Commodities Daily - April 14, 2021

> Oil edges up ahead of IEA monthly report, EIA inventory update. Brent continues to hover above $64/bbl, supported by last night's API data showing another decline in US crude stockpiles. Today, oil investors will eye the IEA's monthly oil market report to see whether the agency shares the upbeat market outlook for 2H21 that OPEC laid out yesterday. The EIA's weekly update on US oil and refined product inventories is also due. In our view, Brent is likely to keep trading above the $63.2/bbl support level, although we see it attempting and perhaps struggling to consolidate within the $64.5-65.2/bbl technical range after the EIA report, which is likely to show another strong weekly buildup in US gasoline inventories.> Gold advances following US inflation data. Bullion is trading near $1,740/oz as we write. Today, the market awaits speeches by Fed Chair Jerome Powell and ECB President Christine Lagarde and the Fed's Beige Book. We expect gold to consolidate above $1,745/oz today, while a move below $1,720/oz seems unlikely to us for the time being.> Base metals rise yesterday on strong Chinese raw material import data; sharp rise in zinc stocks raises concerns. Interest in aluminum futures in particular has grown on speculation that China may cut aluminum smelting in Xinjiang to reduce CO2 emissions. Stocks of zinc on the largest exchanges rose by 4.1% yesterday and by 7.8% over the past seven days. This is not a good sign for the market given demand is seasonally elevated, driven by the production of galvanized steel for construction and a recovery in the automotive industry. The dollar is down versus global currencies since the beginning of April, weighed on by plans for more large-scale fiscal stimulus in the US and rising inflation. OIL EDGES UP AHEAD OF IEA MONTHLY REPORT, EIA INVENTORY UPDATEFront-month Brent traded near $63.2/bbl early yesterday and then started to generate positive momentum ahead of the OPEC monthly report. The OPEC Secretariat raised its 2021 global demand estimate by 0.19 mln bpd to 96.46 mln bpd (versus the 90.51 mln bpd estimated for 2020). The demand estimates for China and North America were revised upward due to the stronger than expected economic recovery amid the stimulus measures and rapid vaccine rollout, while slight downward adjustments were made for Europe and Latin America, where Covid-19 restrictions remain widespread. We note, however, that the global demand forecast for 2Q21 was lowered slightly.The OPEC report also contained a very slight 0.03 mln bpd downward adjustment to the non-OPEC supply estimate for 2021. The downward revisions were led by Russia, followed by the Middle East and Latin America, as upstream capital spending in 2021 is expected to remain well below the 2019 levels mostly in non-OPEC countries. OPEC did not change its US supply projections from last month. We also note that, partly due to its higher global demand forecast, OPEC raised its estimate of global demand for OPEC crude this year by 0.16 mln bpd to 27.42 mln bpd, which would allow for higher average OPEC production in 2021. Following this rather upbeat release, which suggested that rising consumption should help trim stockpiles even as OPEC+ returns more barrels to the market in May, Brent continued its attempt to consolidate above $64/bbl. It also found support from the dollar slipping to a three-week low following the release of the March CPI data from the US, which suggests the inflation fears are baked in for now.Overnight, the API reported that US crude stockpiles fell by 3.6 mln bbl last week. However, the refined product data was mixed, showing yet another strong increase in gasoline stocks - this time by 5.6 mln bbl - and a 3.0 mln bbl draw in distillate inventories. The EIA weekly inventory report is due today at 17:30 Moscow time. The Bloomberg consensus is for a 2.7 mln bbl crude draw, a 0.9 mln bbl increase in gasoline stocks and a 1.0 mln bbl increase in distillate stocks. Even though a crude stock draw is likely, we do not think the EIA report will be taken as bullish, as it is likely to confirm the API's reported strong gasoline stock build stemming from elevated refining activity and high imports. On the back of this, investors could become concerned that demand (although growing) might not be able to offset the elevated refined product output in the coming weeks. Before the EIA weekly inventory update, oil investors will eye the IEA monthly oil market report to see whether the agency shares OPEC's upbeat outlook for 2H21. In our view, Brent is likely to keep trading above the $63.2/bbl support level, although we see it attempting and perhaps struggling to consolidate within the $64.5-65.2/bbl technical range after the EIA report, which is likely to show another strong weekly buildup in US gasoline LD ADVANCES FOLLOWING US INFLATION DATA Gold climbed past the $1,745/oz resistance level yesterday and consolidated while the US 10y Treasury yield eased from 1.68% to 1.62%. EUR/USD firmed to 1.195. The ZEW economic sentiment index for the eurozone came in at 66.3, its lowest reading since January, creating headwinds for the euro and bullion. The gold market's main focus was on the US inflation reading for March, which came in at its highest level in more than eight and a half years, as increased vaccinations and massive fiscal stimulus unleashed pent-up demand, kicking off what most economists expect will be a brief period of higher inflation. The consumer price index jumped 0.6% last month (consensus was 0.5%), the largest gain since August 2012, after rising 0.4% in February. However, the drop in Treasury yields after the publication could signal that the markets had feared a higher reading, and that created significant support for gold. Further support came from concerns raised by a decision by US health officials to recommend a pause in the use of the Johnson & Johnson vaccine.Bullion is trading near $1,740/oz as we write. Today, the market awaits speeches by Fed Chair Jerome Powell and ECB President Christine Lagarde and the Fed's Beige Book. We expect Powell to remain firm over the need for soft monetary policy for the seeable future, providing impetus for gold to consolidate above $1,745/oz today. We see a move below $1,720/oz as unlikely for SE METALS RISE YESTERDAY ON STRONG CHINESE RAW MATERIAL IMPORT DATA; SHARP RISE IN ZINC STOCKS RAISES CONCERNSFutures on the LME closed higher yesterday, with the dominant theme being the publication of strong Chinese raw material imports in January-March. Futures for aluminum rose 1.4% to $2,293/tonne, copper 0.4% to $8,900/tonne and zinc 1.0% to $2,786/tonne. Interest in aluminum futures in particular has grown on speculation that China may cut aluminum smelting in Xinjiang - a region with large reserves of natural gas and the lowest cost of aluminum production in the country - to reduce carbon dioxide emissions. However, smelting using electricity from gas-fired power plants (as in Xinjiang) is significantly cleaner than smelting using electricity from coal-fired power plants (as in most of China). It would seem more logical to reduce smelting in regions with high production costs, where coal-fired generation is mainly used; overall, we do not see a serious reduction in aluminum production in Xinjiang materializing.Stocks of zinc on the largest exchanges rose by 4.1% yesterday and by 7.8% over the past seven days. This does not look to be a good sign for the market given that demand is seasonally elevated, driven by the production of galvanized steel for construction and a recovery in the automotive industry. In the absence of other news, it is likely we will soon see a correction in zinc quotes.We note that since the beginning of April, the dollar (DXY index) is down versus global currencies. It has been weakening amid plans for more large-scale fiscal stimulus in the US and rising inflation. (As a rule, dollar weakness is positive for the metals markets, especially for precious metals.) In this regard, the reasons behind the month-to-date decline in the price of platinum, which is the third most popular inflation hedge after gold and silver, are unclear. Gold has risen 2.1% and silver 4.0%, while platinum has dropped 1.34%. We think this looks overdone and we expect platinum to turn things around in the near