Commodities Daily - April 5, 2021

> Oil prices slide after OPEC+ agrees to gradually increase production in coming months. Today will see the ISM US services PMI for March and February factory orders. We think Brent looks set to slide toward the upper end of the $63.10-63.60/bbl technical range today but that it is still unlikely to consolidate within it, as Saudi Aramco has lifted its May prices for shipments to Asia, which could reflect improving prospects for a global economic recovery amid the strong US March labor market data. > Gold steadies as investors weigh the US jobs data. The US reported a 916k rise in nonfarm payrolls on Friday, thus far exceeding the consensus of 660k. Today, gold is trading near $1,725/oz as investors await the US March ISM non-manufacturing index and February factory orders. Bullion could test support near $1,720/oz today, which would open the way to $1,700/oz, whereas a move above $1,740/oz seems unlikely.> Aluminum, copper and nickel prices rise; US jobs report exceeds expectations; Chinese steel consumption increases in March. On Friday, aluminum futures on the Shanghai Futures Exchange (1m, excluding VAT) rose 1.13% to $2,357/tonne, while copper added 1.03% to $8,906/tonne, nickel climbed 1.61% to $16,558/tonne and zinc fell 0.72% to $2,884/tonne. The LME was closed due to the Good Friday holiday. Friday's US jobs report showed a healthy increase in nonfarm payrolls and a drop in unemployment, which could spur a correction in metals markets today given the potential implications for Fed policy. Chinese steel consumption rose nearly 10% y-o-y in the penultimate week of March, and HRC prices continued to reach new highs last week. We expect steel demand in China to continue growing until at least the end of May.OIL PRICES SLIDE AFTER OPEC+ AGREES TO GRADUALLY INCREASE PRODUCTION IN COMING MONTHSMarkets were closed on Friday because of the Easter holiday, with Brent peaking on Thursday at almost $65.20/bbl. The market seemed to accept OPEC+'s view that demand should increase strongly in May-July (global liquids demand is expected to rise by around 3.0 mln bpd in May-July, while OPEC+ supply should be up by 2.1 mln bpd). OPEC+ will test the market with planned output increases in June-July, though it retains flexibility should market fundamentals deteriorate (the next JMMC meeting is scheduled for April 29). On Thursday, front-month Brent eventually settled at $64.86/bbl, $1.32/bbl above the previous settlement.One of the main factors at play this year that could weigh on oil prices amid rising OPEC+ supply is the US potentially easing sanctions on Iranian oil, which would result in an almost immediate supply increase of around 2 mln bpd. However, the risk of this happening before 4Q21, in our view, is low. On Saturday, the Iranian foreign ministry indicated that Iran wants the US to lift all sanctions, rejecting a gradual process of easing them, and that it would not have direct or indirect talks with the US in Vienna tomorrow for a planned meeting on bringing back the 2015 nuclear deal. Recall that a US official said last week that US and Iranian representatives would hold indirect talks, which was reportedly ruled out by Iran's deputy foreign minister. Another factor that could pressure oil prices this year amid rising OPEC+ supply is a potentially faster than expected US shale production recovery. The latest Baker Hughes US active oil rig count saw a strong 13-unit increase last week to 337, the highest level since April 2020. In our view, US crude oil production is likely to gain another 0.50 mln bpd versus the current level of around 11.00 mln bpd.Today, Brent is sliding toward the $64/bbl mark amid dollar strengthening, while oil investors are beginning to consider that the OPEC+ decision could have been more of an internal compromise rather than a vote of confidence in a market recovery. On the agenda today is the ISM US services PMI for March and February US factory orders. In our view, today Brent looks set to slide toward the upper end of the $63.10-63.60/bbl technical range, but is still unlikely to consolidate within it, as Saudi Aramco has lifted its May prices for shipments to customers in Asia, which could reflect improving prospects for a global economic recovery amid the strong US labor market data for March.This week, besides the weekly US inventory update, investors will eye the monthly EIA market report, which is likely to see a strong revision in the demand and supply outlook amid a deteriorating coronavirus situation and new lockdowns, as well as the recent OPEC+ decision to start increasing supply. In our view, the EIA is likely to still show demand growth prevailing over supply growth for the rest of this LD STEADIES AS INVESTORS WEIGH THE US JOBS DATAGold prices were steady near $1,730/oz on Friday, which was a holiday in many markets. The US jobs report for March was released on Friday and was quite strong, as Americans continued to get vaccinated and the government doled out additional pandemic relief money. Nonfarm payrolls rose by 916k, easily topping the consensus forecast of a 660k increase, and the addition to payrolls in February was bumped up by 156k, which meant that the report showed more than 1 mln new jobs added. Meanwhile, the US unemployment rate fell to 6.0% from 6.2%. Should the US labor market continue to recover at the current pace, the economy might be able to fully recover from the pandemic this year, which could fuel investor concerns that the Fed will begin to tighten policy. The strong jobs data created headwinds for gold on Friday, preventing it from consolidating above $1,730/oz.During today's Asian session, gold hovered around $1,725/oz, while the US 10y Treasury yield traded close to 1.71% and EUR/USD near 1.175. Market participants are waiting for the minutes from the latest FOMC meeting on Wednesday and Fed Chairman Jerome Powell's speech on Thursday, while the macro data highlights this week include March PPI readings from the US and the eurozone, along with February PPI from the eurozone. Today, the focus will be on the ISM US non-manufacturing index for March, which is expected to be strong, which could potentially put the dollar back on the advance globally and pressure bullion prices. US factory orders for February are also due today. The US economic outlook remains optimistic, while the widening vaccination gap between the US (47%) and the eurozone (17%) has continued to pressure gold. Bullion could test support near $1,720/oz today, which would open the way to $1,700/oz, whereas a move above $1,740/oz seems UMINUM, COPPER AND NICKEL PRICES RISE; US JOBS REPORT EXCEEDS EXPECTATIONS; CHINESE STEEL CONSUMPTION INCREASES IN MARCHOn Friday, aluminum futures on the Shanghai Futures Exchange (1m, excluding VAT) rose 1.13% to $2,357/tonne, while copper climbed 1.03% to $8,906/tonne, nickel rose 1.61% to $16,558/tonne and zinc fell 0.72% to $2,884/tonne. The LME was closed due to the Good Friday holiday.On Friday, the US posted a rather encouraging jobs report for the month of March. Nonfarm payroll growth exceeded expectations, while the unemployment rate dropped to 6.0% from 6.2% in February. The situation in the US labor market remains one of the key factors in the Federal Reserve's decision-making, so the improvement in the jobs data suggests there is a possibility of an earlier rollback of stimulus measures. Against this backdrop, a correction in metals markets is possible today.Meanwhile, China has published data showing that steel demand in the country grew nearly 10% y-o-y in the penultimate week of March, driven by the construction industry. HRC prices in China continued to reach new highs last week, as demand continued to rise and production cuts tightened the market. Iron ore demand is likely to be supported by the rise in steel consumption, although government restrictions on steel production aimed at reducing pollution could curtail consumption somewhat. We expect steel demand in China to continue growing until at least the end of