Commodities Daily - April 2, 2021

> Oil climbs despite OPEC+ agreeing to gradual output increase over the coming months. Yesterday afternoon, Brent rebounded from $62.4/bbl to almost $65.2/bbl as the market gave credence to OPEC+'s view that demand will rise strongly in May-July to an extent that barrels will be needed for the market to avoid overheating and also despite multiple calls by OPEC for caution in the days leading up to the meeting. Brent and WTI are not trading today due to the Good Friday holiday, although Brent is trading today on the Moscow Exchange. Investors await US nonfarm payrolls data for March, which we expect to be upbeat, supporting buoyant 2H21 demand expectations in the. We see Brent possibly rising toward the upper end of the $64.5-65.8/bbl technical range in trading today on the Moscow Exchange.> Gold pares losses as yields retreat ahead of US nonfarm payrolls. Today, gold is trading near $1,730/oz as investors await the March jobs report from the US. We think a test of support near $1,720/oz may be in store for today, which would open the way to $1,700/oz, while a climb to $1,740/oz seems less likely.> Trading on LME mixed, with steel continuing to rally; Tsingshan Group to build giant battery factory in China. Yesterday, copper futures (3m LME) edged up 0.05% to $8,790/tonne and nickel rose 0.91% to $16,214/tonne, while aluminum fell 0.61% to $2,226/tonne and zinc dropped 1.56% to $2,775/tonne. Prices on steel products have continued to rise across the globe. Flat steel prices have risen around 12% in Europe and 6.5% in China over the last two weeks. Meanwhile, China's Tsingshan Group, the largest nickel producer in the world, announced yesterday that it will build a giant battery factory, which we think could have a rather significant impact on the lithium and cobalt markets.OIL CLIMBS DESPITE OPEC+ AGREEING TO GRADUAL OUTPUT INCREASE OVER THE COMING MONTHSBrent saw choppy trading during yesterday's Asian and European sessions and moved within a $62.4-64/bbl range. Investors were reacting to mixed OPEC+ headlines, with the media trying to find out whether the group was planning to extend the current production cuts through May and June (largely expected in the buildup to this meeting) or to start raising output immediately. The meeting eventually ended with an agreement to begin slowly raising production in May and bring back a total of 2.11 mln bpd to the market by July, taking the group to "phase three" quotas (a total cut of 5.7 mln bpd) and phasing out Saudi Arabia's unilateral 1 mln bpd cut. OPEC+ as a whole will raise output gradually (by 0.35 mln bpd in May, 0.35 mln bpd in June and 0.41 mln bpd in July), while Saudi Arabia will also remove the additional 1 mln bpd of cuts it has been making at a rate of 0.25 mln bpd in May, 0.35 mln bpd in June and 0.40 mln bpd in July. Saudi Arabia opted to roll over the April quota levels, but it was willing to bend its cautious approach to ensure group cohesion and answer increasingly vocal calls from consuming nations such as the US and India to raise production. In our recent oil price fundamentals report we discussed the idea of Saudi Arabia stepping in at some point to protect consumers, as OPEC's stated objective is to ensure oil market stability. Indeed, Saudi Energy Minister Prince Abdulaziz said the kingdom's voluntary cut had placed Saudi Aramco into some difficulties with several customers.Russian production will rise by 0.039 mln bpd in May, 0.039 mln bpd in June and 0.038 mln bpd in July (while Kazakhstan was granted 6 kbpd increases per month), with Moscow undertaking smaller incremental increases while its OPEC+ peers catch up with the cuts it had already made (Russia and Kazakhstan were permitted to raise production ahead of other producers between February and April). These smaller increments will align Russia and Kazakhstan with the rest of the group by July and will appease those that were unhappy, such as the UAE, about the "freebies" given to these countries. Yesterday, Saudi Crown Prince Mohammed bin Salman telephoned Russian President Vladimir Putin to discuss, among other things, "topical" issues.In our view, the most important takeaway is that while this decision marks a shift from the extreme caution that has led OPEC+ to delay quota increases at each meeting since December, the group retains the flexibility to backtrack on these increases should market fundamentals deteriorate. The JMMC, which meets on April 29, could recommend amending the planned increases for June and/or July if required. OPEC+ could be testing the market with this output increase, and we think the group will be quick to reverse its decision should demand falter. This outcome only results in minor adjustments to our bullish view for the rest of this year, as we had previously factored in the group gradually restoring output. Calendar spreads did not sell off yesterday