the economic recovery. India (one of the largest oil-consuming countries) is facing an escalating health crisis, with the second wave of infections hitting record highs. However, Indian oil product demand rose to its highest level in March since late 2019, as manufacturing activity offset declining mobility amid the rise in Covid-19 cases and ongoing high retail prices. Rising infections pose a downside risk for Indian oil demand in the near term, but we believe the restrictions introduced across the country will not weigh significantly on outright demand numbers. On average, April and May demand is unlikely to be much more than 2-3% below the March level, in our view. Meanwhile, Germany announced another short, strict lockdown in the country.Talks between Iran and world powers to resuscitate the 2015 nuclear deal will continue this week, though there has so far been no direct contact between the Iranian and US sides. A senior US official told reporters on Friday that the initial round of talks was a good first step but Iran still hasn't shown it's willing to do what's necessary to come back into compliance with the 2015 agreement. Iran said it is willing to continue serious discussions as long as the other side is too.Brent is hovering below $63/bbl as we write after Fed Chair Jerome Powell said in an interview aired on Sunday that the US economy was poised for stronger growth, though he cautioned that Covid-19 remains a threat. Today, oil investors will primarily eye the EIA's drilling productivity report. The OPEC Secretariat will issue its latest supply and demand forecasts tomorrow, following the recent decision by OPEC+ to gradually lift production in the coming months. The IEA will follow with a similar monthly report on Wednesday. This week, China unveils a raft of economic and trade data for March and 1Q21 that should cement the picture of a robust recovery. We expect Brent to remain range-bound at $62.8-63.8/bbl today, though a break below $62.8/bbl would likely pave the way to $61.2/bbl, while a break above $63.8/bbl could lead to the $64.7-65.5/bbl LD DECLINES AMID ROBUST US DATAGold slid below the $1,745/oz support level on Friday and consolidated near $1,740/oz as the 10y US Treasury yield rose to 1.66%. EUR/USD also fell below 1.190, pressuring gold. The US PPI for March came in at 1.0% versus the 0.5% consensus and 0.5% in February. In the 12 months through March, the PPI surged 4.2%, its biggest y-o-y rise since September 2011. That pushed Treasury yields higher and created headwinds for gold, as investors started to fear monetary policy tightening due to increasing inflation. Fed Chair Jerome Powell on Sunday said the US economy is at an inflection point, with expectations that growth and hiring will pick up speed in the months ahead, but also risks that a hasty reopening might lead to an increase in coronavirus cases. This was basically more of the same rhetoric from the Fed and has done little to support gold in today's early trading.Gold is trading at $1,735/oz as we write. Treasury yields remain the main headwind, and this week will see plenty of US Treasury auctions, so yields could climb higher and pressure bullion. Also this week, investors await US CPI data for March tomorrow and a speech by Fed Chair Powell on Wednesday. This week will also see the Fed Beige Book, US retail sales, industrial production and housing starts for March, and eurozone CPI for March. Today, the gold market will be focused on eurozone retail sales for February and the 10y Treasury auction in the US. We expect bullion to test support at $1,720/oz today; a break above resistance at $1,745/oz is unlikely, in our TAL PRICES ON LME FALL AFTER DATA SHOWING UPTICK IN US, CHINESE PPIOn Friday, ferrous metals prices on the LME were down across the board. Three-month futures for aluminum fell 0.8% to $2,264/tonne, while copper dropped 0.9% to $8,927/tonne, nickel retreated 1.2% to $16,628/tonne and zinc eased 0.9% $2,830/tonne.The decline in prices began after the publication of unexpectedly high March PPI readings from the US (4.2% y-o-y) and China (4.4% y-o-y). Typically, data showing an increase in price growth points to future policy tightening by central banks and, hence, higher interest rates, which reduce the attractiveness of metals futures and other non-interest-bearing assets. Later, Chinese Premier Li Keqiang commented that China would tighten its control over raw materials to help limit costs for companies that are currently under pressure from soaring commodity prices. These factors will continue to exert pressure on metals prices today.China's Tsingshan, the world's largest nickel producer, has announced that it will build a 30 ktpa high-matte nickel plant in Indonesia that will process laterite nickel ore. In early March, Tsingshan announced that it would bring online 100 ktpa of battery nickel production this year, which caused a 20% drop in nickel prices over the following week. Taking into account the planned construction of the plant in Indonesia, Tsingshan will produce around 130 ktpa of semi-finished products (in terms of nickel weight), which will cover about a third of the expected increase in global demand for nickel for battery production over 2021-25. This is obviously negative for nickel prices, as the expected shortage of "battery-grade" nickel, along with the projected increase in stainless steel smelting in 2021, was one of the main factors driving the rise in prices last