Commodities Daily - April 15, 2021

> Oil surges on upbeat EIA inventory report and IEA optimism over 2H21 demand outlook. Brent is currently trading near $66.5/bbl, with the market today eying US retail sales and industrial production for March, US weekly jobless claims, the preliminary Urals loading program for May and further Iranian nuclear talks in Vienna. Following yesterday's rally, we think Brent is likely to ease to the $64.5-65.2/bbl range amid profit taking, as it failed to break resistance at $66.9/bbl. Should oil extend its gains, further upside could be very limited, as strong resistance lies at $67.2/bbl.> Gold declines amid rise in US Treasury yields. Bullion is trading near $1,740/oz as we write. Investors are awaiting US retail sales and industrial production for March and initial jobless claims. We think gold will try to consolidate above $1,745/oz today. A move below $1,720/oz seems unlikely to us for now.> Prices rise on non-ferrous metals and platinum amid weakening dollar; steel production in China up 18% y-o-y in March. Aluminum on the LME gained 1.3%, copper 2.0%, nickel 1.3% and zinc 1.3%. Platinum rose 1.4%, while palladium fell 0.6%. Steel production in China rose to 3 mln tonnes per day in March, or 93 mln tonnes in total, which is 18% higher than last March and 16% higher than in March 2019. Against this backdrop, the rise in iron ore prices has resumed.OIL SURGES ON UPBEAT EIA INVENTORY REPORT AND IEA OPTIMISM OVER 2H21 DEMAND OUTLOOKBrent was hovering above $64/bbl ahead of yesterday's European trading session as oil investors awaited the release of the monthly IEA oil market report. The IEA's new market outlook contained an upward revision to its global oil demand estimate for this year (up 0.21 mln bpd to 96.69 mln bpd, 5.69 mln bpd above the 91.00 mln bpd average in 2020) amid higher economic forecasts for the coming months and despite weaker than expected data for 1Q21 amid a surge in Covid-19 cases in Europe. Demand forecasts were raised for the US and China due to fast vaccine rollouts and an increase in fiscal spending in the US and strong economic indicators in China. However, the agency said the recovery remains fragile, with the number of Covid cases surging in Europe and other major oil-consuming countries such as India and Brazil. The non-OPEC supply estimate for 2021 was lowered by 0.07 mln bpd amid lower Canadian and Brazilian output. US liquids supply was revised slightly higher. The world's three major oil agencies (IEA, OPEC and EIA) have now all raised their demand estimates for 2021 (by 0.15-0.20 mln bpd) based on the rapid rollout of coronavirus vaccines, particularly in the US, and the improving economic outlook. But their rosier outlook is still going to take a while to materialize. Despite greater optimism over this year's demand outlook, the short-term picture isn't nearly so bright, as OPEC and the EIA have both cut their demand forecasts for the current quarter, though the IEA has taken a more positive view than it did a month ago. The key now is whether the hoped-for boost to holiday travel will in fact materialize in 3Q21 in the Northern Hemisphere summer months, with the balance of expectations among the three agencies clearly swinging in a more positive direction.Brent was trading near $65/bbl ahead of the EIA's weekly oil and refined product inventory update, which showed yet another draw in crude oil stocks, this time by a very strong 5.89 mln bbl to 492.4 mln bbl. This came amid a 0.41 mln bpd drop in imports and a very slight 0.007 mln bpd increase in refinery runs to 15.05 mln bpd. A 0.85 mln bpd drop in exports to 2.58 mln bpd and a 0.1 mln bpd increase in crude oil production to 11.0 mln bpd were insufficient to offset the overall draw. The refined product data was also on the bullish side. Gasoline stocks were up, but only by a small 0.31 mln bbl to 234.9 mln bbl, while distillate stocks fell 2.1 mln bbl to 143.5 mln bbl. Gasoline demand ticked higher for a seventh straight week. The US Department of Transportation recently reported that driving on the nation's highways had returned to pre-pandemic levels. