Commodities Daily - March 26, 2021

> Oil slides on India lockdowns, rebounds on Suez Canal news. This morning, Brent has been paring its losses from yesterday. It has risen to around $62.5/bbl on concerns that the large container ship that ran aground in the Suez Canal may end up closing off the vital shipping lane for weeks, squeezing supply. Today, investors will eye the Russian Urals crude oil loading program for the month of May, the weekly Baker Hughes rig update and the February US personal income and spending data. In our view, Brent is likely to break above resistance at $62.9/bbl and continue toward $64.5/bbl today amid what looks to be the longest ever closure of the Suez Canal due to an accident.> Gold near one-week low as investors weigh dollar rates outlook. This morning, gold is trading below the $1,730/oz mark. The main item on today's calendar is the February reading of the US core PCE index, which could show a bigger pickup in prices than the core CPI (up 0.1% m-o-m in February), as in January. We think gold is set to trade sideways in a $1,720-1,740/oz range today.> Copper and aluminum both posted losses yesterday, while iron ore and coking coal prices have started moving lower. Copper broke below the $8,800/tonne mark and finished yesterday down 1.26% at $8,775/tonne, while zinc fell 1.05% to $2,770/tonne. Nickel and aluminum finished near previous levels at a respective $16,153/tonne and $2,245/tonne. Spot iron ore (Fe 62% CFR Qingdao) prices are down for a third session in a row, having reached the $154/tonne mark, a 6.7% decline since the start of the month. The price of coking coal in China is down 4.5% to $218/tonne. This comes on the heels of nearly uninterrupted growth from June 2020 to February 2021.The decline in prices of both iron ore and coking coal in China may point to a slowdown in smelting in the country.OIL SLIDES ON INDIA LOCKDOWNS, REBOUNDS ON SUEZ CANAL NEWSAfter briefly trading near $64/bbl at the start of the Asian trading session yesterday, front-month Brent started to slide, eventually hitting $63/bbl. It oscillated in a $63-64/bbl range during the first half of the European session, but then tumbled to $62.5/bbl, and later to as low as $61/bbl. The deteriorating Covid situation in certain parts of the world has continued to dim the outlook for oil demand, and this has weighed on prices. Not long after countries in Europe began to reintroduce restrictions to curb the spread of the virus, authorities in western India ordered people indoors as infections hit the highest levels in five months. Covid cases have been surging in several Indian states since late February, following the near-full reopening of the economy. Reuters has reported that more than half of the new infections were reported in the western state of Maharashtra, home to the financial capital Mumbai, where millions have returned to work in offices and factories. This means that the demand impact could be substantial. We note that the IEA raised its forecast for Indian oil demand this year more than its forecasts for most other countries in its most recent monthly report, expecting an increase of 0.44 mln bpd to an average of 4.98 mln bpd. In the US, where the oil demand prospects remain very upbeat, the vaccine rollout has been faster than in all but a few countries, but health experts are concerned that spring break travel will spur an increase in Covid cases. Meanwhile, the dollar rallied to its highest levels in four months yesterday, which also provided headwinds for oil prices. However, later in the day prices recovered as the S&P 500 rose for the first time in three sessions, driven by a brightened outlook for vaccinations and President Biden's plan for "economic rejuvenation." Brent eventually settled at $61.95/bbl, $2.46/bbl below the previous settlement.This morning, Brent has been paring its losses from yesterday. It has risen to around $62.5/bbl on concerns that the large container ship that ran aground in the Suez Canal may end up closing off the vital shipping lane for weeks, squeezing supply. We note that even a lengthy closure (e.g. if cargo needs to be unloaded) is unlikely to drive prices significantly higher, since there are alternative routes and the crude stockpiles built up during the pandemic should provide a buffer.Today, investors will eye the Russian Urals crude oil loading program for the month of May, the weekly Baker Hughes rig update and the February US personal income and spending data. In our view, Brent is likely to break above resistance at $62.9/bbl and continue toward $64.5/bbl amid what looks to be the longest ever closure of the Suez Canal due to an accident.GOLD NEAR ONE-WEEK LOW AS INVESTORS WEIGH DOLLAR RATES OUTLOOKGold prices fell $8/oz from $1,735/oz to $1,727/oz during the first half of the day yesterday as EUR/USD declined to 1.178. Meanwhile, the 10y US Treasury yield moved horizontally and eventually settled near 1.63%. At first, the US economic data was gold-supportive, with the second estimate of core PCE inflation for 4Q20 at 1.5% versus 1.6% on the initial reading, while US 4Q20 GDP was revised to up 4.3% versus up 4.1%. This pushed gold prices above $1,740/oz. However, gold took a hit from weekly initial jobless claims, which dropped to a one-year low last week, and failed to consolidate near the $1,740/oz resistance level. An additional headwind, and the driver behind the rise in Treasury yields, was a US Treasury auction for 7y paper in which a yield premium of 2.8 bps to the secondary market was provided. US President Joe Biden set a new goal of administering 200 mln shots in his first 100 days in office, after the initial 100 mln target was hit ahead of schedule. This comes amid countries in Europe reintroducing Covid-related restrictions, which has raised doubts about the European economic recovery. Gold ended the day at $1,727/oz.This morning, gold is trading below the $1,730/oz mark. The main item on today's calendar is the February reading of the US core PCE index, which could show a bigger pickup in prices than the core CPI (up 0.1% m-o-m in February), as in January. Such a result could push gold down to the support level of $1,720/oz, where we would expect it to gain a foothold. We think prices are set to trade sideways in a $1,720-1,740/oz range today.COPPER AND ALUMINUM BOTH POSTED LOSSES YESTERDAY, WHILE IRON ORE AND COKING COAL PRICES HAVE STARTED MOVING LOWERCopper broke below the $8,800/tonne mark and finished yesterday down 1.26% at $8,775/tonne, while zinc fell 1.05% to $2,770/tonne. Nickel and aluminum finished near previous levels at a respective $16,153/tonne and $2,245/tonne.Prices of copper concentrate and bauxite (the raw material for aluminum) have been steadily rising since the beginning of the year. However, prices on nickel ore (1.5% grade Philippine ore CIF China) have started declining and are down 9.9% since March 16, despite ongoing restrictions on deliveries from Indonesia. The lower nickel ore prices pave the way for a further drop in nickel prices.Spot iron ore (Fe 62% CFR Qingdao) prices are down for a third session in a row, having reached the $154/tonne mark, a 6.7% decline since the start of the month. The market attributes the move lower to restrictions on steel production in Tangshan, the country's major steel hub, where 13.5% of the country's steel is produced, and also to growing iron ore stockpiles in China, which are up 3.4% since the beginning of March. The price of coking coal in China is down 4.5% to $218/tonne. This comes on the heels of nearly uninterrupted growth from June 2020 to February 2021. The decline in prices of both iron ore and coking coal in China may point to a slowdown in smelting in the country.