Commodities Daily - April 6, 2021

> Oil slides as virus risks in Europe and India dim the demand outlook. Brent is trading near $62.5/bbl as we write as today's Iranian nuclear talks are expected to face plenty of hurdles. Aside from these talks, the market will primarily be eying the EIA's monthly oil market report and the API's weekly update on US oil and refined product inventories. Brent has found support at $61.2/bbl, so we think it is likely to bounce to the $62.8-63.8/bbl range today, although that gain could prove short-lived. A break below $61.2/bbl could open the way to the $58.6-59.9/bbl range.> Gold consolidating this morning amid decline in US Treasury yields and dollar. Gold has firmed to $1,735/oz as we write, with the 10y US Treasury yield and the dollar in retreat. Today investors will turn their attention to the IMF's World Economic Outlook. We think bullion is poised to test $1,740/oz, though a break above appears unlikely.> Copper rises after Chilean border closure, tin climbs after restrictions on China-Myanmar border; China preparing a tax reform that will affect steel exports and imports. Base metals gapped higher at the LME open today after the long holiday weekend. The rise in copper prices is largely due to the fact that Chile, which provides a quarter of the world's copper concentrate, has announced it will close its borders due to rising Covid cases in the country. Tin has soared in price after China curbed travel on the border with Myanmar, the world's third-largest tin producer.OIL SLIDES AS VIRUS RISKS IN EUROPE AND INDIA DIM THE DEMAND OUTLOOKBrent was trading around $64.5/bbl yesterday morning and slid to $63/bbl before weakening further at the start of the US trading session and eventually falling to as low as $61.2/bbl. It eventually settled at $62.15/bbl, down $2.71/bbl on the day. Yesterday's plunge was the most in nearly two weeks and was primarily driven by the delays to reopening the economy in Europe. One headline yesterday suggested that the UK (one of the leaders in terms of vaccination) could delay global travel beyond May 17 if infections continue to surge around the globe. Italy extended some travel restrictions, adding further pressure to the oil consumption recovery ahead of what was expected to be a rather busy holiday season. With four different vaccines now approved in the West, additional vaccines from China and Russia, and cases declining in some countries, people are eagerly hoping they will be permitted to travel this summer. Jet travel is picking up and cruise lines are experiencing strong interest in voyages, fueling upbeat oil demand growth expectations for 2H21.Europe is not the only region at risk. India yesterday reported a record rise in infections and become the second country (after the US) to post more than 100,000 new cases in a day. The country's daily infections have risen about 12-fold since hitting a multi-month low in early February, when most restrictions were eased. Maharashtra (the busiest and worst affected state) yesterday started shutting shopping malls, cinemas, bars, restaurants and places of worship. Authorities will also impose a complete lockdown at weekends, as experts are worried about a shortage of critical-care beds in hospitals, especially in smaller cities. In South America, Chile has closed its borders, with hospitalizations and daily infections at record highs.The main event today will be the meeting in Vienna where the signatories of the 2015 Iran nuclear deal will come together with the aim of resurrecting the pact, potentially clearing a path toward removing sanctions against Tehran's oil exports. We think a breakthrough at this meeting is unlikely given that Iran's deputy foreign minister this weekend ruled out direct talks with the US in Vienna, highlighting that Iran wants the US to lift all sanctions (rejecting a gradual process of easing them). Brent is trading near $62.5/bbl as we write as the Iranian nuclear talks are likely to face plenty of hurdles. Aside from these talks, the market will primarily be eying the EIA's monthly oil market report and the API's weekly update on US oil and refined product inventories. Brent has found support at $61.2/bbl, so we think it is likely to bounce to the $62.8-63.8/bbl range today, although that gain could prove short-lived. A break below $61.2/bbl could open the way to the $58.6-59.9/bbl LD CONSOLIDATING THIS MORNING AMID DECLINE IN US TREASURY YIELDS AND DOLLARGold had a mixed session yesterday, trading around the $1,730/oz mark amid a decline in the 10y US Treasury yield to 1.7%. EUR/USD firmed to 1.181. Yesterday's data focus was on the US ISM services PMI for March, which surged to a record high of 63.7. Rising vaccination numbers, warmer weather and the stimulus checks propelled growth in the service sector, which accounts for more than two thirds of US economic activity. IHS Markit's composite PMI for the US edged up to 59.7 in March from 59.1 in February. The accelerating recovery in the US is creating a headwind for gold and yesterday prevented it from consolidating above $1,730/oz.However, gold is trading near $1,735/oz as we write, though the positive momentum appears limited. US data has created fundamental pressure for gold in recent days and has been preventing it from consolidating above its one-week high of $1,735/oz. Global risk-on, with the S&P 500 setting a new high, and the crypto market cap passing $2 trln have helped gold to advance. With investors putting money into equities and crypto-currencies, the 10y Treasury yield and dollar are declining, which should support gold. Today, investors will turn their attention to the IMF's World Economic Outlook. We think bullion is poised to test $1,740/oz, though a break above appears PPER RISES AFTER CHILEAN BORDER CLOSURE, TIN CLIMBS AFTER RESTRICTIONS ON CHINA-MYANMAR BORDER; CHINA PREPARING A TAX REFORM THAT WILL AFFECT STEEL EXPORTS AND IMPORTSBase metals gapped higher at the LME open today after the long holiday weekend. While the LME was shut, the dollar slid 0.39% against global currencies. Copper is up 2.31% to $8,993/tonne, nickel 2.07% to $16,650/tonne, aluminum 0.76% to $2,243/tonne, zinc 1.46% to $2,815/tonne and tin 3.44% to $25,990/tonne.The rise in copper prices is largely due to the fact that Chile, which provides a quarter of the world's copper concentrate, has announced it would close its borders due to rising Covid cases in the country. According to the Chilean government, the quarantine should not affect the operations of manufacturing companies, though the number of personnel at ports will be reduced, which seems set to weigh on exports of raw materials. Given the expected copper deficit in 2Q21, this may further support copper prices.Tin has soared in price after China curbed travel on the border with Myanmar, the world's third-largest tin producer, citing Covid restrictions. In Myanmar, bloodshed has continued after a military coup on February 1, with the number of deaths exceeding 500. In addition, some unverified reports claim that China could be considering measures to protect an oil and gas pipeline in Myanmar. These events look set to negatively affect the supply of tin ore and should support tin quotes.Meanwhile, China is preparing to reform taxation on the export and import of steel products in order to boost imports of semi-finished products (slabs and steel billets) and reduce the export of finished products. The aim of the reform is to reduce steel production in the country and increase the use of imported semi-finished products in the production of rolled steel. China accounts for more than half of the world's steel production and consumption (54% of global production in 2020). If China replaces at least part of its steel consumption with imports, this will have a strong impact on the balance of the steel market outside of China. The most likely result, in our view, would be an increase in steel prices within countries that export steel products, such as Russia, which exports 30-60% of its production (the highest volumes of exports have come during periods of crisis). In addition, we note that while China plans to open the gates for semi-finished steel product imports, it will not import metallurgical coal from Australia, meaning that Chinese steelmakers will lose in terms of cost, as they will have to buy metallurgical coal at $200/tonne on the domestic market versus $120/tonne on the global market. China's tax reform will give an additional impetus to the steel industry outside of China and will also support prices for Australian metallurgical coal. Chinese steel market participants are awaiting details on tax reform any day