Commodities Daily - April 13, 2021

> Oil continues to hold steady ahead of monthly OPEC report. Today, oil investors will be focusing on the OPEC monthly report, US March CPI and the API's weekly update on US oil and refined product inventories, with the latter coming overnight. We expect Brent to stick in the $62.5-63.9/bbl range today, with a break below $62.5/bbl paving the way to $61.2/bbl, while a break above $63.9/bbl could lead to a $64.5-65.2/bbl corridor.> Gold edges lower as Treasury yields rise. Gold is trading at $1,725/oz as we write. Investors are today awaiting the US CPI for March. We expect bullion to test support at $1,720/oz today; a break above resistance at $1,745/oz is unlikely, in our view. > Non-ferrous metals fall in price on fears of tighter monetary policy; Chinese steel prices decline on expectations of tax reform. The dominant theme in metals markets yesterday was the growing concern over a potential tightening of monetary policy after the sharp rise in producer prices in the US and China in March. One major development yesterday was that the PBoC has reportedly asked China's major banks to curtail their lending growth. Another development is that recent trade data from China showed continued strong growth in imports of copper and raw materials for the metals industry. Meanwhile, steel prices have begun to decline in China following reports of tax changes for the export and import of steel products.OIL CONTINUES TO HOLD STEADY AHEAD OF MONTHLY OPEC REPORTBrent experienced increased volatility yesterday but continued to trade around the $63/bbl mark, oscillating within a broader $62.4-64.3/bbl range. Trading volumes have recently slumped, falling below their 15-day average every day last week as the market awaits a breakout. Oil is struggling to break free from its recent trading range primarily because the market is wrestling with the uneven outlook for global fuel consumption, as global Covid-19 infections are surging and restrictions are being tightened in parts of the Middle East and Europe. Indeed, the global demand recovery is still nascent, and the inventories built up over 2020 will mask the true extent of underlying demand for a few more months, in our view. We expect global oil demand to rise from around 94 mln bpd in April to just over 100 mln bpd in August, though we do not anticipate a material jump in demand to nearly 97 mln bpd until late May. Once this demand increase does in fact materialize, the market should easily be able to absorb returning Iranian production and remain in a deficit for the year. Should a new Iranian nuclear deal be announced very soon, this would not lead to the US easing sanctions on Iran's oil sector immediately. We maintain our view that Iranian barrels will return to the market in 4Q21.Although the US rig count is rising, we think a significant pickup in US oil production is unlikely before late 3Q21, when demand should be much higher than now. Yesterday's EIA drilling productivity report showed that US oil output from seven major shale formations is expected to rise for a third straight month, climbing by about 0.013 mln bpd to 7.61 mln bpd in May. Growth across the US shale patches will likely be kept in check by producers seeking to dampen spending in line with promises to shareholders to boost dividends instead of supply. Yesterday, Brent eventually closed at $63.28/bbl, up $0.33/bbl on the day.Brent is trading near $63.5/bbl as we write, with Chinese trade data showing strong momentum in March and pointing to strengthening global demand, although the country's exports rose less than expected. Today, oil investors will be focusing on the OPEC monthly report following OPEC+'s recent decision to lift output gradually over the coming months, US March CPI and the API's weekly update on US oil and refined product inventories (due overnight). We expect Brent to stick in the $62.5-63.9/bbl range today, with a break below $62.5/bbl paving the way to $61.2/bbl, while a break above $63.9/bbl could lead to a $64.5-65.2/bbl LD EDGES LOWER AS TREASURY YIELDS RISEGold slid to $1,730/oz yesterday as the 10y US Treasury yield climbed to 1.68%. EUR/USD held steady near 1.190 thanks to better than expected eurozone retail sales for February, which showed a decline of 2.9% y-o-y following a 5.2% y-o-y drop in January. This generated support for gold. However, the third wave of the coronavirus and tightening restrictions in Europe over the past month will have a significant impact on the March data. Yesterday's 10y US Treasury auction attracted a rate of 1.68%, which pressured bullion during US trading hours ahead of important data releases this week. Treasury sales of $271 bln in new debt and a key inflation report this week could put an end to the bond market's recent lull, reinvigorating a surge in yields and potentially further pressuring gold.Gold is trading at $1,725/oz as we write. Investors are awaiting the US CPI for March. A survey released on Monday by the Federal Reserve Bank of New York showed US consumers' inflation expectations rose again in March following gradual increases in previous months, while they have become more positive about the jobs market. Given the surge in the PPI in March, we could see a high CPI figure, in which case we would expect bullion to test support at $1,720/oz today; a break above resistance at $1,745/oz seems unlikely, in our N-FERROUS METALS FALL IN PRICE ON FEARS OF TIGHTER MONETARY POLICY, CHINESE STEEL PRICES DECLINE ON EXPECTATIONS OF TAX REFORMYesterday, nickel fell 3% to $16,134/tonne on the LME, while zinc dropped 2.5% to $2,758/tonne and copper declined 0.7% to $8,861/tonne. The dominant theme in metals markets yesterday was the growing concern over a potential tightening of monetary policy after the recent data showing a sharp rise in producer prices in the US and China in March. Meanwhile, according to media reports, the PBoC has asked China's major banks to curtail lending growth after lending expanded 8% to a record CNY7.67 trln in 1Q21. In our opinion, the 4.4% y-o-y rise in producer prices in March should not be a problem for the Chinese economy. Taking into account the 1.5% drop last March, the average rise in prices over the last two years is only 2.8% per year. We do not expect to see any significant changes in China's monetary policy in the coming months.Nickel prices were also under pressure yesterday from the recent reports about the planned construction of a large plant in Indonesia that will produce battery-grade semi-finished nickel from cheap laterite ores, as well as the faster than expected recovery in production at one of the recently flooded Nornickel mines.China published international trade data yesterday showing continued steady growth in imports of copper and raw materials. Copper imports increased by 11.7% y-o-y in physical terms in 3m21, while imports of copper concentrate increased by 7.7% and iron ore imports by 8%. Coal imports to the country were down 28.5% y-o-y despite the issues China had with heating during what was an unusually cold winter. In our opinion, this suggests that China is serious about halting its imports of Australian coal.Steel prices in China have begun to decline after it was announced that there would be changes in taxation for the export and import of steel products. Hot-rolled steel has already dropped 2.5% in price in the five days since reports appeared that China intended to cancel a VAT refund for steel exports. Meanwhile, US and European steel prices have continued to rally. The restriction on steel exports from China will be positive for exporters of steel products in Russia, as it will reduce competition in the global market. However, a decline in Chinese steel prices could hurt exporters with contracts tied to Chinese