while Brent rallied toward $65.2/bbl, as the market gave credence to OPEC+'s view that demand will increase strongly in May-July to an extent that barrels will be needed for the market not to overheat and also despite multiple calls by OPEC for caution in the days leading up to the meeting. The deal provides the market with clarity on OPEC+'s production pathway, although the physical market remains limp, and until the US's crude overhang built up during the February freeze has cleared and Chinese buying returns, calendar spreads will struggle to rally, in our view. Brent and WTI are not trading today due to the Good Friday holiday, although Brent is trading today on the Moscow Exchange. Investors await US nonfarm payrolls data for March, which we expect to be upbeat, supporting buoyant 2H21 demand expectations in the. We see Brent possibly rising toward the upper end of the $64.5-65.8/bbl technical range in trading on the Moscow Exchange LD PARES LOSSES AS YIELDS RETREAT AHEAD OF US NONFARM PAYROLLSGold prices rose yesterday and nearly reached $1,730/oz as the 10y US Treasury yield slid from 1.75% to 1.67% and EUR/USD climbed to almost 1.177. Yesterday's initial jobless claims data from the US showed an increase of 719k after a just 658k increase a week earlier, which came as a disappointment. This data point, along with Wednesday's ADP report, seemed to indicate that the recovery in the US economy and the labor market in particular may be losing steam, so today's nonfarm payrolls print should garner extra attention. Additional support for gold prices yesterday came from a jump in IHS Markit's eurozone manufacturing PMI from 57.9 in February to a final reading of 62.5 in March, which is the highest reading since the survey began in June 1997. Later on, the ISM's US manufacturing gauge came in at 64.7 in March, which was well above the 60.8 reading from February and in fact the highest level since December 1983. This created headwinds for gold, preventing it from consolidating above $1,730/oz.Today, markets in Singapore, Hong Kong, Australia, the UK, the EU and the US are closed for Good Friday. Gold is quoted near $1,730/oz as we write. The main event today is the March jobs report from the US. According to a Reuters survey of economists, nonfarm payrolls look set to increase by 647k after rising by 379k in February. We do not expect much volatility today due to the holiday, though we think gold would likely test support at $1,720/oz if the NFP print is in line with or above expectations, followed by a possible further drop to $1,700/oz. A climb to $1,740/oz might be possible if payrolls come in below the ADING ON LME MIXED, WITH STEEL CONTINUING TO RALLY; TSINGSHAN GROUP TO BUILD GIANT BATTERY FACTORY IN CHINAYesterday, copper futures (3m LME) edged up 0.05% to $8,790/tonne and nickel rose 0.91% to $16,214/tonne, while aluminum fell 0.61% to $2,226/tonne and zinc dropped 1.56% to $2,775/tonne. The unveiling of US President Joe Biden's ambitious plan to invest $2.25 trln in infrastructure projects did not generate any reaction in the metals markets.Global prices for steel products have continued to rise. Flat steel (HRC) prices in Northern Europe have risen 12% to $1,036/tonne since March 19, while domestic flat steel prices (HRC) in China have climbed 6.45% to $724/tonne (excluding VAT). In the US, flat steel prices are refreshing all-time highs, as we wrote yesterday, and have now reached $1,325/tonne. Based on what we have been seeing in many large countries (e.g. in China, the US, the EU and Japan), it looks like construction activity is still growing at a rapid pace and is unlikely to slow this quarter. This will support demand for steel, iron ore, aluminum and zinc.China's Tsingshan Group, the largest nickel producer in the world, announced yesterday that it intends to increase its vertical integration in battery production. To this end, it will build a giant 200 GWh battery plant by the end of 2025. BNEF estimates that electric vehicles and transport in China consumed a total of 63.6 GWh of battery power in 2020. Based on the current plans of battery manufacturers in China, the country's battery production capacity is set to grow to 500 GWh by 2025, which would increase the country's supply of batteries eightfold.Battery production capacity has been a constraint on electric vehicle production across the globe. The vast increase in capacity planned in China should allow for a commensurate increase in EV production. The key question is whether manufacturers of the components and raw materials required will be able to increase their production at a similar rate. The schedule for the commissioning of new battery capacity suggests a 60-70% increase in demand for raw materials per year. Such production growth seems unattainable in any of the metals markets, so we would expect prices on cobalt, lithium and nickel to be well supported going