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) were down 9 mln bbl, amid a 1.3 mln bbl draw in jet fuel and a 1.5 mln bbl decrease in the "other oils" category. Following this upbeat release, Brent spiked to an intraday high of $66.9/bbl before eventually settling at $66.58/bbl, $2.91/bbl above the previous settlement.Brent is currently trading near $66.5/bbl, with the market today eying US retail sales and industrial production for March, US weekly jobless claims, the preliminary Urals loading program for May and further Iranian nuclear talks in Vienna. Following yesterday's rally, we think Brent is likely to ease to the $64.5-65.2/bbl range amid profit taking, as it failed to break resistance at $66.9/bbl. Should oil extend its gains, further upside could be very limited, as strong resistance lies at $67.2/ LD DECLINES AMID RISE IN US TREASURY YIELDSGold eased to $1,735/oz yesterday while the US 10y Treasury yield climbed to 1.63%. EUR/USD firmed to 1.198, creating a tailwind for bullion. The gold market's main focus was a speech by Fed Chair Jerome Powell, who said the Fed will reduce its bond purchase program before it commits to rate hikes. Powell added that rate hikes are highly unlikely to come before the end of 2022. The Fed remains dovish but has now clarified the order in which it will change its monetary policy, though many investors had already regarded this order as a given. Meanwhile, the US economic recovery has been proceeding at a moderate pace since late February, according to the Fed. US import prices rose more than anticipated in March, helping US Treasury yields to recover from local lows and place pressure on bullion. ECB President Christine Lagarde said yesterday that the eurozone economy is now relying on the "two crutches" of monetary and fiscal stimulus, which cannot be removed until the economy recovers completely. However, those comments failed to dent the euro's gains yesterday.Bullion is trading near $1,740/oz as we write. Today, the market awaits US retail sales and industrial production for March and US initial jobless claims data for last week. The improvement in economic data for March could limit the upside for gold, though the weaker dollar should provide support. We think gold will try to consolidate above $1,745/oz today. A move below $1,720/oz seems unlikely to us for ICES RISE ON NON-FERROUS METALS AND PLATINUM AMID WEAKENING DOLLAR; STEEL PRODUCTION IN CHINA UP 18% Y-O-Y IN MARCHAluminum on the LME rose 1.3% to $2,324/tonne, copper 2.0% to $9,075/tonne, nickel 1.3% to $16,378/tonne and zinc 1.3% to $2,823/tonne. Platinum rose 1.4% to $1,175/oz, while palladium fell 0.6% to $2,667/oz. The dollar's depreciation since the beginning of April has been providing support to metals prices.According to the estimates of Mysteel, steel production in China amounted to 3 mln tonnes per day in March, or 93 mln tonnes in total, which is 18% higher than last March and 16% higher than in March 2019. Iron ore prices have been back on the ascent since the beginning of April. The spot CFR price in Qingdao (a Chinese port) has increased by 4.2% to $161/tonne over that time frame, which indicates that steel production in China has not eased.The aluminum market has seen rumors circulating recently about a possible limitation of aluminum production in China's Xinjiang Uygur Autonomous Region for environmental reasons. We, however, are skeptical about the chances for a significant reduction in aluminum smelting in the province. In contrast to most of China, where coal generation predominates, gas generation is the main source of electricity in Xinjiang. There are also reports that production at steel operations in China's Yunnan province have been curtailed for a month starting this Monday following environmental inspections. We believe that the resulting decline in output will be offset by an increase in smelting in other provinces, much as we saw in March.Stocks of finished products at zinc plants in China fell by 40% in March. The rather sharp decrease in inventories may be due to the fact that producers have not had enough time to ramp up output to keep up with demand. This news is positive for the zinc market.An important batch of macro data, including 1Q21 industrial production and GDP figures, is due out of China at 5:00 Moscow time tomorrow (i.e. overnight). The data should help determine where prices on metals and raw materials are headed over the remainder of the month. We expect the statistics to fuel interest in metals